56 F.3d 1394 (D.C. Cir. 1995), 93-5395, Freeman v. F.D.I.C.

Docket Nº:93-5395.
Citation:56 F.3d 1394
Party Name:Clyde C. FREEMAN and Nancy F. Freeman, Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Madison National Bank, Appellee.
Case Date:June 13, 1995
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

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56 F.3d 1394 (D.C. Cir. 1995)

Clyde C. FREEMAN and Nancy F. Freeman, Appellants,



Madison National Bank, Appellee.

No. 93-5395.

United States Court of Appeals, District of Columbia Circuit

June 13, 1995

Argued Feb. 3, 1995.

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Columbia (No. 93cv02142).

Harvey A. Levin, Washington, DC, argued the cause and filed the briefs for appellants.

Kathryn R. Norcross, Counsel, F.D.I.C., Washington, DC, argued the cause for appellee. With her on the brief was Richard J. Osterman, Jr., Sr. Counsel, F.D.I.C., Bethesda, MD. Michelle H. Phillips, Washington, DC, entered an appearance.

Before WALD, SILBERMAN and TATEL, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

District of Columbia residents Clyde C. Freeman and Nancy F. Freeman brought suit seeking injunctive and declaratory relief to prohibit the Federal Deposit Insurance Corporation ("FDIC" or "Corporation"), as receiver for Madison National Bank ("Madison"), from foreclosing on their home. The Freemans also sought rescission of their underlying loan agreement with Madison, as well as compensatory damages for conversion, wrongful foreclosure, and breach of contract. The United States District Court for the District of Columbia entered summary judgment for the FDIC on the merits, and dismissed the Freemans' claims with prejudice. The Freemans now appeal. Because 12 U.S.C. Sec. 1821(j) barred the district court from granting the equitable relief sought by the Freemans, and because 12 U.S.C. Sec. 1821(d) deprived the district court of jurisdiction to hear any of the Freemans' claims, we affirm the district court's dismissal with prejudice without reaching the merits of their claims.


In January 1985, Robinson Broadcasting Corporation bought radio station WANT-AM in Henrico County, Virginia, financed by a $600,000 loan from Madison National Bank. The loan was secured by a deed of trust on the 6.2 acres of real estate on which the radio tower was located. The Freemans, together with other stockholders in Robinson Broadcasting ("Robinson"), signed personal guarantees on the $600,000 note.

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WANT-AM quickly encountered financial difficulties, and Robinson was unable to meet its repayment obligations. In early 1987, the Freemans sought and received Madison's consent to take over ownership and management of WANT-AM, and in June 1987, the Freemans became sole stockholders of Robinson. The station's financial problems continued, however, and its income was insufficient to service the debt. In January 1989, Madison and the Freemans agreed to a debt restructuring in which Madison would sell its position in the $600,000 note (which by this time had a $559,000 balance) to the Freemans, and thereupon make a new $740,000 loan to the Freemans, secured by a deed of trust on the Freemans' principal residence in the District of Columbia. The proceeds of the new loan would go to purchase the $600,000 note, retire the $75,000 existing debt on the residence, and establish an interest reserve of $106,000. Madison also agreed to lend the Freemans an additional $150,000, secured by a deed of trust on an office building they owned at 5223 Georgia Avenue, N.W. in the District of Columbia, with the loan proceeds to retire existing debt on the Georgia Avenue property and to pay off two other existing loans. Terms of the agreement were outlined in two letters of commitment from Madison to the Freemans, dated January 18, 1989.

One of the letters of commitment expressly provided that after Madison endorsed the $600,000 note over to the Freemans, they would re-endorse the note back to Madison. On February 10, 1989, the transaction closed. The Freemans did in fact re-endorse the $600,000 note back to Madison as provided in the commitment letter, and contemporaneously executed a separate document stating that they were endorsing the note to Madison as "additional collateral" on the $740,000 loan.

The Freemans claim they agreed to the debt restructuring with the intention of collecting on the original stockholders' personal guarantees on the $600,000 note, and using the proceeds to repay Madison. But under the transaction as it actually transpired, they were unable to do so: Madison had possession of the note, and refused either to surrender possession or to take any action itself to collect on the guarantees. In November 1990, the Freemans defaulted on both the $740,000 note secured by their home and the $150,000 note secured by their business property. Madison demanded accelerated payment, and stated that it would begin foreclosure proceedings if payment was not promptly received.

In May 1991, Madison failed. As receiver, the FDIC took possession of the $600,000 note and deed of trust on the Henrico property, as well as the $740,000 note and deed of trust on the Freemans' home and the $150,000 note and deed of trust on their Georgia Avenue office building. Like Madison, the FDIC refused to surrender possession of the $600,000 note, and declined to collect on the original stockholders' guarantees. On April 8, 1992, the FDIC demanded payment on the $740,000 and $150,000 notes, stating that it "intend[ed] to utilize all remedies available," and that both the Freemans' residence and the Henrico County property "may be foreclosed upon" if full payment were not received within twenty days. The Freemans were unable to pay the amount due. On June 1, 1993, the FDIC initiated foreclosure proceedings on the Henrico property. In August, 1993, the FDIC initiated nonjudicial foreclosure proceedings on the Freemans' residence and office building.

On August 18, 1993, the Freemans brought suit in the Superior Court of the District of Columbia, seeking to enjoin the foreclosure on their residence, determine the rights of the parties with respect to the three notes, rescind the February 10, 1989 transaction, and recoup compensatory damages for Madison's alleged conversion, wrongful foreclosure, and breach of the debt restructuring agreement. The Freemans' principal allegation was that Madison had defrauded them by first agreeing to sell them its full rights in the $600,000 note, and then at the last minute inducing them to reassign the note to the bank. They claimed that this changed the essential nature of the deal without their knowledge or assent, and that therefore the entire transaction, including the $740,000 loan agreement and deed of trust on their home, was void ab initio on grounds of fraud

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in the factum. The Freemans also alleged that by failing to turn over the $600,000 note and to collect from its guarantors, Madison had breached its obligations under the terms of their "bilateral purchase-and-sale" agreement. They further contended that by retaining possession of the $600,000 note, Madison and the FDIC had elected a remedy under the Uniform Commercial Code, taking the $600,000 note in full satisfaction of the Freemans' debt. Finally, they argued that by refusing to collect from the guarantors of the $600,000 note, Madison and the FDIC had impaired the value of the collateral, releasing the Freemans from their obligation to repay the $740,000 loan to the extent of the impairment.

On October 15, 1993, the FDIC removed the case to the United States District Court for the District of Columbia. After initially issuing a temporary restraining order ("TRO"), the district court on December 1, 1994, dissolved the TRO and ruled in favor of the FDIC on its cross-motion for summary judgment on the merits, holding that the FDIC holds the $600,000 note only as collateral on the $740,000 loan. The district court declined to reach two defenses asserted by the FDIC: first, that 12 U.S.C. Sec. 1821(j) bars the equitable remedies sought by the Freemans, and second that 12 U.S.C. Sec. 1821(d) deprives the court of jurisdiction to hear any of their claims. The Freemans appeal from the district court's ruling.


  1. Bar Against Judicial "Restraints": 12 U.S.C. Sec. 1821(j)

    The FDIC asserted a defense below based on section 212(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, codified at 12 U.S.C. Sec. 1821(j), which states:

    Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of the powers or functions of the Corporation as a conservator or receiver.

    12 U.S.C. Sec. 1821(j).

    The FDIC argues that this provision broadly deprives any court of power to take any action that has the effect of restraining the FDIC, acting in its capacity as receiver, from conducting a nonjudicial foreclosure sale of assets acquired from a failed bank, whether the "restraint" is by injunction, rescission of a contract, or declaratory judgment. We said in National Trust for Historic Preservation v. FDIC, 21 F.3d 469 (D.C.Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 683, 130 L.Ed.2d 615 (1994), that "Sec. 1821(j) does indeed bar courts from restraining or affecting the exercise of powers or functions of the FDIC as a conservator or a receiver ... unless it has acted or proposed to act beyond, or contrary to, its statutorily prescribed, constitutionally permitted, powers or functions." Id. at 472 (Wald, J., concurring) (internal quotation and citation omitted). Accord, Lloyd v. FDIC, 22 F.3d 335, 336 (1st Cir.1994); Ward v. Resolution Trust Corp., 996 F.2d 99, 103 (5th Cir.1993); Gross v. Bell Savings Bank, 974 F.2d 403, 407 (3d Cir.1992). Although this limitation on courts' power to grant equitable relief may...

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