Dimuzio v. Resolution Trust Corp.

• Decision Date: 20 October 1995
• Docket Number: No. 94-,No. 95-5066,94-,95-5066
• Citation: 68 F.3d 777
• Parties: Riccardo DIMUZIO; Ruth Dimuzio, on behalf of themselves and all others similarly situated v. RESOLUTION TRUST CORPORATION In Its Capacity as Receiver of Carteret Savings Bank, F.A. and In Its Capacity as Conservator of Carteret Federal Savings Bank (D.C. Civilcv-01559). Riccardo DIMUZIO; Ruth Dimuzio v. RESOLUTION TRUST CORPORATION as Conservator of Carteret Federal Savings Bank and Carteret Savings Bank (D.C. Civilcv-04800). Kazuyuki KAMEDA; Taneko Kameda; Esmie J. Wint, on behalf of themselves and all others similarly situated v. RESOLUTION TRUST CORPORATION as Conservator of Carteret Federal Savings Bank and Carteret Savings Bank (D.C. Civilcv-04831). Appeal of Riccardo DIMUZIO, Ruth Dimuzio, Kazuyuki Kameda, Taneko Kameda and Esmie Wint, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 777

68 F.3d 777

Riccardo DIMUZIO; Ruth Dimuzio, on behalf of themselves and all others similarly situated v. RESOLUTION TRUST CORPORATION In Its Capacity as Receiver of

Carteret Savings Bank, F.A. and In Its Capacity as

Conservator of Carteret Federal Savings

Bank (D.C. Civil No. 94-cv-01559).

Riccardo DIMUZIO; Ruth Dimuzio v. RESOLUTION TRUST CORPORATION as Conservator of Carteret

Federal Savings Bank and Carteret Savings Bank

(D.C. Civil No. 94-cv-04800).

Kazuyuki KAMEDA; Taneko Kameda; Esmie J. Wint, on behalf

of themselves and all others similarly situated v. RESOLUTION TRUST CORPORATION as Conservator of Carteret

Federal Savings Bank and Carteret Savings Bank

(D.C. Civil No. 94-cv-04831).

Appeal of Riccardo DIMUZIO, Ruth Dimuzio, Kazuyuki Kameda,

Taneko Kameda and Esmie Wint, Appellants.

No. 95-5066.

United States Court of Appeals, Third Circuit.

Argued Aug. 25, 1995.

Decided Oct. 20, 1995.

Douglas S. Lyons (argued), Lyons & Farrar, Coral Gables, FL, for Appellants.

John H. Denton, Connell, Foley & Geiser, Roseland, NJ, Jeffrey Ehrlich (argued), Resolution Trust Corp., Legal Div., Washington, DC, for Appellee.

Before: GREENBERG, COWEN and SAROKIN, Circuit Judges.

OPINION OF THE COURT

COWEN, Circuit Judge.

This breach of contract and fraud action is brought by real estate owners against the Resolution Trust Corporation ("RTC") in its capacities as receiver for Carteret Savings Bank and as conservator of Carteret Federal Savings Bank. The district court granted the RTC's motion to dismiss brought pursuant to Fed.R.Civ.P. 12(b)(6). Because we find that 12 U.S.C. Sec. 1823(e) bars plaintiffs-appellants' cause of action against the RTC, we will affirm the district court's order of dismissal.

I.

The following facts are alleged in plaintiffs' complaints. The plaintiffs are the victims of a widespread fraud perpetrated by General Development Corporation ("GDC"). GDC was one of the largest land development companies in Florida. It primarily sold real estate to out-of-state residents using monthly installment contracts. GDC's advertisements touted its low down payments and small monthly payments as making the "Florida dream" widely affordable.

After purchasing a GDC lot, GDC customers were encouraged to use the "equity" they had built up in their property as a down payment on a GDC house or condominium. They were given, among other inducements, roast beef suppers at the local Holiday Inn, flyers portraying the joys of GDC home ownership, and personal attention by GDC sales representatives. During these sessions, prospective purchasers were told that, after taxes and rental income, the cost of owning a GDC home would be only slightly more than the payments they were making for their vacant lots.

Interested pre-qualified buyers were invited to travel to Florida to visit a GDC community and to choose a home from among numerous GDC models. The cost of the trip ($299.00) could be applied against the sales price if they purchased a house or condominium. GDC representatives accompanied prospective purchasers from the time they departed for Florida until the time they returned home. While in Florida, they stayed at GDC-selected hotels, dined with GDC personnel, and traveled with GDC sales representatives to GDC communities. The GDC contract to purchase was signed during the trip. Under no circumstances were the purchasers allowed to extend their Florida stay or view other real estate development communities.

In addition to these hard-sell sales tactics, the GDC customers were persuaded to apply for a mortgage from GDC's "designated lender," GDV Financial Corporation ("GDV"). GDV, a wholly owned subsidiary of GDC, was created to finance the purchase of GDC houses, and to sell and service the mortgages. As part of the loan process, GDV had the GDC houses appraised. These appraisals failed to comply with industry guidelines. ¹ Instead, the homes were appraised in conformance with GDC's inflated selling price. The houses were highly over-valued, and the mortgages were for amounts far greater than the market value of the real property that secured them. The purchasers did not seek independent appraisals, nor did they retain legal representation in purchasing the real estate.

GDV entered into an arrangement with several institutional investors to sell the mortgages. One of those investors, Carteret Savings Bank ("Carteret"), a federally insured savings & loan, bought the mortgages despite the non-conforming appraisals. Carteret allegedly was aware of the non-conforming appraisals, and purchased the mortgage loans with certain credit enhancements: it required GDV to obligate itself to repurchase the loans in case of a default, and further required that GDV's performance be secured by letters of credit and cash deposits.

On December 4, 1992, the Office of Thrift Supervision ordered Carteret closed and appointed the RTC as its receiver. On that same date, the assets of the former Carteret were transferred to Carteret Federal Savings Bank, a newly chartered federal savings association, and the RTC was appointed conservator of the new bank.

Following an investigation, GDC as well as its directors were indicted and convicted of criminal fraud and conspiracy to commit fraud. Both GDC and GDV filed for protection under Chapter 11 of the Bankruptcy Code. GDC emerged from bankruptcy as Atlantic Gulf Communities Corporation and GDV was dissolved.

GDC customers Riccardo and Ruth Dimuzio filed an action in the United States District Court for the District of Columbia against the RTC as conservator of Carteret Federal Savings Bank and Carteret Savings Bank. Kazuyuki Kameda, Taneko Kameda and Esmie Wint filed a class action against the RTC on behalf of those persons who obtained mortgage financing from GDV in the United States District Court for the District of Columbia. These actions were transferred to the United States District Court for the District of New Jersey, and consolidated by order of the district court on October 19, 1994.

Each complaint alleged, inter alia, breach of fiduciary duty, breach of contract, fraudulent concealment, mortgage fraud, and unfair and deceptive trade practices. Plaintiffs allege that GDV knew and failed to disclose that: (1) the loan arranged would result in the purchasers losing their cash equity in the lot they traded in; (2) the GDV appraisal of the housing unit was inaccurate and did not conform to industry standards; (3) no lender applying industry standards would accept the GDV appraisal or make a purchase money loan in the amount requested; and (4) GDV, because of its GDC-controlled status, had a conflict of interest and did not intend to negotiate a conventional arms-length loan as requested by the purchasers in their loan applications. Plaintiffs further allege that Carteret knew or should have known of GDC's and GDV's concealment of material facts upon which the notes were secured.

The district court dismissed the complaints pursuant to Fed.R.Civ.P. 12(b)(6), holding that plaintiffs' causes of action were precluded by Adams v. Madison Realty & Development, Inc., 937 F.2d 845 (3d Cir.1991) and 12 U.S.C. Sec. 1823(e). ² This appeal followed.

II.

The district court had jurisdiction over this case under 12 U.S.C. Sec. 1441a(l )(1) and 28 U.S.C. Sec. 1331. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. This is an appeal from the district court's dismissal of the plaintiffs' complaints pursuant to Fed.R.Civ.P. 12(b)(6). Accordingly, our review is plenary. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993).

III.

The Federal Deposit Insurance Act of 1950 includes a provision, 12 U.S.C. Sec. 1823(e), which is generally thought to codify the result reached in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). See Adams v. Madison Realty & Development, Inc., 937 F.2d 845, 852 (3d Cir.1991) (citing FDIC v. Blue Rock Shopping Center, Inc., 766 F.2d 744, 745 (3d Cir.1985)). Section 1823(e) provides:

No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it ... either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(1) is in writing,

(2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(4) has been, continuously, from the time of its execution, an official record of the depository institution.

One purpose of this section is to permit federal and state bank examiners accurately and quickly to assess the financial condition of a federally insured depository institution by examining its books and records. The statute accomplishes this objective, in part, by limiting the enforceability of "agreements" affecting the institution's assets held by the receiver to those that are properly recorded in the books and records of the institution. See Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987).

A second purpose of Sec. 1823(e), implicit in its requirement that the agreement be executed "contemporaneously" with the acquisition of the asset and approved by officially recorded action of the bank's board or loan committee, is to "ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure." Langley, 484 U.S. at 91, 108 S.Ct. at 401.

The Supreme Court has construed the word "agreement" broadly in the context of Sec. 1823(e). In Langley, the plaintiffs purchased real estate from a federally insured bank and were...