Federal Deposit Ins. Corp. v. Wright

• Decision Date: 25 April 1988
• Docket Number: No. 85 C 3252.,85 C 3252.
• Citation: 684 F. Supp. 536
• Court: U.S. District Court — Northern District of Illinois
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Union National Bank of Chicago, Plaintiff, v. Lillian WRIGHT; Beverly Bank, as Successor Trustee to Union National Bank of Chicago, under Trust Agreement known as Trust No. 2502; the 400 Condominium Association, a not-for-profit corporation of Illinois; First National Bank of Blue Island, as Trustee under Trust Agreement dated March 20, 1984, and known as Trust No. 84011; G.C. Services Corporation; Dorothy Montgomery; Unknown Owners and Non-Record Claimants, Defendants.

684 F. Supp. 536

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Union National Bank of Chicago, Plaintiff, v. Lillian WRIGHT; Beverly Bank, as Successor Trustee to Union National Bank of Chicago, under Trust Agreement known as Trust No. 2502; the 400 Condominium Association, a not-for-profit corporation of Illinois; First National Bank of Blue Island, as Trustee under Trust Agreement dated March 20, 1984, and known as Trust No. 84011; G.C. Services Corporation; Dorothy Montgomery; Unknown Owners and Non-Record Claimants, Defendants.

No. 85 C 3252.

United States District Court, N.D. Illinois, E.D.

April 25, 1988.

Paul Richter, David L. Hazan, DeHaan & Richter, Chicago, Ill., for plaintiff.

Morris Goldman, Pierce & Goldman, Emory Andrew Tate, Robert L. Schroeder, Tate & Associates, Ltd., Chicago, for defendants.

Lillian Wright, pro se.

MEMORANDUM OPINION

BRIAN BARNETT DUFF, District Judge.

The Federal Deposit Insurance Corporation ("the FDIC"), as receiver of Union National Bank of Chicago ("the Bank"), brought this action against defendant Lillian Wright ("Defendant"), among others, seeking to foreclose an Assignment of Beneficial Interest ("the Assignment")—Count I—and to recover monies due and owing on four promissory notes—counts II through V—and a guaranty—Count VII—given by Defendant to the Bank before the Bank went into receivership. The FDIC has moved for summary judgment against Defendant, asserting that there are no genuine issues of material fact and that it is entitled to judgment on each count as a matter of law.

Defendant contests the summary judgment motion, arguing that there are genuine issues of material fact with respect to each claim against her. She supports her argument with an affidavit in which she maintains as follows: That the note secured by the Assignment was cancelled and her obligations under it extended by an unsecured promissory note; that the promissory notes in Counts II and III, and the guaranty in Count VII were executed solely for the purposes of establishing lines of credit and are void for lack of consideration; and that the note in Count V has been paid. She neither provides nor points to any evidence whatever to contest her liability on the note in Count IV.

DISCUSSION

Count I

The FDIC claims that it is entitled to summary judgment on Count I because: (1) the Assignment secured a $30,000 note executed by Defendant on December 23, 1980; (2) the Assignment and the note were consolidated, on October 30, 1982, into the $75,200 note set forth in Count II; and (3) Defendant, as a matter of law, has defaulted on that note. As explained below, this court is withholding its ruling on the summary judgment motion for Count II, pending further briefing by the parties. As a result, the FDIC cannot, at least for now, meet its burden on factor (3).

This court will not withhold its ruling on this count pending resolution of the motion for Count II, however, because the FDIC has also failed to establish the absence of a genuine issue with regard to factor (2): Even a cursory examination of the $75,200 note reveals that it is marked "unsecured."

The FDIC does not even mention this oddity in its argument that Defendant's alleged default on the $75,200 note entitled it to foreclose on the Assignment. Instead, it merely points to the marking on the $30,000 note indicating that the note was "cancelled" and "extended by renewal" on October 30, 1982. Whether it was or was not, and whether if it was, the "renewal" applies to the Assignment as well to the underlying debt, has not been addressed by either party, and cannot be resolved by this court at the summary judgment stage. Accordingly, the motion for summary judgment on Count I will be denied.

Counts II, III and VII

The FDIC does not dispute that Defendant's affidavit establishes a genuine issue of fact as to whether consideration was paid for the notes set forth in Counts II and III and underlying the guaranty set forth in Count VII. Instead, the FDIC claims that the so-called D'Oench, Duhme doctrine makes this factual issue immaterial to Defendant's liability, and thus makes summary judgment appropriate here.

The D'Oench, Duhme doctrine, named for the Supreme Court case out of which it arose, see D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 82 L.Ed. 956 (1942), has evolved over the years to preclude a host of different defenses against the FDIC when the FDIC is suing on notes and other assets it has acquired from insolvent banks. Thus, in such cases:

To resist summary judgment ... the defendants need do more than simply raise a genuine fact issue with respect to their defenses; they also must show, by summary judgment standards, that their defenses may fall outside the scope of D'Oench....

Federal Deposit Insurance Corp. v. Powers, 576 F.Supp. 1167, 1169 (N.D.Ill.1983), aff'd, 753 F.2d 1076 (7th Cir.1984) (emphasis added). The FDIC claims that the defense of lack of consideration falls squarely within the doctrine.

Whether it does or does not is far from clear. The doctrine is most often applied, and has been (at least partially) codified, see 12 U.S.C. 1823(e), to bar a maker from raising as a defense against the FDIC the existence of "separate, secret, unrecorded agreements" between himself and the bank altering the terms of a facially valid note. Riverside Park Realty v. FDIC, 465 F.Supp. 305, 313 (M.D.Tenn.1978). Thus, where "a maker's defenses are based on a collateral agreement, the defenses must fail." Federal Deposit Insurance Corp. v. MM & S Partners, 626 F.Supp. 681, 684 (N.D.Ill.1985) (emphasis added). However, "where the document the FDIC seeks to enforce is one ... which facially manifests bilateral obligations and serves as the basis of the maker's defense," the doctrine does not apply. Howell v. Continental Credit Corporation, 655 F.2d 743 (7th Cir. 1981) (emphasis in original).

The FDIC's lack of consideration defense falls in a twilight zone between these two situations. On the one hand, the notes here are "facially valid notes ... imposing a unilateral obligation on the maker to pay a sum certain amount to the bank." Id. at 744. On the other hand, they would be subject to the defense of lack of consideration against non-FDIC plaintiffs irrespective of the existence of any collateral agreement between the bank and the maker. See Federal Deposit Insurance Corp. v. Hatmaker, 756 F.2d 34, 38 (6th Cir. 1985).¹

The few courts which have addressed the applicability of D'Oench, Duhme to the failure of consideration defense have chartered a middle course. Rather than applying the doctrine to bar the defense entirely, they have used it, in varying ways, to limit a maker's ability to rely on a failure to consideration defense. See id. (D'Oench, Duhme estoppel only applies to failure of consideration defense if defendant "lent himself to a deceptive scheme or arrangement giving rise to his defense"); Federal Deposit Insurance Corp. v. Leach, 772 F.2d 1262 (6th Cir.1985) (D'Oench, Duhme bars assertion of lack of consideration defense against FDIC when FDIC acquires asset for value, in good faith, and without actual knowledge of the failure of consideration); cf. Federal Deposit Insurance Corp. v. MM & S Partners, 626 F.Supp. at 687 (policy underlying D'Oench Duhme doctrine supports barring maker from raising any defense based on FDIC's representations or conduct outside of the note itself).

In seeking to properly apply the doctrine to the instant case, this court lacks the benefit of opposing views. This is so because FDIC, somewhat improperly, first raised the D'Oench, Duhme doctrine in its reply brief, and Defendant did not seek leave to file a surreply.

Still, were this the only difficult issue raised by the FDIC's summary judgment motion, this court might well venture to resolve it without Defendant's participation; Defendant, through not bound to do so, had plenty of time in which to surreply.

Unfortunately, even were this court to resolve this difficult issue, two troubling, and unbriefed, issues would remain.

First, does Congress' codification of the doctrine in 28 U.S.C. 1823(e) preempt the common law rule set forth in D'Oench, Duhme? This question was raised, but left unresolved, by another Judge in this district, see Federal Deposit Insurance Corp. v. Powers, 576 F.Supp. 1167 (N.D.Ill. 1983) (Getzendanner, J.), aff'd, 753 F.2d 1076 (7th Cir.1984). And although the Seventh Circuit (and many others) have for many years applied both the statute and the doctrine in relevant cases, see, e.g., Howell v. Continental Credit Corporation, 655 F.2d 743, 744 (7th Cir.1981), the Court recently intimated that the existence of the statute might well preclude reliance on the alternative, judge-made doctrine. See Federal Deposit Insurance Co. v. O'Neil, 809 F.2d 350 (7th Cir.1987) (straining to bring case within statute although it easily would have fit within the common law rule).

Second, even if the D'Oench, Duhme doctrine does survive § 1823(e), can the FDIC rely on the doctrine when it brings an action, not as an acquirer of an insolvent bank's assets, but instead as a bank's receiver? Although a number of courts have permitted it to do so without addressing the issue, see, e.g., Federal Deposit Insurance Corp. v. Castle, 781 F.2d 1101 (5th Cir.1986); Federal Deposit Insurance Corp. v. Van Laanen, 769 F.2d 666 (10th Cir.1985), there are good reasons to question whether their having done so provides an implicit approval of the FDIC's actions.

Most importantly, these cases employed both § 1823(e) and the common law doctrine in their analysis, despite the fact that the statute clearly...