Public Loan Co., Inc. v. Federal Deposit Ins. Corp.

• Decision Date: 07 October 1986
• Docket Number: No. 86-5047,86-5047
• Parties: PUBLIC LOAN COMPANY, INC., a Corporation of the State of New York; Preferred Equities Corporation, a Corporation of the State of Nevada; Leonard Rosen; and American Funding Limited, a Limited Partnership of the State of New Jersey, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant and Third Party Plaintiff, v. EQUITY 1 NATIONAL MARKETING, INC., a body corporate of the State of Florida, Third Party Defendant. Appeal of PUBLIC LOAN COMPANY, INC., Preferred Equities Corporation, Leonard Rosen, and American Funding Limited.
• Court: U.S. Court of Appeals — Third Circuit

Page 82

803 F.2d 82

PUBLIC LOAN COMPANY, INC., a Corporation of the State of New

York; Preferred Equities Corporation, a Corporation of the

State of Nevada; Leonard Rosen; and American Funding

Limited, a Limited Partnership of the State of New Jersey, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant and Third

Party Plaintiff,

v.

EQUITY 1 NATIONAL MARKETING, INC., a body corporate of the

State of Florida, Third Party Defendant.

Appeal of PUBLIC LOAN COMPANY, INC., Preferred Equities

Corporation, Leonard Rosen, and American Funding Limited.

No. 86-5047.

United States Court of Appeals, Third Circuit.

Argued Sept. 10, 1986.

Decided Oct. 7, 1986.

Harvey I. Marcus, Keith O. Evans (argued), Marcus and Evans, Lodi, N.J., for appellants.

Roger J. Foss (argued), Cassidy, Despo, Foss & San Filippo, Red Bank, N.J., Lawrence F. Bates, Jane R. Rossnowski, Ira H. Parker, Federal Deposit Ins. Corp., Washington, D.C., for FDIC.

Before ALDISERT, Chief Judge, and HIGGINBOTHAM and HUNTER, Circuit Judges.

OPINION OF THE COURT

ALDISERT, Chief Judge.

This appeal from summary judgment entered in favor of Federal Deposit Insurance Corporation (FDIC) requires us to decide whether a provision of the Federal Deposit Insurance Act, 12 U.S.C. Sec. 1823(e), ¹ bars the defense of an oral accord and satisfaction in a claim on a promissory note and whether the maker and guarantors of a second promissory note properly raised a material question of fact concerning failure of consideration. We must also decide whether the district court abused its discretion in discovery rulings. We find that the district court neither erred in its application of Sec. 1823(e) nor abused its discretion in its discovery ruling and that the record failed to disclose a material question of fact as to consideration for the second promissory note. We will therefore affirm.

I.

The historical facts before the district court were somewhat complicated and extended. See Public Loan Co. v. Federal Deposit Insurance Corp., (D.N.J. No. 82-3606 June 7, 1985), reprinted in app. at 66a-86a. For review purposes we will summarize only the adjudicative facts. The litigation centers on the liability of makers and guarantors of two promissory notes. One note in the amount of $1.5 million was executed and delivered by S.N.L. Realty Company to the Metropolitan Bank and Trust Company in August 1980. The second, also payable to Metropolitan, was executed and delivered by Equity 1 National Marketing Company in the amount of $250,000 in August 1981. In February 1982 Metropolitan became insolvent and the FDIC was appointed its liquidator. In its capacity as liquidator, FDIC sold, assigned, and transferred to itself in its corporate capacity the two notes that are the subject of this appeal.

The 1980 S.N.L. Realty note was secured by five separate letters of credit which equalled the total amount of the note. Public Loan Company obtained one letter for $750,000 from the Equitable Trust Company of Baltimore. Two appellants here, Preferred Equities Corporation and Leonard Rosen, served as guarantors of Public Loan's letter of credit. This letter of credit is the only aspect of the 1980 note involved in this appeal. The issue on appeal regarding Equity 1's 1981 note centers on the liability of its guarantors, the four appellants here who were plaintiffs below: Public Loan, Preferred Equities, Leonard Rosen, and American Funding, Ltd. The issues are joined from an attempt by the makers of the notes to obtain a judicial declaration against the FDIC of no liability and counterclaims by the FDIC asserting the validity of the obligation.

A.

On July 29, 1982, the FDIC presented a sight draft drawn on Public Loan's letter of credit to the Equitable Trust Company for $132,669.23, the amount of interest due from S.N.L. to Metropolitan on the 1980 note. In a previous suit, Public Loan sued Equitable and the FDIC in the United States District Court for the District of Maryland seeking injunctive and declaratory relief--a restraining order to prohibit Equitable from honoring the FDIC's sight draft; declaring the letter of credit as having been paid, satisfied, and retired; restraining the FDIC from making a demand against Equitable on the letter of credit; and for other relief. The Maryland district court held against Public Loan and permitted the FDIC to collect the $132,669.23 from Equitable. Public Loan was then obligated to reimburse Equitable in the same amount.

B.

As to the 1981 note, Equity 1 drew out the full $250,000 advanced by Metropolitan and then defaulted on the note it executed for security. The terms of the note provided that payment was due, with interest, 90 days after the date of each draw, and that interest would accrue at 1% over Metropolitan's prime rate. After the institution of this suit, the FDIC filed a third party complaint against Equity 1 seeking repayment on the note. The FDIC also counterclaimed against plaintiffs as guarantors of the Equity 1 note.

C.

On October 27, 1982, appellants filed a six count complaint in the district court of New Jersey against the FDIC. Counts I through IV were identical claims by the four guarantors of the 1981 note contending that any guarantee they made on the obligation of Equity 1 to Metropolitan was either nonexistent, made without consideration, made without proper authority, fraudulently induced, or otherwise defective, see app. at 3a, and further contending that Metropolitan defrauded the guarantors by agreeing and then failing to provide certain financial accommodations to Equity 1, causing Equity 1 to fail in business. Id. at 3a-4a.

Count I of the complaint asserted jurisdiction under the Federal Tort Claims Act, 28 U.S.C. Secs. 1346(b), 2671, and under the Federal Deposit Insurance Act (FDIA), 12 U.S.C. Sec. 1823, which authorizes the FDIC to act as a liquidator. The FDIC moved to dismiss the complaint and for summary judgment, arguing that the complaint should be dismissed because appellants had not complied with the notice provision of the FTCA and that summary judgment should be granted in its favor on both appellants' complaint and the FDIC's counterclaim because plaintiffs' defenses to their Equity 1 guarantees were invalid under Sec. 1823(e) of the FDIA. The district court agreed, determining that "the claims asserted in Counts I through IV sound in tort, not in contract," and dismissed those claims because appellants had not complied with the notice provision of the FTCA. App. at 79a. The court held that it would grant summary judgment for the FDIC on the complaint's alternative jurisdictional ground, the FDIA, because under 12 U.S.C. Sec. 1823(e), an agreement cannot be enforced against the FDIC when the agreement does not appear in the failed bank's records.

The court also granted the FDIC summary judgment on Count VI, Public Loan's claim for a judicial declaration preventing the FDIC from collecting on the letter of credit. It determined that Sec. 1823(e) prevented Public Loan from enforcing an oral accord and satisfaction agreement against the FDIC. App. at 82a-85a. Finally, the court granted summary judgment for the FDIC on its counterclaim to enforce the guarantees signed by the plaintiffs on the Equity 1 loan. Id. at 85a. On January 9, 1986, the district court dismissed the action because the parties had settled the remaining count of the complaint. The plaintiffs thereafter appealed the court's earlier rulings on dismissal, summary judgment, and discovery. We have jurisdiction under 28 U.S.C. Sec. 1291. The appeal was timely filed under Rule 4(a) of the Federal Rules of Appellate Procedure.

II.

With respect to the letter of credit posted to guarantee the 1980 promissory note, appellants apparently contend that the FDIC was not entitled to collect the interest payment from the Equitable Trust because the full amount of the letter of credit, or $750,000, had been previously paid to the Bank by Public Loan. App. at 32a-33a. Accordingly, Public Loan and its guarantors assert the defense of oral accord and satisfaction. They argue that all the other letters of credit had been returned upon payment but, for some reason, the letter of credit posted by Public Loan and guaranteed by Preferred Equities and Leonard Rosen was not returned.

The district court dismissed this count as barred by Sec. 1823(e) of the FDIA. Because the dismissal was based on the application of a legal precept, review is plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir.1981). We are satisfied that Sec. 1823(e) of the FDIA statute sustains the district court's rejection of the defense of an oral accord and satisfaction. The statute specifically provides that "[n]o agreement which tends to diminish or defeat the right, title or interest of the Corporation [FDIC] in any asset acquired by it under this section, ... shall be valid against the Corporation unless such agreement (1) shall be in writing ... and (4) shall have been, continuously, from the time of its execution, an official record of the bank." Here, neither writings nor bank records substantiated the defense as required by Sec. 1823(e)(1) and (4). We conclude that plaintiffs could not successfully assert the defense of oral accord and satisfaction against the FDIC because it did not meet the statutory requirements.

III.

In the district court, the appellants raised far-ranging defenses to the obligations asserted by the FDIC on the $250,000 note executed in 1981 by Equity 1. Their complaint states, inter alia, that they never guaranteed "any obligation of Equity 1 to Metropolitan," and that any such alleged guarantee was:

a) nonexistent;

b) made without consideration;

c) made without proper authority;

d) fraudulently induced;

e) given for prospective consideration, which consideration ultimately failed....

Complaint, Count I-IV, p 11, app. at 3a.

Appellants, however, do not assert on appeal that the district court erred in ruling on all...