Commerce Federal Sav. Bank v. Federal Deposit Ins. Corp.

• Decision Date: 17 April 1989
• Docket Number: No. 87-5568,87-5568
• Parties: COMMERCE FEDERAL SAVINGS BANK, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORP., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1240

872 F.2d 1240

COMMERCE FEDERAL SAVINGS BANK, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORP., Defendant-Appellee.

No. 87-5568.

United States Court of Appeals, Sixth Circuit.

Argued May 2, 1988.

Decided April 17, 1989.

Lawrence M. House (argued), Alice P.L. Schwartz, Knoxville, Tenn., Thomas R. Dyer (argued), Memphis, Tenn., for plaintiff-appellant.

Rex R. Veal, D.M. Tranum, M.E. Tucci (argued), Knoxville, Tenn., for defendant-appellee.

Before KRUPANSKY and NELSON, Circuit Judges; and HACKETT, District Judge. ^*

KRUPANSKY, Circuit Judge.

Commerce Federal Savings Bank (Commerce Federal), the plaintiff-appellant in this case, has appealed from judgment granted in favor of the Federal Deposit Insurance Corporation (FDIC), defendant-appellee, following a bench trial. Commerce Federal had commenced this action in state court alleging full payment and satisfaction of the indebtedness secured by a deed of trust, seeking to enjoin the FDIC to release the deed of trust impressed upon certain real property, and requesting imposition of statutory penalties, punitive damages, costs and attorney's fees against the FDIC pursuant to Tennessee law for the failure of the FDIC to have released the deed of trust. The case was duly removed to the United States District Court for the Eastern District of Tennessee. The district court decided that Commerce Federal was precluded from initiating this action against the FDIC by the terms of 12 U.S.C.A. Sec. 1823(e) (West Supp.1988).

The record disclosed the following facts. Roger Moore, an individual, and R.M. Moore & Associates, Inc. (Moore & Associates, Inc.) owned a parcel of real property known as the "Chapman Property." On September 10, 1979, Roger Moore, in his capacity as president of Moore & Associates, Inc., executed a deed of trust, ¹ which incorporated a "dragnet clause," ² in favor of W.F. Shumate, Jr., trustee for City and County Bank of Knox County, Tennessee (C & C Bank), to secure a loan from C & C Bank to Moore & Associates, Inc., obligor, in the amount of $125,000.00--together with any and all additional obligations, past, present and future of Moore & Associates, Inc. The deed of trust provided in pertinent part that:

[T]his conveyance is made IN TRUST to secure the full, prompt and final payment of any and all indebtedness, principal, interest, attorney's fees and costs, as may be provided in instruments evidencing such indebtedness, or otherwise, now or hereafter owing, directly or indirectly, or as endorser or guarantor for others, to City & County Bank of Knox County ("Beneficiary"), its successors and assigns, by the undersigned, or any of them, and specifically, but not limited to the following purpose, to wit:

Whereas R.M. Moore & Associates, Inc. ("Obligor") is indebted to the Beneficiary in the sum of One Hundred Twenty-five Thousand and no/100 ($125,000) Dollars, evidenced by One (1) promissory note(s) described as follows: Dated of even date herewith, and bearing interest at a per annum rate of 10 1/2%, principal and interest being due and payable in 120 consecutive monthly installments of $1,686.69 each, beginning on the 10th day of October, 1979, and continuing on the same day of each consecutive month thereafter until payment in full [sic]

The dragnet provision also expressly provided that the deed of trust would be extinguished if all outstanding debt encumbering the instrument were timely retired.

Now, if the Obligor shall pay the sum(s) aforesaid when due, according to the terms of said note(s) and/or any and all renewals and extensions thereof, and any other debt or debts herein secured, then this conveyance is to be of no further force or effect.

On March 16, 1983, Commerce Capital Corporation (Commerce Capital), a wholly owned subsidiary of Commerce Federal Savings Bank, contacted C & C Bank by telephone and requested the amount of the outstanding balance due on the Moore & Associates, Inc. promissory note, payment of which would satisfy the indebtedness of Moore & Associates, Inc. and extinguish the deed of trust. The note, on its face, referenced the deed of trust as security for the $125,000 loan evidenced by the note. An employee of C & C Bank advised Commerce Capital that the payoff figure was $98,729.22. Commerce Capital immediately forwarded a draft to C & C bank in the amount of $98,729.22 with the following endorsement on its face, "payment in full--540505507613 R.M. Moore," along with a memorandum which read:

I am enclosing a check in the amount of $98,729.22 for payment in full for R.M. Moore. Please mail copy of recorded release as soon as possible so that we may obtain Final Title.

C & C Bank negotiated the check on March 18, 1983, and noted on the loan history card that the entire outstanding indebtedness evidenced by the note secured by the trust deed was "paid in full." ³

On March 16, 1983, Roger M. Moore, as an individual, executed a warranty deed conveying the Chapman Property to Commerce Capital. On the same date, Moore & Associates, Inc. conveyed the same property to Commerce Capital by quitclaim deed. ⁴ On April 21, 1983, C & C Bank sent Commerce Capital a copy of a letter from a title attorney, which indicated that the deed of trust had not been released as of that date. There was a handwritten notation dated May 6, 1983 on Commerce Capital's copy of that letter stating that a representative of Commerce Capital had "[t]alked with Kay Leake C & C--doesn't think it has been released, but no problem that she's aware of--will follow up."

The C & C Bank failed on May 27, 1983, at which time the FDIC was appointed as receiver of its assets. Subsequently, the FDIC, acting in its corporate capacity, by a purchase and assumption agreement acquired various assets of the C & C Bank from the FDIC receivership. ⁵ In its acquisition was the described deed of trust, and the note payable to C & C Bank dated September 10, 1979 in the amount of $125,000. A second promissory note executed by Moore & Associates, Inc. in the amount of $50,000 was also included in the FDIC acquisition. This second note was not introduced into the record, and no evidence was developed to disclose the date on which the second note was executed or delivered, i.e., whether it was before or after the date of the $98,729.22 payment.

On May 5th, 1988, Commerce Capital conveyed by quitclaim deed its encumbered interest in the Chapman Property to Commerce Federal. Commerce Federal thereafter was unsuccessful in obtaining a release of the deed of trust from the FDIC without satisfying the $50,000 obligation, which the FDIC insisted was secured by the deed of trust pursuant to the terms of its dragnet clause. Commerce Federal initiated the present action on August 20, 1986 in the Chancery Court for Knox County seeking declaratory relief enjoining the FDIC to release the deed of trust pursuant to Tennessee Code Annotated Sec. 66-25-101, ⁶ together with fines, punitive damages, costs and attorney's fees pursuant to Tennessee Code Annotated Sec. 66-25-102. ⁷ The FDIC removed the case to federal court pursuant to 12 U.S.C.A. Sec. 1819 (West 1980) and 28 U.S.C.A. Sec. 1441 (West Supp.1988). See, e.g., Federal Deposit Ins. Corp. v. O'Neill, 809 F.2d 350, 352 (7th Cir.1987). The district court, subsequent to a bench trial, issued an opinion and order on April 13, 1987 in favor of the FDIC, and dismissed the complaint.

The district court noted that the deed of trust had incorporated a broad "dragnet clause" which secured, among other obligations, any subsequent debts which existed prior to the retirement of the primary indebtedness of $125,000.00. The district court determined that C & C Bank had agreed to cancel the "dragnet clause" of the deed of trust, in return for payment of $98,729.22, the outstanding balance on the $125,000 note specifically identified in the deed of trust. The district court further concluded that the FDIC had purchased the second promissory note executed by Moore & Associates, Inc. in the amount of $50,000 as part of its Purchase and Assumption Agreement. Finally, the court decided that although Commerce Capital had relied upon the promise from C & C Bank to cancel the deed of trust in exchange for payment of the $98,729.22 outstanding balance on the initial promissory note, the promise was an oral agreement and not in writing as required by 12 U.S.C.A. Sec. 1823(e) ⁸ and therefore did not defeat the rights and interests of the FDIC in the deed of trust because it did not satisfy the specific requirements listed under Sec. 1823(e).

Commerce Federal timely appealed the decision of the district court.

On appeal, Commerce Federal has, inter alia, advanced the argument that the deed of trust here in issue was not an asset of the FDIC because, as a matter of law, it had been extinguished upon the payment of $98,729.22, which was the only existing outstanding indebtedness secured by the deed of trust on March 16, 1983, and that the district court erred in denying the appellant's petition seeking the release of the deed of trust because C & C's promise to waive the dragnet requirements of the security were not in writing as mandated by section 1823(e). It is well established that "[s]ection 1823(e) does not apply to every inquiry concerning an asset." Federal Deposit Ins. Corp. v. Merchants Nat'l Bank of Mobile, 725 F.2d 634, 639 (11th Cir.), cert. denied, 469 U.S. 829, 105 S.Ct. 114, 83 L.Ed.2d 57 (1984); accord Federal Deposit Ins. Corp. v. Blue Rock Shopping Center, Inc., 766 F.2d 744, 753 (3rd Cir.1985) ("Section 1823(e) does not ... protect [the] FDIC against all defenses."). The language of section 1823(e), which provides that "[n]o agreement which tends to diminish or defeat the right, title or interest of the [FDIC] in any asset acquired by it under this section ... shall be valid against the Corporation," indicates that it applies only to an action or defense which is anchored in an agreement separate and...