Federal Deposit Ins. Corp. v. Texarkana Nat. Bank

Decision Date02 June 1989
Docket NumberNo. 88-2216,88-2216
Citation874 F.2d 264
PartiesFEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellant, v. TEXARKANA NATIONAL BANK, Defendant-Appellee.
CourtU.S. Court of Appeals — Fifth Circuit

T. Ray Guy, Cathy Gribble Ries, David B. Dyer, Dallas, Tex., for plaintiff-appellant.

Randall D. Goodwin, James N. Haltom, Hubbard, Patton, Peek, Haltom & Roberts, Texarkana, Tex., for defendant-appellee.

Appeal from the United States District Court for the Eastern District of Texas.

Before WILLIAMS, HIGGINBOTHAM and SMITH, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This action arose out of the closure and forced receivership of Guaranty Bond State Bank (GBSB). The Federal Deposit Insurance Corporation (FDIC) brought suit for breach of contract against Texarkana National Bank (TNB) to honor amounts alleged to be due to GBSB under two certificates of deposit, three loan participation agreements, and an Automatic Teller Machine (ATM) Agreement. TNB asserted by way of an affirmative defense that it had properly set off these liabilities against a number of liabilities of GBSB owing to it. TNB also counterclaimed for additional fees arising under the ATM Agreement. The district court found in favor of TNB on all counts.

I. Facts and Prior Proceedings

On July 27, 1982, GBSB was declared insolvent by the Texas Commissioner of Banking. The FDIC was appointed receiver on July 28, 1982. The following day, a purchase and assumption transaction was effectuated under which the FDIC as receiver (FDIC Receiver) transferred certain assets of GBSB to a newly-organized bank, First Bank & Trust Company of Redwater, Texas, (FBTC) in exchange for the assumption of certain other liabilities of GBSB. The assets of GBSB not transferred to FBTC were transferred to the FDIC in its corporate capacity (FDIC Corporate) in exchange for $11,640,300, which was then passed on to FBTC.

The assets transferred to the FDIC Corporate included the claims asserted against TNB in this litigation. The claims consisted of: (1) two TNB certificates of deposit, each in the amount of $100,000, purchased by GBSB on March 25, 1982 and maturing September 25, 1982; (2) GBSB's proportionate share of collections on three loans originated by TNB, attributable to GBSB's $100,000 participation in such loans; and (3) the unused portion of a $35,000 fee paid by GBSB to TNB at the inception of the five-year ATM agreement.

TNB defended by asserting that it no longer owed any money on these claims because it had exercised a setoff on August 3, 1982, effective on July 27, 1982. 1 It based the setoff on the following obligations owed to it by GBSB: (1) two $100,000 participations purchased in fictitious loans purportedly made by GBSB to Adam Bell and Cecil Gunther; (2) ten GBSB subordinated debentures, in the aggregate amount of $100,000, purchased by TNB in 1977, that matured in 1984; and (3) participations aggregating $317,120.23 in fifteen legitimate loans made by GBSB. 2 It further counterclaimed asserting that additional money was owed under the ATM agreement.

TNB also asserts it was entitled to its share of the proceeds collected from the FDIC's purchase at a trustee's sale of a deed of trust securing a loan made by GBSB to TexArk Enterprises (TexArk). After default on the loan, the FDIC purchased the real estate securing the loan at the substitute trustee's sale for $75,000, the amount of the loan outstanding. It later sold the property to a third party for $70,000, offering TNB its proportionate share of the actual cash proceeds received less costs of the sale. TNB refused, asserting that its share should be based upon the $75,000 purchase price at the trustee's sale.

On February 8, 1988, the district court entered its Memorandum Opinion and Order adopting almost verbatim the contentions of TNB. The judgment granted TNB all relief sought while denying any relief to the FDIC. It awarded TNB certain sums for "unpaid ATM service fees and for TNB's share of the supposed proceeds of foreclosure on collateral securing the TexArk loan." The FDIC followed with this appeal.

Specifically, the FDIC urges reversal of the district court's findings that: (1) the Bell and Gunther loans were fictitious, and that various misrepresentations were made to induce TNB's purchase of participations in them, making setoff appropriate; (2) the setoff of the subordinated capital debentures was appropriate because the FDIC had consented and because they were due and owing at the time of insolvency; (3) the ATM fee of $35,000 was a one-time, non-refundable fee, rather than one that should be prorated over the five year term of the agreement; (4) additional fees were owing under the ATM agreement; and (5) the FDIC was obligated to pay to TNB its proportionate share of the TexArk loan based upon the $75,000 proceeds from the trustee's sale. 3

II. Standard of Review

Rule 52 of the Federal Rules of Civil Procedure provides with respect to findings of fact made after a bench trial:

Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.

Fed.R.Civ.P. 52(a). " 'A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948); Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d 252, 258 (5th Cir.), cert. denied, 449 U.S. 899, 101 S.Ct. 268, 66 L.Ed.2d 129 (1980).

As is the case here, however, we have shown caution in reviewing district court findings which are essentially verbatim recitals of the prevailing party's proposed findings and conclusions. As we stated in Amstar Corp.:

While the "clearly erroneous" rule of Fed.R.Civ.P. 52(a) applies to a trial judge's findings of fact whether he prepared them or they were developed by one of the parties and mechanically adopted by the judge, "we can take into account the District Court's lack of personal attention to factual findings in applying the clearly erroneous rule."

615 F.2d at 258 (quoting Wilson v. Thompson, 593 F.2d 1375, 1384 n. 16 (5th Cir.1979)). The Ninth Circuit Court of Appeals has similarly indicated that strict scrutiny of "rubber-stamped" findings is appropriate. See Smith International, Inc. v. Hughes Tool Co., 664 F.2d 1373, 1375 (9th Cir.), cert. denied, 456 U.S. 976, 102 S.Ct. 2242, 72 L.Ed.2d 851 (1982).

III. Setoff as to the Fictitious Loans 4

The district court found setoff proper by TNB because the Gunther and Bell loans were based on fraud. The GBSB's officers induced TNB to participate in the loans with misrepresentations. The court found that the statements made by the president of GBSB that the signatures of Bell and Gunther on their respective loan documents, security agreements, and supporting documents were genuine and that the collateral had been personally inspected by the officers of GBSB were material and fraudulent. The court further found that TNB's reliance on the statements was justified making setoff before insolvency appropriate.

FDIC seeks to have the setoff invalidated under D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The statutory codification of D'Oench, Duhme at 12 U.S.C. Sec. 1823(e) applies to an "agreement which tends to diminish or defeat the right, title or interest of the [FDIC] in any asset acquired by it under this section, either as security for a loan or by purchase...." TNB's asserted setoff tends to diminish FDIC's right to collect on the obligations it seeks to enforce against TNB. Thus, the question before us is whether the setoff is based on an "agreement" within the meaning of Sec. 1823(e).

The meaning of "agreement" in the statute was clarified in Langley v. Federal Deposit Insurance Corp., 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987). In Langley, the Supreme Court applied Sec. 1823(e) to bar the defense that a note which FDIC sought to enforce had been procured by fraud in the inducement. Recalling that D'Oench, Duhme itself dealt with a note whose maker "lent himself to a scheme or arrangement whereby the banking authority ... was likely to be misled," the Court reasoned:

Certainly, one who signs a facially unqualified note subject to an unwritten and unrecorded condition upon its repayment has lent himself to a scheme or arrangement that is likely to mislead the banking authorities, whether the condition consists of performance of a counterpromise (as in D'Oench, Duhme ) or of the truthfulness of a warranted fact.

Langley, 484 U.S. at ----, 108 S.Ct. at 402. We find no relevant distinction between this case and Langley. TNB seeks to set off these two loans on the ground that fraudulent representations by GBSB's officers induced TNB to participate in the fictitious transactions. As in Langley, those fraudulent representations were part of an "agreement" within the meaning of Sec. 1823(e). TNB failed to get the representations in writing. Therefore, D'Oench, Duhme, as codified in Sec. 1823(e), bars TNB from asserting a setoff based on those representations.

TNB cannot escape the statutory bar by arguing that it was the fictitious loans underlying the loan participation agreements that were likely to mislead bank examiners. Under the teaching of Langley, the unrecorded representations by GBSB officers are part of the agreement relevant to application of Sec. 1823(e). By failing to get the representations in writing, TNB participated in an arrangement likely to mislead FDIC. That the agency was also misled by the fictitious underlying...

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