Federal Deposit Ins. Corp. v. Municipality of Ponce

• Citation: 904 F.2d 740
• Decision Date: 08 March 1990
• Docket Number: 89-2013,Nos. 89-1958,s. 89-1958
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. MUNICIPALITY OF PONCE, et al., Defendants, Appellants. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 740

904 F.2d 740

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, Appellee, v. MUNICIPALITY OF PONCE, et al., Defendants, Appellants.

Nos. 89-1958, 89-2013.

United States Court of Appeals First Circuit.

Heard March 8, 1990.

Decided May 14, 1990.

Juan Rafael Gonzalez-Munoz, with whom Bauza & Davila, San Juan, P.R., was on brief, for defendants, appellants.

Jose R. Garcia-Perez, Hato Rey, P.R., with whom Gonzalez, Bennazar & Colorado, was on brief, for plaintiff, appellee.

Before TORRUELLA and SELYA, Circuit Judges, and RE, ^* Judge.

TORRUELLA, Circuit Judge.

This is an action brought by the Federal Deposit Insurance Company ("FDIC") in its corporate capacity, as successor to the now defunct Girod Trust Company ("Girod"). The FDIC seeks to collect on certain guarantees executed by appellant, the Municipality of Ponce ("Municipality") as guarantors of loans and lines of credit to Codfish Corporation ("Codfish") and Rosado and Sons ("Rosado"). The Municipality appeals from the district court's grant of FDIC's cross motion for summary judgment, the denial of its motion for summary judgment and the denial of its certification petition to the Supreme Court of Puerto Rico.

FACTS

The Municipality of Ponce, Puerto Rico, was a financially booming city until the 1970's. In an attempt to improve the city's stagnant economy, a series of private and governmental efforts were mounted to encourage new businesses and investments during the 1980's. The controversy at issue arises from one of those efforts--guaranteeing loans to job creating industries.

On September 24, 1982, the Municipal Assembly of Ponce approved several ordinances (Ordinance Nos. 23 and 31, series 1982-83) authorizing the creation of the Ponce Capital Development Fund ("Fund") and the Office of Economic Development. On February 18, 1983, the enactment of Ordinance No. 71, series 1982-83, allowed the Mayor of Ponce to issue loan guarantees of up to 10 million dollars to financial institutions that extended loans to Ponce-area businesses participating in the city's economic development program.

In May 1983, while acting Mayor Mario Garcia-Granados negotiated with Girod an agreement to guarantee credit lines, an opinion was requested from the Puerto Rico Secretary of Justice, interpreting the validity of the recently enacted ordinances. After the Secretary's validation of the ordinances, the Municipality went ahead with the program.

On July 12, 1983, two agreements were executed between Girod, the Codfish Corporation and the Municipality of Ponce. The first was a "Loan Agreement" and the second was an "Open End Credit Agreement." Pursuant to these agreements Girod lent Codfish $500,000 and also extended a $750,000 line of credit to said entity. Under the provisions of a third agreement the Municipality signed a "Security Agreement," guaranteeing a $300,000 loan made by Girod to another company, Rosado and Sons. Thereafter, Codfish filed for bankruptcy, Rosado and Sons defaulted on its loan, Girod was declared insolvent, and the loans at issue were sold to the FDIC.

On August 14, 1987, the FDIC filed an action for collection of monies from the Municipality of Ponce and its mayor, as guarantors of these loans. The Municipality and the Mayor answered, and filed a motion for summary judgment averring that the guarantees issued by the City and the former Mayor were illegal, null and void ab initio, and thus not enforceable by the FDIC. The Municipality alleged that the Mayor and the Municipal Assembly did not have authority to guarantee the loans and that even if such power existed the Municipal Assembly did not authorize the guarantees at issue here. The FDIC opposed the motion and the district court agreeing with the FDIC, denied the motion. In its Opinion of February 28, 1989, 708 F.Supp. 464, the district court stated that the Municipality had the power, and properly guaranteed the loans at issue. As a result of this opinion the FDIC requested leave from the district court to file a motion for summary judgment.

On May 18, 1989, the Municipality filed a Motion requesting Certification to the Supreme Court of Puerto Rico, of the Puerto Rican law issues involved in the lawsuits. Without granting the certification request, the district court granted partial summary judgment in favor of the FDIC on the issue of the validity of the guarantees. The court also ordered additional briefing on the issue whether, under the terms of the contract, proceeding against the debtor or the collateral constituted a condition precedent to the enforcement of the guarantees given by the Municipality.

After the filing of the briefs, the court below granted judgment as requested by the FDIC. It found that the FDIC had complied with the terms of the guarantees agreements. Final judgment was entered in the Rosado case, Appeal No. 89-1958, on August 31, 1989 and in the Codfish case, Appeal No. 89-2013, on September 26, 1989. The notices of appeal were filed. Upon motion filed by appellants, we consolidated the instant appeals for the purpose of briefing and argument. ¹

DISCUSSION

I. SUMMARY JUDGMENT

A. Standard of Review

A motion for summary judgment is appropriate when:

[T]he pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c). Brennan v. Hendrigan, 888 F.2d 189, 191 (1st Cir.1989); see, e.g., Medina-Munoz v. R.J. Reynolds, 896 F.2d 5 (1st Cir.1990). A "genuine" issue is one that is dispositive, and that which consequently must be decided at trial. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d 179, 181 (1st Cir.1989); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). A "material" fact is one which affects the outcome of the suit and which must be resolved before attending to related legal issues. Mack v. Great Atlantic and Pacific Tea Co., 871 F.2d at 181.

Essentially, Rule 56(e) mandates that summary judgment be entered against a party who fails to establish the existence of an element essential to that party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Thus, the burden is first on the movant, to show "that there is an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. at 325, 106 S.Ct. at 2554. Thereafter, the burden shifts to the nonmovant to establish the existence of a genuine material issue. Brennan v. Hendrigan, 888 F.2d at 191. The nonmovant, however, cannot rest upon In the instant case, the district court denied the Municipality's summary judgment request and granted the FDIC's motion for summary judgment, based on the conclusion that, as a matter of law, there was no genuine issue as to a material fact. Upon an examination of the record, it is clear that the district court took appropriate action. We also find that the Municipality failed to properly allege or present any evidence rebutting the FDIC claims, and instead rested upon the allegations made in its answer to the complaint. Thus, for the reasons stated below, we agree with the district court's conclusions.

mere allegation or denial of the pleadings. Fed.R.Civ.P. 56.

1. Validity of the Ordinances and the Delegation of Authority

On appeal, appellants' main contention is that the district court erred in determining that the Mayor had authority to execute the guarantees at issue, and that such authority was derived from Ordinance No. 71. It argues that the district court examined Ordinance No. 71 in a "vacuum," and that, by so doing, failed to consider the entire picture, which included Ordinances 23 and 31. It contends that, when the ordinances are examined as a whole, they clearly provide that the Development Program was not to be funded from the regular budget, but, instead, from a separately created fund. In the alternative, appellants argue that before committing public municipal funds the Mayor needed special Municipal Assembly approval. We find that the district court properly analyzed the issue, and even went further by considering these ordinances in the context and in relation to the Organic Act of the Municipalities. 21 L.P.R.A. Sec. 2001 et seq. ²

The district court concluded that the Ponce Development Capital Fund Ordinances were enacted pursuant to the general and specific powers entrusted by the Organic Act of the Municipalities. It also found that, although Ordinance No. 71 refers to a special fund, it does not require a separate budget. Instead, Ordinance 71 clearly allows guarantees to be made on the general credit of the Municipality. The Ordinance reads, in pertinent part:

ARTICLE I: The mayor of Ponce is authorized to issue guarantees to approve financial institutions in order to create a "pool of funds" in the amount of $110,000,000 to be known as the Economic Development Loan Program (EDLP); approved financial institutions participating in the EDLP Program will extend loans to Ponce area businesses participating in the City's Economic Development Program which loans shall be guaranteed by the City from 80% to 100%. (emphasis added).

Thus, the district court held and we agree, that the Assembly, in enacting Ordinance 71, entrusted the Mayor with the authority to issue loan guarantees.

The district court further found that a municipal government is one of limited powers, and that it can only exercise those powers conferred by law. P.R. Const. art. VI, Sec. 1; Rubert v. Treasurer, 58 P.R.R. 199, 210 (1941). The Puerto Rican legislature has made it clear that municipalities are entitled to "full legislative and administrative powers in any matter of municipal nature," 21 L.P.R.A. Sec. 2051, including "all the powers that are necessary and convenient to carry out all the duties pertinent to a local...