942 F.2d 1089 (7th Cir. 1991), 90-2217, Federal Deposit Ins. Corp. v. Wright
|Citation:||942 F.2d 1089|
|Party Name:||FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Union National Bank of Chicago, Plaintiff-Appellant, v. Lillian WRIGHT, also known as Lillian Wright Lawler, Defendant-Appellee.|
|Case Date:||August 29, 1991|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued Feb. 26, 1991.
Paul Richter, David L. Hazan (argued), Marc J. Chalfen, Dehaan & Richter, Chicago, Ill., Bea Valdez (argued), Federal Deposit Ins. Corp., Washington, D.C., for plaintiff-appellant.
Michael Anthony Lowe (argued), Emory A. Tate, Tate & Schroeder, Chicago, Ill., for defendant-appellee.
Before FLAUM, RIPPLE and MANION, Circuit Judges.
RIPPLE, Circuit Judge.
The Federal Deposit Insurance Corporation (FDIC) in its capacity as receiver of a failed bank sued Lillian Wright, a former director of the bank, for amounts allegedly due under three facially unconditional notes signed by her. She claimed lack of consideration for two of the notes and payment in full for the other. The FDIC filed a motion in limine seeking to bar Ms. Wright's lack-of-consideration defense on the basis of the estoppel doctrine announced in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The court denied the motion and found for Ms. Wright on each of the three notes. For the following reasons, we reverse the judgment of the district court.
On July 8, 1983, the Office of the Comptroller of the Currency declared the Union National Bank of Chicago (the Bank) insolvent and appointed the FDIC as receiver. 1
In that capacity, the FDIC reviewed the Bank's records in order to identify its assets and liabilities. In doing so, the FDIC discovered several unconditional promissory notes executed by Ms. Wright in favor of the Bank, which appeared to be past due. Thereafter, the FDIC brought a seven-count complaint against Ms. Wright and others. Three of the four counts against Ms. Wright are relevant to this appeal. Count II sought enforcement of a $25,000 note dated October 30, 1982; Count III sought to recover on a $75,200 note also dated October 30, 1982; and Count IV sought enforcement of a $27,000 note dated November 12, 1982. 2
On September 10, 1986, the FDIC moved for summary judgment. In an interim ruling, the district court granted the motion on Count IV and also reserved its rulings as to Counts II, III and IV pending supplemental briefing. The court requested the parties to address whether the doctrine espoused in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), applied to the case, whether the D'Oench doctrine was preempted by the doctrine's partial codification in 12 U.S.C. § 1823(e), and whether the D'Oench doctrine applied when the FDIC acted in its capacity as receiver of an insolvent bank. See FDIC v. Wright, 684 F.Supp. 536, 540 (N.D.Ill.1988). To enable the FDIC to rely on a failed bank's records, the D'Oench doctrine precludes a borrower who has participated in a scheme or arrangement likely to mislead banking authorities from asserting unrecorded side agreements to defeat the FDIC's interest in any assets acquired from the bank. 3 In June 1988, the FDIC responded to the district court's request for supplemental briefing. It contended that the D'Oench doctrine applied and prevented Ms. Wright from asserting a lack-of-consideration defense against the FDIC's claim on the notes. Moreover, the FDIC contended that D'Oench as a common law doctrine survived the enactment of 12 U.S.C. § 1823(e), which codified parts of the D'Oench doctrine, but applied only when the FDIC acted in its corporate capacity. Finally, the FDIC informed the court that D'Oench applied to the FDIC when acting in its capacity as a receiver of an insolvent bank. Thereafter, the district court granted the FDIC's motion for summary judgment on Counts II, III, and IV. The court based its ruling on the D'Oench doctrine.
With regard to the applicability of the D'Oench, Duhme doctrine to the lack of consideration defense, plaintiff has argued persuasively that the doctrine precludes a defendant from relying on this defense when the contract on which the FDIC brings suit is silent with respect to the bank's obligations.... [T]he defendant cannot assert that the bank ... owed her a corresponding obligation, for such an unwritten obligation would clearly lend itself to an arrangement whereby the FDIC, in examining the bank's books, would be misled.
Approximately six months after the court entered summary judgment, it granted Ms. Wright's motion to vacate the judgment. The motion was based upon newly discovered evidence. Ms. Wright alleged that she found a letter addressed to her from the Bank's president and a photocopy of the "Borrower's Copy" of the $75,200 note bearing an undated "canceled" notation. Over the FDIC's objection, the court reversed and vacated its earlier motion for summary judgment.
Thereafter the case proceeded to trial. In the parties' amended final pretrial order,
Ms. Wright stipulated that she signed and delivered the notes to the Bank. Moreover, she stipulated that the notes were among the assets held by the FDIC. Prior to the bench trial, the FDIC moved in limine to bar Ms. Wright from asserting any oral agreement supporting her position that the $25,000 and $75,200 notes lacked consideration. The motion was based upon Ms. Wright's admissions in the pretrial order and upon the D'Oench doctrine. The district court denied the motion. It was not satisfied that the FDIC had established a scheme likely to mislead banking authorities and preferred the FDIC to prove the existence of any scheme at trial.
At trial, Ms. Wright denied any obligation under the notes. As the FDIC had anticipated, she claimed lack of consideration for the $25,000 and $75,200 notes and also claimed satisfaction in full of the $27,000 note. She testified that she signed the $25,000 and $75,200 notes in an attempt to secure a line of credit for her business. She further stated that she signed the notes prior to the line of credit actually being approved upon the condition and understanding that a bank officer would hold the notes until the line of credit was approved. The Bank's board of directors did not approve the extension of credit, Ms. Wright testified, and she never received the proceeds of the notes. Moreover, she contended that the $27,000 note had been paid in full from funds held in her escrow account at the Bank. To support her contentions, Ms. Wright proffered the March 10, 1983 letter from Ona Kelley, the Bank's president. The letter reads in pertinent part:
Take Note; [a]ll your notes have been consolidated from extension to canceled [sic]. As follows; [sic]
Acct. 41134-0 Nov. 10, 1981 amt. $65,000.00 (a line of credit) was consolidation of group # 539 of notes and account numbers 41188-0 Dec. 14, 1981 of 10,000.00. 2. Account # 40390-0 Dec[.] 23, 1980 of 30,000.00. 3[.] Account number 413919 July 1, 1982 of 25,000.00.
Your current note that was rewritten from the notes above are one in the same[.] In other words[,] the above notes and the 75,200.00 are the same. I hope at this you are not confuse[d], now your note Account number 416510 of 27,000.00 is the only note we will not cancel.
The reason we will not cancel your note account 416510 of 27,000.00 [is] because we are holding in Escrow 45,000.00 (forty[-]five thousand dollars) in accounts receiable [sic] that belong to you in the name of your company[ ] (Community Beauty & Barber Supply)[.]
Since this [is] the only note that was executed properly[,] we will put it through[ ] because your accounts receiable [sic] more than justify the amount due[.] We will pay off the 27,000.00 (Twenty[-]seven thousand dollars) and deposit the balance in your Savings account as instructed by you.
Appellant's App. Ex. G.
District Court Opinion
The court found that, while the notes were facially unconditional promises to pay, "there is no evidence that either the $75,200 note or the $25,000 note were ever approved by the loan committee or the Board of Directors as loans. No money was ever paid to Ms. Wright or credited to her account on the basis of those two notes." Mem. Op. at 3. The court further found that the March 10, 1983 letter was credible and that it canceled the $25,000 and $75,200 notes and evidenced payment of the $27,000 note. See id. at 4. The FDIC had submitted Ms. Wright's checking account statements to establish that she had insufficient funds to set off the balance due under the $27,000 note. The court observed, however, that the March 10 letter referred to an escrow account and "the FDIC has not proven that the note could not have been satisfied with the escrow funds." Id. at 5.
Turning to the applicable governing law, the court explained the doctrine announced in D'Oench and noted that 12 U.S.C. § 1823(e) partially codified the doctrine as it related to the FDIC in its corporate capacity. It then determined that section 1823(e) did not preempt the common law by precluding the application of the D'Oench
doctrine when the FDIC acted in its receiver capacity. See Mem. Op. at 6-8. Notwithstanding the doctrine's applicability, the court determined that the FDIC could not employ D'Oench in this case because it failed to satisfy a threshold requirement. "Even under D'Oench, the FDIC is obligated to prove that it acquired the notes from the bank's open files; that is, that at the time the FDIC took over, the bank carried the note as an asset. This the FDIC has not done." Id. at 9. The court remarked that the FDIC offered no testimony or evidence from anyone who inventoried the Bank's assets after it went into receivership. The court stated that the FDIC could not assert the...
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