984 F.2d 1571 (10th Cir. 1993), 90-4002, Castleglen, Inc. v. Resolution Trust Corp.

Docket Nº:90-4002.
Citation:984 F.2d 1571
Party Name:CASTLEGLEN, INC., a California corporation; and Larry B. Harvey, an individual, Plaintiffs-Counterdefendants-Appellants, v. RESOLUTION TRUST CORPORATION, as conservator for Commonwealth Federal Savings Association, and as receiver of Commonwealth Savings Association; Klein Financial Corporation, a California corporation; and Robert N. Klein, II, an
Case Date:February 09, 1993
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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984 F.2d 1571 (10th Cir. 1993)

CASTLEGLEN, INC., a California corporation; and Larry B.

Harvey, an individual,

Plaintiffs-Counterdefendants-Appellants,

v.

RESOLUTION TRUST CORPORATION, as conservator for

Commonwealth Federal Savings Association, and as receiver of

Commonwealth Savings Association; Klein Financial

Corporation, a California corporation; and Robert N. Klein,

II, an individual, Defendants-Counterclaimants-Appellees,

Santa Fe Apartments, Ltd., a Utah limited partnership;

Busch Management Co., a Utah corporation; and

Western States Title Company,

Defendants-Counterclaimants.

EMERSON REALTY & MANAGEMENT, Plaintiff-Appellee,

v.

CASTLEGLEN, INC., a California corporation, Defendant-Appellant,

Resolution Trust Corporation, as conservator for

Commonwealth Federal Savings Association, and as receiver of

Commonwealth Savings Association, a Texas savings and loan

association; Klein Financial Corporation, a California

corporation; Robert N. Klein, II, an individual; Santa Fe

Apartments, Ltd., a Utah limited partnership; and Busch

Management Company, a Utah corporation, Defendants.

No. 90-4002.

United States Court of Appeals, Tenth Circuit

February 9, 1993

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[Copyrighted Material Omitted]

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Earl M. Benjamin of Paul, Hastings, Janofsky & Walker, Los Angeles, CA (John A. O'Malley and Douglas J. Rovens of Paul, Hastings, Janofsky & Walker, Los Angeles, CA, and David B. Erickson of Kirton, McConkie & Poelman, Salt Lake City, UT, with him on the brief), for appellants.

Clark Waddoups (Patricia W. Christensen, Ronald G. Russell and Heidi E.C. Leithead, with him on the brief), of Kimball, Parr, Crockett & Waddoups, Salt Lake City, UT, for appellee.

Before BRORBY, HOLLOWAY and EBEL, Circuit Judges.

HOLLOWAY, Circuit Judge.

This appeal arises from the district court's entry of summary judgment in favor of the Resolution Trust Corporation (RTC) against the plaintiffs Castleglen, Inc. and Larry B. Harvey (together hereafter Castleglen). 1 The plaintiffs brought an action for damages flowing from alleged misrepresentations made to them in connection with the purchase of a parcel of real estate and, in the alternative, for rescission of the entire transaction. The district court found that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the estoppel doctrine of D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), barred the damage claims which the plaintiffs sought to assert against the RTC and the thrift institutions. The judge also denied relief on the rescission claim asserted by the plaintiffs. We affirm, although in part on different grounds than the trial judge stated in his thorough and persuasive opinion.

I

The controversy in this case revolves around the sale of the Santa Fe Apartments Project located in Salt Lake City on December 31, 1986, to plaintiff Castleglen. The construction of the project was financed through the sale of tax exempt bonds issued by the Salt Lake Housing Authority. Commonwealth Savings Association (Commonwealth Savings or Commonwealth) facilitated the financing arrangements by issuing a letter of credit to Zions Bank, the trustee for the bondholders, guaranteeing repayment of the principal and interest on the bond transaction. In return for Commonwealth's financing, the developer, Santa Fe Ltd. (Santa Fe) executed a Reimbursement Agreement with Commonwealth under which Santa Fe agreed to make monthly debt service payments to Commonwealth in anticipation of semiannual draws against the letter of credit by Zions.

Santa Fe also agreed to compensate Commonwealth for providing its letter of credit and for servicing the bond loan. This compensation included an origination fee, a "lender's spread" by which Commonwealth charged a higher interest rate to Santa Fe than it paid to Zions, and a variety of other fees. Santa Fe's monthly debt service obligations to Commonwealth were secured by a second lien deed of trust and security agreement, and a second assignment of rents, issue, and profits from the project. These security interests were used as collateral to secure a surety bond from Industrial Indemnity Company to back up Commonwealth's letter of credit.

On November 10, 1986, Commonwealth entered into a contract with Commonwealth Mortgage of America, L.P. (the Master Limited Partnership). The contract provided for the transfer of all of Commonwealth's "loan administration contracts ... and all escrow, impound and custodial accounts relating to the Loan Administration contracts." Then, in December 1986, Santa Fe sold the project itself to OMA Cypress

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properties, a predecessor to plaintiff-appellant Castleglen, which in turn conveyed the project to Cypress View Ltd., another Castleglen predecessor. Pursuant to an assumption agreement between Santa Fe and Cypress View, Cypress View expressly assumed the obligations of the bond loan documents, including the reimbursement agreement and the second lien security instruments. In exchange for its approval of the transaction, Commonwealth received an interest in the net operating income of the property through a separate agreement (the NOI Agreement).

It was during this period of negotiations that Commonwealth allegedly misrepresented the financial condition of the project and guaranteed that no more than $600,000 of income would be necessary before the project broke even. The oral misrepresentations allegedly made on December 24, 1986, are outlined in the opinion of the district judge, 728 F.Supp. 656, 660 n. 2. The written documents primarily relied on by Castleglen are described infra, n. 4. After the sale of the property, the project proved to be less profitable than hoped, and in July 1987 Commonwealth served Castleglen, which had succeeded to the property, with written notice of default of its obligations under the bond loan.

Castleglen brought this action in September 1987 seeking injunctive relief to prevent foreclosure. Castleglen alleged, inter alia, that Commonwealth made misrepresentations to plaintiffs concerning the profitability of the Santa Fe project, and failed to disclose that projections on the project's profitability prepared by plaintiffs' financial consultant were inaccurate or misleading. Castleglen claims to have established "a prima facie case that Commonwealth had defrauded Castleglen into buying the project through oral and written misrepresentations concerning the authorship and content of certain financial data involving the Project." Appellants' Corrected Opening Brief at 2. In its complaint Castleglen charged Commonwealth with violations of federal and state securities laws and also averred state claims of fraud, misrepresentation, negligent misrepresentation, negligent breach of fiduciary duty, and breach of an implied covenant of good faith and fair dealing. Castleglen sought rescission, damages, and preliminary and permanent injunctive relief to prevent foreclosure.

Castleglen then served a demand letter on Emerson Realty and Management Company (Emerson), which managed the Santa Fe property. The demand letter instructed Emerson to pay the net operating income, NOI, to Castleglen rather than Commonwealth. In response, Emerson filed an interpleader action seeking a determination from the district court directing disposition of the NOI. In the interim, Emerson tendered payment into the registry of the court. The interpleader action was then consolidated with Castleglen's original action.

Commonwealth moved for summary judgment in November 1988. In December 1988 the district court held that the plaintiffs had waived their right to rescind the Santa Fe transaction and had elected to pursue a damages remedy. In May 1989 the court dismissed Castleglen's state and federal securities claims but left pending the state law claims of fraud and misrepresentation. Meanwhile, in March 1989 the Federal Home Loan Bank Board had determined that Commonwealth was insolvent and appointed the Federal Savings and Loan Insurance Corporation (FSLIC) as conservator. In May 1989 the FSLIC chartered Commonwealth Federal Savings Association (Commonwealth Federal) to facilitate the liquidation of Commonwealth Savings and to make insured depository accounts available to the insured account holders. Commonwealth Federal was then placed in the conservatorship of the FSLIC. Commonwealth Savings was simultaneously placed in FSLIC receivership. The FSLIC, as receiver of Commonwealth Savings, then entered into an acquisition agreement with Commonwealth Federal whereby Commonwealth Federal acquired Commonwealth Savings' assets.

The FSLIC then filed a motion for summary judgment on the state law claims based on D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). On August 9, 1989, while the case

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was pending, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (1989) (FIRREA), became law. FIRREA abolished the FSLIC and created the Resolution Trust Corporation (RTC), which succeeded the FSLIC both as receiver of Commonwealth Savings and as conservator of Commonwealth Federal.

At the district court's request the parties briefed the effects of FIRREA on the case. In December 1989 the district court granted the RTC's motion for summary judgment. Castleglen, Inc. v. Commonwealth Savings Association, 728 F.Supp. 656 (D.Utah 1989). The court found that the D'Oench doctrine and FIRREA § 217(4) (codified at 12 U.S.C. § 1823(e)) barred Castleglen's claims and also that recovery was limited by the maximum liability provisions of FIRREA. The court then denied Castleglen's motion for Rule 11 sanctions and its...

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