Bolduc v. Beal Bank, Ssb
| Decision Date | 03 February 1998 |
| Docket Number | Civil No. 97-570-JM. |
| Citation | 994 F.Supp. 82 |
| Parties | Lionel R. BOLDUC and Maureen C. Bolduc v. BEAL BANK, SSB. |
| Court | U.S. District Court — District of New Hampshire |
Peter D. Wenger, Wenger & Cronin, PC, Bedford, NH, Michael C. McLaughlin, Boston, MA, for Plaintiffs.
Jaimie N. Hage, Peabody & Brown, Manchester, NH, for Defendant.
Plaintiffs Lionel and Maureen Bolduc brought suit to prevent foreclosure upon their home, owned by Maureen Bolduc, and a parcel of undeveloped land owned jointly by them. According to the terms of a 1991 Forbearance Agreement, the home and land provide additional security through "blanket" second mortgages for two 1987 notes upon which plaintiffs had defaulted. Plaintiffs contend that the 1987 notes and 1991 Forbearance Agreement are invalid in whole or part. Plaintiffs moved for a temporary restraining order (document no. 3). At a hearing held on November 13, 1997, the parties agreed to postpone the foreclosure, and to treat the motion as a request for preliminary injunction. The parties appeared on November 19, 1997, for a preliminary injunction hearing. For the reasons stated below, plaintiff's motion (document no. 3) is granted.
In 1987 Lionel Bolduc applied for two loans from BankEast. One loan, for $681,000.00, was to be secured by a number of commercial condominiums. The other loan, for $360,000.00, was to be secured by adjacent industrial land. A condition of the loans was that Lionel Bolduc pay off a debt owed to BankEast by Elarbee Development Corp., solely owned by Mr. Bolduc. Both the condominiums and land were jointly owned by Lionel and Maureen Bolduc. While Lionel Bolduc alone applied for the loans, he included in his financial statements assets jointly owned with his wife.
The commitment letter from BankEast, indicating acceptance of the loan application, was directed only to Lionel Bolduc. It neither required Maureen Bolduc to secure the loans with her property, nor did it require her to guarantee them personally. The notes themselves state that the loans be secured by the listed property owned by Lionel Bolduc. However, at the closing, BankEast required Maureen Bolduc to sign both the notes and the mortgage documents, thereby securing the notes with her share of the underlying assets, and also taking upon herself the obligations memorialized in the notes. The Bolducs were not represented by counsel. BankEast was represented by an attorney who had previously acted as the Bolducs' personal lawyer. Plaintiffs recall that BankEast's representative assured the Bolducs that Mrs. Bolduc's signatures were a normal requirement for the loans. Mrs. Bolduc signed the notes and mortgage documents.
By late 1990, the Bolducs were experiencing financial difficulties due to the downturn in the New Hampshire economy, and began discussing a workout plan with BankEast regarding the outstanding loans. On March 25, 1991, the Bolducs accepted a restructuring proposal from BankEast. Based upon that proposal, they executed a Loan Amendment, Collateralization and Security Agreement (the "Forbearance Agreement") on April 17, 1991.
Under the Forbearance Agreement, the Bolducs: (1) obtained forbearance on the 1987 notes; (2) accepted a $30,000.00 line of credit secured by a first mortgage on their home; (3) guaranteed a $200,000.00 loan for two years by BankEast to Ronald and Ruth Rivard in order to facilitate the Rivards' purchase of four of the Bolducs' condominiums; and (4) granted BankEast blanket second mortgages on their home, at 15 Cedar Street, Hudson, N.H., owned solely by Mrs. Bolduc, and on 90 acres of undeveloped land at "O" Old Blood Road, Merrimack, N.H., owned jointly by the Bolducs. The Forbearance Agreement purports to constitute the entire agreement between the parties concerning the underlying debt, integrating into itself all related documents. The Bolducs, who were represented by counsel at that closing, believed that the blanket second mortgages only secured the Rivard guarantee; the Rivards never defaulted on their loan within the period of the guarantee. In fact, the blanket second mortgages secured the remaining balances on the two 1987 notes, as well as the $200,000.00 guarantee.
Later in 1991, BankEast was taken over by the Federal Deposit Insurance Corporation ("FDIC"), which also acquired the Bolduc notes and mortgages. The Bolducs defaulted on the 1987 notes. On June 5, 1995, the Bolducs advised the FDIC that they were willing to cooperate with the FDIC, but that they were prepared to assert affirmative defenses, based upon alleged violations of federal and state law by BankEast, to any direct action against the Bolducs by the FDIC or a successor-in-interest. In 1995, the FDIC foreclosed upon the condominium units and industrial land securing those notes. While the sale of the property foreclosed upon did not satisfy the underlying obligation, the FDIC made no attempt to foreclose upon either the Bolducs' home or the Merrimack land.
In December, 1995, the FDIC transferred the notes and blanket second mortgages to the Loan Acceptance Corporation (LAC) of Dallas, Texas, which in turn transferred the mortgages and notes to Beal Bank. LAC is a wholly owned subsidiary of Beal Bank. Beal Bank then instituted foreclosure proceedings on the Bolducs' home and the Merrimack land on the basis of the blanket second mortgages, in order to collect on the notes. Since the mortgages contain "statutory power of sale" provisions, Beal Bank could institute foreclosure proceedings without court intervention. The Bolducs then instituted this action to halt the seizure of their home and the Merrimack land.
Plaintiffs offer a number of theories attacking the underlying obligations. They allege that the 1987 notes are invalid as to Maureen Bolduc due to violations by BankEast of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691 et seq.(1994). They also allege that the notes are invalid as to Maureen Bolduc because BankEast's attorney at the closing unduly influenced Maureen Bolduc, a long-time client of the attorney, to sign the notes and mortgages. Furthermore, plaintiffs argue that the invalidity of the 1987 notes voids the Forbearance Agreement due to a failure of consideration.
They allege new ECOA violations and fraud in factum regarding the Forbearance Agreement as well, with similar results. In addition, they contend that the Forbearance Agreement and blanket second mortgages are unenforceable due to violations of the Bank Holding Company Act ("BHCA"), 12 U.S.C. §§ 1841-1850, §§ 1971-1978 (1994), the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq (1994 & Supp.1995), and New Hampshire Rev. Stat. Ann. ("RSA") § 399-B (1983 & Supp.1997) (Disclosure of Finance Charges). They also argue that if only the blanket second mortgage is unenforceable, then enforcement of any claims under the Forbearance Agreement is barred by the relevant statute of limitations. Finally, plaintiffs argue that Beal Bank is not a valid holder of the underlying instruments and, therefore, has no right to foreclose on the mortgages.
Plaintiffs assert federal question jurisdiction, pursuant to 28 U.S.C. § 1331 (1994), based upon alleged violations of ECOA, BHCA, and TILA. Defendant contends as an initial matter that this court lacks subject matter jurisdiction over plaintiffs' action. "Whenever it appears by a suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Fed.R.Civ.P. 12(h)(3). See also In re Recticel Foam Corp., 859 F.2d 1000, 1002 (1st Cir.1988). Except to the extent discussed below, I conclude that the court has subject matter jurisdiction over this action.
Defendant argues that § 1821(d)(13)(D) of the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA"), 12 U.S.C. § 1821(d)(13)(D)(1994), erects a jurisdictional bar to consideration of plaintiffs' claims, because plaintiffs failed to exhaust administrative remedies pursuant to FIRREA's administrative claims review process, 12 U.S.C. §§ 1821(d)(3)-(10)(1994). Plaintiffs respond that they are asserting "affirmative defenses," which are not subject to FIRREA's administrative exhaustion requirements. Defendant disputes plaintiffs' assertion that FIRREA does not bar affirmative defenses, and also disputes plaintiffs' characterization of their suit as one comprised of affirmative defenses.
FIRREA governs the filing, determination, and payment of claims made against a failed institution after the FDIC has been appointed receiver. See Heno v. FDIC, 996 F.2d 429, 432 (1st Cir.1993). Anyone with a claim against a failed institution must submit an administrative claim to the FDIC within a prescribed period. See 12 U.S.C. § 1821(d)(5)(C). Participation in the administrative claims review process is mandatory for all parties asserting claims against the assets of failed institutions. See Marquis v. FDIC, 965 F.2d 1148, 1151 (1st Cir.1992). "The primary purpose underlying FIRREA's exhaustion scheme is to allow RTC [or FDIC] to perform its statutory function of promptly determining claims so as to quickly and efficiently resolve claims against a failed institution without resorting to litigation." Rosa v. RTC, 938 F.2d 383, 396 (3rd Cir.), cert. denied, 502 U.S. 981, 112 S.Ct. 582, 116 L.Ed.2d 608 (1991). Plaintiffs submitted no timely claims against BankEast to the FDIC.
"Failure to participate in the administrative claims process is a `jurisdictional bar' to judicial review." Heno, 996 F.2d at 432. See 12 U.S.C. § 1821(d)(13)(D).2 This means that where a claimant has been properly notified of the appointment of a federal insurer as receiver pursuant to 12 U.S.C. § 1821(d)(3)(B)-(C), and has nonetheless failed to initiate an administrative claim...
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