Bolduc v. Beal Bank, SSB

• Decision Date: 18 September 1998
• Docket Number: No. 98-1285,98-1285
• Citation: 167 F.3d 667
• Parties: Lionel R. BOLDUC and Maureen C. Bolduc, Plaintiffs, Appellees, v. BEAL BANK, SSB, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 667

167 F.3d 667

Lionel R. BOLDUC and Maureen C. Bolduc, Plaintiffs, Appellees, v. BEAL BANK, SSB, Defendant, Appellant.

No. 98-1285.

United States Court of Appeals First Circuit.

Heard Sept. 18, 1998.

Decided Jan. 22, 1999.

Jamie N. Hage with whom Eric Edward Nord and Peabody & Brown were on brief for appellant.

Michael C. McLaughlin with whom Law Offices of Michael C. McLaughlin was on brief for appellees.

Before BOUDIN, LYNCH and LIPEZ, Circuit Judges.

BOUDIN, Circuit Judge.

Beal Bank, SSB, a Texas institution, holds second mortgages on two New Hampshire properties owned by Lionel and Maureen Bolduc. Following the Bolducs' default, Beal Bank commenced foreclosure proceedings against the properties. At the Bolducs' behest the district court granted a preliminary injunction against Beal Bank barring foreclosure based on an alleged violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. ("ECOA"), and the equitable doctrine of mutual mistake. Beal Bank appeals.

The litigation arose out of two related transactions. The first occurred in 1987 when Lionel Bolduc obtained two loans from a now-defunct New Hampshire bank, BankEast, one for $360,000 and the other for $681,000. As collateral for the loans, Lionel Bolduc offered commercial properties including condominiums in Merrimack, New Hampshire, that he owned jointly with his wife, Maureen Bolduc. Lionel Bolduc was the sole applicant for the loans, and BankEast's commitment letter was addressed only to him.

At the closing, BankEast required Maureen Bolduc to co-sign the notes as well as the mortgages. The couple was not represented by counsel at the closing, and they were told by the bank that requiring her signature was standard procedure. Although the Bolducs were apparently business partners and had extensive real estate interests, BankEast's insistence that Maureen Bolduc co-sign the notes may have violated ECOA's bar on discrimination based on marital status. See 15 U.S.C. § 1691(a)(1); 12 C.F.R. § 202.7(d)(1) (1998).

By 1991, the Bolducs were unable to meet the repayment schedule on the 1987 loans, and on April 17, 1991, they entered into the second transaction--a forbearance agreement with BankEast. The agreement maintained the 1987 notes and mortgages, partly forgave interest due and extended the payment deadline, added a small line of credit (never used) in favor of the Bolducs, and accepted the Bolducs' guarantee of a loan to a third party seeking to buy several of the Bolducs' condominiums. As security for these new extensions of credit and as additional security for the 1987 loans, the Bolducs granted BankEast blanket second mortgages on their home in Hudson, New Hampshire, owned solely by Maureen Bolduc, and on an undeveloped 90-acre parcel of land held by the couple jointly ("the Merrimack land").

BankEast failed in 1991, and the FDIC was appointed receiver, acquiring the Bolducs' notes and mortgages. Thereafter, the Bolducs defaulted on their payment obligation, and the FDIC foreclosed its first mortgages on the condominiums and related properties originally given as security in 1987. However, the FDIC did not foreclose on the second mortgages secured by the Hudson home and the Merrimack land even though the proceeds from the original collateral were not enough to satisfy the balance due on the 1987 notes, as amended in 1991.

In December 1995, the FDIC sold the notes and the second mortgages to the Loan Acceptance Corporation, a wholly owned subsidiary of Beal Bank. Beal Bank subsequently acquired the loans and second mortgages itself and soon thereafter sought to foreclose on the second mortgages. The mortgages contained a statutory "power of sale" provision permitting Beal Bank to begin foreclosure proceedings without court involvement. See N.H.Rev.Stat. Ann. § 477:29 (1997). The Bolducs then sued Beal Bank in federal district court to enjoin the foreclosure of the Hudson home and the Merrimack land; and the parties agreed to disposition by a magistrate judge under 28 U.S.C. § 636(c).

In February 1998, the magistrate judge granted a preliminary injunction, forbidding Beal Bank from foreclosing on either the Hudson house or the Merrimack land pending a trial on the merits; he enjoined the Bolducs pendente lite to maintain the properties and not to encumber them. A detailed opinion, issued on February 3, 1998, set forth the magistrate judge's reasoning. Beal Bank now appeals from that preliminary injunction, which we review under the customary standards. See Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 15-16 (1st Cir.1996).

The district court had before it a substantial number of different claims urged by the Bolducs, but it rested the injunction on a limited set of rulings. It found that the Bolducs had a likelihood of prevailing at trial on their claim that Maureen Bolduc's signature on the 1987 notes had been secured in violation of ECOA. The court further found a likelihood of the Bolducs' establishing that the 1991 agreement, which gave rise to the second mortgages, had been tainted by mutual mistake, i.e., the parties' belief that a valid claim existed against Maureen Bolduc on the 1987 notes. Finally, the court found that an injunction was consistent with the equities and the public interest.

On this appeal, Beal Bank begins with certain threshold objections that it advanced below but that the district court rejected or bypassed. Beal Bank argues that the Bolducs failed to exhaust their administrative remedies under the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. § 1821(d) ("FIRREA"); that their suit is barred by the ECOA statute of limitations; that it is barred by the D'Oench, Duhme doctrine and its statutory counterpart; and that the suit is premature because Beal Bank has not yet sought to collect directly against Lionel and Maureen on the promissory notes. We start with these objections.

The first objection is that the Bolducs' challenge to the second mortgages is barred because the Bolducs did not pursue it through administrative channels when the FDIC took over BankEast. Under FIRREA, the failure to seek such remedies precludes a court from entertaining "any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets" of any bank for which the FDIC has been made receiver. 12 U.S.C. § 1821(d)(13)(D). Beal Bank, needless to say, asserts that the Bolducs are now trying to pursue an action seeking to nullify assets secured from the FDIC, namely, the second mortgages.

At the outset, the Bolducs might have argued, but did not, that the second mortgages, having been transferred to Beal Bank, no longer constitute assets of a bank for which the FDIC has been made receiver. Beal Bank might then have argued in response that a larger purpose of the exhaustion requirement is to clear title to the failed bank's remaining assets so that the latter can be mustered or sold. If so, perhaps the assets when transferred to a third party by the receiver should be free of any claims that should have been, but were not, asserted through the administrative process.

Our unaided search revealed no case law on this interesting question. Some precedent gives transferee banks who acquire from the receiver claims against third parties the benefit of the long statute of limitations that the FDIC itself would enjoy in pursuing such claims. See, e.g., Cadle Co. v. 1007 Joint Venture, 82 F.3d 102, 105-06 (5th Cir.1996); Bruin Holdings, Inc. v. Moderski, 960 F.Supp. 62, 67 (M.D.Pa.1996). And some of the arguments made for this result might be applied by analogy in favor of Beal Bank. But since the Bolducs have not argued that the transfer to Beal Bank has any significance, we proceed on this issue as if the FDIC still held the second mortgages and the Bolducs were suing to enjoin their threatened foreclosure.

Even with this assumption, the issue is difficult. By its terms, the FIRREA exhaustion requirement applies to claims against the bank and not to claims by the bank against those indebted to it. As four circuit courts have held, such debtors are entitled to await an attempt by the receiver to collect and then assert any available defenses to collection in court; the debtors need not submit their defenses to the administrative process. ¹ Although the Bolducs are the plaintiffs here, they say that their action to enjoin the foreclosure is merely an effort to assert the defense preemptively and not to recover money or property from the bank.

We agree that who happens to be the plaintiff is not controlling. The purpose of the exhaustion requirement is to make persons with claims against bank funds or property submit them promptly in a single administrative forum. One alleged merely to owe the bank money is not in this class, whether the debtor asks a court for a preemptive declaration or injunction against the bank claim or merely awaits suit by the bank and then defends. Cf. Silverman v. Eastrich Multiple Investor Fund, L.P., 51 F.3d 28 (3d Cir.1995), qualified by Algrant v. Evergreen Valley Nurseries, L.P., 126 F.3d 178 (3d Cir.1997).

The difficulty is that the mortgages in this case have a double aspect. From one standpoint, they are potential claims by the bank to recover (out of specific property of the Bolducs) debts owed to the bank by the Bolducs; to this extent, the exhaustion requirement does not apply. But from another angle, a successful injunction suit by the Bolducs could be viewed as cutting off the bank's rights to property currently in the bank's possession, namely, a contingent property interest represented by the mortgages themselves.

In the end, we think that the Bolducs' suit does not quite fit within the statutory language that delineates the exhaustion requirement. It is not a claim by the Bolducs seeking any kind of "payment" from any bank, 12 U.S.C. § 1821(d)(13)(D); and as no one disputes that Beal...