Brookside Associates v. Rifkin, 93-15048

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBOOCHEVER
Citation49 F.3d 490
PartiesBROOKSIDE ASSOCIATES, a California limited partnership; Douglas F. McRae, and Chad R. Turner, Plaintiffs-Appellants, v. Michael RIFKIN, husband, and Anita Rifkin, wife; Frederick Weaver, husband, and Denise Weaver, wife; Resolution Trust Corporation, as receiver for Southwest Savings and Loan Association, Defendants-Appellees.
Docket NumberNo. 93-15048,93-15048
Decision Date21 February 1995

Michael W. Wright, McCabe, O'Donnell & Wright, Phoenix, AZ and Jeffrey Ehrlich, Resolution Trust Corp., Washington, DC, for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before: D.W. NELSON, BOOCHEVER, and BEEZER, Circuit Judges.

BOOCHEVER, Circuit Judge:

Brookside Associates ("Brookside"), a limited partnership, and its two general partners filed suit for fraud against the Resolution Trust Corporation ("RTC"), as receiver for Southwest Savings and Loan Association ("Southwest"), and two of Southwest's former officers, seeking damages for misrepresentations made in connection with Southwest's sale of condominiums to Brookside. The RTC and the individual defendants moved for summary judgment under the doctrine of D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and under 12 U.S.C. Sec. 1823(e). The district court granted the RTC's motion, and Brookside appeals. We affirm in part and reverse in part.


For the purposes of reviewing the summary judgment, we summarize the facts as follows.

Brookside is a California limited partnership formed to acquire, hold, and sell 28 units in the Brookside Condominiums in Mesa, Arizona. In June 1986, Brookside bought the 28 condominium units from Southwest, in reliance on representations made by Anita Rifkin and Frederick Weaver, both senior vice presidents of Southwest.

Three months before the sale, in March 1986, Rifkin wrote a letter on behalf of Southwest to a real estate agent, who then delivered the letter to Brookside's general partners with Rifkin's consent. The letter stated that "a recent appraisal review indicates a retail value of $1.78 million" for the 28 units, but quoted a sales price of $1,374,500 for the units. At a meeting in April 1986 at which Weaver also was present, Rifkin reassured Brookside that the appraisal was accurate. When Brookside asked to see the $1,780,000 appraisal review and supporting documentation, Rifkin stated that the information was confidential, and could not be shared with others outside Southwest.

The $1,780,000 appraisal figure was false. The condominiums actually had been appraised at $1,374,500. Rifkin gave Brookside the higher appraisal figure, and Weaver assented in the misrepresentation, to mislead Brookside into buying the condominiums.

In May 1986, a month after the meeting, Rifkin and Weaver obtained another appraisal, which again valued the condominiums at $1,374,500. They concealed this valuation by waiving the appraisal fee, invoking a Southwest policy not to reveal the underwriting appraisal when the fee was waived. Rifkin and Weaver also concealed two additional low appraisals, one valuing the 28 units at $1,305,600, and the other valuing 36 units at $1,515,000 for sale to a single purchaser such as Brookside.

In June 1986, Brookside bought the 28 condominiums in reliance on the false appraisal value. Southwest "took back paper" in the form of a nonrecourse note and first trust deed in favor of Southwest. Brookside eventually defaulted on its loan from Southwest, and Southwest foreclosed on the condominiums in March 1989. The property was sold at public auction to Southwest, whose credit bid for the balance of the obligation owed to it was the highest bid on the property.

Six months later, in September 1989, the RTC was appointed receiver for Southwest and succeeded to ownership of all Southwest's assets, including the condominiums. The condominiums were then transferred with the bulk of Southwest's assets in a purchase and assumption transaction to a new savings and loan association, Southwest Savings & Loan Association, F.A. ("New Southwest"), with the RTC as conservator. New Southwest sold the condominiums to a third party in August 1990.

In March 1989, before the RTC was appointed receiver, Brookside filed suit in state court against Southwest. The state court action was removed to federal court and eventually was dismissed without prejudice. Brookside also filed an unsuccessful claim with the RTC. In June 1992, Brookside filed the complaint in this action, alleging that Rifkin and Weaver's actions regarding the false appraisals constituted fraud, fraudulent concealment, and negligent misrepresentation and concealment. Brookside asked for compensatory damages in the amount of the downpayment, improvements, costs, insurance, and principal and interest paid by Brookside on the condominiums, as well as punitive damages.

Rather than answer the complaint, the RTC, Rifkin, and Weaver moved for summary judgment, admitting all the allegations of the complaint for the purposes of the motion. The district judge heard argument and granted the motion, based on the D'Oench, Duhme doctrine and 12 U.S.C. Sec. 1823(e). Brookside appeals.


We review the district court's grant of summary judgment de novo, determining whether, viewing the evidence and the inferences in the light most favorable to Brookside, the RTC is entitled to prevail as a matter of law. Falk v. Mt. Whitney Sav. & Loan Ass'n, 5 F.3d 347, 350 (9th Cir.1993) (as amended); Newton v. Uniwest Fin. Corp., 967 F.2d 340, 343 (9th Cir.1992).

A. D'Oench, Duhme and Sec. 1823(e)

The RTC argues that Brookside's suit is barred by the D'Oench, Duhme estoppel doctrine, and by 12 U.S.C. Sec. 1823(e).

In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), a securities dealer sold bonds to a bank. The issuer of the bonds later defaulted on the payments. To allow the bank not to carry any past-due bonds on its books, the securities dealer executed promissory notes to the bank. The receipts for the notes, signed by the bank's president, stated that the notes would not be called for payment and that interest paid would be refunded. In a purchase and assumption transaction, the Federal Deposit Insurance Company ("FDIC") later acquired from the bank a $5000 note, executed by the securities dealer in renewal of the original notes. When the FDIC demanded payment on the $5000 note, the maker claimed that he owed nothing because of the bank's agreement not to call the original notes. The FDIC had been unaware of the receipts until after it demanded payment. Id. at 454, 62 S.Ct. at 678.

Citing "a federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures or to which it makes loans," id. at 457, 62 S.Ct. at 679, the Supreme Court held that the undisclosed agreement not to demand payment would not be allowed as a defense. Id. at 461, 62 S.Ct. at 681. "If the secret agreement were allowed as a defense in this case the maker of the note would be enabled to defeat the purpose of the statute [creating the FDIC] by taking advantage of an undisclosed and fraudulent agreement ... which the maker of the note made possible." Id. The D'Oench, Duhme doctrine thus is a principle of equitable estoppel that permits bank examiners to rely on the records of a bank in evaluating the bank's financial condition, by protecting the bank authorities from suits founded on undisclosed conditions or deceptive documents. See FDIC v. Zook Bros. Constr. Co., 973 F.2d 1448, 1450-51 (9th Cir.1992); Federal Sav. & Loan Ins. Corp. v. Gemini Management, 921 F.2d 241, 245 (9th Cir.1990).

Congress codified the policy embodied in the D'Oench, Duhme holding in 12 U.S.C. Sec. 1823(e), which " 'makes the common law principle both more encompassing and more precise.' " RTC v. Midwest Fed. Sav. Bank, 36 F.3d 785, 795 (9th Cir.1994) (as amended) (quoting FDIC v. O'Neil, 809 F.2d 350, 353 (7th Cir.1987)). Section 1823(e) provides:

No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section ... either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(1) is in writing,

(2) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(4) has been, continuously, from the time of its execution, an official record of the depository institution.

12 U.S.C. Sec. 1823(e) (Supp. V 1994). Congress extended the statute's protections to the RTC in 1989, before the RTC acquired Southwest. 12 U.S.C. Sec. 1441a(b)(4)(A) (Supp. V 1994).

The Supreme Court most recently discussed the D'Oench, Duhme doctrine and Sec. 1823(e) in Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987). The Langleys executed notes to a bank in consideration for a loan to purchase real estate. When the bank filed suit for principal and interest after the Langleys missed a payment, they alleged as a defense that the notes were procured by the bank's misrepresentations regarding the size and other conditions of the property. The Langleys also filed their own suit, with the alleged misrepresentations as one of the grounds of the complaint. None of the representations appeared in the...

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