Chatham Ventures, Inc. v. Federal Deposit Ins. Corp.

• Decision Date: 20 July 1981
• Docket Number: No. 80-7599,80-7599
• Parties: CHATHAM VENTURES, INC., et al., Plaintiffs, Scott Thompson and Laurie K. Abbott, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendants-Appellees. CHATHAM VENTURES, INC., et al., Plaintiffs, Scott Thompson and Laurie K. Abbott, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant-Appellee. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 355

651 F.2d 355

CHATHAM VENTURES, INC., et al., Plaintiffs, Scott Thompson and Laurie K. Abbott, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendants-Appellees.

CHATHAM VENTURES, INC., et al., Plaintiffs, Scott Thompson and Laurie K. Abbott, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant-Appellee.

No. 80-7599.

United States Court of Appeals, Fifth Circuit.

Unit B

July 20, 1981.

Rehearing and Rehearing En Banc Denied Sept. 11, 1981.

Joseph B. Bergen, Anthony H. Abbott, William F. Braziel, Jr., Savannah, Ga., for plaintiffs-appellants.

Leamon R. Holliday, Savannah, Ga., Frank L. Skillern, Jr., Myers N. Fisher, Albert J. Tumpson, FDIC, Washington, D. C., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Georgia.

Before TUTTLE, HILL and THOMAS A. CLARK, Circuit Judges.

TUTTLE, Circuit Judge:

Once again this Court entertains a challenge to the ability of the Federal Deposit Insurance Corporation (FDIC) to collect the balance due on a long overdue note. Obligors (Scott Thompson and Laurie Abbott), on September 20, 1974 executed a real estate note payable to Hamilton Mortgage Corporation in the amount of $350,000. This note was one part of the documentation for a transaction styled as an acquisition and development loan. Principal and interest were by the terms of the written agreement declared to be due on March 20, 1975. This money has never been paid, and the present action concerns the respective rights of the obligors and the FDIC, as present holder of the note.

Despite their failure to pay the note, the obligors claim that Hamilton Mortgage was the first party to breach the agreement. They claim that the written agreement was only a part of a larger joint venture agreement in which Hamilton Mortgage agreed to fund a total of $1,400,000 for development expenses for the property. When the property was ready for development in March of 1975, Hamilton Mortgage, which was approaching insolvency, did not advance further funds and this failure, according to the obligors, breached the joint venture agreement. It is this theory of the case that supports the obligors' refusal to pay the amount owed in the note and also their subsequent claim for damages.

The FDIC is now the holder of the note which it acquired through a complicated set of circumstances. On October 25, 1975, Hamilton Mortgage conveyed to Hamilton National Bank, which was approaching insolvency, a 97.45% interest in the security deed and promissory note executed by the obligors. On February 16, 1976, the receiver of Hamilton National Bank sold this 97.45% interest to FDIC in its corporate capacity. Hamilton Mortgage, on February 19, 1976, filed a voluntary petition for bankruptcy. On December 5, 1977, as a part of a settlement agreement relating to a dispute between the trustee and the FDIC, the bankruptcy trustee for Hamilton Mortgage transferred to the FDIC the remaining interest in the deed and note.

The present legal proceedings commenced shortly thereafter. On May 30, 1978, the FDIC through its attorneys wrote the obligors demanding payment of the principal and interest. The obligors responded by filing this suit against the FDIC and others. ¹ The amended complaint of the obligors challenged the FDIC's right to collect on the note and asked for a total "set-off" of $1,335,000 against the $350,000 note. The FDIC answered the complaint and counterclaimed on the $350,000 note seeking principal, interest, attorneys fees, and costs. On January 11, 1980, the district court granted the FDIC's motion for summary judgment on the counterclaim. The district court found that the joint venture agreement could not be asserted against the FDIC because of its statutory protection from unwritten side agreements to assets which it purchases, 12 U.S.C.A. § 1823(e) (West 1980) ², and the FDIC prevailed. From this judgment the obligors appeal.

1. Applicability of 12 U.S.C. § 1823(e)

This Court must first decide to what extent the FDIC may use its statutory shield, 12 U.S.C. § 1823(e). Plaintiff-obligors claim that the FDIC is not shielded from any unwritten side agreements because of the manner in which the FDIC acquired the note. This procedure, obligors contend, strips FDIC of any statutory protection because the original purchase of the 97.45% interest did not result in the FDIC's physical possession of the note and the subsequent purchase of the 2.55% interest was not the purchase of an asset of an insured bank under the terms of 12 U.S.C. § 1823.

The obligors' first argument is that the statutory protection does not apply to the 97.45% interest acquired by the FDIC from Hamilton National Bank. The argument turns on the obligors' belief that FDIC was not a "holder" of the note, having not acquired it through negotiation, and that under Georgia law, a partial assignment of a debt cannot be enforced in a court of law unless the debtor has consented to such an action. See Wilson v. Etheredge, 174 Ga. 386, 387, 162 S.E. 707 (1932); Brown v. West, 35 Ga.App. 444, 133 S.E. 304 (1926).

This argument is wholly misguided. The FDIC may purchase any asset of an insured bank. ³ See FDIC v. Abraham, 439 F.Supp. 1150, 1152 (E.D.La.1977); FDIC v. Rectenwall, 97 F.Supp. 273, 274 (N.D.Ind.1951). Clearly the 97.45% interest was an asset; it was not worthless. ⁴ We reject the obligors' arguments directed at the applicability of section 1823(e) with respect to the 97.45% interest. ⁵

Analysis of the remaining 2.55% interest requires an extension of our previous discussion. The obligors contend that this acquisition was not from an insured bank and did not occur until over 21 months after the transfer of the assets and liabilities of the failed bank, Hamilton National, to another bank and the FDIC. The obligors, thus, question whether this transaction was made under the FDIC's power under 12 U.S.C. § 1823(e).

We reject the obligors' argument. The FDIC, in this case, had already purchased from the receiver of Hamilton National Bank an asset, a very large interest in a note, under its powers given by section 1823(e). The acquisition of the remaining 2.55% interest and the physical acquisition of the note was clearly part of a transaction entered to protect of the FDIC's earlier purchase of an asset of an insured bank when the purchase would facilitate the transition of that bank's business to a solvent bank. ⁶ The FDIC may "exercise ... all powers specifically granted ..., and such incidental powers as shall be necessary to carry out the powers so granted." 12 U.S.C.A. § 1819 (Seventh) (West 1980). The FDIC, then, acquired the note and the 2.55% interest in a proper use of its powers to aid the banking industry in event of a bank's insolvency. ⁷ The statutory protection of section 1823(e) shields the FDIC from defenses or claims raised with respect to "any asset acquired by it under this section." 12 U.S.C. § 1823(e). The use of incidental powers, which are necessary to carry out the specific powers of section 1823(e), is sufficient to make the acquisition in question one that was made "under this section." ⁸

Obligors also insist the statutory protection of section 1823(e) extends to the FDIC only if (1) the obligor in the note was a customer of the insured bank and (2) the obligor lends himself to a deceptive scheme that overstates the assets of the bank. They argue that neither test is met in this case because the obligor dealt only with the mortgage company, not the bank, and they had only innocent motives, lacking an intent to deceive.

The obligors' first argument must fail. Their authority offered in support of this proposition does not compel the proffered conclusion. ⁹ On the other hand, this Court has previously reached this question and decided it contrary to the interpretation offered by the obligors. In FDIC v. Hoover-Morris Enterprises, 642 F.2d 785 at 788 (5th Cir. 1981), this Court held that "(t)he fact that (the obligors) dealt with Hamilton Mortgage, rather than the insolvent bank is of no consequence" in deciding whether the FDIC may invoke the protection of section 1823(e). ¹⁰ This conclusion seems consistent with the language of the statute which makes no express exception for agreements initiated by a third party and the obligors. ¹¹ Other courts have also reached the same conclusion that the obligor need not deal directly with the insured bank before the FDIC may invoke section 1823(e). ¹² The obligors cannot succeed in this argument.

The obligors' second argument must also fail. The statute, by its terms does not require that the obligor lend himself to a deceptive scheme in the sense of participating with culpability in a fraud. The statute and the cases only require that the obligor lend himself "to a scheme or arrangement whereby the banking authority on which the FDIC relied ... was or was likely to be misled." D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 460, 62 S.Ct. 676, 681, 86 L.Ed. 956 (1942). Of course if the obligors may assert oral side agreements reducing the value of the assets formerly held by the bank, then the FDIC would be misled. ¹³ This Court holds, in the manner most consistent with the statute, that the FDIC may invoke the defense of section 1823(e) where the obligors seek to assert such an oral side agreement ¹⁴ that by its nature would tend to mislead the FDIC.

The FDIC in this case correctly invoked its protection under section 1823(e). The obligors grudgingly admit that the joint venture agreement was oral. It thus fails to meet the statute's first requirement of a valid agreement assertible against the FDIC: that the agreement to be valid "shall be in writing." The obligors may not assert such an agreement against the FDIC and, thus, they present no issue of material fact in dispute. Under these circumstances, the district court's grant of summary judgment was proper and is affirmed.

2. Due Process

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