Citibank (South Dakota), NA v. FDIC, Civ. A. No. 92-0162.

• Decision Date: 02 May 1994
• Docket Number: Civ. A. No. 92-0162.
• Citation: 857 F. Supp. 976
• Parties: CITIBANK (SOUTH DAKOTA), N.A., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION in its own capacity and as Receiver for Bank of New England, N.A., The Connecticut Bank and Trust Company, N.A., and Maine National Bank, Defendants.
• Court: U.S. District Court — District of Columbia

857 F. Supp. 976

CITIBANK (SOUTH DAKOTA), N.A., Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION in its own capacity and as Receiver for Bank of New England, N.A., The Connecticut Bank and Trust Company, N.A., and Maine National Bank, Defendants.

Civ. A. No. 92-0162.

United States District Court, District of Columbia.

May 4, 1994.

Nunc Pro Tunc May 2, 1994.

John A. Buchman, Alston & Bird, Washington, DC, John K. Train, Alston & Bird, Atlanta, GA, for plaintiff.

Christopher Kohn, Lloyd Randolph, Robert M. Hollis, Civ. Div., Dept. of Justice, Washington, DC, for defendants.

REVISED¹ MEMORANDUM OPINION ON MOTION FOR RECONSIDERATION

THOMAS F. HOGAN, District Judge.

On April 14, 1993, this Court issued a Memorandum Opinion ("Mem." or "April 14 Opinion") holding that, as a matter of law, the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") does not protect the Federal Deposit Insurance Corporation ("FDIC") from liability for actual direct compensatory damages caused by repudiation of a non-compete provision. In that Opinion, the Court "found that the non-compete provision could have value prior to repudiation and that the FDIC could be held liable for damages as a result." Mem. at 1. The Court also held that under 12 U.S.C. § 1821(e)(3)(A)(ii), damages caused by the repudiation are measured on the date the receiver was appointed, not on the date of repudiation. Mem. at 5. Consequently, the Court granted plaintiff's motion for summary judgment and denied defendants' motion.

The FDIC has moved for reconsideration of the April 14 Opinion. The parties have extensively briefed the motion² and presented oral argument to the Court. For the reasons set forth below, the Court will grant in part and deny in part the motion for reconsideration.

I. BACKGROUND

A. Summary of the Relevant Facts

Most of the facts underlying this Opinion are set forth in the April 14 Opinion. Those most pertinent to the Court's decision today, however, are summarized below.

Citibank (South Dakota) N.A. ("Citibank") seeks, damages allegedly arising from the FDIC's disaffirmance of an agreement between Citibank and Bank of New England, N.A., The Connecticut Bank and Trust Company, N.A., and Maine National Bank (collectively referred to as the "BNE Banks"). By means of the agreement, entitled Credit Card Portfolio Purchase and Sale Agreement ("the Agreement" or "Citibank Agreement"), Citibank purchased certain assets and assumed certain liabilities associated with the credit card businesses of each of the BNE Banks. Citibank claims that part (approximately $28 million) of the $180 million premium it paid for this agreement represents a payment for contractual rights, including a four-year covenant preventing the BNE Banks from soliciting credit card business from former BNE cardholders. Mem. at 2; Agreement § 14, at 29-31. Unlike other sections of the Agreement, however, the non-compete provision does not explicitly bind purchasers of specific assets from the BNE Banks. Cf. Agreement § 9.8. Nevertheless, the Agreement does provide in Section 38, captioned "Successors," that "this Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns." Agreement at 43. The Agreement does not explicitly define the terms "successors" and "permitted assigns."

On January 6, 1991, approximately one year after the Agreement, the Comptroller of the Currency declared the BNE Banks insolvent and named the FDIC as a separate receiver for each of them. The FDIC as Receiver transferred certain assets and liabilities — but not the Citibank Agreement—to Bridge Banks. Less than one month later, the FDIC announced the sale of certain of the BNE Banks' assets and liabilities to Fleet/Norstar Financial Corporation ("Fleet") without the encumbrance of the non-compete provision. Mem. at 3. On March 27, 1991, in preparation for sale of the BNE Banks' assets, the FDIC formally repudiated the Agreement pursuant to 12 U.S.C. § 1821(e)(1). Fleet has subjected Citibank to competition for credit card business. FDIC Recon.Mem. at 2.

B. Grounds Asserted By FDIC For Reconsideration

The April 14 Opinion held that

the non-compete provision was a valuable contractual right that was fully paid for and operative prior to the date the BNE Banks declared their insolvency. Prior to the date of receivership, Citibank had an unqualified right to expect that the BNE Banks and all other successors in interest to the BNE Banks would perform their obligations under the non-compete provision.

Mem. at 6-7.

The FDIC claims that "in concluding that the non-compete provision had value as of the date the BNE Banks failed, the Court apparently assumed that the Bridge Banks and Fleet were `successors in interest' to the BNE Banks, and would have been bound by the Non-Compete Provision if the Agreement had not been repudiated." FDIC Recon.Mem. at 3. According to the FDIC, the Court based this assumption on the erroneous impression that the receivers, as a factual matter, transferred all of the assets of the BNE Banks and that the BNE Banks were sold as a "going concern." Id. at 4-10. The FDIC asserts that "this assumption is inconsistent with the stipulated facts and applicable law" and that, as a consequence, the Opinion "is erroneous and should be vacated." Id. at 3.

The FDIC also asserts that the Opinion erroneously concludes, as a legal matter, that the non-compete provision binds all other successors in interest to the BNE Banks, including transferees of assets and liabilities other than the Agreement itself. In contrast to Citibank, the FDIC assets that the "Successors and Assigns" provision (Section 38) does not obligate the FDIC to pass on the non-compete obligation to the Bridge Banks. The FDIC interprets the phrase "successors and permitted assigns" as being "limited to successors and assigns of the Agreement, not to anyone who purchased assets or assumed liabilities (other than the Agreement itself) of the BNE Banks." FDIC RSS at 4. The FDIC states that it is the "final successor" to the Agreement and that it has continued to honor the non-compete obligation. Id. It maintains that because it was not obligated to transfer the Agreement to the Fleet Banks under § 1821(d)(2)(G)(i)(II), see Payne v. Security Savings & Loan Ass'n, F.A., 924 F.2d 109, 111 (7th Cir.1991), the Fleet Banks were free to compete with Citibank. FDIC Recon. Reply at 8-9. Thus, the FDIC claims that the Court incorrectly premised its decision on the assumption that but for the Receivers' repudiation of the Agreement Citibank would have enjoyed the Fleet Banks' non-competition in the credit card market. Id. at 8.

Finally, the FDIC disputes the proposition that the repudiation of the contract could cause Citibank any "actual damages." According to the FDIC, the absence of any obligation on the part of the FDIC in the Agreement to pass-on the non-compete provision means that the breach occasioned by the repudiation could cause Citibank only nominal damages, not recoverable under FIRREA as a matter of law. FDIC Recon. Reply at 6-10; Aug. 11, 1993 Hearing Tr. at 18. The FDIC claims that Citibank's "damages" were caused by the BNE Banks' failure and the FDIC's decision not to transfer the Agreement to Fleet. FDIC Recon. Reply at 7. The FDIC maintains, therefore, that there were no actual damages traceable to the repudiation and that Citibank may recover nothing. Id. at 9-10. The FDIC adds that "the BNE Banks' failure and the Receivers' non-transfer of the Citibank Agreement meant Non-Compete damages could arise only if the Receivers issued credit cards themselves, used cardholder lists to compete or assist another in its competition with Citibank, or knowingly assisted another in soliciting Account cardholders." Id. at 10. The FDIC maintains that it has continued to honor the Agreement because it has engaged in none of these activities. Id.; FDIC RSS at 4.

C. Citibank's Response

Citibank, naturally enough, stands firmly behind the Court's April 14 Opinion. As an initial matter, Citibank contends that the BNE "banking franchise did not disappear upon the BNE Banks' insolvency, but was instantly passed on to the Receivers upon their appointment. It is this going concern that, with minor modifications, was passed to the Bridge Banks on that same day." Citibank Surreply at 8. Citibank bargained for the right to keep this "banking franchise" or "going concern" out of competition for its credit card customers, not merely the formal entities comprising the BNE Banks. "The BNE Banks could not eliminate their obligations under the Non-Compete Provisions by selling their banking franchise but retaining a shell, non-operating, bank or bank holding company (which would not compete with Citibank)." Id. at 3.

Citibank points to two sources of this constraint on the BNE Banks' and hence, the FDIC's ability to transfer the BNE Banks' banking franchises. First, Citibank claims that the constraint originates in Section 38 of the Agreement, the "Successors" provision. Citibank Recon. Opposition at 2-4. Second, Citibank claims that the constraint arises from the FDIC's "obligation to ensure that the BNE Banks' banking franchise was not used to solicit or to assist others in soliciting Citibank Account customers. By transferring the bulk of the assets of the former BNE Banks to the Bridge Banks, the Receivers did not eliminate their obligation to ensure compliance with the terms of the Non-Compete Provision." Citibank Surreply at 8. Rather, by effecting this transfer the Receivers voluntarily disabled themselves from the ability to comply with the non-compete provision. Id. at 7; see also Aug. 11, 1993 Hearing Tr. at 16.³ Thus, Citibank claims that even if it "were required to show some affirmative `breach' over and above the Receivers' formal repudiation, such a breach clearly results from the Receivers' disabling themselves from performing their...