F.D.I.C. v. Craft
| Decision Date | 25 September 1998 |
| Docket Number | No. 93-35138,93-35138 |
| Citation | 157 F.3d 697 |
| Parties | 98 Cal. Daily Op. Serv. 7413, 98 Daily Journal D.A.R. 10,293 FEDERAL DEPOSIT INSURANCE CORPORATION, as sole receiver for Montana Federal Savings Bank of Kalispell, Montana, Plaintiff-Counter-Defendant- Third Party Defendant-Appellee, v. Roger CRAFT, a/k/a/ Roger L. Craft and Norma J. Craft, Defendants-Counter-Claimants-Third Party Plaintiffs-Appellants, v. UNITED STATES of America, Office of Thrift Supervision, as successor to Federal Home Loan Bank Board, Third Party Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Edmund P. Sedivy, Jr., Lynda S. Weaver, Morrow, Sedivy & Bennett, Bozeman, Montana, for Crafts, et al.
Miriam S. Aguiar, Joel Eichengrun, FDIC, San Jose, California, for FDIC.
John F. Daly, Jonathan R. Siegel, United States Department of Justice, Washington, D.C., for United States.
Appeal from the United States District Court for the District of Montana; Richard W. Anderson, United States Magistrate Judge, Presiding. D.C. No. CV-89-00084-BU-RWA.
Before: PREGERSON, * BRUNETTI and KLEINFELD, Circuit Judges.
Roger Craft, a real estate developer, and his wife Norma Craft, appeal the district court's judgment following a bench trial that resulted in a judgment in favor of the Federal Deposit Insurance Corporation (FDIC), as receiver for Montana Federal Savings Bank. The FDIC initiated the action to collect on six promissory notes and to foreclose on five Montana properties securing those notes.
The Crafts asserted that they were excused from repaying the notes because the FDIC wrongfully repudiated a loan commitment made by Montana Federal. The Crafts also counterclaimed that the United States had tortiously breached an implied covenant of good faith and fair dealing. The Crafts' affirmative defenses were rejected and their counterclaims were dismissed with prejudice.
We affirm as to the result, however for different reasons. Kimes v. Stone, 84 F.3d 1121, 1126 (9th Cir.1996) ().
Montana Federal was a federally-chartered savings and loan institution insured by the Federal Savings and Loan Insurance Corporation (FSLIC). From 1983, until it was put into receivership by the FSLIC on August 16, 1985, Montana Federal operated under the close supervision of the Federal Home Loan Bank Board (FHLBB) of Seattle, pursuant to a series of consent resolutions entered into by Montana Federal's board of directors.
One of Montana Federal's troubled assets was a development of time-share condominiums known as the Lakeview Resort. Montana Federal was the beneficiary of several deeds of trust from Sidney Smith who was the developer of Lakeview. Foreclosure on Smith's deeds of trust was postponed pending Montana Federal's pursuit of an acceptable workout for the resort project.
Montana Federal negotiated a workout plan with Roger Craft which was subject to approval by the FHLBB. The final workout agreement (referred to as the "Commitment Letter") provided for two phases-Phase A and Phase B. This agreement was entered into on May 3, 1985.
Phase A was to be completed within six months. Pursuant to the Commitment Letter, Roger Craft acquired Sid Smith's unsold time-share intervals, and assumed Smith's secured obligations on $250,000 of notes (principal). With the commitment of $400,000 in funding from Montana Federal, Craft agreed to complete the renovation and construction of Lakeview, and market individual time-shares in the project. The $400,000 funding of Phase A was to be secured by Lakeview parcels, and possibly other real estate.
The Lakeview time-share interests were then to be marketed to Phase B investors, i.e., investors willing to provide non-Lakeview property as security for the funding of the project in return for Lakeview time-share interests. At the completion of Phase A, all of Craft's notes were to be rolled over into fifteen-year notes secured by the property pledged by Phase B investors. Under this plan, Montana Federal would eventually have a return on its Lakeview project from notes secured by non-Lakeview property.
The Phase A funding was evidenced by promissory notes of $48,000, $36,000, $60,000, $69,000 issued on May 29, June 5, July 2 and August 6, 1985, respectively, executed by Craft or by Craft and his wife, Norma Craft. As security for each of these notes, Craft or Craft and his wife, Norma Craft, executed four deeds of trust ("the Indentures") on four non-Lakeview properties. By the terms of the Commitment Letter, Craft also assumed two deeds of trust and two promissory notes of Sidney Smith.
Before Craft could realize all of the $400,000 loan commitment, however, Montana Federal was declared insolvent, and an FSLIC receiver was appointed on August 16, 1985. That same day, the FSLIC repudiated all of Montana Federal's obligations, including its loan commitment to Craft. At that time, none of the notes had come due. Nonetheless, without the funding to complete Phase A, and a cloud over Montana Federal, Craft could not attract Phase B investors. Craft eventually defaulted on his obligations to Montana Federal.
Following Craft's default on his six notes, the receiver began six separate proceedings to foreclose on the Indentures that Craft had executed as security. After exhausting his administrative remedies, Craft filed a de novo action in federal court against the FSLIC and the United States. These actions were consolidated on September 5, 1989. Just prior to the consolidation of these actions, however, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 83, 354 (1989). FIRREA abolished the FSLIC and FHLBB, and substituted the Federal Deposit Insurance Corporation ("FDIC") and Resolution Trust Corporation in their places. Thus, as the successor to the FSLIC, the FDIC became receiver for Montana Federal and was substituted in this action by operation of law.
A week-long bench trial was conducted in April 1992 before a federal magistrate judge, who ordered a decree of foreclosure and sale in favor of the FDIC. In addition, all of the Crafts' third-party complaints and counterclaims were dismissed with prejudice on January 13, 1993. The Magistrate also held as a matter of law that the substantive provisions of FIRREA-specifically, the damage limitations for repudiated contracts-applied retroactively to this case. The Crafts filed a timely appeal, and we have jurisdiction pursuant to 28 U.S.C. § 1291.
In an appeal from a verdict following a non-jury trial the district court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. Lozier v. Auto Owners Ins. Co., 951 F.2d 251, 253 (9th Cir.1991). The district court's findings are binding unless clearly erroneous. "As long as findings are plausible in light of the record viewed in its entirety, a reviewing court may not reverse even if convinced it would have reached a different result." United States v. Gila Valley Irrigation District, 961 F.2d 1432, 1434 (9th Cir.1992).
The Crafts argue that they are entitled to damages based on the FSLIC's repudiation of the Commitment Letter. They contend that because the receiver abused its discretion by repudiating the loan commitment, they are entitled to offset damages for breach of contract against the amounts owed under the notes. The Crafts argue further that they are entitled to damages for lost profits, lost opportunity, and pain and suffering. We address each argument in turn.
The Crafts argue that the receiver abused its discretion by repudiating the loan commitment without making a specific finding that the obligation was burdensome to the institution. The district court found, however, that "[t]he ... Commitment Letter was ... deemed burdensome by the Receiver," and that its repudiation "promoted the orderly administration by the Receiver of the Bank's affairs ...". As such, the district court concluded as a matter of law that the Commitment Letter was repudiated in the lawful exercise of the receiver's discretion.
Courts have traditionally recognized the power of receivers to repudiate burdensome contracts. See, e.g. RTC v. CedarMinn Bldg. Ltd. Partnership, 956 F.2d 1446, 1453 (8th Cir.1992). At the time of the repudiation, a FSLIC receiver was endowed with statutory authority under the National Housing Act "to do all ... things that may be necessary" to collect failed thrift assets, subject to FHLBB regulation. 12 U.S.C. § 1729(d) (1982). FHLBB regulations at the time gave the receiver and conservator power to "repudiate any lease or contract he consider[ed] burdensome." 12 C.F.R. §§ 548.2(k), 549.3(a) (1985); See also CedarMinn Bldg., 956 F.2d at 1453 (). 1
When the FSLIC took over Montana Federal's affairs, it repudiated all contracts and commitments. The record indicates that the FSLIC receivership had no new source of capital, and that funding of new loans could only be accomplished through liquidation.
The Crafts also argue that the receiver abused its discretion by not making specific findings regarding the Commitment Letter, and for not considering the lack of alternative financing for time-share condominiums in the area. Nothing in the FHLBB or FSLIC statutes or regulations at the time of the repudiation, and nothing in FIRREA, however, suggests that individualized findings are necessary in order to repudiate commitments. 2 Thus, we cannot conclude that the district court...
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