F.D.I.C. v. O'Malley

• Decision Date: 25 June 1993
• Docket Number: No. 1-90-1718,1-90-1718
• Citation: 618 N.E.2d 818,249 Ill.App.3d 340
• Parties: , 188 Ill.Dec. 248 FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. Michael J. O'MALLEY, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 818

618 N.E.2d 818

249 Ill.App.3d 340, 188 Ill.Dec. 248

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. Michael J. O'MALLEY, Defendant-Appellant.

No. 1-90-1718.

Appellate Court of Illinois,

First District, Fifth Division.

June 25, 1993.

Rehearing Denied Aug. 10, 1993.

[249 Ill.App.3d 342] [188 Ill.Dec. 251] David A. Novoselsky & Associates, Chicago (David A. Novoselsky, Linda A. Bryceland, of counsel), for defendant-appellant.

De Haan & Richter, P.C., Chicago (Marc J. Chalfen, of counsel), for plaintiff-appellee.

Justice COUSINS, JR. delivered the opinion of the court:

The defendant, Michael J. O'Malley (O'Malley), appeals from the final judgment of the circuit court entered against him and in favor of the plaintiff, the Federal Deposit Insurance Corporation (FDIC). On April 29, 1983, the First National Bank of Oak Lawn (the Bank) was closed due to insolvency, and the FDIC, in its corporate capacity, obtained the assets of the Bank for the purpose of liquidation. Among the Bank's records, the FDIC found an original written guaranty signed by O'Malley which purported to guarantee the indebtedness of one Dennis G. Dine (Dine). On January 1, 1984, the FDIC, in its corporate capacity, brought suit against O'Malley to enforce the guaranty. O'Malley claimed that the guarantee never formed part of the Dine loan transaction. O'Malley also argued, inter We affirm.

[188 Ill.Dec. 252] alia, that the Bank released him from all obligations prior to the FDIC takeover. Following a bench trial, the circuit court held that O'Malley's defenses were barred by 12 U.S.C. 1823(e) and entered judgment in favor of FDIC.

BACKGROUND

The First National Bank of Oak Lawn was declared insolvent and closed on April 29, 1983. The FDIC, in its corporate capacity, obtained the assets of the Bank for purposes of liquidation. Among the Bank's records, the FDIC found an original written guaranty signed by O'Malley which purported to guarantee the indebtedness of Dennis Dine.

O'Malley's guaranty provided that it was absolute and continuing, and that O'Malley unconditionally guaranteed all of Dine's obligations to the Bank, whether then existing or created in the future. Among other things, the guaranty authorized the Bank's extension or renewal of Dine's obligations, release of liability of any of the guarantors, and waivers of notice and demand. O'Malley's guaranty was limited to the amount of $225,000, plus interest on such amount and expenses.

The Bank's records also contained two outstanding and unpaid original Dine notes. Evidence indicated that Dine was indebted to the Bank in the amount of at least $225,000 since February, 1975, when he borrowed money from the Bank to purchase real estate. Dine subsequently signed a renewal note in the principal amount of $279,456.49 and another note in the principal amount of $643,852.50, both of which were dated April 28, 1981 and due October 26, 1981. Dine did not repay any principal or interest due under his two notes.

On September 15, 1983, FDIC sent a letter to O'Malley demanding payment under the guaranty, but O'Malley failed to pay any amounts to the FDIC. On January 1, 1984, FDIC brought suit against O'Malley to recover the amount due from O'Malley under the guaranty.

O'Malley denied that he ever guaranteed the 1981 Dine loans and denied that the guaranty he signed was ever used or required in connection with any Dine loan at the Bank. Alternatively, O'Malley raised two affirmative defenses. First, that in 1979, four years prior to the FDIC takeover, he had been released in writing by the Bank from any guaranty obligations. Second, O'Malley claims that the exchange of mutual releases between the Bank and O'Malley in 1979 served as notice in writing to the Bank that any claimed guaranties were cancelled as of October 1979.

With respect to O'Malley's contention that the guaranty was never used or required in connection with any of the Dine loans, O'Malley presented the following evidence at trial. O'Malley testified that in 1975 both he and Wayne J. Bekta (Bekta) were on the board of directors of the Bank. O'Malley and Bekta were also business partners in various real estate transactions and developments. In 1975, he and Bekta became interested in developing a piece of real estate in Country Club Hills, Illinois. Dine, an experienced real estate developer and a long standing customer of the Bank, also participated in the transaction. The parties agreed that Dine would borrow money, purchase the property and take title to the property; when the property was developed or sold, all three parties would profit.

Bekta and O'Malley subsequently agreed, between themselves, that if Dine could not get the loan for the $225,000 purchase price on his own, they would supply their personal guaranty. Sometime prior to February 28, 1975, Bekta and O'Malley signed the guaranty form in Bekta's car while the two were making an inspection of their business properties. O'Malley left the guaranty with Bekta.

On February 28, 1975, Dine secured the loan for $225,000. Evidence presented at trial indicated that the guaranty was not used in connection with the loan because the property was appraised for loan purposes at $420,000, nearly twice the amount of the purchase price. O'Malley testified that he did not know how the guaranty John Geary testified that in 1975, he was president of the Bank and that Dine had been a customer of the Bank for some years prior and subsequent to 1975. Geary was the loan officer who personally handled and approved the $225,000 loan to Dine on February 28, 1975. The only collateral required for the Dine loan was the Country Club Hills property which had been appraised at $420,000. Geary testified that the Dine loan was not made on the basis of any guaranty signed by Bekta or O'Malley. He testified that the first time he had ever seen the guaranty signed by O'Malley and Bekta was during his discovery deposition.

[188 Ill.Dec. 253] document got into the Bank file. At the time of trial, Bekta was deceased.

A number of documents pertaining to the Dine loan supported Geary's testimony. For example, the loan proposal prepared by Geary in 1975 contains no indication of any guaranty requirements. The collateral checklist likewise does not indicate that a guaranty was required for the Dine loan. Additional documents admitted at trial corroborated Geary's testimony as well.

Dine testified that in 1975 he was a real estate developer. In 1975, he agreed with Bekta and O'Malley to purchase the Country Club Hills property because he hoped to receive a commission upon resale. He borrowed the money, took title to the property in a land trust, and assigned the beneficial interest of the land trust to secure the $225,000 loan in 1975. Dine testified that at no time was anyone, other than himself, required to guaranty the loan. He testified that the first time he ever saw or heard of the guaranty document in this case was at his discovery deposition.

In April of 1981, the two 1981 Dine loans were sold to the LaSalle National Bank, and the sale was approved by Geary. Mark Hoppe, vice president of the commercial lending department at LaSalle National Bank testified that he was unable to locate any document among LaSalle's records that would indicate that a guaranty formed a part of the collateral or other documentation for the Dine loans purchased by LaSalle National Bank. The Bank later chose to repurchase the loans, though it was under no legal obligation to do so.

With respect to O'Malley's affirmative defense that he was released from any guaranty obligations prior to the FDIC takeover, the following evidence was presented at trial. O'Malley testified that in 1979, five years after the loan was made and four years before the FDIC takeover, O'Malley sold his stock in the Bank and resigned as a director. He had no further dealings with the Bank after that date.

John Geary corroborated O'Malley's testimony. Geary testified that in 1979, O'Malley sold his stock in the Bank and terminated his business relationships with the Bank. This was part of an arm's length transaction and both sides were represented by counsel. At that time Geary, as president of the Bank, gave O'Malley a written release from any and all obligations at the Bank including any guaranties. The release was witnessed by the vice president of the Bank, Nancy Adams. In return, Geary demanded and received from O'Malley a written release, releasing the Bank from any claims by O'Malley. Geary was authorized to execute releases to the same extent that he was authorized to approve loans. His lending authority at the time for secured loans was between $350,000 and $750,000. Geary testified that the release documents were placed in the Bank's records.

However, Greg Adamonis, an FDIC liquidator and one of plaintiff's witnesses, testified that he was unable to locate a copy of the Bank's release to O'Malley among the Bank's records. Adamonis also testified that there were 400 or 500 boxes of bank documents in the possession of the FDIC and that he had not inspected them all. Among the files Adamonis did not inspect were O'Malley's files, Bekta's files and the Bank's corporate files. The defendant sought leave to have an expert, Ernst & Whinney, conduct a document audit of the Bank's records to attempt to locate a copy of the release or other relevant information. Defendant also sought the disclosure of the names of the FDIC "closing team" The FDIC did not attack the underlying validity of the release given to O'Malley. Instead, the FDIC took the position that O'Malley was precluded from asserting the release against the FDIC because the release failed to meet the requirements of 12 U.S.C. 1823(e) which provides in relevant part:

[188 Ill.Dec. 254] who participated in the closing of the bank. The circuit court refused to grant O'Malley's request and denied O'Malley's motion. Therefore, O'Malley claims that h...