F.D.I.C. v. Adams
| Decision Date | 27 June 1996 |
| Docket Number | CA-CV,No. 1,1 |
| Citation | 931 P.2d 1095,187 Ariz. 585 |
| Parties | In re 115 Defendants. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of the North American Bank, an Arizona Corporation, Plaintiff-Appellee, v. Norman Ronald ADAMS, and Sylvia Darlene Adams, (CV 89-21668); Felix Conley Alfieri, (CV 89-15996); Robert Louis Boyd and Joann Boyd, (CV 89-16005); Carlen Consulting Group; Leonard Miller and Phyllis Miller, Carlos Wagner and Ann Wagner, (CV 89-16010); Cecil Weber Casterline, (CV 89-16009); Scott Weber Casterline, (CV 89-16011); Robert Allen Church and Jessica Rae Church, (CV 89-16038); James E. Connolly and Coleen Ann Connolly, (CV 89-16039); Jack Cook, (CV 89-16014); Raymond E. Daoust and Barbara A. Daoust, (CV 89-21672); John Edward Didicher and Betty Jo Didicher, (CV 89-16042); Kenneth A. Dregseth and Nellie Dregseth, (CV 89-16044); Michael J. Dugan and Grace A. Dugan, (CV 89-16041); Joseph Kenneth Enright and Ann Adelaide Enright, (CV 89-16040); Esther R. Escobedo, (CV 89-16046); Jon V. Eylands and Barbara R. Eylands, (CV 89-16016); James Russell Feltham and Joellen Feltham, (CV 89-16036); Donald Ralph Fox and Mary Jane Fox, (CV 89-16022); William H. Fuller and Precilla Fuller, (CV 89-16035); Manuel S. Galaviz, (CV 89-16034); David Gambee, (CV 89-16033); Edward R. Geiger and Edri C. Geiger,(CV 89-21673); Geornan Investment; George Gary Shoemaker; and Nancy Howard Shoemaker, (CV 89-21674); Robert Ronald Glick, (CV 89-16032); Roger Goldburg and Deborah Jean Goldburg, (CV 89-16030); Gary F. Green and Mary M. Green, (CV 89-16023); Glenn R. Hawkes and Yvonne Hawkes, (CV 89-16019); Houston Partners, 1984B, a General Partnership, (CV 89-21667); Robert T. Johnson, (CV 89-16026); Jim C. Johnstonbaugh and Jan Johnstonbaugh, (CV 89-16025); Benjamin Kehela and Elaine Kehela, (CV 89-15985); Bruce D. Kelley, (CV 89-15965); Gerda E. Klipfel, (CV 89-21676); Alan David Lane and Haven A. Lane, (CV 89-15966); Willard Steven Leeper and Martha A. Leeper, (CV 89-15967); Thomas Longust and Jacqueline Longust, (CV 89-15969); George Michael |
| Court | Arizona Court of Appeals |
This case involves the application of the doctrine derived from the U.S. Supreme Court's decision in D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), codified in 12 U.S.C. § 1823(e) 1. This doctrine gives special protection to assets acquired by the Federal Deposit Insurance Corporation ("FDIC") that are not available to ordinary holders of commercial paper. Here, FDIC in its capacity as receiver is seeking to recover under a promissory note executed by the defendants. We must determine whether FDIC may invoke the D'Oench doctrine to exclude defenses raised by the defendants based on evidence that is not reflected in the lending bank's records.
In 1984, John McDonnell met with David Lee, the Executive Vice President of North American Bank ("NAB"), to discuss a loan for the financing of a partnership to be formed under the name Agri-Tech Limited Partnership ("the Partnership"). Lee informed McDonnell that the proposed loan of approximately $4 million was in excess of NAB's lending limits.
NAB, however, agreed to provide the loan by obtaining individual promissory notes from the limited partners of the Partnership. Each individual partner signed a full recourse promissory note ("the Note") containing an unconditional promise to pay NAB in the amount and on the terms stated in the Note. Additionally, each limited partner executed a revocable power-of-attorney which authorized NAB to pay those loan proceeds directly to the Partnership. The proceeds were then deposited into the Partnership's bank account. NAB ultimately approved 126 loans for $4,432,000, and the Partnership sold 126 limited partnership interests.
NAB was later examined by the FDIC acting in its corporate capacity as deposit insurer and regulator ("FDIC Corporate"). FDIC Corporate determined that the Partnership loans violated NAB's legal lending limits. A loan is attributed to another person when the proceeds of the loan are to be used for the benefit of that other person. 12 C.F.R. § 32.5(a)(1). During that examination, FDIC Corporate determined that the Notes "were advanced for the benefit" of the Partnership and required NAB to treat the loans as a single loan.
On February 26, 1986, in response to the FDIC examination, NAB entered into a loan participation agreement with United Bank of Arizona ("United Bank"). This agreement reduced NAB's overall exposure on the loans from almost $4 million to $1 million, and provided that United Bank's interest would be paid in full before NAB received payment. United Bank's participation in the loans was subsequently acquired by Standard Chartered Bank ("Standard Chartered"). On January 8, 1988, the Superintendent of Banks for the State Banking Department found NAB to be in an unsafe and unsound condition that justified putting NAB into receivership. NAB was closed, and FDIC was appointed as the receiver by the Maricopa County Superior Court.
FDIC, acting in its capacity as receiver of NAB, initiated 121 separate actions on the Notes executed by the limited partners of the Partnership. The actions were consolidated by the trial court and the limited partners were designated as the "115 Defendants." The defendants filed a motion to dismiss for failure to join Standard Chartered as an indispensable party. The trial court denied the motion.
FDIC then moved for summary judgment, arguing that the D'Oench doctrine precluded the defendants from (1) asserting evidence of discharge, release and novation of the obligation under the Notes and (2) arguing that FDIC Corporate's regulatory treatment of the Notes affected the defendants' obligation to repay. In granting summary judgment for FDIC, the trial court determined that although the D'Oench doctrine was not applicable, the defendants had not presented sufficient evidence to create material issues of fact on the commercial law theories of discharge, release or novation.
On review of summary judgment, we view the evidence in the light most favorable to the party opposing the motion and draw all reasonable inferences in favor of that party. AROK Constr. Co. v. Indian Constr. Services, 174 Ariz. 291, 293, 848 P.2d 870, 872 (App.1993). Summary judgment is appropriate where "the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme School v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). We review the grant of summary judgment de novo. Riley, Hoggatt & Suagee, P.C. v. English, 177 Ariz. 10, 12, 864 P.2d 1042, 1044-45 (1993).
We first address the threshold issue whether the D'Oench doctrine is applicable under these facts. FDIC correctly points out that its power to enforce a debt instrument acquired from a failed financial institution is determined by federal law. See 12 U.S.C. § 1819; D'Oench, 315 U.S. at 457, 62 S.Ct. at 679; FDIC v. Zook Bros. Constr. Co., 973 F.2d 1448, 1450-51 (9th Cir.1992); FDIC v. Meo, 505 F.2d 790, 793 n. 4 (9th Cir.1974).
The D'Oench doctrine is a federal common law rule of estoppel which precludes the defendants from asserting defenses or claims against the FDIC based on unwritten agreements between the defendants and NAB.See D'Oench, 315 U.S. at 459-60, 62 S.Ct. at 680-81. The purpose of the doctrine is to enable the FDIC to enforce agreements between failed banks and their borrowers in strict accordance with the terms of the loan documents. Id. at 459-62, 62 S.Ct. at 680-82. The general rule derived from D'Oench and its progeny provides:
In a suit over the enforcement of an agreement originally executed between an insured depository institution and a private party, a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution's records.
Resolution Trust Corp. v. Foust, 177 Ariz. 507, 517, 869 P.2d 183, 193 (App.1993) (citations omitted).
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