FAIRFIELD PARTNERSHIP v. Resolution Trust Corp.

• Decision Date: 03 August 1994
• Docket Number: No. JFM-93-2733.,JFM-93-2733.
• Parties: FAIRFIELD SIX/HIDDEN VALLEY PARTNERSHIP, et al. v. RESOLUTION TRUST CORPORATION.
• Court: U.S. District Court — District of Maryland

860 F. Supp. 1085

FAIRFIELD SIX/HIDDEN VALLEY PARTNERSHIP, et al. v. RESOLUTION TRUST CORPORATION.

No. JFM-93-2733.

United States District Court, D. Maryland.

August 3, 1994.

David M. Williams, Chestertown, MD, for plaintiff.

Robert J. Proutt, Rosenberg, Proutt, Funk & Greenberg, Baltimore, MD, for defendant.

MEMORANDUM

MOTZ, District Judge.

This case arises from a failed real estate transaction involving the Hidden Valley Partnership, Daniel Billings, and Daniel Gerres (collectively "plaintiffs"), Kardon Industries ("Kardon") and the Potomac Savings and Loan Association ("Potomac"). Plaintiffs had agreed to purchase real estate from Kardon and had allegedly received a promise from Potomac that it would loan them the money to complete the transaction. Potomac reneged on this promise and the land deal fell through. Plaintiffs sued Potomac in state court but the savings and loan crisis intervened and Potomac went into receivership. Plaintiffs subsequently sued Potomac's receiver, the Resolution Trust Corporation ("defendant").¹

Plaintiffs' complaint states seven causes of action: fraud, breach of contract, negligent performance of contract, interference with contract and business expectancy, malicious and wrongful interference with economic relationships, negligent misrepresentation and violations of Maryland's antitrust statute.² Defendant has filed a motion to dismiss the complaint in its entirety for failure to state any claim upon which relief can be granted. Alternatively, defendant seeks summary judgment as to each of the claims. Plaintiffs concede that they have no viable anti-trust claim but in all other respects oppose defendant's motion.

I.

In March of 1985, plaintiffs Billing and Gerres, along with Charles Staples, formed the Hidden Valley Partnership for the purpose of purchasing and developing 173 acres of land near Newark, Delaware. On April 1, 1985, plaintiffs agreed to buy the land from Kardon for $825,000. Around the same time, plaintiffs approached Potomac in order to procure a loan to help them purchase the property. According to plaintiffs, Potomac agreed to lend them enough money to purchase and develop the land in exchange for a market interest rate and 50% of the profits that plaintiffs would get from the development. Plaintiffs agreed to these terms and went about closing the deal with Kardon. In early May, Kardon agreed to delay the payment of $600,000 of the purchase price for two years if plaintiffs could procure an irrevocable letter of credit for that amount issued to Kardon. Plaintiffs allege that Potomac agreed to issue the letter of credit.

By the middle of July, plaintiffs' project was allegedly moving along well and they borrowed $50,000 from Potomac to pay the legal expenses and engineering fees involved in preparing for their closing with Kardon. On October 1, plaintiffs and Kardon agreed that they would close on the property at the end of the month and Kardon demanded that plaintiffs produce the $600,000 letter of credit. Plaintiffs then requested the letter from Potomac, which refused to issue it. Allegedly, Potomac said that instead it intended to take over plaintiffs' rights under their land purchase agreement and offered them salaried jobs to continue work on the development. When plaintiffs indicated that this was unacceptable, Potomac stated that it would not interfere with plaintiffs' contract rights and would issue the letter of credit in return for the payment of $50,000.00. Plaintiffs refused to pay this sum and sought alternative financing. After their efforts proved unsuccessful, plaintiffs assigned their contract with Kardon to First State Enterprises which assumed their debts and purchased the land.

II.

A.

12 U.S.C. § 1821(d)(9)(A) provides that "any agreement which does not meet the requirements set forth in § 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the ... RTC." Section 1823(e) provides, in turn, that in order to valid against the RTC, a loan agreement must (1) be in writing; (2) be executed by the parties contemporaneously with the acquisition by the savings and loan association of a security interest in the underlying asset, (3) be approved in a duly recorded minute by the board of directors or loan committee of the association and (4) be continuously maintained from the time of its execution as an official record of the association. These requirements are derived from what is known as the D'Oench, Duhme doctrine, established by a 1942 Supreme Court decision holding that a borrower cannot assert an alleged oral side agreement as a defense to a suit brought by the FDIC to enforce a promissory note. D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). Generally stated, "the purpose of the doctrine and the statute which codifies it is to permit the FDIC here the RTC to rely on bank records and to protect the FDIC RTC from secret agreements." FDIC v. Hadid, 947 F.2d 1153, 1157 (4th Cir.1991). The doctrine applies whether the borrower characterizes his claim based upon the agreement as one for breach of contract or one for fraud. See Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987).

In this case it is clear that Potomac's alleged agreement to provide financing for the Hidden Valley development project "substantially comprises" four of plaintiffs' claims against the RTC.³ The claims for breach of contract and negligent performance of contract are directly based upon the alleged enforceability of the agreement. Similarly, the alleged representations that underlie plaintiffs' claims for fraud and negligent misrepresentation are the terms of the alleged agreement — terms that plaintiffs allege Potomac never intended to honor. It is precisely such claims that Langley held are barred by D'Oench, Duhme. Therefore, unless the alleged agreement between plaintiffs and Potomac meets the requirements of Section 1823(e), those claims are barred by § 1821(d)(9)(A).⁴

B.

The only written document to which plaintiffs can point allegedly giving rise to Potomac's obligation to provide a loan for the Hidden Valley project is a letter dated May 22, 1985 to Messrs. Gerres, Billings and Staples from F. Ripley Bowman, the Executive Vice President of Potomac. That letter stated as follows:

May 22, 1985

Messrs. Daniel Gerres Donald Billings Charles Staples T/A Hidden Valley Development Company c/o/ Piet H. vanOgtrop Daley, Erisman & vanOgtrop 206 East Delaware Avenue Newark, Delaware, 19711

Reference: Tax Parcel XX-XXX-XX-XXX and XX-XXX-XX-XXX, also known as Fairfield Six, New Castle County Delaware.

Gentlemen:

This is to advise you of our intent to finance the acquisition and development of approximately 179.2± acres of ground situate sic adjacent to the existing corporate limits of the City of Newark, New Castle County, Delaware.

Initially we are granting you a loan in the amount of $50,000 to cover the initial soft costs, including legal expenses, engineering and consulting fees necessary to the pursuit of the annexation of the subject property to the City of Newark, Delaware in order to provide for that jurisdiction's facilities and amenities.

It is further our intention to obtain under acceptable conditions an interest bonus of a substantial portion of this contract not to exceed 50% of the cash flow, if any, created as a result of this development.

Trusting that this intention is in agreement with our mutual understanding, I am

Very truly yours,

/s/ F. Ripley Bowman Executive Vice President As a threshold matter, this letter is signed only by Potomac, not by plaintiffs, and therefore does not meet the requirement of § 1823(e)(2) that the writing be executed both "by the depository institution and any person claiming an adverse interest thereunder."⁵ That aside, however, it is clear that the letter is not sufficiently specific in its terms to constitute a binding agreement.

Although Maryland courts do not favor the destruction of contracts due to uncertainty, Quillen v. Kelley, 216 Md. 396, 407, 140 A.2d 517, 523 (1958), they will not enforce a contract if it is so vague that the court cannot discern the intention of the parties from it. L & L Corp. v. Ammendale Normal Institute, 248 Md. 380, 236 A.2d 734 (1968). Thus, a contract will not be enforced under Maryland law when a material term is left completely undefined by the parties. L & L Corp, 248 Md. 380, 236 A.2d 734 (holding a contract alleged to have modified the price term of an original contract to be void when the modified price is missing); Strickler Engineering Corp. v. Seminar, Inc., 210 Md. 93, 122 A.2d 563 (1956) (holding an agreement for an extension of time to be void when the agreement fails to specify a specific time or a triggering event); Robinson v. Gardiner, 196 Md. 213, 76 A.2d 354 (1950) (holding an insurance policy that agreed to keep the insured free from all liability that might arise out of the ownership of his car to be unenforceable). Similarly, the Maryland Court of Appeals has refused to enforce a contract in which the existence of the subject matter is left entirely to the discretion of one party. Meyers v. Josselyn, 212 Md. 266, 129 A.2d 158 (1957).

While there is no Maryland case law directly addressing vagueness in the context of loan agreements, cases involving a party in a real estate transaction attempting to specifically enforce a contract provide a close analogy since they usually concern contracts contingent on the purchaser obtaining financing. In these types of cases, Maryland courts require a fair amount of detail in regard to the nature of the financing before they will enforce the contract. In Imas Gruner & Associates, Ltd. v. Stringer, 48 Md.App. 364, 427 A.2d 1038 (1981) the Court of Special Appeals refused to specifically enforce a contract, contingent on obtaining a mortgage, when the contract failed to specify the amount, term, and interest rate of the...