FDIC v. Cherry, Bekaert & Holland

• Decision Date: 18 April 1990
• Docket Number: No. 88-1147-CIV-T-15C.,88-1147-CIV-T-15C.
• Citation: 742 F. Supp. 612
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. CHERRY, BEKAERT & HOLLAND, a general partnership, et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

742 F. Supp. 612

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. CHERRY, BEKAERT & HOLLAND, a general partnership, et al., Defendants.

No. 88-1147-CIV-T-15C.

United States District Court, M.D. Florida, Tampa Division.

April 18, 1990.

Alison Berman, Federal Deposit Ins. Corp., Washington, D.C., Leonard H. Gilbert, Robert Pass, Chris S. Coutroulis, Mary Stenson Scriven, Carlton, Fields, Ward, Emmanuel, Tampa, Fla., for plaintiff.

Michael Minkin, Hermelee Cowart & Minkin, Miami, Fla., John R. Gerstein, Ross, Dixon & Masback, Washington, D.C., for defendants.

ORDER

CASTAGNA, District Judge.

Before the Court are plaintiff the Federal Deposit Insurance Corporation's (FDIC) motions for summary judgment on defendant Cherry, Bekaert & Holland's (Cherry Bekaert) third, fourth and eleventh affirmative defenses, and the respective responses.

In February, 1986 the FDIC was appointed receiver of Park Bank. As receiver, the FDIC subsequently sold particular assets to the FDIC in its corporate capacity, the plaintiff in this case. The FDIC seeks damages from defendant Cherry Bekaert, a partnership of certified public accountants, for its alleged negligent audit of Park Bank. Cherry Bekaert has raised numerous affirmative defenses in its answer, and the FDIC has moved for summary judgment on three of these defenses.

Cherry Bekaert's fourth and eleventh affirmative defenses assert that the FDIC's claims are barred on the grounds of comparative and/or contributory negligence, and failure to mitigate damages. In its response to the summary judgment motion, Cherry Bekaert argues that since the FDIC in its corporate capacity is an assignee of the FDIC in its capacity as receiver, the assignee is subject to the same defenses as could be asserted against the assignor. Thus, Cherry Bekaert is entitled to assert as a defense against the FDIC the alleged comparative negligence of Park Bank's officers, and, to the extent that the FDIC seeks to recover damages arising after it was appointed receiver, the comparative negligence of the FDIC after it took over the bank.

In considering whether Cherry Bekaert may assert these affirmative defenses against the FDIC for its actions after it assumed the receivership, the Court finds two Eleventh Circuit decisions helpful. In FDIC v. Harrison, 735 F.2d 408, 412 (11th Cir.1984), the court held that the FDIC acting in its corporate capacity to collect debts acquired from a failed bank was subject to the same defenses as any other private party. Thus, since the defendants in the case could have asserted the equitable estoppel defense against a private party, the court permitted the defense against the FDIC. The Harrison decision goes on to state that although the FDIC is protected from defenses of fraud on the part of the failed bank, or oral agreements between the borrower and the failed bank, defenses often asserted by borrowers when the FDIC seeks to collect on defaulted loans, this protection "is afforded only when necessary to further the policy of promoting the stability of the nation's banking system by facilitating FDIC's smooth acquisition of assets in a purchase and assumption transaction." Id. at 413 n. 6.

A more recent decision, FDIC v. Jenkins, 888 F.2d 1537 (11th Cir.1989) once again declined to afford the FDIC in its corporate capacity special protected status. In Jenkins, the FDIC argued that pursuant to statutory and common law, it was entitled to absolute priority over any other creditor's claims against the failed bank. While the Court agreed that the FDIC should be permitted to maximize its efforts to recover funds in order to preserve the country's banking system, the Court went on to state that since Congress had not addressed the issue of FDIC's status in third party law suits statutorily, the Court was not convinced that a rule of absolute priority for the FDIC was essential to the recovery of the deposit insurance fund. The Court thus found that when the FDIC appears in a lawsuit in a "normal, commercial context," there was no reason to relieve the FDIC from the operation of state law.

In its motion, the FDIC cites case law from other jurisdictions which it asserts support its claim that the FDIC owes no legal duty to Cherry Bekaert regarding the FDIC's management of the collateral for the loans after the FDIC assumed its receivership. One decision, FDIC v. Renda, 692 F.Supp. 128, 134 (D.Kan 1988), did not permit the suit based on sovereign immunity. Another decision, FDIC v. Greenwood, 719 F.Supp. 749, 750 (C.D.Ill.1989) held that based on public policy concerns—the public's interest in the prompt recovery of a failed bank—the FDIC did not owe a duty to the former directors of the failed banks in its collection of assets. Finally, in Vogel v. Grissom, No. CS 3-89-1467-D (N.D.Tex. Sept. 9, 1989), the case cited by the FDIC which most directly addresses the issue, the district court held that the FDIC acts in a discretionary manner when it disposes of assets, and thus was protected from the affirmative defense of contributory negligence.

A California district court came to a different conclusion in FDIC v. Carter, 701 F.Supp. 730 (C.D.Cal.1987). In Carter, the FDIC in its corporate capacity filed suit against the former directors of a failed bank, alleging negligence and breach of contract. Defendants filed counterclaims and affirmative defenses which alleged that the FDIC failed to minimize the bank's damages in its efforts to collect on loans. The FDIC argued that the Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 1346(b) barred such pleadings. The Carter court rejected this argument, holding that the FTCA did not apply to counterclaims in suits where the FDIC was the plaintiff. Id. at 733. The Court went on to hold also that when the FDIC acts to dispose the assets of the bank, these actions fall outside the public policy role of the FDIC and may serve as a basis for a counterclaim and affirmative defenses. Id. at 736.

Neither the Vogel or Carter decisions are binding on this Court, and it must be noted that they are distinguishable since they involve suits by the FDIC against former officials of the failed bank, rather than against third parties. However, the Court finds the reasoning in the Carter decision—that the corporate FDIC's disposal of assets falls outside its public policy role—to be persuasive. This reasoning appears consistent with the two Eleventh Circuit decisions discussed above, Harrison and Jenkins. Although not addressing the precise issue before this Court, Harrison and Jenkins form the basis of the Court's view that the FDIC as plaintiff in this action is acting in a normal commercial context and should be treated no differently than any other litigant. As Cherry Bekaert argues in its memorandum, it would be permitted to assert its affirmative defense against any other party that had assumed the collateral of Park Bank. In response, the FDIC does not cite any statutory authority affording it special protection from this defense, and like the Jenkins court, this Court declines to speculate that Congress contemplated that negligence suits against third party defendants are a necessary part of the recovery of the insurance fund. Therefore, the Court finds that Cherry Bekaert may assert its affirmative defenses against the FDIC in this action.

The FDIC bases its argument for dismissal of Cherry Bekaert's affirmative defense alleging contributory negligence on the part of the former Park Bank officers on the doctrine stated in D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942) and its progeny. The D'Oench doctrine prohibits borrowers from asserting affirmative defenses such as fraud and alleged oral side agreements between the borrower and failed bank officials which do not appear on the loan documents against the FDIC when it seeks to enforce the defaulted loans. The FDIC argues that the doctrine set forth in D'Oench and its progeny fashions special federal rules allowing the FDIC to carry out its function of attempting to stabilize the national banking system.

The Court cannot accept the FDIC's argument that the D'Oench doctrine protects them in this case. First of all, as stated in the Harrison decision, the special protections afforded the FDIC by D'Oench and its progeny are limited in scope. Harrison, 735 F.2d at 412, n. 6. Indeed, each of the cases cited by the FDIC barred affirmative defenses by borrowers regarding alleged oral side agreements and fraud by the former bank officials in order to protect the FDIC as receiver in recovering the assets of the failed bank. This case involves defendants other than defaulting borrowers and defenses much different than those considered by the D'Oench progeny courts.

Secondly, in the Court's view the FDIC is in a different posture in this case than in the D'Oench progeny cases. Here, the FDIC has stepped out of its role as a bank's receiver seeking to collect on borrower's debts, and instead is acting in its corporate capacity as an assignee. As the FDIC concedes, under Florida law an assignee takes the assignment subject to any defenses the obligor could raise against the assignor. Shirley v. Lake Butler Corporation, 123 So.2d 267, 270 (Fla. 2d DCA 1960), and Cherry Bekaert could assert its comparative negligence defense against Park Bank, Devco Premium Finance Co. v. North River Insurance Co., 450 So.2d 1216, 1220 (Fla. 1st DCA 1984), review denied, 458 So.2d 272 (Fla.1984). Given the Eleventh Circuit's decisions in Harrison and Jenkins which declined to afford the FDIC in its corporate capacity any special status or protections, this Court sees no reason that the FDIC in this case should be treated differently than any other assignee. Nor should Cherry Bekaert be barred from presenting evidence that other parties contributed to the FDIC's damages in an effort to reduce its own liability. FDIC v. Renda, 692 F.Supp. 128, 137 (D...