Fed. Deposit Ins. Corp. v. Blue Rock Shop. Center

• Citation: 567 F. Supp. 952
• Decision Date: 29 June 1983
• Docket Number: Civ. A. No. 80-398.
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. BLUE ROCK SHOPPING CENTER, INC., a Delaware corporation, Max Ambach and Rose Ambach, Defendants and Third Party Plaintiffs, v. The FARMERS BANK OF THE STATE OF DELAWARE, a corporation of the State of Delaware, Third Party Defendant.
• Court: U.S. District Court — District of Delaware

567 F. Supp. 952

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff,
v.
BLUE ROCK SHOPPING CENTER, INC., a Delaware corporation, Max Ambach and Rose Ambach, Defendants and Third Party Plaintiffs,
v.
The FARMERS BANK OF THE STATE OF DELAWARE, a corporation of the State of Delaware, Third Party Defendant.

Civ. A. No. 80-398.

United States District Court, D. Delaware.

June 28, 1983.

As Amended June 29, 1983.

567 F. Supp. 953

COPYRIGHT MATERIAL OMITTED

567 F. Supp. 954

Donald J. Wolfe, Jr., and Gregory A. Inskip of Potter, Anderson & Corroon, Wilmington, Del., Lawrence F. Bates, Federal Deposit Ins. Corp., Washington, D.C., for plaintiff

John E. Babiarz, Jr., of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendants and third party plaintiffs.

Helen L. Winslow of Richards, Layton & Finger, Wilmington, Del., for third party defendant.

MEMORANDUM OPINION

LATCHUM, Chief Judge.

This is a civil action brought by the Federal Deposit Insurance Corporation ("FDIC"), in its corporate capacity, to recover a debt evidenced by a Bond and Warrant delivered to Farmers Bank of the State of Delaware ("Farmers") by defendants Blue Rock Shopping Center Inc. ("Blue Rock") and Max and Rose Ambach.¹ The suit seeks to collect unpaid principal due on the Bond and Warrant amounting to $523,105.71 together with interest at the rate of 6.25 percent per annum from October 22, 1982, to the date of judgment. (Docket Item "D.I." 1 & 43.) Defendants deny liability and assert three affirmative defenses.² The defendants also have brought a third party action against Farmers alleging that if the defendants are liable to the FDIC, then Farmers is liable to defendants in the amount of $275,000 plus interest from August of 1975. FDIC has moved pursuant to Rules 12(f) and 56(a), Fed.R. Civ.P., to strike defendants' third affirmative defense and for entry of summary judgment in its favor on the complaint on the basis that no genuine issue of material fact exists and that FDIC is entitled to judgment as a matter of law. (D.I. 46.)

FACTS

The undisputed facts viewed most favorably for the defendants may be summarized as follows: On September 29, 1966, defendants executed and delivered to Farmers a Bond and Warrant in which they promised "jointly and severally," to pay Farmers the sum of $800,000, plus interest at the rate of 6.25 percent per annum. (D.I. 21, Ex. A.) The Bond and Warrant was secured by a first mortgage on a parcel of real estate located at the Blue Rock Shopping Center in Wilmington, Delaware. On the same date, Blue Rock, by its President Max Ambach, executed and delivered to Farmers as additional collateral for the bond an assignment of Blue Rock's interest in a lease ("Assignment of Lease") of the parcel of land known as the Blue Rock Shopping Center ("Shopping Center"), on which a warehouse was erected which Blue Rock had previously leased to A.T.C. of Wilmington, Inc. ("ATC"). (D.I. 21, Ex. B.) The term of the ATC lease was for 15 years and ran from November 1, 1965 to October 31, 1980. ATC's lease payments assigned to Farmers coincided with defendants' installment obligations under the Bond and Warrant and the Mortgage. The payments to be made under the lease by ATC were guaranteed by Atlantic Thrift Center, Inc. (D.I. 21, Ex. C.) As a result of several corporate mergers, the lease ultimately was guaranteed by Arlen Realty and Development Corporation ("Arlen"). (D.I. 21, ¶ 6.)

567 F. Supp. 955

On July 29, 1975, Blue Rock defaulted under the first mortgage and the terms and conditions of the Bond and Warrant. Blue Rock's default was caused by the concomitant default of ATC and Arlen. On August 12, 1975, defendants notified Farmers that ATC and Arlen were discontinuing its retail operation at the Shopping Center and would no longer be able to meet its obligations under the lease and guarantee. (D.I. 21, ¶ 6.) Defendants requested that Farmers accept a proposal submitted by Arlen to terminate the lease upon payment of $100,000 for the immediate surrender of the premises at the Shopping Center and an additional $24,000 if the premises were not retenanted within one year. (D.I. 21, Ex. D.) At the time of the settlement offer, Arlen, as guarantor of the lease, was obligated to make 63 additional monthly payments which amount exceeded $428,725. (D.I. 21, ¶ 7.)

Farmers rejected defendants' request that it accept Arlen's settlement offer. Instead, Farmers and Blue Rock executed a letter agreement on February 10, 1976, wherein Blue Rock assigned to Farmers its right, title and interest in the Arlen guaranty of the lease "in consideration of the Bank's forbearance in enforcing all its rights arising because of Blue Rock's default" of defendants' Bond and Mortgage. (D.I. 21, Ex. E.) After execution of the letter agreement, Farmers commenced suit in the Superior Court of the State of Delaware in and for New Castle County ("the Superior Court action") on March 10, 1976, against Arlen on the guaranty of the lease payments.

In accordance with the provisions of an Assistance Agreement dated May 20, 1976, between the FDIC and Farmers, Farmers on October 25, 1976, assigned to the FDIC all of its right, title and interest in: (1) the Bond and Mortgage (D.I. 21, Ex. G), (2) the Assignment of Lease which was executed by Blue Rock and ATC, and (3) the guaranty of the lease payments executed by Atlantic Thrift Center, Inc., and later assumed by Arlen. (D.I. 21, Ex. H.)

On January 8, 1980, the premises used for the Shopping Center were sold to the highest bidder for $325,000 at a public sheriff's sale on a writ of monition issued by the City of Wilmington to collect unpaid taxes that had accrued on the property. (D.I. 17, ¶ 5.) On April 21, 1980, the FDIC received $188,115.33 from the proceeds of the sheriff's sale which was applied to reduce defendants' obligations on the Bond and Warrant. (D.I. 21, ¶ 12.) On November 12, 1982, FDIC's claims in the Superior Court action against Arlen were settled by Arlen paying $148,467 to FDIC. As a result of the settlement, a deficiency balance of $523,105.71 remains on the bond as of October 22, 1982, together with interest at 6.25 percent per annum. (D.I. 43.)

FDIC has moved pursuant to Rules 12(f) and 56(a) to strike defendants' third affirmative defense and for entry of judgment in the amount of $523,105.71 plus interest at 6.25 percent per annum from October 22, 1982. The defendants resist FDIC's motions on the grounds that: (1) Farmers' refusal to accept Arlen's offer to settle for the default of the lease with Blue Rock amounted to a breach of fiduciary obligation to Blue Rock and the FDIC, as Farmers' assignee, accepted the Bond and Warrant subject to Farmers' breach; and (2) Max and Rose Ambach are accommodation makers on the bond and are entitled to invoke the defenses afforded by 6 Del.C. § 3-606.

LAW

A. Farmers' Duty to Protect the Collateral

The defendants in their First Affirmative Defense allege that the Assignment of Lease, executed on September 29, 1966, by Max Ambach acting as president of Blue Rock, and delivered to Farmers, as additional collateral for the Bond and Warrant, imposed a fiduciary duty upon Farmers to protect and preserve the security of the lease with ATC for the benefit of the defendants. The defendants rely upon the provisions of the...