Federal Deposit Ins. Corp. v. O'Neil, s. 86-1694

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation809 F.2d 350
Docket Number86-1766,Nos. 86-1694,s. 86-1694
PartiesFEDERAL DEPOSIT INSURANCE CORPORATION, Intervening Plaintiff-Appellee, Cross-Appellant, v. Robert L. O'NEIL, Henry D. Paschen, Jr., William J. Harte, and Edward T. Joyce, Intervening Defendants-Appellants, Cross-Appellees.
Decision Date30 January 1987

Richard J. Prendergast, Richard J. Prendergast, Ltd., Chicago, Ill., for intervening defendants-appellants, cross-appellees.

Stephen M. Murray, Lord, Bissel & Brook, Chicago, Ill., for intervening plaintiff-appellee, cross-appellant.

Before WOOD and POSNER, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

POSNER, Circuit Judge.

This appeal requires us to interpret 12 U.S.C. Sec. 1823(e), which provides in relevant part that

No agreement which tends to diminish or defeat the right, title or interest of the [Federal Deposit Insurance] Corporation in any asset acquired by it under this section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement (1) shall be in writing, (2) shall have been executed by the bank and the person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the bank, (3) shall have been approved by the board of directors of the bank or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) shall have been, continuously, from the time of its execution, an official record of the bank.

A hospital went broke. The Continental Illinois National Bank and two other banks, plus a law firm, were the bankrupt's principal creditors after senior secured creditors who held a total of $3.5 million in claims against the hospital. A group of lawyers, Joyce for short (he was the key member of the group), which included members of the creditor law firm, submitted to the bankruptcy court a bid of $5 million for the hospital. The only other bid, Inskeep's, was for only $3.7 million, which would have left very little for the junior creditors. Joyce borrowed $1 million from the Continental bank to help finance his bid. The promissory note that he gave the bank recites that "any default or event of default under that certain agreement" between Joyce and other junior creditors (comprising mainly the banks) is a default under the promissory note. The reference to a "certain agreement" is to an unexecuted agreement which after reciting that the creditors desire Joyce to submit a competing bid for the hospital because the Inskeep bid is not large enough to pay off the indebtedness to these creditors provides that "in consideration of the foregoing recitals" Joyce agrees to do two things if his bid is accepted. First, pay some of the senior secured claims (this was what the $1 million loan by Continental was for); second, in the event Joyce succeeds in his plan to convert the hospital into a facility for treating wounds, pay most of the hospital's indebtedness to the banks, but if the plan does not succeed the banks get nothing. Joyce, who received the $1 million from Continental and deposited it in the bankruptcy court as earnest money, contends that the "certain agreement" obligated Continental (and the other two banks) to support his bid for the hospital. But when Inskeep sweetened his bid to $4.3 million the banks decided to support Inskeep's bid over Joyce's, and at the banks' urging the bankruptcy judge accepted Inskeep's bid and returned the earnest money to Joyce. Joyce then sued the banks in a state court in Illinois, alleging among other things that they had broken their promise to support his bid and arguing that he was holding the $1 million he had gotten from Continental as a set-off to his damages against the banks.

While all this was going on Continental had gotten into serious financial difficulties and the FDIC had come to its rescue with a financial assistance program. The program included the purchase by the FDIC of promissory notes held by Continental. One of the notes purchased was Joyce's $1 million note. (His argument that the FDIC did not really acquire the note does not require discussion, in light of Chatham Ventures, Inc. v. FDIC, 651 F.2d 355, 358-59 (5th Cir.1981).) The FDIC intervened in Joyce's state court action, removed the entire suit to federal district court pursuant to 12 U.S.C. Sec. 1819 and 28 U.S.C. Sec. 1441, and then filed in that court a complaint seeking collection of the note, which had come due in the meantime. The banks and the FDIC moved for summary judgment. The district judge denied the banks' motion but granted the FDIC's motion and ordered Joyce to pay the note. The district judge then remanded Joyce's claims against the banks to state court because they were not removable by themselves. See 28 U.S.C. Sec. 1441(c). This made the judgment in favor of the FDIC against Joyce final, and he has appealed. The FDIC has cross-appealed, seeking additional attorney's fees.

The main question is whether the banks' alleged agreement to support Joyce's bid is the type of agreement that can, without running afoul of 12 U.S.C. Sec. 1823(e), defeat or diminish the FDIC's rights under the promissory note that it acquired from the Continental bank. We say "alleged" because the banks deny they made such an agreement and the issue has not yet been adjudicated; the district judge, before remanding Joyce's case against the banks to state court, merely refused to grant summary judgment for the banks. The "agreement" was never executed and does not state in so many words that the banks shall support Joyce's bid for the hospital. But there is evidence, including statements made by the banks to the bankruptcy court, to suggest that such a promise was implicit in the (drafted but not executed) agreement, and was broken when Inskeep unexpectedly sweetened his competing offer; and so we shall assume for purposes of this appeal. Since the agreement was not executed, however, it might be more accurately described as an oral than as a written agreement.

The purpose behind section 1823(e), enacted in 1950, is to enable the FDIC, in deciding how to proceed with respect to a troubled bank, to make a quick and certain inventory of the bank's assets. It can do that only if it can disregard secret oral agreements that may impair the value of those assets. See Hearings before the House Banking Comm. on the 1950 Amendments to Federal Deposit Insurance Act, 81st Cong., 2d Sess. 41-42 (1950). As Joyce points out, however, the agreement here (if there was an enforceable agreement--an issue remaining for decision by the state court) was not secret. The FDIC knew about the agreement when it acquired the promissory note from Continental. Also, the agreement was written, though it may not, as we have said, have been a written agreement.

But the policy behind a statute and the statute itself need not be and in this instance are not identical. Often, legislators, to make assurance doubly sure, draft a statute that goes further than the goal they wanted to achieve; they overshoot the mark to make sure they won't undershoot it. This seems to be what happened in 1950 when Congress set about to codify D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 460, 62 S.Ct. 676, 680, 86 L.Ed. 956 (1942), which had held as a matter of federal common law that an agreement that "was designed to deceive the creditors or the public authority or would tend to have that effect" was not enforceable against the FDIC if the result would be to impair the value...

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