Federal Deposit Ins. Corp. v. Rockelman

• Decision Date: 06 November 1978
• Docket Number: No. 76-C-517.,76-C-517.
• Citation: 460 F. Supp. 999
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, a United States Corporation, Plaintiff, v. Geoffrey E. ROCKELMAN, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

460 F. Supp. 999

FEDERAL DEPOSIT INSURANCE CORPORATION, a United States Corporation, Plaintiff, v. Geoffrey E. ROCKELMAN, Defendant.

No. 76-C-517.

United States District Court, E. D. Wisconsin.

November 3, 1978.

As Amended November 6, 1978.

Gregory G. Wille, Gibbs, Roper, Loots & Williams, Milwaukee, Wis., for plaintiff.

Heiner Giese, Milwaukee, Wis., for defendant.

MEMORANDUM AND ORDER

WARREN, District Judge.

This is a civil action wherein the plaintiff, Federal Deposit Insurance Corporation (FDIC), seeks payment on a promissory note in the amount of $154,958.54. Plaintiff has filed a motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, alleging that there is no genuine issue as to any material fact in this case and that plaintiff is entitled to judgment as a matter of law. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962).

A review of the facts shows that defendant Rockelman, the owner and president of a construction company in the Milwaukee area, was approached by James Sullivan, a neighbor and senior officer of American City Bank & Trust Co. (American City Bank), about the purchase of American Bankshares Corporation (Bankshares) stock. Sullivan told the defendant that a number of officers had bought control of the Bank in a recent offering of the stock of American Bankshares Corporation. American Bankshares Corporation is the holding company of American City Bank. Sullivan stated that the new group was going to resolve problems the Bank was having and that there would be another stock offering because the Comptroller of the Currency felt the Bank needed additional capital. (Rockelman Deposition, pp. 25-32).

During September or October of 1974 Sullivan again told the defendant that the bank was continuing to have problems with bad loans and that the bank had to raise $3,000,000 to $5,000,000 in additional capital as required by the Comptroller of the Currency to increase the loan reserve for these problem loans. (Rockelman Deposition, pp. 42-3). Sullivan also told the defendant that the prior stock offering had been in response to the Comptroller's demand for more capital and that the control group's purchases had been financed through loans from an Illinois bank. (Rockelman Deposition, p. 44).

Rockelman acknowledged that he was told that, if he purchased stock, he would be paid sufficient dividends to pay interest on the purchase money loan and that the stock would appreciate in value to a point where a portion of it could be sold to retire the loan. (Rockelman Deposition, pp. 51-2). He also stated that, although he did not conduct his own investigation as to the prospect for the stock appreciation, he did have knowledge that the stock was not trading at the time and that it was selling for over $20 a share at one time. (Rockelman Deposition, p. 52; Rockelman Affidavit, ¶ 4).

On December 31, 1974, defendant received a call from an American City Bank employee advising him that the new stock offering had been arranged. That evening he purchased Bankshares with the proceeds of a loan in the amount of $150,000 obtained from American Hampton Bank. (Rockelman Deposition, pp. 49, 56-61). Defendant knew that American Hampton Bank was an affiliate of American City Bank. (Rockelman Deposition, p. 75).

On April 29, 1975, defendant executed a renewal note in the amount of $154,958.34 in favor of American City Bank. Defendant understood that the proceeds of this note went to discharge and pay his obligation for principal and interest on the American Hampton Bank note of December 31, 1974. (Rockelman Deposition, p. 76). This note was due on April 28, 1976. No payment of principal or interest has been made.

Subsequently, American City Bank failed. Following a declaration of American City Bank's insolvency, the FDIC was appointed as Receiver of the bank. Subsequently the Receiver sold certain of the bank's assets including the Rockelman note to the FDIC in its corporate capacity pursuant to a statutorily authorized and court-approved plan of liquidation.

Defendant denies that he is liable for payment of his note, alleging fraud in his December 31, 1974 purchase of Bankshares stock as an affirmative defense. Defendant argues that no consideration was given for the note in issue, that this second note was as invalid as the first, and that American City Bank officers failed to disclose material information to the defendant.

Although defendant states that he did not receive any cash in exchange for his second note, he knew that the proceeds of this note went to discharge his note of December 31, 1974 with American Hampton Bank. (Rockelman Deposition, p. 76). Defendant's obligations for principal and interest on his prior American Hampton note were discharged. The discharge of a prior indebtedness constitutes sufficient consideration for a subsequent note. Hessman v. O'Brien, 258 Wis. 243, 45 N.W.2d 730 (1951). Thus, the Court finds that there was sufficient consideration for the note in issue.

In addition, the Court finds that there is adequate consideration to support the note to American Hampton. Although there was some question as to the exact value of the stock at the time of purchase, the Rockelman deposition indicates that the stock had some value. There must be some consideration to support a contract, but "the law is not concerned with the mere inadequacy of consideration." Home Savings Bank v. Gertenbach, 270 Wis. 386, 395, 71 N.W.2d 347, 352, 72 N.W.2d 697 (1955).

This Court is satisfied that the stock in American Bankshares Corporation constituted sufficient consideration. Therefore, this Court finds that the affirmative defense of lack of consideration presents no genuine issue.

Assuming that the circumstances of defendant's involvement in the Bankshares stock transaction of December 31, 1974 were material and relevant to his American City Bank loan of April, 1975, the Court must determine if these circumstances establish any defense to defendant's liability on the note.

A review of the history of the FDIC provides a basis for the analysis of the issues involved in this action.

The FDIC was established under authority of section 8 of the Banking Act of 1933 and section 101 of the Banking Act of 1935 which went into effect August 23, 1935 and provided the permanent plan of deposit insurance contained in existing law. The Corporation began insuring bank deposits on January 1, 1934. H.R.Report 2564, 81st Cong., 2d Sess., 1950 U.S.Code Cong.Service, p. 3765.

The Congressional purpose in creating the FDIC was "to promote the soundness of banking and to aid the government in the discharge of its fiscal transactions." Freeling v. Federal Deposit Insurance Corporation, 221 F.Supp. 955 (W.D.Okla.1962). See, Doherty v. United States, 94 F.2d 495 (8th Cir. 1938).

The FDIC works to bring to depositors sound, effective and uninterrupted operation of the banking system with the resulting safety and liquidity of bank deposits. See, Federal Deposit Insurance Corp. v. Barry, 453 F.Supp. 81 (E.D.Wis.1978).

Congress has continued its interest in financial transactions in this country and has passed various amendments to the initial legislation creating the FDIC. It is clear that Congress' overall purpose has...