Federal Deposit Ins. Corp. v. Leach

• Decision Date: 23 November 1981
• Docket Number: No. 80-71491.,80-71491.
• Citation: 525 F. Supp. 1379
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized and existing under the laws of the United States of America, Plaintiff, v. Marian G. LEACH, Alexander Bartneck, Outdoor Resorts of America, Inc., a foreign corporation, and E. Randall Henderson, Jr., jointly and severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

525 F. Supp. 1379

FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized and existing under the laws of the United States of America, Plaintiff, v. Marian G. LEACH, Alexander Bartneck, Outdoor Resorts of America, Inc., a foreign corporation, and E. Randall Henderson, Jr., jointly and severally, Defendants.

No. 80-71491.

United States District Court, E. D. Michigan, S. D.

November 23, 1981.

COPYRIGHT MATERIAL OMITTED

Larry E. Powe, Freeman, McKenzie, Matthews, Scherer & Stepek, P.C., Mount Clemens, Mich., for plaintiff.

Laurence S. Schultz, Detroit, Mich., for defendants Outdoor Resorts and E. Randall Henderson, Jr.

Larry G. Sharp, Flint, Mich., for defendants Leach and Bartneck.

MEMORANDUM OPINION AND ORDER

ANNA DIGGS TAYLOR, District Judge.

This is a suit on certain promissory notes, which was filed on April 24, 1980. The plaintiff Federal Deposit Insurance Corporation (FDIC) purchased the notes among the assets of an insolvent Michigan-chartered bank which had been insured pursuant to the Federal Deposit Insurance Act, 12 U.S.C. § 1811 et seq. This court's jurisdiction is predicated upon Section 29 of that Act, 12 U.S.C. § 1819, which authorizes the FDIC to bring suits, in its corporate capacity, in the United States District Courts. The plaintiff corporation has moved for summary judgment on the notes against the defendant makers: Marian G. Leach, Alexander Bartneck, Outdoor Resorts of America, and E. Randall Henderson. For the reasons more fully discussed below, there being no dispute as to any material fact and the plaintiff being entitled to judgment as a matter of law, the motion must be and hereby is granted.

On September 27, 1974, the Financial Institutions Bureau of the State of Michigan petitioned the Circuit Court for the County of Macomb, Michigan, for an order closing the Tri-City Bank of Warren, Michigan, because of its insolvency. Pursuant to M.C. L.A. § 487.551, that court entered an order forthwith, both closing Tri-City Bank and appointing the Federal Deposit Insurance Corporation as receiver thereof, effective at 7:00 p. m. that same evening.

To maintain the viability of the banking facility, and to avoid the losses to all concerned consequent upon a liquidation and payment by FDIC to depositors to the extent of their statutory deposit insurance, the FDIC as receiver entered into immediate overnight negotiations with the Michigan National Bank of Macomb, and with the FDIC in its corporate capacity, or the plaintiff "corporation." As a result, the Michigan National Bank purchased all acceptable assets of the Tri-City Bank (those being largely its cash), assumed its deposit liabilities, and opened Tri-City's doors the next morning under the name and ownership of Michigan National.

During those same overnight negotiations, the plaintiff corporation purchased the "unacceptable" assets of Tri-City, in bulk, for a consideration exceeding $10,000,000.00, in a "Purchase and Assumption" transaction. The unacceptable assets purchased by the plaintiff corporation included, according to its contract with the receiver, "all assets of the bank not carried on its books of account." The general bill of sale specifically included:

all contracts, rights, claims, demands, choses in action or causes whatsoever pending ... and any claims against its directors, officers or employees arising out of any act of any such persons in respect to the Bank or its property or arising out of the non-performance or manner of performance of their duties.

In addition, the bill of sale conveyed to the corporation all monies, credits or property of every kind or character acquired by the Bank as a result of the sale, collection or enforcement of any of the property sold which had not been applied or credited on the assets comprising the property sold.

Concerning the Purchase and Assumption transaction, the Sixth Circuit Court of Appeals has recently noted, in Gilman v. FDIC, 660 F.2d 688, 1981, that:

This buy-back procedure is favored because it minimizes loss to depositors, conserves the assets of the insurance fund and maximizes the value of the insolvent bank's assets.

Among the "unacceptable" assets listed in the contract as purchased by the corporation in that transaction was a promissory note executed by defendants Marian G. Leach and Alexander Bartneck, under date of May 1, 1974 for $75,000 at 13% per annum interest. Plaintiff corporation's officials later discovered, among the bank's collateral files which the corporation had purchased, another note for $75,000 which had been pledged as collateral by Leach and Bartneck for their note. The collateral note had been given by Outdoor Resorts of America and its President, E. Randall Henderson, to Leach, Bartneck, and one Andrew E. Cisaruk, and was dated April 30, 1974. It was unconditionally payable in 90 days, and also bore a 13% rate of interest. At the time this note was discovered in Tri-City's records it was endorsed on the back by Andrew Cisaruk as collateral to Tri-City Bank. It is also undisputed, however, that in 1976 Leach and Bartneck appeared at the plaintiff corporation's offices and endorsed that note with their signatures under the collateral notation, as well.

Plaintiff corporation now sues Leach and Bartneck on their $75,000 note, and Outdoor Resorts (ORA) and Henderson on their note for the same amount: or, in short, seeks the adjudication of this court that all of the defendants are jointly and severally liable for $75,000 plus 13% interest. As of May 1, 1981, the accrued interest on the notes totalled $101,445.42. In July, 1974, the Tri-City Bank received an interest payment totalling $2,979.10 from defendants Leach and Bartneck on their personal promissory note.

The bank's records indicated that the Leach/Bartneck $75,000 note was partially a renewal of a note which they had executed with Cisaruk on February 13, 1974, for $50,000 at 10%. The renewal was executed only by the two present defendants, however, and it further covered an additional advance of $25,000. It is further acknowledged and undisputed that Leach and Bartneck had authorized the disbursement of both the original $50,000 and the subsequent $25,000 to the Prominent Realty Co., Cisaruk's real estate brokerage firm. Leach and Bartneck, also undisputedly, received a portion of those loan proceeds as vendors under a land contract with ORA.

The ORA/Henderson note had also been given partially to renew an earlier $50,000 promissory note which had been executed by ORA and Henderson to Leach, Bartneck, and Cisaruk in January, 1974. That note had been pledged to Tri-City as collateral for the initial $50,000 Cisaruk/Leach/Bartneck note, and for the new note and advance of $25,000. Henderson's endorsement and guarantee of the ORA note are unconditional. However, Henderson and ORA here claim a failure of consideration for their notes.

It is noteworthy that, in response to Cisaruk's demand of July 26, 1974 (made on behalf of himself, Leach, and Bartneck) for payment of the ORA/Henderson note for $75,000, ORA did issue a check dated August 18, 1974 for $77,979.10, payable to Leach, Bartneck and Cisaruk. Each of those persons in turn endorsed that check over to Tri-City for payment of their loan. That check was dishonored, and a dispute exists as to whether the reason therefor was "payment stopped" or "insufficient funds." In any event, the execution and endorsement of that check by each of these defendants clearly constitutes an acknowledgement of their liability and indebtedness on the notes in the first instance. The bank's existence ended with the events of September, 1974, and the next demands for payment were those of the plaintiff corporation.

By their deposition testimony defendants Leach and Bartneck have acknowledged that the proceeds of their loans were for business purposes. Moreover, all of the other undisputed facts and circumstances of this case militate only toward that conclusion. Also, although Leach and Bartneck here argue an oral agreement of accord and satisfaction with the Tri-City Bank, by the bank's acceptance of the collateral note in "satisfaction" of their personal note, they do acknowledge that they pledged the ORA note to the bank as collateral for their note, and the court notes that their endorsement of the ORA note plainly states that it was delivered as collateral.

THE STATUS OF PLAINTIFF CORPORATION AS NOTEHOLDER

The Federal Deposit Insurance Corporation was organized and exists pursuant to the laws of the United States, 12 U.S.C. § 1811 et seq. The primary purpose of its creation was to provide a system of insurance to protect depositors of banking institutions from losses which would otherwise be occasioned upon the failure of such institutions to meet demand obligations. First State Bank of Hudson County v. United States, 599 F.2d 558 (3d Cir. 1979), cert. denied 444 U.S. 1013, 100 S.Ct. 662, 62 L.Ed.2d 642 (1980). To meet this broad statutory duty, the FDIC is cloaked with both supervisory and regulatory control over insured institutions. 12 CFR Parts 300-349 (1980). The FDIC is empowered to terminate the status of banks as insured where it is found that bank officers are engaged in unsafe banking practices. 12 U.S.C. § 1818. The corporation is authorized to issue cease and desist orders when the appropriate banking agency determines that officers are engaged in unsafe banking practices, § 1818(e)(1); to suspend or remove an officer or director of a bank who, by reason of his position in the bank, has received financial gain through a breach of his fiduciary duty, Id.; and to subpoena witnesses in connection with any examination or proceeding involving a claim for insured deposits. Id. All banks which are members of the Federal Reserve System are required to be insured under the Act. Bank of China v. Wells Fargo Bank & Union Trust, 209 F.2d 467 (9th Cir. 1952). State financial institutions may petition for membership under the...