Federal Deposit Ins. Corp. v. Tennesseans for Tyree

• Court: U.S. Court of Appeals — Sixth Circuit
• Writing for the Court: KENNEDY
• Citation: Federal Deposit Ins. Corp. v. Tennesseans for Tyree, 886 F.2d 771 (6th Cir. 1989)
• Decision Date: 21 September 1989
• Docket Number: No. 88-6249,88-6249
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellant, v. TENNESSEANS FOR TYREE, et al., Defendants, Randy Tyree and P. Douglas Morrison, Defendants-Appellees.

Page 771

886 F.2d 771

58 USLW 2242

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellant, v. TENNESSEANS FOR TYREE, et al., Defendants Randy Tyree and P. Douglas Morrison, Defendants-Appellees.

No. 88-6249.

United States Court of Appeals Sixth Circuit.

Argued July 27, 1989.

Decided Sept. 21, 1989.

Rex R. Veal, Anne C. Sanders argued, Federal Deposit Ins. Corp., Knoxville, Tenn., for plaintiff-appellant.

W. Keith McCord argued, McCord, Cockrill & Weaver, Knoxville, Tenn., for defendants.

Before KENNEDY and KRUPANSKY, Circuit Judges; and MILES, District Judge. ^*

KENNEDY, Circuit Judge.

Plaintiff FDIC appeals from a lower court judgment absolving defendants Randy Tyree and P. Douglas Morrison of personal liability on a promissory note in the principal amount of $378,750.00 issued by the United American Bank of Hamilton County, Tennessee (UAB-HC) and executed by Morrison with the words "Tennesseans for Tyree by P. Douglas Morrison, Chairman." Plaintiff claims defendants are personally liable on the note under Tennessee law of agency and because, in executing the note, they engaged in conduct likely to mislead banking authorities in violation of D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942) and 12 U.S.C. Sec. 1823(e). We find that the lower court's findings of fact were not clearly erroneous and that it applied the correct rule of law and affirm.

Pursuant to the Tennessee Campaign Finance Act. T.C.A. Sec. 2-10-101 et seq., Tennessee gubernatorial candidate Randy Tyree appointed a campaign committee known as "Tennesseans for Tyree." Tennesseans for Tyree was an unincorporated nonprofit political organization which, among other functions, raised funds for Tyree's 1982 campaign. As required by the statute, notice of the committee's formation was filed with the Tennessee State Librarian & Archivist in October 1981. According to appellees, the Tennesseans for Tyree campaign committee consisted of an association of 25-30 members led by Jake Butcher, C.H. Butcher, Jr. and Jesse Barr. These same persons had for several years raised funds for various political campaigns.

Defendant Morrison acted as Tyree's campaign coordinator. Loans to fund the campaign were arranged by Jake Butcher, C.H. Butcher, Jr. and Jesse Barr. The UAB-HC loaned the committee $378,750.00, as evidenced by a demand promissory note dated September 20, 1982. The note was executed with the words "Tennesseans for Tyree by P. Douglas Morrison, Chairman." The amount was blank at the time Morrison signed. Barr later filled in the amount. The funds were used by the treasurer of Tennesseans for Tyree to cover overdrafts in a bank account at another bank that was used to pay campaign expenses. Morrison executed the note in this manner at the direction of Barr, who was an authorized agent of UAB-HC. Barr assured Morrison orally that Morrison would incur no personal liability on the note.

After UAB-HC failed, plaintiff FDIC obtained the note from the bank through a purchase and assumption transaction under 12 U.S.C. Sec. 1821. In an earlier proceeding, FDIC received a summary judgment against George and Justine Dukas as guarantors of the note. On August 1, 1988, FDIC brought the instant action against defendants Tennesseans for Tyree, Randy Tyree, and P. Douglas Morrison. FDIC claimed that Tyree and Morrison were personally liable on the note based on Tennessee's law of agency. FDIC also argued that because Morrison executed the note in blank and on behalf of an allegedly nonexistent principal (i.e., Tennesseans for Tyree), defendants had participated in a scheme or secret agreement likely to mislead banking authorities in violation of 12 U.S.C. Sec. 1823(e). The lower court, which tried the case without a jury, found Tennesseans for Tyree liable on the note, but held that Tyree and Morrison were not personally liable, nor had they engaged in any activity to deceive banking authorities. FDIC appeals from that judgment.

A. Liability under Tennessee law

FDIC argues that Tyree and Morrison are personally liable on the note under Tennessee law. FDIC's first claim is that Tennesseans for Tyree did not exist when Morrison executed the note and, therefore, Morrison is personally liable because he signed the note on behalf of a nonexistent entity. See generally, Am.Jur.2D Agency Sec. 295; 10 C.J.S. Bills & Notes Sec. 32(b)(3). FDIC argues alternatively that Morrison signed the note without authority. Both of these arguments, however, are contingent on FDIC's factual assertion that Tennesseans for Tyree did not exist when Morrison executed the note. With respect to factual questions, this Court must uphold the District Court's findings of fact unless they are "clearly erroneous." Sawyer v. Arum, 690 F.2d 590, 592 (6th Cir.1982); see also Rabidue v. Osceola Refining Co., 805 F.2d 611, 616 (6th Cir.1986), cert. denied, 481 U.S. 1041, 107 S.Ct. 1983, 95 L.Ed.2d 823 (1987) (district court's interpretation of facts is to be adopted where multiple interpretations may exist); Heights Community Congress v. Hilltop Realty, Inc., 774 F.2d 135, 140 (6th Cir.1985), cert. denied, 475 U.S. 1019, 106 S.Ct. 1206, 89 L.Ed.2d 318 (1986) (district court's fact findings are upheld if supported by record as whole, regardless of whether it is best or only conclusion).

FDIC argues that the District Court's finding that "Tennesseans for Tyree was properly organized as a political campaign committee ... duly registered ... [and] ... complying with all the requirements of state law ..." is clearly erroneous. It contends that based on the inconsistent deposition testimony of defendants, the court was required to find that there were two entities, a registered political organization and a sham organization, existing in name only and used to obtain funding. Both defendants at times sought to distinguish between two Tennesseans for Tyree entities--one as an umbrella political campaign organization and one as a subsidiary fund-raising organization. It was the latter organization that FDIC contends was obligated on the note and which did not exist, "except in name."

The District Court examined the appellees' entire testimony and concluded that there was but one Tennesseans for Tyree and that it existed when Morrison executed the note. This finding was not, as FDIC contends, clearly erroneous. Although appellant FDIC identifies several inconsistencies in appellees' testimony, ¹ adequate evidence existed to support the District Court's factual conclusion that there was only one Tennesseans for Tyree, and that organization existed when Morrison executed the note. On appeal, FDIC has the burden of establishing that the lower court made a mistake, Thompson v. National Railroad Passenger Corp., 621 F.2d 814 (6th Cir.), cert. denied, 449 U.S. 1035, 101 S.Ct. 611, 66 L.Ed.2d 497 (1980) and that burden is not met by merely pointing out conflicting testimony. Sawyer, 690 F.2d at 592 (citing Walling v. General Industries Co., 330 U.S. 545, 67 S.Ct. 883, 91 L.Ed. 1088 (1947)). Appellant does not appear to contend that there was no evidence to support the court's finding. The District Court's finding that there was only one Tennesseans for Tyree and that it existed when Morrison executed the note need not be disturbed merely because it is based on conflicting evidence. The District Court adequately explained why it accepted the testimony it did.

FDIC's argument that Morrison signed the note without authority because he was not the chairman of Tennesseans for Tyree is equally without merit. The District Court's factual finding that Morrison was chairman of Tennesseans for Tyree was not clearly erroneous. Although his duties in that capacity appear limited to signing notes, adequate evidence exists to show that he acted as chairman of Tennesseans for Tyree at least for purposes of obtaining funding. The fact that there was also testimony to the contrary does not establish that the decision was clearly erroneous. See Sawyer, 690 F.2d at 592.

Morrison's signature as a representative of Tennesseans for Tyree insulates him from liability on the note. FDIC concedes that "under the law of Tennessee, use of the word 'by' preceding a signature is legally sufficient to establish that the signature is made in a representative capacity when the principal is fully disclosed." FDIC v. Tennessee Wildcat Services, Inc., 839 F.2d 251, 253 (6th Cir.1988). FDIC claims the Tennessee Wildcat rule is inapplicable to this case because here there was in fact no principal for Morrison to sign on behalf of or disclose. This argument fails in view of the court's finding that Tennesseans for Tyree in fact did exist when Morrison executed the note. Under T.C.A. Sec. 47-3-403 (UCC Article 3), an instrument executed by an agent in a representative capacity obligates the principal and not the agent if the agent signs in a representative capacity on behalf of a disclosed principal. Tennessee Wildcat Services, 839 F.2d at 253. Morrison executed the note in his representative capacity as chairman of Tennesseans for Tyree, an existing and fully disclosed principal. He is thus insulated from liability on the note. Tyree is similarly free from liability on the note because under Tennessee law, no one is liable on an instrument unless his signature appears on it. T.C.A. Sec. 47-3-401. Since Tyree did not sign the note, he cannot be held personally liable on it.

FDIC next claims that Tyree and Morrison are personally liable on the note as members of Tennesseans for Tyree because they were partners in that organization. Under Tennessee law, however, members of nonprofit political organizations are not treated as partners for purposes of liability. Rather, they are governed by the law of agency. Blair v. Southern Clay Mfg. Co., 173 Tenn. 571, 121 S.W.2d 570, 572 (1938) ("If ... in the operation of ... an association, profit and loss is not contemplated, such as literary, social or political...