Federal Deposit Ins. Corp. v. Hamilton
| Decision Date | 28 August 1991 |
| Docket Number | No. 90-1395,90-1395 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff-Appellee, v. Clifford HAMILTON and Dee Iva Hamilton, Defendants/Third-Party Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Texas Bank & Trust Company, and Larry Tester, Third-Party Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Gregory T. House, Steve Alexander, Arens & Alexander, Fayetteville, Ariz., for Clifford and Dee Iva Hamilton.
Guy Wade, III, Jenkins & Gilchrist, Dallas, Tex., for Federal Deposit Ins. Corp., in all Capacities.
H. Grady Terrill, III, Kent Hale, Carr, Fouts, Hunt, Craig, Terrill & Wolfe, Lubbock, Tex., for Larry Tester.
Jeannette E. Roach, Sr. Atty., Washington, D.C., for Federal Deposit Ins. Corp., Corporate Capacity.
Appeals from the United States District Court for the Northern District of Texas.
Before REYNALDO G. GARZA, POLITZ, and JONES, Circuit Judges.
Clifford Hamilton and Dee Iva Hamilton appeal the summary judgment dismissal of their claims against the Federal Deposit Insurance Corporation in both its corporate capacity and as receiver for Texas Bank and Trust Company (TB & T). For the reasons assigned, we affirm.
The Hamiltons have been successful farmers in Lubbock County, Texas since 1945. They routinely financed their farming operations through a line of credit at local banks. Early in each farming season the Hamiltons anticipated their expenses for the year and executed a note for the full amount of the line of credit, drawing against the total as funds were needed. Typically the Hamiltons informed the bank of a needed draw and the bank promptly credited their account with the requested funds. On March 25, 1986, the Hamiltons gave TB & T a note for the 1986 season in the amount of $226,186.95. The note stated that it was for "Renewal 1985 Farm Line & 1986 Farm Line."
TB & T's records reflect that the note represented a renewal of a carryover balance from the 1985 farm line plus $160,000 for the 1986 season. No further terms were contained in the note itself. Bank records made clear that the entirety of the note had not been borrowed. The note therefore reflected a total line of credit only partially consumed. Pursuant to the banking customs in Lubbock County which, unfortunately, were not memorialized in writing in any bank record, the Hamiltons and TB & T officials understood that the bank was obligated to fund the full amount in the increments requested by the Hamiltons and were to honor these requests within one business day. 1
In June 1986 TB & T began to experience financial trouble. Two calls by the Hamiltons were not timely honored--their June 5 request for $10,000 was not credited until June 13 and their August 5 request for $18,000 was not honored until August 14. These delays were contrary to both prior practices and the Hamiltons' understanding and allegedly caused substantial losses to the farming operations.
On September 19, 1986 TB & T was declared insolvent and the FDIC was appointed receiver pursuant to 12 U.S.C. Sec. 1821(e). The FDIC in its corporate capacity purchased the note from the FDIC in its receiver capacity. The remaining TB & T assets held by FDIC as receiver were transferred to RepublicBank Lubbock pursuant to 12 U.S.C. Sec. 1823(c)(2)(A). After a subsequent merger RepublicBank became known as First RepublicBank Lubbock (FRB).
FDIC-Corporate sued the Hamiltons in the district court for the northern district of Texas to recover the amount which had been advanced on the note. The Hamiltons counterclaimed against FDIC-Corporate and filed a third-party complaint against FRB. 2 The Hamiltons alleged that they were entitled to a setoff for damages caused by TB & T's breach of its obligation to advance funds timely pursuant to the line of credit.
Thereafter the Hamiltons filed a Chapter 12 bankruptcy which stayed the FDIC-Corporate's suit to collect on the note. In the bankruptcy proceedings the Hamiltons filed an adversary proceeding against the FDIC in its capacity as receiver for both TB & T and FRB. This action contained allegations identical to those in the counterclaim and third-party complaint. After the bankruptcy court confirmed the Hamiltons' plan of reorganization the adversary proceedings were consolidated with the original suit brought by FDIC-Corporate and the litigation resumed. The Hamiltons admit their liability on the note, which is in abeyance as a result of the bankruptcy proceeding. Accordingly, their claim for offset is the only presently viable dispute between the parties.
Advancing under the shield 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), the FDIC moved for summary judgment against the Hamiltons' setoff claim. The trial court granted this summary judgment motion with respect to FDIC-Corporate and FDIC as receiver for TB & T. The court concluded that the note did not impose any line of credit obligations on TB & T. In particular, the court found that by relying on TB & T's records--the note itself and TB & T's Board minutes--"the only thing the FDIC could see was that the Hamiltons had signed a $226,000+ note."
The 1986 note does not state that the Hamiltons were entitled to draw on the note in partial payments; nor is there any indication that the Hamiltons had not received the full proceeds in one lump sum. The note does not facially place any requirements on the Bank to fund on the note at any specific time or within any specific time constraints.
There are minutes of the Board approving the 1986 farm line note, but there is no mention in the minutes that the Hamiltons would make partial draws on the note or that the Bank was required to make deposits on the same day as any specific draw was requested, or for that matter any time limit for honoring requests for advances.
The trial court found that the prevailing banking custom in Lubbock County was "merely an oral understanding or agreement ... and therefore was not a part of the records of the Bank upon which the FDIC would have notice."
Upon FDIC's motion, the trial court amended its order nunc pro tunc to dismiss Hamilton's claims against the FDIC as receiver for FRB based on the reasoning in the summary judgment order. The Hamiltons timely appealed.
In reviewing a summary judgment we apply the same substantive test as the district court. Summary judgment is appropriate if, viewing the evidence in the light most favorable to the nonmoving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; S. Childress, Standards of Review 311-13 (1986).
The Hamiltons argue that the trial court erred in holding that the D'Oench, Duhme estoppel doctrine applies to their specific setoff claim against the FDIC. In that case the Supreme Court concluded that the legislation creating the FDIC expressed a "federal policy to protect [the FDIC] ... against misrepresentations as to the ... assets in the portfolios of the banks which [the FDIC] insures...." 315 U.S. at 457, 62 S.Ct. at 679, 86 L.Ed. at 962. The estoppel doctrine bars defenses or claims against the FDIC that are based on unrecorded or secret agreements that alter the terms of facially unqualified obligations. 315 U.S. at 460, 62 S.Ct. at 680, 86 L.Ed. at 965. As the D'Oench, Duhme doctrine has expansively evolved, the bar now applies where the borrower is party to a scheme or agreement which would tend to either deceive or mislead the creditors of the bank or the bank examiners. Bowen v. FDIC, 915 F.2d 1013 (5th Cir.1990); Bell & Murphy & Assoc., Inc. v. Interfirst Bank Gateway, N.A., 894 F.2d 750 (5th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990). It is not relevant that the borrower did not intend to deceive banking authorities or that the underlying transaction was not fraudulent. Bowen, 915 F.2d at 1017; Beighley v. FDIC, 868 F.2d 776 (5th Cir.1989). Trapped in this "dungeon of Duhme " 3 are claims based on agreements not reflected in a bank's records. Union Federal Bank of Indianapolis v. Minyard, 919 F.2d 335 (5th Cir.1990); Bowen, 915 F.2d at 1016; Kilpatrick v. Riddle, 907 F.2d 1523 (5th Cir.1990), cert. denied, --- U.S. ----, 111 S.Ct. 954, 112 L.Ed.2d 1042 (1991); Bell & Murphy, 894 F.2d at 755; Beighley, 868 F.2d at 784.
D'Oench, Duhme bars the Hamiltons' claim unless the FDIC should have known from TB & T's records that TB & T was committed to fund them on a line of credit and to do so in a timely manner. The Hamiltons point to several TB & T records which allegedly reflect the parties' understanding of their line of credit. The note states that "the purpose of this loan is renewal 1985 farm line & 1986 farm line." 4 TB & T's board minutes merely indicate that a line of credit was approved. A July 3, 1986 TB & T memo to the Hamiltons' credit file declared that TB & T was "today advancing an additional $5,000.00 on each of the lines per request...." A July 8, 1986 TB & T "Credit Review Evaluation" of the Hamilton loan indicates that as of that date, there was a balance of $155,253.07 on the $226,286.96 note. The "Composite Opinions and Comments" section of the "Credit Review Evaluation" provides as follows:
Loan # 2325 farm operating line of credit with a commitment of $226,186.95.... The current balance of $155,253.09 includes a carryover from the 1985 line of $66,186.95 and a payment from ASCS of $10,923.88 for a gross advance to date of $166,176.97. According to his Budget for 1986, he will need an additional $71,757 to finish the year putting his expense figure at $237,933 or $11,747 over budget. He has projected income at $233,000 which leaves him $4,933 short of payout.
In an August 13, 1986 TB & T letter to Hamilton the note was described as ...
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