Federal Deposit Ins. Corp. v. Wood
| Decision Date | 26 March 1985 |
| Docket Number | No. 84-1124,84-1124 |
| Citation | 758 F.2d 156 |
| Parties | 40 UCC Rep.Serv. 937 FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff-Appellee, v. Richard M. WOOD, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Robert E. Butcher (argued), Southgate, Mich., for defendant-appellant.
Larry Powe (argued), Mount Clemens, Mich., Karen T. Mendelson, Bloomfield Hills, Mich., Margaret Egginton, Daniel W. Persinger, Lawrence F. Bates, Washington, D.C., for plaintiff-appellee.
Before LIVELY, Chief Judge and MARTIN and JONES, Circuit Judges.
This is an action by the Federal Deposit Insurance Corporation in its corporate capacity to recover on a note that it purchased as part of a purchase and assumption agreement. The issue is whether the FDIC can recover the full amount of interest payable on the note when the jury found it to be usurious under state law. The district court, in a judgment notwithstanding the verdict, allowed the collection of interest on the ground that the FDIC enjoys a status equivalent to that of a holder in due course. We affirm.
The promissory note in question was signed by Peter R. Stone and Carole K. Barnett, defendants below, and guaranteed by Richard M. Wood, the defendant-appellant. The note was for the principal amount of $12,000, with interest at 15% per annum computed on a 360-day-per-annum basis, an annual percentage rate of 15.21%. It was due on September 22, 1980.
On May 15, 1982, the Community Bank of Washtenaw, which held the note, was declared insolvent and the FDIC was appointed receiver. The FDIC in its capacity as receiver transferred certain liabilities and sold certain assets of the Community Bank to Michigan National Bank of Ann Arbor in a purchase and assumption transaction. The FDIC transferred the remaining, lower-quality assets, including this note, to itself in its corporate capacity. Purchase and assumption transactions have been described in more detail elsewhere. See Gunter v. Hutcheson, 674 F.2d 862, 865-66 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); FDIC v. Ashley, 585 F.2d 157 (6th Cir.1978).
The FDIC action to collect the note was tried before a jury, which delivered a special verdict on October 20, 1983. The jury held, inter alia, that the defendants, including Wood, were liable to the FDIC on the note, but that the underlying loan was not made for business purposes. The loan was therefore usurious under Michigan law, and no interest could be allowed. Judgment for the outstanding principal, $5,751.76, plus postjudgment interest at the statutory rate, was rendered for the FDIC. The appellant does not contest his liability for this amount on appeal.
The FDIC then moved for judgment notwithstanding the verdict for prejudgment interest, and the defendants moved for punitive costs and attorney's fees. The district court held that the FDIC enjoys a status equivalent to that of a holder in due course under state law and is immune to the defense of usury. It therefore denied the defendants' motions and granted the FDIC's motion, allowing the FDIC full contractual interest and costs.
Under Michigan law, parties in general may not agree to any rate of interest exceeding 7%. Mich.Comp.Laws Ann. Sec. 438.31 (1978). A usurious lender or his assign is barred from the collection of any interest, official fees, collection charge, attorney fees, or court costs, and the borrower can recover attorney fees and court costs. Id. Sec. 438.32. However, banks may loan money at any rate of interest to "business entities"; a natural person is a business entity if he furnishes a sworn statement specifying the type of business and his business purpose. Id. Sec. 438.61 (Supp.1984-1985). Holders in due course are immune to the usury defense under section 438.5, which reads:
438.5 Holder in due course, recovery
In any action brought on any bill of exchange or promissory note payable in money, and to order or bearer, originally given or made for or upon any usurious consideration or contract, if it shall appear that the plaintiff became, in good faith the indorsee or holder of such bill or exchange or promissory note, for a valuable consideration, before the same became due, then and in such case, unless it shall further appear that the plaintiff, at the time of becoming such indorsee or holder, had actual notice that such bill or note was given for or upon a usurious consideration or contract, he shall be entitled to recover thereon, in the same manner, and to the same extent as if such usury had not been alleged and proved.
Id. Sec. 438.5 (1978).
Although the words "holder in due course" appear only in the title, section 438.5 apparently represents an importation of the holder in due course doctrine from the Uniform Commercial Code. A holder in due course is a holder who takes an instrument for value, in good faith, and without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person; provided, inter alia, that the holder did not purchase the instrument as part of a bulk transaction not in the regular course of business of the transferor. Mich.Comp.Laws Ann. Sec. 440.3302 (1967); U.C.C. Sec. 3-302 (1972). A holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt, except those defenses enumerated in Mich.Comp.Laws Ann. Sec. 440.3305 (1967); U.C.C. Sec. 3-305 (1972).
Under state law, the FDIC cannot be a holder in due course, if it had notice that the note was overdue. (The FDIC also is not a holder in due course under state law if the purchase and assumption transaction was out of its ordinary course of business as a receiver, but it appears that this rule in any case is not relevant to the usury defense under section 438.5.) We assume without holding that the FDIC in fact is not a holder in due course under state law. This case, however, is not under state law, but is under federal law pursuant to 12 U.S.C. Sec. 1819, which reads in relevant part:
Sec. 1819. Incorporation; powers; seal
Upon June 16, 1933, the Corporation shall become a body corporate and as such shall have power--
....
Fourth. To sue and to be sued, complain and defend, in any court of law or equity, State or Federal. All suits of a civil nature at common law or in equity to which the Corporation shall be party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction thereof, without regard to the amount in controversy; and the Corporation may, without bond or security, remove any such action, suit, or proceeding from a State court to the United States district court for the district or division embracing the place where the same is pending by following any procedure for removal now or hereafter in effect, except that any such suit to which the Corporation is a party in its capacity as receiver of a State bank and which involves only the rights or obligations of depositors, creditors, stockholders, and such State bank under State law shall not be deemed to arise under the laws of the United States.
When the FDIC purchases notes in a purchase and assumption transaction, it acts in its corporate capacity. FDIC v. Ashley, 585 F.2d 157, 160 (6th Cir.1978). It follows that federal law applies. D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 456, 62 S.Ct. 676, 679, 86 L.Ed. 956 (1942). Cf. United States v. Kimbell Foods, 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979) ().
The Supreme Court held in D'Oench, Duhme that a secret agreement designed to deceive creditors or the public authority or tending to have that effect would not be a defense against the FDIC on its collection of a note. This holding is generally considered to have been codified in 12 U.S.C. Sec. 1823(e), which reads:
(e) Agreements against interests of Corporation
No agreement which tends to diminish or defeat the right, title or interest of the 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.
There is authority that Congress intended by means of section 1823(e) to clothe the FDIC with the protections afforded a holder in due course. FDIC v. Rosenthal, 477 F.Supp. 1223, 1226 (E.D.Wis.1979), aff'd mem., 631 F.2d 733 (7th Cir.1980); FDIC v. Rockelman, 460 F.Supp. 999, 1003 (E.D.Wis.1978). We believe, however, that although section 1823 manifests the congressional intent to protect the FDIC, it does not of itself authorize holder-in-due-course status. Gunter v. Hutcheson, 674 F.2d 862, 867 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); see FDIC v. Hatmaker, 756 F.2d 34, 36 (6th Cir.1985) (). If the FDIC has that status, it must be as part of the federal common law.
As federal common law is applicable, but Congress has given no statutory guidance, we are faced with the same problem of giving content to federal law that the Supreme Court faced in United States v. Kimbell Foods, 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). The Court held that, where a national rule is...
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