First Empire Bank New York v. Federal Deposit Ins. Corp.

• Decision Date: 30 December 1980
• Docket Number: BANK-NEW,No. 79-3166,79-3166
• Citation: 634 F.2d 1222
• Parties: FIRST EMPIREYORK (by its successor-in-interest Manufacturers & Traders Trust Co. of Buffalo, New York, a New York banking corporation) and Societe Generale, a French banking corporation, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Federal Deposit Insurance Corporation as Receiver of United States National Bank, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1222

634 F.2d 1222

FIRST EMPIRE BANK-NEW YORK (by its successor-in-interest Manufacturers & Traders Trust Co. of Buffalo, New York, a New York banking corporation) and Societe Generale, a French banking corporation, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Federal Deposit

Insurance Corporation as Receiver of United States

National Bank, Defendants-Appellees.

No. 79-3166.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 14, 1980.

Decided Dec. 30, 1980.

Don A. Proudfoot, Jr., Los Angeles, Cal., Gary J. Greenberg, Stroock, Stroock & Lavan, New York City, for plaintiffs-appellants.

Charles A. Legge, Bronson, Bronson & McKinnon, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Southern District of California.

Before BROWNING, MERRILL and FLETCHER, Circuit Judges.

MERRILL, Circuit Judge:

In an earlier appeal this court dealt with problems presented by the receivership of the United States National Bank of San Diego (USNB) and with actions taken by the Federal Deposit Insurance Corporation (FDIC), both in its corporate capacity as insurer and as receiver of USNB. First Empire Bank-New York v. Federal Deposit Insurance Corp., 572 F.2d 1361 (9th Cir. 1978). FDIC had entered into a purchase and assumption agreement with Crocker National Bank. Under that contract, Crocker had assumed certain obligations of USNB but had refused to assume certain other obligations in the form of standby letters of credit issued by the bank, unless FDIC, in its corporate capacity, guaranteed the obligations of the account party as an offsetting asset. FDIC refused to do this. We held that the purchase and assumption agreement amounted to a distribution to those whose claims were assumed by Crocker, and that since certain creditors were excluded from the distribution it was not ratable as required by the National Bank Act, 12 U.S.C. § 194. We remanded the case "with instructions that judgment be entered in favor of each appellant in the amount of the face value of each USNB letter of credit held by it, plus interest from the dates of maturity, less the amount of any USNB deposit held by it." First Empire Bank-New York v. Federal Deposit Insurance Corp., supra, 572 F.2d at 1372.

The district court has entered judgment for appellants pursuant to our remand. On this appeal appellants challenge in three respects the manner in which sums due them were computed by the district court.

1. Interest Rate

The district court held that interest accruing after the date on which the obligations matured should be calculated at California's legal rate of interest: 7% per annum. ¹ Appellants dispute this holding. They contend that interest should be calculated at the contract rate so that they can receive the full benefit of their bargain with USNB. In support of this contention they point to the emphasis we placed in our earlier opinion on the need for equality of treatment between creditors if dividends are to be "ratable." They conclude that they are entitled to the same treatment as those creditors who received the benefit of their bargain when their claims were assumed, and promptly paid, by Crocker.

We must reject appellants' contention. The equality of treatment we demanded in our earlier opinion pertained to the sharing of the distribution of dividends by all holding claims against the closed bank.

In our earlier opinion we dealt with the question of interest in response to FDIC's contention that interest should not form a part of the creditors' claims. We noted that while interest, after insolvency of the bank, cannot be included in the claim against the bank, it is proper to allow interest upon an erroneously disallowed claim from the date a ratable amount was paid to other creditors. We quoted from the Supreme Court in Ticonic National Bank v. Sprague, 303 U.S. 406, 411, 58 S.Ct. 612, 614, 82 L.Ed. 926 (1938):

"(A) creditor whose claim has been erroneously disallowed is entitled on its allowance to interest on his dividends from the time a ratable amount was paid other creditors."

Accordingly, on our remand we directed that interest from the date of maturity be paid, not because it was bargained for, but in the nature of damages for failure to include the creditor in distribution of a dividend.

However, the benefit-of-the-bargain rule, although appropriate in other circumstances, can have no application in the event of the failure of a national bank. With different contract rates applying to different claims, the benefit-of-the-bargain rule would result in a decidedly unratable distribution as between disfavored creditors.

Thus, in cases dealing with bank failures under the National Bank Act, it is recognized that interest upon a claim erroneously disallowed by the receiver should be calculated at the applicable legal rate. Douglass v. Thurston County, 86 F.2d 899 (9th Cir. 1936); Anderson v. General American Life Insurance Co., 141 F.2d 898 (6th Cir. 1944). In the latter case the court stated at page 909:

"By unquestioned authority the appellee General American Life Insurance Company is entitled to recover from the appellant Receiver legal interest at the rate of 6% per annum upon the 67% dividend and upon the 10% dividend, respectively, on its established claim of $503,541.66, from the dates when like dividends were respectively paid to other creditors up to the date when corresponding dividends shall be paid to the appellee."

And in Elliott v. First Inland National Bank of Pendleton, Or., 32 F.Supp. 839 (D.Or.1940), the court stated:

"The authorities support the proposition contended for by the Receiver-that interest on the time and savings deposits should be computed to the date of closing at the contract rate * * * thereafter the total should bear interest at the same rate (the local statutory rate on judgments) as the demand deposits. Ratability in distribution is thus attained. The question is solely one of interpretation of the National Banking Code."

Id. We agree with the Oregon court.

We conclude that the district court correctly allowed post-maturity interest at the...