Flintridge Station Associates v. American Fletcher Mortg. Co., 83-3039

• Decision Date: 24 June 1985
• Docket Number: No. 83-3039,83-3039
• Parties: 1985-1 Trade Cases 66,612 FLINTRIDGE STATION ASSOCIATES, Plaintiff-Appellant, v. AMERICAN FLETCHER MORTGAGE COMPANY and American Fletcher National Bank, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 434

761 F.2d 434

1985-1 Trade Cases 66,612

FLINTRIDGE STATION ASSOCIATES, Plaintiff-Appellant, v. AMERICAN FLETCHER MORTGAGE COMPANY and American Fletcher National Bank, Defendants-Appellees.

No. 83-3039.

United States Court of Appeals Seventh Circuit.

Argued Nov. 6, 1984.

Decided May 9, 1985.

As Amended on Denial of Rehearing and Rehearing En Banc June 24, 1985.

John A. Chandler, Sutherland, Asbill & Brenna, Atlanta, Ga., for plaintiff-appellant.

Theodore R. Boehm, Baker & Daniels, Indianapolis, Ind., for defendants-appellees.

Before CUMMINGS, Chief Judge, BAUER, Circuit Judge, and DUMBAULD, Senior District Judge. ^*

BAUER, Circuit Judge.

Flintridge Station Associates (Flintridge) filed suit against the American Fletcher Mortgage Company (Mortgage Company) and the American Fletcher National Bank (Bank) for violations of the anti-tying provisions of the Bank Holding Company Act, 12 U.S.C. Sec. 1971 et seq. (1982), which allegedly arose in connection with a loan from the Mortgage Company to Flintridge. The complaint also alleged three pendent state law claims for tortious interference with a business relationship, breach of fiduciary duty, and breach of contract. The district court granted summary judgment in favor of the defendants on the Bank Holding Company Act claim and on each of the three pendent claims. We affirm the judgment of the district court.

I. BANK HOLDING COMPANY ACT CLAIM

During the summer of 1975, Flintridge was a limited partnership formed to build and operate a shopping center in Atlanta, Georgia. At that time, Flintridge approached American Fletcher Mortgage Company to obtain financing for the proposed project. The Mortgage Company is in the business of arranging and administering financing for the development of real estate projects. Flintridge needed both a short-term construction loan to build the center and a long-term loan to "take-out" the construction loan. On October 6, 1975, the Mortgage Company issued a written commitment to lend Flintridge $2,550,000 in construction funds subject to various conditions. One of those conditions was that the Mortgage Company would have the right to secure a permanent loan commitment to pay off the construction loan when the construction was completed. The commitment agreement specifically provided:

GENERAL CONDITIONS:

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6. American Fletcher Mortgage Company, Inc. is to have the exclusive right to arrange permanent mortgage financing on this property.

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SPECIAL CONDITIONS:

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3. This commitment is contingent upon American Fletcher Mortgage Company, Inc. obtaining a participating lender(s) satisfactory to us.

R. 2, ex. 15A. On October 17, 1975, Flintridge accepted the Mortgage Company's commitment. American Fletcher National Bank later became a 100% participant.

The Mortgage Company secured a permanent loan commitment for Flintridge in February 1976 from State Farm Insurance Company, and began disbursing funds for construction in March 1976. Flintridge began encountering financial difficulties shortly thereafter when it expanded the shopping center to include outlots, or buildings placed in areas of the parking lot, and began developing those areas without having secured additional funds. Flintridge then sought more construction funds from the Mortgage Company and therefore needed a larger permanent loan to support the larger construction loan.

By October 1976 Flintridge was in default on its obligations under the construction loan and liens were being filed against the construction project. Pursuant to its rights under the October 6, 1975, loan commitment letter which stated that the "[Mortgage Company is] to have an assignment of all leases and/or rents for the tenants," the Mortgage Company directed the existing tenants to send rents directly to the Mortgage Company. On June 6, 1977, the Mortgage Company's construction loan matured and was not paid. The Mortgage Company gave notice that it intended to protect its interests by exercising its right to a nonjudicial foreclosure. On July 1, 1977, Flintridge filed a voluntary petition for a reorganization in the United States District Court for the Northern District of Georgia under Chapter 12 of the Bankruptcy Act of 1898. Act of July 1, 1898, ch. 541, 30 Stat. 544 (as amended), repealed by Pub.L. No. 95-598, 92 Stat. 2641 (1978). At the time that this action was filed on appeal, the only matter still pending in the Georgia bankruptcy action was a final approval of the Mortgage Company's claim on its construction loan.

In 1979, Flintridge requested leave of the Georgia court to begin an adversary proceeding in that court against both the Mortgage Company and American Fletcher National Bank for alleged violations of the Bank Holding Company Act, 12 U.S.C. Sec. 1972 (1982), and on pendent state law claims. The bankruptcy court denied Flintridge's request because the Mortgage Company, not the Bank, was the construction lender, the Mortgage Company had not appeared in the bankruptcy court as an agent for the Bank, and the Bank, therefore, had not consented to the summary jurisdiction of the bankruptcy court. Flintridge then filed the identical Bank Holding Company Act action and pendent state law claims in the United States District Court for the Southern District of Indiana. Count one of the complaint was the cause of action under the Bank Holding Company Act, 12 U.S.C. Sec. 1972, wherein the plaintiffs sought treble damages under the Act for alleged violations of the Act's anti-tying provisions. After a review of the facts, which were essentially uncontested, the district court granted the defendants' motion for summary judgment on count one of the complaint. The district court ruled that the financing arrangement between the Mortgage Company and Flintridge, in which the Mortgage Company secured American Fletcher National Bank as its participating lender in the transaction, was a "traditional banking practice" exempt from the anti-tying provisions in the Act. The court also ruled that the Mortgage Company was not a "bank" within the meaning of the Act, and that the conditions in the loan commitment between the Mortgage Company and Flintridge could not constitute violations of the Act.

The Bank Holding Company Act was passed "to prohibit anti-competitive practices [by banks] which require bank customers to accept or provide some other service or product or refrain from dealing with other parties in order to obtain the bank product or service they desire." S.REP. NO. 1084, 91st Cong., 2d Sess. (1970), reprinted in 1970 U.S.CODE CONG. & AD.NEWS 5519, 5535. By its express terms, however, Section 1972 prohibits only conduct by a "bank." Section 1841(c) provides that a bank is "an institution ... which (1) accepts deposits that the depositor has a right to withdraw on demand, and (2) engages in the business of making commercial loans."

This narrow definition was purposefully provided by Congress, see 1970 U.S.CODE CONG. & AD.NEWS 5541, and has been explicitly recognized by the courts. B.C. Recreational Indus. v. First Nat. Bank, 1980-2 Trade Cas. (CCH) 63,437, at 76,285 (D.Mass.1980), aff'd on other ground, 639 F.2d 828 (1st Cir.1981); Tose v. First Pennsylvania Bank, 648 F.2d 879, 898 n. 23 (3d Cir.), cert. denied, 454 U.S. 893, 102 S.Ct. 390, 70 L.Ed.2d 208 (1981). The district court found that American Fletcher Mortgage Company is not a bank within the terms of the Act because the Mortgage Company does not accept demand deposits. This fact is fully supported by the record and Flintridge has not contested it. We therefore agree with the district court that the Mortgage Company does not fall within the Act's definition of a bank and therefore cannot be subject to its anti-tying provisions.

Flintridge argues, however, that the Mortgage Company and consequently the Bank should be liable under the Bank Holding Company Act because the Mortgage Company was acting in its dealings with Flintridge as an agent for the Bank. The district court rejected this argument, as did the Georgia bankruptcy court. We agree with this determination.

Admittedly, both the Mortgage Company and the Bank are wholly owned subsidiaries of the American Fletcher Corporation, a national bank holding company located in Indianapolis, Indiana. But this relationship to the same parent corporation is insufficient to establish an agency relationship between the Mortgage Company and the Bank. Just as "[a] parent corporation possesses a separate existence and is treated separately from a subsidiary unless there are circumstances justifying disregard of the corporate entity," Matter of Chrome Plate, Inc., 614 F.2d 990, 996 (5th Cir.), cert. denied, 449 U.S. 842, 101 S.Ct. 123, 66 L.Ed.2d 50 (1980), and the "fact of existence of a corporation does not make it the agent of its shareholders" without other evidence of agency, Frank v. C.I.R., 321 F.2d 143, 150 (8th Cir.1963), so also the existence of the Bank and the Mortgage Company as subsidiaries of the same parent corporation does not make them agents for one another without some independent evidence of an agency relationship. Flintridge points to an "Agency and Servicing Agreement" entered between the Bank and the Mortgage Company on June 2, 1969, and cancelled on September 28, 1979, to support its contention that the Mortgage Company was an agent for the Bank when it made its loan commitment to Flintridge in 1976. While this agreement on its face establishes an agency relationship between the Mortgage Company and the Bank for some purposes, it does not follow that the Mortgage Company acts as agent for the Bank for all purposes. It is necessary, therefore, to examine the terms of the "Agency and Servicing Agreement" to determine for what purposes the Mortgage Company is an agent for the Bank.

The Servicing Agreement upon which Flintridge bases its agency argument provides in part:

1. Origination of Loans. [Mortgage Company] shall...