Geri Zahn, Inc., In re

• Decision Date: 14 July 1994
• Docket Number: No. 93-4120,93-4120
• Citation: 25 F.3d 1539
• Parties: In re GERI ZAHN, INC., d/b/a Just Clothes, Debtor. FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. Gui L.P. GOVAERT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1539

25 F.3d 1539

In re GERI ZAHN, INC., d/b/a Just Clothes, Debtor.

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. Gui L.P. GOVAERT, Defendant-Appellant.

No. 93-4120.

United States Court of Appeals,

Eleventh Circuit.

July 14, 1994.

Stuart I. Levin, Miami, FL, for appellant.

Robert L. Young, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Orlando, FL, Manuel A. Palau, FDIC, Washington, DC, for appellee.

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

Before HATCHETT and ANDERSON, Circuit Judges, and YOUNG ^*, Senior District Judge.

ANDERSON, Circuit Judge:

Gui L.P. Govaert, trustee in bankruptcy of Geri Zahn, Inc. d/b/a Just Clothes ("Just Clothes") appeals from the district court's finding that its claims for wrongful dishonor of checks, fraudulent inducement and misrepresentation against the Federal Deposit Insurance Corporation ("FDIC") as receiver for the First American Bank and Trust ("FABT") are barred by the common law D'Oench doctrine and 12 U.S.C. Sec. 1823(e). For the reasons that follow, we affirm the district court's order.

I. BACKGROUND

Jason Zahn and Geri Zahn operated a clothing store known as Just Clothes. Although Just Clothes originally had its commercial banking relationship with Barnett Bank, in 1985, representatives of FABT persuaded the Zahns that it would be more advantageous for them to switch their business accounts to FABT. Representatives of FABT met with the Zahns at their office and over lunch on numerous occasions.

On October 29, 1985, Tom Abrams, a vice president and general manager of the local branch of FABT, sent a letter to the Zahns referenced "Financial Relationship and Conditions," which set forth terms of a proposed loan to Just Clothes. This letter stated that the requested $150,000 loan would be comprised of a $100,000 capital loan with a five year term and a $50,000 revolving line of credit, both at a rate of 1 and 1/2% over prime. The letter also required that Just Clothes deposit $25,000 in an interest bearing account at FABT. At the time the letter was written, FABT's loan committee had not yet approved any loan to Just Clothes. Subsequently, Abrams and Caroline Graves, president of FABT, visited the clothing store, at which time Graves allegedly told Zahn that the committee had approved the loan.

The loan closing took place on November 26, 1985. The Zahns, Abrams, and George Jordan, a loan officer for FABT, were present. At the closing, Jordan explained the loan documents to the Zahns and presented them for execution. The Zahns signed a promissory note ("Note") which called for a loan of $150,000 at interest of 1 and 1/2% over the bank's prime rate. The Note also required cash collateral in the amount of $75,000. The Zahns did not obtain copies of the loan documents at the closing. In December of 1985, the Zahns went to New York on a buying trip and wrote a number of checks on their new checking account at FABT which were subsequently dishonored.

In the summer of 1986, the Zahns received copies of the loan documents that they had executed on November 26, 1985, including the Note, U.C.C. financing statement, security agreement, guaranty, assignment of lease, and landlord's waiver. Upon reviewing the loan documents, the Zahns discovered that some of the documents, including the Note, were dated January 8, 1986, instead of November 26, 1985. Some of the provisions inserted in the Note also varied from the terms the Zahns expected following discussions with bank personnel and the October 29, 1985 letter. A floor was placed on the interest rate at 11%. The term of the loan was one year instead of five years, with additional collateral listed for the loan.

Zahn testified at trial that at the time he signed the Note, certain provisions of the Note and other loan documents had not been completed, including the date, the amount of collateral required for the loan and the interest rate. According to Zahn, he executed the Note and loan documents even though these material terms had been left blank because he trusted the bank and assumed that it would conform to the terms set forth in its letter of October 29, 1985.

Jordan testified that the Zahns neither reviewed the loan documents prior to signing them, nor asked Jordan any questions about them. According to Jordan, all of the provisions had been completed at the time of signing except for the date because it was FABT's practice not to date a note until it was actually funded. The Note signed by the Zahns was subsequently dated January 8, 1986.

Zahn also testified at trial that at the November 26, 1985, closing, Jordan told him that the loan would be funded that day or the next. Zahn contended that the checks were dishonored as a result of FABT's refusal to immediately fund the loan. According to Zahn, Abrams had assured him that all the checks the Zahns had written would be honored.

Jordan disputed that the funding date was ever discussed at the closing, and both he and Abrams denied telling Zahn that the loan would be funded by the next day. Jordan testified that FABT honored all checks written up to the $50,000 amount of the revolving credit loan, but returned checks for payment once the Zahns had exhausted the balance of the credit loan. The statement of account for the month of December, 1985, showed a negative balance in the account of $47,327.11 as of December 31, 1985.

As a result of the dishonored checks, several vendors in New York refused to sell merchandise to the Zahns on terms which would permit Just Clothes to stay in business. In January, 1987, Geri Zahn, Inc. d/b/a Just Clothes filed for protection in bankruptcy under Chapter 11. Subsequently, the case was converted to a Chapter 7 liquidation proceeding.

Govaert, trustee for Just Clothes, filed an adversary proceeding against FABT, alleging common law fraud, wrongful dishonor of checks, and intentional interference with an advantageous business relationship. The bankruptcy court conducted a trial on May 17, 1989 and issued findings of fact and conclusions of law, entering judgment against FABT in the amount of $349,000. FABT filed a notice of appeal from the judgment with the district court on September 12, 1989.

In December 1989, the Comptroller of the Currency declared FABT to be insolvent and appointed the FDIC as its receiver. Accordingly, the district court substituted FDIC, receiver for FABT, as the party appellant on April 16, 1990. The district court on December 14, 1990, remanded the case to the bankruptcy court for further findings as to the issue of damages.

On January 15, 1991, FDIC moved for clarification, rehearing, reconsideration or relief from the December 14, 1990 order, arguing that the D'Oench doctrine and 12 U.S.C. Sec. 1823(e) precluded the trustee from maintaining an action against the FDIC. The district court granted the motion on February 5, 1991, issuing an order clarifying that, after de novo review, it adopted the bankruptcy's findings and conclusions except with respect to the issue of damages which was remanded to the bankruptcy court.

The bankruptcy court issued findings of fact and conclusions of law with respect to the issue of damages on December 19, 1991. Govaert v. First American Bank & Trust Co., 135 B.R. 912 (S.D.Fla.1991). The bankruptcy court entered judgment for the trustee in the amount of $572,208, representing $472,208 in compensatory damages and $100,000 in punitive damages. FDIC moved the bankruptcy court to alter or amend its findings on the grounds that: (1) it lacked jurisdiction to enter a final judgment; (2) the Zahns' claims were barred under the D'Oench doctrine and 12 U.S.C. Sec. 1823(e); and (3) FDIC was exempt from punitive damages. On February 6, 1992, the bankruptcy court ordered the FDIC to redeposit a cash bond with the court and further directed the trustee to execute its judgment exclusively against that bond.

FDIC appealed the bankruptcy court's findings, conclusions, and judgment of December 19, 1991 to the district court on March 25, 1992. On April 6, 1992, FDIC also appealed the bankruptcy court's February 6, 1992 order pertaining to redeposit of the cash bond. Among numerous objections, FDIC reiterated its position first raised in its motion to reconsider the district court's December 14, 1990 order, that the D'Oench doctrine and 12 U.S.C. Sec. 1823(e) barred the assessment of liability and damages against FDIC for wrongful dishonor, fraudulent inducement or misrepresentation, where the claims were based on oral or written side agreements.

On December 9, 1992, the district court issued an order finding that the claims against the FDIC as receiver for FABT were barred under the D'Oench doctrine and 12 U.S.C. Sec. 1823(e). The district court held that the FDIC was free to enforce the terms of the January 8, 1986 promissory note and reversed the bankruptcy court's order regarding redeposit of the cash bond.

On January 27, 1993, appellant filed this appeal, arguing that the district court erred in holding its claims barred, urging that the D'Oench doctrine and 12 U.S.C. Sec. 1823(e) are inapplicable to tort claims not involving personal injury or property damage. For the reasons that follow, we affirm the judgment of the district court.

II. STANDARD OF REVIEW

Because the determination of the applicability of the D'Oench doctrine involves a question of law, we review the findings of the bankruptcy and district courts de novo. In re Empire for Him, 1 F.3d 1156, 1158-59 (11th Cir.1993).

III. DISCUSSION

Our analysis begins with an examination of the D'Oench doctrine's origins and with the leading case itself. In D'Oench Duhme v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), the Supreme Court held that a "secret agreement" outside the documents contained in the bank's records would not operate as a defense against suit by the FDIC on a note acquired from a failed bank. Id. at 459, 62 S.Ct. at 680. ...