Gunter v. Hutcheson, 81-7129

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Citation674 F.2d 862
Docket NumberNo. 81-7129,81-7129
PartiesFed. Sec. L. Rep. P 98,654 William L. GUNTER and Camille S. Gunter, Plaintiffs-Appellants, v. Theodore M. HUTCHESON, et al., Defendants-Appellees.
Decision Date30 April 1982

Page 862

674 F.2d 862
Fed. Sec. L. Rep. P 98,654
William L. GUNTER and Camille S. Gunter, Plaintiffs-Appellants,
Theodore M. HUTCHESON, et al., Defendants-Appellees.
No. 81-7129.
United States Court of Appeals,
Eleventh Circuit.
April 30, 1982.

Page 864

Gambrell, Russell & Forbes, Harold L. Russell, Thomas W. Rhodes, Jane K. Wilcox, Atlanta, Ga., for plaintiffs-appellants.

Thomas C. Harney, Kilpatrick & Cody, Atlanta, Ga., for defendants-appellees Vann, Cobble, Chepul, Rankin and Holliday.

John A. Chandler, Sutherland, Asbill & Brennan, J. D. Fleming, Jr., Atlanta, Ga., Frank L. Skillern, Jr., Albert J. Tompson, Federal Deposit Ins. Corp., Washington, D. C., for defendant Federal Deposit Ins. Corp.

Appeal from the United States District Court for the Northern District of Georgia.

Page 865

Before MORGAN, KRAVITCH and HENDERSON, Circuit Judges.

KRAVITCH, Circuit Judge:

Appellants William L. and Camille S. Gunter appeal from the district court's grant of summary judgment 1 for the Federal Deposit Insurance Corporation (FDIC) in this action by the Gunters to rescind a $3 million note due to alleged securities law violations and fraud. The Gunters assert that the trial court erred in holding that the FDIC was immune from fraud claims under a rule of federal common law. For the reasons stated below, we affirm the trial court. 492 F.Supp. 546.

I. Background

The Federal Deposit Insurance Corporation is a federal agency which insures bank deposits. As insuror one of the primary duties of the FDIC is to pay the depositors of a failed bank. The FDIC has two methods of accomplishing this duty. The simplest method is to liquidate the assets of the bank and then pay the depositors their insured amounts, 2 covering any shortfall with insurance funds. This option, however, has two major disadvantages. First, the sight of a closed bank, even an insured one, does not promote the utmost confidence in the banking system. Accounts are frozen, checks are returned unpaid, and a significant disruption of the intricate financial machinery results. Second, depositors may wait months to recover even the insured portion of their funds, and uninsured funds may be irrevocably lost.

To avoid the significant problems with liquidation, the FDIC whenever feasible employs a "purchase and assumption" transaction in which the Corporation attempts to arrange for another bank to "purchase" the failed bank and reopen it without interrupting banking operations and with no loss to the depositors. A purchase and assumption involves three entities: the receiver of the failed bank, the purchasing bank, and the FDIC as insuror. In most cases, the FDIC is appointed receiver by the appropriate banking authority 3 and thus acts in two separate capacities: as receiver and as corporate insuror. See FDIC v. Ashley, 585 F.2d 157 (6th Cir. 1978).

As soon as the receiver is appointed, the FDIC solicits bids from other banks for the purchase of the failed bank and assumption of its liabilities. The bids represent the "going concern" value of the failed bank. After receiving the bids, the FDIC Board of Directors determines whether the purchase and assumption is feasible according to the statutory requirements of 12 U.S.C. § 1823(e). If a bid is accepted, the purchasing bank agrees with the receiver to buy the assets and assume the liabilities of the failed bank.

While the purchase of a failed bank is an attractive way for other banks to expand their operations, a purchase and assumption must be consummated with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services. Because the time constraints often prohibit a purchasing bank from fully evaluating its risks, as well as to make a purchase and assumption an attractive business deal, the purchase and assumption agreement provides that the purchasing bank need purchase only those assets which are of the highest banking quality. Those assets not of the highest quality are returned to the receiver, resulting in the assumed liabilities exceeding the purchased assets. To equalize the difference, the FDIC as insuror purchases the returned assets from the receiver which in turn transfers the FDIC payments to the purchasing bank. The FDIC then attempts to collect on the returned assets to minimize the loss to the insurance fund. In an appropriate case, therefore, the purchase and assumption benefits all parties. The FDIC minimizes its loss, the purchasing bank receives a new investment and expansion opportunity at low risk, and the depositors

Page 866

of the failed bank are protected from the vagaries of the closing and liquidation procedure.

The mechanics of a purchase and assumption transaction likely were completely unknown to William L. and Camille S. Gunter when in December, 1974, they purchased 61% of the outstanding common stock of Hamilton Bank & Trust Company of Atlanta (Atlanta Hamilton). The Gunters paid $5.5 million dollars for their controlling interest in Atlanta Hamilton, which they borrowed from Hamilton National Bank of Chattanooga, Tennessee (Chattanooga Hamilton), executing two promissory notes for.$2.5 and $3.0 million respectively.

At the close of business on February 16, 1976, the Chattanooga Hamilton was declared insolvent and the FDIC was appointed receiver. The Corporation immediately solicited bids on a purchase and assumption transaction and received a high bid of $16,251,000 from the First Tennessee National Bank (First Tennessee). The FDIC accepted the bid and Chattanooga Hamilton reopened the following morning under the First Tennessee name.

The Gunter notes were among the assets transferred to First Tennessee in the transaction. Pursuant to its rights under the purchase and assumption agreement, First Tennessee returned the $3 million note to the FDIC as receiver, which in turn sold the note to the FDIC as corporate insuror for approximately.$3.2 million.

In October of 1976, the Atlanta Hamilton also became insolvent. The Gunters then filed suit against the former directors and officers of Chattanooga Hamilton, seeking damages and rescission of the notes on the basis of violation of federal and state securities laws and state and common law fraud. 4 The Gunters alleged that their purchase of the Atlanta Hamilton stock was induced by fraudulent misrepresentations made to them by the officers and directors of Chattanooga Hamilton. 5 The Gunters also sought rescission of the $3 million note held by the FDIC on the same grounds, and the FDIC counterclaimed for payment of the note.

The FDIC moved for summary judgment on the theory that it was protected by the Gunters' claims either by 12 U.S.C. § 1823(e) or by federal common law. For the purposes of the summary judgment motion, the FDIC agreed that the Gunters were defrauded into their stock purchase and that this fraud ordinarily would be adequate grounds for rescission. The district court granted the motion, holding that although the statutory protection of 12 U.S.C. § 1823(e) did not extend to the Gunters' fraud claims, the FDIC had a defense to claims of fraud of which it lacked knowledge under a rule of federal common law. 6 The Gunters sought certification of this decision for interlocutory appeal under 28 U.S.C. § 1292(b). The certification was granted and accepted by this court.

II. Defenses to the State and Common Law Fraud Claims

A. The Defense Under 12 U.S.C. § 1823(e)

The FDIC first asserts that the Gunters' rescission action is barred by 12 U.S.C. § 1823(e) which states in relevant part:

Page 867

No agreement which tends to diminish or defeat the right, title or interest of the Corporation in any asset acquired by it under this action, 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.

The FDIC argues that the fraud asserted by the Gunters is in the nature of an agreement between the Gunters and Chattanooga Hamilton's officers and directors to perform certain promises made in connection with the Atlanta Hamilton stock sale. Because the "agreement" was not in writing, the argument continues, it cannot defeat the rights of the FDIC under the "no agreement" language of § 1823(e). 7

We cannot agree with the FDIC's analysis of this issue, although several recent Fifth Circuit cases have involved the protection of § 1823(e), and in all the FDIC has prevailed. In Black v. FDIC, 640 F.2d 699 (5th Cir.), cert. denied, --- U.S. ----, 102 S.Ct. 143, 70 L.Ed.2d 119 (1981), for example, the obligor attempted to prove that a real estate development loan agreement with a bank included the unwritten understanding to make construction loans on certain real estate. The court held that the unwritten agreement could not be asserted against the FDIC. Similar situations occurred in FDIC v. Lattimore Land Corp., 656 F.2d 139 (5th Cir. 1981) (oral agreement to make future loans), Chatham Ventures, Inc. v. FDIC, 651 F.2d 355 (5th Cir. 1981) (assertion that bank breached joint-venture agreement), and FDIC v. Hoover-Morris Enterprises, 642 F.2d 785 (5th Cir. 1981) (obligor asserted that bank had agreed to take a deed in satisfaction of the debt).

The common thread running through these cases has been the assertion by the obligor that an oral side agreement with the bank controlled the rights of the parties. 8 The cases, therefore, came squarely within the "no agreement ... shall be valid" language of §...

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