Hall v. Federal Deposit Ins. Corp., 89-6350

• Decision Date: 16 January 1991
• Docket Number: No. 89-6350,89-6350
• Citation: 920 F.2d 334
• Parties: Lillian H. HALL, William L. Hall, Wallace G. Gibson, Brenda C. Gibson, d/b/a Jackson, Tennessee Motel Partnership; R. Vance Burkey and M.D. Kelly, Individually and as partners of Jackson, Tennessee Motel Partnership, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Security Trust Federal Savings and Loan Association, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 334

920 F.2d 334

Lillian H. HALL, William L. Hall, Wallace G. Gibson, Brenda C. Gibson, d/b/a Jackson, Tennessee Motel Partnership; R Vance Burkey and M.D. Kelly, Individually and as partners of Jackson, Tennessee Motel Partnership, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Security Trust Federal Savings and Loan Association, Defendants-Appellees.

No. 89-6350.

United States Court of Appeals Sixth Circuit.

Argued Aug. 14, 1990.

Decided Nov. 28, 1990.

Rehearing and Rehearing En Banc

Denied Jan. 16, 1991.

Gary R. Patrick, Patrick, Beard & Richardson, Richard P. Jahn, Jr., Jahn & Jahn, Chattanooga, Tenn., William S. Lockett, Jr. (argued), Kennerly, Montgomery & Finley, Knoxville, Tenn., for plaintiffs-appellants.

J. Michael Winchester, E. Brian Sellers, Gordon D. Foster, Lacy & Winchester, Elizabeth S. Tonkin, Walt, Dyer & James, Knoxville, Tenn., Sharon Sivertsen (argued), Federal Deposit Ins. Corp., Washington, D.C., Thomas R. Dyer, Memphis, Tenn., for defendants-appellees.

Before: JONES and BOGGS, Circuit Judges; and GIBBONS, ^* District Judge.

BOGGS, Circuit Judge.

This case presents the question whether the Federal Savings and Loan Insurance Corporation (FSLIC) may invoke the doctrine of D'Oench, Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), as a complete bar to this suit for breach of a loan agreement by a failed savings and loan association. In light of D'Oench 's prohibition against the introduction of any evidence of side agreements not incorporated into the loan agreement, we affirm the order of the district court.

I

In April 1987, the plaintiffs sued Commerce Federal Savings and Loan Association, Inc. (Commerce) in Tennessee state court for breach of a loan agreement, claiming that Commerce failed to fund fully a $1.85 million loan. ¹ On August 26, 1988, four days before trial was scheduled to begin, FSLIC was appointed by the Federal Home Loan Bank Board as receiver for Commerce. ² Substantially all of Commerce's assets and liabilities were then acquired from FSLIC by Security Trust Federal Savings and Loan Association (Security Trust). However, an assignment agreement between FSLIC and Security Trust, executed contemporaneously with the acquisition agreement, expressly removes from the liabilities assumed any liability resulting from this lawsuit. FSLIC then removed the case to federal court.

The district court permitted the plaintiffs to add Security Trust as a party. Security Trust filed a motion to dismiss, and FSLIC filed a motion for summary judgment, both of which the district court granted.

B & K Enterprises, Inc. (B & K), a corporation owned by plaintiffs Burkey and Kelly, had constructed a motel of modular units in Knoxville to accommodate the anticipated high demand for hotel rooms during the 1982 World's Fair. Burkey and Kelly had obtained a $1 million loan from United American Bank of Knoxville (UAB) in order to build the motel. The UAB loan was secured by the modular units, and UAB was given a first priority lien on the units. Weak advance bookings at the motel forced B & K to default on the loan in 1982.

In order to salvage their investment in the Knoxville motel, Burkey and Kelly advertised the modular units for sale. The Halls and the Gibsons responded to an advertisement in the Wall Street Journal, and together the six plaintiffs decided to obtain a loan sufficiently large to allow them to pay off the UAB debt and to relocate the units in Jackson.

On January 20, 1983, the Halls, the Gibsons, Burkey and Kelly established the Jackson, Tennessee Motel Partnership for the purpose of constructing a motel off Interstate 40 in Jackson. On January 25, 1983, the Halls and the Gibsons entered a term loan agreement with Commerce in order to finance the project. Burkey and Kelly were not parties to the loan agreement, but they were guarantors on the promissory note between Commerce and the Halls and Gibsons. The loan agreement provided that Commerce would lend the plaintiffs $1.85 million to be used in defraying costs associated with relocating 96 modular units from Knoxville to Jackson. According to FSLIC, the units were to constitute security for the loan. ³

The plaintiffs claim that they believed UAB would be participating in the loan with Commerce. On November 18, 1982, Commerce wrote to UAB to confirm that UAB had committed to purchase a participation in Commerce's loan to the plaintiffs in the amount of $1.1 million. Jack Patrick, a vice president of UAB, countersigned the confirmation letter. However, a participation agreement between UAB and Commerce had not been completed by the time the plaintiffs closed the loan with Commerce. The term loan agreement between Commerce and the plaintiffs provided that Commerce would not be obligated to fund more than $750,000 if UAB did not participate in the loan. ⁴

At the January 25, 1983 closing, the plaintiffs executed in Commerce's favor a deed of trust on the land in Jackson on which the motel was to be built. They also signed a security agreement, granting Commerce an interest in all personal property. Paragraph 1 of the security agreement parroted the language of the collateral requirement in the loan agreement. On the day of the closing, the plaintiffs requested that Commerce fund part of the loan; the bank agreed to disburse a first draw on the loan in the amount of $200,000.

In February 1983, Paul E. Bostic, a vice president at Commerce, notified the plaintiffs that Commerce would not further fund the loan due to their failure to honor their agreement to give Commerce a first priority lien on the modular units. On April 11, 1983, the plaintiffs issued a formal draw request for $300,000 that included evidence that about two-thirds of the motel's construction had been completed. Commerce refused to fund this request or any others. The plaintiffs were forced to stop construction on their motel. Unpaid subcontractors sued the plaintiffs and obtained liens on the motel property.

UAB and Commerce never entered a formal agreement for UAB to participate in the $1.85 million loan. Despite this fact, Jack Patrick of UAB indicated in an affidavit submitted in response to the motion for summary judgment that "it was understood between Commerce and UAB that Commerce would have a security interest in the modular units once they were moved to Jackson, Tennessee." On February 14, 1983, less than one month after the closing involving Commerce and the plaintiffs, the commissioner of banking for the state of Tennessee closed UAB; FDIC was appointed receiver. As of this date, UAB had apparently not released in writing its lien on the modular units. UAB's security interest in the units was on record as late as September 30, 1985. On that date, FDIC, as receiver of UAB, subordinated its security interest in the units (which it obtained through UAB) in favor of Jackson National Bank.

In October 1985, the plaintiffs secured a $1.5 million loan from Jackson National Bank. They used the proceeds to complete construction of the motel and to satisfy judgments and other debts arising out of the project, including the balance ($282,988.64) of the total principal and interest owed to Commerce. On August 26, 1988, Commerce was placed in receivership.

II

The first issue in this appeal is whether Security Trust should be reinstated as a party defendant. The district court granted Security Trust's motion to dismiss it as a party because the assignment agreement between Security Trust and FSLIC required FSLIC to assume all liability for the plaintiffs' claims against Commerce. ⁵ The court deemed FSLIC to be the real party in interest and held that Security Trust's dismissal was required regardless of the outcome of the plaintiffs' suit against FSLIC.

The plaintiffs contest this decision on the ground that Security Trust volunteered to assume liability for the plaintiffs' claims against Commerce. The plaintiffs claim that since they never agreed to release Security Trust from the liability it voluntarily assumed, Security Trust cannot assign away its liability to the plaintiffs. Under common contract principles, the plaintiffs argue that Security Trust may not assign its liabilities without the plaintiffs' permission. While FSLIC may undertake to share in the liability assumed by Security Trust, Security Trust allegedly remains jointly and severally liable for any judgment award owed to the plaintiffs.

We reject the plaintiffs' argument because FSLIC acted within its statutory discretion in entering into an acquisition transaction in which it assumed liabilities arising out of this lawsuit. See 12 U.S.C. Sec. 1729(f)(2)(A). We find no support in the record for the assertion that Security Trust voluntarily assumed any potential liability from this case. The assignment agreement indicates that Security Trust affirmatively insured that it would not be saddled with any such liabilities.

Furthermore, the acquisition agreement, executed contemporaneously with the assignment agreement, stated that Security Trust would succeed to substantially all of Commerce's assets and liabilities, thus permitting exceptions. Both the language of Sec. 1729(f) and the terms of the assignment agreement and of the acquisition agreement contemplate the kind of assumption of liabilities undertaken by FSLIC. Under these circumstances, the district court properly dismissed Security Trust as a party defendant. ⁶

III

A

The second issue is whether the district court erred by granting summary judgment to FSLIC on the ground that D'Oench, Duhme & Co. v. Federal Deposit Insurance Corporation, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), bars this action. The court held that the D'Oench doctrine, largely codified in 1950 at 12 U.S.C. Sec. 1823(e), ⁷ supplied FSLIC with a complete defense to the breach of contract claim. D'Oench stands for the proposition that, in order to protect FDIC from ...