Hope Furnace Associates, Inc. v. F.D.I.C.

• Decision Date: 12 September 1995
• Docket Number: No. 95-1505,95-1505
• Citation: 71 F.3d 39
• Parties: HOPE FURNACE ASSOCIATES, INC., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Eastland Bank & Eastland Savings Bank, Defendant-Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 39

71 F.3d 39

HOPE FURNACE ASSOCIATES, INC., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of

Eastland Bank & Eastland Savings Bank, Defendant-Appellee.

No. 95-1505.

United States Court of Appeals, First Circuit.

Heard Sept. 12, 1995.

Decided Dec. 6, 1995.

Karen A. Pelczarski, with whom John H. Blish and Blish & Cavanagh, were on brief, for appellant.

Kathleen V. Gunning, Appellate Litigation Section, Federal Deposit Insurance Corporation, with whom Ann S. DuRoss, Assistant General Counsel, Colleen B. Bombardier, Senior Counsel, John P. Parker, Senior Attorney, Federal Deposit Insurance Corporation, Christopher M. Neronha, Hinckley, Allen & Snyder and John P. Parker, were on brief, for appellee.

Before TORRUELLA, Chief Judge, LYNCH, Circuit Judge, and STEARNS, ^* District Judge.

STEARNS, District Judge.

The plaintiff-appellant, Hope Furnace Associates, Inc. ("Hope"), appeals from the entry of summary judgment against it, claiming that Eastland Savings Bank ("Eastland"), the FDIC's predecessor in interest, reneged on a binding commitment to finance a Hope real estate development. We disagree and affirm the judgment of the district court, although on a different ground than the one articulated by that court.

BACKGROUND

Hope originally brought suit in Rhode Island Superior Court. Eastland was afterwards declared insolvent by the Rhode Island Director of Business Regulation. The FDIC, appointed as Eastland's receiver, removed the case to the federal district court in Rhode Island where, in due course, cross-motions for summary judgment were heard.

Hope accused Eastland of defaulting on its obligations under a loan commitment letter by pretextually demanding that Hope obtain an unobtainable state environmental approval. The FDIC argued that because Hope was not designated as the borrower in the commitment letter, it was barred from maintaining the action by the D'Oench, Duhme doctrine and 12 U.S.C. Sec. 1823(e). The FDIC also contended that Hope had defaulted on several conditions precedent of the agreement, thus relieving Eastland of any duty to perform.

The district court adopted the D'Oench, Duhme argument proffered by the FDIC and granted it summary judgment. The district judge reasoned that the loan commitment had been expressly extended to ENDA Associates, Inc., a partnership affiliated with, but juridically independent from Hope. Hope pointed unavailingly to bank records and to written admissions by bank officials that should have alerted the FDIC to the fact that the insertion of ENDA's name in the letter was the result of a clerical blunder. The district court did not find it necessary to address the contract issue, although it had been fully briefed.

In light of the contemporaneous verification in Eastland's records of Hope as the actual borrower, the FDIC no longer relies on the D'Oench, Duhme argument. In its brief, the FDIC candidly and commendably makes the following concession.

The FDIC does not contend on appeal that section 1823(e) [or D'Oench, Duhme ] applies to bar Hope Furnace's assertion that it, rather than ENDA, was the true borrower under [the] Commitment Letter, or that it is the proper party to contend that the Bank breached its obligations thereunder. Here, the record appears to reveal the clear intent of the parties that Hope Furnace, rather than ENDA, was the intended borrower despite the Commitment Letter's express provisions to the contrary.

Appellee's Brief, at 13-14.

The sole issue on appeal, therefore, is whether the alternative ground for summary

judgment urged by the FDIC before the district court is valid. See Mesnick v. General Electric Co., 950 F.2d 816, 822 (1st Cir.1991).

FACTS

The commitment letter was signed on April 4, 1989. Eastland promised to lend $1.5 million to finance a planned development in Scituate, Rhode Island, if Hope succeeded in fulfilling certain conditions by June 5, 1989. On July 26, 1989, Eastland extended the compliance date to August 31, 1989. Ender Ozsezen and David Verardo, the joint principals of Hope and ENDA, agreed to personally guarantee the loan. The commitment letter required that the loan be cross-collateralized and cross-defaulted with an outstanding loan to an ENDA condominium project (the Tamarac loan) on which a balance was then owing of $572,195.

Hope planned to subdivide a 125 acre parcel of undeveloped land into fifty-six single family lots. At least sixteen of the lots were to have municipal water. The remaining lots would require more expensive groundwater wells. Approximately $300,000 of the loan proceeds were to be used to install the municipal water connections. This entailed laying two pipelines, each extending some 3,000 feet from the parcel. At the time the commitment letter was signed, it was unclear whether construction of the connectors would impact an adjacent wetlands, a matter of no small concern to Eastland. ¹

The commitment letter imposed two pertinent conditions. First, that Hope obtain a letter from the Rhode Island Department of Environmental Management ("DEM") "indicating that a Request for Applicability Determination has been filed with said department and that the subject parcel of land does not require a Permit to Alter Wetlands." (Paragraph 37). And second, that Hope provide Eastland with a certificate of a registered engineer verifying the availability of utility service, storm drainage facilities, sewerage connections and "such other facilities as may be deemed necessary by the bank." (Paragraph 27). ²

The commitment letter also contained several clauses giving Eastland discretion to determine whether or not these conditions had been met. Paragraph 39 provided that:

[t]he Bank shall reserve the right to cancel and to terminate its obligations under this commitment if any of the following occur:

a. Failure of the borrowers to comply, or cause to be complied within the time specified with any of the provisions or conditions applicable to this commitment.

. . . . .

f. Any change subsequent to this commitment deemed by the Bank to be material or substantial in the assets, net worth or credit standing of any borrower or other person who shall become obligated to the Bank under this commitment, or the taking of a judgment against any said person which, in the sole discretion of the Bank, materially affect his credit standing....

Finally, the letter stated that "[t]his commitment cannot be changed, discharged, or terminated orally but only by an instrument in writing signed by the party against whom endorsement of any change, discharge or termination is sought." (Paragraph 46).

Eastland's attorney, Robert Branca, provided Hope with a draft of an engineer's certificate that Eastland would deem to satisfy Paragraph 27 (and by implication, Paragraph 37) of the commitment letter, namely

[t]hat construction and operation of the Improvements will not involve the filling or alteration of any stream, brook or other Hope's engineer meanwhile determined that installation of the municipal water connectors would in fact have a disruptive impact on the neighboring wetlands. Consequently, he refused to sign a certificate in the form dictated by Eastland. On May 31, 1989, Branca, having been made aware of the engineer's refusal, provided Hope with a second, more flexibly worded draft. It stated, in pertinent part,

body of water or any wetlands area nor the discharge of any fill or other material into the ground water....

[t]hat construction and operation of the Improvements will not involve the filling or alteration of any ... wetlands area nor the discharge of any fill or other material into the ground water, except as hereinafter set forth. The construction of the portion of the Improvements involving construction of the water line along Hope Furnace Road from Route 116 to the Premises will require stream crossings, and as such, come under the jurisdiction of the [DEM]. In our professional opinion, we and the Borrower can work with DEM incorporating any suggestions it may make (without unusual measures being taken or unusual costs being incurred) in order for DEM to make a determination that such construction involves an insignificant alteration of freshwater wetlands. There is presently pending with DEM an application for a determination of the impact on freshwater wetlands of such construction and in our experience, the same should be granted in 90 days....

While the language of an acceptable certificate was being negotiated, Hope's engineer declared bankruptcy. Before Hope's new engineer (Gerhard Graf) could complete his investigation, Eastland resolved to reject any engineer's certificate that contemplated even an "insignificant" wetlands alteration unless Hope obtained prior DEM approval.

On August 17, 1989, Eastland warned Verardo that payments on the cross-collateralized Tamarac loan were past due and reaffirmed the August 31, 1989 deadline for compliance with the conditions of the commitment letter. Eastland also demanded that Verardo "respond by August 25, 1989 as to how you plan to resolve these issues." On August 19, 1989, DEM notified Verardo that "[b]ased upon our observations and review, it is our conclusion that Fresh Water Wetlands, as described by Section 2-1-20 of the Fresh Water Wetlands Act, are present on or adjacent to the subject property. These wetlands do fall under the protection of the Department.... The approval of this Department is required for any alteration proposed within the above described wetland(s)."

The parties were unable to close on the loan by August 31, 1989, the date on which the loan agreement, by its terms, expired. Four months later, on December 15, 1989, DEM reversed itself. In a letter to Graf, DEM announced that "[i]t is the determination of this Department that this [project] can be approved as an INSIGNIFICANT ALTERATION of a freshwater wetland...." Hope was unable to secure alternative financing and lost the...