Inn at Saratoga Associates v. F.D.I.C.

• Decision Date: 10 July 1995
• Docket Number: D,No. 935,935
• Citation: 60 F.3d 78
• Parties: The INN AT SARATOGA ASSOCIATES, a New York limited partnership; Myra Rynderman, as Administratrix of the Estate of Monia S. Rynderman; William F. Chandler; Steven N. Fischer; Roy Fischer; John S. Gijanto; Lawrence A. Kotlow; and John E. Wolfgang, individually, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of the Bank of New England, N.A., Defendant-Appellee. ocket 94-6205.
• Court: U.S. Court of Appeals — Second Circuit

Page 78

60 F.3d 78

The INN AT SARATOGA ASSOCIATES, a New York limited

partnership; Myra Rynderman, as Administratrix of the

Estate of Monia S. Rynderman; William F. Chandler; Steven

N. Fischer; Roy Fischer; John S. Gijanto; Lawrence A.

Kotlow; and John E. Wolfgang, individually, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of the

Bank of New England, N.A., Defendant-Appellee.

No. 935, Docket 94-6205.

United States Court of Appeals,

Second Circuit.

Argued Dec. 19, 1994.

Decided July 10, 1995.

Phillip G. Steck, Albany, NY (Cooper, Erving, Savage, Nolan & Heller, Albany, NY, of counsel), for plaintiffs-appellants.

Kathryn R. Norcross, F.D.I.C., Washington, DC (Ann S. Duross, Richard J. Osterman, Jr., F.D.I.C., Washington, DC, of counsel), for defendant-appellee.

Before: VAN GRAAFEILAND, WALKER and CABRANES, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

On August 1, 1986, the Inn at Saratoga Associates, a limited partnership, Monia Rynderman, its general partner, and seven of its limited partners sued Berkshire Bank & Trust Company in New York Supreme Court alleging that Berkshire reneged on a loan contract. Thereafter, Berkshire was acquired by the Bank of New England, N.A., which subsequently was declared insolvent. When the Federal Deposit Insurance Corporation ("FDIC") took over as receiver for the Bank of New England, the case was removed to federal court. There, the FDIC moved for summary judgment, arguing that plaintiffs' claims were barred under 12 U.S.C. Sec. 1823(e) and the equitable estoppel doctrine articulated in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The district court (Gagliardi, J.) granted the motion and judgment was entered in favor of the FDIC. Plaintiffs appeal from that judgment. We affirm.

The facts have been stipulated by the parties. On January 15, 1985, Rynderman met with William Porter, a vice president and regional loan officer of Berkshire, to discuss a possible $617,500 loan for the purchase and renovation of a hotel known as the Coachman Inn. Rynderman told Porter that he planned to form a limited partnership, of which he would be the general partner, for the purpose of this renovation project. On January 24, Berkshire sent Rynderman a loan commitment letter which provided that the commitment would expire if Rynderman did not sign and return the letter and pay an origination fee within fourteen days. Rynderman neither returned the letter nor paid the fee.

Shortly thereafter, Rynderman informed the bank that he would like to increase his loan request so that rooms could be added to the hotel. On April 9, Berkshire issued a second commitment letter in the amount of $875,000, which again specified a limited period for acceptance. Once more, Rynderman failed to indicate his acceptance within the specified period.

On April 25, Rynderman and two of his associates, Steven Fischer and Richard Kotlow, met with Porter to discuss increasing the proposed loan to over $1 million. While this request was pending, Rynderman, acting on behalf of the partnership, entered into a contract to purchase the Coachman Inn.

On July 3, plaintiffs agreed to provide $200,000 in personal guarantees to induce Berkshire to approve a loan of $1.3 million. That same day, Berkshire's loan committee approved the $1.3 million loan subject to ten conditions, including participation by a second lender in the amount of $500,000. This action is memorialized in the committee minutes.

On July 15, Porter sent a letter to Kotlow. The letter states in pertinent part as follows:

In order that we might conform to existing holding company policy, I must ask that you forward to me ... personal financial statements on the five limited partners who are willing to sign the $200,000 recourse guaranty.

Our Loan Committee, subsequent to a formal review of the March 31, 1985 financial statements on the Lookout Inn [another entity owned by Rynderman], have ratified the $1.3 million loan. I assumed [sic] that the financial statements on the Lookout Inn will give us the comfort that we seek in those statements and I look forward to ironing out all the final details relative to this mortgage loan at the earliest possible convenience.

On August 21, plaintiffs forwarded proposed closing documents to Berkshire, referring to the total loan amount as $1.3 million. A few days later, Berkshire officers drafted a proposed commitment letter in the amount of $1.3 million. However, Berkshire did not approve the letter and it did not execute plaintiffs' closing documents.

On August 30, plaintiffs met with Berkshire officials for a loan closing, bringing the personal financial statements requested by Berkshire. The outcome of this meeting was that plaintiffs received a $375,000 loan from Berkshire. Although plaintiffs contend that this was the first installment of a $1.3 million loan, none of the signed documents in the transaction mentions the larger amount. Plaintiffs repaid this loan within four months.

On September 10, Berkshire lending officers, meeting with representatives of the partnership, informed them that they still lacked supporting documentation for their proposed $1.3 million loan. The bankers also questioned the appraisal of the hotel provided by plaintiffs. At this meeting, the need for a participating lender was discussed.

While Berkshire searched for a participating lender on the $1.3 million loan, construction on the hotel commenced. On October 3, 1985, an Inn representative telephoned Berkshire and asked for an advance to pay construction expenses. Because no participating lender had yet been found, Berkshire refused this request. A week later, Rynderman demanded the advance and confirmation of the $1.3 million commitment and threatened legal action if Berkshire did not comply. Berkshire declined to comply with this demand.

On August 1, 1986, plaintiffs commenced this litigation against Berkshire in state court, contending that an agreement had been reached as to the $1.3 million loan. After this suit was brought, the Bank of New England acquired Berkshire. On January 6, 1991, the Bank of New England was declared insolvent and the FDIC was appointed as its receiver. The FDIC removed plaintiffs' action to federal court and the grant of summary judgment followed. The district court's opinion is reported at 856 F.Supp. 111.

The principles which compel the rejection of the plaintiffs' claim were set forth first in D'Oench, Duhme, supra. In D'Oench, Duhme, the FDIC sued to enforce a promissory note that it had acquired from a failed bank. The maker of the note raised as a defense an oral agreement he had with the bank that the note never would be called for payment. Relying on "a federal policy to protect [the FDIC], and the public funds which it administers, against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures or to which it makes loans," 315 U.S. at 457, 62 S.Ct. at 679, the Supreme Court rejected this defense. It held that persons who lend themselves "to a scheme or arrangement whereby the banking authority on which [the FDIC] relied in insuring the bank was or was likely to be misled" may not raise the scheme or arrangement as a defense to an FDIC collection action. Id. at 460, 62 S.Ct. at 681.

Congress incorporated the doctrine thus articulated in section 13(e) of the Federal Deposit Insurance Act, Pub.L. No. 81-797, 64 Stat. 873, 889 (1950), codified as amended at 12 U.S.C. Sec. 1823(e). The amendment broadened the statute to protect assets acquired by the FDIC when it acts as receiver for a failed bank. See Financial Institutions Reform, Recovery, and Enforcement Act, Pub.L. No. 101-73, 103 Stat. 183, 256 (1989). As amended, section 1823(e) provides as follows:

No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it ... either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

12 U.S.C.A. Sec. 1823(e)(1) (Supp.1995).

In the instant case, plaintiffs allege that Berkshire reneged on an agreement to provide a $1.3 million loan. To prove the existence of this agreement, plaintiffs proffered three writings: the minutes of meetings of Berkshire's board of directors, the unexecuted loan commitments drafted by Berkshire, and the Porter letter. The district court found that none of these documents met the criteria of section 1823(e). 856 F.Supp. at 116-17. Because plaintiffs could not produce indicia of an agreement that met the statutory requirements, the district court granted the FDIC's motion for summary judgment.

On appeal, plaintiffs argue that section 1823(e) should not have been applied to their claims. They contend that section 1823(e)(1) applies only to agreements relating to particular, identifiable assets acquired by the FDIC and that the instant dispute does not involve such an asset. Case law weighs in favor of plaintiffs' statutory construction. See John v. Resolution Trust Corp., 39 F.3d 773, 776 (7th Cir.1994) ("Section 1823(e) requires an identifiable 'asset' which is acquired by the bank and then transferred to the regulatory agency, and to which the unenforceable agreements must relate."); E.I. du Pont de Nemours and Co. v. FDIC, 32 F.3d 592, 597 (D.C.Cir.1994) ("[M]ost courts have read the statute...