Lawson v. Fleet Bank of Maine

• Citation: 807 F. Supp. 136
• Decision Date: 03 November 1992
• Docket Number: Civ. No. 92-123-P-C,92-73-P-C.
• Parties: Mary LAWSON and Matt Lawson, Plaintiffs, v. FLEET BANK OF MAINE, Defendant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Third Party Defendant. Mary LAWSON and Matt Lawson, Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.
• Court: U.S. District Court — District of Maine

807 F. Supp. 136

Mary LAWSON and Matt Lawson, Plaintiffs, v. FLEET BANK OF MAINE, Defendant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Third Party Defendant.

Mary LAWSON and Matt Lawson, Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant.

Civ. Nos. 92-123-P-C, 92-73-P-C.

United States District Court, D. Maine.

November 3, 1992.

Barbara Appleby, Rufus Brown, Drummond, Woodsum, Plimpton & MacMahon, Portland, ME, for F.D.I.C.

William Robitzek, Berman & Simmons, Lewiston, ME, Raymond Fylstra, Joyce & Kubasiak, Chicago, IL, for Lawson.

Ben Zuckerman, Verrill & Dana, Portland, ME, for Fleet Bank.

MEMORANDUM AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND FOR SUMMARY JUDGMENT

GENE CARTER, Chief Judge.

Plaintiffs in these consolidated actions are holders of certificates of deposit (CDs) issued by Maine Savings Bank. Maine Savings Bank failed shortly after Plaintiffs purchased their CDs, and the Federal Deposit Insurance Corporation (FDIC) was named receiver on February 1, 1991. On the same date Maine Savings Bank's deposit liabilities were assumed by Fleet Bank from FDIC as receiver, and shortly thereafter, Fleet informed Plaintiffs of the assumption, giving them the option of retaining their CDs with Fleet at an interest rate lower than that offered by Maine Savings or of withdrawing their funds with accrued interest without the penalties usually attendant on such withdrawals. With these actions Plaintiffs¹ seek to recover compensatory damages equal to the difference in interest Maine Savings promised to pay and that actually paid to Plaintiffs by Fleet after it assumed Maine Savings Bank's deposit liabilities.

In the action brought against the FDIC, Plaintiffs assert that the FDIC illegally delegated the authority to reduce interest rates prior to maturity on the CDs it assumed as the receiver of Maine Savings. The FDIC denied Plaintiffs relief in administrative proceedings, and they now seek review of that administrative decision. The case against Fleet originated in the Maine state courts and alleges that Fleet, in assuming the deposit liabilities of Maine Savings, assumed the contractual liabilities as well, and thus owes Plaintiffs interest at the contractual rate. Fleet removed the case to Federal Court and impleaded the FDIC as Third-Party Defendant on an indemnification theory. The cases were consolidated here by agreement of the parties. Now before the Court are Fleet's motion for summary judgment (Docket No. 21) and the FDIC's motion to dismiss (Docket No. 29).

Although the standards for resolution of motions to dismiss and summary judgment motions are different, the operative undisputed facts on these motions are largely the same. On January 9, 1991, and January 22, 1991, Plaintiffs purchased five separate one-year CDs from Maine Savings, each in the amount of $92,256.03. The CDs each had an interest rate of 7.95% per year, and maturity value of $100,000. On February 1, 1991, Maine Savings Bank was declared insolvent by the Maine Superintendent of Banking and the FDIC was appointed as its Receiver. Also on February 1, 1991, the FDIC in both its corporate and receiver capacities, signed a purchase and assumption (P & A) agreement with Fleet Bank of Maine, under which Fleet acquired certain assets and assumed certain liabilities of Maine Savings.

Section 2.1 of the P & A provides:

2.1 Liabilities Assumed by Assuming Bank. The Assuming Bank hereby expressly assumes at Book Value and agrees to pay, perform, and discharge all of the following liabilities of the Failed Bank as of Bank Closing, except as otherwise provided in this Agreement (such liabilities hereinafter referred to as "Liabilities Assumed"):

(a) demand Deposits, including outstanding cashier's checks and other official checks, and time and savings Deposits, including without limitation those Deposits listed in Schedule 2.1 attached hereto and incorporated herein.

Section 2.2 treats the interest on deposit liabilities separately:

Interest on Deposit Liabilities Assumed. The Assuming Bank agrees that, from and after Bank Closing, it will accrue and pay interest on Deposit liabilities assumed pursuant to Section 2.1 in accordance with the terms of the respective deposit agreements between the failed Bank and the depositors of the Failed Bank for a period of fourteen (14) days commencing the day after Bank Closing. Thereafter, the Assuming Bank may pay interest with respect to such Deposit liabilities at rate(s) it shall determine; provided, that such rate(s) shall not be less than the rate of interest the Assuming Bank pays with respect to passbook savings Deposit accounts. The Assuming Bank shall permit each such depositor to withdraw, without penalty for early withdrawal, all or any portion of such depositor's Deposit, whether or not the Assuming Bank elects to pay interest in accordance with such deposit agreement; provided, that if such Deposit has been pledged to secure an obligation of the depositor to the Failed Bank, any withdrawal thereof shall be subject to the terms of the agreement governing such pledge. The Assuming Bank shall give notice to such depositors as provided in Section 5.3 of the rate(s) of interest which it has determined to pay after such fourteen (14)-day period, and of such withdrawal rights.

Section 2.2 of the agreement is referenced again in section 5.2, which provides:

5.2 Deposit Agreements. Subject to the provisions of Section 2.2, the Assuming Bank agrees to honor the terms and conditions of each written agreement with respect to each Deposit account transferred to the Failed Bank pursuant to this Agreement, including but not limited to escrow and mortgage servicing agreements.

On February 13, 1991, Fleet Bank notified Plaintiffs that it had assumed Maine Savings Bank's deposit accounts. The notice informed Plaintiffs that those accounts would continue to accrue interest at the rate contracted for with Maine Savings until February 22, 1991. After that date, however, the interest rate would be that set forth on an enclosed schedule. For CDs like Plaintiffs', the new interest rate would be 6.125%, for an effective yield of 2.077% per year less than that contracted for with Maine Savings.

The notice also informed Plaintiffs that they could withdraw their funds without penalty, and they did so on February 23, 1991. They reinvested the principal and interest accrued to that date in CDs offered by another bank at 7.35% per year.

Following the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1821(d)(3), Plaintiffs filed a Proof of Claim with the FDIC as receiver. Their claim was denied on October 22, 1991. Plaintiffs then filed a request for administrative review under 12 U.S.C. § 1821(d)(7), and the FDIC refused to review the denial.

Motion for Summary Judgment

The complaint filed against Defendant Fleet alleges that by assuming the deposit liabilities of Maine Savings, Fleet assumed the responsibility of paying Plaintiffs' CDs at the rate agreed upon by Plaintiffs and Maine Savings. Thus, Plaintiffs allege, Fleet's reduction of the interest rates on the CDs constitutes a breach of contract. Defendants argue on this motion for summary judgment that their only obligation was to pay interest at the rate fixed by Maine Savings for a period of fourteen days and that, having done so, they have not breached any obligation to the Plaintiffs.

A motion for summary judgment must be granted if:

The pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Fed.R.Civ.P. 56(c). As the Court of Appeals for the First Circuit has recently stated: "To survive summary judgment, the non-moving party must ... show that there is sufficient evidence such that `a reasonable jury could, on the basis of the proffered proof, return a verdict' in its favor." Media Duplication Services, Ltd. v. HDG Software, Inc., 928 F.2d 1228, 1240 (1st Cir.1991) (quoting Brennan v. Hendrigan, 888 F.2d 189 (1st Cir.1989)).

In Timberland Design, Inc. v. First Service Bank for Savings, 932 F.2d 46, 48 (1st Cir.1991), the Court of Appeals for the First Circuit explained that under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the FDIC has two primary options when a bank fails: to liquidate it or to sell the bank's healthy assets to another bank by means of a P & A agreement under which the purchasing bank agrees to pay the failed bank's depositors. The P & A agreement is the favored option because it better maintains confidence in the banking system and because it more expeditiously provides for the return of funds to the failed bank's depositors. Id. The court also noted that "generally, the purchase and assumption must be executed in great haste, often overnight."

In this case, the same day the FDIC was appointed receiver of Maine Savings, it chose the preferred option of entering into a P & A agreement with Fleet. As the court pointed out in Payne v. Security Savings and Loan Association, F.A., 924 F.2d 109, 111 (7th Cir.1991), FIRREA contemplates that the FDIC will determine which assets and liabilities of a failed bank should be sold and transferred and which it should keep.² As the court in Payne explained:

This design facilitates the sale of a failed institution's assets (and thus helps minimize the government's financial exposure) by allowing the FDIC to absorb liabilities itself and guarantee potential purchasers that the assets they buy are not encumbered by additional financial obligations.

Id. at 111.

Plaintiffs have alleged no basis for any potential liability of Fleet to them other than that engendered by the P & A agreement. Any obligation of Fleet to Plaintiffs must, therefore, be determined by the terms of that P & A agreement. The Court is...