Maryland Nat. Bank v. Resolution Trust Corp.

• Decision Date: 03 August 1995
• Docket Number: Civ. No. L-92-1761.
• Citation: 895 F. Supp. 762
• Parties: MARYLAND NATIONAL BANK, Plaintiff, v. RESOLUTION TRUST CORP., as receiver for Augusta Federal Savings Bank, Defendant.
• Court: U.S. District Court — District of Maryland

895 F. Supp. 762

MARYLAND NATIONAL BANK, Plaintiff, v. RESOLUTION TRUST CORP., as receiver for Augusta Federal Savings Bank, Defendant.

Civ. No. L-92-1761.

United States District Court, D. Maryland.

August 3, 1995.

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Mark C. Treanor and Stephen J. Hughes of Treanor, Pope & Hughes, Towson, MD, for plaintiff Maryland Nat. Bank.

Paul N. Sameth of Adelberg, Rudow, Dorf, Hendler & Sameth, Baltimore, MD, for defendant Resolution Trust Corporation as receiver for Augusta Federal Savings Bank.

MEMORANDUM

LEGG, District Judge.

The Court now decides the motion for summary judgment filed by the Resolution Trust Corporation ("RTC"). For the reasons given below, the Court shall DENY the motion.

I. FACTS

The following facts are undisputed. On September 17, 1989, Augusta Federal Savings Bank ("Augusta"), through Senior Credit Officer Robert Schmuff, issued a check for $76,000, payable to Donald Cohen and Tyme-N-Tyde Marina, with which Cohen was to purchase a boat. The check bore a restrictive endorsement requiring the joint endorsement of both payees on the check. Cohen endorsed the check, forged the endorsement of Tyme-N-Tyde Marina, and deposited the money into his account at Maryland National Bank ("MNB"). As explained below, Cohen used the money for various activities, none of which involved buying a boat.

On November 4, 1989, Augusta, again acting through Schmuff, issued a check for $68,000, drawn payable to Walter Rupp and the Full Tilt Marine Company, as a loan for Rupp to buy a boat. Like the Cohen check, this check bore a restrictive endorsement requiring the joint endorsement of both payees. Like Cohen, Rupp endorsed the check, forged the endorsement of the Full Tilt Marine Company, and deposited the check into his own account at MNB. Like Cohen, Rupp used the money for purposes other than boat-buying.

Upon discovering the forgeries, Augusta instituted suit against MNB in the Circuit Court for Baltimore County to recover the amount of the checks. The Circuit Court granted summary judgment for Augusta and reserved judgment on the issue of damages.

Subsequently, the RTC assumed the role of conservator for Augusta, and the Circuit Court substituted RTC for Augusta as the proper party plaintiff in the case against MNB. The RTC's attorney, Robert Parsons, entered his appearance and conducted the case. For its part, MNB filed notices of deposition of several Augusta officers, including Robert Schmuff.

Before MNB took the depositions, however, the RTC accepted MNB's previously outstanding offer of $85,000 to settle the litigation. The parties entered into a release on November 19, 1991, by which the RTC discharged MNB from any and all liability resulting from the payment of the Cohen and Rupp checks.

About two days later, MNB officials discovered an article in the Baltimore Sun. The article reported that the United States Attorney's Office had indicted Schmuff for loan kiting in his capacity as Senior Credit Officer for Augusta. The kiting allegedly involved the creation of fictitious boat loans to business associates of Schmuff.

Eventually, Cohen and Schmuff pled guilty to the loan-kiting plan. According to their plea, Schmuff, in his capacity as Senior Credit Officer and Vice President for Consumer Loans at Augusta, engaged in a pattern of loan-kiting by approving fraudulent loans. He would cover losses from those loans with the proceeds of subsequent fraudulent loans for cars, boats and other collateral that either did not exist or had never been purchased. Schmuff invested the money from the loans in various car dealerships which he and Cohen owned and operated, and he spent the money on various personal expenses. Eventually, the scheme included other people, including Rupp, who received a kickback for applying for the fictitious loans.¹

Upon learning of the scheme, MNB filed suit in this Court, alleging that, had it known the true nature of the Cohen and Rupp loans, it could have escaped liability under the "fictitious payee rule."² In its complaint, MNB claims that RTC and Augusta fraudulently concealed the true nature of the Cohen and Rupp loans until after the execution of the release. In the alternative, MNB asks the Court to set aside the agreement due to mutual mistake.

The RTC now moves for summary judgment, and MNB resists. The Court shall grant summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). "The summary judgment inquiry thus scrutinizes the non-moving party's case to determine whether the non-moving party has proffered sufficient proof, in the form of admissible evidence, that could carry the burden of proof of his claim at trial." Mitchell v. Data General Corp., 12 F.3d 1310, 1316 (4th Cir. 1993); accord Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888-89, 110 S.Ct. 3177, 3188-89, 111 L.Ed.2d 695 (1990). In determining whether there exists a genuine issue of material fact, the Court views the facts, and all reasonable inferences to be drawn from them, in the light most favorable to the non-moving party. Overstreet v. Kentucky Central Life Ins. Co., 950 F.2d 931, 937-38 (4th Cir.1991).

II. DISCUSSION

A. The D'Oench, Duhme Doctrine

1. The Interaction between Common Law Doctrine and the Analogous Statute

First, the RTC contends that the D'Oench, Duhme doctrine and its statutory codification, 12 U.S.C. § 1823(e), preclude MNB's claim.³ As explicated below, both doctrines shield the RTC from unwritten agreements between a failed bank and a borrower. Generally, courts use the common law D'Oench, Duhme doctrine as a "safety net" for claims that elude the grasp of § 1823(e) but should not apprehend the banking authority. In re NBW Commercial Paper Litigation, 826 F.Supp. 1448, 1460-61 (D.D.C.1992); see e.g., Brookside Assocs. v. Rifkin, 49 F.3d 490 (9th Cir.1995).

Although courts often construe the § 1823 and the D'Oench, Duhme doctrine in tandem, E.J. Sebastian Assocs. v. RTC, 43 F.3d 106, 108 (4th Cir.1994), in fact they differ slightly. E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 597 (D.C.Cir.1994); Vernon v. RTC, 907 F.2d 1101, 1105-06 (11th Cir.1990). Because of these differences, the Court shall analyze the common law D'Oench, Duhme doctrine and its statutory counterpart separately.

2. 12 U.S.C. § 1823(e)

Section 1823(e) of Title 12 of the United States Code provides:

No agreement which tends to diminish or defeat the interest of the RTC in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the RTC unless such agreement —

(1) is in writing,

(2) 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,

(3) 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

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

The Court begins its analysis with the statute's language. Reves v. Ernst & Young, ___ U.S. ___, ___, 113 S.Ct. 1163, 1169, 122 L.Ed.2d 525 (1993); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980). By its terms, § 1823(e) only protects those assets "acquired by the RTC under section 1823 or section 1821...." Section 1823 concerns the management of RTC funds, and § 1821 pertains to the RTC's conservatorship and receivership powers.

The settlement agreement at issue in this case concerns none of these functions. The RTC did not acquire the settlement agreement through its conservatorship or receivership powers under § 1821 or § 1823, nor did the RTC acquire the agreement "as security for a loan or by purchase or as receiver...." Therefore, the settlement agreement is not an "asset acquired" under § 1823(e), and the statute does not protect the RTC's interest in the settlement agreement. John v. RTC, 39 F.3d 773, 776 (7th Cir.1994); e.g., In re Century Centre Partners Ltd., 969 F.2d 835, 838 (9th Cir.1992) (assets acquired by Federal Deposit Insurance Corporation ("FDIC") as fund manager not covered by § 1823(e)), cert. denied, ___ U.S. ___, 113 S.Ct. 2997, 125 L.Ed.2d 690 (1993); Thigpen v. Sparks, 983 F.2d 644, 645-46 (5th Cir.1993) (§ 1823(e) does not apply to bank's sale of assets).

Section 1823(e)'s focus on the records of the depository institution further suggests a regard only for the assets of the bank over which the RTC assumes control, rather than the assets of the RTC in general. Under § 1823(e), the agreement must have been "executed by the depository institution. ... contemporaneously with the acquisition of the asset by the depository institution. ..." 12 U.S.C. § 1823(e)(2) (emphases added). The agreement must also be "approved by the board of directors of the depository institution," 12 U.S.C. § 1823(e)(3) (emphasis added), and continuously "an official record of the depository institution." 12 U.S.C. § 1823(e)(4) (emphasis added). Thus, the terms of § 1823(e) "limit the statute's application to an agreement affecting the RTC's interest in an asset of the bank," Brookside Assocs., 49 F.3d at 495 (emphasis added), not of the RTC. See E.I. du Pont, 32 F.3d at 597 (§ 1823(e) only covers "conventional loan transactions.").

Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987) does not affect this reasoning. In ...