Motorcity of Jacksonville, Ltd. By and Through Motorcity of Jacksonville, Inc. v. Southeast Bank, N.A., No. 93-4634

• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)
• Writing for the Court: Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT; ANDERSON; BIRCH
• Citation: 83 F.3d 1317
• Parties: MOTORCITY OF JACKSONVILLE, LTD., a limited partnership, By and Through its general partner MOTORCITY OF JACKSONVILLE, INC., a Florida corporation, David S. Hess, Plaintiffs-Appellants, v. SOUTHEAST BANK N.A., David Feigenbaum, Defendants, Federal Deposit Insurance Corporation, as receiver for Southeast Bank, N.A., Defendant-Appellee.
• Docket Number: No. 93-4634
• Decision Date: 08 May 1996

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83 F.3d 1317 64 USLW 2709 MOTORCITY OF JACKSONVILLE, LTD., a limited partnership, By
and Through its general partner MOTORCITY OF
JACKSONVILLE, INC., a Florida
corporation, David S. Hess,
Plaintiffs-Appellants,
v.
SOUTHEAST BANK N.A., David Feigenbaum, Defendants,
Federal Deposit Insurance Corporation, as receiver for
Southeast Bank, N.A., Defendant-Appellee. No. 93-4634. United States Court of Appeals,
Eleventh Circuit. May 8, 1996.

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Dyanne E. Feinberg, Miami, FL, for appellants.

Kipp A. Coddington, Christopher D. Cerf, Daniel E. Troy, Stephen Goldman, Washington, DC, for Motorcity & David Hess.

Julie Feigeles, Miami, FL, S. Alyssa Roberts, James Scott Watson, Washington, DC, for appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit Judges.

ANDERSON, Circuit Judge:

I. INTRODUCTION

In this decision, we consider whether the district court correctly granted a motion to dismiss in favor of appellee Federal Deposit Insurance Corporation ("FDIC") based upon the D'Oench doctrine. See D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). For the reasons that follow, we affirm the judgment of the district court.

II. FACTS

This case arises from the banking relationship of appellants Motorcity of Jacksonville, Ltd., Motorcity of Jacksonville, Inc., and

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David S. Hess (collectively "Motorcity") ¹ with the financial institution of Southeast Bank, N.A. ("Southeast"). We assume the following allegations from Motorcity's pleadings to be true for purposes of resolving the FDIC's motion to dismiss. In 1986, Motorcity and Southeast negotiated a floor plan financing agreement, under which Southeast agreed to lend Motorcity funds to purchase inventory for its used car dealership. During the negotiations, Motorcity orally informed Southeast that appellant David Hess and other Motorcity investors lacked experience in running a car dealership and planned to operate the dealership as absentee owners. Southeast orally assured Motorcity that its personnel were experienced with floor plan financing and that "the bank 'knew what it was doing.' " R2-58 Ex. 1 p 14. Of particular concern to both Southeast and Motorcity were "out-of-trust" sales, which occur whenever a dealership fails to use the proceeds from the sale of a vehicle to repay the loan designated for that vehicle. Continued unchecked, such out-of-trust sales could pose a threat to a dealership's financial viability.

Motorcity and Southeast executed a written floor plan financing agreement in June 1987. Pursuant to the floor plan financing agreement, Southeast retained the right to audit Motorcity's records. ² Southeast hired an independent contractor to audit Motorcity on a monthly basis. Through these audits, Southeast allegedly discovered a pattern of out-of-trust sales at the dealership: rather than repaying the floor plan loans, Motorcity's managers were using the sales proceeds from vehicles to pay themselves unearned bonuses. Although Southeast or its auditor sent summary audit reports to Motorcity, the bank failed to disclose these out-of-trust sales to Motorcity.

In February 1989, Motorcity learned from its newly-hired general manager that the dealership was out-of-trust more than $400,000. Motorcity immediately notified Southeast of the situation. Southeast demanded immediate payment for the entire out-of-trust amount, but Motorcity was unable to meet the bank's demand. Southeast took possession of Motorcity's collateral, including the dealership itself and $375,000 in certificates of deposit. Motorcity repaid all of its loans to Southeast by April 1990.

III. PROCEEDINGS BELOW

Motorcity sued Southeast and one of its employees in Florida state court, alleging breach of fiduciary duty, breach of oral contract, and negligence. Less than a year later, in September 1991, the Office of the Comptroller of the Currency declared Southeast insolvent and appointed the FDIC as receiver for the failed bank. The FDIC was substituted for Southeast as defendant in the state court action, and the FDIC removed the case to federal court.

Motorcity amended its complaint to state a claim only for breach of written contract. The district court dismissed this amended complaint for failure to state a claim upon which relief could be granted. The court found that the floor plan financing agreement gave Southeast the right, but not the duty, to audit Motorcity; thus Southeast was under no contractual obligation to inform Motorcity of the out-of-trust sales. The court further ruled that the D'Oench doctrine and 12 U.S.C. § 1823(e)(1) required any agreement between a failed financial institution and its customer to be in writing; consequently, any claims for breach of oral contract were barred. Finally, the court held that the D'Oench doctrine also foreclosed Motorcity's putative tort claims. The court reasoned

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that "[t]he genesis of this action is the Southeast floor plan financing agreement, whose written provisions do not support a breach of contract claim against the FDIC. No amount of artful pleading, including further amendments to the complaint, can alter this result." R2-52-8.

Motorcity moved for a rehearing and for leave to amend its complaint to add tort claims for negligence and for breach of fiduciary duty to notify. The district court denied both motions. In its omnibus order, the court reiterated that the D'Oench doctrine barred all oral contract claims, including those claims recast as tort actions by " 'artful pleading.' " R2-67-1-2.

On appeal, a panel of this court held that Motorcity's state law tort claims for negligence and for breach of fiduciary duty were free standing torts, not barred by the D'Oench doctrine. Motorcity of Jacksonville, Ltd. v. Southeast Bank, N.A., 39 F.3d 292 (11th Cir.1994). The FDIC's petition for en banc hearing was granted, thus vacating the panel opinion. 58 F.3d 589 (11th Cir.1995). ³

IV. STANDARD OF REVIEW ⁴

Motorcity appeals solely the district court's denial of its motion to file a second amended complaint to add its proposed tort claims. Our review standard for a district court's denial of a motion to amend a complaint is abuse of discretion. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971); Shipner v. Eastern Air Lines, Inc., 868 F.2d 401, 407 (11th Cir.1989). After a responsive pleading has been filed, subsequent amendments are permissible only with leave of court, which "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). This liberal policy of allowing amendments under Rule 15(a) "circumscribes the exercise of the district court's discretion; thus, unless a substantial reason exists to deny leave to amend, the discretion of the district court is not broad enough to permit denial." Shipner, 868 F.2d at 407; see also Moore v. Baker, 989 F.2d 1129, 1131 (11th Cir.1993) (holding that "a justifying reason must be apparent for denial of a motion to amend") (emphasis added).

In this case, the district court denied Motorcity's motion to amend based on the court's legal determination that Motorcity's proposed tort claims were barred by the D'Oench doctrine. The futility of a proposed amended complaint can be a justifiable reason for denying leave to amend. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); Moore, 989 F.2d at 1131. When a district court denies leave to amend a complaint because of futility, we review de novo. Keweenaw Bay Indian Community v. State, 11 F.3d 1341, 1348 (6th Cir.1993); see also In re Geri Zahn, Inc., 25 F.3d 1539, 1542 (11th Cir.1994) (explaining that the applicability of the D'Oench doctrine is a question of law, subject to de novo review); Freer v. Dugger, 935 F.2d 213, 216 (11th Cir.1991) ("Regarding the standard of review, conclusions of law by the district court are not binding on appellate courts and this court is free to substitute its judgment for the district court's on matters of law.") Accordingly, we review de novo the district court's determination that Motorcity's tort claims are barred by the D'Oench doctrine and its statutory counterpart, 12 U.S.C. § 1823(e)(1).

V. DISCUSSION

Our analysis begins with an examination of the D'Oench doctrine's origins and with the

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leading case itself, D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). In that case, the Supreme Court created a federal common law doctrine of estoppel to protect the FDIC from defenses raised by debtors based on "secret agreements" with failed banks. D'Oench involved a securities dealer who sold a bank some bonds which later became worthless. To prevent the past due bonds from appearing among the assets of the bank, the dealer executed a demand note with the bank and entered into a separate agreement with the bank that the note would not be called for payment. The FDIC later acquired the note in a purchase and assumption transaction. When the FDIC demanded payment on the note, the maker defended on the basis of the side agreement with the bank, in which the bank promised not to call the note for payment. Id. at 454, 62 S.Ct. at 678. The lower courts applied Illinois state law and held that the FDIC was entitled to recover on the note as a "holder in due course." Id. at 455, 62 S.Ct. at 678.

The Supreme Court rejected the lower courts' use of state law and instead created a federal common law rule by drawing an analogy to provisions of the Federal Reserve Act, which "reveal[ed] 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." Id. at 457, 62 S.Ct. at 679. The...