Murphy v. FDIC

• Decision Date: 10 August 1993
• Docket Number: Civ. A. No. 92-1924 (CRR).
• Citation: 829 F. Supp. 3
• Parties: Bruce G. MURPHY, pro se, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORP., as Receiver for Southeast Bank, Defendant.
• Court: U.S. District Court — District of Columbia

829 F. Supp. 3

Bruce G. MURPHY, pro se, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORP., as Receiver for Southeast Bank, Defendant.

Civ. A. No. 92-1924 (CRR).

United States District Court, District of Columbia.

August 10, 1993.

Bruce G. Murphy, pro se.

Brendan Collins, Atty., U.S. Dept. of Justice, Civil Div., Washington, DC, together with Stuart E. Schiffer, Acting Asst. Atty. Gen., J. Ramsey Johnson, U.S. Atty. District of Columbia, John O. Birch, Asst. U.S. Atty., and J. Christopher Kohn, and Robert M. Hollis, U.S. Dept. of Justice, Civil Div., Washington, DC, for defendant.

MEMORANDUM OPINION

CHARLES R. RICHEY, District Judge.

The above-captioned case is before the Court on the Plaintiff's Motion for Summary Judgment on Counts I and II, the Defendant's Motion to Dismiss the entire action, and the Defendant's Motion to Stay Discovery Pending Resolution of its Motion to Dismiss. After careful review of the above motions, the oppositions and replies thereto, and the applicable law, the Court shall grant Summary Judgment for the Defendant.¹

I. BACKGROUND

The Plaintiff, Bruce Murphy, was a limited partner in Orchid Island Associates Limited Partnership ("Orchid"), a real estate developer financed by Southeast Bank, N.A. ("Southeast"). Southeast loaned Orchid approximately $50 million between 1988 and 1990.

According to the Complaint, Orchid was the developer of the Orchid Island Golf and Beach Club project near Vero Beach, Florida ("the Project"). In 1989, the Plaintiff invested $515,672.37 to become a limited partner in Orchid. When sales revenues slowed, a plan was devised whereby Orchid would hold a public bond offering to raise funds. Orchid was to take a "bridge" loan from Southeast, and other Orchid principals would take additional loans from Southeast, to carry the project until the bond offering was complete. The proceeds from the bond offering were intended to repay the bridge loan and decrease Orchid's outstanding debt with Southeast. When the participants learned that the bond financing would result in a lien on the project superior to theirs, they rejected the bond offering and the deal fell through. Orchid's financial position subsequently worsened, and Southeast placed Orchid in default on its loans and foreclosed on the Orchid mortgages.

The Plaintiff contends that Southeast, by its actions in connection with the Project, was a partner with Orchid and exercised control over the Project and the actions of Orchid. The Plaintiff contends that Southeast's actions resulted in harm to the Plaintiff's financial interest in the Project. On September 19, 1991, Southeast was declared insolvent and subject to Federal Deposit Insurance Corporation ("FDIC") receivership. On December 16, 1991, the Plaintiff filed a proof of claim with the FDIC for $602,031.54, an amount comprised of the initial investment, expenses, and attorney fees. On June 23, 1992, the FDIC disallowed the Plaintiff's claim stating that the FDIC was not liable for any alleged damages. The FDIC declined to grant an administrative hearing to review this determination. On August 20, 1992, the Plaintiff brought suit in this Court against the FDIC as receiver for Southeast. The Plaintiff's Complaint alleges breach of fiduciary duties, breach of contract, accounting deficiencies, fraud, negligent misrepresentation, and an unlawful offer to sell securities.

The FDIC has moved to dismiss Counts III through IX of the Plaintiff's Complaint pursuant to Fed.R.Civ.P. 12(b)(6), arguing that the doctrine of D'Oench, Duhme & Company v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and 12 U.S.C. § 1823(e) bar these claims. More specifically, FDIC argues that the Plaintiff cannot sue Southeast under a joint venture theory, because all written documentation on the relationship between Orchid and Southeast explicitly rejects a joint venture relationship. The FDIC has also moved to dismiss the remaining Counts I and II, arguing that under 12 U.S.C. § 1821(d)(7)(A), the FDIC has discretion to determine when to establish administrative procedures to review claims, and that even if the FDIC is obligated to establish such procedures, they have discretion to determine which individual claimants are entitled to review. After careful review of the entire record in this action and the applicable law, the Court concludes that there are no material issues of fact in dispute that would preclude the entry of summary judgment for the Defendant.²

II. THE COURT SHALL GRANT SUMMARY JUDGMENT FOR THE DEFENDANT ON COUNTS V THROUGH IX BECAUSE THE PLAINTIFF CANNOT RECOVER AGAINST THE FDIC UNDER AN ALLEGED UNWRITTEN JOINT VENTURE AGREEMENT PURSUANT TO D'OENCH, DUHME & COMPANY V. FDIC, 315 U.S. 447 (1942), AND 12 U.S.C. § 1823(e).

In Counts V through IX, the Plaintiff alleges breach of fiduciary duty, breach of contract, fraudulent omissions and representations, and negligent misrepresentations by Southeast. The Court concludes that Summary Judgment must be granted for the Defendant on these five claims because the Plaintiff cannot recover against Southeast on any theory of an alleged unwritten joint venture agreement pursuant to D'Oench, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 and 12 U.S.C. § 1823(e).

The Plaintiff claims that Southeast and Orchid were partners in an unwritten joint venture agreement in connection with the Project. The crux of the Plaintiff's allegations is that Southeast acted in concert with Orchid in making decisions pertaining to the Orchid development that were separate and apart from Southeast's role as a mere lender to Orchid.³

However, such a claim is not cognizable under the law absent a written document. A party cannot rely on unrecorded agreements with a bank as the basis for claims or defenses against the FDIC. D'Oench, 315 U.S. 447, 62 S.Ct. 676; Bowen v. FDIC, 915 F.2d 1013 (5th Cir.1990); see also Franklin Asaph Ltd. v. FDIC, 794 F.Supp. 402 (D.D.C.1992). Under D'Oench, transactions that do not appear on the bank's books are not cognizable in a court of law. Bowen, 915 F.2d at 1016. The policy underlying the D'Oench doctrine is "to protect the FDIC, and the public funds which it administers, against misrepresentations as to the securities or other assets and liabilities in the portfolios of the banks which the FDIC insures." D'Oench 315 U.S. at 457, 62 S.Ct. at 679. While the original D'Oench case involved a party attempting to use an oral promise as a defense to a suit on a note issued by the FDIC, the modern D'Oench doctrine also applies when the FDIC is acting in its capacity as receiver, as is the case here. See Bell & Murphy & Assoc., Inc. v. Interfirst Bank Gateway, 894 F.2d 750, 753 (5th Cir.1990), cert. denied, 498 U.S. 895, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990); see also Bowen, 915 F.2d at 1015.

In this case, there are no documents establishing the existence of a joint venture between Orchid and Southeast. Furthermore, the loan agreements here explicitly reject a joint venture between Southeast and Orchid. The first three loan agreements expressly provide that "the Lender is a lender only and shall not be considered a shareholder, joint venturer or partner of the Borrower."⁴ Furthermore, the final loan agreement on March 21, 1991, states that:

At no time did the Lender engage in or attempt to engage in or in any way involve itself in active management marketing, operation or control of the Project and has not, at any time, acted as a joint venturer in or a partner with the Debtor parties in connection with the Project. In the future, at no time shall Lender be construed as having acted as a joint venturer in or a partner with the Debtor Parties in connection with the Project.

See Defendant's Motion to Dismiss at 6 (emphasis added).

The Plaintiff argues that his claims should not be barred because D'Oench only applies to a borrower of the bank who is trying to avoid an obligation. See Plaintiff's Opp'n at 4-5. He further contends that the D'Oench doctrine does not apply to certain tort claims that do not appear on the books of a failed bank. Id. at 3. The Court disagrees. The D'Oench doctrine acts as a bar where the Plaintiff is an investor, as well as when the Plaintiff is a borrower. See In re NBW Commercial Paper Litigation, 826 F.Supp. 1448, 1461-62 (D.D.C.1992). This is consistent with the logic of D'Oench which bars claims by any parties who, unlike depositors, were capable of protecting themselves through written agreements. Id.

Furthermore, "torts and other claims which center around an unrecorded agreement are also barred, even though the plaintiff is not asserting the agreement itself explicitly against the FDIC." In re NBW Commercial Paper Litigation, 826 F.Supp. at 1465; see also, FDIC v. State Bank of Virden, 893 F.2d 139 (7th Cir.1990); but see, Astrup v. Midwest Fed. Sav. Bank, 886 F.2d 1057, 1059-60 (8th Cir.1989). Thus, the claims here are exactly the type of claims which are barred by D'Oench.

In addition, the plain language of § 1823(e) bars this kind of claim.⁵ Section 1823(e) provides that:

No agreement which tends to diminish or defeat the interest of the FDIC 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 FDIC 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.

12 U.S.C. § 1823(e) (1988) (emphasis added).

Thus, the Plaintiff's claims under the alleged...