National Credit Union Admin. Bd. v. Regine

• Decision Date: 19 May 1992
• Docket Number: No. CA 89-0688L.,CA 89-0688L.
• Citation: 795 F. Supp. 59
• Parties: NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Conservator of Fairlawn Credit Union, Plaintiff, v. Anthony J. REGINE, Henry v. Rosciti, Anthony F. Rosciti, Michael A. Cinquegrano, Providence Marine Realty, Inc., and Barge In, Inc., Defendants.
• Court: U.S. District Court — District of Rhode Island

795 F. Supp. 59

NATIONAL CREDIT UNION ADMINISTRATION BOARD, as Conservator of Fairlawn Credit Union, Plaintiff, v. Anthony J. REGINE, Henry v. Rosciti, Anthony F. Rosciti, Michael A. Cinquegrano, Providence Marine Realty, Inc., and Barge In, Inc., Defendants.

No. CA 89-0688L.

United States District Court, D. Rhode Island.

May 19, 1992.

COPYRIGHT MATERIAL OMITTED

Eileen M. Hagerty, Kern, Sosman, Hagerty, Roach & Carpenter, P.C., Boston, Mass., Kevin M. Brill, Corrente & Brill, Providence, R.I., for plaintiff.

George M. Vetter, Jr., Thomas W. Lyons, III, Vetter & White, Inc., Providence, R.I., for A. Regine.

Robert B. Mann, Mann & Mitchell, Providence, R.I., for M. Cinquegrano.

Anthony J. Brosco, Brosco & Brosco, P.C., Providence, R.I., for Henry Rosciti, Anthony Rosciti, Providence Marine Realty and Barge In, Inc.

MEMORANDUM AND ORDER

LAGUEUX, District Judge.

I. INTRODUCTION

This matter is before the Court on cross-motions for summary judgment and the plaintiff's motion to dismiss counterclaims. The facts in this case, as alleged by the National Credit Union Administration Board ("NCUAB") in its Amended Complaint, are already set forth in National Credit Union Admin. Bd. v. Regine, 749 F.Supp. 401, 403-04 (D.R.I.1990). Fairlawn Credit Union ("Fairlawn") became the successor in interest of Co-op Credit Union ("Co-op") in March 1988. The NCUAB then became the conservator of Fairlawn on November 15, 1989. One of the properties at the center of this dispute — Plat 14, Lot 10 on Moosehorn Road in East Greenwich, Rhode Island — is known in this litigation as the "Moosehorn Property."

In counts III, IV, V, VI, and VII of its Amended Complaint, the NCUAB claims that the defendants have defaulted on various promissory notes now held by the NCUAB totaling $1,250,000, resulting in damages of approximately $1,531,390. Coop and the defendants created these notes between February and November 1988. Specifically, the NCUAB alleges that defendants Henry Rosciti and Michael Cinquegrano have defaulted on promissory notes for $485,000 and $125,000; that defendants Anthony Rosciti, Anthony Regine, and Barge In, Inc., have defaulted on a note for $540,000; that Providence Marine Realty, Inc., has not performed on its guarantee of this $540,000 loan; and that defendants Regine, Anthony Rosciti, and Providence Marine Realty, Inc., have defaulted on a note for $100,000.

In their counterclaims, defendants Regine, Henry Rosciti, and Cinquegrano allege, first, that Fairlawn agreed before its conservatorship to alter the terms of some of the notes, and that their actions did not constitute default under these modified terms; and second, that the NCUAB unlawfully refused to discharge the mortgage on the Moosehorn Property, which secured the promissory note for $485,000, thereby excusing the defendants' performance on all the notes.

The NCUAB now seeks summary judgment on counts III, IV, V, VI, and VII of its Amended Complaint — the contract claims — and on the defendants' counterclaims that sound in contract. The NCUAB also seeks dismissal, pursuant to Rule 12(b)(6), of the other, non-contract counts of the counterclaims. Defendants Regine and Cinquegrano each seek summary judgment dismissing the NCUAB's entire Amended Complaint and in favor of their counterclaims.

For the reasons that follow, the NCUAB's motions for summary judgment and dismissal are granted. Regine's motion for summary judgment is granted as to count IX of the Amended Complaint. The remainder of Regine's motion for summary judgment is denied. Cinquegrano's motion for summary judgment is granted as to counts I and XI of the Amended Complaint. The remainder of Cinquegrano's motion for summary judgment is denied.

II. THE NCUAB'S MOTION FOR SUMMARY JUDGMENT IN FAVOR OF ITS AMENDED COMPLAINT

A. Summary Judgment and Dismissal Standards

Rule 56(c) of the Federal Rules of Civil Procedure provides the standard for ruling on a summary judgment motion:

The judgment sought shall be rendered forthwith 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.

A dispute over some facts does not preclude summary judgment if all the facts and reasonable inferences drawn from them support judgment for the moving party. King v. Sullivan, 776 F.Supp. 645, 649 (D.R.I.1991). The Court must view the record in the light most favorable to the party opposing the motion, indulging all inferences favorable to that party. Id.

A party moving to dismiss under Fed.R.Civ.P. 12(b)(6) carries the burden of establishing that the non-moving party can prove no possible set of facts that would entitle it to relief. Harper v. Cserr, 544 F.2d 1121, 1122 (1st Cir.1976). The allegations in the claim are presumed true for the purpose of testing the sufficiency of the claim. MCI Telecommunications Corp. v. TCI Mail, Inc., 772 F.Supp. 64, 65 (D.R.I. 1991). The Court must review the pleadings in the light most favorable to the non-moving party, resolving all inferences in favor of the non-moving party. Gladstone, Realtors v. Bellwood, 441 U.S. 91, 109, 99 S.Ct. 1601, 1612, 60 L.Ed.2d 66 (1979).

B. The Promissory Notes and the D'Oench, Duhme Doctrine

1. Background

There is no dispute that the defendants stopped making payments on the four promissory notes by May 1989. Under the terms of these notes, the holder may demand repayment of the entire amounts owed. See Amended Complaint, Exhibits A, B, D, & E. The parties dispute whether Fairlawn declared all the notes to be due after the NCUAB became Fairlawn's conservator in November 1989. In any event, the filing of this lawsuit in December 1989 amounts to such a declaration.

The defendants deny liability on the notes, based upon the alleged existence of an oral agreement between them and Fairlawn before the NCUAB became conservator. Fairlawn, they claim, agreed in the summer of 1989, through its former manager, Ernest Spooner, to defer payment on all the notes while Rhode Island Central Credit Union ("RICCU") prepared to refinance the $485,000 note. In return, defendants claim, they would quickly pay off the $485,000 note and pay off all delinquencies on the $540,000 note. According to the defendants, this unwritten agreement constituted a waiver by Fairlawn of any default, and it linked the settlement of delinquencies on the $485,000 and $540,000 notes. When the NCUAB demanded full repayment through this lawsuit, the defendants claim, it violated this modified agreement with Fairlawn.

As a matter of law, this alleged side agreement effectively vanished when the NCUAB became Fairlawn's conservator. The doctrine of D'Oench, Duhme prevents the defendants from asserting any defense against the NCUAB that depends upon the existence of an unwritten agreement between the defendants and Co-op or Fairlawn. Originating in a seminal Supreme Court opinion, D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), this doctrine is now grounded in both federal common law and, to a lesser extent, federal statute, 12 U.S.C. § 1787(p)(2). This common law principle prevents the Court from enforcing the defendants' alleged oral agreement with Spooner.

2. The Federal Statute

The relevant federal statute does not protect the NCUAB. In enacting 12 U.S.C. § 1787(p)(2), Congress intended to preclude the use of unwritten agreements against the NCUAB in its capacity as receiver, but not as conservator. The statute provides that "no agreement which tends to diminish or defeat the right, title, or interest of the Board in any asset acquired by it under this subsection, either as security for a loan or by purchase, shall be valid against the Board unless such agreement ... shall be in writing...." 12 U.S.C. § 1787(p)(2) (1988) (emphasis added). "The Board" means the NCUAB. Id. § 1752(4). But in order to receive the protection of section 1787(p)(2), the NCUAB must acquire the note "under this subsection." Id. § 1787(p)(2). The phrase "acquired by it under this subsection" means acquired under subsection (p) of section 1787. And subsection (p) pertains only to liquidation of credit unions. See id. § 1787(p)(1). Therefore, the structure and plain language of the statute limit the statutory rule against enforcing unwritten agreements to situations in which the NCUAB is acting as receiver, but not as conservator.

3. Federal Common Law

Although the federal statute does not protect the NCUAB as conservator, federal common law does. Like the statute, the doctrine of D'Oench, Duhme applies to disputes involving the NCUAB. Savoy v. White, 788 F.Supp. 69, 71 (D.Mass.1992); National Credit Union Admin. Bd. v. First Nat'l Bank of Chicago, 690 F.Supp. 1580, 1582 (N.D.Ill.1988) (and cases cited). But unlike the statute, the common law doctrine applies even when the banking authority takes over as conservator. Savoy, 788 F.Supp. at 71; Resolution Trust Corp. v. Clark, 741 F.Supp. 896, 898 (S.D.Fla.1990). This common law estoppel doctrine prohibits borrowers from using unrecorded agreements to defend against efforts by the NCUAB, as conservator of a failing credit union, to collect on a note held by the credit union. See D'Oench, Duhme, 315 U.S. at 458, 62 S.Ct. at 679; Savoy, 788 F.Supp. at 71; Fleet Bank of Maine v. Steeves, 785 F.Supp. 209, 213 (D.Me.1992).

Applying the D'Oench, Duhme doctrine in favor of the NCUAB when it is acting as conservator is consistent with the doctrine's purposes. The doctrine encourages proper recording of bank transactions, guards against collusive attempts to alter lending terms, permits regulators to evaluate accurately the assets of banking institutions, and generally protects the public fisc, which is exposed to losses through federal insurance. See Langley v. Federal Deposit Ins. Corp., 484 U.S. 86, 91-93, 108...