Resolution Trust Corp. v. Midwest Federal Sav. Bank of Minot

Decision Date23 September 1994
Docket NumberNos. 91-56300,92-55350,s. 91-56300
Citation36 F.3d 785
PartiesRESOLUTION TRUST CORPORATION, in its capacity as Receiver of Midwest Federal Savings Bank of Minot; et al., Counter-Defendants/Appellants, v. MIDWEST FEDERAL SAVINGS BANK OF MINOT, a federally chartered savings association, as Trustee; Centennial Estates, Inc.; La Plata Investors; John F. Nolan; Gregory M. Beck; Gerald G. Wilson; TMKB Associates; John S. Tighe; William D. McBrearty; Michael J. Kiley, et al., Defendants, and Orangegate Investors, a California limited partnership, Counter-Claimant/Appellee. RESOLUTION TRUST CORPORATION, in its capacity as Receiver of Midwest Federal Savings Bank of Minot, Plaintiff-Appellee, v. MIDWEST FEDERAL SAVINGS BANK OF MINOT, a federally chartered savings association, as Trustee, Defendant, and Orangegate Investors; Centennial Estates, Inc.; La Plata Investors; John F. Nolan; Gregory M. Beck; TMKB Associates; Gerald G. Wilson; Main St. Investors; Royce T. Breazeale, Jr.; Michael J. Kiley, et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Ninth Circuit

J. Michael Schwartz, Popham, Haik, Schnobrich & Kaufman, Minneapolis, MN, for plaintiff-appellant.

Stephen C. Drummy, Lawrence M. Burek, Drummy, King & White, Costa Mesa, CA, for defendants-appellants.

Paul B. George, Stuart W. Price, McDermott, Will & Emery, Newport Beach, CA, James H. Casello, Beck & Casello, Laguna Hills, CA, for defendants-appellants.


The opinion filed September 21, 1993 is amended as follows:

With the above amendments, the panel has voted to deny the petition for rehearing and to reject the suggestion for rehearing en banc.

The full court has been advised of the amendments to the opinion and of the suggestion for rehearing en banc, and no judge requested a vote. Fed.R.App.P. 35(b).

The opinion is amended as set forth in this order, the petition for rehearing is denied, and the suggestion for rehearing is rejected.


Appeals from the United States District Court for the Central District of California.

Before: HALL, WIGGINS and TROTT, Circuit Judges.

TROTT, Circuit Judge:


This case involves two separate appeals. In No. 91-56300, the Resolution Trust Corporation, as receiver for Midwest Federal Savings Bank of Minot, appeals the district court's reformation of a loan agreement between Midwest Federal Savings Bank, the lender, and Orangegate Investors, a limited partnership, and several named individuals, collectively the borrowers. In No. 92-55350, the borrowers appeal the district court's denial of their requests for attorneys' fees. We have jurisdiction to hear these matters pursuant to 28 U.S.C. Sec. 1291 (1988), and we affirm the district court in both.


A. History of the Loan

In 1984, Orangegate Investors, a California limited partnership ("Orangegate"), purchased an office building in Garden Grove, California (the "Property"). By early 1985, Orangegate was required to refinance the original underlying loans on the Property as they had become due and payable by their own terms. Orangegate sought an $8 million permanent loan to refinance a $6.5 million debt on the Property.

Orangegate entered into negotiations with Midwest Financial Services Mortgage Corp. ("MFS"), a wholly-owned subsidiary of Midwest Federal Savings Bank of Minot ("Midwest Bank") conducting business in California. Orangegate requested MFS provide nonrecourse financing in order to reap tax benefits for the limited partnership.

On April 16, 1985, MFS issued a commitment letter to Orangegate ("Commitment Letter"). In this letter, MFS committed to On May 21, 1985, at a meeting held at the office of Midwest Bank in Minot, North Dakota, the Board of Directors of MFS approved the Orangegate loan as a "nonrecourse" loan. The loan form submitted to the board at the May 21 meeting reflects the loan's nonrecourse status. A record of this approval made in the minutes of the meeting clearly indicates the loan was approved as nonrecourse.

"fund a permanent loan" on the Property in the amount of $8 million. The letter clearly provided for the loan to be "none [sic] recourse," but required additional security of $1 million in the form of a personal guaranty from John Joseph. The partners of Orangegate signed the Commitment Letter as directed and returned a signed copy to MFS along with a check for a $40,000 commitment fee. 1 The Commitment Letter was signed by Orangegate prior to its stated expiration date of May 31, 1985.

By letter dated June 27, 1985, MFS informed Orangegate that MFS had approved the loan. This letter, however, failed to mention either the nonrecourse term or Joseph's personal guaranty. By letter dated July 1, 1985, MFS directed its outside attorney to draw up the loan papers for the Orangegate loan. In this letter, however, MFS failed to direct its attorney to include a nonrecourse term in the documents. MFS did direct the attorney to include additional documents to reflect other special provisions of the loan including Joseph's personal guaranty.

In a letter to Orangegate dated July 2, 1985, MFS amended the June 27 approval letter by noting a correction in the monthly payment amount. MFS sent Orangegate a second approval letter on July 8, 1985, which was identical to the June 27 letter except for the change in the monthly payment amount called to Orangegate's attention in the July 2 letter. The loan documents prepared by MFS's attorney did not contain a nonrecourse provision, but did contain Joseph's personal guaranty. Nevertheless, all the borrowers signed the documents. MFS made and funded the loan.

At the time of making the loan, MFS was a subsidiary of Midwest Bank. However, on December 27, 1985, Midwest Bank acquired what can best be described as a "participation interest" in the loan from MFS. This purchase of a participation interest in the loan by Midwest Bank is noted in the bank's Board Minutes from January 14, 1986. 2

Significant to the result in this case is the particular nature of the agreement by which Midwest Bank acquired its interest in the loan. The agreement (in evidence as Trial Exhibit # 39) provided in part:

Upon Buyer's [Midwest Federal Savings Bank] payment of the purchase price for any participating ownership interest in any loan, Buyer shall immediately become vested, to the extent of its participating interest, with beneficial ownership of the loan and any and all of the documents of every nature in the possession of the Seller relating to such loan. Seller [MFS] thereafter shall hold such loan and documents as trustee for the benefit of all owners of participating interests to the extent of their beneficial interests.... Any beneficial owners or such owners' representative, including the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation, and their examiners or supervisory agents, shall have the right at any reasonable time during the normal business hours to request and have access to and examine any and all books, records and documents relating to any loan in which it has a participating interest or In 1989, Midwest Bank was placed into receivership by the United State Department of the Treasury Office of Thrift Supervision ("OTS"). Subsequently, OTS created a new entity to replace Midwest Bank ("new association"), and appointed the Resolution Trust Corporation ("RTC") as receiver for Midwest Bank and conservator for the new association. As conservator of the new association, 3 RTC acquired the final Orangegate loan documents, none of which contained a nonrecourse provision. Upon review of these loan documents, RTC determined Orangegate was in default under the terms of the loan, and the collateral, the Property, was worth approximately $3 million less than the balance of the loan. RTC's demand for cure and repayment was refused by Orangegate.

relating to any of the matters covered by this Agreement. (Emphasis added).

B. Litigation

Thereafter, on November 16, 1990, RTC filed suit against Orangegate, Joseph and others to foreclose upon the loan and collect on the personal guarantee. Defendants Kiley, Centennial Estates, Inc., John Joseph, and West Coast Realty Finance, and La Plata Investors, Nolan, Beck, Wilson, Main Street Investors, Breazeale, Tice, and Gardner (collectively "Answering Defendants") filed timely general answers to RTC's Complaint.

On January 10, 1991, the Answering Defendants requested RTC turn over all bank documents concerning the loan. The Answering Defendants took the position that the loan was nonrecourse despite the lack of a nonrecourse provision in the final loan documents. Subsequently, RTC turned over two boxes of documents which purportedly were copies of Midwest Bank's records. However, the files actually were from Windtree, the loan servicer. The records from Windtree contained the only three documents involved in this case which mention the nonrecourse provision: the April 16 Commitment Letter, the MFS Board Submission form, and the minutes from the MFS's Board Meeting on May 21, 1985, at which the MFS Board had approved the Orangegate loan. Later, RTC produced actual bank records which did not contain any document that included the nonrecourse provision. RTC concedes, however, the Board Submission Form and a copy of the minutes from the MFS's May 21, 1985, Board meeting were found in the records of MFS.

On February 4, 1991, Centennial, Joseph, and West Coast Realty Finance filed for summary judgment and sought a ruling that the loan was nonrecourse. The rest of the Answering Defendants joined in the summary judgment motion. In its order filed March 8, 1991, the district court rejected the Answering Defendants' interpretation of the loan documents. The district court held the Answering Defendants' attempt to include the nonrecourse provision into the final fully-integrated loan documents was barred not only by the parol evidence rule,...

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