Resolution Trust Corp. v. TOWNSEND ASSOCIATES

• Decision Date: 10 December 1993
• Docket Number: No. 92-76202.,92-76202.
• Citation: 840 F. Supp. 1127
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. TOWNSEND ASSOCIATES LIMITED PARTNERSHIP, et al., Defendant.
• Court: U.S. District Court — Western District of Michigan

840 F. Supp. 1127

RESOLUTION TRUST CORPORATION, Plaintiff, v. TOWNSEND ASSOCIATES LIMITED PARTNERSHIP, et al., Defendant.

No. 92-76202.

United States District Court, E.D. Michigan, S.D.

December 10, 1993.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Larry E. Powe & Terri L. Giampetroni, Freeman, McKenzie Law Firm, Mt. Clemens, MI, for plaintiff Resolution Trust.

James A. Simpson and Katheryn L. Zelenock, Birmingham, MI, for defendants Townsend Associates Townsend Hotel Corp. and Anthony S. Brown Development Corp.

Arthur Y. Liss, Mt. Clemens, MI, for defendants Anthony S. Brown, Sharon R. Brown.

Joseph M. Fischer & Sandra Labovitz, Carson, Fischer & Potts, Birmingham, MI, for defendants Whirlpool Financial Corp. and Whirlpool Leasing Services.

OPINION AND ORDER REGARDING THREE MOTIONS FOR PARTIAL SUMMARY JUDGMENT

ROSEN, District Judge.

I. INTRODUCTION

The above-captioned action is presently before the Court on three Motions for (Partial) Summary Judgment:

(1 and 2) Resolution Trust Corporation's and Defendants Whirlpool Financial Corporation & Whirlpool Leasing Services, Inc.'s Cross-Motions for Summary Judgment on the Whirlpool Defendants' Counter-Claim Against the RTC; and

(3) Defendants Whirlpool Financial Corporation and Whirlpool Leasing Services, Inc.'s Motion for Summary Judgment on their Cross-Claim Against Defendants Anthony and Sharon Brown.

The Court has reviewed and considered the parties various briefs in support of their respective positions on these motions, and having heard the oral arguments of the parties' attorneys at the hearing held on December 2, 1993, the Court is now prepared to rule on these matters. This Opinion and Order sets forth that ruling.

II. FACTUAL BACKGROUND

A. THE ORIGINAL TOWNSEND INDEBTEDNESS

In December of 1985, Townsend Associates Limited Partnership entered into a loan agreement with the Michigan Strategic Fund relating to the issuance of $8.6 million of Limited Revenue Obligation Bonds to provide funding for the construction of the Townsend Hotel in Birmingham, Michigan. The Strategic Fund loan agreement provided that Townsend Associates was to pay the interest plus 1/12th of the principal due on the bonds to the bond trustee in monthly installments prior to the date when the trustee was required to make payments to the bond holders.

In connection with its obligations under the Strategic Fund loan agreement, Townsend Associates entered into a Reimbursement Agreement with First Federal Savings Bank and Trust ("First Federal"). Under this Reimbursement Agreement, First Federal agreed to issue an Irrevocable Letter of Credit in the amount of $9 million in favor of the bond trustee to cover Townsend Associates' obligations under the Strategic Fund loan agreement. In exchange, Townsend Associates agreed to repay to First Federal all amounts paid out by the bank to the bond trustee, together with all letter of credit draw fees, late charges, interest, transfer fees, costs and maintenance fees. Townsend Associates' indebtedness to First Federal was secured by a real estate mortgage on the Townsend Hotel property, a general security agreement in Townsend Hotel Corporation personalty, and the guarantees of the Townsend Hotel Corporation and Anthony and Sharon Brown.¹

Townsend Associates defaulted on its obligations to First Federal as of November 1990. Demand for payment under the guarantees was subsequently made to Townsend Associates, and to Anthony S. Brown, Sharon R. Brown and the Townsend Hotel Corporation on their guarantees. None of the obligors made any payment on the indebtedness.

As a result, in October 1992 Resolution Trust Corporation ("RTC"), as Conservator/Receiver of First Federal Savings and Loan Association, the successor-in-interest to First Federal Savings Bank and Trust, instituted this action to foreclose on First Federal's mortgage on the Townsend Hotel property, and to collect on the guarantees of Townsend Hotel Corporation, Anthony and Sharon Brown.

In its Verified Complaint, the RTC named among its various party-defendants all parties with a recorded interest in Townsend Hotel property. Whirlpool Financial Corporation and Whirlpool Leasing Services, Inc. (collectively referred to herein as "Whirlpool" or the "Whirlpool Defendants.") are two such party-defendants. The RTC alleges in its Complaint that the Whirlpool Defendants' interest in Townsend Hotel property is subordinate to First Federal's (now RTC's) interest.

B. WHIRLPOOL'S INTEREST IN TOWNSEND PROPERTY

Whirlpool's interest arises out of a Loan and Security Agreement entered into between Whirlpool and the Townsend Hotel Corporation on December 2, 1988 pursuant to which Whirlpool agreed to lend the Townsend Hotel Corporation $1,646,234.09 for the financing of furniture, equipment and other personalty to be used in conjunction with the operation of the newly established Townsend Hotel. In connection with this loan, Townsend Hotel Corporation granted Whirlpool a security interest in certain furniture, equipment and personalty (the "Whirlpool Collateral"). Mark Baetens, a Vice-President of First Federal, apparently agreed to Whirlpool's request that First Federal subordinate its interest in the Whirlpool Collateral on December 1, 1988.² Anthony and Sharon Brown also executed a guaranty agreement, personally guaranteeing repayment of the Whirlpool loan to the Townsend Hotel Corporation.

Townsend Hotel Corporation subsequently fell delinquent in its obligations under the Whirlpool loan but asked Whirlpool to forbear in enforcing its rights under the loan agreement. On January 16, 1991, the parties entered into a Contingent Deferral and Additional Security Agreement ("CDASA") pursuant to which Whirlpool agreed to extend its lending relationship with Townsend and further agreed to forbear from enforcing its rights under the original December 1988 loan agreement. The CDASA also modified the terms of Townsend's repayment of the loan, although, most of the terms of the original loan agreement and supporting documents were ratified in the CDASA. As part of the consideration for Whirlpool's agreement to the CDASA, Anthony and Sharon Brown executed a new personal guarantee of Townsend Hotel Corporation's debt on February 18, 1991. This new guarantee, by its express terms, superseded and replaced the Browns' December 2, 1988 guarantee.

Despite Whirlpool's forbearance, however, Townsend and the Browns did not meet their obligations and, once again defaulted.

After being served with RTC's Verified Complaint in this action in which RTC alleged that its security interest in Townsend Hotel property was superior to the interest of Whirlpool, Whirlpool responded with a Counterclaim against RTC, in which Whirlpool claimed an interest superior to RTC's by virtue of Mark Baetens' execution of the subordination agreement on December 1, 1988 on behalf of First Federal. Whirlpool also cross-claimed against Anthony and Sharon Brown to collect on their guarantee.

A. RTC'S AND WHIRLPOOL'S CROSS-MOTIONS FOR SUMMARY JUDGMENT ON WHIRLPOOL'S COUNTER-CLAIM

As indicated above, along with their Answer, the Whirlpool Defendants filed a Counter-Claim against the RTC. In that Counter-Claim, Whirlpool alleged that when it entered into the Loan and Security Agreement with the Townsend Hotel Corporation in December 1988, Townsend Hotel Corporation granted Whirlpool a security interest in various furnishings and equipment (the "Collateral"), and that First Federal's (now RTC's) interest in the Collateral was subordinated to Whirlpool's interest pursuant to a subordination agreement executed by First Federal's Vice-President, Mark Baetens. Therefore, Whirlpool claims that it stands in a higher priority position than the RTC.

The RTC filed its Answer and Affirmative Defenses to the Whirlpool Counter-Claim. In its Affirmative Defense No. 3, the RTC alleged that:

Whirlpool's claims are barred pursuant to Title 12 U.S.C. § 1823(e) for the reason that the purported subordination agreement between the Townsend Hotel Corporation and/or Townsend Hotel Limited Partnership and Whirlpool relating to the "Whirlpool Collateral", was not in a writing executed by the Bank or its successor, was not approved by the Bank's Board of Directors or its successor, and it was not, and has not been, continuously from the time of its purported execution an official record of the depository institution.

RTC's Verified Answer and Affirmative Defenses, p. 8.

It is based upon the allegations of non-compliance with the requirements of 12 U.S.C. § 1823(e) in Affirmative Defense No. 3 that the RTC moves for summary judgment in its favor on Whirlpool's Counter-Claim. Whirlpool has cross-moved for summary judgment in its own favor, arguing that Section 1823(e) does not apply to subordination agreement transaction at issue.³

B. WHIRLPOOL'S MOTION FOR SUMMARY JUDGMENT ON THE BROWNS' CROSS-CLAIM

Whirlpool has also moved for summary judgment in its favor on its Cross-Claim against Defendants Anthony and Sharon Brown. Whirlpool's Cross-Claim against the Browns is predicated upon their personal Guaranty of the $1.6 million loan made by Whirlpool to the Townsend Hotel Corporation for the financing of Hotel furnishings and equipment.

The Browns do not deny their execution of the Guaranty, nor do they deny the Townsend Hotel Corporation/Townsend Associates' defaults under the Whirlpool-Townsend Hotel Corporation/Townsend Associates Loan Documents. Rather, they argue against entry of summary judgment in favor of Whirlpool on the basis of three affirmative defenses.

First, the Browns argue, on procedural grounds, that Whirlpool's Cross-Claim fails to state a claim upon which relief can be granted because Whirlpool did not attach to its Complaint the original Guaranty executed by the Browns in December 1988. (The Guaranty upon which Whirlpool bases its Cross-Claim was executed in February 1991.)

Second, the Browns contend that Mrs. Brown...