Resolution Trust Corp. v. Wellington Dev. Group, Civ. A. No. 90-K-372

• Decision Date: 04 April 1991
• Docket Number: Civ. A. No. 90-K-372,90-K-1601.
• Citation: 761 F. Supp. 731
• Parties: The RESOLUTION TRUST CORPORATION, et al., Plaintiffs, v. WELLINGTON DEVELOPMENT GROUP, et al., Defendants.
• Court: U.S. Court of Appeals — Seventh Circuit

761 F. Supp. 731

The RESOLUTION TRUST CORPORATION, et al., Plaintiffs, v. WELLINGTON DEVELOPMENT GROUP, et al., Defendants.

Civ. A. Nos. 90-K-372, 90-K-1601.

United States District Court, D. Colorado.

April 4, 1991.

William Baseman, Denver, Colo., for plaintiffs.

Phillip A. Vaglica, Colorado Springs, Colo., for defendants.

ORDER ON MOTION TO DISMISS

KANE, Senior District Judge.

This is a consolidated action in which the Resolution Trust Corporation (RTC), as Receiver of First Federal Savings and Loan Association of Colorado Springs, seeks to collect a deficiency on the foreclosure of two promissory notes, one made by defendants Wellington Development Group, Richard H. Sucher, William D. Ritchie, Michael S. Kessler and Donald T. Gladstone (Civil Action No. 90-K-372),¹ and the other by defendants B Street Partners, Richard H. Sucher and William T. Monroe (Civil Action No. 90-K-1601). The Wellington Group has asserted twelve counterclaims based on an implied partnership, fraud, constructive fraud, breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, conversion, intentional interference with contract relations and defamation. The RTC now moves for dismissal of certain counterclaims, relying primarily on the doctrine enunciated in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942) and its statutory counterpart, 12 U.S.C. § 1823(e). For the following reasons, the motion is granted in part and denied in part.

I. Facts.

A. Wellington Development Group Loan.

On January 25, 1985, the partners of the Wellington Development Group, a Colorado general partnership, executed a promissory note in favor of First Federal in the original principal amount of $3,200,000. The note was secured by a first deed of trust on certain real property located in Colorado Springs, Colorado, commonly known as the Rockrimmon Village Retail Center (the "Rockrimmon property"). The partnership was to use the proceeds from the note to develop a shopping center on the Rockrimmon property (the "Village Center"). The parties also executed a loan agreement, which provided that First Federal was to receive a "contingent interest fee" in the profits generated from the development of the center.

The Wellington Development Group note fell due on January 25, 1988.² On February 10, 1988, First Federal declared the note in default and shortly thereafter had a receiver appointed. On October 17, 1989, the Rockrimmon property was foreclosed. First Federal successfully bid $2,070,000.00 for the property, leaving a deficiency of $1,707,620.89, plus interest. On March 5, 1990, the RTC, as successor to the FSLIC and conservator of First Federal, commenced Civil Action No. 90-K-372 to recover the deficiency from the Wellington Group and its individual partners. On June 29, 1990, the RTC was appointed receiver of First Federal.

B. B Street Partners Loan.

On February 4, 1987, First Federal extended a loan to B Street Partners, a Colorado general partnership, in the amount of $1,460,000.00. The loan was evidenced by a promissory note and secured by a deed of trust covering certain real property in Colorado Springs, Colorado known as 2025-2055 "B" Street. The terms of the loan were governed by a loan agreement. B Street Partners used the loan proceeds to purchase a retail shopping center on the property.

On July 1, 1989, the partnership failed to make a monthly payment on the B Street loan. First Federal sent the partnership a notice of default on July 25, 1989. When the partnership did not cure the default, First Federal foreclosed on the property, successfully obtaining it at the foreclosure sale on a bid of $961,400.00. On September 10, 1990, the RTC commenced Civil Action No. 90-K-1601 to recover on the $652,437.27 deficiency.

C. Counterclaims Against First Federal/RTC.

On October 4, 1990, the Wellington Group filed its amended counterclaims in Civil Action No. 90-K-372. The first counterclaim is for a declaratory judgment that a partnership existed between First Federal and the Wellington Group for the construction of the Village Center. The second through sixth counterclaims are for fraud, constructive fraud, breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty, respectively, growing out of the above-alleged partnership. The seventh counterclaim is for conversion, relating to First Federal's application of a payment on the note. In addition to the above counterclaims, the Wellington Group asserts as its eighth through eleventh counterclaims requests for damages for intentional interference with contractual relations, breach of contract, conversion and defamation arising out of First Federal's loan to B Street Partners. Finally, the twelfth counterclaim is for setoff of any damages awarded on the foregoing claims against the defendants' potential liability to the RTC.

On October 18, 1990, the Wellington Group and the B Street Partners moved to consolidate the two actions. The RTC objected to consolidation. On October 24, 1990, it moved to dismiss the first through seventh and the twelfth amended counterclaims based on D'Oench, Duhme. It further argued that the remainder of the counterclaims dealing with the B Street loan were asserted improperly by the Wellington Group. On November 13, 1990, I granted the motion to consolidate.³ The defendants have responded to the motion to dismiss, attaching as exhibits to their response several of the relevant loan documents. Since the defendants rely on materials beyond the pleadings, I will construe the motion as one for summary judgment. Fed.R.Civ.P. 12(b).

II. Merits.

The standard for granting a motion for summary judgment under Fed.R. Civ.P. 56 is a strict one. "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 a material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). Consequently, summary judgment will be granted against a party "who fails to ... establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In determining whether the motion will be granted, the court must construe the evidence and resolve all reasonable doubt in favor of the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The "judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

The RTC's central defense to the Wellington Group's counterclaims is the doctrine of estoppel established in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and the related limitation codified at 12 U.S.C. § 1823(e). In D'Oench, Duhme, a securities broker executed several promissory notes in favor of a bank insured by the FDIC. The broker had previously sold to the bank certain bonds which later defaulted. The execution of the promissory notes was intended to enable the bank to avoid showing on its books any of the defaulted bonds. Receipts for the notes indicated that the parties intended that the notes would not be repaid. Subsequently, certain of the bank's liabilities were assumed by the FDIC, including the notes at issue, and the FDIC sued to recover on them. See id. 315 U.S. at 454, 62 S.Ct. at 678.

To escape liability on the notes, the broker asserted two defenses: the parties' understanding that the notes would not be repaid and the fact that the notes were given without consideration. Affirming the lower court's judgment in favor of the FDIC, the Supreme Court found the above defenses to be unavailing. The Court noted the strong "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 bank which the FDIC insures or to which it makes loans." Id. at 457, 62 S.Ct. at 679. As the Supreme Court later explained on Langley v. FDIC, the FDIC requires this protection because it must undertake an evaluation of a bank's net worth "`with great speed, usually overnight, in order to preserve the going concern value of the failed bank and to avoid an interruption in banking services.'" 484 U.S. 86, 91, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987) (citing Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982)). Thus, regardless of the lack of an overt intent to deceive federal banking authorities, under D'Oench, Duhme a defendant may not set up a defense to the collection of a note based on an unrecorded understanding between it and a federally-insured institution.

The test is whether the note was designed to deceive the creditors or the public authority, or would tend to have that effect. It would be sufficient in this type of case that the maker lent himself to a scheme or arrangement whereby the banking authority on which respondent relied in insuring the bank was or was likely to be misled.

315 U.S. at 460, 62 S.Ct. at 681.

The federal common-law rule of D'Oench, Duhme was supplemented in 1950 with the enactment of the Federal Deposit Insurance Act. That statute, in its current form, provides in relevant part:

No agreement which tends to diminish or defeat the interest of the Corporation 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

...