Resolution Trust Corp. v. Winslow, H006506

• Decision Date: 05 October 1992
• Docket Number: No. H006506,H006506
• Citation: 12 Cal.Rptr.2d 510,9 Cal.App.4th 1799
• Court: California Court of Appeals Court of Appeals
• Parties: , 20 UCC Rep.Serv.2d 1062 RESOLUTION TRUST CORPORATION, As Receiver, etc., Plaintiff, Cross-Defendant and Appellant, v. William WINSLOW, Defendant, Cross-Complainant and Appellant; Jess Rodrigues, Cross-Defendant and Respondent.

Page 510

12 Cal.Rptr.2d 510

9 Cal.App.4th 1799, 20 UCC Rep.Serv.2d 1062

RESOLUTION TRUST CORPORATION, As Receiver, etc., Plaintiff, Cross-Defendant and Appellant, v. William WINSLOW, Defendant, Cross-Complainant and Appellant Jess Rodrigues, Cross-Defendant and Respondent.

No. H006506.

Court of Appeal, Sixth District, California.

Oct. 5, 1992.

Frank R. Ubhaus, Russell J. Hanlon, Thomas P. Murphy, Berliner, Cohen & Biagini, for plaintiff, cross-defendant and appellant, Resolution Trust.

John H. Patton, Law Offices of Jack C. Provine, Walnut Creek, for defendant, cross-complainant and appellant, William Winslow.

Jess Rodrigues, in pro. per.

CAPACCIOLI, Acting Presiding Justice.

Judgment was entered for plaintiffs on their complaint and for defendant Winslow on his cross-complaint. Resolution Trust Corporation (hereafter "RTC") was subsequently appointed conservator for Saratoga Savings & Loan Association (hereafter "Association"). Notice of appeal by plaintiffs from the judgment was timely filed. RTC thereafter substituted in as a party. On appeal, RTC asserts, for the first time, that federal statutory and common law bars Winslow from recovering from the RTC for misrepresentations made by Association and its subsidiary, Saratoga Service Corporation (hereafter "Saratoga"). In his cross-appeal, Winslow asserts that the trial court erroneously granted specific performance to plaintiffs. For the reasons expressed below, we reverse the judgments.

FACTS

On June 4, 1985, Saratoga sued Winslow and Optcenters, Inc., seeking dissolution of Optcenters, appointment of a receiver, specific performance, damages and an accounting. Saratoga filed an amended complaint on August 11, 1988. The complaint was based on an agreement between Winslow and Saratoga which provided that Saratoga would invest $300,000 in Optcenters, Inc. Optcenters would then issue 30,000 shares of stock each to Saratoga and Winslow. "As part of the consideration for SSC [Saratoga] providing all of the capital for the start-up of the Corporation, as herein set forth, and as further security for the preservation of a portion of the capital provided by SSC as set forth herein, Winslow hereby assigns to SSC, including voting rights, as security for the return of $150,000 of SSC's investment, 100% of the issued and outstanding capital stock of Winslow Research Institute and 100% of the issued and outstanding capital stock of Institute of Athletic Motivation. These assignments shall be released by SSC to Winslow when the total stockholders' equity of the Corporation reaches $300,000, or in the event of dissolution, where SSC has received at least $150,000 in assets, or in such dissolution upon payment by Winslow to SSC of a sum, when combined with any dissolution of assets, distributed to SSC, equals $150,000."

On June 16, 1986, Winslow and Optcenters filed a cross-complaint for fraud, misrepresentation, breach of contract and other related causes of action against Saratoga, Association, Saratoga employee Jess Rodrigues and others. The cross-complaint alleged that "it was understood, implied and agreed orally between cross-defendants and cross-complainant Winslow that the initial investment by cross-defendants was only the minimum amount of funding that was to be provided by cross-defendants for the business of Optcenters, and that additional monies would be loaned to Optcenters by cross-defendants over and above $315,000, as said funds became reasonably necessary for operation of the business...." (Emphasis added.) Winslow's misrepresentation causes of action were based on oral agreements and misrepresentations.

Association filed a cross-complaint against Winslow for fraud based on allegations that Winslow had misrepresented his qualifications.

Trial commenced on April 12, 1989. The equitable issues were tried to the court. On Saratoga's complaint, the court found Winslow liable for breach of contract and ordered specific performance. Winslow was ordered to convey the stock specified in the agreement to Saratoga or pay Saratoga $150,000. On Winslow's cross-complaint, the jury returned special verdicts with respect to liability. They found that Jess Rodrigues, Association and Saratoga had not intentionally defrauded Winslow but that Association and Saratoga were liable for negligent misrepresentations made to Winslow upon which he had relied. On June 28, 1989, the jury returned a general verdict setting damages on Winslow's cross-complaint at $415,000. On Association's cross-complaint, the jury returned a special verdict in which they found that Winslow was not liable to Association for fraud.

Judgment was entered on August 22, 1989. Notice of entry of judgment was filed on September 11, 1989. Plaintiffs moved for a new trial and for judgment notwithstanding the verdict asserting that the evidence was insufficient and the damages excessive. On November 6, 1989, the motions were denied. On December 4, 1989, Saratoga and Association appealed from the judgment on the cross-complaint. ¹ On December 19, 1989, Winslow filed a cross-appeal from the judgment of specific performance.

Sometime between November 8, 1989 and December 8, 1989, RTC was appointed as conservator for Association pursuant to 12 United States Code section 1464. ² On May 24, 1990, RTC was appointed as receiver for Association pursuant to section 1464 for the purpose of liquidation. On June 27, 1991, RTC obtained an order from the trial court substituting itself as a party to the action in place of Saratoga and Association. On July 8, 1991, pursuant to Rule 48(a) of the California Rules of Court, we ordered that RTC be substituted in place of Saratoga and Association as appellant in this action. RTC filed its opening brief on July 18, 1991.

DISCUSSION

A. D'OENCH, DUHME AND SECTION 1823, SUBDIVISION (e)

Because the application of the "D'Oench, Duhme doctrine" determines the fate of this appeal, an introduction to this doctrine and its statutory counterpart is necessary. In 1942 the U.S. Supreme Court established the "D'Oench, Duhme doctrine" in D'Oench, Duhme & Co. v. F.D.I.C. (1942) 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (hereafter referred to as "D'Oench"). In D'Oench, the Federal Deposit Insurance Corporation (FDIC) sued on a note after it took over a bank. As a defense, the obligor asserted that he was not liable on the note due to a side agreement which did not appear in the records of the failed bank. Drawing on congressional intent expressed in federal "holder in due course" laws, the Supreme Court held that there was "a 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 banks which [the FDIC] insures or to which it makes loans." (Id. at p. 457, 62 S.Ct. at p. 679.) " 'Public policy requires that a person who, for the accommodation of the bank[,] executes an instrument which is in form a binding obligation, should be estopped from thereafter asserting that simultaneously the parties agreed that the instrument should not be enforced.' " (Id. at p. 459, 62 S.Ct. at p. 680, quoting Mount Vernon Trust Co. v. Bergoff (1936) 272 N.Y. 192, 5 N.E.2d 196, 197.) Barring the assertion of the unrecorded agreement was not inequitable to the obligor because he had "lent himself to a scheme or arrangement whereby the banking authority on which [the FDIC] relied in insuring the bank was or was likely to be misled." (D'Oench, Duhme & Co. v. F.D.I.C., supra, 315 U.S. at p. 460, 62 S.Ct. at p. 681.)

Justice Jackson, in a concurrence, noted that the matter was not a diversity case but was instead a federal question case. ³ (Id. at p. 467, 62 S.Ct. at p. 683.) Although no federal statute was directly applicable, Justice Jackson opined that federal law could be derived from sources other than statutes. "The federal courts have no general common law ... [b]ut this is not to say that wherever we have occasion to decide a federal question which cannot be answered from federal statutes alone we may not resort to all of the source materials of the common law, or that when we have fashioned an answer it does not become a part of the federal non-statutory or common law." (Id. at p. 469, 62 S.Ct. at p. 685, emphasis in original.)

Congress thereafter partially codified the D'Oench doctrine by enacting section 1823, subdivision (e). "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 as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--[p] (1) is in writing, [p] (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, [p] (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 [p] (4) has been, continuously, from the time of its execution, an official record of the depository institution." (§ 1823 subd. (e).)

Over the years, the federal common law D'Oench doctrine has been expanded to apply to the Federal Savings and Loan Insurance Corporation (FSLIC) and other federal financial entities, in addition to the FDIC; but section 1823, subdivision (e), the statutory D'Oench doctrine, had, until recently, remained limited to the FDIC acting in its corporate capacity. In 1989, a comprehensive package of statutory revisions extended the protection offered by section 1823, subdivision (e), to the RTC acting in its corporate or receivership capacity. (Adams v. Madison Realty & Development, Inc. (1991) 937 F.2d 845, 854.) "[T]he [Resolution Trust] Corporation [when acting as a conservator or receiver] shall have...