Seattle-First Nat. Bank v. FDIC

• Decision Date: 15 October 1985
• Docket Number: No. CIV 82-1385-R.,CIV 82-1385-R.
• Citation: 619 F. Supp. 1351
• Parties: SEATTLE-FIRST NATIONAL BANK, a national banking association, Plaintiff, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as receiver of Penn Square Bank, N.A.; and Deposit Insurance National Bank, a national banking association, successor to Penn Square Bank, N.A., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

619 F. Supp. 1351

SEATTLE-FIRST NATIONAL BANK, a national banking association, Plaintiff, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as receiver of Penn Square Bank, N.A.; and Deposit Insurance National Bank, a national banking association, successor to Penn Square Bank, N.A., Defendants.

No. CIV 82-1385-R.

United States District Court, W.D. Oklahoma.

October 15, 1985.

COPYRIGHT MATERIAL OMITTED

George W. Dahnke, Hastie & Kirschner, Oklahoma City, Okl., for plaintiff.

Charles C. Baker, Oliver S. Howard and Sidney G. Dunagan, Gable & Gotwals, Tulsa, Okl., for defendants.

ORDER

DAVID L. RUSSELL, District Judge.

This lawsuit is one of several loan participation suits arising in the wake of the declared insolvency and receivership of Penn Square Bank, N.A. Plaintiff here, Seattle-First National Bank ("Seafirst") is suing the Federal Deposit Insurance Corporation in FDIC's dual capacities as Receiver for Penn Square and as the Corporation in charge of deposit insurance. Seafirst complains in Count I of the Receiver's offsets against approximately $3.8 million in participated loans; in Count II it claims deposit insurance from the Corporation for $1.2 million in mistakenly wired funds; in Count III it seeks reimbursement from the Receiver of $12 million paid by Seafirst on Penn Square letters of credit; and in Count IV it claims deposit insurance on its asserted interest in approximately $1.74 million in Penn Square letters of credit issued in conjunction with participated loans. The case is before the Court on the Receiver's motion to dismiss Count I (concerning offsets), the Corporation's motion to dismiss Counts II and IV (for deposit insurance), and the Receiver's and the Plaintiff's cross motions for summary judgment on Count III (concerning the wired funds).

OFFSETS

Count I

Prior to its insolvency, Penn Square originated and participated loans to "upstream" banks such as Seattle First. Subsequently, in the course of the receivership, the FDIC offset the balances contained in deposit accounts maintained by Penn Square's borrowers against the balances due on the borrowers' participated loans. Seafirst was issued Receiver's certificates in proportion to Seafirst's stake in the offsets. Seafirst will take its share of the remaining loan payments in "new money" paid by the borrowers to the Receiver. The mechanics of offset are elaborated in Chase-Manhattan Bank, N.A., v. FDIC, 554 F.Supp. 251, 253 (W.D.Okla.1983).

Seafirst claims that the terms of its participation agreements with Penn Square conferred "property rights" or "trust estates" in the loans and their collateral. According to this theory, the offset amounts constituted a "separate fund" augmenting the Receiver's estate, thereby qualifying for preferred receivership distributions. In considering this argument, the Court must determine both the existence and the consequence of Seafirst's asserted interests in the participated loans. The nature and extent of these interests derive from the participation agreement between Seafirst & Penn Square which was signed sometime during March, 1982. It reads as follows:

"PARTICIPATION AGREEMENT

"This Participation Agreement is entered into this ____ day of March 1982, by and between PENN SQUARE BANK N.A., of Oklahoma City (hereinafter called Seller) and SEATTLE-FIRST NATIONAL BANK (Hereinafter called the Purchaser).

"1. Sale of Participations. Seller hereby agrees to sell and Purchaser agrees to purchase participations in the loans described on Exhibit A attached hereto and by this reference incorporated herein. The amount of Purchaser's participation in each loan is also indicated on Exhibit A. The transfer from Seller to Purchaser of Purchaser's interest in each loan shall be evidenced by a Certificate of Participation in form marked Exhibit B attached hereto and by this reference incorporated herein. To the extent the terms of this Agreement vary from or are in conflict with the terms of any certificate, the terms of this Agreement shall control.

"2. Owner Trustee. To the extent of its participation in the loans, Purchaser shall be the owner of an undivided fractional interest in each such loan, including, but not limited to, all notes and other instruments evidencing indebtedness of the borrower, together with all collateral securing such indebtedness. To the extent of Purchaser's interest therein, including, but not limited to, its pro rata share of all funds and payments received and/or to be received by Seller from the borrowers, Seller shall be a trustee for the benefit of and accountable to Purchaser, and shall hold all such notes, mortgages, and collateral security instruments together with all such funds and payments in trust for Purchaser for its sole and exclusive benefit.

"3. Administering and Servicing. Seller shall, at its sole cost and expense, manage and service the loans and maintain all necessary books and records with respect thereto. Seller will deliver with each participation certificate a true and correct copy of the note and all other instruments evidencing the loan indebtedness together with security agreements, mortgages, trust deeds and other security instruments. Seller shall also furnish Purchaser with evidence of the perfection of Seller's lien. Seller shall receive and collect all payments of principal and interest that become due and payable on the loans and shall immediately place all such funds in a reserve account as soon as the same are collected, to be held for disbursement as provided below.

"Seller agrees that it will consult with Purchaser on any matter that may affect Purchaser's interest in the loans and agrees that, without Purchaser's prior written consent, Seller will not (a) modify or waive any of the terms of the loan documents or give or withhold consents or approvals to any action or failure to act by the borrower; (b) permit substitutions or withdrawals of security, if any, which would materially reduce the value thereof without a proportionate reduction in the loan. Seller agrees to exercise the same degree of care in administering the loan as Seller exercises with respect to loans in which no participations are sold.

"4. Marking of Records, Inspection. Seller represents, warrants, covenants and agrees to mark all notes, mortgages, security agreements, trust deeds and other instruments evidencing the loans and the collateral securing same, in a conspicuous manner so as to clearly identify Purchaser's participation in the loans and further agrees to mark all credit files, ledgers and/or computer printouts and other records pertaining to the loans. Purchaser may at any reasonable time or times have the right to inspect and make copies of any and all records of Seller pertaining to the loans.

"5. Monthly Reports. Not later than ten days following the end of each month in which Purchaser has a participation interest in any loan hereunder, Seller shall transmit to Purchaser a computer printout or report on which Seller will indicate with respect to the immediately preceding month:

(a) The total amount of each loan outstanding at the beginning of such immediately preceding month;

(b) The aggregate amount of payments segregated as to principal and interest made by the borrower on each loan during each month;

(c) The total amount of each loan outstanding at the end of such month (d) The total amount of Purchaser's participation in each loan outstanding at the beginning and end of such month.

"6. Payments. Seller will pay to Purchaser its pro rata share of the aggregate amount of payments of principal and interest paid by the borrower during each month when received.

"7. Representations and Warranties of Seller. Seller represents and warrants to Purchaser as follows:

(a) Each loan and the loan documents evidencing same, including any note, mortgage, security agreement, trust deed, guaranty (and other instruments pertaining to the loan) have been prepared, executed and delivered in conformity with applicable laws and regulations and constitute the legal, valid and binding obligations of the borrower (and the guarantor where applicable).

(b) All liens running in favor of Seller to secure the loan have been properly perfected so as to constitute valid and enforceable first liens upon the collateral (except as otherwise specifically allowed under the loan documents).

(c) The borrower has good title to the property given as collateral security for the loan free and clear of liens and encumbrances except as specifically described in the loan documents.

(d) The amount due and owing Seller under each loan is as stated in the loan documents and there are no defenses, offsets or counterclaims against Seller with respect to the amounts owing.

(e) There has been no material adverse change in the condition of the borrower under the note since the note was executed except as otherwise specifically disclosed to the Purchaser in writing.

(f) Except as specifically disclosed in the loan documents, all collateral given for the loan is duly insured at all times against such risks as are normally insured against in the industry of the borrower with loss payable in favor of Seller in an amount not less than that of the outstanding balance of the loan.

"8. Costs. Seller agrees to pay all costs and expenses incurred in connection with making, managing, servicing and collecting the loans or realizing upon the collateral securing the loans including any and all attorneys' fees and court costs.

"9. Instructions. Seller agrees that so long as the Purchaser's share in the loan is more than 50 percent thereof, then the Seller will take any action as may be requested by Purchaser to enforce the terms thereof, or to exercise the rights given in the loan documents relating to or evidencing the loan or the security therefor provided Purchaser first indemnifies Seller against Purchaser's pro rata share of any expense or liability which Seller may...