Texas Refrigeration Supply, Inc. v. F.D.I.C.

• Decision Date: 20 February 1992
• Docket Number: No. 90-2850,90-2850
• Citation: 953 F.2d 975
• Parties: TEXAS REFRIGERATION SUPPLY, INC., Frank Kologinczak, Bernard Kologinczak and Kolo Refrigeration, Inc., Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for First RepublicBank Houston, N.A. and NCNB Texas National Bank, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 975

953 F.2d 975

TEXAS REFRIGERATION SUPPLY, INC., Frank Kologinczak, Bernard

Kologinczak and Kolo Refrigeration, Inc., Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for First

RepublicBank Houston, N.A. and NCNB Texas National

Bank, Defendants-Appellees.

No. 90-2850.

United States Court of Appeals, Fifth Circuit.

Feb. 20, 1992.

Rehearing Denied April 2, 1992.

Steve A. Bryant, Bryant, Renneker & McLean, Clinard J. Hanby, Essmyer & Hanby, Houston, Tex., for plaintiffs-appellants.

Joseph S. Cohen, Hirsch & Westheimer, Houston, Tex., Carl Morgan, Vickey Dancy, Dallas, Tex., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, BROWN, Circuit Judge, and FELDMAN, District Judge. ¹

FELDMAN, District Judge:

The facts of this case tell still another bank-failure story. In resolving the issues by way of summary judgment, the district court was firm in applying the choke hold of D'Oench, Duhme. We now review the district court's grant of summary judgment. We affirm in part, vacate in part, and remand for further proceedings.

I.

Appellants Kolo Refrigeration, Inc. ("Kolo") and Texas Refrigeration Supply, Inc. ("TRS") started a credit relationship with RepublicBank Spring Branch, N.A. ("RBSB") in 1982. In July of that year, appellants Frank and Bernard Kologinczak signed agreements guaranteeing all of TRS's existing and future debts. Nearly two years later the Kologinczaks also guaranteed Kolo's debts.

By late 1984, Kolo had developed an oil extracting process, and entered into four process contracts. Frank Kologinczak sought out RBSB for financing for the contracts, and appellants insist that bank representatives orally agreed to finance the project on January 4, 1985. They urge that Kolo, relying on the bank's promise, went ahead with production, spent large sums of money, and did not search for other ways to finance the project. Appellants say that RBSB repeatedly reassured Kolo that the loans would be made. They were not. In the early summer of 1985, the bank told Kolo that it would not finance the project because it was no longer making energy-related loans.

Earlier in 1985, Kolo had made two loans unrelated to the process contracts: one for $150,608.31 and another for $150,000. Also, the Kologinczaks had borrowed $84,000 and secured that loan with a Cessna airplane. All of these loans are in default, as is a large TRS loan. Kolo is bankrupt.

TRS was also an active borrower. TRS had established a revolving line of credit with RBSB for $250,000, and secured the loan with its inventory. Either after TRS defaulted on the loan and RBSB accelerated the note's maturity, or after the loan matured according to its terms (this is hotly disputed on appeal), RBSB provoked a foreclosure sale and disposed of TRS's entire inventory for the disappointing sum of $20,000. Frank Kologinczak had notice of the sale.

These involved dealings prompted appellants to sue RBSB in Texas state court for breach of contract, negligence, wrongful acceleration, breach of fiduciary duty, promissory estoppel, misrepresentation, breach of good faith, and deceptive trade practices. RBSB predictably counterclaimed to recover the amounts due on the four loans. Then RBSB found itself in financial trouble, and we confront an even more cluttered terrain.

On December 31, 1987, RBSB was merged into First RepublicBank Houston, N.A. ("FRB Houston"), but a few months later FRB Houston was declared insolvent and closed by the Comptroller of the Currency. The FDIC was appointed receiver under 12 U.S.C. §§ 191 and 1821(c). The FDIC then organized JRB Bank, N.A. ("JRB") as a bridge bank under 12 U.S.C. § 1821(n)(1)(A). JRB changed its name to NCNB Texas National Bank ("NCNB"), and the FDIC entered into a Purchase and Assumption Agreement with NCNB to transfer FRB Houston's assets and certain of its liabilities to NCNB. The FDIC and NCNB, successor to the original bridge bank, removed this case to federal court under 12 U.S.C. § 1819(b)(2). ² They immediately called upon D'Oench, Duhme to avoid the claims asserted.

The district court granted summary judgment in favor of the FDIC and NCNB, dismissing all of the appellants' affirmative claims, and similarly granted NCNB's counterclaims for recovery on the notes. The district court said that all the appellants' claims and defenses were based on unrecorded oral agreements between the appellants and RBSB. Thus, said the court, D'Oench, Duhme barred the affirmative claims and appellants' defenses to the notes. We review that holding and sort out whether D'Oench, Duhme was applied too rigorously.

II.

Courts and Congress have built on the Supreme Court's controversial decision in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed.2d 956 (1942) to develop the body of law that now instructs that one who has dealt with a failed FDIC-insured institution may not assert a claim or defense against the FDIC that depends on some understanding that is not reflected in the insolvent bank's records. See, e.g., Bowen v. Federal Deposit Insurance Corporation, 915 F.2d 1013, 1015-16 (5 Cir.1990); Beighley v. Federal Deposit Insurance Corp., 868 F.2d 776, 783-84 (5 Cir.1989); 12 U.S.C. § 1823(e). ³ Section 1823(e), the statutory result of D'Oench, Duhme and its progeny, specifically directs that agreements with failed banks are unenforceable against the FDIC unless they meet four formal non-secrecy requirements. ⁴ The accessibility of the agreement is the doctrinal underpinning. In other words, any "transactions not reflected on the bank's books do not appear on the judicial radar screen either." Bowen, supra, at 1016.

At least two articulated policies support this broad, and, at times, arguably harsh rule. D'Oench, Duhme favors the interests of depositors and creditors of federally insured banks (who cannot protect themselves from unwritten accords) over the interests of borrowers, to whom such agreements are presumably accessible. See Kilpatrick, supra, at 1529. Ease of understanding a bank's financial health is an equally important reason. We have recognized that D'Oench, Duhme "ensure[s] that FDIC examiners can accurately assess the condition of a bank based on its books." Bowen, supra, at 1016. Simply put, oversight agencies should not bear too great a burden in getting their information. Because of the doctrine, the government need not research and compile extensive parol evidence, including inherently unreliable oral histories, to determine a bank's unrecorded liabilities. Id.

Congress has played a conspicuous role in reaffirming and broadening the doctrine. In the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 Congress codified the case literature that extended D'Oench, Duhme protection to so-called "bridge banks." ⁵ See 12 U.S.C. § 1821(n)(4)(I); Kilpatrick, supra, at 1528; Bell & Murphy & Associates, Inc. v. Interfirst Bank Gateway, N.A., 894 F.2d 750, 754 (5 Cir.) cert. denied, Bell & Murphy & Associates, Inc. v. Federal Deposit Insurance Corporation, --- U.S. ----, 111 S.Ct. 244, 112 L.Ed.2d 203 (1990). Section 1821(n)(4)(I), in language nearly identical to that of § 1823(e), expressly provides that no agreement that diminishes an asset of a bridge bank is enforceable unless it meets the same non-secrecy requirements mandated by § 1823(e). ⁶

This Court has also been rather generous in treating D'Oench, Duhme, perhaps not without controversy. For example, we have held that the FDIC may use the D'Oench, Duhme shield against a claim or defense based on any unwritten agreement between the insolvent bank and a borrower, even if the agreement is unrelated to a bank asset. See Bowen, supra, 915 F.2d at 1015-16. In Bowen, we reaffirmed the long reach of D'Oench, Duhme. Bowen acknowledged that D'Oench, Duhme limited itself to a borrower who attempted to use a secret agreement with a failed bank as a defense in a suit on the note by the FDIC. Id. at 1015. But we held that the modern D'Oench, Duhme doctrine has been expanded to bar the use of unwritten agreements ⁷ as the basis of any defense or claim against the FDIC, even if the agreement does "not implicate a specific obligation, such as a note or other asset held by the FDIC." Id. at 1016.

With these working principles in mind, we turn to the district court's use of D'Oench, Duhme to grant summary judgment.

III.

The district court's grant of summary judgment reflects a particular attraction to the doctrine. The court found that the appellants relied on several unrecorded oral agreements with RBSB to support each and every claim and defense.

We review a decision to grant summary judgment de novo, and apply the same standards that instruct the district court. See Degan v. Ford Motor Company, 869 F.2d 889, 892 (5 Cir.1989). We will affirm a grant of summary judgment if we find a basis, independent or not of the district court's reasoning, adequate to support the result. Id. We may affirm even in situations in which the district court's ruling was incorrect, as long as the result was proper. Id. See also, Federal Deposit Insurance Corporation v. Laquarta, 939 F.2d 1231, 1240 (5 Cir.1991) ("[W]e may affirm a summary judgment on a ground not relied upon by the district court.").

IV.

Appellants argue that D'Oench, Duhme does not trump recovery on their claims against the FDIC and NCNB, or bar their defenses against NCNB's counterclaim for payment of the $250,000 loan. They mount two offensives: that RBSB wrongfully accelerated the debt, and that RBSB did not dispose of the collateral in a commercially reasonable way. Appellants remind us that the Texas UCC prohibits creditors from accelerating loans except for good cause ⁸, and obliges creditors to be commercially reasonable in conducting a foreclosure sale. ⁹ With enterprise, they argue that rights based on these UCC obligations appear on the face of their...