Vasapolli v. Rostoff

• Decision Date: 13 September 1994
• Docket Number: No. 94-1319,94-1319
• Citation: 39 F.3d 27
• Parties: John VASAPOLLI, et al., Plaintiffs, Appellants, v. Steven M. ROSTOFF, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 27

39 F.3d 27

John VASAPOLLI, et al., Plaintiffs, Appellants, v. Steven M. ROSTOFF, et al., Defendants, Appellees.

No. 94-1319.

United States Court of Appeals First Circuit.

Heard Sept. 13, 1994.

Decided Nov. 8, 1994.

Chester A. Janiak, with whom Andrew P. Botti and Burns & Levinson, Boston, MA, were on brief, for appellants.

Christopher J. Bellotto, Counsel, with whom Ann S. Duross, Asst. General Counsel, Robert D. McGillicuddy, Senior Counsel, Washington, DC, A. Van C. Lanckton, Laurie A. Parrott, and Craig and Macauley Professional Corp., Boston, MA, were on brief, for appellee F.D.I.C.

Before SELYA, Circuit Judge, COFFIN, Senior Circuit Judge and STAHL, Circuit Judge.

SELYA, Circuit Judge.

It is trite, but true, that not every wrong has a remedy--much less a remedy wholly satisfactory to the purported victims. This litigation illustrates the point in the context of an appeal matching the plaintiffs, a group of borrowers who complain that they were swindled, against the Federal Deposit Insurance Corporation (FDIC), in its capacity as liquidating agent for the now defunct Bank for Savings (the Bank). Specifically, plaintiffs challenge district court orders granting summary judgment against them in respect to (1) claims that they originally brought against the Bank, and (2) counterclaims pressed against them by the FDIC to recover amounts allegedly due on certain promissory notes payable to the Bank. In disposing of the matter, the district court wrote at some length, see Vasapolli v. Rostoff, 864 F.Supp. 215 (D.Mass.1994), and we agree with that court's central conclusions: plaintiffs' claims for fraudulent inducement, misrepresentation, and negligence are barred by the D'Oench, Duhme doctrine and 12 U.S.C. Sec. 1823(e); plaintiffs' claims of duress and fraud in the factum cannot survive scrutiny; plaintiffs' affirmative defenses to the counterclaims are impuissant; and none of the plaintiffs is entitled to benefit from a belated effort to interject into the decisional calculus an incorrectly computed figure contained in a writ of execution issued by a Maine state court in a related proceeding. Consequently, we affirm the judgment below.

I. BACKGROUND

We abjure a detailed, fact-laden account in favor of a simple sketch. Because two of the orders that we are reviewing arose under the aegis of Fed.R.Civ.P. 56, we construct this sketch, and limn the material facts, in the light most hospitable to the appellants.

The myriad plaintiffs in this civil action are bound together by what appears in retrospect to have been a serious error in judgment: they all borrowed money from the Bank in connection with the purchase of condominium units from Steven M. Rostoff or business entities controlled by him. Although each plaintiff's predicament is slightly different, the record reveals a consistent pattern of chicanery practiced by Rostoff and certain bank employees. In a typical instance, a plaintiff purchased a condominium based on multiple misrepresentations by Rostoff such as: that the unit had been completely renovated and was being sold at a substantial discount from market value; that the unit could be resold profitably through Rostoff at the end of one year; and that the unit owner would incur no out-of-pocket expenses during the period of his ownership. Bank officials abetted these misrepresentations in divers ways, including the procurement of inflated appraisals.

Rostoff's scheme climaxed in a string of high-pressure closings scheduled at 15-minute intervals on the Bank's premises. The plaintiffs received little notice of when the closings were to occur--many of them were held at night--and Rostoff did not provide them with the relevant documents until they arrived at the Bank. Rostoff appeared to have free run of the Bank's offices, sometimes opening the outer door to let purchasers enter.

Among other things, the plaintiffs allege that, although they had applied to the Bank for long-term loans, the actual documents presented to them for signature were short-term notes, each of which necessitated a balloon payment at the end of a one-year or three-year term. ¹ If a plaintiff objected, he was told that he would lose his deposit unless he signed the papers then and there.

After they discovered Rostoff's cozenage, the plaintiffs ceased payment on the notes; the Bank foreclosed many of the mortgages; and federal prosecutors indicted (and eventually convicted) Rostoff and certain Bank employees on criminal charges. While the prosecution was still embryonic, a group composed of allegedly defrauded borrowers brought a civil action in a Massachusetts state court against Rostoff, the Bank, and other defendants. ² In their suit, plaintiffs sought variegated relief under theories of fraud, conspiracy, breach of contract, negligence, racketeering, deceptive trade practices, and the like. The Bank counterclaimed, seeking recovery from the plaintiffs under their promissory notes. In response to the counterclaims, the plaintiffs asserted numerous affirmative defenses, averring among other things, that they had been fraudulently induced to sign the notes.

The Bank capsized in March of 1992. The FDIC stepped in as liquidating agent and, after it had replaced the Bank in the pending civil action, removed that action to the United States District Court for the District of Massachusetts. In due course, the FDIC sought, and attained, summary judgment. See Vasapolli, 864 F.Supp. at 225. In essence, the lower court found that plaintiffs' claims of fraudulent inducement, misrepresentation, and negligence were barred by the D'Oench, Duhme rule and 12 U.S.C. Sec. 1823(e), and that plaintiffs' claims of economic duress and fraud in the factum were rendered nugatory by the lack of a sufficient factual predicate. See Vasapolli, 864 F.Supp. at 220-225.

Consistent with these determinations, the court granted brevis disposition on all remaining causes of action urged by the plaintiffs against the FDIC. At the same time, the court resolved thirteen counterclaims in the FDIC's favor, and, thereafter, permitted the FDIC to file five more counterclaims, which the court then resolved on the same basis. Finding no satisfactory reason for delay, the court entered a final judgment disposing of all claims and counterclaims between the plaintiffs and the FDIC. See Fed.R.Civ.P. 54(b).

The plaintiffs then moved for relief from judgment, asserting for the first time that sums used in a previous Maine proceeding, though incorrectly calculated, were entitled to full faith and credit. The district court denied the motion. This appeal followed.

II. APPLICABLE LEGAL PRINCIPLES

We set out in somewhat abbreviated form the two sets of legal principles that together electrify the beacon by which we must steer.

A. The Summary Judgment Standard.

Summary judgment is appropriate when the record reflects "no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). For purposes of this determination, the term "genuine" means that "the evidence about the fact is such that a reasonable jury could resolve the point in favor of the nonmoving party...." United States v. One Parcel of Real Property, Etc. (Great Harbor Neck, New Shoreham, R.I.), 960 F.2d 200, 204 (1st Cir.1992). Similarly, the term "material" means that the fact has the potential to "affect the outcome of the suit under the governing law." Id. (quoting, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)).

An order granting summary judgment engenders de novo review. See Pagano v. Frank, 983 F.2d 343, 347 (1st Cir.1993); Rivera-Muriente v. Agosto-Alicea, 959 F.2d 349, 352 (1st Cir.1992). In performing this chore, we scrutinize the summary judgment record in the light most congenial to the losing party, and we indulge all reasonable inferences in that party's favor. See Pagano, 983 F.2d at 347.

B. The D'Oench, Duhme Doctrine.

The FDIC assumes two separate roles when a bank collapses. As receiver, the FDIC manages the failed bank's assets; in its corporate capacity, the FDIC insures the failed bank's deposits. See Timberland Design, Inc. v. First Serv. Bank for Sav., 932 F.2d 46, 48 (1st Cir.1991) (per curiam). The FDIC's options when the death knell sounds include liquidating the failed bank or, preferably, arranging the purchase and assumption of some or all of its assets and liabilities by a healthy bank. If undue disruption is to be avoided, a purchase and assumption arrangement often must be executed in great haste. It follows, therefore, that both in deciding what course of action to take regarding a failed bank and thereafter in effectuating the course of action chosen, the FDIC must be able to rely confidently on the bank's records as an accurate portrayal of its assets.

Mindful of this reality, the Supreme Court more than half a century ago acted to protect the FDIC and the public funds it administers by formulating a special doctrine of estoppel. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). The D'Oench, Duhme doctrine prohibits bank borrowers and others from relying upon secret pacts or unrecorded side agreements to diminish the FDIC's interest in an asset by, say, attempting to thwart its efforts to collect under promissory notes, guarantees, and kindred instruments acquired from a failed bank. ³ Borrowers' claims and affirmative defenses are treated the same under the doctrine. See Timberland, 932 F.2d at 49-50. Of particular pertinence to this case, the secret agreements prohibited by the D'Oench, Duhme rule are not limited to promises to perform acts in the future. See, e.g., Langley v. FDIC, 484 U.S. 86, 92, 96, 108 S.Ct. 396, 401, 403, 98 L.Ed.2d 340 (1987) (holding that the doctrine extends to conditions to payment of a note, including the truth of express warranties).

III. ANALYSIS

Appellate courts have no...