Vernon v. Resolution Trust Corp.

Citation907 F.2d 1101
Decision Date03 August 1990
Docket NumberNo. 89-5185,89-5185
PartiesAlan P. VERNON, Ted H. Vernon and Melinda B. Vernon, as personal representatives of Estate of Harold Vernon and Emily Vernon, Plaintiffs-Appellants, v. RESOLUTION TRUST CORPORATION, As Receiver for Freedom Savings and Loan Association, Defendants-Appellees, Robert M. Klingler, et al., Defendants.
CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)

Ira C. Hatch, Jr., Houston, Shahady & Hatch, Ft. Lauderdale, Fla., for plaintiffs-appellants.

John R. Stump, Alfred I. Frith, Philip D. Storey, Frith & Stump, Orlando, Fla., for defendants-appellees.

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

Before FAY, Circuit Judge, RONEY *, Senior Circuit Judge, and PITTMAN **, Senior District Judge.

FAY, Circuit Judge.

Appellants are the disappointed shareholders of a defunct savings and loan association (Old Freedom) declared insolvent barely a year and a half after appellants' predecessor in interest bought several million dollars of its shares. Appellants brought suit against several parties including appellee Freedom Savings and Loan Association (New Freedom), 1 the institution that purchased the bulk of Old Freedom's assets and liabilities from the Federal Savings and Loan Insurance Corporation (FSLIC) which acted as receiver for Old Freedom upon its insolvency. Appellants allege that the purchase of Old Freedom's shares had been induced by fraud and misrepresentation on the part of Old Freedom's officers, legal counsel, and investment bankers regarding Old Freedom's financial condition, and that the actions of these persons constituted violations of federal and Florida securities and RICO laws and common law fraud. Although New Freedom did not participate in any of the alleged wrongdoing, appellants assert that one of the liabilities assumed by New Freedom was appellants' claim against Old Freedom. The district court granted New Freedom's motion for summary judgment against appellants, holding that the Supreme Court decision of D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and its progeny barred appellants from bringing their suit against New Freedom. We AFFIRM the judgment of the district court, albeit on different grounds.


On February 24, 1986, Old Freedom sold to a group of investors approximately $14,000,000 of its series A-1 preferred stock and warrants to purchase Old Freedom common stock. As one of those investors, Harold Vernon acquired 26,530 shares of preferred stock and warrants to obtain an additional 39,795 shares of common stock for a total consideration of $2,653,000. Vernon also set up an individual retirement account (IRA) with Old Freedom and through the IRA bought 9,470 shares of Old Freedom series A-1 preferred stock and warrants to purchase 14,205 shares of Old Freedom common stock for a total of $947,000.

Old Freedom was declared insolvent on July 23, 1987, and the FSLIC was appointed as receiver of Old Freedom. On that same date, the FSLIC entered into an acquisition agreement with New Freedom, a federal savings and loan association created to acquire substantially all of Old Freedom's assets from the FSLIC and which also assumed most of Old Freedom's liabilities. The agreement between the FSLIC and New Freedom excludes certain claims and liabilities from the assets and liabilities acquired, however. Specifically, the acquisition agreement provides that

The ACQUIRING ASSOCIATION hereby expressly assumes and agrees to pay, perform, and discharge all of the CLOSED ASSOCIATION's liabilities, including, but not limited to, those shown on the CLOSED ASSOCIATION's books and records at such time as the RECEIVER takes possession of the CLOSED ASSOCIATION, but excluding, however, obligations under any compensation or employment contract between the CLOSED ASSOCIATION and any of its employees, officers, or directors, other than obligations to honor or satisfy any rights already vested under such contracts. The term "liability" as used in this section does not refer to any obligation of the CLOSED ASSOCIATION to its stockholders for or in connection with their stock holdings, or any obligation to indemnify controlling persons, directors, officers or other persons as a result of suits arising from claims described in Sec. 1(a), and the ACQUIRING ASSOCIATION specifically does not assume by virtue of this Agreement any such obligations to the stockholders or for indemnification of the directors, officers or employees of the CLOSED ASSOCIATION....

R1-34, Exh. B at 4-5 (Acquisition Agreement Sec. 2).

Appellants, the personal representatives of Vernon's estate and Vernon's widow, brought suit against Old Freedom, the FSLIC, Old Freedom's primary investment banker, Old Freedom's legal counsel, one former director of Old Freedom, and New Freedom. Appellants aver that Old Freedom and the other defendants failed to disclose Old Freedom's true financial condition in the February 24, 1986 transactions as well as in a series of other securities transactions designed to raise additional capital required by regulatory authorities. Appellants further allege that Old Freedom was insolvent at the time of the 1986 transactions and that the securities sold were worthless. Appellants claim violations of Florida and federal securities laws, federal and state RICO acts, and causes of action for common law fraud and misrepresentation. Appellants assert that the FSLIC, as receiver for Old Freedom, became liable for any claims that could have been asserted against Old Freedom and that this liability transferred to New Freedom as the successor in interest to the FSLIC through the Acquisition Agreement.

New Freedom moved the district court for summary judgment, arguing that, based on the legal principles set forth in D'Oench, Duhme & Co., 315 U.S. 447, 62 S.Ct. 676, the FSLIC, as receiver for Old Freedom, did not assume or acquire any of the liabilities of Old Freedom alleged in appellants' complaint. Since New Freedom could acquire from the FSLIC only that which the FSLIC possessed, New Freedom maintained that it too did not assume or acquire the liabilities asserted by appellants. Appellants opposed New Freedom's motion, contending that the D'Oench doctrine did not apply to bar their claims against the FSLIC, and thus could not bar derivatively their claims against New Freedom. The trial court determined that the D'Oench doctrine did act to bar appellants' claims against New Freedom and granted summary judgment in favor of New Freedom. Pursuant to Federal Rule of Civil Procedure 54(b), the court entered its final judgment in favor of New Freedom on February 6, 1989, from which judgment appellants appeal.


A grant of summary judgment is subject to de novo review by this court. Carriers Container Council, Inc. v. Mobile S.S. Assoc., 896 F.2d 1330, 1337, modified, 904 F.2d 28 (11th Cir.1990). The parties have simplified this task for us in that neither side disputes the facts recited by the other, and none of the facts conflict. We need only address whether New Freedom is entitled as a matter of law to the summary judgment issued by the district court. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 250, 106 S.Ct. 2505, 2509-10, 2511, 91 L.Ed.2d 202 (1986).

A. The D'Oench Doctrine

The D'Oench doctrine arose from a situation in which a bank obtained a promissory note to prevent the bank's books from reflecting a loss from another debtor which had defaulted; however, an understanding existed between the bank and the notemaker that the bank would not enforce the note and that the interest paid would be remitted to the notemaker. The bank later failed. The Federal Deposit Insurance Corporation (FDIC), as the bank's insurer, attempted to collect on the note. The notemaker contended that he owed nothing to the bank, pursuant to his arrangement with the bank. The Supreme Court concluded, however, that there exists "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." D'Oench, 315 U.S. at 457, 62 S.Ct. at 679. Even though the notemaker had no intention of deceiving any authorities and no harm was actually done, the Court refused to allow the notemaker to escape his liability on the basis of the secret arrangement between himself and the bank, because that arrangement violated public policy. Id. at 458-59, 62 S.Ct. at 679-80.

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.

Id. at 460, 62 S.Ct. at 681.

The purpose of the federal policy articulated by the Supreme Court in D'Oench is to allow federal and state bank examiners to rely on a bank's records in evaluating the worth of the bank's assets. Such evaluations are necessary when ... the FDIC is deciding whether to liquidate a failed bank or to provide financing for purchase of its assets (and assumption of its liabilities) by another bank. The last kind of evaluation, in particular, must be made "with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services." Neither the FDIC nor state banking authorities would be able to make reliable evaluations if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions.

Langley v. Federal Deposit Ins. Corp., 484 U.S. 86, 91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987) (quoting Gunter v. Hutcheson, 674 F.2d 862, 865 ...

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