
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 92-2135                  LESLIE LEVY, AS TRUSTEE OF 225 COMMONWEALTH TRUST,                                 Plaintiff, Appellee,                                          v.                    FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,                                Defendants, Appellees.                                 ____________________                                 WOLF WEINHOLD, ETC.                                Plaintiff, Appellant.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. Joseph L. Tauro, U.S. District Judge]                                            ___________________                                 ____________________                                        Before                                 Selya, Circuit Judge,                                        _____________                           Feinberg,* Senior Circuit Judge,                                      ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            Thomas N.  O'Connor with whom  Michael G. Bongiorno  and Hale  and            ___________________            ____________________      _________        Dorr were on brief for Wolf Weinhold, etc.        ____            Mark P. Szpak with  whom William L. Patton, James L. Sigel,  Ropes            _____________            _________________  ______________   _____        &  Gray,  Bruce  V.  O'Donnell,  Managing  Attorney,  Ann  S.  Duross,        _______   ____________________                        _______________        Assistant  General Counsel, Colleen B. Bombardier, Senior Counsel, and                                    _____________________        Barbara S. Woodall, Counsel, were on brief for FDIC.        __________________                                 ____________________                                   October 19, 1993                                 ____________________        ____________________        *Of the Second Circuit, sitting by designation.                       STAHL,  Circuit  Judge.   Plaintiff-appellant  Wolf                              ______________            Weinhold1 commenced  suit in state  court against a  bank and            its subsidiary for, inter alia, breach of a written  warranty                                _____ ____            agreement.   The  bank  counterclaimed, seeking  payment from            Weinhold  of  a  facially  unqualified  promissory  note  and            personal guarantee.  After the  bank failed, the FDIC, in its            capacity  as receiver,  removed  the  proceedings to  federal            court,  and  sought  summary  enforcement  of  the  note  and            guarantee.  The district court granted  the FDIC's motion for            summary judgment  on  the  note,  and,  in  the  same  order,            dismissed  Weinhold's  warranty  claims  against  the  bank's            subsidiary.  We affirm.                                          I.                                          I.                                          __                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS                       ________________________________________                      The corporate affiliations of  the relevant parties            are complex,  so we begin  by tracing  them in some  detail.             First  American  Bank  for  Savings  ("First   American"),  a            federally  insured  savings  bank,  owned several  subsidiary            corporations  which were engaged  in the development  of real            estate projects  in the Boston  area.  One  such wholly-owned            subsidiary, First American Development Corporation IV ("FADC-                                            ____________________            1.  Weinhold brought suit  in his individual capacity  and in            his  capacity as  trustee  of  225  Commonwealth  Trust  (the            Trust).  References to Weinhold will hereinafter apply to him            in both capacities unless otherwise noted.                                         -2-                                          2            IV"),2 formed  a joint  venture with  H&P Associates  Limited            Partnership   II  ("H&P").    The  joint  venture,  known  as            Commonwealth-Marlboro   Associates   ("CMA"),   acquired   an            apartment   building  at   225   Commonwealth  Avenue   ("the            property")  in Boston, with  the intention of  converting the            property to residential  condominiums.3  CMA hired  GVW, Inc.            ("GVW"),  a  wholly-owned  subsidiary   of  H&P,  as  general            contractor for renovation work on the property.                       During  April  1986,  Weinhold   and  Leslie  Levy4            became interested in  buying the property from CMA.   To that            end, they  formed 225 Commonwealth  Trust ("the Trust").   On            June 30, 1986,  Weinhold, on behalf of the Trust, bought  the            property from CMA.  GVW  had not yet completed renovations to            the property,  and under the  terms of the purchase  and sale            agreement  between CMA and  Weinhold, the work  of completing            the  renovations was  left to  GVW.   Among other  terms, the            purchase and sale agreement included the following paragraph:                      [CMA]  and  [GVW]  shall   enter  into  a                      supplementary  agreement with  [Weinhold]                      warranting, in  favor of  [Weinhold]: (a)                      the  construction  of   the  improvements                                            ____________________            2.  FADC-I  through  III,  and FADC-V  through  IX  were also            wholly-owned  subsidiaries of First  American, and were named            as defendants.  Weinhold does not appeal the rulings below as            to these parties.            3.  CMA  also acquired a second apartment building in Boston,            which is not at issue in this case.            4.  Levy, a party  below in her capacity as trustee, is not a            party to this appeal.                                         -3-                                          3                      constituting the Project  for a period of                      one  (1)  year   after  the  Project   is                      [s]ubstantially [c]ompleted, and  (b) the                      structural improvements at the [property]                      related  to the Project  for a  period of                      five  (5)  years  after  the  Project  is                      [s]ubstantially    [c]ompleted.       The                      warranties   set  forth   in  such   side                      agreement shall survive the Closing Date.            On September  3, 1986,  in compliance  with this  contractual            provision,  CMA executed  a document  in  which it  warranted            GVW's  work on  the property.   Because  FADC-IV was  a joint            venturer in CMA, both the purchase and sale agreement and the            September  3, 1986,  warranty were  executed  by officers  of            FADC-IV.                      In  addition to  purchasing the property  from CMA,            Weinhold  also obtained  financing for  his  purchase of  the            property through  First American,  FADC-IV's parent  company,            borrowing $2.4  million from  First American.   The loan  was            evidenced by  a  promissory note  signed by  Weinhold in  the            amount   of  $2.4  million,  and  repayment  was  secured  by            Weinhold's personal guarantee and by a  first mortgage on the            property.                       Shortly after  the  sale,  disputes  arose  between            Weinhold and GVW regarding the completion of the renovations.            As a result,  Weinhold terminated GVW as  general contractor.            In June of 1987, based  on GVW's failure to properly complete            the   required   renovations,   Weinhold   brought  suit   in            Massachusetts's Suffolk  County Superior Court  against FADC-                                         -4-                                          4            IV, H&P and GVW alleging,  inter alia, breach of contract and                                       _____ ____            breach  of  warranty  by  all  defendants.    Foremost  among            Weinhold's claims was his allegation that the renovations did            not comply with relevant zoning provisions.                        Weinhold  subsequently added  First  American as  a            defendant, arguing  that FADC-IV  was an  alter ego of  First            American.   In essence,  Weinhold argued that  First American            was  liable   for  FADC-IV's  actions,   including  FADC-IV's            warranty   of   GVW's  renovation   work.     First  American            counterclaimed, alleging  that  Weinhold had  failed to  make            mortgage payments.  First American sought payment of the note            and enforcement of Weinhold's guarantee.                      On October  19, 1990,  First American was  declared            insolvent  and the  FDIC  was appointed  receiver.   The FDIC            removed  the case  to  federal  district  court,  and  sought            summary judgment on the note and guarantee.                         In granting the FDIC's motion for summary judgment,            the district court  ruled that Weinhold  had failed to  offer            proof of  any defense  to payment on  the note  and guarantee            sufficient to satisfy the requisites  of D'Oench, Duhme & Co.                                                     ____________________            v. FDIC, 315 U.S. 447 (1942).   In a second ruling, the court               ____            dismissed the breach  of warranty claims that  had originally            been  brought against  FADC-IV.    The  court  reasoned  that            Weinhold's warranty claims against FADC-IV, like his defenses            to the FDIC's counterclaim, failed to satisfy the demands of                                          -5-                                          5            the D'Oench doctrine.  Upon review, we affirm both rulings.                _______                                         II.                                         II.                                         ___                                      DISCUSSION                                      DISCUSSION                                      __________            A.  Standard of Review            ______________________                      Our  review   of  summary  judgments   is  plenary.            Rivera-Ruiz  v.  Gonzalez-Rivera, 983  F.2d 332,  333-34 (1st            ___________      _______________            Cir. 1993).  "[W]e read the record and indulge all inferences            in a light  most favorable to the  nonmoving party."  Id.  at                                                                  ___            334.   Summary judgment  is appropriate only  if there  is no            genuine issue as to any material fact and the moving party is            entitled to  judgment  as a  matter  of  law.   Id.  at  333.                                                            ___            Moreover, we are free to affirm a district court's ruling "on            any ground supported in the record  even if the issue was not            pleaded, tried  or otherwise  referred to  in the  proceeding            below."   De Casenave v. United  States, 991 F.2d  11, 12 n.2                      ___________    ______________            (1st Cir. 1993) (citations omitted).              B. Weinhold's Defenses to Payment of the Note            _____________________________________________                      In contending  that the  district court  improperly            granted  the FDIC's motion for summary judgment, Weinhold has            done no more than press his affirmative warranty claims.  The            bulk  of Weinhold's appellate  brief is dedicated  to arguing            that  his warranty claims against First American survive both                                         -6-                                          6            D'Oench and  12  U.S.C.    1823(e),  which has  been  loosely            _______            described as  D'Oench's codification.5   Apparently, Weinhold                          _______            assumes that  a viable  breach  of warranty  claim, based  on            CMA's  written warranty  of  GVW's construction  work,  would            excuse  payment on the  promissory note.   Because Weinhold's            assumption in this  regard is erroneous,  we need not  linger            long over this argument.                      The possibility  of  valid  set-off  or  recoupment            claims  does not  preclude the  summary  enforcement of  debt            instruments.   See, e.g., Hunt  v. Bankers Trust Co.,  689 F.                           ___  ____  ____     _________________            Supp.  666,  672 (N.D.  Tex.  1987).   Weinhold's  breach  of            warranty  claims are  no  more  than  set-off  or  recoupment            claims.  They involve issues of zoning, workmanship and other            matters relating  to GVW's  work on  the renovation  project,            rather  than issues of  liability between Weinhold  and First            American  on  the  note  and  guarantee.   Even  were  we  to            disregard FADC-IV's  corporate  form, as  we  are  repeatedly            urged to do by Weinhold,  we would find, at most,  that First            American and Weinhold  entered two separate agreements.   The            agreement regarding the loan of $2.4 million, on one hand, is            evidenced   by  the  note,  the  mortgage  and  the  personal                                            ____________________            5.  Weinhold  argues  at  great  length  that  First American            actually  "approved" both the purchase and sale agreement and            the September  3 warranty  agreement, despite  the fact  that            both agreements  were signed by  officers of FADC-IV.   As we            understand it,  this contention  is aimed  solely at  showing            that Weinhold's  affirmative warranty claims  survive D'Oench                                                                  _______            and   1823(e).                                         -7-                                          7            guarantee.   FADC-IV's obligation to convey title to Weinhold            and  to warrant GVW's work, on the  other hand, arises out of            the  entirely separate purchase  and sale agreement.   Simply            put,  GVW's  allegedly   unacceptable  workmanship  does  not            relieve  Weinhold of  his  obligations  under  the  note  and            guarantee.6   Cf.  Koch v.  Koch, 903  F.2d 1333,  1335 (10th                          ___  ____     ____            Cir. 1990) (affirming summary judgment in favor of plaintiffs            in real estate transaction notwithstanding defendant's claims            based on separate stock transaction executed between the same            parties on the  same day); Exchange Nat'l Bank  of Chicago v.                                       _______________________________            Daniels, 768 F.2d 140, 143 (7th Cir. 1985) (affirming summary            _______            judgment  on claim for payment of facially unconditional note            where defendant's allegations did not constitute a defense to            payment).                       To  the extent  that Weinhold's  appeal raises  any            defenses  other than his mistaken reliance on his affirmative            warranty claims, it  does so in an ineffective  manner.  This            court  has   often  warned  litigants   that  issues   raised                                            ____________________            6.  To the extent  that the issue of GVW's  workmanship could            ever provide a defense to payment  of the note, it could only            constitute a  defense of fraud  in the inducement,  a defense            which Weinhold raised in state  court.  However, the  Supreme            Court has made clear that    1823(e) precludes the defense of            fraud in the inducement where the FDIC is suing on a facially            unqualified promissory note.   See Langley v.  FDIC, 484 U.S.                                           ___ _______     ____            86,  94 (1987).   See  also In  re 604  Columbus Ave.  Realty                              ___  ____ _________________________________            Trust, 968 F.2d 1332, 1346 (1st Cir. 1992).  Moreover, to the            _____            extent  that Weinhold  attempts to  resurrect  on appeal  his            claims of deceit, negligent misrepresentation, and violations            of  Massachusetts consumer protection  laws, such  claims are            similarly barred by Langley.                                _______                                         -8-                                          8            ineffectively  are deemed waived.   E.g., In  re: Nelson, No.                                                ____  ______________            92-2408, slip op. at 8 n.6 (1st Cir. June 3, 1993).                        In sum,  even  if Weinhold's  warranty  claims  are            valid, they are nonetheless based solely on FADC-IV's written            warranty of GVW's  work.  As such, they amount  to set-off or            recoupment claims, rather than defenses to his obligations on            the note and guarantee.  Thus, they do not preclude the entry            of summary judgment  in favor of the FDIC  for enforcement of            the note and guarantee.            C.  Weinhold's Warranty Claims Against FADC-IV            ______________________________________________                      Relying on Howell v. Continental Credit Corp.,  655                                 ______    ________________________            F.2d  743,  746 (7th  Cir.  1981) and  its  progeny, Weinhold            argues that his breach of warranty claims survive D'Oench due                                                              _______            to the fact  that they are based on  documents which evidence            bilateral  obligations.  See, e.g., id. (holding that neither                                     ___  ____  ___            D'Oench nor     1823(e) apply  "where the  document the  FDIC            _______            seeks  to enforce  is  one  . .  .  which facially  manifests            bilateral obligations and serves as the basis of the lessee's            _________            defense").                      Weinhold's reliance on Howell is misplaced.  In the                                             ______            various  cases employing  the  Howell  exception, or  similar                                           ______            reasoning, the claims or  defenses which the non-governmental            party  seeks to  enforce  are contained  either  in the  very                                                     ______            instrument which  the  governmental party  seeks to  enforce,            see, e.g.,  Howell, 655 F.2d  at 747 (holding that  when "the            ___  ____   ______                                         -9-                                          9            asset upon  which the  FDIC is attempting  to recover  is the                                                                      ___            very same agreement that the  makers allege has been breached            ___________________            by the FDIC's assignors,    1823(e) does not apply"); FDIC v.                                                                  ____            Panelfab Puerto Rico,  Inc., 739 F.2d 26, 30  (1st Cir. 1984)            ___________________________            (holding that the FDIC may not invoke   1823(e) to invalidate            claims which arise from "the same agreement on which the FDIC            brought  the  action  in  the first  place");  FDIC  v. Aetna                                                           ____     _____            Casualty and Sur.  Co., 947 F.2d 196, 206-07  (6th Cir. 1991)            ______________________            (applying  Howell's  reasoning   to  defenses  contained   in                       ______            bilateral  bond agreement which  FDIC sought to  enforce); or                                                                       __            they are  contained in  closely related,  or "integral"  loan            documents.   See Resolution  Trust Corp.  v. Oaks  Apartments                         ___ _______________________     ________________            Joint   Venture,  966  F.2d  995,  1000-01  (5th  Cir.  1992)            _______________            (applying Howell  exception to a liability  limitation clause                      ______            contained  in loan  guarantee); FDIC  v.  Laguarta, 939  F.2d                                            ____      ________            1231, 1238-39 (5th Cir. 1991) (applying Howell-type rationale                                                    ______            to  a loan  agreement and  modification  agreement that  were            "integral to the  loan transaction"); Baumann v.  Savers Fed.                                                  _______     ___________            Sav. &  Loan Ass'n, 934  F.2d 1506, 1517-18 (11th  Cir. 1991)            __________________            (applying Howell  exception to  claims based  on a  "schedule                      ______            dictated in the  loan documents"), cert.  denied, 112 S.  Ct.                                               _____  ______            1936 (1992).                      To  the  extent  that  Weinhold   argues  that  the            purchase and sale agreement in  this case is an integral part            of  Weinhold's financing  arrangements,  we disagree.   Thus,                                         -10-                                          10            even were we  to disregard FADC-IV's status as  a corporation            separate from its  parent, First American, we  are still left            with  two distinct agreements, one which governs the purchase            and renovation of  the property, and the  other which governs            the financing thereof.  Cf.  Cardente v. Fleet Bank of Maine,                                    ___  ________    ____________________            Inc., 796  F. Supp. 603,  612-13 (D. Me. 1992)  (declining to            ____            apply Howell exception  to plaintiff's claims arising  from a                  ______            lease  between plaintiffs and  failed bank where  FDIC sought            enforcement of a promissory  note and mortgage on  the leased            property  which  were  facially  unrelated  to   the  lease).            Accordingly, the Howell  exception to D'Oench does  not apply                             ______               _______            to Weinhold's claims.   Given that  Weinhold offers no  other            basis for challenging  the district court's dismissal  of his            warranty claims, we affirm that dismissal.                                         III.                                         III.                                         ____                                     CONCLUSION                                      CONCLUSION                                     __________                      For  the  foregoing  reasons,  the  order   of  the            district court granting summary judgment in favor of the FDIC            and dismissing Weinhold's breach of warranty claims is                       Affirmed.  No costs.                      Affirmed   No costs                      ________   ________                                         -11-                                          11
