
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-2429                                  MARY E. LAWSON AND                                     MATT LAWSON,                               Plaintiffs, Appellants,                                          v.                    FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                       [Hon. Gene Carter, U.S. District Judge]                                          ___________________                                 ____________________                                        Before                      Torruella, Cyr and Boudin, Circuit Judges.                                                 ______________                                 ____________________            Edward T. Joyce with whom Deborah  I. Prawiec, Raymond A. Fylstra,            _______________           ___________________  __________________        Joyce  and Kubasiak, P.C., William  D. Robitzek, David  G. Webbert and        ________________________   ____________________  _________________        Berman and Simmons, P.A. were on brief for appellants.        _______________________            Jerome A. Madden, Counsel, Federal Deposit Insurance  Corporation,            ________________        with whom  Ann S. DuRoss,  Assistant General Counsel,  Federal Deposit                   _____________        Insurance Corporation,  and Richard J. Osterman,  Jr., Senior Counsel,                                    ________________________        Federal  Deposit Insurance  Corporation, were  on brief  for appellee,        Federal Deposit Insurance Corporation.            Roy  S.  McCandless with  whom  P.  Benjamin  Zuckerman,  Patricia            ___________________             _______________________   ________        Nelson-Reade and Verrill & Dana were on brief for appellee, Fleet Bank        ____________     ______________        of Maine.                                 ____________________                                   August 23, 1993                                 ____________________                 BOUDIN,  Circuit  Judge.   The  facts of  this  case are                          ______________            straightforward.   In January 1991, plaintiffs  Mary and Matt            Lawson  purchased  five   one-year  certificates  of  deposit            ("CDs") from  the Maine Savings Bank,  representing a deposit            payment in each case  of approximately $92,000.  Each  CD had            an interest rate  of 7.9 percent per  year, giving the CDs  a            maturity value of  $100,000 each.   A CD  reflects a  deposit            coupled with an agreement by the depositor to leave the funds            in the  bank  for a  fixed  period.   It appears  that  Maine            Savings Bank was  in financial difficulty  when the CDs  were            sold to the Lawsons and that  the interest rate offered was a            favorable one.                 Maine Savings Bank was declared insolvent on February 1,            1991,  and  the  Federal Deposit  Insurance  Corporation  was            appointed  receiver.  As it often  does, the FDIC transferred            certain accounts to  a healthy bank,  in this case  defendant            Fleet  Bank of Maine.1  The accounts transferred in this case            included deposit  accounts such  as the  Lawsons'  CDs.   The            purchase and assumption agreement  between Fleet Bank and the            FDIC  authorized Fleet Bank to reduce the interest rates paid            on  the transferred  accounts after  fourteen days,  provided            that  the reduced rates did not go below the rate customarily                                            ____________________                 1The  FDIC  has  authority  to "transfer  any  asset  or            liability  of  the  institution  in  default"  to  a  healthy            financial institution, "without  any approval, assignment, or            consent  with  respect  to  such  transfer."    12  U.S.C.               1821(d)(2)(G).                                         -2-                                         -2-            paid by Fleet Bank on passbook  savings accounts and provided            that the  depositors were  given the opportunity  to withdraw            the funds without penalty.                 On February  13, 1991,  Fleet Bank notified  the Lawsons            that  it had  accepted  Maine Savings'  deposit accounts  and            would  honor the  original  interest terms  on the  CDs until            February 22,  but thereafter would reduce  the interest rates            pursuant  to a schedule enclosed with the notice.  The notice            gave  the Lawsons  the option  of withdrawing  their deposits            without  penalty, or  maintaining the  accounts at  the lower            rate.   The Lawsons elected  to withdraw the  funds and bring            this  suit in Maine state court against Fleet Bank for breach            of contract, denominating it a class action.  Fleet Bank then            impleaded  the  FDIC, and  the  FDIC  removed the  action  to            federal court.   The Lawsons  completed the  cycle by  filing            their own suit  against the FDIC, which was then consolidated            with the removed suit against Fleet Bank.                  The district  court  granted  Fleet  Bank's  motion  for            summary  judgment  on  the   ground  that  the  purchase  and            assumption  agreement authorized  Fleet  Bank  to reduce  the            interest rate.  It also granted the FDIC's motion to dismiss,            holding that the FDIC was not  liable to the Lawsons for more            than the deposits and accrued  interest, which Fleet Bank had            already  paid.    The Lawsons  then  took  this  appeal.   We                                         -3-                                         -3-            consider  first  the claim  against  the FDIC  and  then that            against FleetBank, and we affirmthe district courtas to both.                 The  FDIC is best known  in its "corporate"  role as the            statutory insurer  of funds  deposited  in federally  insured            financial institutions, generally up to $100,000 per account.            See 12 U.S.C.    1821(a).  The FDIC may  also be appointed to            ___            take  over the operations of  a failed institution, acting as            receiver or  conservator depending  on the functions  that it            has been  assigned.   See  id.    1821(c).   The  powers  and                                  ___  __            liabilities  of  the  FDIC,  enlarged  substantially  by  the            Financial  Institutions Reform, Recovery  and Enforcement Act            of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, differ            in  the FDIC's  various manifestations,  such as  insurer and            receiver, and must be considered separately.                  As  insurer,  the  FDIC   was  required  by  statute  to            guarantee  the Lawsons' "insured  deposits," either by paying            them  in cash  or "by  making available  to each  depositor a            transferred deposit in a new insured depository institution .            .  .  in  an amount  equal  to  the insured  deposit  of such            depositor."   Id.    1821(f)(1).2   A  "deposit," in turn, is                          __            defined  generally as  "the unpaid  balance of  money or  its            equivalent received or held by a bank or savings  association                                            ____________________                 2Each of the  CDs was  treated as  a separately  insured            account;  even   though  the   total  exceeds   the  $100,000            limitation, it  appears that the  regulations permitted  this            arrangement.                                         -4-                                         -4-            in the usual course of business .  . . ."  Id.    1813(l)(1).                                                       __            The statute allows  the FDIC  to define the  term further  by            regulation.   Id.    1813(l)(5).  Pertinent  FDIC regulations                          __            fix the amount of an "insured deposit" as                  the    balance    of    principal   and    interest                 unconditionally  credited to the deposit account as                 of the  date of  default of the  insured depository                 institution,  plus  the  ascertainable   amount  of                 interest to that date, accrued at the contract rate                 . . ., which  the insured depository institution in                 default would have paid  if the deposit had matured                 on that date and the insured depository institution                 had not failed.            12 C.F.R.   330.3(i)(1).                 Here,  the FDIC as insurer complied with the statute and            regulations by  transferring the Lawsons' deposit accounts to            Fleet Bank, which in  turn made available to the  Lawsons the            principal plus interest that had accrued at the contract rate            up to February 22, 1991.  This was actually a step beyond the            agency's legal obligation as insurer, since it was obliged to            pay accrued interest only to the date of Maine Savings Bank's            default.    Thus the  FDIC more  than  satisfied its  duty as            insurer.   The Lawsons do not appear  to claim that they were            short-changed  under the insurance  provisions. Instead, they            argue  that  the  FDIC is  liable  as  the  inheritor of  the            contractual obligations  of the Maine Savings  Bank, that is,            as the receiver for the failed bank.3                                            ____________________                 3Their  brief  is  somewhat   confusing  on  this  point            because, while  they do  not claim any  default in  insurance            coverage,  they argue  that the  FDIC is  liable both  in its                                         -5-                                         -5-                 In resolving  this claim, the district  court, at FDIC's            urging,  relied upon  12 U.S.C.     1821(i)(2), and  the FDIC            reasserts  that  statutory  defense  in  this  court.    That            provision imposes  a ceiling  on  FDIC liability  as to  most            creditor claims against the FDIC "as receiver or in any other            capacity"  where a  bank  has failed.    Broadly, the  FDIC's            maximum liability is  the amount that the creditor would have            received  if  the institution  had been  liquidated outright.            The  district  court  said  that  "[a]s already  demonstrated            above," the Lawsons in  liquidation would have received their            original deposit plus  interest at the contract rate  only to            the date Maine Savings became insolvent.4                 It is a miracle  that anyone, let alone a  busy district            judge, can cope with the profusion of arguments that the FDIC            and  Resolution Trust  Corporation unleash  in cases  of this            kind.   To  some extent  they reflect  the complexity  of the            statutory  provisions but,  after  seeing a  number of  these            cases, one  may come to believe that the agencies' litigating                                            ____________________            corporate capacity and in its receiver  capacity.  The former            capacity,  however, here  corresponds to  the FDIC's  role as            insurer; the FDIC's inheritance of the CD contracts and their            obligations was as receiver.                 4The Lawsons point out that  section 1821(i) as a  whole            applies only  to "the  rights  of the  creditors (other  than            insured depositors)."  Id.    1821(i)(1).  While the  Lawsons                                   ___            are indeed "insured depositors," it  is quite likely (we need            not resolve the issue)  that the parenthetical on  which they            rely  is meant to reserve the rights of insured depositors to                                                                       __            their  insurance protection and not to other claims that they            ___________________________            may have.                                         -6-                                         -6-            style has  some role in  the confusion.   Like a  giant squid            releasing   ink,  agency  counsel   pour  out  arguments  and            citations,  heaping defense  upon defense,  sometimes without            heed for the merits of the contention.  It is  not clear that            this  approach   serves  the   long-run  interests  of   bank            regulators  who  have  a  stake in  coherent  and  consistent            interpretation by the courts.                 In all events, we  think that the FDIC in  this instance            led the district court astray.  There is no indication in its            opinion of any evidence that, had the Maine Savings Bank been            liquidated  and  the assets  allocated  among creditors,  the            assets  would  have been  inadequate  to  pay the  Lawsons  a            portion  of the future interest  they now claim.   On appeal,            the FDIC's  brief tells  us that  the creditors  will receive            only about 77 cents on the dollar; but that information fails            to show that the Lawsons would have received nothing on their            future interest claims in liquidation and it may even suggest            that they might have  received something.  Section 1821(i)(2)            could cut off the  Lawsons' entire claim for  future interest            only if it were shown that, in liquidation, there would be no                                                                       __            money available even for partial payment of that claim.5                                            ____________________                 5The FDIC has made a separate argument that, even if the            assets  were  sufficient  to   pay  the  Lawsons  for  future            interest, nineteenth  century case  law provides a  basis for            cutting off  future interest  obligations to depositors  of a            failed bank as of the date of insolvency.  See White v. Knox,                                                       ___ _____________            111 U.S. 784 (1884).   The status of this  line of authority,            and  its  application to  a  fixed  interest/fixed period  CD                                         -7-                                         -7-                 It appears that the district court had in mind its prior            discussion  in its opinion  which shows, by  analysis that we            have condensed in our own earlier discussion, that the FDIC's            insurance  obligations  were  limited  to  returning  to  the            _________            Lawsons  their deposits  with  accrued interest.   But  Maine            Savings Bank's obligations to the Lawsons were broader:  they            included  the payment  of  future interest,  at the  contract            rate, for the entire one-year period.  The FDIC inherited the            obligation  to  pay  that  future  interest  when  it  became            receiver.  The  damages might be  mitigated once the  Lawsons            recovered  their deposit and could relend the money; but some            loss would still be  suffered to the extent that  the current            interest rate fell below the favorable rate promised by Maine            Savings Bank.                 Nevertheless, we  believe that  the FDIC as  receiver is            not liable  for this differential on  future interest between            the market rate and the  apparently greater rate promised  by            Maine  Savings Bank.  As  we recently explained  in Howell v.                                                                _________            FDIC, 986 F.2d 569, 571 (1st Cir 1993), FIRREA gives the FDIC            ____            as  receiver the  right to  disaffirm or  repudiate contracts            that  the bank entered into prior to receivership if the FDIC            decides  "in  its   discretion"  that  performance  will   be            burdensome  and  that  disavowal  will  promote  the  orderly                                            ____________________            contract, need not be resolved in this case.                                         -8-                                         -8-            administration of the  failed bank's  affairs.   12 U.S.C.               1821(e)(1).6                   The Lawsons argue that if a repudiation occurred, it was            not done by the FDIC but by Fleet Bank, and  that the statute            does not  allow such  a delegation of  repudiation authority.            This  argument  has some  surface  appeal  since the  statute            authorizes   "a   conservator  or   receiver"   to  repudiate            contracts, id., and says nothing about the delegation of this                       __            function  or its  performance by  one to  whom a  contract is            assigned.    We need  not  pursue  this interesting  question            because we believe that the purchase and assumption agreement            was in substance  a repudiation  of the CD  contracts by  the                                                                  _______            FDIC.            ____                 While the FDIC might  have attempted to substitute Fleet            Bank  for  Maine  Savings  Bank  as  obligor  under   the  CD            contracts, that is not what the FDIC did here.  As we explain            below, the  purchase and assumption agreement  did not commit            Fleet Bank to the prior CD contracts including their interest            rate obligations.  Rather, Fleet Bank agreed with the FDIC to                                            ____________________                 6The Lawsons argue  that some courts have found that the            FDIC's  repudiation  authority  under  FIRREA  is  limited to            executory contracts, that is,  contracts in which performance            is still due from both sides.  See, e.g., First Nat'l Bank v.                                           ___  ____  ___________________            Unisys Fin. Corp., 779  F. Supp. 85, 86-87 (N.D.  Ill. 1991),            _________________            aff'd on  other grounds, 979 F.2d  609 (7th Cir. 1992).   The            _______________________            contracts here  were executory:  at the time  of repudiation,            the bank was still performing its promise to  continue paying            interest,  and  the  Lawsons  were  performing  their ongoing            obligation to keep their funds on deposit.                                         -9-                                         -9-            repay  only  the  deposit and  accrued  interest  or, if  the                                           _______            depositor agreed, to  continue holding the deposit but  at an            interest  rate determined by Fleet Bank.  In other words, the            FDIC did not transfer  the Lawsons' CD contracts intact  to a            new obligor; it effectively  repudiated those contracts  when                                         __________            it  declined either to pay the promised interest itself or to            oblige anyone else  to do so.  The  repudiation may have been            informal but there was certainly no ambiguity;  the notice to            the Lawsons from Fleet  Bank, describing the transfer of  the            deposits  and  the commitments  made to  the FDIC,  was clear            notice that  the original  interest rate would  no longer  be            paid.7                   The Lawsons contend that the FDIC, in violation of Maine            contract  law,  improperly  "split"  the  CD  contracts  into            principal and interest  components and attempted to  transfer            one obligation  without  the  other.   The  transfer  of  the            deposits to  Fleet Bank  was expressly authorized  by federal            statute and was  in that sense a lawful federal  act.  At the            same time, it was  a repudiation and breach of  the contracts                                            ____________________                 7The  FDIC, both  in its  papers rejecting  the Lawsons'            administrative claim and in its brief to us, cites and relies            upon 12  U.S.C.   1821(e)(3)(A),  which is pertinent  only on            the  assumption that the  contracts were repudiated.   At the            same time, it  denied in  its district court  papers that  it            ever  "formally"   repudiated  the  CD  contracts.     It  is            understandable that the word "repudiation" is unattractive to            the  FDIC  in the  transfer  of depositor  accounts;  but the            FDIC's desire to maintain depositor confidence does not alter            the  substance  of what  it has  done,  namely, to  refuse to            maintain the promised interest rate.                                           -10-                                         -10-            represented by the  CDs since the  FDIC, which had  inherited            the  contracts,  effectively  declined  to  pay the  promised            interest  in  the  future or  commit  Fleet  Bank  to do  so.            Whether  called "improper  splitting" or something  else, the            outcome  is the  same: Fleet  Bank is  bound only by  what it            promised the FDIC,  but the FDIC as  receiver is left with  a            contract claim against it.                 This  does not end the matter.   As we have explained in            Howell, FIRREA does not  always permit the FDIC to  repudiate            ______            contracts  without consequence; rather, the repudiation gives            rise  to an ordinary claim  for breach of  contract.  Howell,                                                                  ______            986 F.2d at 571.  The  types of damages that may be recovered            in such a suit against the FDIC, however, are sharply limited            by  the  statute  to  "actual  direct  compensatory  damages"            calculated as of the date of the appointment of the receiver.            12  U.S.C.    1821(e)(3)(A).   Damages for  "lost  profits or            opportunities"   are   specifically   excluded.       Id.                                                                      __            1821(e)(3)(B).     This  provision  precludes   the  Lawsons'            recovery of future interest from the FDIC.                 Although the phrase "actual direct compensatory damages"            may  not be  self-executing, the  prohibition on  recovery of            "lost profits or opportunities" does fit the situation like a            glove.  After  all, the Lawsons have  recovered immediate use            of their money, just as if  they were owners of a house whose            tenant had departed  without completing his lease.  The money                                         -11-                                         -11-            can  be reloaned at current interest rates, just as the house            can be re-rented at current rental rates.  What has been lost            is the chance  to earn  even more than  the current  "rental"            value of the property, whether the property is a sum of money            or a vacant house.                 If current  interest rates are below  the favorable rate            promised  by Maine  Savings Bank,  obviously the  Lawsons are            worse  off getting  back their  deposit and  accrued interest            than  they would  have been  if the  CD commitments  had been            fulfilled.    But it  was  evidently Congress'  intent,  in a            situation where  the  failed bank  is  likely to  have  fewer            assets  than debts, to spread the  pain by placing a limit on            what  can  be recovered  under  a repudiated  contract.   The            barring  of above-market  interest for  the period  after the            money  has been  returned  to the  depositor  is surely  what            Congress  had  in   mind  when  it  barred  lost  profits  or            opportunities.                   This  is  not mere  speculation.    Leases are  commonly            repudiated  by bankrupt  estates and  in  FIRREA Congress--in            addition to  the general limitation on  damages--made special            provision for computing  damages for such leases.   Where the            failed bank has rented property from another and the receiver            seeks to  repudiate the  lease and  return the  property, the            statute permits  recovery of  unpaid rent for  past occupancy            but  no  recovery  for  future  rent  or  damages  under  any                                         -12-                                         -12-            acceleration  clause  or  other  penalty provision.    Id.                                                                      __            1821(e)(4).   Comparably, the  Lawsons get paid  interest for            past use of  their money but there is no  recovery for future            interest.                 For the sake of completeness,  we note that the FDIC--in            addition  to its  many other  defenses--urges one  additional            defense  against the  contractual  claim made  against it  as            receiver.   This argument  relies upon  12 U.S.C.    1821(g),            which provides that when the FDIC has paid an insurance claim            to a depositor or arranged for a healthy insured bank to take            over  the deposit, then the FDIC in its corporate capacity is            subrogated  to--i.e.,  takes  over--the   depositor's  claims                            ____            against the  failed bank  that it  has just paid.   There  is            nothing surprising  in this  provision; it merely  allows the            FDIC as insurer to share in whatever assets (held custodially            by the FDIC as receiver) may be left over for creditors.                 What  is surprising is  that the FDIC  here asserts that            this  subrogation  provision transfers  to  the  FDIC in  its            corporate  capacity not  merely the  Lawsons' claim  for what            they  got  as  a result  of  the  Fleet  Bank's actions  (the            deposits plus accrued interest) but the Lawsons' entire claim            including their  contractual right to future  interest at the            favorable rate.  At first glance this seems at  odds not only            with common sense but also with the statute, which subrogates            the  FDIC  "to all  rights  of  the  depositor  against  such                                         -13-                                         -13-            institution or branch to  the extent of such payment  [by the                                  _______________________________________            FDIC] or assumption [by  a healthy bank]."  Id.    1821(g)(1)            ________________________________________    __            (emphasis added).  Suffice  it to say, the "lost  profits and            opportunities" bar is a readier answer to the Lawsons' claim.                 Turning finally to the claim  against Fleet Bank, it did            not  assume  any obligations  with  respect  to the  Lawsons'            deposit  accounts beyond those set  forth in the purchase and            assumption agreement.  See Payne  v. Security Savings &  Loan                                   ___ __________________________________            Ass'n, 924  F.2d  109, 111  (7th Cir.  1991).   Thus, if  the            _____            bank's  conduct was  consistent  with the  agreement, as  the            district court found,  the Lawsons  have no case.   We  agree            with  the district court.  Some  analysis of the terms of the            agreement is necessary to make the point, but not much.                   Section 2.2 of the Agreement provides as follows:                 2.2  Interest on  Deposit Liabilities Assumed.  The                      ________________________________________                 Assuming Bank  [i.e., Fleet Bank] agrees that, from                                 ____                 and  after Bank  Closing,  it will  accrue and  pay                 interest on Deposit Liabilities assumed pursuant to                   2.1  and  in accordance  with  the terms  of  the                 respective  deposit  agreements between  the Failed                 Bank  [Maine  Savings] and  the  depositors of  the                 Failed  Bank for  a  period of  fourteen (14)  days                 commencing the day after Bank Closing.  Thereafter,                 the Assuming Bank may  pay interest with respect to                 such  Deposit  liabilities  at  rate(s)   it  shall                 determine; provided, that such rate(s) shall not be                            ________  ____                 less than  the rate  of interest the  Assuming Bank                 pays  with  respect  to  passbook  savings  Deposit                 accounts.  The Assuming Bank shall permit each such                 depositor  to withdraw,  without penalty  for early                 withdrawal, all or any portion of  such depositor's                 Deposit  .  . .  .   The  Assuming Bank  shall give                 notice  to such depositors . .  . of interest which                 it has determined to  pay after such fourteen (14)-                 day period, and of such withdrawal rights.                                         -14-                                         -14-            Faced  with  this  clear   language  ("at  rate(s)  it  shall            determine"), the Lawsons say that section 2.2 merely provides            that Fleet  Bank "may"  reduce interest rates  after fourteen            days,  and that  this language "stops  short of  the explicit            authorization to  reduce interest  rates that Fleet  Bank and            the District  Court say it  is."  And,  they say that  if the            language  were construed  to grant  such authority,  it would            conflict with Fleet Bank's promise  in section 5.2 to  "honor            the  terms  and conditions  of  each  written agreement  with            respect to each Deposit Account transferred."                 Courts   are  often  called  upon  to  interpret  opaque            contractual provisions  but construing section 2.2  is a walk            in the park:  it authorizes Fleet Bank to reduce the interest            rate after fourteen  days.  As to  the supposed inconsistency            with section  5.2,  it  is  a familiar  precept  of  contract            interpretation  that the specific  controls the  general, and            section 2.2's  specific authorization to  reduce rates trumps            the general promise to "honor the terms and conditions of the            contract."     But  the precept  is  unnecessary here:    the            paragraph on which the Lawsons rely (section 5.2) begins with            the caveat, "Subject  to the provisions of Section 2.2  . . .            ."   Affirmed.                 ________                                         -15-                                         -15-
