
USCA1 Opinion

	




          March 18, 1993    UNITED STATES COURT OF APPEALS                                For The First Circuit                                 ____________________          No. 92-1770                        FEDERAL DEPOSIT INSURANCE CORPORATION,                                 Plaintiff, Appellee,                                          v.                           LONGLEY I REALTY TRUST, ET AL.,                                Defendants, Appellees,                                 ____________________                              ANGELINE A. KOPKA, ET AL.,                               Defendants, Appellants.                                 ____________________                                     ERRATA SHEET               The  opinion  of this  Court issued  on  March 10,  1993, is          amended as follows:               Page  9, Line  8,  should read:  "district  court's .  .  ."          instead of "district court . . . "          March 10, 1993    UNITED STATES COURT OF APPEALS                                For The First Circuit                                 ____________________          No. 92-1770                        FEDERAL DEPOSIT INSURANCE CORPORATION,                                 Plaintiff, Appellee,                                          v.                           LONGLEY I REALTY TRUST, ET AL.,                                Defendants, Appellees,                                 ____________________                              ANGELINE A. KOPKA, ET AL.,                               Defendants, Appellants.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF NEW HAMPSHIRE                [Hon. Martin F. Loughlin, Senior U.S. District Judge]                                          __________________________                                 ____________________                                        Before                              Torruella, Circuit Judge,                                         _____________                            Coffin, Senior Circuit Judge,                                    ____________________                               and Cyr, Circuit Judge.                                        _____________                                _____________________               William E. Aivalikles for appellants.               _____________________               E. Whitney Drake, Special Counsel,  with whom Ann S. DuRoss,               ________________                              _____________          Assistant General  Counsel, and Richard J.  Osterman, Jr., Senior                                          _________________________          Counsel, Federal Deposit Insurance Corporation, were on brief for          appellee Federal Deposit Insurance Corporation.                                 ____________________                                    March 10, 1993                                 ____________________                    TORRUELLA,   Circuit  Judge.     The   Federal  Deposit                                 ______________          Insurance Corporation ("FDIC"), as receiver of First Service Bank          ("Bank"),  sued appellants,  Angeline Kopka  and David  Beach, to          collect on promissory  notes made  out to the  Bank.   Appellants          responded that they  did not owe the FDIC the  amount promised in          the  notes because  they had  entered settlement  agreements over          these notes  with the Bank before the FDIC took over as receiver.          The district court granted summary judgment in favor of the FDIC,          finding  that the doctrine established in D'Oench, Duhme & Co. v.                                                    ____________________          FDIC,  315 U.S.  447  (1942), and  12  U.S.C.    1823(e)  (1989),          ____          forbids the assertion of this alleged agreement against the FDIC.          In addition,  the district court  granted attorney's fees  to the          FDIC  pursuant  to provisions  of  appellants' promissory  notes.          Because  we agree that    1823(e) protects the  FDIC in this case          and that  the district court granted a reasonable attorney's fees          award, we affirm the district court's judgment.                                      BACKGROUND                                      BACKGROUND                                      __________                    Appellants  borrowed money from  the Bank  and executed          promissory notes in  the amount of the loans.   The notes matured          in May  and June of 1989.  Appellants contend that they reached a          settlement  of these loans on March 15, 19891 which required them          to  convey to  the  Bank  the  real  estate  that  secured  their          promissory notes, free of all liens.                                        ____________________          1  Although appellants name December 21, 1988 as their settlement          date,  they  maintain  that  the  Bank  refused  to  fulfill  the          agreement,  forcing them to bring suit in the Hillsborough County          Superior Court, which the court dismissed without prejudice on an          unrelated ground.   Consequently, they argue, they  entered a new          settlement agreement on March 15, 1989.                    On March 31,  1989, the Commissioner  of Banks for  the          Commonwealth  of Massachusetts  declared the  Bank insolvent  and          appointed  the FDIC as receiver.2  As receiver, the FDIC demanded          payment of all debts owed  to the Bank when the Bank  failed.  No          evidence of appellants' alleged settlement agreement was found in          the Bank's  records.  As such,  on March 3, 1991, as  part of its          debt  collection  campaign,  the  FDIC  sued  appellants  on  the          promissory  notes.    Appellants  argued  that  their  settlement          agreement with the Bank binds the FDIC as receiver and  that they          therefore do not owe the FDIC the amount claimed.   The FDIC then          moved for summary  judgment, arguing that under  D'Oench, Duhme &                                                           ________________          Co.  and 12 U.S.C.   1823(e), any  unwritten agreement alleged by          ___          appellants cannot bind  the FDIC.   The district court  initially          denied the motion but granted it upon reconsideration.                                      DISCUSSION                                      DISCUSSION                                      __________          I.  SUMMARY JUDGMENT          I.  SUMMARY JUDGMENT                    Summary judgments receive  plenary review  in which  we          read  the record  and indulge  all inferences  in the  light most          favorable to  the non-moving party.   E.H. Ashley & Co.  v. Wells                                                _________________     _____          Fargo Alarm Services, 907 F.2d 1274, 1277 (1st Cir. 1990).          ____________________          II.  THE D'OENCH DOCTRINE AND 12 U.S.C.   1823(e) (1989)          II.  THE D'OENCH DOCTRINE AND 12 U.S.C.   1823(e) (1989)                   _______                    Under  D'Oench, Duhme & Co.,  315 U.S. at  460, a party                           ____________________          may not  defend against a claim  by the FDIC for  collection on a          promissory note based on an agreement that is not memorialized in                                        ____________________          2   Massachusetts uses the  term "liquidating  agent" instead  of          receiver.   According to 12 U.S.C.   1813(j) (1989), however, the          term "receiver" includes liquidating agents.                                         -3-          some  fashion in the failed bank's records.3  The parties' reason          for failing to  exhibit the  agreement in the  bank's records  is          irrelevant,  as is the FDIC's actual  knowledge of the agreement.          Timberland  Design, Inc. v. First  Serv. Bank for  Sav., 932 F.2d          ________________________    ___________________________          46, 48-50 (1st Cir. 1991).                    Congress embraced  the D'Oench  doctrine  in 12  U.S.C.                                           _______            1823(e).  Bateman v. FDIC,  970 F.2d 924, 926 (1st  Cir. 1992).                      _______    ____          Section 1823(e)  requires any  agreement that would  diminish the          FDIC's interest in an asset acquired as receiver to be in writing          and executed by the failed bank.4                                        ____________________          3   Although  D'Oench, Duhme  & Co.  dealt with  the FDIC  in its                        _____________________          corporate capacity, the D'Oench doctrine equally applies in cases                                  _______          involving the FDIC as  receiver.  See Timberland Design,  Inc. v.                                            ___ ________________________          First Serv. Bank for Sav., 932 F.2d 46, 48-49 (1st Cir. 1991).          _________________________          4  Section 1823(e) provides:                    No  agreement  which  tends  to  diminish  or                    defeat  the interest  of  the  [FDIC] in  any                    asset  acquired by  it . . .  as  receiver of                    any insured depository institution,  shall be                    valid   against   the   [FDIC]  unless   such                    agreement -                      (1) is in writing,                      (2)  was  executed   by  the   depository                      institution  and  any person  claiming an                      adverse  interest  thereunder,  including                      the  obligor, contemporaneously  with the                      acquisition   of   the   asset   by   the                      depository institution,                      (3)   was  approved   by  the   board  of                      directors  of the  depository institution                      or its loan committee . . ., and                      (4) has been, continuously, from the time                      of  its execution, an  official record of                      the depository institution.                                         -4-                    Appellants concede that no writing executed by the Bank          exists.  Appellants argue, however, that   1823(e) does not apply          to  this case for two  reasons.  First,  when Congress originally          enacted    1823(e), the section applied  to the FDIC  only in its          corporate  capacity.    It was  not  until  August  of 1989  that          Congress  amended    1823(e), through the  Financial Institutions          Reform,  Recovery,   and  Enforcement  Act  ("FIRREA"),  to  make            1823(e)  directly  applicable  to  the  FDIC  in  its  receiver          capacity.  Appellants argue that  since they reached a settlement          with the Bank on March 15, 1989,   1823(e) does not apply to this          case.                    Second,  appellants argue  that  even if    1823(e), as          amended by FIRREA, applied to cases prior to August 1989, it does          not  reach the present case because the FDIC acquired no interest          in the promissory  notes as  required by   1823(e).   We  address          these arguments in turn.                    A.  Retroactivity of FIRREA                    A.  Retroactivity of FIRREA                    In  general, district  courts apply  the law  in effect          when they  render their decisions, "unless doing  so would result          in  manifest  injustice  or   there  is  statutory  direction  or          legislative  history to the contrary."   Bradley v. Richmond Sch.                                                   _______    _____________          Bd., 416 U.S.  696, 711  (1974).5   Since the  FDIC brought  this          ___                                        ____________________          5   In Kaiser Aluminum &  Chem. Corp. v. Bonjorno,  494 U.S. 827,                 ______________________________    ________          836 (1990), the Supreme Court noted a tension between Bradley and                                                                _______          Bowen  v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988), which          _____     ______________________          stated a  presumption against retroactivity.   However, the Court          declined  to reconcile the cases.  Kaiser Aluminum & Chem. Corp.,                                             _____________________________          494 U.S. at 854.                                         -5-          action on March 3,  1991, almost two years after  the application          of    1823(e) to  the FDIC  as receiver,    1823(e) presumptively          applies to this case.                    Thus,  we examine  the  two exceptions  to the  general          rule.   First,  the statute  itself and  the legislative  history          offer little  guidance as  to Congress'  intent  with respect  to          retroactivity.   Under  Bradley, this  lack of  guidance supports                                  _______          retroactive application.   Bradley,  416 U.S. at  715-16 (stating                                     _______          that  when legislative  history  is  inconclusive, courts  should          apply the statute retroactively).                    Second, to determine whether a manifest  injustice will          result from  the retroactive application  of a  statute, we  must          balance  the  disappointment of  private  expectations caused  by          retroactive   application   against   the   public   interest  in          enforcement of the statute.  Demars v. First Serv. Bank for Sav.,                                       ______    _________________________          907  F.2d 1237,  1240  (1st Cir.  1990).   In  the present  case,          appellants' disappointed expectations are small.   Appellants had          notice  that their agreement had  to meet certain  criteria to be          valid  against   the  FDIC.    The  D'Oench   doctrine  was  well                                              _______                                        ____________________             The Seventh  and Eight  circuits have expressly  addressed the          issue of retroactivity with respect to the substantive provisions          of FIRREA.   Both of these circuits applied FIRREA retroactively.          See FDIC v. Wright, 942 F.2d 1089, 1095-97 (7th  Cir. 1991); FDIC          ___ ____    ______                                           ____          v. Kasal, 913 F.2d 487, 493 (8th Cir. 1990), cert. denied, 111 S.             _____                                     ____________          Ct. 1072 (1991).             In light  of the muddled  state of  the law in  this area,  we          apply  Bradley  which  is  well-established  precedent   in  this                 _______          circuit.   We  find  no  prejudice in  this  application  because          Bradley permits  retroactive application only  where no  manifest          _______          injustice will result.  See FDIC v. Wright, 942 F.2d at 1095 n.6.                                  ___ ____    ______                                         -6-          established  when  appellants  were negotiating  with  the  Bank.          Although  D'Oench,  Duhme &  Co.  did  not explicitly  require  a                    ______________________          writing executed by the  Bank, it did require that  any agreement          be clearly documented in  the Bank's records to be  valid against          the FDIC.                    In  addition, even  if  D'Oench, Duhme  &  Co. did  not                                            ______________________          provide  appellants  with  sufficient  notice  of  the  statute's          requirements, appellants' failure to  meet these requirements did          not result from reasonable reliance on the D'Oench doctrine.  See                                                     _______            ___          Van Dorn Plastic  Machinery Co. v. NLRB,  939 F.2d 402,  404 (6th          _______________________________    ____          Cir.  1991)  (manifest  injustice  requires  parties'  reasonable          reliance on preexisting law).   Appellants did all they  could to          advance settlement of the debt.  In fact, they sent the necessary          documents, with their signatures, to the Bank for execution.  The          Bank,  however,   refused  to  sign  the   papers.    Appellants,          therefore, could have  done nothing  more to  satisfy either  the          D'Oench or the statutory requirements.          _______                    Finally, there is no  evidence that appellants made any          attempt to  perform under  this  agreement during  the two  years          between the time that appellants allegedly entered this agreement          and the  time the FDIC filed  suit.  As such,  we cannot conclude          that appellants reasonably expected this agreement to shield them          from liability on their notes.                    On the other hand,    1823(e) promotes important public          policies.   Congress amended    1823(e), through FIRREA,  to "aid          the  FDIC  in  its  immediate responsibilities  of  dealing  with                                         -7-          mounting bank failures  in this  country."  FDIC  v. Wright,  942                                                      ____     ______          F.2d 1089, 1096 (7th  Cir. 1991).  The FDIC cannot protect public          funds held  in  failed banks  unless it  can rely  on the  bank's          records.  FDIC v. McCullough, 911 F.2d 593, 600 (11th Cir. 1990),                    ____    __________          cert. denied,  111 S. Ct. 2235  (1991).  Accordingly, we  find no          ____________          manifest injustice, and we apply   1823(e), as amended by FIRREA,          to the present case.                    B.  Acquisition of the promissory notes                     B.  Acquisition of the promissory notes                     In  order to  receive protection  under    1823(e), the          FDIC must first  acquire the  asset in question  from the  failed          bank.  In FDIC v. Nemecek, 641 F. Supp. 740, 743 (D. Kan.  1986),                    ____    _______          the district court found that the FDIC acquired no interest in  a          bank's promissory note  because the parties reached an accord and          satisfaction  of  the  note  prior to  the  FDIC's  receivership.          Consequently, the  court found that   1823(e) did not protect the          FDIC  against   the  asserted  accord  and   satisfaction.    Id.                                                                        __          Appellants argue  that  in the  present  case, their  notes  were          similarly  extinguished by their  settlement agreement before the          Bank failed.                    Even assuming  that we  agree with the  Kansas district          court's interpretation  of    1823(e), however, Nemecek  does not                                                          _______          assist appellants.   In Nemecek, the bank authorized its attorney                                  _______          to  enter into an accord and satisfaction with the promisors; the          bank's attorney had already received the promisors' consideration          before the bank failed; and the bank and the promisors considered          the case settled.                                         -8-                    In  the present  case,  nothing in  the bank's  records          indicated that  the bank  authorized its  attorney to  accept the          settlement, and no consideration changed hands.  It  would render            1823(e) a  nullity to hold unwritten  agreements, without more,          valid against the FDIC as long as the parties reach the agreement          before the FDIC  takes over.  Banks and debtors  would be able to          defraud the FDIC through secret agreements simply by reaching the          agreement  before  the FDIC  took over.    This is  precisely the          situation that D'Oench and   1823(e) were intended to prevent.                         _______                    Section 1823(e) precludes  appellants from binding  the          FDIC to  their alleged  settlement.   Accordingly, we  affirm the          district  courts judgment with respect to the FDIC's claim on the          promissory notes.6           III.  ATTORNEYS FEES          III.  ATTORNEYS FEES                    We  review   the  district  court's   determination  of          attorney's  fees  only  for  abuse  of   discretion.    Nydam  v.                                                                  _____          Lennerton,  948  F.2d 808,  812 (1st  Cir.  1991).   The district          _________          court's order exhibits a careful review of the fees and expenses.          Indeed, the  judge rejected  $5,182  of the  claimed expenses  as          unreasonable.   In addition,  the fees amounted  to approximately          two percent  of the total judgment.   We cannot find  an abuse of          discretion in this award.                    Affirmed.                    ________                                        ____________________          6  Because we find  that   1823(e) applies in this case,  we need          not reach  the issue of  whether D'Oench Duhme  & Co. would  have                                           ____________________          protected the FDIC in this situation on its own.                                         -9-
