Lesal v. Echotree , 47 F.3d 607 ( 1995 )

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
2-10-1995
Lesal v Echotree
Precedential or Non-Precedential:
Docket 93-5707
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995
Recommended Citation
"Lesal v Echotree" (1995). 1995 Decisions. Paper 40.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/40
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1995 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 93-5707
____________
LESAL INTERIORS, INC.
Appellant
v.
ECHOTREE ASSOCIATES, L.P., a New Jersey
Limited Partnership; HLM/ECHOTREE, INC.;
ECHELON GLEN COOPERATIVE, INC.;
H. L. MICHAELS, INC.; M. J. RAYES INCORPORATED,
a/k/a M. J. RAYNES, INC.; RESOLUTION TRUST CORPORATION,
Receiver of CorEast Savings Bank F.S.B., whose address
is 808 Moorefield Park Drive, Richmond, Virginia, 23236;
FEDERAL DEPOSIT INSURANCE COMMISSION, as Receiver for
American Savings Bank, F.S.B.; GENERAL ELECTRIC CAPITAL
CORPORATION; DLG FINANCIAL SERVICES CORPORATION, a/k/a
DLG FINANCIAL SERVICES, INC.; COLONIAL EQUITY OF
NEW YORK, INC.; JAMES D. DEMETRAKIS; VINCENT TRAVALINO;
DEL MASTRO'S, INC., t/a DEL'S ENTERPRISE; DEL MASTRO
ENTERPRISES, INC.; HORIZON I CORPORATION; COLONIAL DPC CORP.,
____________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civil 91-02595)
____________
No. 94-5047
____________
LESAL INTERIORS, INC.
Appellant
v.
ECHOTREE ASSOCIATES, L.P., a New Jersey
Limited Partnership; HLM/ECHOTREE, INC.;
ECHELON GLEN COOPERATIVE, INC.;
H. L. MICHAELS, INC.; M. J. RAYES INCORPORATED,
a/k/a M. J. RAYNES, INC.; RESOLUTION TRUST CORPORATION,
Receiver of CorEast Savings Bank F.S.B., whose address
is 808 Moorefield Park Drive, Richmond, Virginia, 23236;
FEDERAL DEPOSIT INSURANCE COMMISSION, as Receiver for
American Savings Bank, F.S.B.; GENERAL ELECTRIC CAPITAL
CORPORATION; DLG FINANCIAL SERVICES CORPORATION, a/k/a
DLG FINANCIAL SERVICES, INC.; COLONIAL EQUITY OF
NEW YORK, INC.; JAMES D. DEMETRAKIS; VINCENT TRAVALINO;
DEL MASTRO'S, INC., t/a DEL'S ENTERPRISE; DEL MASTRO
ENTERPRISES, INC.; HORIZON I CORPORATION; COLONIAL DPC CORP.,I
(Camden New Jersey District Civil No. 91-02595)
LESAL INTERIORS, INC.
v.
RESOLUTION TRUST CORPORATION, as Receiver for
COREAST SAVINGS BANK; COLONIAL DPC CORP. I, a
New Jersey Corporation; THE ECHELON GLEN RESIDENTS
AND OWNERS ASSOCIATION; THE POLIS HOUSING FOUNDATION
CORPORATION VI, and certain John Doe defendants,
financing institutions involved in the "refinancing"
of the Echelon Glen Project, and Certain John Doe II
defendants, transferees of assets fraudulently
conveyed by Colonial DPC Corp. I;
HOWARD L. MICHAELS
(Camden New Jersey District Civil No. 93-05152)
Lesal Interiors, Inc.,
Appellant
____________________
Argued: July 26, 1994
Before: BECKER and ALITO, Circuit Judges
and BRODY, District Judge*
(Opinion Filed: February 10, 1995)
____________________
*The Honorable Anita B. Brody, United States District Judge for
the Eastern District of Pennsylvania, sitting by designation.
H. THOMAS HUNT, ESQ. (Argued)
Hunt & Scaramella, P.C.
220 Lake Drive East - Suite 105
Cherry Hill, New Jersey 08002
Attorneys for Appellant
ANN F. KIERNAN, ESQ. (Argued)
Jamieson, Moore, Peskin & Spicer
300 Alexander Park
CN-5276
Princeton, New Jersey 08543-5276
Attorneys for Appellees
Resolution Trust Corporation
as Receiver for CorEast Savings Bank
and Colonial DPC Corp. I
____________________
OPINION OF THE COURT
____________________
ALITO, Circuit Judge:
Lesal Interiors, Inc. ("Lesal") has appealed a district
court order entering judgment against it on claims that it
originally asserted against Colonial DPC Corporation I
("Colonial") and CorEast Savings Bank ("CorEast"). Colonial was
formerly the wholly owned nonbanking subsidiary of CorEast, which
is now under the receivership of the Resolution Trust Corporation
("RTC"). The district court held that Lesal could not recover
from Colonial on these claims due to the federal common law
D'Oench Duhme doctrine1 and its statutory counterpart, 12 U.S.C.
1
. See D'Oench Duhme & Co. v. FDIC, 315 U.S. 447 (1942).
§ 1823(e). In addition, the court held that the failure of
Lesal's claims against Colonial doomed its attempt to recover
from CorEast based on the theory that Colonial was CorEast's
alter ego. On appeal, the RTC defends the district court's
decision based on 12 U.S.C. § 1823(e) and does not contend that
the federal common law D'Oench Duhme doctrine provides broader
protection. Looking to the plain language of 12 U.S.C. §
1823(e), we hold that this provision does not apply to claims
against a depository institution's subsidiary, and we therefore
reverse the order entering judgment against Lesal.
Lesal has also appealed a subsequent district court
order denying its motion for garnishment under N.J.S.A. 2A:17-63
of a debt allegedly owed by Colonial to Lesal's judgment debtor.
Because Colonial disputed this debt, we agree with the district
court that the summary procedure provided by N.J.S.A. 2A:17-63
was inapplicable here, and we therefore affirm this order of the
district court.
I.
In 1987, Echotree Associates, L.P. ("Echotree), a New
Jersey limited partnership, acquired in fee simple an apartment
complex in Voorhees, New Jersey, known as the Echelon Glen
Apartments. Echotree undertook to renovate the apartments and to
convert them into cooperatives, and CorEast, a federally
chartered savings bank, provided secured financing for this
project.
In December 1988, in order to carry out the renovation,
Echotree entered into a contract with Lesal Interiors, Inc.,
which specializes in projects of this type. Under this contract,
Echotree was obligated to pay Lesal $1,536,000. In addition,
Lesal performed further work under change orders for a price of
$390,000. Echotree failed to pay Lesal for $778,000 of the
amount that it owed.
In February 1989, Echotree conveyed its fee simple
interest to Echelon Glen Cooperative, Inc., a New Jersey
nonprofit corporation. After this conveyance, Echotree held
shares in Echelon Glen Cooperative, Inc., as well as proprietary
leases for many of the cooperative units.
In 1990, the conversion project failed. As part of the
workout of the loan relationship between Echotree and CorEast,
CorEast formed a wholly owned subsidiary, Colonial DPC
Corporation I, a Virginia corporation.2 CorEast and Colonial
then entered into a settlement agreement with Echotree and its
managing general partner. Under this agreement, Echotree
2
. The district court found that Colonial used CorEast's
offices; that "[m]ost or all of Colonial's officers and directors
were also full-time CorEast employees and/or agents"; that
"Colonial conducted separate board minutes, but prior to January,
1991, apparently maintained no corporate minutes"; and that
Colonial, while a CorEast subsidiary "had no income or employees,
paid no rent, incurred no office expenses, and paid no taxes."
Lesal Interiors, Inc. v. Resolution Trust Corporation, 834
F. Supp. 721, 727 (D.N.J. 1993).
conveyed to Colonial both shares in Echelon Glen Cooperative,
Inc. and its proprietary leases, and CorEast released certain
debts and extended new loans. The "Recital" to the settlement
agreement stated that "[Colonial] shall agree to . . . pay on
behalf of Echotree, or indemnify Echotree against, certain
expenses incurred by Echotree with respect to the [p]roperty."
App. 296. Paragraph 6 of the agreement obligated Colonial to
"pay on behalf of Echotree, its partners and principals . . .
Construction Payables, in an amount not to exceed $1,180,000
dollars . . . ." Paragraph 6 also appointed Colonial as
Echotree's "attorney-in-fact . . . to negotiate, litigate or
settle . . . with each of the specifically identified creditors
shown in Schedule[] C . . . as [Colonial] wishes, in its sole
discretion." Id. at 311-12. Schedule C listed construction
payables totalling $1,180,000. Id. at 332. The first item on
this list was: "Lesal Interiors - Amount Completed $690,000 -
Total $690,000." Paragraph 28 of the agreement stated:
This Agreement and the other Documents are
solely for the benefit of the parties hereto,
and may not be relied by [sic] any other
persons or entities including, without
limitation, any present or future creditors
of [Colonial], Echotree, or Michaels
[Echotree's managing general partner].
Id. at 330. Lesal did not participate in and was not aware of
the negotiations leading to the settlement agreement.
In July 1990, Lesal brought suit in New Jersey Superior
Court against Echotree, Echotree's general partner, Echelon Glen
Cooperative, Inc., CorEast, Colonial, and other parties. Lesal
sought recovery from Echelon Glen Cooperative, Inc., Echotree,
and Echotree's general partner. As against CorEast and Colonial,
Lesal sought only to establish the priority of its alleged
mechanic's lien.
In early 1991, the Office of Thrift Supervision
declared CorEast insolvent and appointed the RTC as CorEast's
receiver. In April 1991, the New Jersey Superior Court
substituted the RTC in the action in place of CorEast, and in May
the RTC removed the case to the United States District Court for
the District of Columbia. That court, in turn, transferred the
case to the United States District Court for the District of New
Jersey.
In May 1992, Lesal, with leave of court, filed an
amended complaint containing new counts that sought to recover
from CorEast and Colonial for the $778,000 due from Echotree.
Among these new counts were count VIII, which sought recovery
from Colonial on the ground that Lesal was a third-party
beneficiary of the settlement agreement, and count IX, which
sought to recover from CorEast on the theory that Colonial was
CorEast's alter ego and that CorEast was therefore liable to
Lesal for Colonial's debts, obligations and liabilities. In
addition, count XI sought recovery from CorEast, Colonial, and
other defendants based on fraud.
In August 1992, all of CorEast's shares in Colonial
were acquired by Polis Housing Foundation Corporation VI, a New
Jersey nonprofit corporation. Colonial was converted into a New
Jersey nonprofit corporation.
In November 1992, the district court entered a default
judgment in favor of Lesal and against Echotree and its general
partner, jointly and severally, in the amount of $778,000, plus
costs and interest. In March 1993, the court entered an order
granting CorEast's and Colonial's motion for summary judgment
with respect to most of the new counts contained in the amended
complaint, but the court denied summary judgment with respect to
counts VIII (third-party beneficiary), IX (alter ego), and XI
(fraud).
In May 1993, the district court held a bench trial on
these latter counts and subsequently found for CorEast and
Colonial on all of them based on the D'Oench Duhme doctrine and
its statutory counterpart, 12 U.S.C. § 1823(e). See Lesal
Interiors, Inc. v. RTC, 834 F. Supp. 721 (D.N.J. 1993). After
observing that Colonial was entitled to D'Oench Duhme protection
because it was a wholly owned subsidiary of CorEast (834 F.Supp.
at 730-31), the court applied the requirements of section 1823(e)
to each of Lesal's outstanding claims (Id. at 731-33).
Turning to Lesal's third-party beneficiary claim
against Colonial, the court first held that Lesal could not
recover under the settlement agreement because that agreement did
not satisfy section 1823(e)(1), which requires that a covered
agreement be "in writing." Id. at 731-32. The court concluded
that this provision demanded explicit documentation evidencing
Colonial's obligation to make payments to Lesal. Id. Observing
that the settlement agreement was "ambiguous both as to whether
Lesal was an intended third-party beneficiary and as to whether
Colonial specifically agreed to pay the $690,000 owed to Lesal,"
the court held that the agreement was "an insufficient writing
for purposes of section 1823(e)." Id. at 732. The court also
held that Lesal's third-party beneficiary claim foundered on
section 1823(e)(2), which requires that a covered agreement be
"executed by . . . any person claiming an adverse interest
thereunder." Because "Lesal did not participate in the execution
of the Settlement Agreement," the court reasoned, this provision
"preclude[d] it from enforcing the agreement against defendants."
Id. Finally, the court considered whether Lesal's third-party
beneficiary claim satisfied section 1823(e)(3), which requires
that a covered agreement be approved by "the depository
institution or its loan committee." Id. at 732-33. CorEast and
Colonial argued that this requirement was not met because the
settlement agreement was never approved by Colonial's board of
directors, but Lesal contended that this provision was
"inapplicable to transactions involving a bank's wholly-owned
subsidiary rather than the bank itself." Id. at 732. The court
expressed skepticism about Lesal's argument, stating:
Inasmuch as section 1823(e) has been extended
to transactions involving wholly-owned
subsidiaries . . . , it is logical to
conclude that "wholly-owned subsidiary"
should be read into the statute -- in place
of "depository institution" -- where the
agreement in question was entered into by the
subsidiary and not the depository
institution.
Id. The court, however, "refrain[ed] from definitively holding
that section 1823(e)(3) independently bar[red] Lesal's claim."
Id. at 733.
Turning to Lesal's fraud claim, the court concluded
that "[a]s this claim necessarily relies upon a non-written
representation, it too falls within the scope of D'Oench and
section 1823(e)." Id. Finally, with respect to count IX of the
amended complaint, which sought to recover from CorEast on an
alter ego theory, the court concluded that it was unnecessary "to
determine whether CorEast would be derivatively liable on an
alter ego theory" because "Colonial had not been found liable on
any count." Id. Lesal filed a timely notice of appeal from the
district court's order disposing of all of these claims.
The district court subsequently ruled on the motion
under which Lesal, relying on N.J.S.A. 2A:17-63, had sought an
order compelling Colonial to satisfy the default judgment that
Lesal had obtained against Echotree. The court concluded that
this statutory remedy was unavailable because Colonial had not
admitted that it owed a debt to Echotree and because Echotree had
not obtained a judgment against Colonial. Lesal then filed a
second notice of appeal from this order.
II.
A. We first consider Lesal's contention that the
district court erred in rejecting its third-party beneficiary and
alter ego claims based on the D'Oench Duhme doctrine and 12
U.S.C. § 1823(e).3 The D'Oench Duhme doctrine originated with
the Supreme Court's decision in D'Oench Duhme & Co. v. FDIC, 315
U.S. 447 (1942). In that case, a securities firm, D'Oench Duhme
& Co., sold bonds to a state bank. After the bonds defaulted,
D'Oench Duhme & Co. executed notes payable to the bank and made
interest payments on them so that the bank could avoid showing
the past due bonds on its books, but the parties entered into a
side agreement that the notes would not be called for payment and
that the interest payments would be repaid. Without learning of
the side agreement, the Federal Deposit Insurance Corporation
("FDIC") subsequently insured the bank and, as part of a purchase
and assumption agreement, acquired a note executed by D'Oench
Duhme & Co.'s as a renewal of the original notes. Id. at 453-54.
The FDIC then sued to collect on the note, and the bank alleged
in its answer that the note had been given without consideration
and with the understanding that it would not be sued upon. Id.
3
. Lesal does not seek reversal of the district court order with
respect to its fraud claim. See Appellant's Br. at 19, 26.
at 456. The Supreme Court held, however, that D'Oench Duhme &
Co. was liable as a matter of federal law based on "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 [it] insures or
to which it makes loans." Id. at 457. The Court's decision in
this case is often described as resting on federal common law.
See, e.g., Boyle v. United Technologies, 487 U.S. 500, 504
(1988); Illinois v. City of Milwaukee, 406 U.S. 91, 105 n.6
(1992).
In 1950, Congress effectively codified the holding of
D'Oench Duhme by enacting Section 13(e) of the Federal Deposit
Insurance Act, 12 U.S.C. § 1823(e), and in 1989, as part of the
Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA), 12 U.S.C. § 1441a(b)(4), Congress extended the
application of 12 U.S.C. § 1823(e) to the RTC.4 There is
4
. 12 U.S.C. § 1441a(b)(4) provides, with certain exceptions not
pertinent here, that:
[T]he [RTC] shall have the same powers and rights to
carry out its duties with respect to institutions
described in paragraph (3)(A) as the Federal Deposit
Insurance Corporation has under sections 11, 12 and 13
of the Federal Deposit Insurance Act [12 U.S.C.A. §§
1821, 1822 and 1823] with respect to insured depository
institutions (as defined in section 3 of the Federal
Deposit Insurance Act) [12 U.S.C.A. § 1813].
Paragraph (3)(A) [12 U.S.C. § 1441a(b)(3)(A)] provides:
The duties of the Corporation shall be to carry out a
program under the general oversight of the Thrift
Depositor Protection Oversight Board including:
authority for the proposition that the federal common law rule
recognized in D'Oench is not coextensive with the terms of 12
U.S.C. § 1823(e). See, e.g., E.I. du Pont de Nemours & Co. v.
FDIC, 32 F.3d 592, 596-97 (D.C. Cir. 1994); FSLIC v. Griffin, 935
F.2d 691, 698 (5th Cir. 1991), cert. denied, 112 S. Ct. 1163
(1992); Hall v. FDIC, 920 F.2d 334, 339 (6th Cir. 1990), cert.
denied, 501 U.S. 1231 (1991). Here, however, the appellees have
not argued that the federal common law doctrine provides broader
protection for them than does section 1823(e),5 and we therefore
limit our consideration to that statutory provision.
(..continued)
(A) To manage and resolve all cases involving
depository institutions --
(i) the accounts of which were insured by the
Federal
Savings and Loan Insurance
Corporation before the enactment of
the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989; and
(ii) for which a conservator or receiver is
appointed after December 31, 1988, and
before such date as is determined by the
Chairperson of the Thrift Depositor
Protection Oversight Board, but not earlier
than January 1, 1995, and not later than
July 1, 1995 (including any institution
described in paragraph (6)).
5
. See Appellee's Br. at 17-21. When asked at oral argument
whether the federal common law doctrine and its statutory
counterpart differed, appellee's counsel stated that the two were
"very close." While she added that there were "some subtle
differences," she did not, either at argument or in her written
submissions, identify any such differences, much less any that
B. Lesal argues that section 1823(e) does not protect
Colonial.6 Section 1823(e) states (emphasis added):
No agreement which tends to diminish or defeat the
interest of the Corporation in any asset acquired by it
under this section or section 1821 of this title,
either as security for a loan or by purchase or as
receiver of any insured depository institution, shall
be valid against the Corporation 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,
which approval shall be reflected in the minutes
of said board or committee, and
(4) has been, continuously, from the time of its
execution, an official record of the depository
institution.
The term "insured depository institution" in section 1823(e) is
defined to mean a "bank or savings association" insured by the
FDIC. 12 U.S.C. § 1813(c)(2). When 12 U.S.C. § 1823(e) is
(..continued)
would be helpful to her clients. See E.I. du Pont de Nemours &
Co., 32 F.2d at 596-97 (common law doctrine is narrower than §
1823 in that non-fault may be asserted as a defense); FDIC v.
Meo, 505 F.2d 790, 792-93 (9th Cir. 1974) (same).
6
. Lesal also argues that Colonial and the RTC cannot invoke the
D'Oench Duhme doctrine because the RTC accepted benefits under
the settlement agreement. In light of our holding regarding the
applicability of 12 U.S.C. § 1823(e) to Colonial, we need not and
do not reach this agreement.
applied to the RTC pursuant to 12 U.S.C. § 1441a(b)(4), the term
"insured depository institution" must be understood to mean a
depository institution whose accounts were formerly insured by
the Federal Savings and Loan Insurance Corporation and for which
a conservator or receiver was appointed during the period
specified by statute. See 12 U.S.C. §§ 1441a(b)(3)(A) and
1441a(b)(4).
The statutory language that we have highlighted above
leaves little doubt that 12 U.S.C. § 1823(e) does not apply to a
claim against a subsidiary of an "insured depository
institution." Under subsection (2), a claim based on a covered
agreement is valid only if the agreement was "executed by the
depository institution." Under subsection (3), such an agreement
must be "approved by the board of directors of the depository
institution or its loan committee" and must be "reflected in the
minutes of said board or committee." And under subsection (4),
the agreement must have been "continuously, from the time of its
execution, an official record of the depository institution."
Few agreements between subsidiaries of depository institutions
and third parties are likely to satisfy these requirements. Such
agreements will generally be executed by the subsidiaries'
officers or directors and maintained as records of the
subsidiaries. Therefore, if the language of subsections (2),
(3), and (4) is taken literally, it would appear to make most
agreements of such subsidiaries, even if executed in the
generally accepted manner, unenforceable in the event that the
subsidiaries' parent becomes insolvent.7 Furthermore,
"[r]equiring bank boards . . . to consider, approve, and record
every transaction entered into . . . by entities held by the bank
as investments or subsidiaries . . . would make virtually
impossible the performance by officers and directors of their
upper level management and policymaking functions." Alexandria
Associates, Ltd. v. Mitchell Co., 2 F.3d 598, 603 (5th Cir.
1993). It is most unlikely that Congress intended such a
result.8
In order to give these provisions an arguably sensible
meaning as applied to a subsidiary, they must be read to require
that an agreement be executed by the subsidiary, that it be
approved by the subsidiary's board of directors, and that it be
7
. Literal compliance with subsection (3) may raise the
likelihood that a depository institution could be classified as
the alter ego of its subsidiary, thus exposing the institution to
significant risk. See, e.g., FDIC Rules, 12 C.F.R. §§
337.4(a)(2), 362.2(d)(requiring, inter alia, that "bona fide
subsidiaries" have an independent board of directors and conduct
business pursuant to independent policies and procedures designed
to inform customers that the subsidiary is a separate
organization because such factors are among "the minimum
necessary to assure the likelihood, in all circumstances, that
the corporate separateness between a parent bank and its
subsidiary will be respected." 58 Fed. Reg. 64462, 64469 (FDIC
1993)).
8
. In addition, section 1823(e) governs the validity of a claim
"against the Corporation," i.e., the FDIC or the RTC, and it is
questionable whether a claim against a subsidiary of a depository
institution taken over by the FDIC or RTC constitutes a claim
against the FDIC or RTC as such.
maintained as an official record of the subsidiary. This is the
approach advocated by the appellees,9 but this approach requires
major statutory surgery. It requires that the phrase "depository
institution" be excised from subsections (2), (3), and (4) and
that the phrase "wholly owned subsidiary" or some equivalent
language be put in its place. We are most reluctant to treat the
language of section 1823(e) in such a fashion, particularly
because we have found no legislative history showing that
Congress specifically intended for section 1823(e) to apply to
claims against subsidiaries.10
We are aware that several other courts of appeals have
held that the common law D'Oench Duhme doctrine and its statutory
counterpart apply to claims against subsidiaries. See Robinowitz
v. Gibraltar Savings, 23 F.3d 951, 956 (5th Cir. 1994), petition
for cert. filed, 63 U.S.L.W. 3326 (Sept. 26, 1994); Sweeney v.
9
. The district court likewise suggested that, when § 1823(e) is
applied to a subsidiary, the phrase "`wholly-owned subsidiary'
should be read into the statute -- in place of `depository
institution.'" 834 F. Supp. at 732.
10
. See Conf. Rep. No. 101-222, 101st Cong. 1st Sess. (1989),
reprinted in 1989 U.S.C.C.A.N. 432; H.R. Rep. No. 101-54(I),
101st Cong., 1st Sess. 357 (1989), reprinted in 1989 U.S.C.C.A.N.
86, 131-32, 153; Sen. Rep. No. 101-19, 101st Cong. 1st Sess.
(1989); Conf. Rep. No. 3049, 81st. Cong., 2d Sess. (1950),
reprinted in 1950 U.S.C.C.A.N. 3776-79; H.R. Rep. No. 2564, 81st
Cong., 2d Sess. (1950), reprinted in 1950 U.S.C.C.A.N. 3765,
3774; Sen. Rep. No. 1269, 81st Cong., 2d Sess. (1950). See also
96 Cong. Rec. 10,731 (1950)("[U]nder section [1823(e)] . . .
certain conditions for the first time are imposed upon a bank in
the event agreements are entered into between customers of the
bank and the bank.").
RTC, 16 F.3d 1, 4 (1st Cir. 1994), cert. denied, 115 S. Ct. 291
(1994); Oliver v. RTC, 955 F.2d 583, 585-86 (8th Cir. 1992);
Victor Hotel Corp. v. FCA Mortgage Corp., 928 F.2d 1077, 1083
(11th Cir. 1991). But none of those decisions relied exclusively
on section 1823(e), as opposed to the common law D'Oench Duhme
doctrine, and they are therefore distinguishable on that ground.
Insofar as those decisions dealt with section 1823(e), however,
we find them unpersuasive and decline to follow them. None of
those decisions addressed the language of section 1823(e), and
thus none of them confronted the difficulty of applying the
language of that provision to claims against a subsidiary.
The appellees argue that the application of section
1823(e) to claims against subsidiaries would represent sound
public policy. They approvingly quote the following statement
of the Eleventh Circuit:
[A] holding that D'Oench is inapplicable to
[the subsidiary] in this case would seriously
undermine FSLIC's policy consideration. The
FSLIC has to rely on a financial
institution's written records and its assets,
such as wholly-owned subsidiaries, to
determine solvency for regulatory purposes.
Appellees' Br. at 19, quoting Victor Hotel Corp. 928 F.2d at 1083
(brackets inserted in brief). But whatever the validity of this
view, we cannot alter or ignore the plain meaning of section
1823(e). Furthermore, we lack the information and expertise
needed to decide whether the extension of section 1823(e) to
claims against subsidiaries would on balance be beneficial as a
matter of policy. Accordingly, we hold that section 1823(e) does
not apply to claims against a subsidiary such as Colonial, and
the order of the district court entering judgment in favor of
Colonial must therefore be reversed.
The question remains whether, in light of this holding,
12 U.S.C. § 1823(e) nevertheless requires the dismissal of
Lesal's alter ego claim against CorEast. The district court did
not address this question; instead the district court reasoned
that the alter ego claim failed because Lesal's claims against
Colonial were barred by the D'Oench Duhme doctrine and 12 U.S.C.
§ 1823(e). When a district court decision cannot be affirmed on
the ground adopted by that court, we have the discretion to
consider whether that decision can be affirmed on alternative
grounds, but we need not do so. Langer v. Monarch Life Insurance
Co., 966 F.2d 786, 807-08 (3d Cir. 1992). Here, because the
parties have not briefed the specific question whether Lesal's
alter ego claim is independently barred by 12 U.S.C. § 1823(e) or
the common law D'Oench Duhme doctrine, we decline to consider if
the entry of judgment for the RTC as receiver for CorEast can be
affirmed on this ground. The district court on remand can
consider that question in the first instance.
III.
We thus turn to Lesal's argument that the district
court erred in denying its motion for garnishment of Echotree's
alleged right to indemnification for the default judgment
obtained by Lesal. We affirm the district court's denial of this
motion.
Lesal's motion was predicated solely on N.J.S.A. 2A:17-
63,11 which provides a summary turnover procedure that may be
used only when the garnishee "admits the debt." If the garnishee
disputes the debt, a motion under this provision must be denied,
and the judgment creditor must look to the procedures authorized
by N.J.S.A. 2A:17-61 and 2A:17-62. See, e.g., Skevofilax v.
Quigley, 810 F.2d 378, 383-85 (3d Cir. 1987) (in banc), cert.
denied, 481 U.S. 1029 (1987); id. at 388 (Becker, J.,
concurring); id. at 390-91 (Stapleton, J., dissenting); Beninati
v. Hinchcliffe, 126 N.J.L. 587, 20 A.2d 64 (Err & App. 1941).
Here, Colonial disputed its obligation to indemnify
Echotree under the settlement agreement, and consequently the
11
. This provision states:
After a levy upon a debt due or accruing
to the judgment debtor from a third person,
herein called the garnishee, the court may
upon notice to the garnishee and the judgment
debtor, and if the garnishee admits the debt,
direct the debt, to an amount not exceeding
the sum sufficient to satisfy the execution,
to be paid to the officer holding the
execution or to the receiver appointed by the
court, either in 1 payment or in installments
as the court may deem just.
summary turnover procedure provided in N.J.S.A. 2A:17-63 was
inapplicable. We therefore affirm the denial of Lesal's motion
under that provision, but our decision is without prejudice to
Lesal's pursuit on remand of the other New Jersey statutory
procedures that may be employed by a judgment creditor to execute
on its judgment debtor's unliquidated indemnification rights.
See Skevofilax, 810 F.2d at 383-85.
IV.
For these reasons, we reverse the order of the district
court entering judgment for Colonial and CorEast; we affirm the
order denying Lesal's summary turnover motion; and we remand this
case for further proceedings on Lesal's alter ego and third-party
beneficiary claims.