Thigpen v. Sparks ( 1993 )

  •                                  United States Court of Appeals,
                                               Fifth Circuit.
                                              No. 91-1977.
                                     Roy E. THIGPEN, III, Plaintiff,
                                  Marc A. SPARKS, et al., Defendants.
                       Marc A. SPARKS, Defendant-Counter Plaintiff-Appellant,
    FEDERAL DEPOSIT INSURANCE CORPORATION, In its capacity as receiver for BancTexas
    Dallas, N.A., Counter Defendant-Appellee.
                                              Feb. 16, 1993.
    Appeal from the United States District Court for the Northern District of Texas.
    Before GOLDBERG, JONES, and DeMOSS, Circuit Judges.
           EDITH H. JONES, Circuit Judge:
           The issue in this case is whether an individual's breach of warranty claims, which arose when
    a now-failed bank sold him a wholly-owned Texas trust company, are barred against FDIC by the
    D'Oench doctrine,1 12 U.S.C. § 1823(e) or § 1821(d)(9)(A). We hold that they were not so barred
    and thus reverse and remand the district court's summary judgment.
           Appellant Marc A. Sparks purchased a Texas trust company called The Dallas Empire
    Company (DEC) from BancTexas, Dallas, planning to sell it afterward. Both Sparks and Roy
    Thigpen, III, the prospect ive purchaser, required that DEC have a "continuous, uninterrupted
    corporate charter" as a condition to purchase. By letter dated May 8, 1986, the Chairman of the
        D'Oench Duhme & Co., Inc. v. FDIC, 
    315 U.S. 447
    62 S. Ct. 676
    86 L. Ed. 956
     (1942). The
    Supreme Court that in D'Oench held a bank customer was estopped from asserting an alleged
    unrecorded agreement as a defense to an action maintained by the Federal Deposit Insurance
    Corporation to collect on a note held by an insolvent bank. The alleged agreement between the
    customer and the bank was intended to protect the customer from collection on the note while
    deceiving federal banking authorities as to the existence of this asset. See Warren Dennis, The
    Rise and Expansion of the D'Oench doctrine (American Law Institute, 1992) (available on
    Board and CEO of the bank represented to Sparks, among other things, that DEC "has had a
    continuous and uninterrupted status of good standing through this present date." One week later,
    Sparks bought DEC for $45,000. The May 15 bill of sale warranted that DEC was in good corporate
    standing at that time.
           Before the sale to Thigpen, for which Sparks was to receive $150,000, Sparks learned that
    DEC's charter had been forfeited briefly for non-payment of corporate franchise taxes in 1985.
    Despite the charter's reinstatement, Thigpen refused to purchase DEC and sued Sparks, BancTexas
    and another individual in state court for violation of the Texas Deceptive Trade Practices Act
    (DTPA). Counter-claims and cross-claims were filed. By autumn, 1987, the state court had granted
    summary judgment in favor of the bank on Thigpen's and Sparks's DTPA claims and dismissed
    Thigpen's original petition with prejudice. Only Sparks's breach of warranty claims against the bank
    remain. BancTexas was declared insolvent in January 1990, and FDIC was appointed its receiver.
    Substituted as a party defendant for the bank in state court, FDIC removed the case to federal court
    and some months later filed a motion for summary judgment on Sparks's claims.
           The district court held that Sparks's claims against FDIC are barred by the relatively new
    FIRREA2 provision that states in pertinent part:
           "[A]ny agreement which does not meet the requirements set forth in § 13(e) [12 U.S.C. §
           1823(e) ] shall not form the basis of, or substantially comprise, a claim against the receiver
           or the Corporation."
    12 U.S.C. § 1821(d)(9)(A), effective in September, 1989. The requirements incorporated in that
    provision from 12 U.S.C. § 1823(e) include that the agreement be in writing, executed by both parties
    contemporaneously with the "acquisition of the asset" by the institution, and be continuously
    maintained among the institution's business records. FDIC offered an affidavit of Linda Bratton, one
    of its employees, to attest that no documents in BancTexas's files reflected whether the sale of DEC
    to Sparks, or the May 8 letter, had been approved by the bank's board of directors. The bank found
        Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L.
    No. 101-73 103 Stat. 183 ((codified at 12 U.S.C. § 1811 et seq. (1991)). FIRREA significantly
    overhauled financial institution regulation by the federal government. See generally 1989
    U.S.Code Cong. & Admin.News 86 ff.
    this affidavit, unanswered by Sparks, conclusive against him for purposes of § 1821(d)(9)(A).
           Sparks moved for reconsideration on several grounds. First, he contended that because the
    DEC transaction constituted a sale of an asset by the bank, it did not fall within the purview of
    D'Oench, § 1823(e) or § 1821(d)(9)(A) as a matter of law. If § 1821(d)(9)(A) was necessary to
    make the § 1823(e) requirements applicable to Sparks's "claim" against FDIC, he contended, then §
    1821(d)(9)(A) was being improperly retroactively applied, for it became effective in September 1989,
    while the DEC transaction occurred in 1986. Finally, he moved for an opportunity to conduct
    discovery to counter the Bratton affidavit. Because the bank had defended Sparks's case on the
    merits, he was not forewarned by FDIC's substitution that he might have to produce evidence to show
    that the DEC sale had complied with 12 U.S.C. § 1823(e). The district court denied the motion for
    reconsideration and this appeal followed.
           Sparks undertakes a four-fold attack on appeal. He disputes that § 1821(d)(9)(A) applies
    retroactively to his claims against FDIC. He contends that D'Oench and § 1823(e) do not apply to
    the DEC transaction. Even if those rules did apply, he maintains that FDIC did not carry its summary
    judgment burden. Finally, he asserts that if any of these avoiding doctrines are available to FDIC, the
    district court abused its discretion in not allowing further discovery. FDIC takes issue with each of
    these propositions.
           Our analysis begins with a threshold question that the parties have not resolved. The linchpin
    of Sparks's argument and conversely, the Achilles heel of FDIC's response, is an assumption that the
    May 8 letter from the president of BancTexas is part of the agreement by which DEC was sold. If
    it was part of that agreement—and Texas has a doctrine that a contract may consist of multiple
    writings3—then D'Oench does not logically apply. The D'Oench doctrine was formulated to protect
         See Plains Machinery Co. v. City of Beaumont, 
    672 S.W.2d 319
    , 321 (Tex.App. 9th
    Dist.1984, no writ) (noting "a written contract, of course, may be composed of several documents
    ..."); W.D. Dunavant & Co. v. Southmost Grocers, 
    561 S.W.2d 578
    , 582 (Tex.Civ.App. 13th
    Dist.1978, writ ref'd n.r.e.). See also, Jones v. Kelley, 
    614 S.W.2d 95
    , 98 (Tex.1981) (noting the
    general rule in Texas is that separate instruments or contracts can be considered as one
    the integrity of bank insolvency proceedings by making secret agreements between banks and
    preferred customers unenforceable. According to Sparks's theory, however, BancTexas profited by
    selling DEC under the very same written agreement whose alleged warranty of continuing corporate
    existence FDIC now seeks to escape. If this is correct, Sparks's case would be analogous to Federal
    Deposit Insurance Corp. v. Laguarta, 
    939 F.2d 1231
    , 1237-39 (5th Cir.1991), in which we held that
    a borrower could assert an affirmative defense, notwithstanding D'Oench Duhme, because the defense
    arose from an express written obligation undertaken by the bank in the loan agreement with the
    borrower. This court concluded that because the funding obligations on which LaGuarta premised
    his claims were spelled out in the parties' loan agreement and modification agreement, the D'Oench
    doctrine was inapplicable. 939 F.2d at 1239. The court cited with approval a district court decision
    interpreting § 1823(e), the original provision based on D'Oench:
           None of the policies that favor the invocation of this statute are present in such cases because
           the terms of the agreement that tend to diminish the rights of the FDIC appear in writing on
           the face of the agreement that the FDIC seeks to enforce.
    Riverside Park Realty Co. v. FDIC, 
    465 F. Supp. 305
    , 313 (M.D.Tenn.1978).
           In Laguarta, however, there was no question whether the borrower's loan agreement and
    modification agreement were collateral to the promissory note; as the court observed, they were
    integral to the loan transaction. Here, that is not necessarily the case. Indeed, FDIC has assumed that
    the May 8 letter was collateral to the bill of sale for DEC. From this assumption proceed FDIC's
    arguments that the May 8 letter did not separately comply with D'Oench or § 1823(e).
           As we view it, the threshold question is whether that letter was part of the parties' agreement
    of sale of DEC or whether it was subsumed by the parole evidence rule or a similar principle and did
    not become part of the parties' final agreement. Before FDIC entered this case, BancTexas and
    Sparks had begun to brief this question on summary judgment, but neither the state nor the federal
    court ever ruled on it. On remand, the court must answer this question. If the May 8 letter was not,
    under Texas law, part of the documents comprising the DEC sale contract, then Sparks cannot prevail
    because he has no right to rely on that letter's representations. If the May 8 letter was part of the
    contract, then FDIC prevails only if the DEC sale to Sparks had to be documented pursuant to 12
    U.S.C. § 1823(e) or § 1821(d)(9)(A).
            Sparks argues here as he did to the trial court that § 1823(e) does not apply at all to the DEC
    sale or, if it does, it only applies by an impermissibly retroactive application of § 1821(d)(9)(A). We
    are inclined to agree that § 1823(e) does not apply to a claim arising from a bank's sale of an asset
    in a nonbanking transaction. Section 1823(e) provides in full as follows:
            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 o r 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 appro ved 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. (Emphasis added).
    This case would represent a unique application of § 1823(e) because the gist of the dispute is neither
    a loan transaction, actual or contemplated, between a borrower and lender nor a conventional banking
    transaction of any kind, but rather the bank's sale of an asset to Sparks, an individual who on the
    record before us had no other connection with the bank than by his purchase of DEC. That the May
    15, 1986 sale of DEC, even considered with the bank's assumption of a warranty obligation, could
    be viewed as an agreement "which tends to diminish or defeat the interest of the [FDIC] in any asset
    acquired by it" (emphasis added) is contrary to the language of the statute: the sale occurred three
    years before FDIC acquired anything from BancTexas, and FDIC acquired nothing from the DEC
    sale. Further, § 1823(e)(2), which requires that, to be enforced, such an "agreement" must have been
    executed "contemporaneously with the acquisition of the asset " by the bank does not comfortably,
    to say the least, fit the sale of an asset. It requires no stretch of the meaning of the words "asset" or
    "acquired" to reach this conclusion.4
            If § 1823(e) does not on its face apply to Sparks's transaction with DEC, FDIC contends and
    the district court held that § 1821(d)(9)(A) nevertheless applies because the complained-of warranty
    was an "agreement" that forms the basis of Sparks's "claim" against FDIC. To repeat, Section
    1821(d)(9)(A) states:
            "[A]ny agreement which does not meet the requirements set forth in § 13(e) [12 U.S.C. §
            1823(e) ] shall not form the basis of, or substantially comprise, a claim against the receiver
            or the Corporation."
    Several issues of statutory interpretation are presented by this contention. First, is § 1821(d)(9)(A)
    different from § 1823(e)? Second, to what extent does § 1821(d)(9)(A) incorporate § 1823(e)?
    Third, if § 1821(d)(9)(A) has a materially different application than § 1823(e) to some types of
    transactions in which a bank engaged before it failed, is it retroactively applicable to those
    transactions? Because we read § 1821(d)(9)(A) as having intended only a modest addition to the
    scope of § 1823(e), as a result of which § 1821(d)(9)(A) does not apply to Sparks's deal with DEC,
    the question of retroactivity becomes not only less important to the statute's interpretation but
    irrelevant in this case.5
            Juxtaposing §§ 1821(d)(9)(A) and 1823(e), one possible difference is that the former
    provision bars assertion of cert ain agreements as affirmative "claims" against FDIC (and related
    entities), i.e. as claims for recovery of money or property from the coffers of the insolvent institution,
    while the older provision bars use of such agreements "against" FDIC. Consistent with its origin in
         It may be true that the terms "asset" and "acquired" require somewhat broad definitions to
    render § 1823(e) efficacious for its intended purposes i.e. to prevent last-minute favoritism by
    failing banks and to permit FDIC promptly to value a bank's assets, see Langley v. FDIC, 
    484 U.S. 86
    108 S. Ct. 396
    98 L. Ed. 2d 340
     (1987) but those policies are not served here in any
    event, and even a broad reading of these two terms will not stretch to a bank's sale of an asset in a
    non-banking transaction.
         Section 1821(d)(9)(A) was enacted as part of FIRREA, a complex statute whereby, among
    other things, the FSLIC was absorbed into the FDIC, and receiverships maintained by FSLIC was
    absorbed into the FDIC, and receiverships maintained by FSLIC were transferred to FDIC. See
    North Arkansas Medical Center v. Barrett, 
    962 F.2d 780
     (8th Cir.1992). These changes
    expanded the coverage of § 1823(e). The pre-FIRREA version of § 1823(e) protected only FDIC
    in its corporate capacity, but FIRREA extended that protection to FDIC in its receivership
    capacity, see, e.g., Texas Refrigeration Supply, Inc. v. FDIC, 
    953 F.2d 975
    , 979 (5th Cir.1992);
    to the RTC, 12 U.S.C. § 1441a(b)(4); and to bridge banks, 12 U.S.C. § 1821(n)(4)(I)(i-iv).
    the D'Oench case, § 1823(e) has generally been applied against obligors who have sought to invoke
    "agreements" that do not conform with the statute as defenses to their duty to repay loans. Section
    1823(e) has only recently been used to bar affirmative claims. The earliest of this court's cases that
    arguably so held is Beighley v. FDIC, 
    868 F.2d 776
    , 783-84 (5th Cir.1989), decided just as Congress
    completed work on FIRREA. See also, Bell & Murphy & Assoc., Inc. v. Interfirst, 
    894 F.2d 750
    Cir.1990). Consequently, before the enactment of § 1821(d)(9)(A), it was not a foregone conclusion
    that § 1823(e) barred the assertion of an affirmative claim against FDIC predicated on an agreement
    covered by the provision. It could be argued, that § 1821(d)(9)(A), if it has any meaning independent
    of § 1823(e),6 extends the defensive character of § 1823(e) to bar certain affirmative claims against
             The next question is, to what "agreements" does § 1821(d)(9)(A) apply the rigorous
    "recording"8 requirements of § 1823(e)? Put otherwise, is the type of agreement covered by §
    1821(d)(9)(A) different from that defined by § 1823(e)? The logical result of FDIC's argument
    suggests that § 1821(d)(9)(A) is far broader than § 1823(e). FDIC contends, and the district court
    agreed, that the bank's alleged warranty of DEC's continuous uninterrupted corporate status was an
    "agreement" that, under § 1821(d)(9)(A), was unenforceable because of its noncompliance with the
    § 1823(e) criteria. We have already concluded that the transaction was not covered by § 1823(e)
    because it did not embody or was not made in connection with the bank's "acquisition" of an "asset."
    Ergo, FDIC's and the district court's notion of an agreement under § 1821(d)(9)(A) are unconstrained
    by the portions of § 1823(e) that refer to the "acquisition" of an "asset" by the institution and by
        The legislative history suggests that § 1821(d)(9)(A) was not intended to plan new
    substantive ground by enhancing FDIC's avoiding powers. See FIRREA House Rep., 1986
    U.S.C.A.N. at 128. Like much legislative history, however, the references are obscure and
        We have parsed the remainder of FIRREA unsuccessfully trying to find a consistent definition
    of "claim."
       See Langley v. FDIC, supra, analogizing § 1823(e) to a recording statute. 484 U.S. at 95,
    108 S.Ct. at 403.
            FDIC urges that the Supreme Court's opinion in Langley compels its broad reading of an
    "agreement," but this is incorrect. Langley held that an agreement under § 1823(e) could include an
    oral understanding between borrower and lender that, if enforced, would have constituted a defense
    to the borrower's loan repayment obligation. The facts of the case precisely include an "asset" of the
    institution, i.e. the loan, "acquired" by FDIC when the bank failed. Langley did not define or deal
    with the nature of "assets" to which § 1823(e) agreements refer. While Langley broadly defines an
    "agreement" made under § 1823(e), it does not say that any "agreement" must be unhinged from the
    rest of the statutory language which contemplates that the "agreement" bear upon an "asset"
    "acquired by" the institution and later by FDIC. The question is not whether Langley's definition of
    an "agreement" applies to § 1821(d)(9)(A)—we assume it does—but instead is whether the modifiers
    expressly used in § 1823(e), referencing an agreement in connection with an "asset" "acquired" by
    the institution, are also expressed in § 1821(d)(9)(A). To state the question that way is to answer
    it. Those modifiers are clearly expressed: among the specific provisions of § 1823(e) adopted by §
    1821(d)(9)(A) is the requirement that an enforceable agreement must have been "executed by the
    depository institution and any person claiming an adverse interest thereunder, contemporaneously
    with the acquisition of the asset by the depository institution." § 1823(e)(2) (emphasis added).
    Again, laying aside the questions of the intended scope of "acquisition" and "asset," there is still no
    doubt that these terms describe essential features of the transaction to which § 1823(e), and now §
    1821(d)(9)(A), applies. These modifiers bind § 1823(e) to its origins in the D'Oench doctrine as a
    device to protect the federal regulators from side agreements that would have impeded the collection
    of obligations owed to the Bank. Such obligations are the bank's "assets" acquired in the course of
    its banking activities.
            Moreover, if § 1821(d)(9)(A) were to apply to claims arising from any agreement entered into
    by a depository institution, absurd consequences would result. A claimant who furnished office
    supplies to the failed bank could not assert a claim unless his contract was (1) in writing, (2) executed
    by him and the bank contemporaneously with the sale of office supplies, (3) approved and recorded
    in the bank's board of directors' minutes and (4) continuously maintained as a bank record. Such
    requirements would render unenforceable the claims of nearly all bank trade creditors. Take another
    example: if an employee claimed to have been wrongfully denied reimbursement for travel expenses,
    the "agreement" would, under FDIC's reasoning, be unenforceable unless it had jumped through the
    § 1823(e) hoops. These results transform § 1821(d)(9)(A) from a provision protecting the failed
    bank's loan portfolio from D'Oench-like secret agreements into a meat-axe for avoiding debts
    incurred in the ordinary course of business. Far-reaching as some of FIRREA's provisions were, we
    doubt that this extravagant extension of § 1823(e) would have occurred, as it did, unremarked in the
    legislative history.
            Because § 1821(d)(9)(A) applies to the same type agreements tied to "acquisitions" of
    "assets" as does § 1823(e), it cannot apply in this instance to the alleged breach of a warranty by the
    bank when it sold DEC to Sparks.
            We note finally that this interpretation of § 1823(e) and § 1821(d)(9)(A) is not necessarily
    inconsistent with the Eighth Circuit's recent decision in North Arkansas Medical Center, supra,
    because, despite its broad dicta, that case revolved around loan-related transactions entered into by
    the bank in its unique capacity as a lending institution. As Justice Scalia noted in Langley the purpose
    of § 1823(e) relates to banks in that capacity; to the evaluation of "bank assets" and "mature
    considerat ion of unusual loan transactions." 484 U.S. at 92, 108 S.Ct. at 401. This factor also
    distinguishes similar cases cited by FDIC.
            Sparks may or may not be able to persuade the district court that a warranty of "continuous,
    uninterrupted corporate existence" was an essential contractual feature of his purchase of DEC from
    BancTexas. If he fulfills this task, he may proceed with his claims against FDIC unhindered by
    D'Oench, § 1823(e) or § 1823(d)(9)(A), because these regulatory superpower rules do not apply to
    a bank's sale of an asset in a nonbanking-related transaction. FDIC's avoidance powers are awesome,
    but neither infinite nor unrestrained by the statutory language.
            For the foregoing reasons, the judgment of the district court is REVERSED and
    REMANDED for further proceedings.