NE Comm. Dev. Group v . FDIC CV-92-236-JD 06/06/95 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Northeast Community Development Group, et a l .

v. Civil N o . 92-236-JD

Federal Deposit Insurance Corporation, et a l .

O R D E R

The plaintiffs, Northeast Community Development Group

("Northeast"), CCI Associates ("CCI"), Concord Comfort Inn, Inc.

("Inn, I n c . " ) , Stephen M . Duprey, Timothy M . Duprey, and

Christopher W . Duprey, bring this action against the defendants,

Federal Deposit Insurance Corporation (FDIC), as liquidating

agent and/or receiver of New Hampshire Savings Bank ("Bank"), and

New Dartmouth Bank ("NDB"), now or formerly as servicing agent

for the FDIC and/or as successor to or assignee of the Bank or

the FDIC,1 pursuant to

(b) and

,

1 The plaintiffs allege

[NDB] . . . . now or formerly served as the Servicing Agent for FDIC and now or formerly is or was, or may be or may have been, the successor to or assignee of the Bank or the FDIC with respect to some or all of the Loans.

Amended Complaint, ¶ 1 1 . In their answers, the defendants

den[y] that the term "Servicing Agent" accurately describes any relationship which [NDB] has had with the 1345, 1367, 2201 and 2202, seeking damages for breach of

contract, negligent misrepresentation, fraud in the factum,

promissory estoppel, equitable estoppel and breach of the New

Hampshire Consumer Protection Act, New Hampshire Revised Statutes

Annotated ("RSA") c h . 358-A (1984 & Supp. 1994) (Counts I-IX).

The plaintiffs also seek a declaratory judgment to establish

complete defenses of setoff, recoupment, counterclaim, accord and

satisfaction, waiver and estoppel, and the statute of

limitations, with respect to certain loans made by the Bank to

the plaintiffs (Count X ) . Before the court are ( 1 ) the FDIC's

motion for summary judgment as to each of the claims and defenses

in the amended complaint except for the claim for declaratory

relief as to the statute of limitations ("FDIC's Motion for

Summary Judgment") (document n o . 6 3 ) ; ( 2 ) NDB's motion for

summary judgment as to each of the claims and defenses in the

amended complaint except for the claim for declaratory relief as

to the statute of limitations ("NDB's Motion for Summary

FDIC in any of its capacities. NDB's Answer to Amended Complaint, ¶ 11; FDIC's Answer to Amended Complaint, ¶ 11.

2 Judgment") (document n o . 64); 2 and (3) the plaintiffs' motion for

summary judgment as to Count X (document n o . 6 9 ) .

Background

On October 1 0 , 1991, the FDIC was appointed as the

liquidating agent to act as receiver of the Bank, in which

capacity it is the successor to the Bank's rights, titles, powers

and privileges with respect to the loans at issue.

(d)(2)(A). The FDIC "entered into a purchase-and-assumption

transaction with [NDB] as the assuming bank." Defendants'

Memorandum, Exhibit A (Affidavit of [Banc One New Hampshire Asset

Management Corporation ("BONHAM") employee] Robert Thunstrom)

("Thunstrom A f f . " ) , ¶ 3 .

I. The Governor's Woods Loan

In 1987 the Bank entered into one or more loan agreements

with Northeast for a project located in Concord, New Hampshire,

known as Governor's Woods. According to the plaintiffs, the Bank

2 The court notes that the motions for summary judgment contained in documents 63 and 64 are based on identical legal grounds. Compare Memorandum of Law of Defendants FDIC and New Dartmouth Bank in Support of their Motions for Summary Judgment (document n o . 65) ("Defendants' Memorandum") with Joint Supplemental Memorandum of Defendants FDIC and New Dartmouth Bank in Support of their Respective Motions for Summary Judgment (document n o . 76) ("Defendants' Joint Supplemental Memorandum").

3 "entered into a development, construction and working capital

loan with Northeast" for the Governor's Woods project in the

amount of $2,350,000 ("Governor's Woods Loan"). Amended

Complaint, ¶ 1 9 . Payment for the amount due under the Governor's

Woods Loan was guaranteed by plaintiffs Timothy Duprey,

Christopher Duprey, and Stephen Duprey. The plaintiffs allege

the loan agreement and other loan documents for the Governor's

Woods Loan "permitted and were intended to provide for the

payment of accrued interest through additional loan advances."

The plaintiffs allege that in early 1989 the Bank "breached

its agreement and course of dealing to fund interest payments

from the Governor's Woods Loan and induced Northeast to fund the

debt service on the Governor's Woods Project from Northeast's own

internal and affiliate sources." Amended Complaint, ¶ 2 0 . The

plaintiffs have not presented the court with evidence of a

written agreement signed by the Bank in which the Bank is

committed to fund interest payments from the Governor's Woods

Loan, rather they state that "the loan documents permitted the

funding of interest payments with advances from the line of

credit," Plaintiffs' Objection Memorandum at 15 (emphasis added),

that "[t]he Bank committed to allowing [Northeast] to make

interest payments in this manner,"

at 1 6 , and that "the

4 Bank's officers made this commitment as a part of their course of

dealing."

(emphasis added).

The plaintiffs have submitted copies of the Bank's

Investment Committee minutes dated January 1 9 , 1988, and March

1 5 , 1988. Plaintiffs' Supplemental Memorandum of Law Examining

Newly Disclosed Information in Support of Plaintiffs' Objections

to the Defendants' Motions for Summary Judgment ("Plaintiffs'

Supplemental Memorandum"), Supplemental Exhibits 1-2 (Bank

Document Numbers 060418 and 060416) (January 1 9 , 1988, minutes)

and 3-4 (Bank Document Numbers 059876 and 059870) (March 1 5 ,

1988, minutes). These minutes reflect votes by the committee to

approve changes in the status of certain portfolio loans.

The January 19 minutes state:

The following properties were released from mortgage securing loans: . . .

December 2 4 , 1987 - Loan #05048, 05049 - Northeast Community Development Group - realty in Concord - consideration $283,848.91 - balance revolving - no valuation - no new monthly payment.

Supplemental Exhibit 2 . The March 1 5 , 1988, minutes state:

February 1 0 , 1988 - Loan #05048, #05059 - Northeast Community Development Group - realty in Concord - consideration $162,237.74 - revolving balance - no valuation - no new monthly payment.

Supplemental Exhibit 4 . The plaintiffs contend that these

minutes "confirm the approval of the conversion of the Governor's

5 Woods Loan to a revolving note, and document that the Bank was

not expecting or requiring the Plaintiffs to make any new monthly

payments, including interest payments." Plaintiffs' Supplemental

Memorandum at 2 .

The plaintiffs further allege that a duly authorized loan

officer of the Bank made "explicit promises that if Northeast

funded the Governor's Woods Loan through June 3 0 , 1989 and if

Northeast proceeded with other actions in the liquidation of its

Loans, the Bank would make future accommodations to and for the

benefit of Northeast and the other Plaintiffs." Amended

Complaint, ¶ 2 1 . The plaintiffs allege that they "relied on

these promises by exhausting Northeast's working capital and

other liquid assets to meet the interest payments through June of

1989, by drastically reducing staff and other operating expenses

and by undertaking exhaustive efforts to sell, lease or otherwise

maximize the value of Northeast's assets."

¶ 2 2 .

A search of the Bank's documents pertaining to the

Governor's Woods Loan conducted by BONHAM employee Robert

Thunstrom, Thunstrom Aff., ¶ 6, and FDIC3 employees Mary Moody,

Defendants' Memorandum, Exhibit B (Affidavit of Mary Moody)

3 The Bank's documents regarding the loans at issue are contained at the BONHAM facility at 77 Sundial Avenue in Manchester, New Hampshire, and at the FDIC's facilities in East Hartford, Connecticut, and vicinity. Affidavit of Robert Thunstrom, ¶ 4 .

6 ("Moody A f f . " ) , ¶ 5 , and Robert Newby, Defendants' Memorandum,

Exhibit C (Affidavit of Robert Newby) ("Newby A f f . " ) , ¶ 5 , failed

to produce any written agreement signed by the Bank which

specifically sets forth ( 1 ) any commitment or promise by the Bank

"to provide for the payment of accrued interest through

additional loan advances," Thunstrom Aff., ¶ 9; Moody Aff., ¶ 7 ;

Newby Aff., ¶ 7 ; ( 2 ) any commitment or promise by the Bank "to

fund interest payments from [the Governor's Woods Loan],"

Thunstrom Aff., ¶ 1 0 ; Moody Aff., ¶ 8 ; Newby Aff., ¶ 8 ; ( 3 ) any

commitment or promise by the Bank" to make future accommodations

to and for the benefit of Northeast and the other plaintiffs,"

Thunstrom Aff., ¶ 1 1 ; Moody Aff., ¶ 9; Newby Aff., ¶ 9; or "'the

Bank's separate promise of further accommodations to and for the

benefit of Plaintiffs,'" Thunstrom Aff., ¶ 12 (quoting Amended

Complaint, ¶ 2 4 ) ; Moody Aff., ¶ 10 (same); Newby Aff., ¶ 10

(same) or ( 4 ) "'the Bank's further promise and agreement to

approve and follow the Liquidation Plan'", Thunstrom Aff., ¶ 12

(quoting Amended Complaint, ¶ 2 4 ) ; Moody Aff., ¶ 10 (same); Newby

Aff., ¶ 10 (same).

II. Loans Related to the "Hotel"

The plaintiffs allege that on or about May 1 7 , 1988, the

Bank entered into a loan agreement with CCI and Inn, Inc. ("Hotel

7 Loan") to finance the construction and operation of the Concord

Comfort Inn ("Hotel") located in Concord, New Hampshire. Amended

Complaint, ¶ 2 7 . According to the plaintiffs, "[t]he Hotel Loan

was guaranteed by each of the Dupreys."

The plaintiffs further allege that this loan agreement

included an undertaking by the Bank to provide a $150,000 working

capital loan or line of credit ("Hotel Working Capital Loan") to

CCI and Inn, Inc.

¶ 2 8 . The plaintiffs allege that "[w]ith

the full knowledge and consent of the Bank [they] relied on these

agreements and commenced and completed construction of the Hotel

before completing the final documentation of the Hotel Working

Capital Loan."

¶ 2 9 . The plaintiffs also allege that they

"commenced operations at the Hotel before completion of the final

documentation for the Hotel Working Capital Loan" based on

"further assurances" by the Bank that it would fund the Hotel

Working Capital Loan.

¶ 3 0 . The plaintiffs allege that

despite these assurances the Bank refused to make or fund the

Hotel Working Capital Loan.

¶ 3 1 .

A search of the Bank's documents pertaining to the loans

related to the Hotel conducted by BONHAM employee Robert

Thunstrom and FDIC employees Mary Moody and Robert Newby failed

to produce any written agreement signed by the Bank which

specifically sets forth ( 1 ) "'an undertaking by the Bank to

8 provide a working capital loan or line of credit to CCI and Inn,

Inc. in the amount of $150,000" Thunstrom Aff., ¶ 14 (quoting

Amended Complaint, ¶ 2 8 ) ; Moody Aff., ¶ 12 (same); Newby Aff., ¶

12 (same); 4 or (2) "any `further assurances,' `repeated

assurances,' or `promises' by the Bank that `the Bank would fund

the Hotel Working Capital Loan . . . ' or that `the Hotel Working

Capital Loan would be finalized and funded." Thunstrom Aff., ¶

15 (quoting Amended Complaint, ¶¶ 30-31; Moody Aff., ¶ 13

(same); Newby Aff., ¶ 1 3 .

Regarding the alleged Hotel Working Capital Loan, the

plaintiffs have presented no evidence of a written agreement

signed by the Bank in which the Bank is committed to providing a

$150,000 working capital loan or line of credit, rather the

plaintiffs assert that "[i]n the ordinary course of business, the

Bank's loan officers, acting within the scope of their Director-

approved authority . . . committed to make working capital loans

to C C I , as so contemplated by the loan documents." Plaintiffs'

Objection Memorandum at 1 7 .

4 "Plaintiffs refer to this alleged undertaking as the 'Hotel Working Capital Loan.'"

9 III. The Liquidation Plan

The plaintiffs allege that during the period from October

through December of 1989 they proposed in writing, and the Bank

accepted, a liquidation plan which provided for

the orderly sale by Northeast and/or the Bank of virtually all projects (including the Governor's Woods Project but excluding the Hotel) in which the Bank held a mortgage or other interest, in consideration for the settlement and satisfaction of all debt and other obligations owed by Plaintiffs and/or their affiliates to the Bank [("Liquidation Plan")].

Amended Complaint, ¶ 3 4 . The debt and obligations at issue

included the Governor's Woods Loan, the Hotel Working Capital

Loan, and other loans originated by the bank to Northeast, C C I ,

the Dupreys and their affiliates between 1980 and 1988

(collectively referred to as "Loans").

¶ 3 3 .

The plaintiffs allege they "carried out" the Liquidation

Plan

and confirmed in writing with the Bank, [NDB], and/or the FDIC or their agents in April 1990, that all deficiency claims would be converted to specified fixed, limited-recourse obligations (which after such restructuring would be without recourse to the individual assets of the Dupreys).

Amended Complaint, ¶ 3 5 . The plaintiffs allege that in

subsequent correspondence they further confirmed these promises.

¶ 3 6 . The plaintiffs allege that "the Bank, its successors,

receivers, agents and/or assigns ha[ve] dishonored this agreement

and continue[] to seek payment/collection of the previously

10 satisfied Loans,"

¶ 3 7 , and that the defendants "each ha[ve]

claimed and/or still claim[] that the Plaintiffs and/or their

affiliates are still liable and obligated on a deficiency claim

with respect to the foregoing Loans in the approximate aggregate

of $3 million."

¶ 3 8 . The plaintiffs further allege that

each of the defendants has "breached the terms, conditions and

other provisions of [the] Liquidation Plan."

¶ 2 5 .

Documents in the Bank's files indicate that a number of lots

at the Governor's Woods project were sold by Northeast at auction

in December 1989. According to the plaintiffs, the Bank

compelled Northeast to sell such lots "at less than their fair

value." Amended Complaint, ¶ 2 3 . The plaintiffs allege that

they complied with this requirement, "but only in consideration

for the Bank's separate promise of further accommodations to and

for the benefit of Plaintiffs and the Bank's further promise and

agreement to approve and follow" the Liquidation Plan.

.

A search of the Bank's documents conducted by BONHAM

employee Robert Thunstrom and FDIC employees Mary Moody and

Robert Newby failed to produce (1) any written agreement signed

by the Bank which specifically sets forth "terms providing that

`the orderly sale by Northeast and/or the Bank of virtually all

projects (including the Governor's Woods Project but excluding

11 the Hotel) in which the Bank held a mortgage or other interest

. . . ' is `in consideration for the settlement and satisfaction

of all debt or other obligations owed by Plaintiffs and/or their

affiliates to the Bank." Thunstrom Aff., ¶ 17 (quoting Amended

Complaint, ¶ 3 4 ) ; Moody Aff., ¶ 15 (same); Newby Aff., ¶ 15

(same); (2) any written agreement signed by the Bank, the FDIC or

NDB which specifically sets forth "terms providing that `all

deficiency claims would be converted to specified fixed, limited-

recourse obligations (which after such restructuring would be

without recourse to the individual assets of the Dupreys),'"

Thunstrom Aff., ¶¶ 1 8 , 19 (quoting Amended Complaint, ¶ 3 5 ) ;

Moody Aff., ¶¶ 1 6 , 17 (same); Newby Aff., ¶ 1 6 , 17 (same).

The plaintiffs assert that the Liquidation Plan "was

developed in three stages," Plaintiffs' Objection Memorandum at

1 9 , and consisted of an "Initial Workout Plan" purportedly

contained in Exhibits 1 1 , 12 and 1 3 ,

at 1 9 , a "Workout Plan"

purportedly contained in Plaintiffs' Exhibits 1 6 , 16-1, 17 and

1 8 ,

and a "Final Plan" purportedly contained in Plaintiffs'

Exhibit 2 7 .

at 2 0 . None of the documents comprising

Exhibits 11-13 contain the Liquidation Plan terms alleged in the

Amended Complaint. None of the documents comprising Plaintiffs'

Exhibits 1 6 , 16-1, 1 7 , 1 8 , and 27 constitute a written agreement

12 signed by the Bank. The plaintiffs assert that "the Workout Plan

was clearly executed by the Bank . . . because the plan was

carried out and performed, when the Bank overtly received and

accepted the cash benefits of the Final Plan." Plaintiffs'

Objection Memorandum at 1 9 . The plaintiffs further contend that

"[t]he Bank's loan officers accepted th[e] Final Plan, in the

ordinary course of their authorized duties . . . through their

verbal representations, conduct and acquiescence,"

at 2 0 , and

that "[t]he Plaintiffs further confirmed the Bank's acceptance of

this Final Plan in their correspondence to the Bank dated October

1 8 , 1990."

(emphasis added).

In his affidavit, Stephen Duprey states,

2 1 . In connection with the Liquidation Plan, it has become clear that at the time that we proposed it and during its implementation, we did not have knowledge of the true purpose of the Bank and its officers in approving and implementing of [sic] such Plan. It has only become clear to me in the period since October 1991 that the true nature of the Plan, as envisioned by NDB, that FDIC and their agents, was to deny the validity and effectiveness of the non-recourse features of the Liquidation Plan.

2 4 . It was not until October 1991, after the Bank had failed and the FDIC had taken over, that we learned for the first time that the successor holder(s) and/or servicer(s) of the Loans did not intend to honor the non-recourse terms and conditions of the Liquidation Plan. Officials or representatives of New Dartmouth Bank, the FDIC and BONHAM from time to time and at various times then made it clear that they intended to enforce the original loan terms without regard to the

13 amendments that we and the Bank had executed and performed. In this regard, New Dartmouth Bank, the FDIC and BONHAM breached their duties and obligations under the loan documents to u s .

Plaintiffs' Objection Memorandum, Exhibit C (Affidavit of Stephen

Duprey), ¶¶ 2 1 , 2 4 .

Discussion

Summary judgment is appropriate when the "pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party

is entitled to a judgment as a matter of law." Fed. R. Civ. P.

56(c). "The burden is on the moving party to establish the lack

of a genuine, material factual issue, and the court must view the

record in the light most favorable to the nonmovant, according

the nonmovant all beneficial inferences discernable from the

evidence." Snow v . Harnischfeger Corp.,

(1st

Cir. 1993) (citations omitted), cert. denied, 115 S . C t . 56

(1994). Once the moving party has met its burden, the nonmoving

party "must set forth specific facts showing that there is a

genuine issue for trial[,]" Anderson v . Liberty Lobby, Inc.,

4 2 , 256 (1986) (citing Fed. R. Civ. P. 56 ( e ) ) , or suffer

the "swing of the summary judgment scythe." Jardines Bacata,

Ltd. v . Diaz-Marquez,

(1st Cir. 1989). "In

14 this context, `genuine' means that the evidence about the fact is

such that a reasonable jury could resolve the point in favor of

the nonmoving party, Anderson, 477 U.S. at 248; `material' means

that the fact is one `that might affect the outcome of the suit

under the governing law.'" United States v . One Parcel of Real

Property,

0 0 , 204 (1st Cir. 1992) (quoting Anderson,

477 U.S. at 2 4 8 ) .

I. The D'Oench Doctrine

In D'Oench[, Duhme & C o . v . FDIC,

(1942)], the Supreme Court held that in a suit brought by the FDIC to collect on a borrower's promissory note, in which the FDIC was successor in interest to the original lender, the borrower was not entitled to rely on agreements outside the documents contained in the lender bank's records to defeat the FDIC's claim.

-61 . . . The Supreme Court announced a federal common law doctrine of equitable estoppel preventing the borrower from using a "secret agreement" with the original lender as a defense to the FDIC's demand for payment.

D'Oench did not require that the borrower have an intent to defraud: "The test is whether the note was designed to deceive creditors or the public authority, or would tend to have that effect. . . ."

.

In re Columbus Ave. Realty Trust,

(1st Cir.

1992). "The D'Oench Duhme doctrine prohibits bank borrowers and

others from relying upon secret pacts or unrecorded side

agreements to diminish the FDIC's interest in an asset by, say,

attempting to thwart its efforts to collect under promissory

notes, guarantees, and kindred instruments from a failed bank."

15 Vasapolli v . Rostoff,

7 , 33 (1st Cir. 1994).

"Borrowers' claims and affirmative defenses are treated the same

under the [D'Oench Duhme] doctrine."

Re-examination and elaboration of the D'Oench doctrine have expanded it far "beyond the factual background of the D'Oench case itself, so that it `now applies in virtually all cases where a federal depository institution regulatory agency is confronted with an agreement not documented in the institution's records.'" OPS Shopping Center, Inc. v . FDIC,

(11th Cir. 1993) (quoting Baumann [v. Savers Fed. Sav. & Loan Ass'n,

(11th Cir. 1991), cert. denied, 112 S . C t . 1936 (1992)]).

Resolution Trust Corp. v . Dunmar Corp.,

8 7 , 593 (11th

Cir. 1995). "In particular, D'Oench bars the use of unrecorded

agreements between the borrower and the bank as the basis for

defenses or claims against the FDIC. The agreement need not

implicate a specific obligation, such as a note or other asset

held by the FDIC. Simply put, transactions not reflected on the

bank's books do not appear on the judicial radar screen." Bowen

v . FDIC,

(5th Cir. 1990).

"[The] requirements of D'Oench are not met where written

provisions reflect only [an] intent to loan additional funds but

not [an] obligation to do so." Sweeney v . Resolution Trust

Corporation,

, 5 (1st Cir. 1994), cert. denied, 115 S .

C t . 291 (1994). The D'Oench doctrine bars any defense to an FDIC

claim where such defense is not reflected in "a reasonably

explicit written agreement in [the failed bank's] records." FDIC

16 v . Bay Street Development Corp.,

(1st Cir. 1994)

(emphasis in original).

"D'Oench, Duhme can be applied for the benefit of an

assignee or a transferee/purchaser from FDIC." Federal Sav. &

Loan Ins. Corp. v . Griffin,

9 1 , 698 (5th Cir. 1991),

cert. denied,

(1992).

"The D'Oench doctrine also applies to transferee banks for essentially the same reason it applies to the FDIC. See Porras v . Petroplex Sav. Ass'n,

(5th Cir. 1990) (D'Oench promotes purchase and assumption transactions by offering the purchaser protection from secret agreements); Federal Deposit Ins. Corp. v . Newhart,

7 , 49-50 (8th Cir. 1989) (without the protection of D'Oench, the market for assets of a failed bank would be greatly diminished because prospective purchasers would have little or no incentive to acquire their assets)."

Community Bank of the Ozarks v . FDIC,

5 4 , 257 (8th Cir.

1993).

II. Section 1823(e)

In relevant part, title

(e) 5 provides,

(e) Agreements against interests of Corporation

(1) In general

No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it

5 "[S]ection 1823(e) is 'somewhat loosely described as the codification' of the D'Oench doctrine." Villafane-Neriz v . FDIC,

5 , 37 n . 1 (1st Cir. 1994) (quoting McCullough v . FDIC,

7 0 , 874 (1st Cir. 1993)).

17 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 agree- ment--

(A) is in writing,

(B) 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,

(C) 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

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

(e)(1) (Supp. 1995). 6

Pursuant to

(9)(A), "any agreement which

does not meet the requirements set forth in section 1823(e) of

this title shall not form the basis o f , or substantially

6 The remaining portion of section 1823(e) provides,

(2) Public deposits

An agreement to provide for the lawful collateralization of deposits of a Federal, State, or local governmental entity or of any depositor referred to in section 1821(a)(2) of this title shall not be deemed to be invalid pursuant to paragraph (1)(B) solely because such agreement was not executed contemporaneously with the acquisition of the collateral or with any changes in the collateral made in accordance with such agreement.

(e)(2) (Supp. 1995).

18 comprise, a claim against the receiver or the Corporation."

(9)(A) (West 1989).

"One purpose of § 1823(e) is to allow federal and state bank

examiners to rely on a bank's records in evaluating the worth of

the bank's assets." Langley v . FDIC,

6 , 91 (1987).

A second purpose of § 1823(e) is implicit in its requirements that the "agreement" not merely be on file in the bank's records at the time of an examination, but also have been executed and become a bank record "contemporaneously" with the making of the note and have been approved by officially recorded action of the bank's board or loan committee. These latter requirements ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure.

Langley, 484 U.S. at 9 2 .

"The common meaning of the word `agreement' must be assigned

to its usage in § 1823(e) if that section is to fulfill its

intended purposes." Langley v . FDIC, 484 U.S. at 9 1 . Therefore,

the word "agreement" in section 1823(e) is not limited to an

express promise to perform an act in the future but includes the

bargain of the parties as reflected in the conditions upon their

performance. Id. "Certainly, one who signs a facially

unqualified note subject to an unwritten and unrecorded condition

upon its repayment has lent himself to a scheme or arrangement

that is likely to mislead the banking authorities, whether the

condition consists of performance of a counterpromise (as in

19 D'Oench, Duhme) or of the truthfulness of a warranted fact." Id.

at 9 3 .

Although the word "executed" in section 1823(e) can "have

two meanings: (1) that both sides have fully performed any

obligations contained in the agreement; and (2) that both sides

have signed the agreement," Twin Const., Inc. v . Boca Raton,

Inc.,

7 8 , 384 (11th Cir. 1991), the purposes of section

1823(e) and the D'Oench doctrine require that for purposes of

section 1823(e), "`executed' must mean that the depository

institution has `signed' the agreement."

"[A]n unsigned

document might mislead the banking authority,"

and "[a]t the

very least . . . makes it very difficult for bank examiners . . .

to determine whether the banking authority will be bound."

Further, "[i]f a bank has not signed a document that purports to

impose on it certain obligations, there is no clear evidence that

the bank considered the obligations, much less that it prudently

considered them."

Section 1823(e) sets forth a

"categorical recording scheme." Langley v . FDIC, 484 U.S. at 9 5 .

"The short of the matter is that Congress opted for the certainty

of the requirements set forth in § 1823(e). An agreement that

meets them prevails even if the FDIC did not know of i t ; and an

agreement that does not meet them fails even if the FDIC knew."

Id.

20 III. The "No Asset" Exception

"The `no asset' exception to D'Oench, Duhme and 1823(e) is

widely recognized." FDIC v . McFarland,

3 2 , 537 (5th

Cir. 1994) (citing see, e.g., FDIC v . Zook Bros. Constr. Co.,

(9th Cir. 1992); Commerce Federal Savings Bank v .

FDIC,

(6th Cir. 1989); Beighly v . FDIC,

(5th Cir. 1989); FDIC v . P.L.M. International, Inc.,

(1st Cir. 1987); Howell v . Continental Credit Corp.,

(7th Cir. 1981); c f . Langley v . FDIC,

6 , 93-

94 (1987)).

"The `no asset' exception is generally defined as precluding the

application of 1823(e) where `the parties contend that no asset

exists or an asset is invalid and that such invalidity is caused

by acts independent of any understanding or side agreement.'"

FDIC v . McFarland,

3 2 , 537 (5th Cir. 1994) (quoting FDIC

v . Merchants Nat'l Bank,

3 4 , 639 (11th Cir. 1984),

cert. denied,

(1984)). "The `no asset' exception

will not . . . be applied where the agreement is not reflected in

the official records of the bank. An overriding concern of §

1823 and D'Oench is that FDIC be able to rely on the official

records of the bank. Therefore, when a defendant seeks to apply

the `no asset' exception based on an unrecorded agreement, the

exception will not apply." FDIC v . McFarland,

.

21 IV. FDIC's Motion for Summary Judgment; NDB's Motion for

Summary Judgment; Plaintiffs' Motion for Summary Judgment as to

Count X

The defendants assert that

(d)(9)(A) and

1823(e) bar all of the plaintiffs' claims "except the claims

regarding loan arrangments with respect to the Hotel (Counts III

and IV, and the portions of Counts IX and X regarding the Hotel),

and the claim for declaratory relief regarding the statute of

limitations." Defendants' Memorandum at 18 (emphasis in

original). The defendants further assert that the D'Oench

doctrine bars "all of the plaintiffs' claims except the claim for

declaratory relief regarding the statute of limitations."7

(emphasis in original). In response, the plaintiffs contend that

the evidence before the court is sufficient to satisfy the

requirements of section 1823(e) and the D'Oench doctrine with

respect to each of these counts. Plaintiffs' Memorandum of Law

in Support of Plaintiffs' Objections to Defendants' Motions for

Summary Judgment ("Plaintiffs' Objection Memorandum").

A. Contract Claims

In Count I the plaintiffs allege claims for breach of

contract based on "(a) the Bank's breach of its agreement to fund

7 This claim will be addressed in a subsequent order.

22 interest payments on the Governor's Woods Loan; (b) the Bank's

further breach of its promise to make accommodations to and for

the benefit of the Plaintiffs; and (c) the Bank's breach of its

agreement to approve and follow the Liquidation Plan." Amended

Complaint, ¶ 4 2 .

In Count III the plaintiffs allege claims for breach of

contract for the Bank's alleged breach of its agreement to

provide and fund the Hotel Working Capital Loan. Amended

Complaint, ¶ 4 8 .

In Count V the plaintiffs allege claims for breach of

contract based on "(a) the Bank's breach of its agreement to

approve and follow the Liquidation Plan; (b) the Bank's further

breach of its promise to convert the Loans to specific fixed,

limited recourse obligations; and (c) the Bank's breach of its

agreement that the Loans would be without recourse to the

individual assets of the Dupreys." Amended Complaint, ¶ 5 4 .

In Count VII the plaintiffs seek recovery upon a claim of

promissory estoppel based on alleged promises by the Bank, NDB

and FDIC "regarding approval of the Liquidation Plan and

conversion of the Loans so that they would be without recourse to

the Dupreys and with only limited recourse against the other

Plaintiffs." Amended Complaint, ¶ 6 0 .

23 1. The Alleged Agreement to Fund Interest

Payments on the Governor's Woods Loan

The court finds that the plaintiffs have failed to present

evidence sufficient for a finding that there exists a written

agreement signed by the Bank which sets forth a commitment or

promise by the Bank to fund interest payments from the Governor's

Woods Loan. Accordingly, the claim in Count I for breach of the

alleged agreement to fund interest payments on the Governor's

Woods Loan is barred by section 1823(e)(1) and the D'Oench

doctrine.

2. The Alleged Promise to Make Accommodations to

and for the Benefit of the Plaintiffs

The court finds that the plaintiffs have failed to present

evidence sufficient for a finding that there exists a written

agreement signed by the Bank which sets forth a commitment or

promise by the Bank to make accommodations to and for the benefit

of the plaintiffs. Accordingly, the claim in Count I for breach

of the alleged promise to make accommodations to and for the

benefit of the plaintiffs is barred by section 1823(e)(1) and the

D'Oench doctrine.

24 3. The Alleged Agreement to Approve and Follow

the Liquidation Plan

The court finds that the plaintiffs have failed to present

evidence sufficient for a finding that there exists a written

agreement signed by the Bank which sets forth a promise by the

Bank to approve and follow the Liquidation Plan. Accordingly,

the claims in Counts I , V and VII for breach of the alleged

agreement to approve and follow the Liquidation Plan are barred

by section 1823(e)(1) and the D'Oench doctrine.

4. The Alleged Agreement to Provide and Fund the

Hotel Working Capital Loan

The court finds that the plaintiffs have failed to present

evidence sufficient for a finding that there exists a written

agreement signed by the Bank which sets forth (1) an undertaking

by the Bank to provide a working capital loan or line of credit

to CCI and Inn, Inc. in the amount of $150,000; (2) any

commitment or promise by the Bank that it would provide and fund

the Hotel Capital Loan. Accordingly, the claim in Count III for

breach of the alleged agreement to provide and fund the Hotel

Working Capital Loan is barred by section 1823(e)(1) and the

D'Oench doctrine.

25 5. The Alleged Promise to Convert the Loans to

Specific Fixed, Limited Recourse Obligations Which Would be

Without Recourse to the Individual Assets of the Dupreys

The court finds that the plaintiffs have failed to present

evidence sufficient for a finding that there exists a written

agreement signed by the Bank which sets forth terms providing

that all deficiency claims would be converted to specific fixed,

limited recourse obligations which would be without recourse to

the individual assets of the Dupreys. Accordingly, the claims in

Counts V and VII for breach of the alleged promise to convert the

Loans to specific fixed, limited recourse obligations which would

be without recourse to the individual assets of the Dupreys are

barred by section 1823(e)(1) and the D'Oench doctrine.

B. Tort Claims

The D'Oench doctrine "`bars defenses and affirmative claims

whether cloaked in terms of contract or tort, as long as those

claims arise out of an alleged secret agreement.'" McCullough v .

FDIC,

7 0 , 874 (1st Cir. 1993) (quoting Timberland

Design, Inc. v . First Service Bank for Savings,

6 , 50

(1st Cir. 1991)). Likewise, section 1823(e) "`bars defenses and

affirmative claims'" arising out of an agreement which fails to

meet its requirements "`whether cloaked in contract or tort.'"

26 McCullough,

(quoting Timberland Design Inc., 932

F.2d at 5 0 ) , 874 n . 6.

1. Negligent Misrepresentation and Fraud in the

Factum

It is settled that claims of misrepresentation and

fraudulent inducement are within D'Oench Duhme's sphere of

influence." Vasapolli v . Rostoff,

3 . Claims of

negligent misrepresentation "based on alleged misrepresentations

relating to the formation of an agreement with [a] bank" are also

within the purview of D'Oench.

. 8 However, "[a] claim

premised on fraud in the factum is not foreclosed by the D'Oench

Duhme rule."

Fraud in the factum occurs when a party is tricked into signing an instrument without knowledge of its true nature or contents. Thus, to constitute fraud in the factum a misrepresentation must go to the essential character of the document signed, not merely to its terms. For example, if a person signs a contract, having been led to believe that it is only a receipt, the stage may be set for the emergence of fraud in the factum.

8 "[N]egligent misrepresentations and intentional misrepresentations are sisters under the skin. Each partakes of the flavor of the secret agreements at which the D'Oench Duhme rule is aimed. And plaintiffs cannot evade the rule by the simple expedient of creatively relabelling what are essentially misrepresentation claims as claims of negligence. . . . To hold otherwise would defy common sense and eviscerate the D'Oench Duhme doctrine." Vasapolli,

5 .

27 Vasapolli,

(citations omitted). 9

Counts I I , IV, and VI contain claims for negligent

misrepresentation and fraud in the factum. The negligent

misrepresentation claims in Count II are based on the defendants'

alleged representations "regarding the accommodations that the

Bank would make in exchange for Plaintiffs' payment of interest

and the auction of the Governor's Woods lots, and the

accommodations the Bank, [NDB] and/or the FDIC would make to

Plaintiffs in exchange for the approval of the Liquidation Plan."

Amended Complaint, ¶ 4 5 . According to the plaintiffs "these

negligent misrepresentations amounted to fraud in the factum."

The negligent misrepresentation claims in Count IV are based

on the defendants' alleged representations "regarding the

availability of the Hotel Working Capital Loan after completion

of construction of the Hotel."

¶ 5 1 . According to the

plaintiffs "those misrepresentations amounted to fraud in the

factum."

9 In Vasapolli, the First Circuit held that the plaintiffs' allegations "that they were victims of fraud in the factum because they thought they were signing long-term notes when they actually signed short-term notes" could not be deemed fraud in the factum because the "alleged disparity goes to the transactional terms, not to the very nature of the agreements."

5 .

28 The negligent misrepresentation claims in Count VI are based

on the defendants' alleged representations "regarding approval of

the Liquidation Plan and conversion of the Loans so that they

would be without recourse to the Dupreys and with only limited

recourse against the other Plaintiffs." Amended Complaint, ¶ 5 7 .

The plaintiffs allege that "these misrepresentations amounted to

fraud in the factum."

The court notes that all of the plaintiffs' claims for

negligent misrepresentation are based on alleged

misrepresentations relating to the formation of an agreement with

the Bank. See Plaintiffs' Objection Memorandum at 27. 10

10 The plaintiffs assert,

[t]he Plaintiffs' affidavit establishes that neither Northeast nor [CCI] had knowledge, at the time of closing the 1988 amendment of the Governor's Woods Loan or the Hotel Loan, respectively, of the true nature of the written instruments, or of the novel interpretation now being given to them by NDB and the FDIC. The Plaintiffs reasonably and in good faith believed that the Hotel Loan included an agreement by the Bank to fund a $150,000 working capital loan, and that the 1988 amendment to the Governor's Woods Loan provided for the funding by the Bank of interest payments on that Loan. Nor did the Plaintiffs, in connection with the Liquidation Plan, have knowledge of the true purpose (which has become apparent only in hindsight) of the Bank and the FDIC's agents to deny the validity and effectiveness of the non-recourse feature of the Final Plan.

Plaintiffs' Objection Memorandum at 27 (citing Plaintiffs' Objection Memorandum, Exhibit C (Affidavit of Stephen Duprey), ¶ 21.)

29 The plaintiffs have failed to present evidence sufficient

for a finding that there exists a written agreement signed by the

Bank which sets forth either (1) a commitment or promise by the

Bank to make accommodations to and for the benefit of the

plaintiffs or (2) a promise by the Bank to approve and follow the

Liquidation Plan. Thus, the court finds that the negligent

misrepresentation claim in Count II is barred by section

1823(e)(1) and the D'Oench doctrine. Considering that the

plaintiffs have failed to present evidence sufficient to find

that there exists a written agreement signed by the Bank which

sets forth either (1) an undertaking by the Bank to provide a

working capital loan or line of credit to CCI and Inn, Inc. in

the amount of $150,000 or (2) any commitment or promise by the

Bank that it would provide and fund the Hotel Capital Loan, the

court finds that the claim for negligent misrepresentation in

Count IV is barred by section 1823(e)(1) and the D'Oench

doctrine.

The plaintiffs have failed to present evidence sufficient

for a finding that there exists a written agreement signed by the

Bank which sets forth either (1) a promise by the Bank to approve

and follow the Liquidation Plan or (2) terms providing that all

deficiency claims would be converted to specific fixed, limited

recourse obligations which would be without recourse to the

30 individual assets of the Dupreys. As such, the claims for

negligent misrepresentation in Count VI are barred by section

1823(e)(1) and the D'Oench doctrine.

Further, because the plaintiffs have failed to present

evidence sufficient for a finding that any of the defendants made

a misrepresentation with respect to the essential character of

any signed document, the court finds that the defendants are

entitled to summary judgment as to the claims in Counts I I , IV

and VI for fraud in the factum.

C. Consumer Protection Act Claims

In Count IX the plaintiffs allege that "[t]he Defendants'

acts or practices with respect to the Loans and the Plaintiffs'

assets and businesses were and continue to be willfully and

knowingly unfair or deceptive, in violation of the New Hampshire

Consumer Protection Act, RSA 358-A:2." Amended Complaint, ¶ 65. 11

Because (1) the alleged acts or practices with respect to

the Loans and the plaintiffs' assets and businesses involve the

alleged formation of an agreement between the plaintiffs and the

11 Section 358-A:2 provides, "[i]t shall be unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce within this state." (Supp. 1994).

31 Bank and (2) the plaintiffs have failed to present evidence

sufficient for a finding that such alleged acts or practices are

reflected in a written agreement signed by the Bank, the court

finds that the plaintiffs claims for the violation of RSA 358-A:2

are barred by section 1823(e)(1) and the D'Oench doctrine.

D. Equitable Estoppel Claim

Count VIII contains a claim for equitable estoppel based on

"the Defendants' representations regarding the approval of the

Liquidation Plan and conversion of the Loans so that they would

be without recourse to the Dupreys and with only limited recourse

against the other Plaintiffs." Amended Complaint, ¶ 6 3 .

Because (1) the representations alleged as the basis for the

equitable estoppel claim involve the alleged formation of an

agreement between the plaintiffs and the Bank and (2) the

plaintiffs have failed to present evidence sufficient for a

finding that such representations are reflected in a written

agreement signed by the Bank, the court finds that the plaintiffs

claim in Count VIII for equitable estoppel is barred by section

1823(e)(1) and the D'Oench doctrine.

32 E. Count X : Defenses of Setoff, Recoupment,

Counterclaim, Accord and Satisfaction, Waiver and Estoppel

In Count X the plaintiffs seek a declaratory judgment "that

the Dupreys and other Plaintiffs have no liability to any of

[the] Defendants of any kind or in any amount for the Loans,"

Amended Complaint, ¶ 7 3 , based on the defenses of setoff,

recoupment, counterclaim, accord and satisfaction, waiver and

estoppel, and the statute of limitations. Id., ¶¶ 69-72. The

defendants' motions for summary judgment address all of these

defenses except for that based on the statute of limitations.

Despite the multiplicity of defenses alleged in the amended

complaint, the plaintiffs' memorandum in support of their motion

for summary judgment as to Count X addresses only the accord and

satisfaction defense. See Plaintiffs' Memorandum of Law in

Support of Plaintiffs' Motion for Summary Judgment with Respect

to Count X . With respect to the defenses at issue, the

plaintiffs allege

6 9 . On account of the losses suffered and incurred by Plaintiffs due to Defendants' negligent misrepresentations and breach of its various agreements and promises to Plaintiffs regarding or relating to the Loans, Plaintiffs have a valid offset, setoff, recoupment or counterclaim, for and against the total amounts purportedly due under or with respect to the Loans, which offset, setoff, recoupment or counterclaim, serves as a complete defense to any and all liability of Plaintiffs to any Defendants under or with respect to the Loans.

33 7 0 . Under all the circumstances, the Loans have been satisfied by the common law doctrine of accord and satisfaction, and Defendants are barred from collecting the Loans pursuant to such common law and by the statutory codifications of this doctrine at RSA §§382- A:1-207 and 382-A:9-505.

7 1 . Under all the circumstances, each of the Defendants has waived its rights and is estopped to collect any amounts purportedly due under or with respect to the Loans, which waiver and estoppel serve as a complete defense to any and all liability of Plaintiffs to any Defendants under or with respect to the Loans.

Amended Complaint, ¶¶ 69-71.

1. Setoff, Recoupment and/or Counterclaim

The court has ruled, supra, that the plaintiffs' claims for

negligent misrepresentation, fraud in the factum and breach of

contract are barred by section 1823(e)(1) and the D'Oench

doctrine. Accordingly, the court finds that the plaintiffs'

claim for a declaratory judgment as set forth in paragraph sixty-

nine of the amended complaint, i.e., that they have a valid

offset, setoff, recoupment or counterclaim which serves as a

complete defense to their liability under the Loans, is likewise

barred.

2. Waiver and Estoppel

The court has determined that the plaintiffs' claim for

equitable estoppel is barred by section 1823(e)(1) and the

34 D'Oench doctrine. Further, the plaintiffs have failed to present

evidence sufficient for a finding that any defendant waived its

rights with respect to the Loans in a manner which complies with

the requirements of section 1823(e)(1) and/or the D'Oench

doctrine. Accordingly, the court finds that the plaintiffs'

claim for a declaratory judgment as stated in paragraph seventy-

one of the amended complaint fails to withstand the defendants'

motions for summary judgment.

3. Accord and Satisfaction

The plaintiffs assert that the Liquidation Plan constituted

an accord and satisfaction between the bank and the plaintiffs

which extinguished the Governor's Woods Loan and other Loans

except for the non-recourse claims against Plaintiff Northeast.

See Plaintiffs' Memorandum of Law in Support of Plaintiffs'

Motion for Summary Judgment with Respect to Count X at 2 , 6-10,

1 3 , 17-18, 20-26.

"An accord and satisfaction may properly be defined as `a

method of discharging a contract, or setting aside a cause of

action . . . by substituting for such contract or cause of action

an agreement for the satisfaction thereof and the execution of

such subsequent agreement.' DeCato Brothers, Inc. v .

Westinghouse Credit Corp.,

0 4 , 506,

5 2 , 953

(1987). "The following are the essential elements of an accord

35 and satisfaction: (1) proper subject matter; (2) competent

parties; (3) an assent or meeting of the minds; (4) a

consideration."

129 N.H. at 506-07, 529 A.2d at 953.

Because the plaintiffs have failed to present evidence

sufficient for a finding that there exists a written agreement

signed by the Bank which sets forth a promise by the Bank to

approve and follow the Liquidation Plan, the plaintiffs' claim in

Count X with respect to the accord and satisfaction issue is

barred by section 1823(e)(1) and the D'Oench doctrine.

Conclusion

For the reasons stated above the court (1) grants the FDIC's

Motion for Summary Judgment (document n o . 6 3 ) ; (2) grants NDB's

Motion for Summary Judgment (document n o . 6 4 ) ; and (3) denies the

plaintiffs' motion for summary judgment as to Count X (document

no. 6 9 ) .

SO ORDERED.

Joseph A . DiClerico, J r . Chief Judge June 6, 1995

cc: Charles A . Szypszak, Esquire Steven E . Hengen, Esquire

36