Levy v. Federal Deposit Insurance

United States Court of Appeals
For the First Circuit

No. 92-2135

LESLIE LEVY, AS TRUSTEE OF 225 COMMONWEALTH TRUST,
Plaintiff, Appellee,

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,
Defendants, Appellees.

WOLF WEINHOLD, ETC.
Plaintiff, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Joseph L. Tauro, U.S. District Judge]

Before

Selya, Circuit Judge,

Feinberg,* Senior Circuit Judge,

and Stahl, Circuit Judge.

Thomas N. O'Connor with whom Michael G. Bongiorno and Hale and

Dorr were on brief for Wolf Weinhold, etc.

Mark P. Szpak with whom William L. Patton, James L. Sigel, Ropes

& Gray, Bruce V. O'Donnell, Managing Attorney, Ann S. Duross,

Assistant General Counsel, Colleen B. Bombardier, Senior Counsel, and

Barbara S. Woodall, Counsel, were on brief for FDIC.

October 19, 1993

*Of the Second Circuit, sitting by designation.

STAHL, Circuit Judge. Plaintiff-appellant Wolf

Weinhold1 commenced suit in state court against a bank and

its subsidiary for, inter alia, breach of a written warranty

agreement. The bank counterclaimed, seeking payment from

Weinhold of a facially unqualified promissory note and

personal guarantee. After the bank failed, the FDIC, in its

capacity as receiver, removed the proceedings to federal

court, and sought summary enforcement of the note and

guarantee. The district court granted the FDIC's motion for

summary judgment on the note, and, in the same order,

dismissed Weinhold's warranty claims against the bank's

subsidiary. We affirm.

I.

FACTUAL BACKGROUND AND PRIOR PROCEEDINGS

The corporate affiliations of the relevant parties

are complex, so we begin by tracing them in some detail.

First American Bank for Savings ("First American"), a

federally insured savings bank, owned several subsidiary

corporations which were engaged in the development of real

estate projects in the Boston area. One such wholly-owned

subsidiary, First American Development Corporation IV ("FADC-

1. Weinhold brought suit in his individual capacity and in
his capacity as trustee of 225 Commonwealth Trust (the
Trust). References to Weinhold will hereinafter apply to him
in both capacities unless otherwise noted.

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IV"),2 formed a joint venture with H&P Associates Limited

Partnership II ("H&P"). The joint venture, known as

Commonwealth-Marlboro Associates ("CMA"), acquired an

apartment building at 225 Commonwealth Avenue ("the

property") in Boston, with the intention of converting the

property to residential condominiums.3 CMA hired GVW, Inc.

("GVW"), a wholly-owned subsidiary of H&P, as general

contractor for renovation work on the property.

During April 1986, Weinhold and Leslie Levy4

became interested in buying the property from CMA. To that

end, they formed 225 Commonwealth Trust ("the Trust"). On

June 30, 1986, Weinhold, on behalf of the Trust, bought the

property from CMA. GVW had not yet completed renovations to

the property, and under the terms of the purchase and sale

agreement between CMA and Weinhold, the work of completing

the renovations was left to GVW. Among other terms, the

purchase and sale agreement included the following paragraph:

[CMA] and [GVW] shall enter into a
supplementary agreement with [Weinhold]
warranting, in favor of [Weinhold]: (a)
the construction of the improvements

2. FADC-I through III, and FADC-V through IX were also
wholly-owned subsidiaries of First American, and were named
as defendants. Weinhold does not appeal the rulings below as
to these parties.

3. CMA also acquired a second apartment building in Boston,
which is not at issue in this case.

4. Levy, a party below in her capacity as trustee, is not a
party to this appeal.

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constituting the Project for a period of
one (1) year after the Project is
[s]ubstantially [c]ompleted, and (b) the
structural improvements at the [property]
related to the Project for a period of
five (5) years after the Project is
[s]ubstantially [c]ompleted. The
warranties set forth in such side
agreement shall survive the Closing Date.

On September 3, 1986, in compliance with this contractual

provision, CMA executed a document in which it warranted

GVW's work on the property. Because FADC-IV was a joint

venturer in CMA, both the purchase and sale agreement and the

September 3, 1986, warranty were executed by officers of

FADC-IV.

In addition to purchasing the property from CMA,

Weinhold also obtained financing for his purchase of the

property through First American, FADC-IV's parent company,

borrowing $2.4 million from First American. The loan was

evidenced by a promissory note signed by Weinhold in the

amount of $2.4 million, and repayment was secured by

Weinhold's personal guarantee and by a first mortgage on the

property.

Shortly after the sale, disputes arose between

Weinhold and GVW regarding the completion of the renovations.

As a result, Weinhold terminated GVW as general contractor.

In June of 1987, based on GVW's failure to properly complete

the required renovations, Weinhold brought suit in

Massachusetts's Suffolk County Superior Court against FADC-

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IV, H&P and GVW alleging, inter alia, breach of contract and

breach of warranty by all defendants. Foremost among

Weinhold's claims was his allegation that the renovations did

not comply with relevant zoning provisions.

Weinhold subsequently added First American as a

defendant, arguing that FADC-IV was an alter ego of First

American. In essence, Weinhold argued that First American

was liable for FADC-IV's actions, including FADC-IV's

warranty of GVW's renovation work. First American

counterclaimed, alleging that Weinhold had failed to make

mortgage payments. First American sought payment of the note

and enforcement of Weinhold's guarantee.

On October 19, 1990, First American was declared

insolvent and the FDIC was appointed receiver. The FDIC

removed the case to federal district court, and sought

summary judgment on the note and guarantee.

In granting the FDIC's motion for summary judgment,

the district court ruled that Weinhold had failed to offer

proof of any defense to payment on the note and guarantee

sufficient to satisfy the requisites of D'Oench, Duhme & Co.

v. FDIC, 315 U.S. 447 (1942). In a second ruling, the court

dismissed the breach of warranty claims that had originally

been brought against FADC-IV. The court reasoned that

Weinhold's warranty claims against FADC-IV, like his defenses

to the FDIC's counterclaim, failed to satisfy the demands of

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the D'Oench doctrine. Upon review, we affirm both rulings.

II.

DISCUSSION

A. Standard of Review

Our review of summary judgments is plenary.

Rivera-Ruiz v. Gonzalez-Rivera, 983 F.2d 332, 333-34 (1st

Cir. 1993). "[W]e read the record and indulge all inferences

in a light most favorable to the nonmoving party." Id. at

334. Summary judgment is appropriate only if there is no

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

entitled to judgment as a matter of law. Id. at 333.

Moreover, we are free to affirm a district court's ruling "on

any ground supported in the record even if the issue was not

pleaded, tried or otherwise referred to in the proceeding

below." De Casenave v. United States, 991 F.2d 11, 12 n.2

(1st Cir. 1993) (citations omitted).

B. Weinhold's Defenses to Payment of the Note

In contending that the district court improperly

granted the FDIC's motion for summary judgment, Weinhold has

done no more than press his affirmative warranty claims. The

bulk of Weinhold's appellate brief is dedicated to arguing

that his warranty claims against First American survive both

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D'Oench and 12 U.S.C. 1823(e), which has been loosely

described as D'Oench's codification.5 Apparently, Weinhold

assumes that a viable breach of warranty claim, based on

CMA's written warranty of GVW's construction work, would

excuse payment on the promissory note. Because Weinhold's

assumption in this regard is erroneous, we need not linger

long over this argument.

The possibility of valid set-off or recoupment

claims does not preclude the summary enforcement of debt

instruments. See, e.g., Hunt v. Bankers Trust Co., 689 F.

Supp. 666, 672 (N.D. Tex. 1987). Weinhold's breach of

warranty claims are no more than set-off or recoupment

claims. They involve issues of zoning, workmanship and other

matters relating to GVW's work on the renovation project,

rather than issues of liability between Weinhold and First

American on the note and guarantee. Even were we to

disregard FADC-IV's corporate form, as we are repeatedly

urged to do by Weinhold, we would find, at most, that First

American and Weinhold entered two separate agreements. The

agreement regarding the loan of $2.4 million, on one hand, is

evidenced by the note, the mortgage and the personal

5. Weinhold argues at great length that First American
actually "approved" both the purchase and sale agreement and
the September 3 warranty agreement, despite the fact that
both agreements were signed by officers of FADC-IV. As we
understand it, this contention is aimed solely at showing
that Weinhold's affirmative warranty claims survive D'Oench

and 1823(e).

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guarantee. FADC-IV's obligation to convey title to Weinhold

and to warrant GVW's work, on the other hand, arises out of

the entirely separate purchase and sale agreement. Simply

put, GVW's allegedly unacceptable workmanship does not

relieve Weinhold of his obligations under the note and

guarantee.6 Cf. Koch v. Koch, 903 F.2d 1333, 1335 (10th

Cir. 1990) (affirming summary judgment in favor of plaintiffs

in real estate transaction notwithstanding defendant's claims

based on separate stock transaction executed between the same

parties on the same day); Exchange Nat'l Bank of Chicago v.

Daniels, 768 F.2d 140, 143 (7th Cir. 1985) (affirming summary

judgment on claim for payment of facially unconditional note

where defendant's allegations did not constitute a defense to

payment).

To the extent that Weinhold's appeal raises any

defenses other than his mistaken reliance on his affirmative

warranty claims, it does so in an ineffective manner. This

court has often warned litigants that issues raised

6. To the extent that the issue of GVW's workmanship could
ever provide a defense to payment of the note, it could only
constitute a defense of fraud in the inducement, a defense
which Weinhold raised in state court. However, the Supreme
Court has made clear that 1823(e) precludes the defense of
fraud in the inducement where the FDIC is suing on a facially
unqualified promissory note. See Langley v. FDIC, 484 U.S.

86, 94 (1987). See also In re 604 Columbus Ave. Realty

Trust, 968 F.2d 1332, 1346 (1st Cir. 1992). Moreover, to the

extent that Weinhold attempts to resurrect on appeal his
claims of deceit, negligent misrepresentation, and violations
of Massachusetts consumer protection laws, such claims are
similarly barred by Langley.

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ineffectively are deemed waived. E.g., In re: Nelson, No.

92-2408, slip op. at 8 n.6 (1st Cir. June 3, 1993).

In sum, even if Weinhold's warranty claims are

valid, they are nonetheless based solely on FADC-IV's written

warranty of GVW's work. As such, they amount to set-off or

recoupment claims, rather than defenses to his obligations on

the note and guarantee. Thus, they do not preclude the entry

of summary judgment in favor of the FDIC for enforcement of

the note and guarantee.

C. Weinhold's Warranty Claims Against FADC-IV

Relying on Howell v. Continental Credit Corp., 655

F.2d 743, 746 (7th Cir. 1981) and its progeny, Weinhold

argues that his breach of warranty claims survive D'Oench due

to the fact that they are based on documents which evidence

bilateral obligations. See, e.g., id. (holding that neither

D'Oench nor 1823(e) apply "where the document the FDIC

seeks to enforce is one . . . which facially manifests

bilateral obligations and serves as the basis of the lessee's

defense").

Weinhold's reliance on Howell is misplaced. In the

various cases employing the Howell exception, or similar

reasoning, the claims or defenses which the non-governmental

party seeks to enforce are contained either in the very

instrument which the governmental party seeks to enforce,

see, e.g., Howell, 655 F.2d at 747 (holding that when "the

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asset upon which the FDIC is attempting to recover is the

very same agreement that the makers allege has been breached

by the FDIC's assignors, 1823(e) does not apply"); FDIC v.

Panelfab Puerto Rico, Inc., 739 F.2d 26, 30 (1st Cir. 1984)

(holding that the FDIC may not invoke 1823(e) to invalidate

claims which arise from "the same agreement on which the FDIC

brought the action in the first place"); FDIC v. Aetna

Casualty and Sur. Co., 947 F.2d 196, 206-07 (6th Cir. 1991)

(applying Howell's reasoning to defenses contained in

bilateral bond agreement which FDIC sought to enforce); or

they are contained in closely related, or "integral" loan

documents. See Resolution Trust Corp. v. Oaks Apartments

Joint Venture, 966 F.2d 995, 1000-01 (5th Cir. 1992)

(applying Howell exception to a liability limitation clause

contained in loan guarantee); FDIC v. Laguarta, 939 F.2d

1231, 1238-39 (5th Cir. 1991) (applying Howell-type rationale

to a loan agreement and modification agreement that were

"integral to the loan transaction"); Baumann v. Savers Fed.

Sav. & Loan Ass'n, 934 F.2d 1506, 1517-18 (11th Cir. 1991)

(applying Howell exception to claims based on a "schedule

dictated in the loan documents"), cert. denied, 112 S. Ct.

1936 (1992).

To the extent that Weinhold argues that the

purchase and sale agreement in this case is an integral part

of Weinhold's financing arrangements, we disagree. Thus,

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even were we to disregard FADC-IV's status as a corporation

separate from its parent, First American, we are still left

with two distinct agreements, one which governs the purchase

and renovation of the property, and the other which governs

the financing thereof. Cf. Cardente v. Fleet Bank of Maine,

Inc., 796 F. Supp. 603, 612-13 (D. Me. 1992) (declining to

apply Howell exception to plaintiff's claims arising from a

lease between plaintiffs and failed bank where FDIC sought

enforcement of a promissory note and mortgage on the leased

property which were facially unrelated to the lease).

Accordingly, the Howell exception to D'Oench does not apply

to Weinhold's claims. Given that Weinhold offers no other

basis for challenging the district court's dismissal of his

warranty claims, we affirm that dismissal.

III.

CONCLUSION
CONCLUSION

For the foregoing reasons, the order of the

district court granting summary judgment in favor of the FDIC

and dismissing Weinhold's breach of warranty claims is

Affirmed. No costs.
Affirmed No costs

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