USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-2429
MARY E. LAWSON AND
MATT LAWSON,
Plaintiffs, Appellants,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,
Defendants, Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
___________________
____________________
Before
Torruella, Cyr and Boudin, Circuit Judges.
______________
____________________
Edward T. Joyce with whom Deborah I. Prawiec, Raymond A. Fylstra,
_______________ ___________________ __________________
Joyce and Kubasiak, P.C., William D. Robitzek, David G. Webbert and
________________________ ____________________ _________________
Berman and Simmons, P.A. were on brief for appellants.
_______________________
Jerome A. Madden, Counsel, Federal Deposit Insurance Corporation,
________________
with whom Ann S. DuRoss, Assistant General Counsel, Federal Deposit
_____________
Insurance Corporation, and Richard J. Osterman, Jr., Senior Counsel,
________________________
Federal Deposit Insurance Corporation, were on brief for appellee,
Federal Deposit Insurance Corporation.
Roy S. McCandless with whom P. Benjamin Zuckerman, Patricia
___________________ _______________________ ________
Nelson-Reade and Verrill & Dana were on brief for appellee, Fleet Bank
____________ ______________
of Maine.
____________________
August 23, 1993
____________________
BOUDIN, Circuit Judge. The facts of this case are
______________
straightforward. In January 1991, plaintiffs Mary and Matt
Lawson purchased five one-year certificates of deposit
("CDs") from the Maine Savings Bank, representing a deposit
payment in each case of approximately $92,000. Each CD had
an interest rate of 7.9 percent per year, giving the CDs a
maturity value of $100,000 each. A CD reflects a deposit
coupled with an agreement by the depositor to leave the funds
in the bank for a fixed period. It appears that Maine
Savings Bank was in financial difficulty when the CDs were
sold to the Lawsons and that the interest rate offered was a
favorable one.
Maine Savings Bank was declared insolvent on February 1,
1991, and the Federal Deposit Insurance Corporation was
appointed receiver. As it often does, the FDIC transferred
certain accounts to a healthy bank, in this case defendant
Fleet Bank of Maine.1 The accounts transferred in this case
included deposit accounts such as the Lawsons' CDs. The
purchase and assumption agreement between Fleet Bank and the
FDIC authorized Fleet Bank to reduce the interest rates paid
on the transferred accounts after fourteen days, provided
that the reduced rates did not go below the rate customarily
____________________
1The FDIC has authority to "transfer any asset or
liability of the institution in default" to a healthy
financial institution, "without any approval, assignment, or
consent with respect to such transfer." 12 U.S.C.
1821(d)(2)(G).
-2-
-2-
paid by Fleet Bank on passbook savings accounts and provided
that the depositors were given the opportunity to withdraw
the funds without penalty.
On February 13, 1991, Fleet Bank notified the Lawsons
that it had accepted Maine Savings' deposit accounts and
would honor the original interest terms on the CDs until
February 22, but thereafter would reduce the interest rates
pursuant to a schedule enclosed with the notice. The notice
gave the Lawsons the option of withdrawing their deposits
without penalty, or maintaining the accounts at the lower
rate. The Lawsons elected to withdraw the funds and bring
this suit in Maine state court against Fleet Bank for breach
of contract, denominating it a class action. Fleet Bank then
impleaded the FDIC, and the FDIC removed the action to
federal court. The Lawsons completed the cycle by filing
their own suit against the FDIC, which was then consolidated
with the removed suit against Fleet Bank.
The district court granted Fleet Bank's motion for
summary judgment on the ground that the purchase and
assumption agreement authorized Fleet Bank to reduce the
interest rate. It also granted the FDIC's motion to dismiss,
holding that the FDIC was not liable to the Lawsons for more
than the deposits and accrued interest, which Fleet Bank had
already paid. The Lawsons then took this appeal. We
-3-
-3-
consider first the claim against the FDIC and then that
against FleetBank, and we affirmthe district courtas to both.
The FDIC is best known in its "corporate" role as the
statutory insurer of funds deposited in federally insured
financial institutions, generally up to $100,000 per account.
See 12 U.S.C. 1821(a). The FDIC may also be appointed to
___
take over the operations of a failed institution, acting as
receiver or conservator depending on the functions that it
has been assigned. See id. 1821(c). The powers and
___ __
liabilities of the FDIC, enlarged substantially by the
Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183, differ
in the FDIC's various manifestations, such as insurer and
receiver, and must be considered separately.
As insurer, the FDIC was required by statute to
guarantee the Lawsons' "insured deposits," either by paying
them in cash or "by making available to each depositor a
transferred deposit in a new insured depository institution .
. . in an amount equal to the insured deposit of such
depositor." Id. 1821(f)(1).2 A "deposit," in turn, is
__
defined generally as "the unpaid balance of money or its
equivalent received or held by a bank or savings association
____________________
2Each of the CDs was treated as a separately insured
account; even though the total exceeds the $100,000
limitation, it appears that the regulations permitted this
arrangement.
-4-
-4-
in the usual course of business . . . ." Id. 1813(l)(1).
__
The statute allows the FDIC to define the term further by
regulation. Id. 1813(l)(5). Pertinent FDIC regulations
__
fix the amount of an "insured deposit" as
the balance of principal and interest
unconditionally credited to the deposit account as
of the date of default of the insured depository
institution, plus the ascertainable amount of
interest to that date, accrued at the contract rate
. . ., which the insured depository institution in
default would have paid if the deposit had matured
on that date and the insured depository institution
had not failed.
12 C.F.R. 330.3(i)(1).
Here, the FDIC as insurer complied with the statute and
regulations by transferring the Lawsons' deposit accounts to
Fleet Bank, which in turn made available to the Lawsons the
principal plus interest that had accrued at the contract rate
up to February 22, 1991. This was actually a step beyond the
agency's legal obligation as insurer, since it was obliged to
pay accrued interest only to the date of Maine Savings Bank's
default. Thus the FDIC more than satisfied its duty as
insurer. The Lawsons do not appear to claim that they were
short-changed under the insurance provisions. Instead, they
argue that the FDIC is liable as the inheritor of the
contractual obligations of the Maine Savings Bank, that is,
as the receiver for the failed bank.3
____________________
3Their brief is somewhat confusing on this point
because, while they do not claim any default in insurance
coverage, they argue that the FDIC is liable both in its
-5-
-5-
In resolving this claim, the district court, at FDIC's
urging, relied upon 12 U.S.C. 1821(i)(2), and the FDIC
reasserts that statutory defense in this court. That
provision imposes a ceiling on FDIC liability as to most
creditor claims against the FDIC "as receiver or in any other
capacity" where a bank has failed. Broadly, the FDIC's
maximum liability is the amount that the creditor would have
received if the institution had been liquidated outright.
The district court said that "[a]s already demonstrated
above," the Lawsons in liquidation would have received their
original deposit plus interest at the contract rate only to
the date Maine Savings became insolvent.4
It is a miracle that anyone, let alone a busy district
judge, can cope with the profusion of arguments that the FDIC
and Resolution Trust Corporation unleash in cases of this
kind. To some extent they reflect the complexity of the
statutory provisions but, after seeing a number of these
cases, one may come to believe that the agencies' litigating
____________________
corporate capacity and in its receiver capacity. The former
capacity, however, here corresponds to the FDIC's role as
insurer; the FDIC's inheritance of the CD contracts and their
obligations was as receiver.
4The Lawsons point out that section 1821(i) as a whole
applies only to "the rights of the creditors (other than
insured depositors)." Id. 1821(i)(1). While the Lawsons
___
are indeed "insured depositors," it is quite likely (we need
not resolve the issue) that the parenthetical on which they
rely is meant to reserve the rights of insured depositors to
__
their insurance protection and not to other claims that they
___________________________
may have.
-6-
-6-
style has some role in the confusion. Like a giant squid
releasing ink, agency counsel pour out arguments and
citations, heaping defense upon defense, sometimes without
heed for the merits of the contention. It is not clear that
this approach serves the long-run interests of bank
regulators who have a stake in coherent and consistent
interpretation by the courts.
In all events, we think that the FDIC in this instance
led the district court astray. There is no indication in its
opinion of any evidence that, had the Maine Savings Bank been
liquidated and the assets allocated among creditors, the
assets would have been inadequate to pay the Lawsons a
portion of the future interest they now claim. On appeal,
the FDIC's brief tells us that the creditors will receive
only about 77 cents on the dollar; but that information fails
to show that the Lawsons would have received nothing on their
future interest claims in liquidation and it may even suggest
that they might have received something. Section 1821(i)(2)
could cut off the Lawsons' entire claim for future interest
only if it were shown that, in liquidation, there would be no
__
money available even for partial payment of that claim.5
____________________
5The FDIC has made a separate argument that, even if the
assets were sufficient to pay the Lawsons for future
interest, nineteenth century case law provides a basis for
cutting off future interest obligations to depositors of a
failed bank as of the date of insolvency. See White v. Knox,
___ _____________
111 U.S. 784 (1884). The status of this line of authority,
and its application to a fixed interest/fixed period CD
-7-
-7-
It appears that the district court had in mind its prior
discussion in its opinion which shows, by analysis that we
have condensed in our own earlier discussion, that the FDIC's
insurance obligations were limited to returning to the
_________
Lawsons their deposits with accrued interest. But Maine
Savings Bank's obligations to the Lawsons were broader: they
included the payment of future interest, at the contract
rate, for the entire one-year period. The FDIC inherited the
obligation to pay that future interest when it became
receiver. The damages might be mitigated once the Lawsons
recovered their deposit and could relend the money; but some
loss would still be suffered to the extent that the current
interest rate fell below the favorable rate promised by Maine
Savings Bank.
Nevertheless, we believe that the FDIC as receiver is
not liable for this differential on future interest between
the market rate and the apparently greater rate promised by
Maine Savings Bank. As we recently explained in Howell v.
_________
FDIC, 986 F.2d 569, 571 (1st Cir 1993), FIRREA gives the FDIC
____
as receiver the right to disaffirm or repudiate contracts
that the bank entered into prior to receivership if the FDIC
decides "in its discretion" that performance will be
burdensome and that disavowal will promote the orderly
____________________
contract, need not be resolved in this case.
-8-
-8-
administration of the failed bank's affairs. 12 U.S.C.
1821(e)(1).6
The Lawsons argue that if a repudiation occurred, it was
not done by the FDIC but by Fleet Bank, and that the statute
does not allow such a delegation of repudiation authority.
This argument has some surface appeal since the statute
authorizes "a conservator or receiver" to repudiate
contracts, id., and says nothing about the delegation of this
__
function or its performance by one to whom a contract is
assigned. We need not pursue this interesting question
because we believe that the purchase and assumption agreement
was in substance a repudiation of the CD contracts by the
_______
FDIC.
____
While the FDIC might have attempted to substitute Fleet
Bank for Maine Savings Bank as obligor under the CD
contracts, that is not what the FDIC did here. As we explain
below, the purchase and assumption agreement did not commit
Fleet Bank to the prior CD contracts including their interest
rate obligations. Rather, Fleet Bank agreed with the FDIC to
____________________
6The Lawsons argue that some courts have found that the
FDIC's repudiation authority under FIRREA is limited to
executory contracts, that is, contracts in which performance
is still due from both sides. See, e.g., First Nat'l Bank v.
___ ____ ___________________
Unisys Fin. Corp., 779 F. Supp. 85, 86-87 (N.D. Ill. 1991),
_________________
aff'd on other grounds, 979 F.2d 609 (7th Cir. 1992). The
_______________________
contracts here were executory: at the time of repudiation,
the bank was still performing its promise to continue paying
interest, and the Lawsons were performing their ongoing
obligation to keep their funds on deposit.
-9-
-9-
repay only the deposit and accrued interest or, if the
_______
depositor agreed, to continue holding the deposit but at an
interest rate determined by Fleet Bank. In other words, the
FDIC did not transfer the Lawsons' CD contracts intact to a
new obligor; it effectively repudiated those contracts when
__________
it declined either to pay the promised interest itself or to
oblige anyone else to do so. The repudiation may have been
informal but there was certainly no ambiguity; the notice to
the Lawsons from Fleet Bank, describing the transfer of the
deposits and the commitments made to the FDIC, was clear
notice that the original interest rate would no longer be
paid.7
The Lawsons contend that the FDIC, in violation of Maine
contract law, improperly "split" the CD contracts into
principal and interest components and attempted to transfer
one obligation without the other. The transfer of the
deposits to Fleet Bank was expressly authorized by federal
statute and was in that sense a lawful federal act. At the
same time, it was a repudiation and breach of the contracts
____________________
7The FDIC, both in its papers rejecting the Lawsons'
administrative claim and in its brief to us, cites and relies
upon 12 U.S.C. 1821(e)(3)(A), which is pertinent only on
the assumption that the contracts were repudiated. At the
same time, it denied in its district court papers that it
ever "formally" repudiated the CD contracts. It is
understandable that the word "repudiation" is unattractive to
the FDIC in the transfer of depositor accounts; but the
FDIC's desire to maintain depositor confidence does not alter
the substance of what it has done, namely, to refuse to
maintain the promised interest rate.
-10-
-10-
represented by the CDs since the FDIC, which had inherited
the contracts, effectively declined to pay the promised
interest in the future or commit Fleet Bank to do so.
Whether called "improper splitting" or something else, the
outcome is the same: Fleet Bank is bound only by what it
promised the FDIC, but the FDIC as receiver is left with a
contract claim against it.
This does not end the matter. As we have explained in
Howell, FIRREA does not always permit the FDIC to repudiate
______
contracts without consequence; rather, the repudiation gives
rise to an ordinary claim for breach of contract. Howell,
______
986 F.2d at 571. The types of damages that may be recovered
in such a suit against the FDIC, however, are sharply limited
by the statute to "actual direct compensatory damages"
calculated as of the date of the appointment of the receiver.
12 U.S.C. 1821(e)(3)(A). Damages for "lost profits or
opportunities" are specifically excluded. Id.
__
1821(e)(3)(B). This provision precludes the Lawsons'
recovery of future interest from the FDIC.
Although the phrase "actual direct compensatory damages"
may not be self-executing, the prohibition on recovery of
"lost profits or opportunities" does fit the situation like a
glove. After all, the Lawsons have recovered immediate use
of their money, just as if they were owners of a house whose
tenant had departed without completing his lease. The money
-11-
-11-
can be reloaned at current interest rates, just as the house
can be re-rented at current rental rates. What has been lost
is the chance to earn even more than the current "rental"
value of the property, whether the property is a sum of money
or a vacant house.
If current interest rates are below the favorable rate
promised by Maine Savings Bank, obviously the Lawsons are
worse off getting back their deposit and accrued interest
than they would have been if the CD commitments had been
fulfilled. But it was evidently Congress' intent, in a
situation where the failed bank is likely to have fewer
assets than debts, to spread the pain by placing a limit on
what can be recovered under a repudiated contract. The
barring of above-market interest for the period after the
money has been returned to the depositor is surely what
Congress had in mind when it barred lost profits or
opportunities.
This is not mere speculation. Leases are commonly
repudiated by bankrupt estates and in FIRREA Congress--in
addition to the general limitation on damages--made special
provision for computing damages for such leases. Where the
failed bank has rented property from another and the receiver
seeks to repudiate the lease and return the property, the
statute permits recovery of unpaid rent for past occupancy
but no recovery for future rent or damages under any
-12-
-12-
acceleration clause or other penalty provision. Id.
__
1821(e)(4). Comparably, the Lawsons get paid interest for
past use of their money but there is no recovery for future
interest.
For the sake of completeness, we note that the FDIC--in
addition to its many other defenses--urges one additional
defense against the contractual claim made against it as
receiver. This argument relies upon 12 U.S.C. 1821(g),
which provides that when the FDIC has paid an insurance claim
to a depositor or arranged for a healthy insured bank to take
over the deposit, then the FDIC in its corporate capacity is
subrogated to--i.e., takes over--the depositor's claims
____
against the failed bank that it has just paid. There is
nothing surprising in this provision; it merely allows the
FDIC as insurer to share in whatever assets (held custodially
by the FDIC as receiver) may be left over for creditors.
What is surprising is that the FDIC here asserts that
this subrogation provision transfers to the FDIC in its
corporate capacity not merely the Lawsons' claim for what
they got as a result of the Fleet Bank's actions (the
deposits plus accrued interest) but the Lawsons' entire claim
including their contractual right to future interest at the
favorable rate. At first glance this seems at odds not only
with common sense but also with the statute, which subrogates
the FDIC "to all rights of the depositor against such
-13-
-13-
institution or branch to the extent of such payment [by the
_______________________________________
FDIC] or assumption [by a healthy bank]." Id. 1821(g)(1)
________________________________________ __
(emphasis added). Suffice it to say, the "lost profits and
opportunities" bar is a readier answer to the Lawsons' claim.
Turning finally to the claim against Fleet Bank, it did
not assume any obligations with respect to the Lawsons'
deposit accounts beyond those set forth in the purchase and
assumption agreement. See Payne v. Security Savings & Loan
___ __________________________________
Ass'n, 924 F.2d 109, 111 (7th Cir. 1991). Thus, if the
_____
bank's conduct was consistent with the agreement, as the
district court found, the Lawsons have no case. We agree
with the district court. Some analysis of the terms of the
agreement is necessary to make the point, but not much.
Section 2.2 of the Agreement provides as follows:
2.2 Interest on Deposit Liabilities Assumed. The
________________________________________
Assuming Bank [i.e., Fleet Bank] agrees that, from
____
and after Bank Closing, it will accrue and pay
interest on Deposit Liabilities assumed pursuant to
2.1 and in accordance with the terms of the
respective deposit agreements between the Failed
Bank [Maine Savings] and the depositors of the
Failed Bank for a period of fourteen (14) days
commencing the day after Bank Closing. Thereafter,
the Assuming Bank may pay interest with respect to
such Deposit liabilities at rate(s) it shall
determine; provided, that such rate(s) shall not be
________ ____
less than the rate of interest the Assuming Bank
pays with respect to passbook savings Deposit
accounts. The Assuming Bank shall permit each such
depositor to withdraw, without penalty for early
withdrawal, all or any portion of such depositor's
Deposit . . . . The Assuming Bank shall give
notice to such depositors . . . of interest which
it has determined to pay after such fourteen (14)-
day period, and of such withdrawal rights.
-14-
-14-
Faced with this clear language ("at rate(s) it shall
determine"), the Lawsons say that section 2.2 merely provides
that Fleet Bank "may" reduce interest rates after fourteen
days, and that this language "stops short of the explicit
authorization to reduce interest rates that Fleet Bank and
the District Court say it is." And, they say that if the
language were construed to grant such authority, it would
conflict with Fleet Bank's promise in section 5.2 to "honor
the terms and conditions of each written agreement with
respect to each Deposit Account transferred."
Courts are often called upon to interpret opaque
contractual provisions but construing section 2.2 is a walk
in the park: it authorizes Fleet Bank to reduce the interest
rate after fourteen days. As to the supposed inconsistency
with section 5.2, it is a familiar precept of contract
interpretation that the specific controls the general, and
section 2.2's specific authorization to reduce rates trumps
the general promise to "honor the terms and conditions of the
contract." But the precept is unnecessary here: the
paragraph on which the Lawsons rely (section 5.2) begins with
the caveat, "Subject to the provisions of Section 2.2 . . .
." Affirmed.
________
-15-
-15-