USCA1 Opinion
United States Court of Appeals
United States Court of Appeals
For the First Circuit
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.
I.
__
FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
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.
-2-
2
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.
-3-
3
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-
-4-
4
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
-5-
5
the D'Oench doctrine. Upon review, we affirm both rulings.
_______
II.
II.
___
DISCUSSION
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
-6-
6
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).
-7-
7
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.
_______
-8-
8
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
___ ____ ______
-9-
9
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,
-10-
10
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.
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
________ ________
-11-
11