Dimuzio v. Resolution Trust Corp.

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit

10-20-1995

Dimuzio v Resolution Trust
Precedential or Non-Precedential:

Docket 95-5066

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 95-5066

RICCARDO DIMUZIO; RUTH DIMUZIO,
on behalf of themselves and all
others similarly situated

v.

RESOLUTION TRUST CORPORATION IN
ITS CAPACITY AS RECEIVER OF CARTERET
SAVINGS BANK, F.A. AND IN ITS
CAPACITY AS CONSERVATOR OF
CARTERET FEDERAL SAVINGS BANK
(D.C. Civil No. 94-cv-01559)

RICCARDO DIMUZIO; RUTH DIMUZIO

v.

RESOLUTION TRUST CORPORATION AS
CONSERVATOR OF CARTERET FEDERAL SAVINGS
BANK AND CARTERET SAVINGS BANK
(D.C. Civil No. 94-cv-04800)

KAZUYUKI KAMEDA; TANEKO KAMEDA;
ESMIE J. WINT, on behalf of themselves
and all others similarly situated

v.

RESOLUTION TRUST CORPORATION AS
CONSERVATOR OF CARTERET FEDERAL SAVINGS
BANK AND CARTERET SAVINGS BANK
(D.C. Civil No. 94-cv-04831)

Riccardo Dimuzio, Ruth Dimuzio,
Kazuyuki Kameda, Taneko Kameda and Esmie Wint,

Appellants

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Nos. 94-cv-01559;

1
 94-cv-04800; and 94-cv-4831)

Argued August 25, 1995

Before: GREENBERG, COWEN and SAROKIN, Circuit Judges

(Filed October 20, 1995)

Douglas S. Lyons (argued)
Lyons & Farrar
201 Alhambra Circle
Suite 711
Coral Gables, Florida 33134

COUNSEL FOR APPELLANTS

John H. Denton
Connell, Foley & Geiser
85 Livingston Avenue
Roseland, New Jersey 07068

Jeffrey Ehrlich (argued)
Room 3129
Resolution Trust Corporation
Legal Division
1717 H Street, N.W.
Washington, D.C. 20006

COUNSEL FOR APPELLEE

OPINION

COWEN, Circuit Judge.

This breach of contract and fraud action is brought by

real estate owners against the Resolution Trust Corporation

("RTC") in its capacities as receiver for Carteret Savings Bank

and as conservator of Carteret Federal Savings Bank. The

district court granted the RTC's motion to dismiss brought

2
pursuant to Fed. R. Civ. P. 12(b)(6). Because we find that 12

U.S.C. § 1823(e) bars plaintiffs-appellants' cause of action

against the RTC, we will affirm the district court's order of

dismissal.
I.

The following facts are alleged in plaintiffs'

complaints. The plaintiffs are the victims of a widespread fraud

perpetrated by General Development Corporation ("GDC"). GDC was

one of the largest land development companies in Florida. It

primarily sold real estate to out-of-state residents using

monthly installment contracts. GDC's advertisements touted its

low down payments and small monthly payments as making the

"Florida dream" widely affordable.

After purchasing a GDC lot, GDC customers were

encouraged to use the "equity" they had built up in their

property as a down payment on a GDC house or condominium. They

were given, among other inducements, roast beef suppers at the

local Holiday Inn, flyers portraying the joys of GDC home

ownership, and personal attention by GDC sales representatives.

During these sessions, prospective purchasers were told that,

after taxes and rental income, the cost of owning a GDC home

would be only slightly more than the payments they were making

for their vacant lots.

Interested pre-qualified buyers were invited to travel

to Florida to visit a GDC community and to choose a home from

among numerous GDC models. The cost of the trip ($299.00) could

be applied against the sales price if they purchased a house or

3
condominium. GDC representatives accompanied prospective

purchasers from the time they departed for Florida until the time

they returned home. While in Florida, they stayed at GDC-

selected hotels, dined with GDC personnel, and traveled with GDC

sales representatives to GDC communities. The GDC contract to

purchase was signed during the trip. Under no circumstances were

the purchasers allowed to extend their Florida stay or view other

real estate development communities.

In addition to these hard-sell sales tactics, the GDC

customers were persuaded to apply for a mortgage from GDC's

"designated lender," GDV Financial Corporation ("GDV"). GDV, a

wholly owned subsidiary of GDC, was created to finance the

purchase of GDC houses, and to sell and service the mortgages. As

part of the loan process, GDV had the GDC houses appraised. These

appraisals failed to comply with industry guidelines.0 Instead,

the homes were appraised in conformance with GDC's inflated

selling price. The houses were highly over-valued, and the

mortgages were for amounts far greater than the market value of

the real property that secured them. The purchasers did not seek

independent appraisals, nor did they retain legal representation

in purchasing the real estate.

GDV entered into an arrangement with several

institutional investors to sell the mortgages. One of those

investors, Carteret Savings Bank ("Carteret"), a federally

0
Those guidelines are established by the Federal National
Mortgage Corporation ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"), respectively the first and second largest
purchasers of residential homeowners' mortgages.

4
insured savings & loan, bought the mortgages despite the non-

conforming appraisals. Carteret allegedly was aware of the non-

conforming appraisals, and purchased the mortgage loans with

certain credit enhancements: it required GDV to obligate itself

to repurchase the loans in case of a default, and further

required that GDV's performance be secured by letters of credit

and cash deposits.

On December 4, 1992, the Office of Thrift Supervision

ordered Carteret closed and appointed the RTC as its receiver. On

that same date, the assets of the former Carteret were

transferred to Carteret Federal Savings Bank, a newly chartered

federal savings association, and the RTC was appointed

conservator of the new bank.

Following an investigation, GDC as well as its

directors were indicted and convicted of criminal fraud and

conspiracy to commit fraud. Both GDC and GDV filed for

protection under Chapter 11 of the Bankruptcy Code. GDC emerged

from bankruptcy as Atlantic Gulf Communities Corporation and GDV

was dissolved.

GDC customers Riccardo and Ruth Dimuzio filed an action

in the United States District Court for the District of Columbia

against the RTC as conservator of Carteret Federal Savings Bank

and Carteret Savings Bank. Kazuyuki Kameda, Taneko Kameda and

Esmie Wint filed a class action against the RTC on behalf of

those persons who obtained mortgage financing from GDV in the

United States District Court for the District of Columbia. These

actions were transferred to the United States District Court for

5
the District of New Jersey, and consolidated by order of the

district court on October 19, 1994.

Each complaint alleged, inter alia, breach of fiduciary

duty, breach of contract, fraudulent concealment, mortgage fraud,

and unfair and deceptive trade practices. Plaintiffs allege that

GDV knew and failed to disclose that: (1) the loan arranged would

result in the purchasers losing their cash equity in the lot they

traded in; (2) the GDV appraisal of the housing unit was

inaccurate and did not conform to industry standards; (3) no

lender applying industry standards would accept the GDV appraisal

or make a purchase money loan in the amount requested; and (4)

GDV, because of its GDC-controlled status, had a conflict of

interest and did not intend to negotiate a conventional arms-

length loan as requested by the purchasers in their loan

applications. Plaintiffs further allege that Carteret knew or

should have known of GDC's and GDV's concealment of material

facts upon which the notes were secured.

The district court dismissed the complaints pursuant to

Fed. R. Civ. P. 12(b)(6), holding that plaintiffs' causes of

action were precluded by Adams v. Madison Realty & Development,

Inc., 937 F.2d 845 (3d Cir. 1991) and 12 U.S.C. § 1823(e).0 This

appeal followed.

0
Although the RTC advanced a number of grounds in support of its
motion to dismiss, the district court relied upon § 1823(e) to
decide the motion. On this appeal, the RTC seeks an affirmance
on this statutory basis. Accordingly, our discussion is limited
to § 1823(e), and we need not apply the federal common law
doctrine of D'Oench, Duhme. Indeed, we note that the D'Oench,
Duhme doctrine may no longer be a separate bar to plaintiffs'

6
 II.

The district court had jurisdiction over this case

under 12 U.S.C. § 1441a(l)(1) and 28 U.S.C. § 1331. We have

jurisdiction pursuant to 28 U.S.C. § 1291. This is an appeal

from the district court's dismissal of the plaintiffs' complaints

pursuant to Fed. R. Civ. P. 12(b)(6). Accordingly, our review is

plenary. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993).

III.

The Federal Deposit Insurance Act of 1950 includes a

provision, 12 U.S.C. § 1823(e), which is generally thought to

codify the result reached in D'Oench, Duhme & Co. v. FDIC, 315

U.S. 447, 62 S. Ct. 676 (1942). See Adams v. Madison Realty &

Development, Inc., 937 F.2d 845, 852 (3d Cir. 1991)(citing FDIC

v. Blue Rock Shopping Center, Inc., 766 F.2d 744, 745 (3d Cir.

1985)). Section 1823(e) provides:
No agreement which tends to diminish or defeat the
interest of the Corporation in any asset acquired by it
... 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 agreement
--

(1) is in writing,
(2) was executed by the depository institution and any
person claiming an adverse interest thereunder,
including the obligor, contemporaneously with the
acquisition of the asset by the depository institution,
(3) was 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

claims. See, O'Melveny & Myers v. FDIC, __ U.S. __, 114 S. Ct.
2048 (1994); Murphy v. FDIC, 61 F.3d 34 (D.C. Cir. 1995).

7
 (4) has been, continuously, from the time of its
execution, an official record of the depository
institution.

One purpose of this section is to permit federal and

state bank examiners accurately and quickly to assess the

financial condition of a federally insured depository institution

by examining its books and records. The statute accomplishes

this objective, in part, by limiting the enforceability of

"agreements" affecting the institution's assets held by the

receiver to those that are properly recorded in the books and

records of the institution. See Langley v. FDIC, 484 U.S. 86,
108 S. Ct. 396 (1987).

A second purpose of § 1823(e), implicit in its

requirement that the agreement be executed "contemporaneously"

with the acquisition of the asset and approved by officially

recorded action of the bank's board or loan committee, is to

"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 91, 108 S. Ct. at 401.

The Supreme Court has construed the word "agreement"

broadly in the context of § 1823(e). In Langley, the plaintiffs

purchased real estate from a federally insured bank and were

obligors on an unconditional promissory note. When the bank

sought to collect on the note, the Langleys sued to avoid

payment, claiming that the bank had made misrepresentations

8
concerning the value and amount of the real estate at issue.

After the bank failed, the FDIC was substituted as a party.

The Langley Court held that § 1823(e) bars a claim of

fraud in the inducement when an obligor seeks to avoid payment on

a note that has come into the FDIC's possession. The Court

reasoned that for purposes of the statute, the term "agreement"

includes warranties concerning real estate, the truthfulness of

which is a condition precedent to the Langleys' obligation to pay

the note. Because this "agreement" had not been recorded on the

bank's records, the Court held that the defense of fraud in the

inducement was statutorily barred.

In Adams, 937 F.2d at 845, we held that § 1823(e)

extends to any warranty on which a party's performance is

conditioned, and is not limited to obligations made between a

bank and its obligor. In Adams, the plaintiffs had executed

promissory notes for investments in fraudulent tax shelters.

Although each of the notes was payable to one of three originator

banks, the notes were eventually purchased on the secondary

market by Empire of America Federal Savings Bank, a federally

regulated savings and loan. The RTC was appointed as conservator

of Empire and came into possession of the notes. The Adams court
held that plaintiffs had not made the agreement, i.e.,

representations and warranties related to the fraudulent tax

shelters, part of the official bank record. Thus, the

requirements of § 1823(e)(3) were not satisfied.

The Adams court specifically rejected the plaintiffs'
claim that § 1823(e) was inapplicable in cases where the obligors

9
had no direct dealings with a federally regulated depository

institution:
Langley makes it clear that the "agreement" covered by
§ 1823(e) and the D'Oench doctrine extends to any
warranty on which a party's performance is conditioned.
There is absolutely no indication that the Court's
reasoning should be limited to obligations between a
bank and its obligor.

Adams, 937 F.2d at 858. Therefore, § 1823(e) applies to

agreements between an obligor and parties other than a depository

institution.

A.

A threshold question exists in this case as to what is

the "agreement" that diminished or defeated the interest of the

RTC in its acquisition of the subject promissory notes.

Appellants contend, and the district court found, that the

"agreement" sought to be enforced is the home appraisals and the

Loan Purchase Agreements between GDV and Carteret. The district

court concluded that the "agreement" in the form of the Loan

Purchase Agreements and the appraisals met the "in writing"

requirement of § 1823(e)(1).

Although the appraisals may be evidence of the alleged

fraud, they are not a written form of the representations and

warranties regarding the real estate, the truthfulness of which

is a condition precedent upon which the plaintiffs base their

claims. Specifically, the appraisals were not a bargained for

promise or warranty that the real estate was priced at market

value. See, Langley v. FDIC, 484 U.S. at 91. ("agreement" under

10
§ 1823(e) is a warranty or a promise which imposes duties or

conditions.). Similarly, the Loan Purchase Agreements did not

diminish the interest of the RTC; nor were the plaintiffs parties

to these agreements. Accordingly, we reject the district court's

conclusion that the "agreement" in this case is the appraisals

and Loan Purchase Agreements.

Representations and warranties regarding the real

estate, the truthfulness of which was allegedly a condition

precedent to the plaintiffs' obligations to repay the notes,

would constitute an "agreement" that diminishes the interest of

the RTC. There are no allegations that such an "agreement" was

put in writing. Therefore, the agreement in this case does not

meet the "in writing" requirement of § 1823(e)(1).0

B.

Appellants next assert that because § 1823(e) always

would bar a claim in a situation such as the one presented in

0
One purpose of the writing requirement in § 1823(e) is to enable
bank examiners to make reliable examinations of the bank's worth.
Langley, 484 U.S. at 91. Judge Sarokin in his dissent maintains
that, in this case "the RTC could evaluate the worth of
Carteret's assets and examine these appraisals and agreements
and indeed, discover the fraud alleged by the plaintiffs."
Dissent typescript at 7. We respectfully disagree. Plaintiffs'
complaints allege that the official bank record included
appraisals stating that they were not made in accordance with
FNMA/FHLMC guidelines, and that Carteret was aware of this fact
when it bought the Loan Purchase Agreements. We cannot say,
based on these allegations, that the official bank record showed
on its face that the notes were procured by fraud in the
inducement. Nor can we conclude, as Judge Sarokin does, that
these documents put the bank examiners "on notice" of the real
worth of the assets. Dissent typescript at 7-9.

11
this case, we should decline to apply it. The obligors here seek

to avoid payment on promissory notes which have been purchased by

a depository institution on the secondary market. They claim

that such an "agreement" could never be executed by the

depository institution and the obligor contemporaneously with the

depository institution's acquisition of the asset as required by

§ 1823(e)(2).

The fact that it is not possible for the

representations and warranties made in this case to constitute an

"agreement" that meets the contemporaneous requirement of

§1823(e)(2), however, does not inextricably lead to the

conclusion that Congress did not intend the recording statute to

apply in these cases, or that an exception should be carved out

of the statute. Adams teaches that § 1823(e) applies to

"agreements" between obligors and third parties and, therefore,

applies in this case. Adams cannot be overruled except by an in

banc court. IOP Chapter 8. Hearing or Rehearing in Banc.

We note that every other court of appeals that has

considered this issue has come to the same conclusion as we did

in Adams. See Victor Hotel Corp. v. FCA Mortg. Corp., 928 F.2d

1077, 1083 (11th Cir. 1991) (§ 1823(e) does not only apply where

the note is initially executed in favor of a bank); Chatham

Ventures, Inc. v. FDIC, 651 F.2d 355, 360-61 (5th Cir. Unit B

1981) (§ 1823(e) makes no exception for agreements initiated by a

12
third party and the obligors), cert. denied, 465 U.S. 972, 102 S.

Ct. 2234 (1982).0

Appellants contend that Adams is distinguishable

because the representations at issue in Adams were oral, while

the "agreement" here, the Loan Purchase Agreements and

appraisals, was in writing. As we have determined that the

"agreement" in this case--the representations and warranties made

by GDV and GDC to the plaintiffs--was not in writing, Adams is

not distinguishable on this basis.

Appellants also argue that Adams is distinguishable

because the Adams court affirmed the district court's grant of

summary judgment whereas here the district court granted

defendant's motion to dismiss without giving appellants the

opportunity to discover Carteret's records at the time it

purchased the notes. This argument must also be rejected.

Accepting, as we must, all allegations of fact as true,

appellants would not be entitled to relief under any state of

facts which could be proven in support of their claims.

Appellants concede the point by arguing that § 1823(e)(2)'s

contemporaneous requirement could not possibly be met under the

facts of this case.

0
Judge Sarokin in his dissent suggests there is an emerging
circuit split on whether the contemporaneous requirement must be
strictly interpreted. Dissent typescript at 10. However, the
case upon which he principally relies, RTC v. Midwest Federal
Sav. Bank of Minot, 36 F.3d 785, 797-98 (9th Cir. 1994), did not
involve a note that was purchased on the secondary market.
Moreover, FDIC v. Manatt, 922 F.2d 486 (8th Cir. 1991) expressly
left open the question of the reach and scope of § 1823(e)(2).
Id. at 489 n.4.

13
 Appellants next assert that because of market

realities, an obligor whose promissory note is purchased on the

secondary market can never execute an agreement contemporaneously

with the bank's acquisition of the note, and, therefore, an

equitable exception to the statute should apply in this case.

They claim that the Adams court did not recognize such an

equitable exception because the appellants in Adams knew that

they were creating negotiable instruments, whereas here, the

appellants did not know their notes were negotiable. This

distinction is not dispositive. We agree that Adams raised the

issue of the possible availability of an equitable exception to

§1823(e). That discussion, however, was dictum included in the

opinion after the court had already held that § 1823(e) applied

in that case. The Langley Court similarly rejected the

availability of an equitable exception after it reached its

holding. Langley, 484 U.S. at 96, 108 S. Ct. at 403. We

likewise will not carve out an equitable exception.

As the Supreme Court stated in Langley, "Congress opted

for the certainty of the requirements set forth in § 1823(e). . .

. Such a categorical recording scheme is of course not unusual."

Langley, 484 U.S. at 95, 108 S. Ct. at 403. Either the statutory

requirements are met or they are not. We cannot ignore the plain

language of the statute and binding precedent of our court to

reach an arguably more equitable result. If Congress wishes to

provide relief to obligors whose promissory notes were procured

by fraud and later transferred on the secondary market to a

federal insured depository institution, it may amend the statute

14
accordingly. We have no reason to believe that Congress intended

to exempt from the recording statute a situation such as the one

presented in this case.0

The order of the district court dismissing plaintiffs'

complaints pursuant to Fed. R. Civ. P. 12(b)(6) will be affirmed.

0
Judge Sarokin argues in his dissent that the contemporaneous
requirement "must be read in light of commercial reality. When
there exists a secondary market for mortgage notes, the original
loan and subsequent acquisition will never be precisely
contemporaneous." Dissent typescript at 12. We agree that it is
virtually impossible for an original loan and subsequent
acquisition on a secondary market to be made contemporaneously.
We further agree that there is a dearth of legislative history to
this statute. However, it is hornbook law that in interpreting
undefined statutory language, we must look to the term's common
usage and general acceptance. Hertz Corporation v. United
States, 268 F.2d 604, 607 (3d Cir. 1959), aff'd, 364 U.S. 122, 80
S. Ct. 1420 (1960). "Contemporaneous" means "living, existing or
occurring at the same time." Webster's New Int'l Dictionary 575
(2nd ed. 1959). Therefore, we respectfully disagree with Judge
Sarokin that Congress intended contemporaneous to mean "not
precisely contemporaneous." We conclude that any "agreement"
that is not entered into at the same time as the acquisition of
the asset fails to meet the contemporaneous requirement of
§1823(e)(2).

15
Dimuzio v. RTC, No. 95-5066

SAROKIN, Circuit Judge, dissenting:

The RTC as receiver accepts an insolvent institution's

portfolio in its then-posture. The RTC is entitled to rely upon

what it discovers in the records of the institution in evaluating

its financial condition and determining what future action to

take as a result of that examination. The purpose of § 1823(e)

is to avoid subjecting the RTC to claims or defenses not readily

apparent from a reasonable inspection of the documents maintained

by the insolvent institution in the ordinary course of its

business. The RTC, as contrasted to the FDIC, has no discretion

to deal with the institution's assets and liabilities other than

as it finds them.

Here, the fraud about which plaintiffs complain

virtually leaps out from the documents, and it is thus eminently

clear that there was evidence that the institution had knowledge

and notice of the fraud when it acquired the loans. Clearly if

Carteret acquired the loans with such knowledge, it took them

subject to the claims and defenses of the defrauded borrowers.

The question raised here is whether the applicable statute

defeats those claims and defenses if asserted against the RTC. In

my view it does not, and thus I respectfully dissent and would

reverse.

I.

16
 In reviewing this case below, the district court

examined the third Loan Purchase Agreement between Carteret and

GDV. Dimuzio, et al. v. RTC, No. 94-1559, slip op. at 14 (D.N.J.

Nov. 15, 1994). Indeed, the Loan Purchase Agreements between GDV

and Carteret are at the center of this case, as they are written

documents demonstrating that Carteret was aware that GDV's

appraisals were inflated above the fair-market value of the sites

and did not conform to the standards of the Federal National

Mortgage Association ("FNMA") or the Federal Home Loan Mortgage

Corporation ("FHLMC"). In all Carteret entered into three bulk

purchase agreements with GDV. As to mortgages issued under GDV's

"Lot Trade Program," in which plaintiffs participated, the

commitment letter which was incorporated into the third purchase

agreement provided:
Appraisal reports on the housing package and
condominiums do not conform to FNMA/FHLMC guidelines.
These appraisals are based on prices of comparable
units sold by General Development and may not reflect
the sales price of similar properties offered by local
builders or the resale price of the home in the local
market. Accordingly, there can be no assurance that
the appraised value can be realized in the event of
foreclosure, liquidation or sale of the property.

Appendix ("App.") at 195. Carteret's second bulk purchase

agreement and the incorporated commitment letter with GDV

contained very similar language. These two agreements also

acknowledged that because the appraisals were non-conforming, the

loans could not be sold to FNMA or FHLMC.0
0
Carteret's first commitment letter with GDV did not state that
the appraisals were non-conforming or the reason for this
failure, but Carteret did acknowledge "[w]e also understand that
these loans are not salable [sic] to FNMA." App. at 179. It is
not clear from the complaint whether Carteret purchased

17
 II.

The majority's general discussion of 12 U.S.C. §1823(e)

and the case law interpreting it, Majority Opinion, typescript at

7-10, is well presented, and I concur in their overall conclusion

therein that § 1823(e) is applicable to the mortgages in this

case.

A.

The majority correctly concludes that, under Langley v.

FDIC, 484 U.S. 86 (1987) and Adams v. Madison Realty &

Development, Inc., 937 F.2d 845 (3d Cir. 1991) ("Adams II"), the

misrepresentations alleged by plaintiffs in the inflated, non-

conforming appraisals of the GDC properties constitute an

"agreement" for purposes of § 1823(e). As we set forth in Adams

II, "any warranty on which the performance of a party is

conditioned is an 'agreement' within the meaning of section

1823(e)." Adams II, 937 F.2d at 853. See also FDIC v. Bathgate,

27 F.3d 850, 862 (3d Cir. 1994) (agreements include "promises to

perform acts [and] conditions to the performance of a party's

obligation"). Accordingly, we have held that misrepresentations

underlying a claim of fraud in the inducement are "agreements"

and hence enforceable against the RTC only when they satisfy the

four requirements of § 1823(e). Adams II, 937 F.2d at 857. The

misrepresentations in GDV's appraisals are thus "agreements" for

purposes of § 1823(e).

B.

plaintiffs' mortgages pursuant to the first, second, or third
agreement.

18
 Similarly, I agree with the majority that under Adams

II we are constrained to conclude that, although plaintiffs

executed the loans with something other than a depository

institution, the loans are nonetheless subject to § 1823(e).

Adams involved the application of § 1823(e) to a situation where,

just as here, the RTC acquired notes initiated by a mortgage

company by taking over a failed bank that had purchased the notes

on the secondary market. Adams II, 937 F.2d at 850 (citing Adams

v. Madison Realty & Development, Inc., 853 F.2d 163, 164-65 (3d

Cir. 1988) ("Adams I")). In concluding that it was appropriate

to apply § 1823(e) to the agreement in Adams II, we looked

specifically to the fact that, even though the loans had been

purchased on the secondary market, plaintiffs obligations

ultimately ran to the failed bank when the bank acquired

plaintiffs' notes. Id. at 858.

The facts of Adams are indistinguishable from those in

the instant case for purposes of determining whether § 1823(e)

applies, and I thus agree with the majority that § 1823(e)

necessarily applies here.

III.

Unlike the majority, however, I conclude that the home

appraisals and Loan Purchase Agreements between GDV and Carteret

should be considered as part of the "agreement" for purposes of

§1823(e).

19
 In Langley, the Supreme Court held that

misrepresentations made by a bank regarding the acreage of land,

"the truthfulness of which was a condition to performance of

[petitioners'] obligation to repay the loan," constituted an

"agreement" for purposes of applying § 1823(e). Langley v. FDIC,

484 U.S. at 90-91. In my view it would be ironic and

inconsistent to give a broad meaning to "agreement," so as to

incorporate oral representations and warranties, but then exclude

written appraisals and loan documents upon which the parties

relied in acquiring the loans. Thus, it is difficult to accept,

under Langley's analysis, that the written appraisals in this

case "are not a written form of the representations and

warranties regarding the real estate." Majority Opinion,

typescript at . Just as the petitioners in Langley, plaintiffs

accepted loans based on representations by the lender that the

plaintiffs now allege to be false. The written non-conforming

appraisals in the instant case were acquired by GDV, and were

designed to support the selling price of the GDC houses. In

providing these appraisals to plaintiffs without disclosing that

they were inaccurate and did not conform to industry standards,

GDV represented that the properties GDC was selling to plaintiffs
were actually worth the appraisal amount -- a condition upon

which the plaintiffs relied. The appraisals thus plainly are

part of the agreement. Adams II, 937 F.2d at 853 (holding "any

warranty on which the performance of a party is conditioned is an

'agreement' within the meaning of section 1823(e)").

20
 In addition, in considering the "agreement" to which

§1823(e) applies, we must also consider the Loan Purchase

Agreements between GDV and Carteret but for different reasons. It

is through these Loan Purchase Agreements that Carteret has

become the bank to which the plaintiffs are obliged. See Adams

II, 937 F.2d at 858 (holding that plaintiffs became obligors to

the failed bank that bought their promissory notes on the

secondary market). While we held in Adams II that the

application of § 1823(e) should not be "limited to obligations

between a bank and its obligor," Adams II, 937 F.2d at 858, we

also concluded that alternative grounds for applying § 1823(e)

also existed -- namely that the transferal of the loans to the

failed bank meant that the plaintiffs were the obligors of the

bank, and that the statute applied because of that link. This is

the exact situation that exists here; the plaintiffs are

Carteret's obligors. It is only logical, then, that the

documents transferring plaintiffs' obligations to Carteret -- the

Loan Purchase Agreements -- be considered as part of the

agreement for purposes of applying § 1823(e).

Furthermore, we must remember that one of the principle

purposes 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, 484 U.S. at 91 (emphasis added).

Indeed, in Adams II, this court examined "the extent [to which

the] promises [at issue] were made a part of the bank's official
records." Adams II, 937 F.2d at 857 (emphasis added). The

contents of Carteret's official records, complete with the Loan

21
Purchase Agreements and the home appraisals, then, are the

appropriate subject of the § 1823(e) analysis. It is from these

official records that one could find that the RTC could evaluate

the worth of Carteret's assets and examine these appraisals and

agreements and indeed, discover the fraud alleged by the

plaintiffs.0

This conclusion is not undermined by the Supreme

Court's decision in Langley. There, the Supreme Court ruled that

the FDIC's knowledge of a misrepresentation at the time it

acquired a note is not relevant to whether § 1823(e) applies.

Langley 484 U.S. at 94. The Court reasoned that:
[h]arm to the FDIC . . . is not avoided by
knowledge at the time of acquiring the note.
The FDIC is an insurer of the bank, and is
liable for the depositors' insured losses
whether or not it decides to acquire the
note. The harm to the FDIC caused by the
failure to record occurs no later than the
time at which it conducts its first bank
examination that is unable to detect the
unrecorded agreement and to prompt the
invocation of available protective measures,
including termination of the bank's deposit
insurance. Thus, insofar as the recording
provision is concerned, the state of the
FDIC's knowledge at that time is what is
crucial.

Id. at 94-95 (citations omitted).

0
Indeed, when considering a motion to dismiss under Rule
12(b)(6), courts are to determine "whether in the light most
favorable to the plaintiff, and with every doubt resolved in his
behalf, the complaint states any valid claim for relief." 5A
Charles Alan Wright and Arthur R. Miller, Federal Practice and
Procedure § 1357, at 332-36. Under such a standard, any doubts
as to whether the non-conforming nature of the appraisals put
Carteret and the RTC on notice that plaintiffs had been defrauded
must thus be resolved in plaintiffs' favor.

22
 In the RTC's context, by contrast, knowledge of a

bank's assets is important at the time the RTC acquires them, not

before. There are no measures the RTC could take to protect

itself before this time, as opposed to the FDIC which could opt

not to insure a bank. In this case, the purpose of the recording

provision is to apprise the RTC of the bank's assets so it can

determine the appropriate course of action, and the RTC looks to

the bank's official records in order to do this.

IV.

Concluding as I do that the "agreement" to be

considered here includes the home appraisals and Loan Purchase

Agreements, I now look to see whether this agreement meets the

four requirements of § 1823(e). I believe that it does.

A.

In considering whether the agreement meets the "in

writing" condition of § 1823(e)(1), we have held that "no

agreement between a borrower and a bank which does not plainly

appear on the face of an obligation or in the bank's official

records is enforceable against the FDIC." Adams II, 937 F.2d at

852. More recently, we "slightly extend[ed]" Adams II to add

that, "not only does the existence of the agreement have to

appear plainly on the face of an obligation, but the basic

structure of that agreement -- its essential terms -- must also

appear plainly on the face of that obligation." RTC v. Daddona,

9 F.3d 312, 319 (3d Cir. 1993). See also Bathgate, 27 F.3d at
864.

23
 Not surprisingly, in "misrepresentation" cases,

plaintiffs have often failed to satisfy the writing requirement.

See Langley, 484 U.S. at 89 ("No reference to these

representations appears in the documents executed by

[plaintiffs]"); Adams II, 937 F.2d at 857 ("Since plaintiffs did

not make these promises part of the official records, they are

estopped from raising their claims of fraud in the inducement

against the RTC"); Daddona, 9 F.3d at 317; Bathgate, 27 F.3d at

865-66. In most instances of fraudulent inducement, it would be

rare to find the fraud in the documents themselves. But bearing

in mind that the documents must place the RTC on notice, the

requirement is sound.

The district court concluded that, in this instance,

the writing requirement was satisfied. For reasons I explained

above, I believe that the district court correctly looked to

Carteret's records and the third Loan Purchase Agreement with

GDV, which acknowledged that the appraisals were non-conforming

and likely in excess of the fair market value, as well as the

appraisals themselves. Dimuzio. et al. v. RTC, No. 94-1559, slip

op. at 14 (D.N.J. Nov. 15, 1994). The non-conformity of the

appraisals, and importantly the recognition that the appraisals

may not reflect the fair market or resale value of the

properties, "plainly appear on the face," Adams II, 937 F.2d at
852, of the second and third Loan Purchase Agreements. App. at

190-91, 195. Moreover, the "basic structure" of the alleged

misrepresentation, Daddona, 9 F.3d at 317, namely the reliance on
non-conforming, inflated appraisals in calculating the

24
plaintiffs' mortgages, appears plainly on the face of the

agreements. Thus, although the commitment in writing of

representations that fraudulently induce borrowers to execute a

loan may be rare, I conclude that such is the case here and that

the first criteria of § 1823(e) is satisfied.

B.

The district court dismissed plaintiffs' complaint on

the ground that Carteret's Loan Purchase Agreement from GDV was

not executed contemporaneously with the original mortgages

between GDV and plaintiffs, thus failing the requirement of

§1823(e)(2). Certainly it is undisputed that these two

transactions were separated by a period of years. I believe the

district court's conclusion, however, is premised on a flawed

construction of § 1823(e)(2).

We have not previously considered the meaning of the

"contemporaneous execution" condition, but a split may be

emerging among other circuits. Some courts have strictly

enforced this requirement. See, e.g., FDIC v. La Rambla Shopping

Center, Inc., 791 F.2d 215, 220 (1st Cir. 1986) (lease executed

two years before note unenforceable); Cardente v. Fleet Bank of
Maine, Inc., 796 F. Supp. 603, 611 (D.Me. 1992) (lease executed

two weeks before note unenforceable, where note lacks any

reference to lease); RTC v. Crow, 763 F. Supp. 887, 892-94 (N.D.

Tex. 1991) (refinancing agreement signed three years after

execution of original loan unenforceable).

More recently, however, the Eighth Circuit suggested

that the contemporaneous execution requirement might be best

25
understood in light of "general business practice." FDIC v.

Manatt, 922 F.2d 486, 489 n.4 (8th Cir. 1991) (observing accord

and satisfaction will necessarily be executed subsequent in time

to original note), cert. denied, 501 U.S. 1250 (1991).0 Adopting

the Eighth Circuit's suggestion, the Ninth Circuit held that

"satisfaction of the contemporaneousness requirement should be

considered in light of commercial reality." RTC v. Midwest

Federal Sav. Bank of Minot, 36 F.3d 785, 797-98 (9th Cir. 1994).

The Ninth Circuit went on to conclude that a commitment letter

executed more than two months before loan documents had satisfied

the contemporaneous execution requirement. Id. See also

Erbafina v. FDIC, 855 F. Supp. 9, 12 (D. Mass. 1994) (commitment

letter negotiated several days before execution of loan satisfies

§ 1823(e)(2)).

A review of the legislative history of § 1823(e), which

was enacted in 1950 and slightly amended in 1989, lends no

insight into the legislative intent behind the contemporaneous

execution requirement. See H.R. Rep. No 2564, 81st Cong., 2d

Sess. (1950), reprinted at 1950 U.S.C.C.A.N. 3765; Conf. Rep. No.

3049, 81st Cong., 2d Sess. (1950), reprinted at 1950 U.S.C.C.A.N.
3776; H.R. Rep. No. 54(I), 101st Cong., 1st Sess. (1989),
0
Prior to its decision in Manatt, the Eighth Circuit had relied
on a strict interpretation of the contemporaneousness requirement
to conclude that he Eighth and Ni executed five months before the
making of a note was unenforceable. FDIC v. Virginia Crossings
Partnership, 909 F.2d 306, 309-10 (8th Cir. 1990). However,
Manatt suggests that Virginia Crossings may no longer be good law
in the Eighth Circuit, although the panel there declined to
overrule it explicitly since "an interpretation of [§ 1823(e)(2)]
[was] not necessary to a decision in [that] case." Manatt, 922
F.2d at 489 n.4.

26
reprinted at 1989 U.S.C.C.A.N. 86; Conf. Rep. No. 222, 101st

Cong., 1st Sess. (1989), reprinted at 1989 U.S.C.C.A.N. 432.

On balance I am persuaded by the reasoning of the

Eighth and Ninth Circuits, and conclude that § 1823(e)(2) must be

read in light of commercial reality. When there exists a

secondary market for mortgage notes, the original loan and

subsequent acquisition will never be precisely contemporaneous.

Nonetheless, where execution of a side agreement either (1) is

contemporaneous with origination of a note, and the "basic

structure of the agreement," Daddona, 9 F.3d at 319, is evident

from the face of the resale documents, or (2) is contemporaneous

with a bank's acquisition of a note in the secondary market, then

§ 1823(e)(2) should be satisfied.

In addition to the respect for common sense and

commercial reality which shaped the decisions of the Eighth and

Ninth Circuits, my conclusion is supported by several other

considerations. First, it would be contradictory and illogical

to rely on the Loan Purchase Agreements as the link that made

plaintiffs Carteret's obligors and thus requires that § 1823(e)

applies in this case, but then disregard those same agreements in

considering § 1823(e)(2).

Second, my construction of § 1823(e)(2) comports with

the legislative intent identified by the Supreme Court as

underlying § 1823(e), namely that bank examiners be on notice of

the real worth of an asset, that "unusual transactions" be

approved by senior bank officials, and that "new terms" not be

added to a loan subsequent to its origination. Langley, 484 U.S.

27
at 92. These concerns are met by enforcing the requirement that

either (1) a side agreement be executed contemporaneous with a

bank's acquisition of a note on the secondary market, or (2) it

be executed contemporaneous with execution of original note and

that its basic structure be clear from the face of the subsequent

resale documents.

Finally, to hold otherwise would immunize the RTC from

honoring an otherwise valid collateral agreement -- one done in

writing, contemporaneous with the origination or resale of the

loan, approved by a bank's directors, and maintained continuously

in its records -- simply because the loan was resold on the

secondary market. Taken to its extreme, the contemporaneousness

requirement could deny relief to defrauded borrowers even if the

subsequent loan purchase documents specifically acknowledged the

existence of a likely fraud claim or defense based upon the

initial transaction, and the purchase was openly discounted as a

result.

Here, the "agreement" -- GDV's inflated, non-conforming

appraisals -- is referenced in writing and in detail in the very

same documents by which Carteret acquired the mortgages. These

references are thus contemporaneous with Carteret's acquisition

of the notes. Bank examiners were on notice of the problems with

the mortgages, senior Carteret officials had the opportunity to

review these "unusual transactions," and there is no allegation

that "new terms" were added after the purchase agreement. Hence

I conclude that plaintiffs have satisfied the contemporaneous

execution condition of § 1823(e)(2).

28
 C.

On this appeal the RTC does not contend that the final

two criteria of § 1823(e) -- approval by Carteret's board of

directors and continuous maintenance of the loan documents in

Carteret's records -- are unmet, except in a brief aside that

cites to nothing in the record but states "[t]he representations,

warranties and conditions that Appellants seek to enforce are not

in writing, and hence were not executed by Appellants or by

Carteret." RTC Brief at 12.

I have already urged that the discussion of the

inflated, non-conforming appraisals in the Loan Purchase

Agreements are adequate to satisfy the writing requirement of

§1823(e)(1). The only evidence of record before us shows that

the Loan Purchase Agreements, as well as the commitment letters

which are incorporated into the purchase agreements, bear

signatures of various Carteret, GDC, and GDV officials. App. at

182, 187, 189, 192, 199, 209, 222. In addition, the Complaints

allege that plaintiffs executed mortgages which were originated

by GDV. App. at 39, 90.

Accordingly, I would not affirm the order of the

district court on the ground that the third or fourth conditions

of § 1823(e) are unsatisfied.

V.

It is undisputed that the plaintiffs in this matter

were defrauded. Carteret accepted the loans with knowledge of

that fraud, and that knowledge was readily ascertainable from a

reasonable inspection of the loan documents. Neither the purpose

29
or language of the statute would be satisfied by denying

plaintiffs the right to assert such fraud so readily apparent and

so flagrant.

For the foregoing reasons, I would reverse the order of

the district court.

30