UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
No. 93-1418
RESOLUTION TRUST CORPORATION,
IN ITS CAPACITY AS RECEIVER FOR
HOME FEDERAL SAVINGS BANK OF WORCESTER,
Plaintiff, Appellee,
v.
MICHAEL F. CARR,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. A. David Mazzone, U.S. District Judge]
Before
Breyer, Chief Judge,
Rosenn,* Senior Circuit Judge,
and Cyr, Circuit Judge.
Mark S. Furman with whom Edward R. Wiest and Tarlow, Breed, Hart,
Murphy & Rodgers, P.C. were on brief for appellant.
Thomas Paul Gorman with whom Sherin & Lodgen was on brief for
appellee.
December 22, 1993
*Of the Third Circuit, sitting by designation.
ROSENN, Senior Circuit Judge. This appeal has its
genesis in the real estate recession which first struck New
England and many other parts of the country several years ago.
The malaise apparently not only adversely affected the appellant,
Michael F. Carr, a real estate developer, but also the Home
Federal Savings Bank (the Bank) from whom he borrowed a
substantial sum of money. The Bank foreclosed on an unimproved
ocean lot Carr mortgaged to it. Ultimately, the Bank also
failed. The Resolution Trust Corporation (RTC/Receiver) became
its Receiver.
The RTC succeeded the Bank as plaintiff in an action
brought by the Bank, a federally chartered savings association
organized under the laws of the United States, in the Worcester
Superior Court of Massachusetts against Carr. The Bank sued to
recover a deficiency on a promissory note executed by Carr as
evidence of a loan from the Bank in 1988 for $243,000, secured
with a first mortgage on property located in Marshfield,
Massachusetts. While this litigation was in process, Carr filed
a complaint in the state court for Middlesex County,
Massachusetts, alleging wrongful foreclosure on the property
securing the note. The court consolidated the actions.
The RTC/Receiver removed the cases to the United States
District Court for the District of Massachusetts and then moved
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for summary judgment. The district court granted the motion by
order dated March 29, 1993.1 Carr timely appealed to this
court. We affirm.
I.
Carr obtained a first mortgage loan from the Bank on
his property at 45 Old Beach Road, Marshfield, Massachusetts, on
August 16, 1988. Shortly before the maturity of the note on
September 1, 1989, Carr requested of the Bank a one year
extension. The Bank's Executive Committee approved the extension
subject to a number of conditions, including the payment by Carr
of a one percent extension fee in the amount of $2,430.
The Bank notified Carr of the proposed extension and
its conditions by letter dated September 13, 1989. The letter
provided that the commitment to extend "shall expire on October
16, 1989, and that a modification agreement must be executed on
or before such date." The letter also required that the
commitment be accepted and returned no later than September 22,
1989, together with Carr's check for $2,430. Accordingly, Carr
affixed his signature in acceptance of the letter on September
20, 1989, and tendered the required check. The check, however,
1The district court had subject matter jurisdiction under 12
U.S.C. 1441a(11) while we have jurisdiction pursuant to 28
U.S.C. 1291.
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was returned for insufficient funds. Thereafter, Carr neither
paidtheextension feenorexecutedthe requiredmodificationagreement.
The minutes of the Executive Committee approving the
extension of the loan and fixing the extension fee made no
mention of a date for the payment of the extension fee or any
details pertaining to the implementation of the extension.
In response to the RTC's interrogatories, Carr
testified that he advised the Bank's counsel in late September or
early October 1989 that he had another loan with the Bank for
$1,500,000 which he expected to refinance at the end of October,
and that counsel agreed that payment of the extension fee could
be deferred until the refinancing of his other loan. He further
testified that sometime after October 24, 1989, he spoke to Paul
Engstrom, Jr., a senior loan counselor of the Bank, advised him
of the upcoming closing on the $1,500,000 loan, and that Engstrom
orally agreed to defer payment due under the extension until that
closing.
On October 24, 1989, the Bank informed Carr that his
extension fee, as well as his monthly payment checks on the note,
had been returned for insufficient funds. The Bank demanded
payment of the total arrearage and the extension fee by October
30, but as of November 16, 1989, Carr had not responded. On
November 17, 1989, payment not having been made, the Bank made
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formal demand under the defaulted promissory note. Negotiations
between Carr and the Bank again ensued but they reached no
agreement. The Bank commenced foreclosure proceedings and
ultimately purchased the mortgaged land in April 1990 at the
foreclosure sale for $195,000.
In his action in the Middlesex Court, Carr asserted
that the Bank actually had agreed to extend the due date of the
note for one year, from September 1, 1989, to September 1, 1990,
but the terms were changed in the preparation of the extension
draft. Carr further claimed that the September 1989 minutes of
the Bank reflected an appraisal of the Marshfield property at
$325,000 and that Carr's appraiser subsequently valued it at
$350,000. Carr therefore sought relief because of a wrongful
foreclosure in the face of an agreement to extend the note to
September 1, 1990, unjust enrichment to the Bank, breach of
covenant of good faith and fair dealing, and failure to conduct
the foreclosure sale in a commercially reasonable manner. He
also sought reconveyance of the property. In addition, he filed
a counterclaim in the consolidated actions in the Worcester Court
substantially identical to his complaint in the Middlesex Court.
The district court, after the RTC removed the case to
federal court, granted the RTC's motion for summary judgment in
the consolidated matters based on the undisputed record,
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including a Statement of Undisputed Facts, affidavits, and other
supporting documentation filed by the RTC.
II.
The principal issues raised on appeal by Carr are: (1)
The Bank agreed to extend the maturity date of the $243,000 note.
(2) The gap between the appraised value of the mortgaged property
and the price obtained at foreclosure sale barred summary
judgment against him for the deficiency because there were
genuine issues of material fact whether the foreclosure sale was
conducted in good faith and in a commercially reasonable manner.
Federal Rule of Civil Procedure 56(c) provides that
summary judgment may only be entered "if there is no genuine
issue as to any material fact." In reviewing a summary judgment
order entered by a district court, this court has plenary powers.
See, e.g., Garside v. Osco Drug, Inc., 976 F.2d 77, 78 (1st Cir.
1992); Olivera v. Nestle Puerto Rico, Inc., 922 F.2d 43, 45 (1st
Cir. 1990). The court, in making its review, must "look at the
record in the light most favorable to the party opposing summary
judgment and accept all reasonable inferences favorable to such
party arising from the record." Id. at 45 (citations omitted).
III.
Carr first argues that the minutes of the Executive
Committee did not refer to a date for closing or for payment of
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the extension fee and that the deadlines in the commitment letter
"were not conditions of the loan extension approved in the
Executive Committee minutes." Therefore, he asserts that in
light of the difference between the minutes and the language of
the extension commitment, and his affidavit that the Bank
officers had orally agreed to defer payment of the extension fee
until the closing of the refinancing of the $1,500,000 loan,
summary judgment was inappropriate. This argument is
disingenuous and has no merit whatsoever.
The Executive Committee records reveal an approval of a
request for a one year extension of the loan subject to a number
of conditions. Among the conditions for the extension were the
requirements that an extension fee be paid and that the loan be
kept current.
Understandably, the Executive Committee did not spell
out the mechanics and language of the extension agreement, for
such administrative details ordinarily are left to bank officers.
In this instance, the officers unequivocally provided for the
payment of the extension fee of $2,430 "upon acceptance of this
commitment." Carr made no objection to the terms and conditions
of the commitment and signed his acceptance of it a week after
the Executive Committee had approved the extension. He then
tendered his check in payment of the fee. Thus, even Carr
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recognized by his execution of the letter of commitment that it,
and not the minutes, constituted his agreement with the Bank.
His check, however, was returned for insufficient funds and he
never paid this fee. The commitment also required, in accordance
with the recommendation to the Executive Committee, that Carr
bring his loan current and supply the Bank with additional
updated financial information. Additionally, the commitment
letter stated other details with respect to closing costs and
expenses and title examination. Carr agreed to its terms but
never fulfilled any of the extension requirements after accepting
them, including the execution of the required modification
agreement.
Carr reaches for a straw when he attempts to carve out
a contract from the corporation minutes. The minute book of a
corporation is only a brief record of the corporate proceedings.
5A William M. Fletcher, Fletcher Cyclopedia of the Law of Private
Corporations 2190 (Perm. ed. rev. vol. 1987). Here, it is
merely an internal record which memorializes authority to the
Bank's officers to grant an extension of Carr's loan. The
minutes, which of course were never "executed" by Carr, see 12
U.S.C. 1823 (e)(2) (1989), infra, do not purport to be an
agreement with him. They in no way reflect any intention on the
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part of the Executive Committee to defer payment of the extension
fee until the refinancing of the $1,500,000 loan.
Similarly, Carr's reliance on an alleged oral
supplemental agreement with a bank officer is misplaced. In
D'Oench, Duhme and Co. v. FDIC, 315 U.S. 447 (1942), the Supreme
Court first enunciated the common law doctrine that the FDIC is
protected from unrecorded or oral agreements that are not
reflected in one of its insured bank's records. Id. at 461. The
D'Oench doctrine bars defenses as well as affirmative claims
against the FDIC. Timberland Design Inc. v. First Service Bank
For Sav., 932 F.2d 46, 50 (1st Cir. 1991). Pursuant to 12 U.S.C.
1441a(b), which establishes the RTC, and 12 U.S.C.
1441a(b)(4), the RTC possesses the same rights and powers as are
available to the FDIC. Moreover, 12 U.S.C. 1823(e), as amended
by the Financial Institutions Recovery, Reform, and Enforcement
Act of 1989 (FIRREA), which codifies the D'Oench doctrine, also
requires all agreements to be reflected in a bank's records.
The section provides that:
[N]o agreement which tends to diminish or
defeat the interest of the [Receiver] in any
asset acquired by it under this section 1821
. . . shall be valid against the [Receiver]
unless such agreement --
(1) is in writing,
(2) was executed by the depository
institution and any person claiming an
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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
(4) has been, continuously, from the time of
its execution, an official record of the
depository institution.
12 U.S.C. 1823(e) (1989). This section requires categorical
compliance. Beighley v. FDIC, 868 F.2d 776, 783 (5th Cir. 1989).
Carr's claim that the officers of the Bank had orally
agreed not to require payment of the extension upon Carr's
acceptance of the extension commitment, but to defer it until the
refinancing of his large loan, constitutes the very kind of an
assertion that the D'Oench doctrine and 12 U.S.C. 1823(e)
proscribe. See Langley v. FDIC, 484 U.S. 86, 95 (1987).
Inasmuch as the record fails to establish that Carr
entered into any agreement, except the unfulfilled extension
commitment, which in any way complied with federal statutory or
common law, his claims are barred.
IV.
The second arrow in Carr's quiver is aimed at the
Bank's conduct in connection with the foreclosure sale of the
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Marshfield property. Carr claims that the gap between the
appraised value of this property and the price obtained at the
foreclosure sale raises serious questions of material fact as to
whether the sale was conducted in good faith and in a
commercially reasonable manner. Under such circumstances, Carr
asserts that the district court should not have granted summary
judgment. The district court found that "Carr cannot, and has
not, complained that there were procedural or notice defects in
the foreclosure." Carr's sole complaint on appeal is that the
price obtained was inadequate. He therefore argues in a general
way that a genuine issue of material fact exists as to "the
commercial reasonableness and good faith employed in the
foreclosure sale."
Carr neither alleges nor has he proven that he did not
receive adequate notice of the sale or that there was
insufficient public notice of the forthcoming sale in the press
or that the Bank acted collusively, or did anything to depress
the price prior to or at the sale. In short, he does not claim
that the foreclosure sale was conducted in violation of any
applicable law. Rather, he relies entirely on the affidavit of a
real estate appraiser whom he commissioned, who placed the fair
market value of the property at $350,000 on January 11, 1990,
approximately four months before the sale. Carr's counsel sent
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the appraisal to the Bank. Carr also points to the Bank minutes
of September 6, 1989, which reflected an appraisal value of
$325,000 for the property. However, on March 29, 1990, an
appraisal conducted for the Bank a few days before the
foreclosure showed a value of $195,000.
The threshold question is what law governs this issue -
- state or federal law. Neither the D'Oench doctrine nor
1823(e) bars the assertion of a claim or defense that does not
depend on an agreement; they protect federal banks and the RTC
from alleged oral agreements that are not part of the loan
record. Texas Refrigeration Supply Inc. v. FDIC, 953 F.2d 975,
981 (5th Cir. 1992). This second issue only pertains to the
propriety of the foreclosure sale in the state court.
We believe that state law governs this issue because
the Bank foreclosed the property under state court proceedings.
The property was not involved in any federal bankruptcy
proceedings. See id. at 982 (applying state law to wrongful
foreclosure claim). The district court relied on state law, as
does Carr, and so do we. Under Massachusetts state law,
Carr has the burden of proving commercial unreasonableness,
Chartrand v. Newton Trust Co., 296 Mass. 317, 320, 5 N.E.2d 421,
423 (1936), which is a question of fact, John Deere Leasing Co.
v. Fraker, 395 N.W.2d 885, 887 (Iowa 1986). Absent evidence of
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bad faith or improper conduct, a mortgagee is permitted to buy
the collateral at a foreclosure sale as "cheaply" as it can,
Cambridge Sav. Bank v. Cronin, 289 Mass. 379, 383, 194 N.E. 289,
290 (1936), and "[m]ere inadequacy of price will not invalidate a
sale unless it is so gross as to indicate bad faith or lack of
reasonable diligence," Chartrand, 296 Mass. at 320, 5 N.E.2d at
423 (emphasis added). Carr alleges that the Bank paid only 56
percent of the property's fair market value ($350,000), but
produced no other evidence of bad faith or improper conduct.
To warrant summary judgment for RTC, therefore, it
would have to be shown that no reasonable factfinder, crediting
Carr's appraisal of $350,000, could find the $195,000 sales price
"grossly" inadequate. In canvassing Massachusetts case law, we
find ample suggestion that a price deficiency of as much as 39
percent of fair market value can support the granting of a
dispositive motion. See Sher v. South Shore Nat'l Bank, 360
Mass. 400, 402 (1971) (disparity between price of $35,500 and
alleged fair market value of $52,500, i.e. a 67 percent sale, was
"not so gross" as to withstand a motion to dismiss); Atlas
Mortgage Co. v. Tebaldi, 304 Mass. 554, 558 (1939) (disparity
between price of $13,000 and alleged fair market value of
$18,000, i.e. 72 percent sale, not "so great" as to defeat a
directed verdict for mortgagee); DesLauries v. Shea, 300 Mass.
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30, 34-35 (1938) (disparity between price of $16,815 and fair
market value of $25,500, i.e. 65 percent sale, permitted directed
verdict for Bank); Cambridge Sav. Bank, 289 Mass. at 383, 194
N.E. at 291 (disparity between price of $20,000 and alleged fair
market value of $51,000, i.e. 39 percent sale, warrants directed
verdict). Thus, whatever the hypothetical boundaries of "gross
inadequacy" under Massachusetts law, Carr's 56 percent
differential, standing alone, could not ward off summary
judgment.
As to Carr's contention of lack of good faith, the
record shows no evidence of it on the part of the Bank and Carr
points to none. Carr knew for many months before the sale that
foreclosure was imminent. Payment of his note was due September
1, 1989. On August 22, 1989, he wrote to the Bank requesting an
extension of one year. The Bank obliged subject to certain
conditions which were acceptable to Carr. Thereafter,
negotiations between the parties ensued for several months which
were inconclusive, and the conditions of the proposed extension
were never fulfilled by Carr. The Bank did not commence
foreclosure until November 30, 1989, and it was not concluded
until the sale on April 5, 1990. Carr had all this time to
either pay the note, refinance elsewhere, or especially as an
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experienced businessman and real estate developer, produce a
buyer who would pay the price he aspired to achieve.
On the other hand, the Bank had non-performing real
estate on hand which required disposition. As a pragmatic
matter, a bank with non-performing assets may not hold them
indefinitely until it canvasses an amorphous public market in
search of potential purchasers who will pay a theoretical fair
market value, lest they too succumb to claims of creditors.
Here, the Bank gave Carr every reasonable opportunity to meet his
obligation or produce a buyer. He did neither of these.
It is common knowledge in the real world that the
potential price to be realized from the sale of real estate,
particularly in a recessionary period, usually is considerably
lower when sold "under the hammer" than the price obtainable when
it is sold by an owner not under distress and who is able to sell
at his convenience and to wait until a purchaser reaches his
price. Carr has not met his burden of proof of showing bad
faith. Under Massachusetts law, inadequacy of the selling price
"without more, would not show bad faith or lack of diligence."
West Roxbury Co-op Bank v. Bowser, 324 Mass. 489, 493, 87 N.E.2d
113, 115 (1949).
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The district court also rejected Carr's claim of a
fiduciary duty owed to him, finding that "[t]he relationship here
is clearly creditor and borrower." We agree.
Carr also turns to two cases decided under the Federal
Bankruptcy Code (Code), 11 U.S.C. 548 (1988), to support his
contention that the sale was commercially unreasonable and in bad
faith. He argues that under the Code the foreclosure sale
constituted a fraudulent transfer because the price obtained fell
below the fair market value. He cites In re General Industries,
Inc., 79 B.R. 124, 134 (Bankr. D. Mass. 1987), and In re Ruebeck,
55 B.R. 163, 171 (Bankr. D. Mass. 1985). These cases arise in
the context of federal bankruptcy proceedings where the debtor is
in bankruptcy and the official creditors committee sought to set
aside the foreclosure sales contending that they were fraudulent
transfers under 548(a) of the Code because the sales were made
for less than reasonably equivalent value within the meaning of
the statute. The bankruptcy courts held that legal notice of the
foreclosure sale without other substantial advertising of the
proposed sale in the general press was insufficient to withstand
the fraudulent conveyance strictures of the Code. General
Industries, 79 B.R. at 134; Ruebeck, 55 B.R. at 168. In
addition, the courts held that sales at 53 percent and 57.7
percent of fair market value were not reasonably equivalent value
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within the meaning of 548. General Industries, 79 B.R. at 134;
Ruebeck, 55 B.R. at 171.
Carr, however, is not a debtor within the meaning of
the Code and the cases he cites are therefore inapplicable in the
context of this case. Moreover, under the facts and conflicting
evidence of this case, we cannot say that Carr has proven a
fraudulent transfer of property merely because the price obtained
at a fairly conducted, non-collusive public foreclosure sale in
accordance with applicable state law did not meet his
expectations of the value fixed by his appraiser. We need not
decide whether advertising of a foreclosure sale in the general
press is essential for a good faith sale in Massachusetts because
notice of the sale is not an issue before us. We also believe it
significant that the decisions of the Bankruptcy Court in General
Industries and Ruebeck were ignored by the Massachusetts
legislature when it amended the State's fraudulent conveyance
statute in 1989. The statute now provides that
[F]air consideration is given for property or
obligation --
(c) When property is received pursuant to a
regularly conducted, noncollusive foreclosure
sale or execution of a power of sale for the
acquisition or disposition of such property
upon default under a mortgage, deed or trust
or security agreement.
Mass. Gen. Laws Ann. ch. 109A, 3 (West 1992).
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Thus, the Massachusetts legislature did not adopt the
principles set forth in General Industries or in Ruebeck. We see
no error in the application of Massachusetts law by the district
court and in entering judgment in the RTC's favor.
V.
In summary, we hold that the minutes of a bank's
executive committee, which merely record the authorization of the
Board to the bank's officers to extend a loan on certain
conditions, do not constitute a contract between a bank and the
borrower. Furthermore, alleged oral assurances of federally
chartered bank officers to defer compliance with the conditions
attached to a proposed extension of a bank loan are barred by
federal common law under D'Oench, Duhme, and by Congressional
statute, 12 U.S.C. 1823(e). Finally, under Massachusetts law,
mere inadequacy of the sale price of real estate received at a
non-collusive foreclosure sale conducted in full compliance with
state law does not constitute a breach of the covenant of good
faith and fair dealing and is not an indication that the sale was
commercially unreasonable.
The judgment of the district court is
Affirmed. Costs taxed in favor of appellee.
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