Federal Deposit Insurance v. Bathgate , 27 F.3d 850 ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
5-5-1994
Bathgate, et al v. Barlow, et al.
Precedential or Non-Precedential:
Docket 93-5328
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 93-5328 and 93-5507
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER FOR THE FIRST NATIONAL BANK OF
TOMS RIVER, NEW JERSEY
v.
LAWRENCE E. BATHGATE, II; NOVASAU ASSOCIATES, A NEW JERSEY
LIMITED PARTNERSHIP; NEW NAS, INC.; T. PAMELA BATHGATE; 54 BUENA
VISTA ASSOCIATES, A NEW JERSEY LIMITED PARTNERSHIP; TUSCOL
DEVELOPMENT, INC., A NEW JERSEY CORPORATION; OLD MONMOUTH
ASSOCIATES, A NEW JERSEY PARTNERSHIP; AIRPORT ASSOCIATES, A NEW
JERSEY PARTNERSHIP; GERALD A. GURA; THE CLUB AT WEST DEPTFORD, A
LIMITED PARTNERSHIP, A NEW JERSEY LIMITED PARTNERSHIP; STATE OF
NEW JERSEY; COLUMBIA SAVINGS AND LOAN ASSOCIATION; ASSET RECOVERY
MANAGEMENT, INC.; WILLIAM BOWMAN ASSOCIATES, INC.; NATIONAL
WESTMINSTER BANK NJ, SUCCESSOR TO FIRST JERSEY NATIONAL
BANK/SOUTH.
LAWRENCE E. BATHGATE, II; NOVASAU ASSOCIATES; NEW NAS, INC.; 54
BUENA VISTA ASSOCIATES, A NEW JERSEY LIMITED PARTNERSHIP; TUSCOL
DEVELOPMENT, INC., A NEW JERSEY CORPORATION; OLD MONMOUTH
ASSOCIATES, A NEW JERSEY PARTNERSHIP
Third-Party Plaintiffs
v.
WILLIAM BARLOW; JOHN C. FELLOWS, JR.; EBERT L. HALL; JOSEPH P.
IARIA; DAVID E. JOHNSON, JR.; IRENE F. KRAMER; JACQUELINE F.
PAPPAS; JOHN F. RUSSO; LEONARD G. LOMELL; OFFICE OF THE
COMPTROLLER OF THE CURRENCY; JOHN MCDOUGAL
Third-Party Defendants
(Trenton New Jersey District Civil No. 91-02779)
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER FOR THE FIRST NATIONAL BANK OF TOMS RIVER
v.
1
NLA ASSOCIATES LIMITED PARTNERSHIP, A NEW JERSEY LIMITED
PARTNERSHIP; LGP-I LIMITED PARTNERSHIP, A NEW JERSEY LIMITED
PARTNERSHIP; LGP-I CAPITAL CORP., A NEW JERSEY CORPORATION; NEW
NAS, INC.; LAWRENCE E. BATHGATE, II; ALAN B. LANDIS; NOVASAU
ASSOCIATES, A LIMITED PARTNERSHIP, A NEW JERSEY LIMITED
PARTNERSHIP
(Trenton New Jersey District Civil No. 91-02780)
Lawrence Bathgate, II; Novasau Associates, Limited Partnership;
New Nas, Inc.; 54 Buena Vista Associates; Tuscol Development,
Inc.; and Old Monmouth Associates (the Bathgate defendants),
Appellants
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. Nos. 91-02779 and 91-02780)
Argued March 25, 1994
BEFORE: GREENBERG, COWEN, and NYGAARD, Circuit Judges
(Filed: May 5, 1994)
Paul R. Rosen (argued)
Bruce S. Marks
Spector, Gadon & Rosen, P.C.
1700 Market St.
29th Floor
Philadelphia, PA 19103
Attorneys for Appellants
Ann S. Duross
Assistant General Counsel
Colleen B. Bombardier
Senior Counsel
John P. Parker (argued)
Senior Attorney
Federal Deposit Insurance
Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Craig M. Lessner
2
Michael O'B. Boldt
Bourne, Noll & Kenyon
382 Springfield Ave.
Summit, N.J. 07901
Attorneys for Appellee
Federal Deposit Insurance
Corporation
Joel M. Leifer (argued)
Mark H. Moore
Daniel Hume
Hertzog, Calamari, & Gleason
100 Park Ave.
New York, N.Y. 10017
Attorneys for Appellees
William Barlow, John C.
Fellows, Jr., Ebert L.
Hall, Joseph P. Iaria,
David E. Johnson, Jr.,
Irene F. Kramer, Jacqueline
F. Pappas, and Leonard G.
Lomell
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. FACTUAL AND PROCEDURAL HISTORY
A. Factual History
Lawrence E. Bathgate, II, borrowed over $19 million
from the First National Bank of Toms River, N.J. (the Bank)
between 1986 and 1990. These loans were evidenced by the
following seven promissory notes:
1. a $185,000 promissory note secured by a 1985
Rolls Royce;
3
2. a $1,620,000 promissory note secured by a mortgage
on property in Mantoloking, N.J.;
3. a $2.0 million promissory note secured by
mortgages on two properties located on Buena Vista Drive in
Rumson, N.J.;
4. a $4.0 million "Line of Credit Master Note"
payable on demand and secured by assignments of a $1.6 million
note and mortgage executed by Airport Associates and a $6,280,000
note and mortgage executed by Gerald A. Gura;
5. a $187,500 promissory note;
6. an $11.5 million line of credit secured by
(a) second mortgages, security agreements, and
assignments of rent on two properties located on Buena Vista
Drive in Rumson, N.J.;
(b) a second mortgage, security agreement, and
assignment of rent on property located in Mantoloking, N.J.;
(c) a mortgage, security agreement, and
assignment of rent on property located in Howell, N.J., executed
by Tuscol Development, Inc.;
(d) a mortgage, security agreement, and
assignment of rent on a second piece of property in Howell, N.J.,
executed by Old Monmouth Associates;
(e) a collateral assignment of partnership
interest on properties located in Freehold, N.J., and Jackson,
N.J.;
(f) a collateral assignment of partnership
interest in Vintage-Pointe Associates;
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(g) a collateral assignment of a partnership
interest in Bedford Village Associates; and
(h) a collateral assignment of a partnership
interest by Novasau Associates in itself and in NLA Associates;
and
7. a $250,000 promissory note payable on demand.
Federal Deposit Ins. Corp. v. Bathgate et al., Civ. No. 91-2779
(consolidated), Memorandum and Order at 2-3 (D.N.J. Mar. 18,
1993) (see Bathgate defendants' App. I at 19-20).
In 1989, Bathgate also executed an unconditional
guaranty securing 25 percent of a $1.8 million "Agreement for
Commercial Letter of Credit" between NLA Associates, LGP-I
Limited Partnership, and Novasau Associates and the Bank. Id. at
3 (see Bathgate defendants' App. I at 20).0 Alan B. Landis
secured the remainder of this obligation to the Bank.
Bathgate defaulted on the $11,500,000 note by failing
to make the required monthly and quarterly payments beginning on
October 1, 1990. On February 15, 1991, Bathgate also defaulted
on the $187,500 note by failing to make the required monthly
payment.
On February 26, 1991, the Bank wrote a 13-page letter
to Bathgate regarding the $11,500,000 note, the $187,500 note,
0
Pursuant to the "Agreement for Commercial Letter of Credit," NLA
Associates, LGP-I Limited Partnership, and Novasau Associates
agreed to pay the Bank on demand such amounts as the Bank paid to
Chase Manhattan Bank pursuant to a $1,800,000 letter of credit
issued by the Bank in favor of Chase. NLA also executed an
undated demand promissory note in the amount of $l,800,000. The
Bank advanced $1,688,178 under the terms of the letter of credit.
5
the $4,000,000 note, the $250,000 note, and the $1,800,000
unconditional guaranty. See Bathgate defendants' App. II at 629.
This letter is at the heart of this action. The letter begins by
stating that the Bank "has agreed to modify and consolidate"
these obligations, and the majority of the letter details the
terms and conditions of the modification. Id. The letter was
signed by William Carlough, Senior Vice President, and indicated
that he sent copies to Douglas Johnson, the Bank's President and
CEO, and Charles R. Berman, an attorney at Bourne, Noll & Kenyon.
Id. at 642.
The following are the most significant provisions of
the letter: (1) the "commitment" was subject to Bathgate's
"acceptance and return to the Bank, fully executed, by 2/26/91,"
id. at 641; (2) the "commitment shall expire and shall be of no
further effect if the transactions contemplated by this
commitment are not closed by 4/1/91," id.; (3) the "bank shall be
represented in this transaction by the firm of Bourne, Noll &
Kenyon, . . . which will prepare all documents in this
transaction," id. at 637; and (4) "[t]he Borrower and the Bank
shall execute and deliver all documentation required by the Bank
in connection with the issuance of the Loan and the
Collateral[,]" id. The February letter also identifies specific
documents Bathgate was to furnish to the Bank counsel prior to
the closing of the transactions contemplated by the letter, id.
at 635-37 (see also Bathgate defendants' App. II at 603-05), 639-
6
40,0 and states that Bathgate must provide "[s]uch other
information, documents, certificates, financial statements or
opinions reasonably required by the Bank and its counsel," id. at
637.
Though Bathgate executed and delivered the February
letter to the Bank on February 26, 1991, the proposed
restructured loan never was closed. In a letter dated April 11,
1991, the Bank formally demanded payment of two notes on which
Bathgate had failed to make payments (the $11,500,000 note and
0
These include the following items: (1) title insurance policies
insuring the Bank's lien interest in the mortgaged properties;
(2) insurance policies against hazards on the mortgaged
properties; (3) insurance policies against floods on any areas
designated as flood hazard areas; (4) proof that the mortgaged
properties are not subject to the Environmental Cleanup
Responsibility Act or other applicable environmental law and that
all taxes and assessments against the properties have been paid;
(5) a survey of each mortgaged property; (6) an "approved
attorney" letter from a title insurance company indemnifying the
Bank against fraud or failure by the closing attorney to comply
with the closing instructions; (7) state and county UCC searches
regarding Bathgate and any entities in which Bathgate has
assigned his interest or which own collateral; (8) copies of "all
partnership agreements, charter documents and other
organizational documents or agreements of entities in which . . .
[Bathgate] has assigned interest or delivering or owning
[c]ollateral in connection with the [l]oan"; (9) "[c]orporate
resolutions adopted by the Board of Directors of Tuscol
Development, Inc. and New Nas, Inc. - authorizing the issuance of
applicable [c]ollateral documents in connection with the [l]oan";
(10) "[w]ritten consent of all partners of each partnership which
grants or modifies a mortgage as collateral for the [l]oan or in
connection with which the [b]orrower has granted a collateral
assignment of his partnership interest, if required by the
partnership agreement"; (11) affidavits with respect to
environmental matters; (12) good standing certificates and
corporate status searches with respect to Tuscol Development,
Inc. and New Nas, Inc.; and (13) appraisals on the mortgaged
property paid for by Bathgate. See App. II at 603-05, 635-37,
639-40.
7
the $187,500 note) and three notes payable on demand (the
$4,000,000 note, the $250,000 note, and the $1,800,000 note).
Bathgate defendants' App. I at 310.
On April 8, 1991, Bathgate failed to make a required
payment on the $185,000 note. In a letter dated May 1, 1991, the
Bank formally demanded payment of the $185,000 note, and in a
second letter dated May 1, 1991, the Bank formally demanded
payment of the $1,800,000 note by Bathgate, NLA, and Landis.
Bathgate failed to make the payments demanded on these six notes,
and NLA and Landis failed to make the payments demanded of them
on the $1,800,000 note.
B. Procedural History
On May 3, 1991, the Bank filed two suits in the
Superior Court of New Jersey to collect the amounts outstanding
under the six notes for which Bathgate had failed to make
demanded payments: (1) the $11,500,000 note; (2) the $187,500
note; (3) the $4,000,000 note; (4) the $250,000 note; (5) the
$185,000 note; and (6) the $1,800,000 note. In one of the state
court actions, the Bank sought judgment against Landis, NLA
Associates Limited Partnership, LGP-I Limited Partnership, and
LGP-I Capital Corporation (the Landis defendants), and against
Bathgate, Novasau Associates, and New Nas, Inc. for the amount
outstanding under the $1,800,000 note. In the other state court
action, the Bank sought judgment against Bathgate and Novasau
Associates for the amounts outstanding under: (1) the $11,500,000
8
note; (2) the $187,500 note; (3) the $4,000,000 note; (4) the
$250,000 note; and (5) the $185,000 note.
On May 22, 1991, the Bank was declared insolvent and
the FDIC was appointed as the Bank's receiver. The notes in
question were sold to an acquiring bank, but then repurchased by
the FDIC pursuant to a clause in the Purchase and Assumption
Agreement authorizing the acquiring bank to "put" back to the
FDIC any adversely classified loans.
In June 1991, Bathgate defaulted on the $2,000,000 note
and in July 1991, he defaulted on the $1,620,000 note. In a
letter dated September 13, 1991, the FDIC informed Bathgate that
he had defaulted on these notes and that it had accelerated the
maturity of the notes and was demanding full payment of the
principal, interest, and other sums outstanding. Bathgate did
not make these payments.
On June 20, 1991, the FDIC removed the state court
actions to the district court, which consolidated them on
November 8, 1991. The FDIC was substituted for the Bank as
plaintiff. Subsequently, the FDIC filed an amended complaint
adding T. Pamela Bathgate, 54 Buena Vista Associates, Tuscol
Development, Inc., Old Monmouth Associates, Airport Associates,
Gerald A. Gura, the Club at West Deptford, and the State of New
Jersey as defendants.
In September 1992, the Bathgate defendants (Bathgate,
Novasau Associates Limited Partnership, New Nas, Inc., 54 Buena
Vista Associates, Tuscol Development, Inc., and Old Monmouth
Associates) filed a third-party complaint against the Office of
9
the Comptroller of the Currency (OCC), John McDougal, an OCC
employee, and nine directors or officers of the Bank, William
Barlow, John C. Fellows, Jr., Ebert L. Hall, Joseph P. Iaria,
David E. Johnson, Jr., Irene F. Kramer, Jacqueline F. Pappas,
John F. Russo, and Leonard G. Lomell. The district court
dismissed the third-party complaint by oral order on March 1,
1993. See Bathgate defendants' App. III at 1007-36 (transcript
of proceedings). The Bathgate defendants have not attempted to
appeal from this order. However, they did file a motion for
leave to file an amended third-party complaint. Subsequently,
the Bathgate defendants voluntarily dismissed their third-party
complaint against the OCC and McDougal, and the district court
denied their motion for leave to amend the remaining third-party
claims, holding that their proposed amendments would be futile.
FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated),
Memorandum and Order at 5 (D.N.J. July 19, 1993) (see Bathgate
defendants' App. III at 1041).
The Bathgate defendants raised a number of defenses
against the FDIC's claims including: (1) setoff and accord and
satisfaction; (2) breach of condition; (3) failure to perform a
condition precedent; (4) estoppel; (5) cancellation of debt; (6)
failure to state a claim upon which relief can be granted; (7)
fraud; (8) laches; (9) payment; (10) prevention of performance;
and (11) unclean hands. FDIC v. Bathgate et al., Civ. No. 91-
2779 (consolidated), Memorandum and Order at 10 n.2 (D.N.J. Mar.
18, 1993) (see Bathgate defendants' App. I at 27). They also
advanced the following counterclaims: (1) breach of contract, and
10
the duty of good faith and fair dealing; (2) violation of the New
Jersey Consumer Fraud Act; (3) trade libel/slander of credit; (4)
slander of title; (5) unlawful interference with prospective
economic advantage; (6) malicious and egregious breach of
contract; (7) abuse of process; and (8) fraud and negligent
misrepresentation. Id. at 10-11 n.2 (see Bathgate defendants'
App. I at 27-28).
On March 18, 1993, the district court granted summary
judgment in favor of the FDIC both on its claims against the
Bathgate defendants and on the Bathgate defendants' claims
against it. FDIC v. Bathgate et al., Civ. No. 91-2779
(consolidated), Memorandum and Order (D.N.J. Mar. 18, 1993) (see
Bathgate defendants' App. I at 18-35). The district court held
that the D'Oench Duhme doctrine and 12 U.S.C. § 1823(e) barred
the defenses raised by the Bathgate defendants because they were
based on an alleged oral agreement to extend the April 1 closing
date for the transactions contemplated in the Bank's February
letter to Bathgate. Id. at 12-17 (see Bathgate defendants' App.
I at 29-34). The district court also held that D'Oench Duhme and
section 1823(e) barred the majority of the counterclaims raised
by the Bathgate defendants. Id. at 16-17 (see Bathgate
defendants' App. I at 33-34).
With regard to the Bathgate defendants' claims that the
default letters, legal complaints and certain statements to the
media allegedly issued by the Bank constitute libel and slander,
the district court held: (1) that the default letters did not
contain false statements since the closing date in the February
11
letter had passed and thus Bathgate was actually in default; (2)
that the Bank's legal complaints were privileged from slander and
defamation actions; and (3) that the Bathgate defendants "failed
to designate specific facts that raise a material issue for trial
regarding . . . [the Bank's] alleged republishing of the default
letters and complaints to the press." Id. at 16 (see Bathgate
defendants' App. I at 33). Finally, with regard to the
counterclaim for tortious interference, the district court held
that the Bathgate defendants "failed to raise an adequate
response to the FDIC's argument that the claim is barred under
the D'Oench, Duhme doctrine and § 1823(e)." Id.0
0
The district court also granted summary judgment in favor of the
FDIC against Airport Associates, but later vacated the order
based on a settlement agreement between the FDIC and Airport
Associates. The court denied without prejudice the FDIC's motion
for summary judgment against the Landis defendants based on a
forbearance agreement between the FDIC and these defendants. FDIC
v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum
and Order at 17 (D.N.J. Mar. 18, 1993) (see Bathgate defendants'
App. I at 34).
12
On May 10, 1993, the district court denied Bathgate's motion for reconsideration of
March 18, 1993 order. FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated),
Memorandum and Order (D.N.J. May 10, 1993) (see Bathgate defendants' App. I at 39-4
The Bathgate defendants then filed a notice of appeal from this order denying their
for reconsideration. This appeal (Bathgate I) was docketed at No. 93-5328. Bathga
was submitted to a panel of this court for possible dismissal on jurisdictional gro
August 16, 1993.
Meanwhile, on August 5, 1993, the district court entered an order and fin
judgment of foreclosure, FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated),
and Final Judgment of Foreclosure and on Contract in Favor of Plaintiff (D.N.J. Aug
1993) (see third-party defendants' Supp. App. at 16-36), and on August 18, 1993, th
Bathgate defendants filed a second appeal. This second appeal (Bathgate II) was do
at No. 93-5507.0
By order entered October 6, 1993, we dismissed Bathgate I (No. 93-5328) f
of jurisdiction because the district court's order was not "final" as to all claims
all parties and the district court had not granted a Fed. R. Civ. P. 54(b) certific
Subsequently, the district court granted Rule 54(b) certification, and on October 1
1993, the Bathgate defendants filed a motion for reconsideration of the order dismi
Bathgate I (No. 93-5328) and for consolidation of Bathgate I (No. 93-5328) with Bat
II (No. 93-5507). By order entered November 8, 1993, we granted the motion for
reconsideration, reinstated Bathgate I, and consolidated Bathgate I and Bathgate II
briefs filed in Bathgate II (No. 93-5507) address all the issues raised in the Bath
briefs (No. 93-5328), as well as the district court's denial of the Bathgate defend
0
The FDIC filed an appeal on September 19, 1993, from an order of the district cour
entered on July 19, 1993, granting a motion by Airport Associates to enforce a sett
This appeal was docketed at No. 93-5572, but later was dismissed pursuant to Fed. R
P. 42(b) by order dated December 13, 1993.
13
motion for leave to amend their third-party complaint. See Bathgate defendants' Br
n.4.
Thus, in this consolidated appeal, the Bathgate defendants are challengin
the district court's order granting summary judgment to the FDIC, FDIC v. Bathgate
Civ. No. 91-2779 (consolidated), Memorandum and Order (D.N.J. Mar. 18, 1993) (see B
defendants' App. I at 18-35), and the district court's order denying their motion f
leave to amend their third-party complaint, FDIC v. Bathgate et al., Civ. No. 91-27
(consolidated), Memorandum and Order at 5 (D.N.J. July 19, 1993) (see Bathgate defe
App. III at 1044). We rely primarily on the Bathgate II briefs, as they address bo
issues.
II. DISCUSSION
The district court exercised subject matter jurisdiction over the FDIC's
against the Bathgate defendants and the Bathgate defendants' claims against the FDI
pursuant to 12 U.S.C. § 1819(b). Although the district court granted summary judgm
favor of the FDIC, both on its claims against the Bathgate defendants and Bathgate'
claims against it, the court denied without prejudice the FDIC's motion for summary
judgment against the Landis defendants based on a forbearance agreement between the
and these defendants. FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated),
Memorandum and Order at 17 (D.N.J. Mar. 18, 1993) (see Bathgate defendants' App. I
Thus, a jurisdictional issue was created, as the district court proceedings were no
as to all parties and issues.
However, the district court granted a certification under Rule 54(b) whic
provides in pertinent part: "When more than one claim for relief is presented in an
action, . . . or when multiple parties are involved, the court may direct the entry
final judgment as to one or more but fewer than all of the claims or parties only u
express determination that there is no just reason for delay and upon an express di
14
for the entry of judgment." We exercise plenary review over a district court's
determination that a judgment is final, and then determine whether a district court
abused its discretion in deciding that a judgment is "'ready for appeal.'" Gerardi
Pelullo, 16 F.3d 1363, 1368 (3d Cir. 1994) (quoting Curtiss-Wright Corp. v. General
Electric Co., 446 U.S. 1, 8, 100 S. Ct. 1460, 1465 (1980)). In this case, the distr
court granted the Rule 54(b) certification after making the required finding "that
is no just reason for delay" and directing the entry of judgment. We concur in the
district court's determination that the judgment was final and "ready for appeal."
we have jurisdiction over the Bathgate defendants' appeal pursuant to 28 U.S.C. § 1
We exercise plenary review over the district court's grant of summary jud
in favor of the FDIC. See Petruzzi's IGA v. Darling-Delaware Co., 998 F.2d 1224, 1
Cir.), cert. denied, 114 S. Ct. 554 (1993); Wheeler by Wheeler v. Towanda Area Schoo
Dist., 950 F.2d 128, 129 (3d Cir. 1991); American Medical Imaging Corp. v. St. Paul
and Marine Ins. Co., 949 F.2d 690, 692 (3d Cir. 1991). Thus, we apply the same sta
applied by the district court. Petruzzi's IGA, 998 F.2d at 1230. This standard en
a movant to summary judgment "if the pleadings, depositions, answers to interrogato
and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a ju
as a matter of law." Fed. R. Civ. P. 56(c).
0
We have held that "a claimant against a failed thrift [or other depository instit
must exhaust FIRREA's administrative remedies before commencing a judicial action."
Properties, Inc. v. Colonial Sav. Bank, 947 F.2d 49, 63 (3d Cir. 1991) (citing 12 U
1821(d)(13)(D)); see also FDIC v. Shain, Schaffer & Rafanello, 944 F.2d 129, 132 (3
1991) (Section 1821(d)(13)(D) "expressly withdrew jurisdiction from all courts over
claim to a failed bank's assets that are made outside the procedure set forth in se
1821."). In their responses to an inquiry by this court, both the Bathgate defenda
the FDIC stated that they complied fully with the the administrative procedures enu
in the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA
U.S.C. § 1821(d)(3)-(d)(13). See Bathgate defendants' Response at 4-5; FDIC Respon
6. Thus, our jurisdiction over the Bathgate defendants' claims against the FDIC is
question.
15
[T]he moving party has the initial burden of identifying the evidence
that demonstrates the absence of a genuine issue of material fact,
[but] the respondent (the "non-movant") must establish the existence
of each element on which it bears the burden of proof.
J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d Cir. 1990), cert
denied, 499 U.S. 921, 111 S. Ct. 1313 (1991) (citing Celotex Corp. v. Catrett, 477 U
317, 323, 106 S. Ct. 2548, 2552 (1986)). Moreover, "[w]here the movant has produced
evidence in support of its motion for summary judgment, the nonmovant cannot rest o
allegations of pleadings and must do more than create some metaphysical doubt."
Petruzzi's IGA, 998 F.2d at 1230. Finally, in applying this standard, "all inferen
must be drawn against the movant, . . . and in favor of the nonmovant." Erie
Telecommunications, Inc. v. City of Erie, 853 F.2d 1084, 1093 (3d Cir. 1988).
A. The FDIC's Claims Against Bathgate
The Bathgate defendants argue that there is a material dispute of fact re
whether they were in "default" on the notes at issue.0 They contend that the distr
court erred in granting summary judgment to the FDIC because they provided the dist
court with evidence contradicting its finding that "'since the closing date in the
February commitment had lapsed, the Bathgate Defendants were in default.'" See Bat
defendants' Br. at 16 (quoting at FDIC v. Bathgate et al., Civ. No. 91-2779
(consolidated), Memorandum and Order at 16 (D.N.J. Mar. 18, 1993)). They refer to
February letter the Bank issued to Bathgate as an agreement which "consolidated any
payments" which were due on the notes, see Bathgate defendants' Br. at 11, and argu
the Bank breached this agreement by failing to provide completed documents to Bathg
April 1, 1991 "even though all required information was either in the Bank's posses
would have been provided to the Bank, if requested," id. at 16. Thus, they argue t
0
Bathgate individually was the principal obligor on the notes, but as a matter of
convenience we sometimes refer to the Bathgate defendants collectively, inasmuch as
have asserted counterclaims and a third-party complaint. Moreover, Novasau was one
parties to the $1,800,000 "Agreement for Commercial Letter of Credit."
16
they were not in default as of April 1, 1991, and that "[a]ny failure subsequent to
1 to make payments on Bathgate's obligations resulted from the Bank's prior breach
devastating affect [sic] this breach had on his ability to pay," id. at 12. Howeve
we noted above, the district court held that the D'Oench Duhme doctrine and 12 U.S.
1823(e) barred the defenses raised by the Bathgate defendants in support of this th
FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 1
(D.N.J. Mar. 18, 1993) (see Bathgate defendants' App. I at 29-34).
1. Are the Bathgate defendants' defenses barred by th
D'Oench Duhme Doctrine and section 1823(e)?
(a) Defense of Breach of Agreement
The Bathgate defendants argue that the FDIC is not entitled to recover un
notes and the guaranty acquired from the Bank because the Bank breached the agreeme
embodied in its February letter to Bathgate. The district court held that D'Oench
and section 1823(e) barred the Bathgate defendants' defense of breach of agreement
the Bathgate defendants were "attempting to enforce an oral agreement to extend a c
date on a proposed loan restructuring." FDIC v. Bathgate et al., Civ. No. 91-2779
(consolidated), Memorandum and Order at 12 (D.N.J. Mar. 18, 1993) (see Bathgate
defendants' App. I at 29). The Bathgate defendants state that "[c]ontrary to the Op
[of the district court], the Bathgate Defendants are not attempting to enforce the
oral extension of the Agreement. . . . Rather, the Bathgate Defendants are attempti
enforce the alleged written agreement which the Bank breached by not preparing clos
documents and attending closing by the April 1, 1991 deadline" as required by the F
letter. See Bathgate defendants' Br. at 18-19 (citing FDIC v. Bathgate et al., Civ
91-2779 (consolidated), Memorandum and Order at 11 (D.N.J. Mar. 18, 1993) (emphasis
original)). While they claim that the Bank orally extended the closing date for th
transactions contemplated in the February letter, they contend that their argument
17
not rest on this allegation. Accordingly, they maintain that D'Oench Duhme does no
their defense of breach of agreement since the February letter was neither oral nor
secret. Id. at 18-20.
In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 460-62, 62 S. Ct. 676, 680-
(1942), the Supreme Court held that in an action brought by the FDIC to collect on
acquired from a bank, the debtor or maker of the note may not raise a secret agreem
a defense to the FDIC's enforcement of the note. The court based its holding on pro
of the Federal Reserve Act which "reveal[ed] a federal policy to protect [the FDIC]
and the public funds which it administers against misrepresentations as to the secu
or other assets in the portfolios of the banks which [the FDIC] . . . insures or to
it makes loans." Id. at 457, 62 S.Ct. at 679. The Supreme Court reasoned that thi
policy barred any defense based on "a scheme or arrangement whereby the banking aut
on which . . . [the FDIC] relied in insuring the bank was or was likely to be misle
Id. at 460, 62 S.Ct. at 681. Thus, "[t]he rule emerging from D'Oench Duhme is that
agreement between a borrower and a bank which does not plainly appear on the face o
obligation or in the bank's official records is enforceable against the FDIC." Ada
Madison Realty & Dev., Inc., 937 F.2d 845, 852 (3d Cir. 1991). As we stated in Dad
'[f]undamentally, D'Oench attempts to ensure that FDIC examiners can
accurately assess the condition of a bank based on its books. The
doctrine means that government has no duty to compile oral histories
of the bank's customers and loan officers. Nor must the FDIC retain
linguists and cryptologists to tease out the meaning of facially-
unencumbered notes. Spreadsheet experts need not be joined by
historians, soothsayers, and spiritualists in a Lewis Carroll-like
search for a bank's unrecorded liabilities.'
RTC v. Daddona, 9 F.3d 312, 319 (3d Cir. 1993) (quoting Bowen v. FDIC, 915 F.2d 101
(5th Cir. 1990)). Based on the purpose of the doctrine, we have held that "not onl
the existence of the agreement have to appear plainly on the face of an obligation,
the basic structure of that agreement - its essential terms - must also appear plai
the face of that obligation." Id. at 319.
18
The holding in D'Oench Duhme "essentially" was codified by the Federal De
Insurance Act of 1950. Id. at 316. See also Carteret Sav. Bank, P.A. v. Compton,
& Sons, Inc., 899 F.2d 340, 343 (4th Cir. 1990). The Act provides that:
No agreement which tends to diminish or defeat the interest of the
[FDIC] in any asset acquired by it under this section or under section
1821 of this title, either as security for a loan or by purchase or as
receiver of any insured depository institution, shall be valid against
the [FDIC] 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
(4) has been, continuously, from the time of its
execution, an official record of the depository institution.
12 U.S.C. § 1823(e). Congress intended section 1823(e) "to allow federal and state
examiners to rely on a bank's records in evaluating the worth of the bank's assets,
"ensure mature consideration of unusual loan transactions by senior bank officials,
[to] prevent fraudulent insertion of new terms, with the collusion of bank employee
a bank appears headed for failure." Langley v. FDIC, 484 U.S. 86, 91-92, 108 S. Ct.
401 (1987).0
Clearly the district court was correct in holding that D'Oench Duhme and
1823(e) barred any defense based on the Bathgate defendants' contention that they r
an oral agreement with the Bank to extend the April 1 closing date identified in th
February letter. Thus, the real question is whether in light of the D'Oench Duhme
doctrine and the requirements of section 1823(e), the alleged agreement embodied in
February letter can "diminish or defeat" the FDIC's rights under the promissory not
0
The protection of 12 U.S.C. § 1823(e) applies to the FDIC in both its corporate ca
and its capacity as receiver for failed institutions. 12 U.S.C. §§ 1821(d)(9)(A),
1823(e). See also Bowen v. FDIC, 915 F.2d 1013, 1015 n.3 (5th Cir. 1990); FDIC v.
Hamilton, 939 F.2d 1225, 1230 n.6 (5th Cir. 1991).
19
acquired from the Bank. The Bathgate defendants argue that the agreement embodied
February letter can "diminish or defeat" the FDIC's rights under the promissory not
acquired from the Bank because it is in writing. Their position that the contents
February letter can diminish or defeat the FDIC's rights under facially unqualified
promissory notes must rest on one of two constructions of the February letter. One
construction they seem to advance is that once Bathgate signed the Bank's February
and returned it to the Bank in a timely fashion, the Bank's preparation of the docu
required to close the proposed loan consolidating five of Bathgate's preexisting no
became a condition to the performance of the Bathgate defendants' obligations under
preexisting notes. Alternatively, the Bathgate defendants' position must rest on t
argument that once Bathgate signed the Bank's February letter and returned it to th
in a timely fashion, the letter obligated the Bank to close and execute the propose
But neither of these arguments survives the D'Oench Duhme doctrine or section 1823(
because the February letter does not create a genuine issue of material fact as to
existence of a written agreement providing (1) that the Bank's preparation of the
documents required to close the proposed loan was a condition to the performance of
Bathgate defendants' obligations under the preexisting notes or (2) that the Bank w
obligated to close and execute the proposed loan consolidating Bathgate's obligatio
under five of the preexisting notes.
The Supreme Court in Langley held that in light of section 1823(e)'s int
functions and of the broad language used in D'Oench Duhme, the term "agreement" in
1823(e) should be construed to cover not only a party's promises to perform acts, b
conditions to the performance of a party's obligations. Langley, 484 U.S. at 90-93
S.Ct. at 401-02. Thus, the Act requires that both promises and conditions be in wri
Moreover, as we noted above, "the purpose of section 1823(e), and by implication th
D'Oench, Duhme doctrine, is to allow the FDIC to rely on bank records both when ins
the bank and when taking over a failed bank." FSLIC v. Two Rivers Assocs., Inc., 8
20
1267, 1275 (11th Cir. 1989) (citing Langley, 484 U.S. at 91-92, 108 S.Ct. at 401).
the focus of our inquiry must be whether the February letter put the FDIC on notice
that the Bank's preparation of the documents required to close the proposed loan wa
condition to the performance of the Bathgate defendants' obligations under the pree
notes or (2) that the Bank was obligated to close and execute the proposed loan
consolidating Bathgate's obligations under five of the preexisting notes.
Although the February letter contains the Bank's written promise to prepa
certain documents required to close the proposed loan, it does not contain any lang
suggesting that the performance of this promise is a condition to Bathgate's perfor
of his obligations on the preexisting notes. Thus, it does not put the FDIC on not
that Bathgate's obligations under the otherwise unqualified preexisting notes were
conditioned on the Bank's preparation of the documents required to close the propos
loan. Indeed, we cannot conceive that the Bank would have entered into an agreemen
would discharge many millions in loans if the subsequent loan was not closed.
Similarly, although the February letter expresses the Bank's intent to "m
and consolidate" five of Bathgate's preexisting notes, it does not obligate the Ban
so. See Bathgate defendants' App. II at 629. The February letter stated that the
had "agreed to modify and consolidate" five of Bathgate's preexisting notes, id., a
signed by the Bank's Senior Vice President, William Carlough, id. at 642. Moreover
receiving the letter, Bathgate signed it and returned it to the Bank by February 26
as required by the terms of the letter. Id. at 641-42. However, the letter expres
stated that the Bank's "commitment shall expire and shall be of no further effect i
transactions contemplated by th[e] commitment are not closed by 4/1/91." Id. at 64
Bank sent a draft agreement for the proposed loan to Bathgate on March 22, 1991, vi
Federal Express. Id. at 649. This draft agreement and the accompanying promissory
were incomplete and never were signed by Bathgate or a representative of the Bank.
649-85. Furthermore, the draft agreement explicitly stated that "[t]he Bank shall
21
obligated to make the Loan hereunder unless all legal matters incident to the trans
hereby contemplated shall be satisfactory to the Bank and its counsel, and it shall
received properly executed, as of the closing date, and in a form it deems satisfac
the agreement, the attached promissory note, and other enumerated documents. Id. a
64.
Since neither the draft loan agreement nor the attached promissory note w
completed or signed, the proposed loan never was closed, and the February letter ex
by its own terms on April 1, 1991. It is clear that neither the February letter, n
draft agreement and promissory note could have put the FDIC on notice: (1) that th
February letter made Bathgate's obligations under the otherwise unqualified preexis
notes conditional on the Bank's preparation of the documents required to close the
proposed loan or (2) that once Bathgate signed the Bank's February letter and retur
to the Bank in a timely fashion, the Bank was obligated to close and execute the pr
loan. As the FDIC notes in its brief, "Bathgate's breach of contract claims and hi
defenses to his obligations primarily rest on three unrecorded conditions to otherw
facially unqualified instruments: (1) that the terms of the February Commitment Let
continued to bind the Bank after April 1, 1991, despite the Letter's express terms
contrary; (2) that the Letter cured his October 1990 default on the 11,500,000 Note
(3) that the February commitment letter covered not only the five preexisting notes
the Bank proposed to consolidate, but also "the $185,000 Note, the $1,620,000 Note,
the $2,000,000 Note . . . despite the lack of a writing purporting to link these No
the Letter." See FDIC Br. at 15.
Thus, we hold that D'Oench Duhme and section 1823(e) bar the Bathgate
defendants' defense of breach of agreement. Our holding is consistent with the hol
in RTC v. Daddona, 9 F.3d 312; FSLIC v. Two Rivers Assocs., Inc., 880 F.2d 1267; FS
Gemini Management, 921 F.2d 241 (9th Cir. 1990); and FDIC v. O'Neil, 809 F.2d 350 (
Cir. 1987).
22
Daddona involved a suit brought by the RTC against real estate developers
recover on a $2,230,000 loan for the acquisition of an industrial park. Daddona, 9
at 314-15. The RTC had acquired the loan from a savings and loan. Id. The defenda
estate developers claimed that the savings and loan had breached a written agreemen
provide them an additional loan of at least $9,000,000 for improvement and developm
the industrial park. Id. In support of their argument, the defendants pointed to
"several writings that refer[red] to the $2,230,000 loan as an initial loan and ref
to purposes other than the acquisition of property." Id. at 316. We held that "an
agreement is only 'in writing' if its basic structure is apparent on the face of th
writing," id. at 314, and concluded that the alleged agreement to extend an additio
loan did not survive the requirements of D'Oench Duhme and section 1823(e) because
writings "provide[d] no terms of the alleged agreement whatsoever," id. at 317. Th
"evidence establishe[d] no more than that the parties contemplated future loans, no
they had agreed to them." Id.
In this case, the February letter establishes that the Bank contemplated
future loan to Bathgate on certain terms. However, it is not "apparent on the face
writing" that once Bathgate signed the Bank's February letter and returned it to th
in a timely fashion, the Bank's preparation of the documents required to close the
proposed loan would become a condition to the performance of the Bathgate defendant
obligations under the preexisting notes, nor is it "apparent on the face of the wri
that once the Bank's February letter was signed by Bathgate and returned to the Ban
timely fashion, the Bank would become obligated to close and execute the proposed l
consolidating Bathgate's obligations under five of the preexisting notes. What is
"apparent on the face of the writing" is that the commitment embodied in the Februa
letter would expire on April 1, 1991, if the transactions contemplated in the lette
not closed by that time. Thus, our holding in Daddona supports our conclusion that
23
D'Oench Duhme and section 1823(e) bar the Bathgate defendants' defense of breach of
agreement.
Two Rivers Assocs. involved a suit by the FSLIC to recover on several not
acquired from a savings and loan and to foreclose on the mortgages securing these n
Two Rivers Assocs., 880 F.2d at 1268-69. The defendant in Two Rivers Assocs., like
defendant in Daddona, claimed that the savings and loan had breached an agreement t
provide it with additional funds. Id. at 1275. According to the defendant, the sa
and loan agreed to fund an entire development project, but refused to advance furth
funds after funding only part of the project. Id. The Court of Appeals for the Ele
Circuit held that the defendant was barred from asserting a defense based on the br
an agreement to fund the entire development project because the written provisions
loan agreements "at most reflect[ed] that [the savings and loan] . . . intended to
additional funds, [and] . . . fell far short of establishing that [the savings and
. . was obligated to fund the entire project." Id. at 1276. "At no point in the m
different documents evidencing the loans at issue . . . [was] there an explicit acc
of the obligation to fund the entire project." Id. Thus, D'Oench Duhme barred the
defendant's defense of breach of agreement because the FSLIC was not "put on notice
agreement that . . . [the savings and loan] was obligated to fund the entire projec
Id.0 Similarly, in this case, D'Oench Duhme bars the Bathgate defendants' defense
breach of agreement because the February letter did not put the FDIC on notice that
Bathgate signed the Bank's February letter and returned it to the Bank in a timely
0
See also Mainland Sav. Ass'n v. Riverfront Assocs., Ltd., 872 F.2d 955, 956 (10th
(held that D'Oench Duhme barred obligor's defenses of intentional fraud, gross negl
reckless conduct, breach of an agreement to fund, and breach of the implied covenan
contractual fair dealing because "[n]othing in the note, accompanying security agre
or other documents pertaining to the transaction evidences any type of conditional
or side agreement [to fund a second loan] . . . of which the FSLIC might have been
aware"), cert. denied, 493 U.S. 890, 110 S. Ct. 235 (1989); Beighley v. FDIC, 868 F.
784 (5th Cir. 1989) (held that D'Oench Duhme bars defenses arising from bank's alle
agreement to finance future loans because it is "not clearly evidenced in the bank'
records, and would not be apparent to bank examiners").
24
fashion, the Bank's preparation of the documents required to close the proposed loa
become a condition to the performance of the Bathgate defendants' obligations under
preexisting notes or that the Bank would become obligated to close and execute the
proposed loan.
In FSLIC v. Gemini Management, 921 F.2d 241, the FSLIC sought to recover
loan of $1,100,000 acquired from a savings and loan. The defendant asserted affirm
defenses and counterclaims based on the savings and loan's alleged agreement to ext
a larger loan of $1,545,000. Id. at 243-45. In support of its claims, the defenda
pointed to an initial commitment letter, stating that the savings and loan agreed t
the defendant $1,545,000. Id. This initial commitment letter "was unsigned, was n
evidenced by a promissory note, and therefore expired by its own terms on August 20
1984." Id. at 245. In contrast, a second commitment letter providing for a loan o
$1,100,000 "was signed and supported by full loan documentation." Id.
The Court of Appeals for the Ninth Circuit held that "D'Oench and its pro
require a clear and explicit written obligation." Thus, although D'Oench Duhme doe
bar "'defenses based on a bilateral obligation which appears in the bank's records,
(quoting Two Rivers, 880 F.2d at 1275) (emphasis added in Gemini Management), the c
held that D'Oench Duhme barred the defenses and counterclaims based on the savings
loan's alleged agreement to extend a larger loan of $1,545,000. The court based it
holding on the conclusion that the initial commitment letter fell short of "establi
that . . . [the savings and loan] was obligated" to extend the larger loan, althoug
established the savings and loan's intent to do so. 921 F.2d at 245. Gemini Manag
is persuasive precedent because the February letter, like the initial commitment le
Gemini Management, was not evidenced by a promissory note, and the draft loan agree
subsequently prepared by the Bank never was signed. Thus, the February letter and
draft loan agreement fall short of establishing the type of written bilateral oblig
required by Gemini Management to survive D'Oench Duhme.
25
Finally, the decision by the Court of Appeals for the Seventh Circuit in
O'Neil, 809 F.2d 350, also supports our holding. The defendants in O'Neil borrowed
$1,000,000 from a bank. O'Neil, 809 F.2d at 352. The FDIC subsequently purchased
defendants' $1,000,000 note, and then sought to collect on it. Id. The defendants
claimed that when the bank extended the $1,000,000 loan, it and two other banks agr
support the defendants' bid to purchase a bankrupt hospital. Id. According to the
defendants, the banks breached this agreement by supporting a rival bidder, and the
defendants were entitled to retain the $1,000,000 as a setoff to their damages agai
banks. Id. The principal writing supporting the defendants' argument was a draft
agreement which never had been executed, but which was referenced in the $1,000,000
promissory note. The Court of Appeals held that the unexecuted draft agreement did
satisfy the "demanding requirements of section 1823(e)" because it "was never execu
the parties to it, was not approved by the bank's board or loan committee, was not
in the bank's minutes, and was not an official or for that matter any other sort of
record." Id. at 353-54.
In this case, although the Bank's Senior Credit and Policy Committee and
Bank's Executive Committee approved the "proposal" contained in the February letter
their decisions were noted in their minutes, see Bathgate App. II at 646, 648, the
was merely an offer which was contingent on a number of events and expired on April
1991. By the terms of the offer, Bathgate could not transform the offer into an
unconditional agreement merely by signing and returning it by February 26. In fact
Bank prepared a draft agreement and promissory note which, like the draft agreement
O'Neil, never were executed and therefore never became official bank records. Thus,
reiterate that in light of D'Oench Duhme and the requirements of section 1823(e), t
February letter cannot support the Bathgate defendants' claims that once Bathgate s
the Bank's February letter and returned it to the Bank in a timely fashion, the Ban
preparation of the documents required to close the proposed loan became a condition
26
performance of the Bathgate defendants' obligations under the preexisting notes.
Furthermore, the February letter cannot support the Bathgate defendants' claim that
Bank became obligated to close and execute the proposed loan consolidating Bathgate
obligations under five of the preexisting notes.
Moreover, it is questionable whether any agreement reflected in the Febru
letter would satisfy the contemporaneity requirement of section 1823(e), since the
issued the February letter after Bathgate executed the notes involved in this case.
12 U.S.C. § 1823(e)(2); FDIC v. Virginia Crossings Partnership, 909 F.2d 306, 309 (
Cir. 1990) (held that memoranda prepared many months before execution of loans did
satisfy section 1823(e)'s contemporaneity requirement); FDIC v. Manatt, 922 F.2d 48
(8th Cir.) (concurring opinion) ("I concur with the result the court reaches and wr
separately only to express my view that the district court did not err in holding t
contemporaneous requirement of 12 U.S.C. § 1823(e)(2) was not met, and that Manatt
established accord and satisfaction as an affirmative defense."), cert. denied, 111
2889 (1991); Carteret Sav. Bank, P.A. v. Compton, Luther & Sons, 899 F.2d at 344 ("
12 U.S.C.A. §1823 clearly requires that the collateral agreement must be contempora
[with the execution of a note] if it is to be enforceable."). But see Resolution T
Corp. v. Midwest Fed. Sav. Bank, 4 F.3d 1490, 1500-01 (9th Cir. 1993) (holding tha
commitment letter executed more than two months prior to the final loan documents
satisfied contemporaneity requirement of section 1823(e)(2) because "it takes sever
months to put together" large loans and satisfaction of the requirement "should be
considered in light of commercial reality."); FDIC v. Manatt, 922 F.2d at 489 n.4 (
doubt that Congress intended that section 1823(e)(2)'s contemporaneousness requirem
would defeat a valid accord and satisfaction entered into by a bank. Valid accord
satisfaction agreements are never contemporaneously executed with the initial docum
incurring the debt - the idea that they would be so executed is simply contrary to
business practice and to common sense. Surely Congress did not mean to preclude ba
27
from getting something of value by an accord and satisfaction rather than nothing a
all."). However, since we hold that the conditions on which the Bathgate defendant
were not part of the February letter and thus were not in writing as required by 12
§ 1823(e)(1), we need not reach a definitive conclusion as to the applicability of
contemporaneity requirement of 12 U.S.C. § 1823(e)(2) in this case.
In support of their argument that the February letter satisfies the requi
of D'Oench Duhme and section 1823(e), the Bathgate defendants cite Agri Export Co-o
Universal Sav. Ass'n, 767 F. Supp. 824, 832 (S.D. Tex. 1991), and other cases holdi
D'Oench Duhme and section 1823(e) do not bar certain defenses. However, these case
distinguishable.
In Agri Export Co-op, the plaintiffs sought to enforce a letter of credit
by a savings association. Agri Export Co-op, 767 F. Supp. at 826-27. As receiver
savings association, the RTC denied liability on the letter of credit, arguing that
D'Oench Duhme and section 1823(e) barred recovery by the plaintiffs since the savin
association's directors did not approve the letter of credit and it was not recorde
properly in the savings association's records. Id. at 827. The court held that th
D'Oench Duhme doctrine did not apply to the letter of credit because it was a "stra
forward obligation of the bank," not a "side agreement . . . inextricably entwined
loan or other asset of the financial institution" or an agreement "intended to dece
. . [or] likely to deceive banking authorities." Id. at 832. Moreover, the court
that "[e]ven if the D'Oench doctrine could somehow be applicable to a letter of cre
issued by a failed savings institution and its execution could somehow be character
a 'secret' or 'side' agreement, the 'completely innocent' exception to D'Oench arti
in Federal Deposit Ins. Corp. v. Meo, 505 F.2d 790, 793 (9th Cir. 1974) would be
appropriate in this case . . . [because] [o]ne would hardly expect a bank customer
more than the . . . [plaintiff] did to assure that the letter of credit issued by
Universal was valid." Id.
28
This case is distinguishable from Agri Export Co-op on multiple grounds.
the February letter is a "side agreement . . . inextricably entwined" with preexist
Bank assets. Moreover, although the February letter may not have been intended to
banking authorities, because the letter had expired and the proposed loan consolida
certain preexisting notes never had been closed, the letter would not have put bank
authorities on notice that any of Bathgate's preexisting notes were no longer enfor
as written. Even if we were to recognize a "completely innocent" exception to D'Oe
Duhme, Bathgate would not fall under it. Bathgate could have done more to assure t
February letter or other writings clearly indicated that once he signed and timely
returned the Bank's February letter, the Bank's preparation of the documents requir
close the proposed loan became a condition to the performance of his obligations un
preexisting notes (in the unlikely circumstance that this was the parties' understa
or, alternatively, that the Bank became obligated to close and execute the proposed
consolidating his obligations under five of the preexisting notes. At a minimum, h
have delivered to the Bank the documents which the February letter required him to
and which clearly could not be prepared by Bank counsel. See footnote 2, supra. A
court in FDIC v. Hamilton, 939 F.2d 1225, 1230 (5th Cir. 1991), stated, one "justif
for applying D'Oench, Duhme to oral agreements or collateral writings is that the o
as party to the transaction is in a better position to protect himself than the FDI
See also FDIC v. First Nat'l Fin. Co., 587 F.2d 1009, 1012 (9th Cir. 1978) (holding
Meo is distinguishable because in Meo, "[t]here was simply a failure of considerati
which the promisor was unaware until after the bank was closed and the suit was fil
the FDIC," whereas in this case there was no failure of consideration).
The Agri Export Co-op court also held that section 1823(e) did not apply
letter of credit because the savings association did not "acquire a particular,
identifiable asset" in exchange for the letter of credit, and therefore the RTC had
'right, title or interest' in an asset that claims and defenses could 'diminish or
29
defeat'." 767 F. Supp. at 833-34. Thus, this case is also distinguishable from Ag
Export Co-op because the FDIC has an interest in the preexisting notes on which the
Bathgate defendants defaulted, and the Bathgate defendants' claims and defenses, if
successful, would "diminish or defeat" the FDIC's interest in these assets.
Other cases cited by the Bathgate defendants are also distinguishable. F
example, in Howell v. Continental Credit Corp., 655 F.2d 743, 744-745 (7th Cir. 198
FDIC sought to enforce leases which it had acquired from an insolvent bank. The le
provided that a lessor which assigned its rights to the bank would lease certain eq
to a corporation. Id. The corporation claimed that the leases were invalid becaus
lessor never had purchased the required equipment, but the district court held that
corporation's claim was barred by D'Oench Duhme and section 1823(e). The Court of
for the Seventh Circuit reversed, holding that D'Oench Duhme and section 1823(e) we
inapplicable because the leases that the FDIC sought to enforce "facially manifest[
bilateral obligations and serve[d] as the basis of the lessee's defense." As the H
court stated,
'when . . . the 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, . . . [n]one of the policies that favor the
invocation of . . . [§ 1823(e)] are present . . . because the terms of
the agreement that tend to diminish the rights of the FDIC appear in
writing on the face of the agreement that the FDIC seeks to enforce.'
655 F.2d at 747 (quoting Riverside Park Realty Co. v. FDIC, 465 F. Supp. 305, 313 (
Tenn. 1978)). Like the court in Howell, the court in FDIC v. Laguarta, 939 F.2d 12
1238-39 (5th Cir. 1991), held that D'Oench Duhme does not bar an affirmative defens
on "funding obligations . . . spelled out" in the loan agreement underlying the not
the FDIC is seeking to enforce. See also FDIC v. Merchants Nat'l Bank of Mobile,
F.2d 634, 639 (11th Cir.) ("Section 1823(e) does not apply . . . when the court det
if an asset is invalid . . . for breach of bilateral obligations contained in the a
. . In such cases the parties contend that no asset exists or an asset is invalid
30
that such invalidity is caused by acts independent of any understanding or side
agreement.") (citations omitted), cert. denied, 469 U.S. 829, 105 S. Ct. 114 (1984).
In this case, however, the FDIC is attempting to enforce facially valid
promissory notes which impose unilateral obligations on Bathgate to pay certain sum
the Bank, and neither these notes nor the loan agreements supporting them are the b
the Bathgate defendants' defense of breach of agreement. Instead, their defense is
on a separate document, the February letter, which they claim is a separate agreeme
The court in O'Neil distinguished Howell on this basis, stating that it was "hard t
quarrel" with the result in Howell because it involved a lease not a promissory not
lease "was explicit about the lessor's obligation," and "there was no side agreemen
O'Neil, 809 F.2d at 354.0 Thus, this case is distinguishable from Agri Export Co-o
Howell, and other cases holding that defenses based on writings containing bilatera
obligations are not barred by D'Oench Duhme or section 1823(e).
We will affirm the district court's holding that D'Oench Duhme and sectio
1823(e) bar the Bathgate defendants' defense of breach of agreement. The district
also held that the Bathgate defendants' claim that the February letter constituted
accord and satisfaction was barred because "the transactions contemplated in the Fe
Commitment did not close before April 1, 1991, and there is no evidence of an agree
which satisfies § 1823(e) and extends the closing date." FDIC v. Bathgate et al.,
No. 91-2779 (consolidated), Memorandum and Order at 15 (D.N.J. Mar. 18, 1993) (see
0
See also FDIC v. Hamilton, 939 F.2d at 1231 (recognizing Howell exception to D'Oen
Duhme, but holding that obligors could not avail themselves of it because the note
which their claim was based did not "facially manifest" the bank's "bilateral oblig
to fund timely the line of credit," the obligation which the obligors claimed the b
failed to satisfy); Bell & Murphy & Assocs., Inc. v. Interfirst Bank Gateway, N.A.,
F.2d 750, 754 (5th Cir.) (holding that the Howell exception to D'Oench Duhme is onl
applicable if the bank's obligation appears on the face of the document the FDIC is
seeking to enforce and the document is properly recorded in the bank's records), ce
denied, 498 U.S. 895, 111 S. Ct. 244 (1990).
31
Bathgate defendants' App. I at 32). Based on the forgoing analysis, we also will a
this holding.
(b) Defenses of breach of the duty of good faith, wro
acceleration, and other defenses sounding in tort
The Bathgate defendants raised a number of defenses "which sound in tort,
including breach of the duty of good faith; violation of the Consumer Fraud Act, [N
Stat. Ann. § 56:8-1 (West 1989)] et seq.; trade libel/slander of credit; slander of
unlawful interference with prospective economic advantage; and malicious and egregi
breach of the Bank's duty to protect the Collateral pledged to secure the Bathgate
See Bathgate defendants' Br. at 20 n.11.
The district court held that the D'Oench Duhme doctrine and section 1823(
barred the defenses of the duty of good faith and wrongful acceleration, because th
could not be separated from the Bathgate defendants' allegations that the Bank brea
oral agreement since "[a]bsent the alleged oral agreement, . . . [the Bank] was ent
to demand payment on the overdue loans." FDIC v. Bathgate et al., Civ. No. 91-2779
(consolidated), Memorandum and Order at 13 (D.N.J. Mar. 18, 1993) (see Bathgate
defendants' App. I at 30). The district court also refused to consider the defense
impairment of collateral and other defenses based on the FDIC's tortious conduct be
they were "similarly predicated on the alleged oral agreement." Id. at 14 (see Bat
defendants' App. I at 31).
As the FDIC points out in its brief, see FDIC Br. at 24 n.15, D'Oench Duh
a defense or claim sounding in tort when the alleged tort arises from an unrecorded
agreement. See, e.g., In re Columbus Ave. Realty Trust, 968 F.2d 1332, 1344-45 (1s
1992); Oliver v. RTC, 955 F.2d 583, 586 (8th Cir. 1992); Timberland Design, Inc. v.
Serv. Bank for Sav., 932 F.2d 46, 50 (1st Cir. 1991). The Bathgate defendants clai
D'Oench Duhme does not bar the defense of the duty of good faith, the defense of wr
acceleration, or other defenses based on the Bank's allegedly tortious conduct beca
32
"[c]ontrary to the Opinion [of the district court], these claims are not 'inextrica
linked to the alleged oral agreement.'" see Bathgate defendants' Br. at 20 (quotin
v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 13 (D.
Mar. 18, 1993)). We disagree with the Bathgate defendants' position, and thus conc
that the Bathgate defendants are barred from raising the defenses of the duty of go
faith, wrongful acceleration, and impairment of collateral, as well as other defens
based on the Bank's tortious conduct.
In support of their argument that the wrongful acceleration and breach of
duty of good faith defenses are not barred, the Bathgate defendants cite Texas
Refrigeration Supply, Inc. v. FDIC, 953 F.2d 975 (5th Cir. 1992). See Bathgate
defendants' Br. at 21, 29. The court in Texas Refrigeration held that the district
erred in granting summary judgment against the obligors on their claim of wrongful
acceleration because there were genuine issues of material fact regarding whether t
had been accelerated and if so, whether it was accelerated in bad faith. Id. at 98
However, the court noted that the obligor's claim of wrongful acceleration would be
"ineffective against the FDIC" if it was based on an oral agreement providing that
lender would not accelerate the obligor's note. Id. at 982 n.13.
In this case, the Bank informed Bathgate by a letter dated April 11, 1991
he was in default under two notes, the $11,500,000 note and the $187,500 note, and
a result, the Bank was accelerating the maturity on these notes. See Bathgate defe
App. I at 309-10. At the same time, the Bank demanded payment on three notes which
payable "on demand," the $4,000,000 note, the $250,000 note, and the $1,800,000 not
at 310. Subsequently, the Bank demanded payment on the $185,000 note which already
matured, id. at 315-16, and accelerated the maturity of two additional notes on whi
Bathgate defaulted in the summer of 1991, the $2,000,000 note and the $1,620,000 no
The Bathgate defendants point to the minutes of the April 10, 1991 meetin
the Bank's Board of Directors as evidence of the Bank's bad faith. See Bathgate
33
defendants' App. II at 734-37. However, even drawing all inferences in favor of th
Bathgate defendants, we conclude that the minutes of the Board meeting fail to esta
genuine issue of material fact regarding whether the Bank's decision to accelerate
Bathgate's obligations was made in good faith. Thus, having held that D'Oench Duhm
defenses based on any of the following: (1) an alleged oral agreement extending the
deadline in the February letter; (2) the claim that the Bank's preparation of the c
documents for the loan proposed in the February letter became a condition to the
performance of Bathgate's obligations under the preexisting notes; or (3) the claim
the Bank became obligated to close the loan proposed in the February letter, we con
that there is no genuine issue of material fact regarding whether the Bank's decisi
accelerate Bathgate's obligations was made in good faith.
In support of their claim that the defense of impairment of collateral is
barred, the Bathgate defendants cite FDIC v. Blue Rock Shopping Center, Inc., 766 F
(3d Cir. 1985). See Bathgate defendants' Br. at 23, 30. In Blue Rock, we held tha
co-maker who signs a note to accommodate the primary obligor and who has the right
recourse against the primary obligor is a surety who can assert the defense [of
unjustifiable impairment of collateral]" codified in section 3-606(1) of the Unifor
Commercial Code. Blue Rock, 766 F.2d at 749. We also noted that although D'Oench
and section 1823(e) would not bar the introduction of an oral agreement between a
principal and a surety regarding the surety's right of recourse, they would bar rel
on "agreements between a bank and its obligor showing or attempting to show that th
obligation was illusory or conditional." Id. at 754.
In this case, the Bathgate defendants' defense of unjustifiable impairmen
collateral depends on their assertion that the February letter creates a genuine is
material fact as to whether the Bathgate defendants were in default. See Bathgate
defendants' Br. at 24. Thus, having rejected this assertion because D'Oench Duhme
defenses based on the claims: (1) that the February letter made the Bank's preparat
34
the closing documents for the proposed loan a condition to the performance of Bathg
obligations under the preexisting notes; and (2) that the February letter obligated
Bank to close the loan proposed, we conclude that the Bathgate defendants' defense
impairment of collateral also is barred.
B. Bathgate's Claims Against The FDIC
1. Breach of contract
Like the Bathgate defendants' defense of breach of contract, D'Oench Duhm
section 1823(e) bar the Bathgate defendants' claims that the Bank breached an oral
agreement to extend the April 1 deadline for closing the consolidated loan proposed
February letter or that the Bank breached the terms of the February letter by faili
prepare and provide the documents required to close the loan. We base this conclus
the fact that neither claim is supported by a written document manifesting bilatera
obligations, and that the February letter states that the Bank's commitment to refi
five of Bathgate's notes expires on April 1.
Moreover, as the FDIC points out, Bathgate has not rebutted specifically
FDIC's evidence that he failed to provide a substantial portion of the documents re
by the February letter. See FDIC Br. at 29 & n.18 (citing to the record before the
district court). The February letter identifies specific documents Bathgate was to
furnish Bank counsel prior to the closing of the transactions contemplated by the l
see Bathgate defendants' App. II at 635-37 (see also Bathgate defendants' App. II a
05), 639-40,0 and states that Bathgate must provide "[s]uch other information, docu
certificates, financial statements or opinions reasonably required by the Bank and
counsel," id. at 637.0 The fact that "all required information was either in the B
0
We already have set forth these items at note 2, supra.
0
The February letter also states that "[t]his transaction will be closed on the Ban
determination, in its sole discretion, that there has been no material adverse chan
the financial operations and condition of the Borrower from the time of application
that no event has occurred or information has become known that makes the Bank deem
35
possession or would have been provided to the Bank, if requested[,]" see Bathgate
defendants' Br. at 13 (emphasis added), is immaterial since the February letter doe
indicate that the Bank was obligated to request information which the February lett
required Bathgate to provide. Surely if Bathgate wanted the Bank to close on the l
contemplated by the February letter, he should have delivered the documents he was
to supply to the Bank. As he does not claim that he did so, the Bathgate defendant
breach of contract claims are barred even without regard for D'Oench Duhme and sect
1823(e). As we noted above, "[w]here the movant has produced evidence in support o
motion for summary judgment, the nonmovant cannot rest on the allegations of pleadi
must do more than create some metaphysical doubt." Petruzzi's IGA, 998 F.2d at 123
Thus, even if the Bathgate defendants' claim of breach of agreement were not barred
FDIC would be entitled to summary judgment.
2. Trade Libel/Slander of Credit/Slander of
Title
With regard to the Bathgate defendants' claims that the default letters,
complaints and alleged statements to the media issued by the Bank constitute trade
slander of credit, and slander of title, the district court reached the following
conclusions: (1) the default letters did not contain false statements since the clo
date in the February letter had passed and thus Bathgate was actually in default; (
Bank's legal complaints were privileged from slander and defamation actions; and (3
Bathgate defendants "failed to designate specific facts that raise a material issue
trial regarding . . . [the Bank's] alleged republishing of the default letters and
complaints to the press." FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated)
Memorandum and Order at 16 (D.N.J. Mar. 18, 1993) (see Bathgate defendants' App. I
insecure in this transaction." See Bathgate defendants' App. II at 641. However,
party grounds its argument on this provision.
36
Based on these findings, the district court granted summary judgment in favor of th
on the Bathgate defendants' claims of libel and slander.0
The torts of trade libel, slander of credit, and slander of title require
publication, or communication to a third person, of false statements concerning the
plaintiff, his property, or his business." Henry V. Vacaro Const. Co. v. A.J. DePa
Inc., 349 A.2d 570, 572 (N.J. Super. Ct. Law Div. 1975); see also Wendy's of South
Inc. v. Blanchard Management Corp., 406 A.2d 1337, 1338 (N.J. Super. Ct. Ch. Div. 1
The Bathgate defendants maintain that they sufficiently have stated claims for trad
libel, slander of credit, and slander of title to withstand summary judgment becaus
Bank and Bank officers published and communicated to third parties that Bathgate wa
default. See Bathgate defendants' Br. at 31-33. According to the Bathgate defenda
the district court's conclusion that the Bathgate defendants were in default as of
1, 1991, required it to engage in improper weighing of the evidence presented by th
and the Bathgate defendants on this issue. Id. at 32. We disagree.
As the Bathgate defendants' defenses based on the February letter are bar
must regard the Bathgate defendants as having been in default as of April 1, 1991.
event, even if the defenses were not barred, the statement that the Bathgate defend
were in default was accurate with respect to the preexisting notes, for the existen
defenses to an action predicated on defaults merely excuses a defendant's failure t
a payment, but the defenses do not constitute payment. Thus, there is no genuine i
material fact regarding the veracity of statements by the Bank and its loan officer
asserting that Bathgate was in default.
0
We apply New Jersey substantive law to the Bathgate defendants' counterclaims for
libel, slander of credit, slander of title, and unlawful interference with prospect
economic advantage because both the FDIC and the Bathgate defendants briefed the cl
under New Jersey law, and no party asserts that federal law or the law of another s
applicable.
37
Moreover, as the district court held, allegations made in pleadings filed
action are privileged as long as they have some relation to the action. Wendy's of
Jersey, Inc. v. Blanchard Management Corp., 406 A.2d at 1338-39. There is no doubt
statements that Bathgate was in default on certain notes were related to the action
collect on those notes. Thus, we will affirm the district court's order for summary
judgment in favor of the FDIC on the Bathgate defendants' counterclaims for libel,
of credit, and slander of title.
3. Unlawful Interference with Prospective Economic Ad
With regard to the counterclaim for tortious interference, the district c
held that the Bathgate defendants "failed to raise an adequate response to the FDIC
argument that the claim is barred under the D'Oench, Duhme doctrine and § 1823(e)."
v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 16 (D.
Mar. 18, 1993) (see Bathgate defendants' App. I at 33).
"Under New Jersey law the five elements of a claim of tortious interferen
a prospective or existing economic relationship are: (1) a plaintiff's existing or
reasonable expectation of economic benefit or advantage; (2) the defendant's knowle
that expectancy; (3) the defendant's wrongful, intentional interference with that
expectancy; (4) the reasonable probability that the plaintiff would have received t
anticipated economic benefit in the absence of interference; and (5) damages result
from the defendant's interference." Lightning Lube, Inc. v. Witco Corp., 4 F.3d 115
(3d Cir. 1993) (citing Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 186 (
1992), cert. denied, 113 S. Ct. 1285 (1993); Printing Mart-Morristown v. Sharp Elecs
Corp., 563 A.2d 31, 37 (N.J. 1989)). The Bathgate defendants allege that Bathgate
reasonable expectation of selling his Collateral at full market prices," and that t
"intentionally and maliciously interfered by publishing false information through t
Default Letters and statements to the media." See Bathgate defendants' Br. at 33-3
38
we have concluded that the Bathgate defendants have not created a genuine issue of
material fact regarding the veracity of statements that Bathgate was in default, we
that the Bathgate defendants failed to state a claim for unlawful interference with
prospective economic advantage. Moreover, Bathgate's expectation of selling his
collateral at full market prices was based on the alleged agreement contained in th
February letter which, if implemented, would have at least delayed the Bank's recou
the collateral and, inasmuch as that agreement is not enforceable, his claim of unl
interference with prospective economic advantage also is barred by D'Oench Duhme an
section 1823(e). See Bathgate defendants' Br. at 9 (stating that the February lett
"provided that the Commercial Notes would be repaid by Bathgate's execution of a ne
and pledge of additional collateral. . . . In return, Bathgate was to repay the lo
personally selling collateral, such as real estate and partnership interests, pledg
security for the loans (the "Collateral"), over time, in order to achieve the great
payment to the Bank, to protect Bathgate's equity in the Collateral, and to avoid
publicity which would cause distress prices.").
4. Could the Bathgate defendants set off their
alleged damages against their obligations under the notes a
guaranty?
The FDIC argues that even if D'Oench Duhme and section 1823(e) did not ba
Bathgate's counterclaims or "Bathgate otherwise . . . established a genuine issue o
material fact, neither circumstance would bar the FDIC-Receiver from obtaining judg
against Bathgate or from foreclosing on the collateral . . . [because] Bathgate mus
obtain judgment on his unliquidated claims and then seek satisfaction of the judgme
creditor of the failed institution, thereby entitling him to no more than a ratable
distribution of the assets of the failed institution." See FDIC Br. at 34 (citing
Beighley, 868 F.2d at 784 n.12). In light of our holdings regarding Bathgate's
counterclaims, we need not reach this issue.
39
C. The Motion For Leave To Amend the Third-Party Cl
On September 3, 1992, the Bathgate defendants filed a third-party complai
against the individual directors and officers of the Bank (the "Bank directors") pu
to Fed. R. Civ. P. 14(a), which the district court dismissed by oral order on March
1993. See Bathgate defendants' App. III at 1007-36 (transcript of proceedings). W
the Bathgate defendants have not attempted to appeal from this order, they did file
motion for leave to file an amended third-party complaint. The district court deni
motion, holding that their proposed amendments would be futile. FDIC v. Bathgate e
Civ. No. 91-2779 (consolidated), Memorandum and Order at 5 (D.N.J. July 19, 1993) (
Bathgate defendants' App. III at 1041).
The Bank directors argue that we lack subject matter jurisdiction over th
Bathgate defendants' third-party complaint because it is prohibited by Rules 14(a)
13(h). See Bank directors' Br. at 25-28. In its March 1, 1993 order dismissing th
third-party complaint, the district court cited 28 U.S.C. §1367 as the basis for su
matter jurisdiction over the third-party complaint, and stated that "[a]lthough it
that the Directors are more properly aligned as counterclaim-defendants [pursuant t
13(h)], [than as third-party defendants pursuant to Rule 14(a),] the Court is not
persuaded that Bathgate's claims should be dismissed on this ground." See Bathgate
defendants' App. III at 1028.
Rule 14(a) provides in pertinent part that "a defending party, as a third
plaintiff, may cause a summons and complaint to be served upon a person not a party
action who is or may be liable to the third-party plaintiff for all or part of the
plaintiff's claim against the third-party plaintiff." A third-party claim may be as
under Rule 14(a) only when the third party's liability is in some way dependent on
outcome of the main claim or when the third party is secondarily liable to defendan
the claim is separate or independent from the main action, impleader will be denied
C.A. Wright, A. Miller, M. K. Kane, Federal Practice and Procedure, Vol. 6, § 1446,
355-58 (1990). Thus, we conclude that the Bathgate defendants' pleading against th
directors does not qualify as a third-party complaint under Rule 14(a), because the
40
directors' liability is not derivative of the Bathgate defendants' liability on the
for which the FDIC is seeking payment.
The Bank directors also maintain that joinder of the Bathgate defendants'
against them was prohibited by Rule 13(h).0 Rule 13(h) provides that "persons othe
0
Although Judge Cowen concurs in the judgment dismissing the third-party complaint
the directors, he would not dismiss it on the merits. He would dismiss it for the
stated in this footnote and without prejudice to any state law causes of action tha
Bathgate defendants may bring against the directors in New Jersey state courts wher
claims belong.
Although Rule 13(h), together with Rules 19 and 20, appears to give the d
court broad power to join additional parties, the better understanding is that, as
in Judge Greenberg's opinion, "Rule 13(h) only authorizes the court to join additio
persons in order to adjudicate a counterclaim or cross-claim that already is before
court or one that is being asserted at the same time the addition of a nonparty is
This means that a counterclaim or cross-claim may not be directed solely against pe
who are not already parties to the original action, but must involve at least one e
party." 6 Wright, Miller & Kane, Federal Practice and Procedure § 1435, at 270-71.
"in order to adjudicate counterclaims" language underscores that the presence of
additional parties is either necessary or close to necessary to the resolution of t
counterclaims. The claims alleged in the third-party complaint are not "countercla
"cross-claims" as required under Rule 13(h). Nor are the defendant directors neces
parties "in order to adjudicate [the] counterclaims" that the Bathgate defendants a
against the Bank.
Moreover, 28 U.S.C. § 1367 may not cover the claims alleged in the third-
complaint. That provision requires that supplemental jurisdiction be exercised ove
certain claims if they "are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III
United States Constitution." The claims against the directors are far removed from
original "case" or "controversy" that the Bank brought to collect the debt, and are
analytically separate from the counterclaims that the Bathgate defendants asserted
the Bank. Although the claims against the directors and the counterclaims against
Bank may arise from the same transaction or common set of facts, Judge Cowen is not
comfortable with holding that the claims alleged in the third-party complaint meet
requirement of being part of the same "case or controversy under Article III," over
the district court exercised original jurisdiction (that is, the bank's action to c
the debt), as § 1367 provides.
Judge Cowen believes the district court should have dismissed the third p
complaint under § 1367(c). The district court dismissed, without trial, the
counterclaims the Bathgate defendants asserted against the Bank. The claims agains
directors raise novel and complex issues of state law, which in the view of Judge C
are better adjudicated by New Jersey courts. Furthermore, the behavior of the dire
was not the normal exercise of business judgment, but bordered on partisan politics
41
those made parties to the original action may be made parties to a counterclaim or
claim in accordance with the provisions of Rules 19 and 20."
Rule 13(h) only authorizes the court to join additional persons in
order to adjudicate a counterclaim or cross-claim that already is
before the court or one that is being asserted at the same time the
addition of a nonparty is sought. This means that a counterclaim or
cross-claim may not be directed solely against persons who are not
already parties to the original action, but must involve at least one
existing party.
C.A. Wright, A. Miller, M. K. Kane, Federal Practice and Procedure, Vol. 6, § 1435,
270-71. The counterclaims against the FDIC have been dismissed. Moreover, at the
the district court denied the Bathgate defendants' motion for leave to amend their
party complaint against the Bank directors, the district court already had granted
judgment in favor of the FDIC on the FDIC's claims against the Bathgate defendants
the Bathgate defendants' counterclaims against the FDIC. However, at the time that
pleading against the Bank directors was filed, the Bathgate defendants' counterclai
against the FDIC remained before the district court. Thus, the Bathgate defendants
properly joined the Bank directors as additional parties to the counterclaim pursua
Rule 13(h), which the district court cited in its order dismissing the counterclaim
may persuade the New Jersey courts to provide some remedy. According to Judge Cowe
these reasons counsel that the district court decline to take jurisdiction over the
alleged in the third-party complaint.
0
Our conclusion is consistent with our decision in In re Texas Eastern Transmission
PCB. Contamination Ins. Coverage Litig., 15 F.3d 1230, 1237 n.5 (3d Cir. 1994). In
case, the defendant argued that the district court did not properly exercise its
discretionary authority to join counterclaim defendants pursuant to Rule 13(h) beca
district court made no reference to Rule 13(h). The defendant also argued that its
counterclaim was prohibited by Rule 13(h) "inasmuch as under the rule a 'countercla
. may not be directed solely against persons who are not already parties to the ori
action.'" Id. (citing Baltimore & Ohio R. Co. v. Central Ry. Services, Inc., 636 F.
782, 786 (E.D. Pa. 1986)). We rejected the defendant's arguments, holding that "th
district court implicitly found in personam jurisdiction" over the additional count
defendants, and that the defendant's counterclaim "was not directed solely against
counterclaim defendants," but was also directed against the plaintiff. Id.
42
Moreover, in In re Texas Eastern Transmission Corp. PCB. Contamination I
Coverage Litig., 15 F.3d 1230, 1236-37 (3d Cir. 1994), we held that the district co
"[a]ncillary subject matter jurisdiction . . . over additional party defendants to
compulsory counterclaim, or over third party defendants," and that Congress "confir
principle of ancillary jurisdiction over counterclaim defendants in the enactment o
Judicial Improvements Act of 1990, 28 U.S.C. §1367." Section 1367 provides in pert
part that district courts "shall have supplemental jurisdiction over all . . . clai
are so related to claims in the action within such original jurisdiction that they
part of the same case or controversy under Article III of the United States Constit
28 U.S.C. § 1367(a).0 Thus, we conclude that the district court had subject matter
jurisdiction over the Bathgate defendants' claims against the Bank directors.0
As noted above, the district court denied the Bathgate defendants' motion
leave to amend their "third-party" complaint against the Bank directors because it
concluded that their proposed amendments would be futile. FDIC v. Bathgate et al.,
No. 91-2779 (consolidated), Memorandum and Order at 5 (D.N.J. July 19, 1993) (see B
defendants' App. III at 1041). Rule 15(a) of the Federal Rules of Civil Procedure
authorizes a party to amend its pleadings "as a matter of course at any time before
responsive pleading is served." In this case, although no responsive pleading had
filed, the district court concluded that "[r]ather than incur the added expense, de
and inefficiency of permitting the amendment and then considering a motion to dismi
later date, the Court [would] focus[] on the ultimate issue of whether the motion t
should be denied as futile." FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidat
Memorandum and Order at 2 (D.N.J. July 19, 1993) (see Bathgate defendants' App. III
0
The Judicial Improvement Act of 1990 became operative on December 1, 1990, before
claims in this case were filed.
0
We do note however, that district courts "may decline to exercise supplemental
jurisdiction . . . [if] the district court has dismissed all claims over which it h
original jurisdiction." 28 U.S.C. § 1367(c)(3).
43
1038). The futility of amendment is one of the factors that a trial court may cons
denying a motion to amend. See Averbach v. Rival Mfg. Co., 879 F.2d 1196, 1203 (3d
1989), cert. denied, 493 U.S. 1023, 110 S. Ct. 726 (1990). We review the district c
denial of a motion to amend for abuse of discretion. Id.
The Bathgate defendants argue that the district court erred in denying th
motion for leave to amend their
third-party complaint because the amended complaint stated causes of action for
intentional interference with contractual relations and prospective economic advant
slander of credit and title, violation of the New Jersey Consumer Fraud Act,
misrepresentation, and tortious breach of the duty of good faith. See Bathgate defe
Br. at 34-41.0
The district court held that the Bathgate defendants' claims for slander
credit and slander of title failed because they rested on the allegation that the B
directors published false statements indicating that the Bathgate defendants were i
default when it already had held that the Bathgate defendants "in fact, were in def
FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 3
(D.N.J. July 19, 1993) (see Bathgate defendants' App. III at 1039). We agree that
light of the district court's holding and our decision to affirm that holding, the
to amend the slander claims remains futile. Moreover, the Bathgate defendants'
allegations, see Bathgate defendants' App. III at 1198-99, do not satisfy the plead
requirements for defamation claims because they do not identify the alleged defamat
statements or the source of the defamatory statements with sufficient specificity.
Nanavati v. Burdette Tomlin Memorial Hosp., 857 F.2d 96, 109 (3d Cir. 1988) ("a pla
must be required to set forth actionable statements with particularity"), cert. den
0
We apply New Jersey law to determine whether the Bathgate defendants' claims again
Bank directors were futile because both parties briefed the claims under New Jersey
and neither party asserted that federal law or the law of any other state was appli
44
489 U.S. 1078, 109 S. Ct. 1528 (1989); Zoneraich v. Overlook Hosp., 514 A.2d 53, 63
Super. Ct. App. Div.) ("In the case of a complaint charging defamation, plaintiff m
plead facts sufficient to identify the defamatory words, their utterer and the fact
their publication. . . . A plaintiff may be permitted to bolster a defamation caus
action through discovery, but not to file a conclusory complaint to find out if one
exists."), certif. denied, 526 A.2d 126 (N.J. 1986).
The district court held that the Bank directors could not be liable on th
Bathgate defendants' claims of intentional interference with contractual relations
prospective economic advantage, because the court in Sammon v. Watchung Hills Bank
Sav., 611 A.2d 674 (N.J. Super. Ct. Law Div. 1992), held that "an employee cannot b
liable for an act that is otherwise a tort when the employee is exercising a privil
the principal." FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorand
Order at 3-4 (D.N.J. July 19, 1993) (see Bathgate defendants' App. III at 1039-40).
district court also based its holding on Printing Mart-Morristown v. Sharp Elecs. C
563 A.2d 31, in which the court declined to decide whether "employees [ever] can be
answerable for interfering with their employer's prospective contractual relationsh
id. at 761, and stated that "[u]ltimate resolution of the question of whether an em
of a party to a prospective economic relationship can be held liable for tortious
interference may require the Court to create a special cause of action against the
employee," id. at 763. FDIC v. Bathgate et al., Civ. No. 91-2779 (consolidated),
Memorandum and Order at 4 (D.N.J. July 19, 1993) (see Bathgate defendants' App. III
1040).
In this case, the Bathgate defendants allege that the Bank directors were
exercising the Bank's authority with regard to the disposition of Bathgate's notes.
e.g., Bathgate defendants' App. III at 1170, 1196. Thus, the Bank directors were
exercising a privilege of the principal. Since the Bank "cannot be liable on a cau
action grounded in unlawful interference with prospective economic advantage, fairn
45
would require that [the directors with the authority to act on the Bank's behalf] .
similarly insulated from liability on such a cause of action." Sammon v. Watchung
Bank for Sav., 611 A.2d at 676. Moreover, as the Bank directors point out, the Bat
defendants have not cited any authority indicating that the New Jersey Supreme Cour
created a special cause of action for tortious interference by employees of a party
economic relationship. See Bank directors' Br. at 15. We think it would not recog
such an action, at least not in the circumstances here. Thus, we will affirm the d
court's denial of the motion to amend the Bathgate defendants' tortious interferenc
claims against the Bank directors.
The district court denied the motion to amend the New Jersey Consumer Fra
claim and common law fraud claim because the amended claims failed to satisfy the
particularity requirement of Fed. R. Civ. P. 9(b). FDIC v. Bathgate et al., Civ. N
2779 (consolidated), Memorandum and Order at 5 (D.N.J. July 19, 1993) (see Bathgate
defendants' App. III at 1041). Although the Bathgate defendants asserted that a
fraudulent statement was "made to Bathgate that the closing on the February Commitm
would be deferred beyond April 1, [1991]," they did not assert the identity of the
or speakers. Id. at 4-5 (see Bathgate defendants' App. III at 1040-41); see Sapori
Combustion Eng'g Inc., 843 F.2d 666, 675 (3d Cir. 1988) ("[a]lthough the appellants
complaint does indicate the general content of the [allegedly fraudulent] represent
. . . , it does not indicate who the speakers were . . . or who received the
information"), vacated on other grounds, 489 U.S. 1049, 109 S. Ct. 1306 (1989). Mor
"there is no reason to believe that additional information is in the exclusive cont
[the third-party defendants]." Saporito v. Combustion Eng'g Inc., 843 F.2d at 675.
It is true that "in the case of corporate fraud, plaintiffs cannot be exp
to have personal knowledge of the details of corporate internal affairs." Craftmat
Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989). However, the Bathgate defend
assert individual fraud by the Bank directors. Furthermore, in Craftmatic, we stat
46
"even under a non-restrictive application of the rule [9(b)], pleaders must allege
the necessary information lies within defendants' control, and their allegations mu
accompanied by a statement of facts upon which the allegations are based." Craftmat
F.2d at 645. In other words, "plaintiffs must accompany their allegations with fac
indicating why the charges against defendants are not baseless and why additional
information lies exclusively within defendants' control." Id. at 646. The Bathgat
defendants did not allege expressly that the necessary information lies within the
party defendants' control nor did they provide a statement of facts indicating why
charges against the Bank directors are not baseless and why additional information
exclusively within the Bank directors' control. See Bathgate defendants' App. III
1201-03. Thus, we will affirm the district court's decision to deny the motion to
the claims alleging fraud.
Finally, the district court held that the Bathgate defendants' amendment
claim for breach of the duty of good faith would be futile because "in a lender-bor
relationship, there is no independent duty beyond that parties' contractual duties,
v. Bathgate et al., Civ. No. 91-2779 (consolidated), Memorandum and Order at 5 (D.N
July 19, 1993) (see Bathgate defendants' App. III at 1041) (citing Washington Steel
v. TW Corp., 602 F.2d 594, 599-601 (3d Cir. 1979), overruled on other grounds by Cl
K-Mart Corp., 979 F.2d 965, 967 n.4 (3d Cir. 1992)), and "'remedies in tort relatin
breach of contract may not be maintained in addition to those established under the
contract itself in the absence of any independent duty owed by the breaching party
plaintiff,'" id. (quoting International Minerals & Mining Corp. v. Citicorp North A
Inc., 736 F. Supp. 587, 597 (D.N.J. 1990)). We do not reach these issues because,
Bank directors point out, "[e]ven assuming [the Bank] did owe Bathgate some added d
good faith, [the Bathgate defendants] fail to cite a single case for the propositio
non-parties to a contract can be held liable for a breach of a contractual duty of
faith and fair dealing," and we believe that the New Jersey Supreme Court would not
47
recognize such a claim, at least in the circumstances of this case. See Bank direc
Br. at 25.0 We will affirm the district court's holding with regard to the breach
of good faith claim on this basis. Thus, we will affirm in its entirety the distri
court's order denying the Bathgate defendants' motion for leave to amend their comp
against the Bank directors.
III. CONCLUSION
In reaching our result we have not overlooked that the D'Oench Duhme doct
and section 1823(e) can lead to what might be considered a harsh result. Neverthel
seems to us that the federal precedents and the applicable New Jersey law have comp
our outcome. Consequently, the orders of the district court of March 18, 1993, and
19, 1993, will be affirmed.
0
The Bank Directors also allege that the Bathgate defendants other than Bathgate ha
standing to sue the Bank directors as third-party beneficiaries of the agreement al
reflected in the February letter. In light of our disposition of the Bathgate defe
claims against the Bank directors, we need not reach this issue.
48