Beal Mortgage, Inc. v. Federal Deposit Insurance , 132 F.3d 85 ( 1998 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 27, 1997 Decided January 9, 1998
No. 97-5016
Beal Mortgage, Incorporated, f/k/a BSB Mortgage,
Inc., Appellee/Cross-Appellant
v.
Federal Deposit Insurance Corporation,
as Receiver for Bell Federal Savings Bank and
Federal Deposit Insurance Corporation, as Manager for the
FSLIC Resolution Fund,
Appellants/Cross-Appellees
Consolidated with
No. 97-5029
Appeals from the United States District Court
for the District of Columbia
(No. 95cv00164)
Lawrence H. Richmond, Counsel, Federal Deposit Insur-
ance Corporation, argued the cause for appellants/cross-
appellees, with whom Ann S. DuRoss, Assistant General
Counsel, was on the briefs.
Charles A. Gall argued the cause for appellee/cross-
appellant, with whom James W. Bowen, Amy Loeserman
Klein and John McJunkin were on the brief.
Before: Ginsburg, Sentelle and Tatel, Circuit Judges.
Opinion for the court filed by Circuit Judge Sentelle.
Sentelle, Circuit Judge: Beal Mortgage, Inc. ("Beal")
brought suit under a contract with the Resolution Trust
Corporation, later assumed by the Federal Deposit Insurance
Corporation ("FDIC"), to purchase for over $7 million several
mortgages and real properties of a failed institution taken
over by the agency. After stipulation by the parties as to
certain facts, the district court granted summary judgment
for Beal, holding that the contract obligated the FDIC to pay
Beal credits for all pre-closing sales of loan collateral, and to
bear responsibility for delinquent property taxes on some of
the properties, subject to contractual limitations of liability.
We hold that the contract language affords Beal a credit only
when collateral property was sold between specified dates,
and that contract language pro-rating property taxes does not
make the FDIC liable for delinquent taxes, and remand for
further proceedings consistent with this opinion.
I
In January 1993, the FDIC1 offered to sell by sealed bid a
portfolio of loans and real property that it took over from the
failed Bell Federal Savings Bank. It provided a Bid Informa-
tion Package to prospective bidders, which included certain
representations and warranties regarding the loans and real
__________
1 For simplicity, this opinion refers to the relevant agency as the
FDIC, currently a party to this litigation, although the court
recognizes that the contract was initially drafted and executed by
its predecessor in interest, the Resolution Trust Corporation.
property being sold, and a warning that this information was
liable to be inaccurate. It soon thereafter provided a De-
tailed Information Package, which included a valuation known
as a Derived Investment Value ("DIV") for each asset, which
it described as a value computed "for the sole purpose of
allocating the Bid Purchase Price among" the assets in each
pool to provide a way to determine the repurchase price in
the event that any of the loans in the package had to be
repurchased by the FDIC as the result of certain defects.
Purchase Agmt., Art I. The FDIC specifically warned bid-
ders not to use the DIV as a basis for formulating their bids.
Many of the loans involved were in default, so that their value
derived from a purchaser's right to foreclose and sell the
underlying collateral.
Until the Bid Information Date of April 13, 1993, the FDIC
provided updated information about the assets in the pool, to
allow bidders to conduct and adjust their own valuation of the
assets at issue. On April 20, 1993, Beal submitted the
highest bid, and entered a Purchase Agreement with the
FDIC. This began a six-month due diligence period during
which Beal could determine if there were any breaches of the
representations or warranties made with respect to the prop-
erty it acquired. For example, the Purchase Agreement
warranted that the disclosures in the Detailed Information
Package accurately reflected the information contained in
Bell Savings' files, and that there were no undisclosed delin-
quent real property taxes on included properties. See Pur-
chase Agmt. ss 7.3-7.4. It provided limited remedies against
the FDIC for any breach of these warranties, generally
giving the FDIC the option to cure the defect or repurchase
the defective mortgage. See Purchase Agmt. s 5.2. At the
Closing Date, Beal closed the transactions but noted that it
reserved the right to pursue (through the instant litigation)
certain credits and back taxes it thought it was due under the
contract.
The FDIC has consistently asserted that Beal's only reme-
dy for allegedly defective mortgage loans is via recourse to
the contract provisions for breach of warranty. However,
applying New York law as required by the Agreement, the
district court agreed largely with Beal's proffered interpreta-
tion of the Purchase Agreement, and awarded Beal nearly
$2.4 million in damages under the provisions for credits and
property taxes. In each instance, the district court held the
contract unambiguous and entered judgment as a matter of
law. Our review of the entry of judgment as a matter of law
is de novo. Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C.
Cir. 1995). Neither party before us argues that the Purchase
Agreement is ambiguous, so we do our best to draw clear
meaning out of its murky provisions.
II
The first dispute involves whether credits were due to Beal
under section 2.3(a)(iii) of the Purchase Agreement with
respect to three "Non-Affiliate Mortgage Loans" (i.e., se-
cured by collateral owned by a third party), called "JEMAC,"
"Ocean Juno," and "Royal Cove." The relevant portions of
section 2.3(a) provide the following:
The Purchaser shall receive, on the Closing Date, a
credit against the Bid Purchase Price in an amount equal
to the sum of the following:
(i) with respect to the Non-Affiliate Mortgage Loans ...
all principal payments received by the Seller thereon
(including for this purpose, prepayments, sales proceeds,
scheduled principal payments, and condemnation pro-
ceeds and insurance proceeds allocated to principal that
are not used to restore the Mortgaged Property) after
the Pricing Date [March 31, 1993] and prior to the
Closing Date ...;
...
(iii) amounts received on any Mortgage Loan that were
disclosed as being included in the determination of such
Mortgage Loan's Initial Derived Investment Value....
Beal argues essentially that section 2.3(a)(iii) entitles it to a
credit for all sales proceeds, whenever received, deriving from
items of collateral that were included in the FDIC's computa-
tion of an asset's DIV. The FDIC takes the position that
Beal's interpretation would read out of the contract the time
limitation explicit in section 2.3(a)(i), and that section
2.3(a)(iii) only allows a credit for "amounts received ... that
were disclosed," not amounts deriving from sales of items
that were disclosed, as included in DIV. Thus, the FDIC
contends that Beal is only entitled to a credit if the sale
occurred after the Pricing Date. Otherwise, if the fact of the
sale was disclosed, Beal should have adjusted its bid down-
ward, and if not disclosed, Beal must pursue a breach of
warranty remedy as defined by the contract.
The JEMAC Loan was assigned a DIV of $306,662, based
on security of twelve lots. Before the Pricing Date, the
FDIC sold eight lots for $704,000 and applied the proceeds to
the loan's principal. The FDIC disclosed the sale prior to the
Bid Information Date. After the Pricing Date, the FDIC
sold the remaining four lots for $100,000 and again applied
the proceeds against the principal. Because the second sale
occurred between the Pricing Date and the Closing Date, the
FDIC credited Beal $100,000 pursuant to section 2.3(a)(i).
The Ocean Juno Loan had a DIV of $329,533, secured by
two lots. Before the Pricing Date, the FDIC sold one of the
lots for $150,000 and applied the proceeds to the loan's
principal. After the Pricing Date, the FDIC sold the remain-
ing lot for $170,873 and again applied the proceeds against
the principal. The FDIC credited Beal $170,873 because the
second sale occurred between the Pricing Date and the
Closing Date.
The Royal Cove Loan had a DIV of $2,546,152, based in
part on collateral including a $650,000 certificate of deposit
("CD"), a subordinated note for $793,400, and certain guaran-
ties. Prior to the Closing Date, the FDIC discovered and
notified Beal that the asset files indicated that the CD had
been cashed and applied to the loan several years earlier by
the now-defunct Bell Savings. Thus, the FDIC claimed that
the cash had been shown by mistake, and in response to
Beal's complaints, advised Beal to file a claim of defective
mortgage loan under section 5.2(b) of the Purchase Agree-
ment.
As to the subordinated note and guaranties, the district
court found without objection that they had been sold to a
third party. The record does not reflect the evidence upon
which this finding was based, though it might be a reasonable
inference from the fact that these items, disclosed as part of
the Royal Cove collateral, were never delivered to Beal.
Lacking specific evidence of a sale, the district court unsur-
prisingly made no finding regarding when such a transaction
occurred. Beal's complaint alleges that the sale occurred
prior to the Closing Date, and that the FDIC "failed to
disclose that the Subordinated Note and Interest Guaranties
had been sold prior to the Bid Information Date." Cplt.
p 6(b). Reading this statement to allege that the sale oc-
curred before the Bid Information Date (April 13) does not
necessarily imply that the sale occurred before the Pricing
Date (March 31). Thus, we cannot on the present record
determine whether this transaction occurred during the peri-
od contemplated by section 2.3(a)(i).
Beal bases its arguments on its view of the role of the DIV.
Beal claims that bidders were required to formulate bids
based upon a percentage of the aggregate DIV. In a past
transaction with the agency, Beal noted that the FDIC ad-
justed the DIV immediately prior to the Bid Information
Date to reflect changes in the collateral and the properties in
the package. Because the FDIC did not adjust the DIV in
this case, Beal asserts that it therefore believed it would be
entitled to credits under section 2.3(a)(iii) for items included
in DIV calculations that the FDIC disclosed had been sold
and applied against principal. The district court, agreeing
with Beal, held that section 2.3(a)(iii) allowed a credit for all
proceeds, whenever received, deriving from the sale of assets
disclosed as being included in the computation of a loan's
DIV. Although perhaps a reasonable reading of the cloudy
contract provisions at issue, we think this interpretation does
not best fit the language and structure of the Purchase
Agreement.
The Purchase Agreement states that DIVs are provided
"for the sole purpose of allocating the Bid Purchase Price
among the individual Mortgage Loans ... to provide a meth-
od of determining the Repurchase Price or Adjusted Schedule
Price in the event any Mortgage Loans are repurchased or
revalued." Purchase Agmt., Art. I (emphasis added). Fur-
ther, the Bid Package noted that any reliance on DIV "shall
be solely at the risk of the bidders.... [DIVs] are being
provided without any representation or warranty, express or
implied, as to their content, suitability for any purpose,
accuracy, truthfulness or completeness...." In light of this
language, a party could not have reasonably relied upon DIV
values to compute credits actually payable under the contract,
never mind infer that the inclusion of an item in a DIV
calculation automatically entitled it to a credit for that item.
Both the language and structure of the Purchase Agree-
ment support the FDIC. Section 2.3(a)(iii) on its face allows
a credit for "amounts received ... that were disclosed as
being included" in the DIV, not amounts received for proper-
ties disclosed as being included. Literally, section 2.3(a)(iii)
does not apply to the various properties sold before the
Closing Date. The structure of section 2.3 also suggests a
more limited reading of subsection (iii): unlike subsection (i),
subsection (iii) is not restricted to certain types of payments
(a limited list of types of principal payments), to a limited
period of time (payments received between the Pricing Date
and the Closing Date), or to a single category of mortgage
loans ("Non-Affiliate Mortgage Loans"). Beal's interpreta-
tion essentially reads the more specific subsection (i) out of
the contract in favor of the generally worded, though literally
inapplicable, subsection (iii). We will not adopt such an
interpretation, which would be inconsistent with the cardinal
interpretive principle that we read a contract "to give mean-
ing to all of its provisions and to render them consistent with
each other." United States v. Insurance Co. of North Am.,
83 F.3d 1507, 1511 (D.C. Cir. 1996); Rentways, Inc. v. O'Neill
Milk & Cream Co., 126 N.E.2d 271, 273 (N.Y. 1955).
Thus, the only credits possibly due to Beal under section
2.3(a)(i) involve the proceeds of sales which occurred between
the Pricing Date and the Closing Date. With respect to the
JEMAC and Ocean Juno loans, the FDIC has already credit-
ed Beal with the appropriate amounts. With respect to the
Royal Cove loan, if the subordinated note and guaranties
were sold and the proceeds applied to the principal of the
loan, and if the sale occurred between the Pricing Date and
the Closing Date, Beal could be entitled to an additional
credit. Without a finding as to the date of this sale, we
cannot determine whether Beal is entitled to such a credit.
Beal was not on notice that these assets, included in the
Detailed Information Package, would not be delivered at
closing; but if the sale occurred before the Pricing Date,
Beal's only remedy is that which the Purchase Agreement
provides for breach of warranty.
Under section 2.3(a)(iii), the only "amount" disclosed as
being included in DIV was the $650,000 CD included in the
Royal Cove Loan package. However, this CD had been
applied to the loan's principal before the FDIC took over Bell
Savings, and thus the $650,000 cannot be deemed an "amount
received" by the FDIC within the meaning of section
2.3(a)(iii). Again, Beal's only remedy against the FDIC for
failure to deliver the CD is found in the Purchase Agree-
ment's provisions for breach of warranty.
III
Beal also claims that the Purchase Agreement requires
that the FDIC pay $686,465.82 in delinquent property taxes
on four real properties transferred under the Purchase
Agreement. These taxes, in the form of tax liens against the
properties, were disclosed by the FDIC prior to the Bid
Information Date. Beal's argument, adopted by the district
court, relies completely on a strained interpretation of a
single provision of the Purchase Agreement.
Section 11.2(b) provides that the purchase price for each
Real Property would be $100, adjusted by "expenses (both
before and after the Real Property Closing Date)" which
would be "prorated as between the Seller and the Purchaser
as of midnight of the day immediately preceding the Real
Property Closing Date for each Real Property." The ex-
penses to be prorated included, among other things, utility
charges, rents, insurance premiums, and "related real estate
taxes and all assessments (special and general)." Purchase
Agmt. s 11.2(b)(i). Further, if the taxes had not been as-
sessed by the Closing Date, the adjustment would be based
on "the rate for the preceding fiscal year applied to the latest
assessed valuation...." Purchase Agmt. s 11.2(b)(i). The
district court held that the term "related real estate taxes"
includes "all real estate taxes and logically includes delin-
quent taxes," and found significant that "subsection (b) pro-
rates taxes which accrue 'both before and after the Real
Property Closing Date[.]' " Beal Mortgage, Inc. v. Resolu-
tion Trust Corp., No. 95-0164, slip op. at 11 (D.D.C. March
21, 1996) (brackets in original). This interpretation cannot be
deemed consistent with the language and structure of section
11.2(b) or with other provisions of the Purchase Agreement.
We find the FDIC's reading more natural. Beal's argu-
ment implies that section 11.2(b) requires the purchase price
to be adjusted to reflect "all real estate taxes and assess-
ments." But this provision involves adjusting the "purchase
price" based on "items of expense" including "related real
estate taxes." This language implements nothing more than
the apportionment of the current year's real estate taxes, a
standard procedure in any real estate closing. "[I]f real
estate taxes are paid in arrears, buyer should receive credit
for the portion of the current real estate tax fiscal year
during which seller had possession." 12 Thompson on Real
Property s 99.11(e) (David A. Thomas ed., 1994).
A parallel provision of section 11.2(b) strongly supports this
conclusion. If the "amount of such taxes" is not fixed by the
Closing Date, then the Purchase Agreement specifies that the
adjustment is to be computed by applying the "rate for the
preceding fiscal year" to the "latest assessed valuation" of the
property. Purchase Agmt. s 11.2(b)(i). This formula would
never take into account unpaid taxes from a prior fiscal tax
year. Further, this amount would be again adjusted "when
the rate and valuation for the current fiscal year is fixed."
Purchase Agmt. s 11.2(b)(i) (emphasis added).
Indeed, the Purchase Agreement has other provisions gov-
erning transactions involving properties with tax liens or
otherwise subject to delinquent property taxes. Section 7.4
warrants that "there will be no delinquent ad valorem real
estate taxes" except "as specified in Exhibit J attached
hereto." Purchase Agmt. s 7.4(g). Had the FDIC warrant-
ed that the properties were not subject to any delinquent
taxes, Beal might have a claim for breach of that warranty--
but all of the tax liens at issue were indeed listed in Exhibit J.
In any event, the parties explicitly provided a mechanism for
handling delinquent property taxes, and reading section
11.2(b) to include "all real estate taxes ... includ[ing] delin-
quent taxes" is inconsistent with the overall scheme of the
Purchase Agreement. Thus, Beal is not entitled to any
credits for these delinquent property taxes which were prop-
erly disclosed by the FDIC prior to closing.
CONCLUSION
We hold that Beal is not entitled to credits for properties
and other assets sold prior to the Pricing Date; nor is Beal
entitled to a credit for a CD mistakenly included in the
computation of DIV, because an item never received by the
FDIC cannot be deemed an "amount received" within the
meaning of the Purchase Agreement. Further, we hold that
Beal is not entitled to an adjustment in purchase price for
properties subject to delinquent property taxes, where the tax
liability was disclosed by the FDIC. Because the district
court did not determine when the Royal Cove subordinated
note and guaranties were sold, we remand for a determina-
tion on whether the sale occurred between the Pricing Date
and the Closing Date.
We therefore vacate the district court's order granting
summary judgment and damages to Beal. Because we re-
verse the rulings that hold the FDIC liable for money dam-
ages, we do not address at this stage whether section 10.2 of
the Purchase Agreement limits the FDIC's liability for con-
tract damages in its capacity as receiver, nor whether a
related Guaranty Agreement allows recovery of contract dam-
ages from the FDIC in its corporate capacity. The judgment,
therefore, is vacated and the matter remanded for further
proceedings consistent with this opinion.