cannot be bound by those unwritten representations under the D'Oench Dume doctrine. And finally, the FDIC argues that the U.C.C. provisions referred to by plaintiffs are inapplicable.
Analysis and Decision
Because this Court finds no merit to Plaintiffs' substantive claims, it need not address defendant's exhaustion of remedies and procedural arguments.
The Court finds no evidence of fraud in the record. While the transactions were complex, this much is clear: the Freemans put up their home and other property as security for a bank loan. The Freemans then defaulted on the bank loan. The FDIC, as successor in interest to Madison National, has the right to proceed against the collateral the Freemans' put up against the loan.
The Freemans insist that as a result of the February 10, 1989 transaction they were entitled to the $ 600,000 Note and should have received the right to proceed against the Guarantors on the Note. But the facts are to the contrary. The Commitment Letter of January 18, 1989 makes it clear on its face that the $ 600,000 Note was to be immediately re-endorsed to Madison as additional collateral for the $ 740,000 loan. If there were some unwritten agreement that the Freemans were to become the owners of the $ 600,000 Note in order to proceed against the guarantors, then the FDIC would not be bound by such an unwritten agreement under the D'Oench Dume doctrine. See D'Oench, Dume & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942) (FDIC not bound by secret agreements not reflected in the banks' records); Langley v. FDIC, 484 U.S. 86, 91-92, 108 S. Ct. 396, 98 L. Ed. 2d 340 (1987) (D'Oench Dume doctrine and subsequent statute assure that FDIC will be able to quickly and accurately evaluate an insolvent institutions assets); see also 12 U.S.C. § 1823 (e) (no agreement which tends to diminish interest of FDIC in an asset is valid unless, inter alia, it is in writing).
The Freemans were themselves guarantors on the $ 600,000 Note in the amount of $ 200,000. It is somewhat disingenuous for the Freemans to claim that they defaulted on the $ 740,000 loan due to an inability on their part to move against the guarantors on the $ 600,000 Note when they themselves were guarantors on the $ 600,000 Note.
Neither does the Court find Plaintiffs' arguments with respect the Uniform Commercial Code persuasive. Essentially, Plaintiffs argue that FDIC's failure to act on the $ 600,000 Note, following the Freemans' default on the $ 740,000 Note in November 1990 and the maturity of the $ 740,000 Note in February, 1992, meant that the FDIC elected to take the $ 600,000 Note in full satisfaction of the Freeman's debt. By such action, the Freemans argue the FDIC relieved the Freemans of any further liability under the $ 740,000 Note. See D.C. Code § 28:9-505(2). Such a reading of the relevant provisions of the D.C. Code would grant the Plaintiffs a windfall. The Freemans cannot be absolved of a $ 740,000 liability because the FDIC chose for one course of action rather than another.
Plaintiffs also argue that the FDIC, by failing to move against the guarantors of the $ 600,000 Note before the expiration of the statute of limitations, unjustifiably impaired the collateral and thereby discharged the Freemans from their repayment obligation. See D.C. Code § 28:3-606(1). This argument runs counter to the fact that when Madison failed and the FDIC became receiver for the bank, the federal statute of limitations applicable to the FDIC became effective. Federal law extends the time for any right of action by the FDIC as receiver to six years from the date of the claim accrual. See 12 U.S.C. § 1821(d)(14)(A).
At oral argument, the FDIC assured the Court that it would pursue its rights against the guarantors. If the FDIC is successful in its efforts, then of course, the Plaintiffs would be credited with any amounts recovered that exceed their obligation to the bank.
When cut from all its complexity, this case is quite simple. The Freemans borrowed a large sum of money, securing the debt with the deed of trust on their home. Having defaulted on the debt, the defendant is entitled to proceed against the pledged collateral.
An appropriate order accompanies this opinion.
United States District Court
Based on the Plaintiffs' Motion for Partial Summary Judgment, Defendant's Motion to Dismiss, Defendant's Cross-Motion for Partial Summary Judgment, all opposition thereto, extensive oral argument, and for the reasons stated in the foregoing memorandum opinion, it is hereby
ORDERED that the Temporary Restraining Order issued on November 22, 1993 be dissolved, and it is
FURTHER ORDERED that summary judgment be granted in favor of the Defendant.
United States District Court