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December 1, 1993

CLYDE C. FREEMAN, et al., Plaintiffs,
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Madison National Bank, Defendant.

The opinion of the court was delivered by: STANLEY SPORKIN

 This case involves failed loans made by a failed bank to a failed radio station. Plaintiffs Clyde C. Freeman and Nancy F. Freeman, residents of the District of Columbia, sued the Federal Deposit Insurance Corporation ("FDIC") in the Superior Court of the District of Columbia to prevent the FDIC from foreclosing on their home and other properties. The FDIC properly removed the case to this Court. Before the Court are Plaintiffs' motion for partial summary judgment, Defendant's Cross Motion for Partial Summary Judgment, and Defendant's Motion to Dismiss.

 Plaintiffs had previously filed an application for a Temporary Restraining Order and a Preliminary Injunction. On November 4, 1993, the Court heard oral argument on the application for the TRO and the preliminary injunction. It was agreed by the parties at the November 4, 1993 hearing that this matter could be resolved on summary judgment. The Court held a summary judgment hearing on November 17, 1993. Because of the complexity of the facts and law surrounding this issue, the Court found it necessary to issue a Temporary Restraining Order on November 22, 1993, preventing any action by the FDIC to foreclose on Plaintiffs' residence until the Court could address the various issues presented by the case. Since the issuance of the TRO, the Court has had an opportunity to review the issues presented and as a result the Temporary Restraining Order will be dissolved and Summary Judgment will be granted in favor of the Defendant, FDIC.


 In October 1984, Mr. Howard Saunders obtained a loan from Madison National Bank ("Madison National") in the amount of $ 600,000 for his company, Howard Saunders Communications to purchase Radio Station WANT-AM in Richmond, Virginia. The loan was secured by a deed of trust on the radio station and all related real and personal property, and personal guarantees from the principal owners of Saunders Communications in the amount of $ 200,000 each. Clyde and Nancy Freeman were principal owners of Saunders and executed a loan guarantee in the amount of $ 200,000 to Madison National.

 In January, 1985, WANT-AM was sold to Robinson Broadcasting Corporation ("Robinson") for $ 600,000. Madison National financed the sale of WANT to Robinson by making a $ 600,000 loan to Robinson. Robinson executed a Deed of Trust Note for the $ 600,000 (the "$ 600,000 Note"). As security for repayment of the $ 600,000 Note Madison was given a Deed of Trust on the 6.2 acre tract of property on which the Robinson radio tower was located in Henrico County, Virginia ("the "Henrico Property"). As additional security for repayment of the $ 600,000 Note, the guarantors on the Saunders Communications loan from Madison National, including the Freemans, remained as guarantors on the new Robinson Broadcasting loan.

 Almost immediately after the $ 600,000 loan was made, Robinson broadcasting began to experience financial problems because the cash flow generated by WANT was insufficient to service the $ 13,000 per month loan payment. In 1986, Plaintiffs were contacted by Howard Saunders, a principal officer and stockholder of Robinson to determine if Plaintiffs were interested in taking over WANT-AM. Madison was aware of the radio station's financial problems and was contemplating foreclosing on the loan.

 In early 1987, Madison consented to Plaintiffs taking over WANT-AM. Madison required that the $ 600,000 Note, the Deed of Trust on the Henrico Property and the Stockholders' Guarantees remain in place.

 In June 1987, Plaintiffs became the sole stockholders of Robinson. At that time, Madison required, and Plaintiffs granted, the pledge of Plaintiffs' Robinson stock to Madison as additional security for repayment of the $ 600,000 Note.

 The Freemans encountered serious difficulties servicing the loan from the start because WANT-AM did not generate enough income to service the debt. Through June 1987 to January 1989, WANT-AM continued to have financial difficulties. In January 1989, in order to consolidate various loans that the Plaintiffs had at Madison, a restructuring of the debt was arranged. Plaintiffs satisfied the $ 600,000 Note by giving Madison a new note in the amount of $ 740,000, secured by a first Deed of Trust on Plaintiffs' Residence. The $ 740,000 figure took in account the approximately $ 559,000 balance outstanding on the $ 600,000 Note, $ 75,000 to retire the existing indebtedness on the Residence and approximately $ 106,000, for an interest reserve on the $ 740,000 loan. Plaintiffs also borrowed an additional $ 150,000, secured by a first Deed of Trust on Plaintiffs' office building. The proceeds of this loan were to pay off an existing first deed of trust loan on the office building property, and to pay costs and accrued interest on their existing debt to Madison. Madison incorporated the terms of this transaction in two Letters of Commitment, dated January 18, 1989.

 Plaintiffs allege that as part of this transaction, they were to receive the $ 600,000 Note and attendant rights and benefits under the Deed of Trust on the Henrico Property and the Stockholders' Guarantees.

 Because the Bank required additional collateral for the $ 740,000 Note, the record shows the Plaintiffs re-endorsed the $ 600,000 Note back to Madison, and Madison retained possession of the $ 600,000 Note, the stockholders' Guarantees and the Henrico Property Deed of Trust. *fn1"

 The Freemans defaulted on both the $ 740,000 loan and the $ 150,000 loan and formal default was declared by Madison in November, 1990. Plaintiffs attribute their default on the $ 740,000 Note to their inability to collect on the Guarantees on the $ 600,000 Note.

 Beginning in 1989, Plaintiffs undertook to sell WANT-AM. By early 1990, they had found a purchaser, Opticom, Inc., and had reached a tentative agreement with Opticom for purchase. Pursuant to Plaintiffs' arrangements with Opticom, the Federal Communications Commission formally transferred the license to operate WANT-AM from Plaintiffs to Opticom. Plaintiffs allege that this entire transaction failed to close, however, because Madison had retained the $ 600,000 Note and the first lien on the Henrico Property, as a consequence of which Opticom could not get good ...

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