CLARK, Circuit Judge:
This is an appeal from an order granting summary judgment of foreclosure in favor of the Federal Savings and Loan Insurance Corporation (FSLIC). The mortgages were executed by Two Rivers Associates ("Two Rivers") in favor of Sunrise Savings and Loan Association. Robert H. Smith, whose purchase money mortgage was subordinated to the mortgages owned by Sunrise, opposed the motion in the district court. Smith now appeals. We affirm.
Two Rivers, a Florida corporation, was formed to develop the Schooner Oaks Project, a proposed condominium development in Martin County, Florida. The project initially was designed for 82 units, but was later expanded to 86 units. The principal officers of Two Rivers were Charles H. Pope and Fred W. Pearce. The land on which the project was to be built was sold to Two Rivers for $650,000 by Smith who accepted as consideration a promissory note in that amount secured by a purchase money mortgage.
A series of meetings with Old Sunrise culminated in the issuance of a Commitment Letter on June 13, 1983. Old Sunrise agreed to provide Two Rivers with a development and construction loan in the amount of $2.5 million. Two Rivers requested funding for the entire project in the amount of $10 million but the president of Old Sunrise, William Frame, told the principals of Two Rivers it would be easier for Old Sunrise to approve several smaller loans rather than one large loan. Pope affidavit, Record, Vol. 4, Tab 82, at 3. According to Pope, Pearce, and the loan officer of Old Sunrise, Joseph Zambruski, both parties agreed that Old Sunrise would fund the entire Schooner Oaks project. Id.; Pearce affidavit, Record, Vol. 3, Tab 69, Exh. 9; Zambruski affidavit, Vol. 3, Tab 81, Exh. 2.
That same day, Two Rivers sent a letter to Old Sunrise accepting the loan commitment, subject to several changes it requested. This "Letter of Clarification" stated that Two Rivers' acceptance of the commitment was conditioned on Old Sunrise's agreement to fund the entire Project.
The Amendment also required Smith's lien to be reduced to a purchase money mortgage in the amount of $400,000 with the remaining $250,000 to be evidenced by a corporate note and for the mortgage to be subordinated to Old Sunrise's mortgage and any future loans. Smith states in his affidavit that he was induced to subordinate his loans to Old Sunrise by its promise to fund the entire Schooner Oaks project. Record, Vol. 3, Tab 81, Exh. 1. Although he was not present at the meetings, his attorney Stephen Fraiser was and communicated Old Sunrise's promise to Smith. See Fraiser affidavit, Record, Vol. 3, Tab 81, Exh. 3; Pope affidavit, Record, Vol. 4, Tab 82.
In June 1983, therefore, Two Rivers closed on the initial loan of $2.5 million and executed a promissory note and mortgage ("The First Mortgage") which was duly filed. The mortgage contained a $10 million future advance clause. It also provided that any future loans would be cross-secured. In addition, the mortgage required Two Rivers to obtain Old Sunrise's consent before seeking other secured financing. As required, Smith reduced his purchase money mortgage to $400,000 and executed a written subordination agreement that gave a first lien to the Old Sunrise mortgage. It is significant that Smith did not
On January 4, 1984, the Old Sunrise loan committee approved an $800,000 future advance under this mortgage because of unanticipated costs. At this time, Old Sunrise also increased its profit participation requirement from $4000 to $4500 per unit sold. Smith again subordinated his purchase money mortgage to the Old Sunrise Future Advance. Record, Vol. 3, Tab 82, Exh. 10, 11.
In March 1984, Two Rivers requested loans for the construction of two more buildings. Old Sunrise submitted a Commitment Letter for a loan of $1.15 million. Due to a dispute over title insurance and the need for an updated appraisal, Old Sunrise refused to close under that Commitment Letter. However in October 1984, after receiving additional title insurance and submission of a new appraisal, Old Sunrise agreed to close on a $919,500 loan. Two Rivers executed a mortgage ("Second Mortgage") which was duly recorded. During the delay Smith loaned Two Rivers $7,000 to meet operating expenses; this loan was unsecured. Smith affidavit, Record, Vol. 3, Tab 81, Exh. 1. In February 1985, pursuant to a request for additional funds, Two Rivers executed a third mortgage ("Third Mortgage") for $1.471 million which was recorded. Both mortgages contained cross-default provisions. Smith subordinated his mortgage to both the Second and Third Mortgages.
Finally, in March 1985, Two Rivers applied to Old Sunrise for the funding of two additional buildings. By letter dated May 6, 1985, however, Zambruski notified Two Rivers that its interest reserve accounts with the Bank were near depletion and that Old Sunrise would neither advance more funds nor renegotiate the terms of the existing loans. Pope affidavit, Record Vol. 4, Tab 82.
Two months thereafter the Federal Home Loan Bank Board ("Bank Board") and the Florida Department of Banking declared Old Sunrise to be insolvent and in an unsafe and unsound condition to transact business. The FSLIC was appointed as a receiver and reorganized Old Sunrise into the Sunrise Savings and Loan Association ("New Sunrise") and transferred all of Old Sunrise's assets and liabilities to that institution. Among the assets were those related to the transactions with Two Rivers.
Two Rivers defaulted on the original loan by failing to make payments due August 1, 1985 and all subsequent payments. Two Rivers defaulted on the second loan by failing to make payment due September 1, 1985 and all subsequent payments. Finally, Two Rivers defaulted on the third loan pursuant to the cross-default provision.
B. Procedural History
On March 3, 1986, New Sunrise commenced an action in the Circuit Court for Martin County, Florida, to enforce the promissory notes and foreclose the mortgages. By order dated June 27, 1986, the state court granted New Sunrise's motion for partial summary judgment finding the notes and mortgages to be valid, in default, and superior to any other claims. The court directed a public sale of the properties if the debt of $5,499,899.19 was not satisfied within three days. Record, Vol. 3, Tab 69, Exh. 12. The court also granted
Two Rivers, Pearce, and Pope filed amended answers asserting affirmative defenses and counterclaims relating to Old Sunrise's failure to fund the entire project; Smith's amended answer only raised defenses based on this agreement. In addition, all the defendants moved for reconsideration of the motion granting summary judgment. The circuit court subsequently stayed the foreclosure sale and set a briefing schedule on the motion for reconsideration of summary judgment. Id., Exh. 22. The defendants initially filed a notice of appeal to the Fourth District Court of Appeals but the appellate court relinquished jurisdiction to the lower court for forty-five days for a ruling on the motion to reconsider. Id., Exh. 24.
During that time, however, the Bank Board determined that New Sunrise was insolvent and on September 12, 1986, appointed the FSLIC as receiver for the purpose of liquidating its assets and making payment of its liabilities. Before the circuit court ruled on the motion for reconsideration, the FSLIC removed the action to the United States District Court for the Southern District of Florida pursuant to 12 U.S.C. § 1730(k)(1)(C). On March 6, 1987, Smith filed a motion for leave to amend his amended answer to add counterclaims. That motion was denied on May 4, 1987.
On September 25, 1987, the FSLIC moved to dismiss the counterclaims asserted by Two Rivers and for summary judgment. In opposition, Smith argued to the district court that there were factual disputes which precluded summary judgment.
The issue on appeal is whether summary judgment was appropriate in light of the defenses and counterclaims asserted by Smith. More specifically, Smith argues that he submitted evidence that demonstrates that Old Sunrise defaulted on its obligations to fund under the Third Mortgage
Summary judgment is appropriate only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In reviewing a decision granting or denying summary judgment, this court applies the same standard as applied by the district court. Clemons v. Dougherty County, 684 F.2d 1365, 1369 (11th Cir.1982). The party seeking summary judgment must bear the initial responsibility of identifying the portions of the record which demonstrates the absence of a genuine issue of material fact. Celotex v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The nonmoving party then must "go beyond the pleadings and ... designate `specific facts showing that there is a genuine issue for trial.'" Id. Finally, the court must view the evidence in the light most favorable to party opposing the motion and draw all reasonable inferences from the facts in favor of the nonmovant. Clemons, 684 F.2d at 1369.
In this case, the FSLIC presented the district court with affidavit of A.E. Elroy, the Vice President of New Sunrise, which stated that Two Rivers defaulted on both the First and Second Mortgage by failing to make payments in August and September 1985 respectively and that through the cross-default provisions, Two Rivers defaulted on the Third Mortgage. Under Florida law, the failure to make a timely installment payment entitles the holder of a note and mortgage to foreclose in accordance with the terms of the instruments. David v. Sun Federal Savings & Loan Ass'n, 461 So.2d 93, 96 (Fla.1984); Pezzimenti v. Cirou, 466 So.2d 274, 276 (Fla.Dist.Ct.App.1985). However, the equitable remedy of foreclosure may be denied if the holder of the note comes to the court with unclean hands or the foreclosure would be unconscionable. See Walter Harvey v. O'Keefe, 346 So.2d 617, 618 (Fla.Dist.Ct.App.1977); VAC Development Corp. v. Abelleira, 330 So.2d 791, 792 (Fla.Dist.Ct.App.1977); Pelle v. Glantz, 349 So.2d 732, 734 (Fla.Dist.Ct.App.1977); Federal Home Loan Mortgage Corp. v. Taylor, 318 So.2d 203, 208 (Fla.Dist.Ct.App.1975).
In opposing summary judgment, Smith contends that there is a dispute about whether Old Sunrise breached its obligation to dispense funds under the Third Mortgage. Smith argues that because of this breach his mortgage should be made superior to the Old Sunrise mortgages. The FSLIC contends that Old Sunrise did not breach its obligation under the loan agreement but Smith asserts that the affidavits show that Old Sunrise wrongfully refused to advance funds committed under the Third Mortgage. Although Old Sunrise informed Two Rivers that its interest reserves were almost depleted, a memorandum from the Old Sunrise files indicates that the interest reserves were not depleted at that time. At first blush, it seems that there is a factual dispute which should preclude summary judgment. However, neither the affidavits nor the documentary evidence in the record support even a reasonable inference that Old Sunrise breached an agreement to disburse funds already committed to Two Rivers under the Third Mortgage. Instead, the affidavit indicate that after May 6, 1985, Old Sunrise refused to lend additional funds to complete the entire project.
Pope's affidavit is the only affidavit which arguably supports Smith's recitation of the facts.
Smith has produced affidavits from Pope, Pearce, his attorney Fraiser, and the loan officer from Old Sunrise, Zambruski, stating that Old Sunrise agreed to fund the entire project. This agreement was not in writing. The parties do not address whether Florida's parol evidence rule would permit consideration of Old Sunrise's alleged oral promise to vary the written notes, mortgage and subordination agreements. Smith does not claim that his subordination agreements were procured by fraudulent means, which might be a basis of such evidence being considered by a court. Pena v. Tampa Federal Savings & Loan Ass'n, 363 So.2d 815 (Fla.Dist.Ct.App.1978), cert. denied, 373 So.2d 461 (1979). Instead of relying on this defense, the FSLIC contends that under the federal common law, Smith is estopped from asserting his defenses and counterclaims based on the agreement because the agreement was not reflected in Old Sunrise's records.
In D'Oench, Duhme & Co. v. FDIC, the FDIC sued for payment on a note it assumed when a bank failed. The note was executed by D'Oench, Duhme, a brokerage firm, so that the bank could cover a loss from bonds it had bought from the firm. The receipt for the note which was not contained in the bank records indicated that the note was given with the understanding that it would never be called for payment. 315 U.S. at 454, 62 S.Ct. at 678. The defendant asserted the agreement and lack of consideration as defenses to liability. The Supreme Court held that the defendant was estopped from raising defenses based on this "secret agreement." Id. at 461, 62 S.Ct. at 681.
The Supreme Court first held that liability on the note was determined by federal common law rather than state law because
There is no doubt that if D'Oench, Duhme applies in this case, it would bar Smith's defenses and counterclaims. If the agreement to fund the entire Schooner Oaks project was not reflected in the Old Sunrise's records, it is clear that the FSLIC would have been misled about Old Sunrise's financial condition.
Langley v. FDIC, 484 U.S. 86, 93, 108 S.Ct. 396, 402, 98 L.Ed.2d 340 (1988). In Langley, the Court held that 12 U.S.C. § 1823(e), which provides that an agreement is not valid against the FDIC unless it is in writing, estops a defendant from raising the defense of misrepresentation. Id. at 93-94, 108 S.Ct. at 402. In concluding that the term "agreement" included a misrepresentation, the Court held that section 1823(e) was meant to offer as much protection to the FDIC as the common law rule in D'Oench, Duhme. Id. at 91, 108 S.Ct. at 401.
Here Smith was actively involved in the negotiations between Old Sunrise and Two Rivers and could have insisted that the agreement be explicitly stated in any of the many loan documents. Id. at 94-95, 108 S.Ct. at 403. Thus the D'Oench, Duhme doctrine may bar his defenses. Compare FSLIC v. Murray, 853 F.2d 1251, 1255 (5th Cir.1988) (defendants estopped from raising defense of material alteration when they signed blank signature forms which were later appended to different document); FDIC v. McClanahan, 795 F.2d 512, 516 (5th Cir.1986) (when maker of note signed blank promissory note and gave it to someone he knew was convicted of bank fraud, he was estopped from raising defenses under D'Oench, Duhme) and FDIC v. Investors Associates X, 775 F.2d 152, 155 (6th Cir.1985) (defendant estopped from raising fraud defense when he signed blank note) with FDIC v. Meo, 505 F.2d 790, 793 (9th Cir.1974) (defendant not estopped from asserting defense of lack of consideration when he had no reason to know that bank had not complied with his request).
Smith advances two arguments why the D'Oench, Duhme doctrine does not apply. Notably, Smith does not argue that the D'Oench, Duhme doctrine is inapplicable to the FSLIC and we agree with the Fifth, Sixth, Eighth and Tenth Circuits that since the FSLIC has parallel duties and power with respect to savings and loans as the FDIC has with banks,
As the D'Oench, Duhme Court held, the federal common law protects the FDIC from misrepresentations as to the financial conditions of the institutions which it insures. In Langley, the Supreme Court emphasized that the purpose of section 1823(e), and by implication the D'Oench, Duhme doctrine, is to allow the FDIC to rely on bank records both when insuring the bank and when taking over a failed bank. The Court stated that "[n]either the FDIC nor the state banking authorities would be able to make a reliable evaluation if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions." 484 U.S. at 91-92, 108 S.Ct. at 401; Gunter v. Hutcheson, 674 F.2d 862 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); see also FDIC v. Castle, 781 F.2d 1101, 1108 (5th Cir.1986) (quoting FDIC v. Powers, 576 F.Supp. 1167 (N.D.Ill.1983), aff'd, 753 F.2d 1076 (7th Cir.1984)).
Smith argues that the loan documents indicate that Old Sunrise had agreed to fund the entire Schooner Oaks project. In support of his argument, Smith relies mainly on the contents of the Letter of Clarification and First Amendment. In addition, he points to specific provisions in the loans and mortgages which he contends supports a finding that Old Sunrise agreed to finance the entire project. We disagree.
In the Letter of Clarification, Two Rivers stated, "[o]ur acceptance is expressly conditioned on your agreement to provide us further funding for construction of the condominium units based on terms and conditions substantially as follows. You will make a loan of approximately $550,000 each four unit building[.]" Record, Vol. 4, Tab 82, Exhibit 4. Although this evidences Two Rivers' intent, it does not establish an obligation on the part of Old Sunrise. In fact, there is no explicit acceptance of that condition anywhere in the First Amendment which supercedes "all terms and conditions contained in the Letter of Clarification." Record, Vol. 4, Tab 84, Exhibit 5. Smith argues that the Amendment evidences an acceptance because in its modified profit participation provision, it states that the $4000 per unit was given in consideration for "providing this Loan and agreeing to provide a Construction Loan Commitment." Id. We do not agree. Although this statement evidences Old Sunrise's obligation to provide an additional Construction Loan Commitment, it does not indicate the terms of any construction loan and most importantly, there is no mention that such a loan commitment would be for the entire Schooner Oaks project. The focus of the inquiry in this case is whether the FSLIC had notice of the obligation to fund the entire project. This is not a case like Howell where the leases on which the suit was based "clearly manifest[ed] the bilateral nature of the lessee's and lessor's rights and obligations." 655 F.2d at 747.
Without the explicit statement of an obligation, Smith is forced to argue that certain provisions in the loan agreements evidence the agreement to fund the entire project. These provisions at most reflect that Old Sunrise intended to loan additional funds; they fall far short of establishing that Old Sunrise was obligated to fund the entire project.
Smith's arguments might be appropriate in a suit against Old Sunrise where the issue was whether Old Sunrise ever agreed to fund the entire project. In such a case, the terms of the contract might be sufficient when added to the supporting extrinsic evidence (if admissible) to find that the parties agreed that Old Sunrise would fund the entire project. These arguments, however, are not sufficient in this case to survive summary judgment against the FSLIC. In this case, the question is whether the FSLIC was put on notice of any agreement that Old Sunrise was obligated to fund the entire project. Since the bank records did not reflect the unrecorded, unwritten, "secret" agreement, Smith's first argument against applying the D'Oench, Duhme doctrine fails. Langley, 484 U.S. at 94, 108 S.Ct. at 402.
Smith's second argument is that D'Oench, Duhme should not apply when the FSLIC is acting in its capacity as a receiver rather than in its corporate capacity. When the FSLIC decides to liquidate the institution's assets and sues on a note, it is suing in its capacity as a receiver. The FSLIC sues in its corporate capacity when it sues on a note that it assumed during a purchase and assumption transaction to save the failed institution.
Gunter does not require us to hold D'Oench, Duhme inapplicable to the FSLIC in its receivership capacity. First, the Gunter holding is undercut by Langley for the Gunter court only reached the issue of federal common law because it concluded that section 1823(e) did not estop a defense of fraudulent inducement. 674 F.2d at 867. That conclusion was rejected by the Langley court. 484 U.S. at 93, 108 S.Ct. at 402. In addition, as noted supra, Meo is distinguishable on its facts. Furthermore, we note that Gunter limited the holding to the FDIC acting in its corporate capacity because of the need to rely on the bank records to determine whether to liquidate or engage in a purchase and assumption transaction. 674 F.2d at 873. That need is no different when the FDIC or the FSLIC is acting in its receivership capacity. Indeed, in this case the FSLIC relied on the bank records in choosing to liquidate rather than pursue a purchase and assumption transaction. Id.;see Murray, 853 F.2d at 1256. Finally, the Supreme Court emphasized in Langley that the federal policy protects the FDIC or the FSLIC's reliance on the bank records even before the institution fails. 484 U.S. at 94-95, 108 S.Ct. at 403. The Court recognized that one of the harms which this rule protects against "occurs no later than the time at which [the FSLIC] conducts its first bank examination that is unable to detect the unrecorded agreement." Id. at 95, 108 S.Ct. at 403. Thus, the reasoning behind D'Oench, Duhme requires that it be applied to protect the FDIC and the FSLIC regardless whether the regulatory body is acting in its capacity as a receiver or as a corporate insurer.
We hold that summary judgment was appropriately granted for the FSLIC; there were no disputes of material fact which precluded summary judgment and the FSLIC was entitled to judgment as a matter of law. The district court correctly held that Smith was estopped from raising his defenses because they were based on an agreement that was not reflected in the records of Old Sunrise. Finally, since the district court erred in holding that the court did not have jurisdiction to consider Smith's counterclaims, that portion of the opinion is vacated. However, since the counterclaims were also based on the same "secret agreement" as the defenses, the defendant is also estopped from asserting them. Therefore, the district court's order granting summary judgment is AFFIRMED.
Record, Vol. 4, Tab 82, Exh. 4.
Record, Vol. 3, Tab 82, Exh. 23.