United States District Court, Southern District of New York
August 28, 1990
FEDERAL DEPOSIT INSURANCE CORP., PLAINTIFF,
JORGE ENGEL, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Kram, District Judge.
AMENDED OPINION AND ORDER
The Court issued a Memorandum Opinion and Order on May 15,
1990, granting plaintiff's summary judgment motion in part and
denying it in part. The denial was based on the Court's holding
that an estoppel defense was available to defendant Engel as
against the FDIC in its receivership capacity.
Plaintiff has since moved for reconsideration of that Opinion
in light of a change in the applicable statute that occurred
shortly after the filing of the original moving papers for
partial summary judgment. As of August 9, 1989, 12 U.S.C. § 1823(e)
as amended by the Financial Institutions Reform,
Recovery and Enforcement Act ("FIRREA") of 1989 now bars
defendants from asserting an estoppel defense against the FDIC,
both in its receivership as well as its corporate capacity.
Standard for Reargument
This Court will revisit a ruling when a motion for reargument
raises new matters or controlling decisions which this Court
has overlooked. Local Rule 3(j). It is clear that the Court
should have taken account of the FIRREA amendment of § 1823(e)
in its May 15, 1990 opinion. The Court should have then
considered, and must now consider, whether to give the amended
statute retroactive effect, i.e., whether it should apply to
this situation which arose before the change in law.
Retroactive Application of Amended Statute
The Supreme Court has long held that courts should apply the
law in effect at the time it renders its decision "unless doing
so would result in manifest injustice or there is statutory
direction or legislative
history to the contrary." Bradley v. Richmond School Bd.,
416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476 (1974). The
Court has searched the amended text of the statute as well as
the legislative history. Pub.L. 101-73, § 217 sub. (4). The
Court finds no directive to apply the change only
prospectively. See FDIC v. Dalba, 89-C-712-S, (W.D.Wis., Feb.
27, 1990), slip op. at 8, 1990 WL 43750; see also FDIC v.
British American Corp., 744 F. Supp. 116, 117 (E.D.N.C. 1990);
FDIC v. Carter, CIV-89-1338-A (W.D.Okla. June 1, 1990), slip
op. at 4.
Defendant, proceeding pro se, has written the Court a letter
citing the recent case of FDIC v. Cherry, Bekaert & Holland,
129 F.R.D. 188 (M.D.Fla. 1989), for the proposition that the
FIRREA amendments "cannot be applied retroactively in this
case." Letter of Jorge Engel, dated August 15, 1990. This case
is inapposite, and in any event stands for the opposite
conclusion. The citation is to a discovery order by a United
States Magistrate, addressing that portion of the FIRREA
amendments going to whether FDIC-Corporate could assert the
attorney-client privilege of a failed bank. The court held that
because there was a split in the circuits on this question
before the amendments were passed, the amendments merely
clarify rather than change existing law. 129 F.R.D. at 191-92.
The court therefore concluded that the amendments could be
Neither can the Court make a finding of "manifest injustice"
in this case. Bradley recites three factors which the Court
should weigh in making such a finding: (1) the nature and
identity of the parties; (2) the nature of their rights; and
(3) the nature of the impact of the change in law upon those
rights. 416 U.S. at 717, 94 S.Ct. at 2019. These factors are
aptly summarized by the Dalba court as follows: "Retroactive
application of a new law results in manifest injustice when the
disappointment of private expectations outweighs the public
interest in enforcing a new rule." Id. (citing Allied Corp. v.
Acme Solvents Reclaiming, Inc., 691 F. Supp. 1100, 1112
In the present case, the enforceability of debtors'
obligations to the FDIC, as regulated by Congress, is clearly
within the realm of the public concern. "The clear purpose of
the statute is to protect the funds of the FDIC in the public
interest of maintaining solvency for the regulated institutions
and maintaining solvency of the government agency." Dalba,
supra, slip op. at 9; see also FDIC v. Sullivan, 744 F. Supp. 239,
241 (D.Colo. 1990); British American Corp., supra, at 117.
There is no legitimate private expectation here that could
outweigh this public concern. Engel's interest in asserting an
estoppel defense against the FDIC is an equitable
consideration; he neither asserts, nor could he plausibly
assert, that had he known of the impending change to the FDIC
receivership provisions he would have acted differently with
respect to Jackie Finkielstein, the 99% shareholder of the
now-failed Central National Bank. Accordingly, the Court finds
no reason in this case to circumvent the presumption of
retroactivity. See Dalba, supra (retroactively enforcing FIRREA
amendment); Sullivan, supra (same); British American Corp,
supra (same); Carter, supra (same).
Application of Revised Statute to this Case
Title 12, § 1823(e) of the United States Code now reads in
No agreement which tends to diminish or defeat the
interest of the [FDIC] in any asset acquired by it
under this section or section 11 . . . as receiver
of any insured depository institution, shall be
valid . . . 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.
It is undisputed that these conditions have not been fulfilled
in the present case. While Engel argues that there was no
about the meeting at which he exchanged his Bravo shares for a
cancellation of his guarantee, there is no question that he
failed to obtain a written discharge to that effect. The Court
will assume for purposes of this motion that he is innocent of
wrongdoing. Nonetheless, he was in a position to protect
himself by insisting on a written cancellation with a receipt,
as required by the terms of his original agreement. Guaranty
between Central and Bravo, attached as Exhibit D to Affidavit
of David M. Cohen, submitted with FDIC's summary judgment
motion, at 2. By not obtaining a written cancellation, he
participated in an arrangement that would likely mislead the
FDIC's bank examiners concerning the true status of the bank's
liabilities. The principles announced in D'Oench, Duhme & Co.
v. FDIC, 315 U.S. 447
, 460, 62 S.Ct. 676, 680, 86 L.Ed. 956
(1942), favor the interest of depositors of a failed bank over
the interests of persons such as the plaintiff. Carico v. First
National Bank of Bogata, 734 F. Supp. 768, 769 (E.D.Tex. 1990).
Moreover, while it is true that the bulk of the funds
guaranteed by Engel, approximately $5 million, was lent to
Bravo after Engel purportedly cancelled his guarantee, there is
abundant authority for the proposition that such a guarantee is
a continuing obligation. Franklin National Bank v. Skeist,
49 A.D.2d 215, 373 N.Y.S.2d 869, 872-73 (1st Dep't 1975); Nanuet
Nat'l Bank v. Rom, 96 A.D.2d 898, 466 N.Y.S.2d 68 (2d Dept.
1983); Chemical Bank v. Wasserman, 45 A.D.2d 703, 357 N.Y.S.2d
13 (1st Dep't 1974), aff'd 37 N.Y.2d 249, 371 N.Y.S.2d 919,
333 N.E.2d 187 (1975).
Therefore, applying the revised version of § 1823(e),
defendant shall not be permitted to raise an estoppel defense
against plaintiff FDIC. Engel's continuing guarantee of the
debts of the Bravo Leather Corporation is in effect and is
enforceable by the FDIC as receiver, standing in the shoes of
the lender bank. See British Am. Corp., supra (precluding "no
clean hands" defense against FDIC as receiver for failed bank,
based on § 1823(e)).
Accordingly, it is hereby ORDERED that plaintiff
FDIC's motion to reargue is GRANTED; and it is
ORDERED that Court's decision of May 15, 1990 is
hereby VACATED; and it is further
ORDERED that plaintiff's motion for partial
summary judgment against defendant Engel is
GRANTED in its entirety.
This Order closes the case with respect to defendant Jorge
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