the FDIC against having to litigate all possible "personal" defenses. Granting the FDIC federal holder in due course status, the court reasoned, insured its ability "to effectively perform its congressionally mandated function." Campbell Leasing, 901 F.2d at 1249. The court also specifically rejected the notion that the FDIC could not have this status when acting in its receivership function. Id.
Defendants, however, cite contrary authority for proposition that when suing in its capacity as receiver, the FDIC as receiver is not a federal holder in due course and thus not immunized from defenses beyond those already barred by D'Oench. In FDIC v. Laguarta, a Fifth Circuit case which in dictum seems to reach a result contrary to Campbell Leasing, another Fifth Circuit case, the court stated:
We likewise reject the Receiver's [FDIC's] Argument . . . that Laguarta's defenses are barred by the federal common-law holder in due course doctrine. Here the FDIC sues only in its capacity as receiver for the institution which made the loan and is payee in the note sued on, and the FDIC does not assert, nor does the record establish, the loan or note has ever been transferred or was ever part of a purchase and assumption transaction. To the extent that it precludes defenses beyond those precluded by D'Oench, Duhme, the federal holder in due course doctrine is inapplicable to such a situation.
939 F.2d at 1239, n. 19 (citing Gunter v. Hutcheson, 674 F.2d 862, 872-73 (11th Cir.), cert. denied, 459 U.S. 826, 74 L. Ed. 2d 63, 103 S. Ct. 60 (1982)).
To the extent that defendants' claims are based upon their interpretation of explicit provisions of the Note and Building Loan Contract, the rationale for extending federal holder in due course status to the FDIC here does not apply. As the court in Campbell Leasing persuasively reasoned:
If the FDIC were required to determine the value of the bank's notes in light of all possible "personal" defenses, a purchase and assumption transaction could not take place in the timely fashion necessary to ensure "uninterrupted operation" of the bank and the "safety and liquidity" of deposits.
901 F.2d at 1248. Here, however, the contractually-based defenses raised by defendants are not "personal" defenses like the claims of tortious interference with contract, bad faith, and infliction of emotional and mental distress at issue in Campbell Leasing. As we said earlier, several of defendants' claims are founded upon express provisions of the Building Loan Contract. Therefore, we decline to extend federal holder in due course status to the FDIC under these circumstances.
D. Exhaustion of Administrative Remedies
Plaintiff's third argument is that defendants' counterclaims are barred by their failure to exhaust administrative remedies. They argue that these claims were not presented to the FDIC for review pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821(d)(3). Plaintiff contends that no notice of claim was filed by the Vernons before November 19, 1991, the end of the required statutory period.
Defendants argue in response that the Supreme Court in Coit Independence Joint Venture v. Federal Sav. & Loan Ins. Corp., 489 U.S. 561, 103 L. Ed. 2d 602, 109 S. Ct. 1361 (1989), in considering claims against the FSLIC, held that claimants against the agency were entitled to judicial review of their claims regardless of any failure to exhaust administrative remedies. Secondly, defendants argue that the counterclaims were interposed against Citytrust in August 1991, before the FDIC was even appointed receiver for Citytrust. Thus, ask defendants, why must they pursue administrative remedies when they already stand in court in an adversarial posture toward Citytrust, and subsequently the FDIC as its receiver?
As other courts have noted, the FIRREA was explicitly drafted to satisfy the procedural shortcomings of administrative review identified by the Supreme Court in Coit. See Circle Industries v. City Federal Sav. Bank, 749 F. Supp. 447, 455 (E.D.N.Y. 1990), aff'd, 931 F.2d 7 (2d Cir. 1991). In so doing, Congress expressly withdrew jurisdiction from all courts over any claim to a failed bank's assets made outside the procedures established in § 1821. The claims procedures set up in § 1821(d) are designed to be exclusive. However, we must resolve whether these procedures also apply to claims that have already been raised before the FDIC was appointed receiver.
In most of the cases cited by plaintiff, the regulatory agency involved, be it the FDIC or Resolution Trust Corporation, was appointed receiver for the failed banks before a court action was filed. Under these circumstances, there is no doubt that a party asserting a claim against an insolvent bank's assets must first follow the procedures set forth in § 1821(d). See, e.g., FDIC v. Shain, Schaffer & Rafanello, 944 F.2d 129, 130-31 (3rd Cir. 1991) (claims barred by § 1821 in suit where receiver appointed before suit filed); Circle Industries, 749 F. Supp. at 453 ("Since the RTC was appointed Receiver . . . before Circle Industries brought this action . . . the Court does not have jurisdiction to hear the claims asserted by Circle Industries against [the insolvent banks].").
In one case, Everett N. Dobson & Sons, Inc. v. Dictar Associates II, 764 F. Supp. 1 (D.Me. 1991), the FDIC, after moving to be substituted for an insolvent bank that had been sued in federal court, moved to dismiss the action for failure to exhaust administrative remedies pursuant to § 1821(d). The court permitted the substitution and held that the dictates of § 1821(d) were clear and unambiguous; the court lacked jurisdiction over the claims asserted against the failed bank. See id. at 2.
While not binding on this court, we reach the same conclusion. Section 1821(d)(13)(D) of Title 12 explicitly restricts the jurisdiction of federal district courts:
(D) Limitation on judicial review
Except as otherwise provided in this subsection, no court shall have jurisdiction over--
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such institution or the Corporation as receiver.
The FIRREA does not limit the application of this subsection to claims filed after the Corporation has been appointed receiver. By its unambiguous terms, it applies to "any action seeking a determination of rights" and claims relating to "any act or omission" of a failed bank. We see no reason to read into this blanket withdrawal of jurisdiction any limitation for claims already pending before a court.
Indeed, an exception for claims already pending is both unnecessary and would undermine at least one of the statute's primary objectives. If defendants had filed their claims with the FDIC pursuant to § 1821 and were dissatisfied with the FDIC's determination, they would still retain the option of seeking judicial review of their claims pursuant to § 1821(d)(6).
In addition, permitting defendants to maintain their counterclaims in this court would frustrate one purpose of the FIRREA, allowing a large number of claims to be resolved by the FDIC without unduly burdening the courts or delaying the expeditious resolution of all claims against failed financial institutions. See Circle Industries, 749 F. Supp. at 453 (quoting a Report of the House Banking, Finance and Urban Affairs Committee recommending passage of FIRREA). Therefore, after concluding that this court lacks jurisdiction over claims not first filed with the FDIC, we grant plaintiff's motion to dismiss defendants' two counterclaims.
E. The Contract Provisions
We are thus left with defendants' six affirmative defenses. As we have held, the FDIC is not entitled to federal holder in due course status in this case. Further, the D'Oench doctrine only bars those defenses which are not grounded on the express provisions of the Building Loan Contract, Note, or Mortgage. These include claims in the second affirmative defense for negligence, want of care, and poor business decisions, as well as the third affirmative defense of "unclean hands." We must still determine whether plaintiff's are entitled to summary judgment on the affirmative defenses based upon the improper withholding of funds in violation of the express provisions of the loan agreements.
Defendants argue that the contract language regarding the amounts Citytrust was obligated to advance, specifically for construction costs and interest payments, is ambiguous at best. Therefore, they continue, questions of fact exist as to the proper interpretation of the contract and the parties' intent, questions which preclude granting summary judgment. We note, however, that the ambiguity of contract language is a question of law, not fact. See Werbungs Und Commerz Union Austalt v. Collectors' Guild, Ltd., 930 F.2d 1021, 1026 (2d Cir. 1991).
In addition, defendants stress that the absence of any discovery to date of the bank files in possession of the FDIC supports a denial of summary judgment at this point. Ordinarily this might be true. However, here the issues to be resolved turn on the language of the contract and certain undisputed facts regarding the loan advances made by Citytrust.
For the remaining claims, it must be determined whether the manner in which Citytrust advanced funds to the Vernons breached the express provisions of the Building Loan Contract as defendants claim. As we noted earlier, Schedule B of the Building Loan Contract lists the manner in which loan funds were to be disbursed. However, this schedule of disbursements was subject to a cap of $ 3.8 million until defendants leased at least 20% of the building's improved space at a price of $ 22/per square foot or better.
There is no dispute that defendants failed to meet the 20% leasing requirement. The Building Loan Contract is also clear that once Citytrust had advanced $ 3.8 million, they were not required to further fund any aspect of defendants' construct ion project until the 20% requirement was met. Defendants have not alleged that any advances made by Citytrust before the $ 3.8 million mark was reached violated Schedule B.
Instead, what they apparently argue is that Citytrust breached the contract by making advances above the $ 3.8 million ceiling only to cover the monthly interest payments due to it, advances say defendants not in accord with Schedule B which required $ 2.7 in advances for actual construction costs. It was only when Citytrust stopped making these interest payments to itself in February 1990 that defendants were deemed in default.
The determinative question then is whether Citytrust breached the contract by making such interest payments once total advances reached $ 3.8 million when less than $ 2.7 million had been advanced for construction costs. Based upon the express terms of the Building Loan Contract, the court concludes that the answer is no. Defendants ran afoul of three contractual obligations. First, the contract required completion of all improvements and a building ready for occupancy by August 17, 1989. When the Vernons failed to meet this deadline, they were in breach of the contract.
Second, the contract included a holdback provision allowing Citytrust to hold back 10% of the hard cost budget until defendants completed construction and rentals for the premises had reached the break even level for debt service. Defendants do not contend that they satisfied these conditions, indeed they did not, so Citytrust was contractually entitled to a 10% holdback. Lastly, Citytrust was under no obligation to make any advances over and above $ 3.8 million until defendants leased 20% of the improved space. When Citytrust's total advances reached $ 3.8 million, any further advances were discretionary.
Such discretionary advances, whether for interest or actual building costs, did not violate the contract. Paragraph 4 of the Building Loan Contract states that the "Lender [Citytrust] may advance all or part of any installment before the date that it is due." Additionally, Paragraph 11(B)(3) provides that the "Lender may continue to pay installments without giving up any of Lender's rights or waiving them." Thus, Citytrust had broad discretion to continue making advances once defendants had defaulted.
When applied to advances beyond the $ 3.8 million, the meaning of these provisions is clear. Once total advances equalled $ 3.8 million and less than 20% of the improved space had been leased by defendants, Citytrust could, at its option, continue to make advances for interest. Although further advances were not required until defendants satisfied the 20% leasing requirement and holdback criteria, the contract gave Citytrust the discretion to continue making advances for the interest installments as they became due.
No doubt Citytrust did so for some time hoping that defendants might yet complete the building improvements and increase their leasing. But Citytrust was under no obligation to give defendants any such grace period. They could have declared defendants in default long before this; they chose instead to cover the interest for some time, a choice explicitly permitted by the contract's terms. Their decision ultimately to halt these discretionary advances represented no violation of the Building Loan Contract. There is also no indication in the record that any of these actions by Citytrust represented unconscionable behavior justifying excusal of defendants' default. See Thrift Ass'ns Service Corp. v. Legend of Irvington, 152 A.D.2d 666, 544 N.Y.S.2d 20, 21 (2nd Dep't 1989).
To conclude, we grant plaintiff's motions for appointment of a receiver and summary judgment and direct the Clerk to enter judgment in favor of plaintiff.
Dated: White Plains, New York.
July 24, 1992.
GERARD L. GOETTEL