is a condition falling within definition of "agreement").
B. Applying the D'Oench Doctrine and 12 U.S.C. § 1823(e) to the Present Case
Under both the D'Oench doctrine and 12 U.S.C. § 1823(e), plaintiffs' contention that their debts were to be paid out of partnership assets is barred. Any such agreement is a "secret" agreement, in that neither the FNYB nor the FDIC knew of this agreement. Because it does not meet any of the four requirements of 12 U.S.C. § 1823(e), any such promise regarding repayment of the promissory note is unenforceable.
Plaintiffs' fraud claim is similarly barred. Because the courts have broadly defined "agreement" in 12 U.S.C. § 1823(e) to include defenses to contract formation and certain tort claims, plaintiffs' fraud claim is an "agreement" subject to the four requirements of 12 U.S.C. § 1823(e). Plaintiff's fraud claim, however, does not meet the four requirements of § 1823(e). There is no evidence in the bank's records, including the promissory notes, letters of credit or the estoppel letters, indicating that there was looting or mismanagement of Triad IV. Consequently, plaintiffs' claim based on fraud also is barred as against defendant FDIC.
In summation, defendant's request for summary judgment on the ground that the D'Oench doctrine and 12 U.S.C. § 1823(e) bar plaintiffs' contention that the promissory notes were to be paid from the proceeds of the limited partnership is granted. Defendant's request for summary judgment on the ground that the D'Oench doctrine and 12 U.S.C. § 1823(e) bar plaintiffs' contention that the promissory notes are unenforceable because of the mismanagement and looting by the general partner of Triad IV is similarly granted.
V. The Doctrines of Waiver and Estoppel
Defendant FDIC further contends that plaintiffs expressly waived their right to allege any defense against their obligation to pay when they executed the September 1991 Notes and the accompanying estoppel letters to FNYB. Defendant FDIC argues that plaintiff's "not only specifically agreed not to raise any defenses, but affirmatively stated that they were duly obligated to Triad IV Associates, free from any defenses." Memorandum of Law in Support of the FDIC's Motion for Summary Judgment, at 10.
Plaintiffs argue that they did not waive their defenses, particularly the defense of fraud, because the relevant clauses in the promissory notes and the estoppel letters were general, and unspecific merger clauses--boilerplate clauses. Plaintiffs additionally contend that defendant TLA prepared the notes and estoppel letters and urged the plaintiffs to sign them after "quickly [passing the] loan documents past plaintiffs without any opportunity for negotiation or input."
Under the law of the Second Circuit, "to bar a defense of fraudulent inducement . . ., a guarantee must contain explicit disclaimers of the particular representations that form the basis of the fraud-in-the-inducement claim." Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310, 316 (2d Cir. 1993) (citing Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729 (2d Cir. 1984)).
In Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 184 N.Y.S.2d 599, 157 N.E.2d 597 (1959), the New York State Court of Appeals similarly held that a general merger clause is insufficient to bar a defense of fraud in the inducement. In Danann, the plaintiff, a purchaser of a lease on a building, sought damages for fraud, claiming that it was induced to enter into the contract by the defendant's false representations regarding the operating expenses of the building and the profits to be derived from the investment. Danann, 5 N.Y.2d at 319, 184 N.Y.S.2d 599, 600, 157 N.E.2d 597, 598. The contract, however, stated that "'the Seller has not made . . . any representations as to the . . . expenses [or] operation . . . [of] the aforesaid premises . . . and the Purchaser hereby expressly acknowledges that no such representations have been made . . . .'" Id. at 320, 184 N.Y.S.2d 599, 601, 157 N.E.2d 597, 598. The contract further stated that all of the parties' agreements were merged in the contract, "'neither party relying upon any statement or representation, not embodied in this contract, made by the other.'" Id. In reaching its decision to exclude parol evidence to show fraud in the inducement, the New York Court of Appeals reasoned that the "plaintiff has in the plainest language announced and stipulated that it is not relying on any such representations as to the every matter as to which it now claims it was defrauded." Id., 184 N.Y.S.2d 599, 602, 157 N.E.2d 597, 599. The New York Court of Appeals further noted that the plaintiff made a representation that it was not relying on specific representations when in fact it was, and thus also is guilty of fraud. Id. at 323, 184 N.Y.S.2d at 604, 157 N.E.2d at 600. Because the language of the clause was so specific, clearly stating that plaintiff was not relying on defendants representations regarding expenses or operation, the New York Court of Appeals held that plaintiff had no action against the defendants for damages for fraud. Id.
In Citibank, N.A. v. Plapinger, 66 N.Y.2d 90, 495 N.Y.S.2d 309, 485 N.E.2d 974 (1985), the New York Court of Appeals similarly held that officers and directors of a company could not claim that they were fraudulently induced to sign a guarantee because the guarantee recited that it was "absolute and unconditional." In that case, plaintiff, Citibank, and four other banks provided United Department Stores ("United"), of which defendants were officers and directors, with a $ 15,000,000 line of credit. Id. at 92, 495 N.Y.S.2d at 310, 485 N.E.2d at 975. After United defaulted, the parties discussed restructuring the indebtedness as a term loan guaranteed by the defendants and providing United with an additional line of credit. Id. On August 10, 1984, the term loan transaction closed but the additional line of credit was never funded. Id. The guarantee to the loan term stated that the guarantee was "absolute and unconditional . . . irrespective of (i) any lack of validity . . . of the . . . Restated Loan Agreement . . . or any other agreement or instrument relating thereto" or "(vii) any other circumstance which might otherwise constitute a defense" to the guarantee." Id. at 95, 495 N.Y.S.2d at 312, 485 N.E.2d at 977. In reaching its decision to bar consideration of the fraud defense, the New York Court of Appeals noted that the guarantee was a "multimillion dollar personal guarantee proclaimed by defendants to be "absolute and unconditional," and it was executed after "extended negotiations between sophisticated business people." Id. While the Court of Appeals noted that it was "not the explicit disclaimer present in Danann, the substance of defendants' guarantee forecloses their reliance on the claim that they were fraudulently induced to sign the guarantee by the banks' oral promise of an additional line of credit." Id. The Court of Appeals further noted that "to permit [the defense of fraud] would in effect condone defendant's own fraud in 'deliberately misrepresenting [their] true intention' when putting their signature to their "absolute and unconditional" guarantee." Id.
In Manufacturers Hanover Trust Co. v. Yanakas, 7 F.3d 310 (2d Cir. 1993), the Second Circuit, relying on these leading New York Court of Appeal cases, held that "the mere general recitation that a guarantee is "absolute and unconditional" is insufficient under Plapinger to bar a defense of fraudulent inducement. Yanakas, 7 F.3d at 316. The Second Circuit declared that "the touchstone is specificity." Id.
In Yanakas, the guarantee clause in issue was in a preprinted form and stated that Yanakas "absolutely and unconditionally guarantees" all "obligations and liabilities of Borrower to Bank or another or others," and that the "guarantee shall be a continuing, absolute and unconditional guarantee of payment regardless of the validity, regularity or enforceability of any of said obligations." In holding that this clause lacked specificity and thus did not bar a defense of fraud, the Court reasoned that the preprinted form was not prepared by Yanakas but by the plaintiff, and that there was no evidence that the guarantee was the product of any negotiations between the parties. The Court next addressed what it considered the most important factor--that "the Yanakas Guarantee does not purport to waive any defenses to its own validity." The Court noted that the guarantee "contained no disclaimer as to the validity, regularity, or enforceability of the Guarantee itself" and did not contain "the blanket disclaimer of the type found in Plapinger as to 'any other circumstance which might otherwise constitute a defense.'" Because the language of the guarantee was not specific enough under New York law, the Court held that it did not bar guarantor's affirmative defense of fraudulent inducement.
In the present case, plaintiffs expressly waived their right to allege a defense of fraud. In plaintiffs' September 1991 promissory note, plaintiffs stated that "the maker waives the right to interpose any defense, set-off or counterclaim of any nature or description in connection with the payment of the principal hereof or interest hereon, in which the Payee or any other holder of this Note shall be an adverse party." Plaintiffs also executed estoppel letters, dated September 30, 1991, that state:
This will confirm that the undersigned is duly indebted to Triad IV Associates pursuant to a promissory note of even date hereof in the principal sum of $ 270,000.00. . . . The undersigned has no defenses, offsets or counter claims would affect the undersigned's obligations to make payment of principal or interest on the Note as and when due.
The Note is given by the undersigned in replacement of a like note of similar tenor dated April 15, 1991. It is our understanding that Triad IV Associates is simultaneously assigning our obligations under and pursuant to the terms of the Note to you as collateral security for a loan in the amount of $ 2,767,500.00 being made this day to Triad IV Associates. We agree to raise no defenses or offsets to our obligations under and pursuant to the Note and we make this statement knowing that you will rely upon the truth of its contents in concluding your loan transaction with Triad IV Associates.
Plaintiffs argue that the clauses waiving the plaintiffs' defenses are general, and unspecific merger clauses--boilerplate clauses. Plaintiffs also argue that TLA quickly passed the document passed plaintiffs without any opportunity for input or negotiation, and thus plaintiffs were not afforded an opportunity to waive, or be estopped from asserting any claim.
Under the law of the Second Circuit, the inquiry before this Court is whether the whether the language of the waiver clause in the promissory notes and in the estoppel letters is specific enough to preclude the plaintiffs from asserting their fraud claim in the instant action. Yanakas, 7 F.3d at 316 (proclaiming that the "touchstone is specificity").
The language in both the Promissory Notes and the estoppel letters is clear and unambiguous. In both the promissory notes and the estoppel letters, plaintiffs specifically state that they will not raise any defenses to their obligation to pay under the promissory notes. Moreover, in the estoppel letter, plaintiffs affirmatively state that they were duly obligated to Triad IV, free from any defenses. Plaintiffs also acknowledge their understanding of the assignment to FNYB, and they acknowledge that FNYB was relying upon the truth of the statements in the estoppel letters in making the loan to Triad IV. The language in the estoppel clause is very specific and certainly contemplates the type of fraud alleged and waived here.
Plaintiffs are sophisticated business people. Although plaintiffs claim that TLA gave plaintiffs the documents to sign without providing an opportunity for negotiations, plaintiffs had signed similar waivers on at least four prior occasions, and thus it is clear that they were familiar with this type of clause. Moreover, since May 1991, plaintiffs were aware that Barclays' Bank would not renew the Barclays' Note, and plaintiffs had at least four months notice that Triad IV was pursuing other banks to take over the Barclays' Note. Thus the negotiations were not rushed.
Because the language of plaintiffs' promissory notes and estoppel letters is sufficiently specific to bar plaintiffs' defense of fraud as a matter of law, defendant FDIC's request for summary judgment based on the doctrines of waiver and estoppel is granted.
Based on the foregoing, defendant's motion for summary judgment is granted, and plaintiffs' action against defendant FDIC is dismissed with prejudice. Defendant FDIC is entitled to the principal sum of $ 270,000 on each note plus interest, expenses, court costs and attorneys' fees as provided in the promissory agreements.
Dated: Uniondale, New York
October 30, 1995
Joanna Seybert, U.S.D.J.