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POINT DEVELOPERS, INC. v. FDIC

April 5, 1997

POINT DEVELOPERS, INC., Plaintiff, against FEDERAL DEPOSIT INSURANCE CORPORATION, as successor in interest to the RESOLUTION TRUST CORPORATION, as Receiver and Final Receiver of STATE SAVINGS, FSB, and as Receiver of STATE SAVINGS, FA, Defendant.


The opinion of the court was delivered by: SPATT

 SPATT, District Judge:

 This lawsuit arises from the claims of the plaintiff, Point Developers, Inc. (the "plaintiff" or "Point Developers") against the original defendant in this lawsuit, the Resolution Trust Corporation ("RTC"), as receiver for both State Savings, FSB, ("State FSB") and State Savings, FA ("State FA"), based on an alleged breach of a loan agreement. On January 17, 1996, the Federal Deposit Insurance Corporation ("FDIC") was substituted for the RTC as the defendant pursuant to 12 U.S.C. § 1441a(m)(1). Point Developers contends that the RTC, as predecessor to the FDIC, breached its obligation to convert short term construction loans into long term financing pursuant to the terms of a loan commitment letter executed by the plaintiff and the RTC's predecessor in interest, State FA. The FDIC denies that it has any obligation under the commitment letter.

 Presently before the Court is the defendant's second motion for summary judgment pursuant to Fed. R. Civ. P. 56. In support of its motion, the FDIC makes two arguments. Initially, the defendant argues that the plaintiff's claims should be dismissed pursuant to 12 U.S.C. 1821(d)(9)(A) and 1823(e). Alternatively, the FDIC contends that Point Developers' claims are barred under the principles of collateral estoppel and res judicata.

 I. Background

 Point Developers is a New York corporation engaged in the business of residential housing development. State FA was a federally chartered savings and loan association existing under the laws of the United States, and was a federally insured depository institution.

 On or about May 31, 1989, Point Developers executed a building loan commitment letter ("Commitment Letter") with State FA, in connection with four short-term construction loans for building residential housing at 54-14, 54-16, 54-20 and 54-22, 73rd Place in Maspeth, New York.

 On August 31, 1989, Point Developers executed four building loan mortgage notes in connection with the Commitment Letter. The notes evidenced four $ 250,000 loans, which were secured by four mortgages, one on each property. The loans were to be advanced in stages dependent upon the progress of the construction. The original notes required repayment of the loans by August 31, 1990. According to the plaintiff, the buildings were satisfactorily completed on February 28, 1991 and on that date, Point Developers sought to have the short term construction loans converted to long term mortgages. According to the defendant, on that same day, the construction loans matured and Point Developers "effectively defaulted" as the result of the failure to make payments.

 The plaintiff alleges that according to the terms of the Commitment Letter, upon satisfactory completion of the construction, each of the four obligations would be converted to a $ 300,000 permanent long-term mortgage loan, payable over a 30 year term. Point Developers bases this allegation on, among other things, language contained in "Supplemental Form (A)" incorporated into the Commitment letter which reads: "Permanent Loan: $ 300,000 [at] prevailing rate plus 1 additional point." The FDIC responds that this language is insufficiently definite to be enforceable and that "neither the minutes of the Board of Directors nor of the Loan Committee of State FA reflect that the Board of Directors or the Loan Committee approved the [Commitment] Letter, the Construction Loans or any purported agreement to convert the construction loans to permanent financing or provide other permanent financing." Def. Mem. of Law at 3.

 On March 21, 1991, the United States Office of Thrift Supervision ("OTS") declared State FA to be insolvent. On that same day a new bank, State Savings FSB ("State FSB") was chartered. To facilitate the transfer of assets from State FA to State FSB, the RTC was appointed receiver of State FA, and conservator of State FSB. All of State FA's assets, including the plaintiff's construction loans, were assigned to State FSB. On March 26, 1992, the OTS appointed the RTC receiver of State FSB. As receiver, the RTC succeeded to the assets of State FSB and was charged with the liquidation of State FSB pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (1989).

 On May 26, 1992, the plaintiff filed an administrative claim against State FSB in the sum of $ 1.2 million. That claim was disallowed by the RTC on January 6, 1994.

 Point Developers filed its first complaint on September 3, 1993, and an amended complaint on November 17, 1993, seeking injunctive relief. This Court dismissed the amended complaint on January 21, 1994 for lack of subject matter jurisdiction based on the anti-injunction provisions of FIRREA, see 12 U.S.C. § 1821(d)(2)(A), (B), (E); 12 U.S.C. § 1821(j), reasoning that injunctive relief is not available against the RTC and that the plaintiff's only remedy was for money damages.

 On November 11, 1994, the plaintiff filed its first amended complaint in a second lawsuit seeking money damages alleging that it would not have entered into the loan agreement had State FA not agreed to convert the construction loans to permanent financing. According to the plaintiff, conversion of the loans is necessary because upon completion of construction, the building would not yet have a buyer and the apartments would not be rented. A method of financing repayment over an extended period was required in order to prevent default by the developer. Toward this end, according to the plaintiff, it was State FA's custom and practice to convert construction loans into long-term mortgage financing. Point Developers further claims that this policy makes the properties more marketable because they each have a mortgage loan for a purchaser to assume.

 On February 12, 1996, the defendant filed its first motion for summary judgment arguing that the terms of Commitment Letter upon which the plaintiff relies in claiming that it was entitled to long term financing were so vague as to render them unenforceable, and that even if the terms are sufficiently definite, they are barred from application under the parol evidence rule because of the subsequently executed fully integrated loan agreement. The Court denied the defendant's motion by memorandum of decision and order dated April 13, 1996. See Point Developers, Inc. v. FDIC, 921 F. Supp. 1014 (E.D.N.Y. 1996). The focus of this opinion was on the common law contract principles and not the D'Oench, Duhme doctrine or 12 U.S.C. § 1823(e), which are addressed for the first time in this decision.

 On June 8, 1994, prior to this Court's decision on the defendant's first summary judgment motion and unknown to the Court, the RTC assigned its entire right, title, and interest in the notes and mortgages relating to the 54-16 and 54-20 73rd Street properties to Federal Financial Company ("Federal Financial"). On October 6, 1994, unknown to this Court, Federal Financial instituted a foreclosure action in New York Supreme Court, Queens County with regard to these properties. See Federal Financial Co. v. Point Developers, Index No. 021041/94 (Sup. Ct. Queens Cty. 1994). In addition to the plaintiff as a party defendant in that action, Point Developers' principals, Frank Lalezarian ("Lalezarian") and Morris Mehraban ("Mehraban") were joined as defendants. The defendants filed their verified answer dated December 15, 1994 containing several affirmative defenses and a counterclaim, including allegations that "upon completion of the construction for each parcel, . . . the mortgage[s were] to be converted to . . . permanent loan[s], self-ammortizing [sic], 30 years, with interest at the prevailing rate plus 1%." Affidavit of Thomas Bloomer ("Bloomer Aff."), Exh. C., Ver. Ans. P 4xvii(b)(iii). The verified answer further states that "upon completion of the construction . . . both State FA and the RTC failed and refused to honor the original commitment agreement." Id. at 4(e). Nothing was mentioned about this state law case in the earlier motion.

 In the state court action, the plaintiff, Federal Financial, moved for summary judgment. In opposition to Federal Financial's motion, Mehraban filed an affidavit stating that:

 
the defendants have a meritorious defense to this mortgage foreclosure action. The plaintiff's predecessor-in-interest breached a loan commitment underlying the two mortgages and promissory notes involved in this action . . . when it failed to advance funds as part of a structured construction loan package and then failed to convert the short-term loans into permanent loans secured by long-term (30 year) self-amortizing mortgages, in violation of the lender's loan commitment.

 Bloomer Aff., Exh. D., Affidavit of Morris Mehraban ("Mehraban Aff."), Oct. 10, 1995 P 1; see id. at P 9, 13.

 By memorandum decision dated January 5, 1996, the State Court, by Justice Simeon Golar, recognized that:

 
It is the defendants' contention that Federal's predecessor, the RTC, breached the terms of the May 1989 loan commitment issued by State Savings, when it failed to advance additional funds and convert the short term loans into permanent financing, thereby rendering [Point] Developers unable to repay the sums borrowed. The subject commitment letter provided at the bottom of the second page, "PERMANENT LOAN: $ 300,000 [at] prevailing rate plus 1 additional point."

 Federal Financial Co. v. Point Developers, Inc., Index No. 021041/94 at 2 (Sup. Ct. Queens Cty. Jan. 5, 1996). In granting summary judgment to Federal Financial against Point Developers and its principals, the state court held that the Commitment Letter was "insufficient to comply with the first prong" of 12 U.S.C. § 1821(e)(1) which "mandates that the agreement be in writing." Id. at 3. "In the absence of material terms concerning how or when the money would be advanced and the repayment schedule, the commitment letter constituted merely an agreement to agree and not an enforceable obligation." Id.

 In addition, the State Court decision addressed the D'Oench Duhme and 12 U.S.C. § 1823 doctrines:

 
As stated in D'Oench, Duhme & Co. v. Fed. Deposit Ins. Corp. (315 U.S. 447, 86 L. Ed. 956, 62 S. Ct. 676), and later codified in 12 USC § 1823(e) and applied to the RTC under 12 USC § 1441a(b)(4)(A), a borrower is estopped from asserting as a defense the existence of an agreement with a failed financial institution which diminishes or defeats the interest of the RTC in any asset acquired as a receiver, in the absence of compliance with the requirements of the statute. The protections afforded the RTC have thus been extended to its assignees and transferees. (See, Porras v. Petroplex Sav. Assn., 903 F.2d 379.)
 
It is apparent that the commitment letter relied upon by defendants is insufficient to comply with the first prong of the statute which mandates that the agreement be in writing. (12 USC § 1823[e]1.) The only evidence submitted as to how the short term loan would be converted to a permanent loan is the self-serving statement of the defendants that asserts that an additional $ 50,000 was to be given upon completion of construction, for a total of $ 300,000 to be paid out over 30 years, at the prevailing rate plus 1%. Contrary to defendants' assertion, the testimony of Leroy Busse, the bank officer who executed the commitment letter, the inclusion of the words permanent loan did not indicate a completed transaction but evidenced rather the bank's future intent to entertain a permanent loan application upon satisfactory completion of certain conditions. In the absence of material terms concerning how or when the money would be advanced and the repayment schedule, the commitment letter constituted merely an agreement to agree and was not enforceable. ( Carmon v. Soleh Boneh, Ltd., 206 A.D.2d 450, 614 N.Y.S.2d 555) Unlike the holding in Resolution Trust Corp. v. Midwest Fed. Sav. Bank of Minot 36 F.3d 785), relied upon by the defendants, the commitment letter did not omit a material term due to a mutual mistake. Here, the terms had yet to be fully agreed upon. Defendants are, thus, estopped from asserting this agreement under 12 USC § 1823(e).

 Federal Financial Co., at 2-4. The order dismissing the affirmative defenses and counterclaim, striking the answer and granting summary judgment to ...


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