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August 30, 1991

THEODORE L. McCAUGHERTY, STEPHEN P. TRONER, PAUL H. PFLEGER, and DALE S. ACKERMAN, general partners of Highland Acquisitions Limited Partnership, a Washington limited partnership, Plaintiffs,
THOMAS C. SIFFERMANN and JANE DOE SIFFERMANN, his wife, and the marital community composed thereof; FEDERAL DEPOSIT INSURANCE CORPORATION as Manager for FEDERAL SAVINGS and LOAN INSURANCE CORPORATION RESOLUTION FUND as successor in interest to FSLIC as Receiver for FARMERS SAVINGS, a federal savings and loan association, Defendants

The opinion of the court was delivered by: LYNCH



 This case involves the issue of whether affirmative causes of action against the Federal Deposit Insurance Corporation-Receiver, based upon misrepresentations by a federal Savings and loan association, or its representatives, in connection with the execution of a stock purchase agreement, are barred by the D'Oench doctrine and related Title 12 provisions, 12 U.S.C. section 1821(d)(9)(A) and 12 U.S.C. section 1823(e).

 Defendant FDIC-Receiver has filed a motion for summary judgment with respect to plaintiffs' third amended complaint. The complaint alleges several causes of action, all founded upon misrepresentation, against, inter alia, Thomas C. Siffermann and Farmers Savings, an erstwhile-solvent federal savings and loan association now in the receivership of the FDIC. Based upon its review of the relevant case law and federal statutes, the Court finds that all of plaintiffs' affirmative claims founded on misrepresentation are barred as against FDIC-Receiver by the D'Oench doctrine, 12 U.S.C. section 1821(d)(9)(A), and 12 U.S.C. section 1823(e). Accordingly, defendant FDIC's motion for summary judgment is granted.


 Plaintiffs are all general partners of Highland Acquisitions Limited Partnership, a Washington state limited partnership ("HALP"). Defendants are the Federal Deposit Insurance Corporation as successor in interest to the Federal Savings and Loan Insurance Corporation as receiver of Farmers Savings ("FDIC-Receiver") and Thomas C. Siffermann and Jane Doe Siffermann, his wife.

 On July 12, 1988, plaintiffs filed the instant lawsuit against defendants. Thereafter, the Federal Savings and Loan Insurance Corporation ("FSLIC") was appointed receiver of Farmers Savings, and thereby succeeded to all interests of Farmers Savings in this action. Subsequently, this Court entered an order substituting FDIC-Receiver for FSLIC-Receiver as a defendant in the lawsuit. FDIC-Receiver is the defendant who has brought this motion.

 This action arose out of deal struck between plaintiffs' partnership, HALP, and Farmers Savings. On July 2, 1987, HALP purchased from Farmers Savings all the stock in and receivables of a corporate entity named FSB, Inc. In consideration, HALP paid to Farmers Savings a total purchase price of approximately $ 31.8 million. The consideration package was composed of, in relevant part, a promissory note, made by HALP to Farmers Savings as payee in the amount of approximately $ 11.3 million ("HALP note"), and cash and other funds to be transferred by wire in the amount of approximately $ 20.5 million. *fn1" HALP has not made any payments on the HALP note because, by its terms, payments do not come due until 1992. The plaintiffs did pay Farmers' Savings $ 20.5 million in cash and receivables at the time that the stock purchase transaction was executed.

 The parties to the transaction entered into the Stock Purchase Agreement, which set forth the transactions' terms, such as the above consideration, and addressed representations and warranties. Section 4 of the Stock Purchase Agreement recites the representations and warranties of the purchaser and provides, at subsection 3, "The Purchaser acknowledges that its decision to purchase the FSB Shares and the Receivables is based upon the Purchaser's own investigation and is not based upon any representation made by the Seller except as set forth . . . in Section 3 hereof," which lists the representations and warranties of the seller.

 All claims in plaintiffs' third amended complaint derive factually from a "phantom-bidder" scheme allegedly employed by defendant Thomas Siffermann, acting on behalf of Farmers Savings, to induce plaintiffs to pay more than market value for the stock of FSB, Inc. The complaint's allegations, which both parties assume to be true for purposes of this motion, are as follows: while negotiating the possible sale of FSB, Inc., Siffermann misrepresented to plaintiffs that many persons, the so-called "phantoms", were interested in purchasing FSB, Inc., and that all the offers but one were in the mid-thirty million dollar range. Siffermann used the ruse of phantom, higher bidders to induce plaintiffs to raise their offering price for the stock of FSB, Inc., even when plaintiffs' bid was the highest one. Siffermann's actions were approved of by the Board of Directors of Farmers Savings.

 The complaint alleges that the plaintiffs relied on Siffermann's misrepresentations and material omissions in purchasing the stock of FSB, Inc. Absent the misrepresentations, plaintiffs, via HALP, would not have purchased FSB, Inc. at the price or the terms to which they obligated themselves under the Stock Purchase Agreement dated July 1, 1987. *fn2"

 Plaintiffs' third amended complaint asserts causes of action for fraud, negligence, misrepresentation, and violations of the federal and state securities laws. *fn3" Plaintiffs pray for relief in the form of damages and cancellation of the promissory notes made in connection with the Stock Purchase Agreement or, in the alternative, offset of the amounts due under the notes against amounts recovered in this action. Noteworthy is the fact that the amount of damages prayed for, $ 11 million dollars, is approximately the amount outstanding on the HALP note for which plaintiffs remain obligated.

 Defendant FDIC-Receiver has filed counterclaims for breach of the Stock Purchase Agreement and prays for acceleration of the $ 11 million HALP note, held by FDIC, originally provided by plaintiffs in consideration for FSB, Inc.

 In a prior order dated May 7, 1991, this Court ruled that plaintiffs are estopped by the D'Oench doctrine and 12 U.S.C. section 1823(e) from asserting fraudulent inducement as a defense to payment of the HALP note. Defendant FDIC now seeks, by a motion for summary judgment, a dismissal of plaintiffs' third amended complaint.


 A. Standard Of Review.

 The governing standard is familiar. Summary judgment may be granted only if no genuine issue of material fact exists. Fed. R. Civ. P. 56 (c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). An issue is "genuine" only if the evidence is such that a reasonable jury could find in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). At the summary judgment stage, "the judge's function is not himself to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Id. at 249. "The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255.

 B. Overview Of The D'Oench Doctrine And 12 U.S.C. Section 1823(e).

 The Court must analyze the motion under the legal rubrics of both the D'Oench doctrine and 12 U.S.C. section 1823(e) because the latter, amended by FIRREA in 1989, now extends its coverage to the FDIC in its receivership capacity. See 12 U.S.C. section 1823(e); see also Federal Deposit Ins. Corp. v. State Bank of Virden, 893 F.2d 139, 143 (7th Cir. 1990) (FIRREA extends coverage of section 1823(e) to FDIC-Receiver).

 The D'Oench doctrine is a federal common law rule of equitable estoppel which, as originally formulated, held that borrowers were precluded from defending against payment of an obligation held by the FDIC on the basis that secret, unrecorded "side agreements" allegedly altered the obligation's terms. The Supreme Court, in the namesake case of D'Oench, Duhme & Co. v. Fed. Deposit Insurance Corp., 315 U.S. 447, 86 L. Ed. 956, 62 S. Ct. 676 (1942), based the doctrine upon the "federal policy to protect respondent [FDIC], and the public funds which it administers, against misrepresentations as to the securities or other assets in the portfolios of banks which respondent insures or to which it makes loans." D'Oench, 315 U.S. at 457. Public policy mandated that a borrower be estopped from escaping liability based upon an unrecorded agreement that altered the terms of a bank obligation, even if the borrower did not intend to deceive creditors. Id. at 459. Therefore, intent to deceive is irrelevant; lending oneself to a scheme which does or is likely to mislead the federal banking authority is sufficient. Taylor Trust v. Security Trust Fed. Sav. & Loan Assoc., 844 F.2d 337, 342 (6th Cir. 1988); Federal Deposit Ins. Corp. v. Investors Associates X., Ltd, 775 F.2d 152, 154 (6th Cir. 1985); Federal Deposit Ins. Corp. v. First Nat. Finance, 587 F.2d 1009, 1012 (9th Cir. 1978).

 Congress partially codified the D'Oench doctrine in the Federal Deposit Insurance Act of 1950, section 2[13](e), 12 U.S.C. section 1823(e). As amended, it provides that:

No agreement which tends to diminish or defeat the interest of the Corporation [FDIC] in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository ...

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