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Remington Investments, Inc. v. Davis

February 14, 1996


On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Approved for Publication February 14, 1996. As Corrected February 27, 1996.

Before Judges Muir, Jr., Brochin and Loftus. The opinion of the court was delivered by Brochin, J.A.D.

The opinion of the court was delivered by: Brochin

The opinion of the court was delivered by BROCHIN, J.A.D.

Mountain Ridge State Bank was declared insolvent and closed by the State Commissioner of the Department of Banking on October 5, 1990. Pursuant to 12 U.S.C.A. § 1821, the Federal Deposit Insurance Corporation was appointed as liquidating receiver for the bank. See FDIC v. White, 828 F. Supp. 304, 307 (D.N.J. 1993). By an assignment from the FDIC dated September 13, 1994, plaintiff Remington Investments, Inc. purchased a bulk portfolio of distressed loans. The assigned loans included two loans made by Mountain Ridge State Bank to defendant Vicari Construction and Development, Inc. and guaranteed by defendants Michael Davis and Philip Vicari. The subject of this appeal is the efforts of plaintiff to collect those two loans from the corporate borrower and the guarantors.

One of the loans at issue is an installment loan in the original principal amount of $100,000, evidenced by a promissory note dated February 13, 1990. The other loan is an overdraft loan on a checking account. Plaintiff alleges that as of July 14, 1995, the amount due and unpaid on these loans, including interest and attorneys' fees, was $127,844.26 on one and $15,551.46 on the other.

The loans were assigned to plaintiff Remington Investments after unsuccessful collection efforts by the FDIC. Remington Investments sued Vicari Construction, Michael Davis and Philip Vicari. Without providing any discovery and before the expiration of the discovery period, plaintiff moved for summary judgment. That motion and a subsequent motion for reconsideration were denied. We granted plaintiff's motion for leave to appeal from those decisions.

Defendant Philip Vicari's certification in opposition to the summary judgment motion asserts that when he and Michael Davis, both principals of the borrower, executed their guarantees, the president of Mountain Ridge State Bank told him that the bank would extend the terms of the loans to Vicari Development, so that if need be, the loans could be 'rolled over' at Vicari Development's option," and that the bank would exhaust its remedies against the corporation before seeking to collect from them personally. Mr. Vicari's certification also alleges that he told the FDIC about this understanding while it was receiver for the bank. In opposition to plaintiff's motion for reconsideration, Mr. Davis filed a certification which reiterates Mr. Vicari's assertions and, in addition, alleges that the overdraft loan was paid in full, and that the $100,000 loan was also partially paid. *fn1

Plaintiff's principal response to these allegations is that 12 U.S.C.A. § 1823(e), which codifies and expands the doctrine first announced by the United States Supreme Court in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), makes defendants' factual contentions immaterial. See FDIC v. Blue Rock Shopping Center, Inc., 766 F.2d 744, 753 (3d Cir. 1985) (citing Howell v. Continental Credit Corp., 655 F.2d 743, 746 (7th Cir. 1981) ("Congress codified the rationale of D'Oench, Duhme in 12 U.S.C.A. § 1823(e). . . .")). The facts of D'Oench, Duhme are that as part of the collateral for its loan to a bank, the FDIC acquired what purported to be promissory notes evidencing a borrower's indebtedness to the bank. Secretly, the bank had given the maker of the notes a writing that memorialized their agreement that the notes would not be paid. The Supreme Court held that the maker was liable to the FDIC on the notes because a secret agreement which diminished what appeared to be bank assets on which regulators were entitled to rely was contrary to federal banking policy.

The statute, 12 U.S.C.A. § 1823(e) reads as follows:

No agreement which tends to diminish or defeat the interest of the [Federal Deposit Insurance] Corporation *fn2 in any asset acquired by it under this section . . ., either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement--

(A) is in writing,

(B) 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,

(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the ...

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