Federal Deposit Insurance Corporation, as Liquidator for the Hamilton National Bank of Chattanooga v. Lattimore Land Corporation

TUTTLE, Before HILL and THOMAS A. CLARK, Judges. Circuit TUTTLE, Judge: Circuit Collecting appears notes it on the holds occasionally difficult for the task Deposit Corporation Federal Insurance (FDIC). action on a the FDIC claims is faced familiar and defenses by obligors long delinquent who have payments in their on the The district note. court disallowed most of those claims and granted and motion for defenses FDIC’s summary judgment liability on the on the resulting appeal note.

draws our affirmance of district court.

FACTS May Corpo- On Lattimore Land $1,450,- ration made a estate note for real payable Mortgage Corpora- to Hamilton tion. William Lattimore and J. Robert Ratchford, respectively president and secre- Land, tary signed of Lattimore the note for individuals, Corporation. These two joined by Helen C. Lattimore and Barbara signed the H. Ratchford also note under the Guaranty of Payment section. The $217,500 provided principal payments $435,000 respectively on the first and making. second anniversaries of note’s outstanding plus in- principal accrued April terest was due on loan Lattimore Land entered this initial securing apparently desirous of Mortgage. loans future from Hamilton Subsequent allegedly would have loans outstanding funded indebtedness provided additional advances would have develop capital real estate needed to September 15,1978, pur- initial These complaint that secured the note. filed a in the ported met. expectations were not Al- proceedings In the action. though appellants claim that Hamilton raised several Mortgage represented that it could and defenses for damages. Finding and claims development provide necessary obligors’ arguments unpersuasive, financing, Mortgage, less Hamilton than granted district court the FDIC’s motion note, ninety days after the the for summary judgment on issue the of the appellants, according to informed William note, liability defendants’ on the reserving it Lattimore that lacked the financial re- interest, issues of amounts usury, and the development financing sources to make the extent of the married women-defendants’ contemplated. obligors that had The been liability. Subsequently, the district court allege promises broken that these and mis- granted struck the defense and then representations inability pay led to their judgment to the FDIC in amounts of note, the sums due under the which remains $1,366,922.01 principal plus $18,978.02 addi- largely present. unpaid to the $830,348.95 principal, interest, tional time, $219,974.33 Mortgage At this Hamilton attorneys’ judgment and the fees. That Chattanooga Hamilton National Bank of was the limited to extent the FDIC encountering begun had severe financial could levy upon tangible not use it to the 25, 1975, October difficulties. On Hamilton personal property of defendant-Barbara Mortgage assigned a interest 91.48% Ratchford.

note to Bank. the Hamilton National On From judgment obligors appeal, the 16, 1976, February Comptroller the of the alleging three basic errors the district Currency the be declared Bank to insolvent. court. day That same United District States corporate Court authorized the FDIC in its

capacity purchase under 12 U.S.C. 1823 ON APPEAL ISSUES certain of Bank’s One of the assets. the Applicability Statutory FDIC’s Pro- purchased assets was the 91.48% interest in tection present the note. Hamilton en- countered similar misfortunes. On Febru- first claim that for nu ary petition bankrupt- filed a in it merous statutory pro reasons FDIC’s cy- 1823(e) tection under 12 U.S.C. does not bankruptcy apply. provides action led to the FDIC’s The statute that: acquisition remaining in agreement No which tends to diminish note. bankruptcy challenged in trustee right, or defeat the title or interest of the right FDIC’s to assets which had been Corporation acquired by in asset acquired by Hamilton National Bank from section, security under this either as for a Mortgage just prior Hamilton filing loan by purchase, against shall valid be petition. of the bankruptcy dispute Corporation agreement unless such agreement resolved settlement (1) writing, (2) shall be in have shall been part which acqui- resulted in the FDIC’s person executed bank and the sition of all interest in the note and its persons claiming an adverse interest assumption the status of holder of the thereunder, including obligor, con- note. temporaneously acquisition with the events, pursued bank,

Since has (3) those FDIC the asset shall have rights FDIC, through approved its note. on the by the board of directors of the counsel, legal committee, on March de- bank approv- or its loan which payment manded of the note from the al shall be reflected the minutes of said present committee, (4) who board or defendants include Lattimore shall have been, signers continuously, Land and the individual of the note. from the time of its satisfaction, execution, Not receiving FDIC an official record of the bank. 1823(e) 1980). This 2. Fraudulent Inducement (West 12 U.S.C.A. case, be- might impair the

statute Scope of a. Claims FDIC, as they sought hold cause statutory protection for Hamilton Even if FDIC’s assignee of the liable development applicable to this remains the to fund the there Mortgage’s failure agree- question protects oral whether it FDIC under the terms statutory obligors. against all ment, would not meet assertions agreement asserta- to the requirements a valid addition contention unwrit- valid, agreements which we have against ble the FDIC. ten against is not decided viable that, with re obligors first contend assert entire question, spect the FDIC to the note including written statutory because protection assert because should unenforceable acquired from an insured the note was Mortgage materially misrepresented its by 1. required § is U.S.C. bank as willingness ability develop- to fund the FDIC’s argument, ignores the obligors argue they ment. The could asset the receiver of acquisition of an from successfully proved at have trial construc- acqui prior physical an insured bank the fraud in the inducement of the tive execu- source, from note another has sition of the tion of the before us and that 12 rejected specifically by this Court. 1823(e) not shield the U.S.C. does FDIC § Ventures, FDIC, Inc. v. 651 F.2d Chatham from such defense because the 1981). case, this (5th Cir. Under that seeking agreement avoid not in the Court must treat entire interest agreement against enforce unwritten protected under statute. note as the FDIC. obligors also contend that U.S.C. apply where the Sovereign Immunity b. any wrongdoing are not are free of argu- insured These customers of an bank. reaching question Before well, ments, rejected by the fully were protects against whether section 1823 Ventures, FDIC, Inc. v. Court in Chatham claim, the FDIC defense of raises a sover (5th 1981), and further 651 F.2d 355 Cir. eign immunity. To the extent arguments not be of those discussion tort, alleged is a argues fraud the FDIC useful. may that it not be sued because sover correctly eign immunity The district concluded the United States with applies respect against this case to to a suit directly that 12 U.S.C. United against agency by has make irrelevant assertion States not been waived Act, coiporate FDIC of unwritten side Federal Tort Claims 28 U.S.C. agreements 1346(b), Litigants as the to make et seq. generally such §§ may money loans 2. not sue the damages future FDIC for proper by depositors creditors, Regarding acquisition rights 1. of an asset and other or provides Corporation may purchase any the statute that: such as- may guarantee any or sets bank other insured judgment Board of Whenever against by assuming its loss reason of the risk or Corporation Directors such action will reduce purchasing liabilities and the open the assets of an avert a threatened loss to the Any or closed insured bank. insured merger and will facilitate or consolidation bank, Corpo- national bank or District or insured of an insured bank with another thereof, ration as receiver authorized to bank, assets or will facilitate the sale of the pledge contract for such sales loans and open or closed to and of an insured bank any assets of the bank secure loans. assumption its another in- liabilities 1823(e)(West 1980). U.S.C.A. bank, Corporation may, upon such sured determine, terms and conditions as it response by Judge 2. to the concerns raised Our part by make loans secured in whole or assets of an Ventures, Clark is outlined in Chatham Inc. v. bank, open insured closed FDIC, 651 F.2d at 360 n.10. may be to the which loans in subordination Mitchell, Gregory parties, that Act. this Court believes a more (5th 203-05 felicitous characterization the claims different, however, “recoupment,” law is somewhat would be if the as defined Frederick against Court, FDIC first seeks to assert claims because the claims arise adversary. recognized out of engen- Courts have the same that a transaction suit, agency3 bringing federal dered the although FDIC’s claims —the FDIC sued on a note see subject claims, obligors deny and the the validity to suit on unrelated FDIC v. Citizens Bank & the note Trust based on their fraud 5. claims Sov- ereign immunity, therefore, 1979), exposed does not bar obligors’ challenges recoupment. validity to the See Frederick v. to claims of States, the note. United 1967)4. Such claims must arise out of the c. Georgia Law of Fraudulent Induce-

same transaction or occurrence that is the ment subject agency’s suit and agency. exceed claims made Court, however, rejects the ob litigants appeal characterize the ligors’ argument fraudulent inducement be concerning right claim as cause, their as was found the district against “set off” their claims those of case is not sufficient under Despite FDIC. the label attached state law characterization, proper

3. The FDIC falls within this characterization where the defendants’ question, present purposes. response without See independent arises from an transac- Safeway Employee’s Portland Federal Credit liability running against tion which results in FDIC, 1213, (9th Union v. 506 F.2d 1215 plaintiff. might Such a case of setoff occur 1970). party if each holds a note of the other. Id. 4. The Frederick stated the test: questions any 6. Neither side if the law of sovereign Our conclusion is that when the applies, Georgia the law of the state of immunity sues it waives as to claims of the proper body of law for reference with re- recoup- defendant which assert matters in spect to the fraud claim in the action. arising out of the same transaction or ment— compelled by The reference to state law is not subject occurrence which is the matter of the 64, Tompkins, Erie R.R. v. 304 U.S. 58 S.Ct. government’s suit, and to the extent of de- 817, 82 L.Ed. 1188 This action involves feating government’s claim but not to the rights FDIC, agency. of the a federal Fed- judgment against government extent of a governs rights eral law the determination of the involving which is affirmative in the sense of relief different in kind or nature to that Meo, 790, of the FDIC. See FDIC v. (9th 1974); Realty 793 n.4 Riverside Park sought by government or in the sense of FDIC, F.Supp. (M.D.Tenn. Co. v. 465 308 exceeding claims; government’s the amount of the 1978); Rectenwall, F.Supp. FDIC v. sovereign but the does not waive (N.D.Ind.1951); (Fourth). U.S.C.A. immunity as to claims which do not meet the As Justice Jackson stated: “same transaction or occurrence test” nor to exceeding sought claims amount it as This case is not entertained the federal plaintiff.... This ties with the distinction diversity citizenship. courts because of It 13(c), made in Rule 13itself. As defined in agency brings is here because a federal may action, counterclaim covery sought by diminish or defeat the re- being provides, and the law of its with opposite party far exceptions here, important —this that: “All government’s goes. also, may waiver It suits of a civil nature at common law or in not, exceeding but need “claim relief equity Corporation to which the shall be a sought amount or different in kind from that party shall be deemed to arise under the laws pleading opposing party.” in the government of the provi- of the United States: ...” That this go so far as to waive its merely jurisdictional suggested sion is not immunity to this kind of claim. presence in the same section of the (citations omitted.) Id. and footnotes separate provision Corpo- Act of the any ration sue and be sued “in court of FDIC, Realty 5. Cf. Riverside Park Co. v. equity, law or State or Federal.” F.Supp. (M.D.Tenn.1978). See also R. Field, Kaplan Clermont, B. K.& Civil Proce- recoupment sitting non-diversity dure 427-29 A ed. While federal court in a plaintiffs recovery reduces the based on case such events as this does not sit as a local within the same transaction from which tribunal. In some cases it see fit for claim, springs plaintiffs special give particular setoff would be a reasons to the law of a parties yet agreed have not obligors rate of characterize misrepresentation maturity Gay date. as a

fraud in the case Grace, 1970); Mortgage’s solven Scott the “facts” of Hamilton Lewis, 7. The cy capabilities and financial allege failed Stephens, also that Hamilton Stanaland v. complete loans to de to make further A breach of such a S.E.2d velopment real estate. A review of promise action support will not a fraud presentation by the to the dis law. that, as the district demonstrates trict court There is no merit in Bonner’s conten- concluded, case amounts unlawfully tion that he was misled alleged promise a breach of an to extend promises Wachovia’s to make the devel- future credit8. loan, opment even if Wachovia had no

Whether or not assertions intention advances. true9, general pred- on this rule is that fraud cannot be this case is insufficient upon agreement promis- An loan is icated statements which are basis. make a sory in their nature as to future acts. unenforceable under law where acquisition highly persuasive controlling loan. Defendant state effect, or even date the LLC analysis misrepresentation but in the last its decision claims that this material States, upon turns the law of the United induced the Note and to con- LLC to execute vey state. Debt HMC the Deed to Secure D’Oench, Duhme & Co. v. 315 U.S. 270 acres. The individual Defendants claim 467-68, representation 62 S.Ct. that this was a material made (1942) (concurring opinion). light L.Ed. 956 to induce them to endorse the loan as accom- is, disposition parties of our there how modation and entitles them to a re- ever, no need to decide whether we would guarantee. scission of their contractual adopt state law or fashion a uniform federal 4. Defendants further claim that in its loan standard where the state law indicates a result LLC, required HMC was less favorable to the the result FDIC than provide upon be able to loans to terms LLC obtained here. See United Foods, Kimbell States v. competitive with other lenders. De- local 440 U.S. 59 L.Ed.2d S.Ct. fendant LLC claims that HMC breached (1979). 711 See also note 13 infra. recoup covenant and that it is entitled to or damages setoff as a result of LLC sustained opinion 7. An action fraud based on is not for Georgia. agreement. this breach of the Plaintiffs in Truitt, sufficient in Wrenn & Sons v. Summary Judgment their Motion for claim (1902); DeMayo 116 Ga. 43 S.E. 52 v. concerning that the terms these future devel- Walton, Ga.App. 114 151 S.E.2d 886 opment vague loans is so and indefinite [sic] (1966). But the difference between fact and However, to be unenforceable. Defendants opinion has been called a “subtle and elusive prepared provide testimony are to of local distinction.” United States v. Northeast mortgage company bankers and officers to Co., F.Supp. (S.D.Ga. Constr. 298 1139 establish the terms that would have been Builders, Equita See also S & S Inc. v. required competitive to be with local lenders ble Investment 219 134 S.E.2d Ga. making development in loans. 777 question solvency by as discussed Mortgage by The statements Hamilton obligors only is relevant as it related to actually writing appear were reduced to to us possibility of the extension of future credit representative (1) be to of: facts that were true Mortgage. Hamilton made; (2) opinions predictions when or or future events which would not suffice as bases obligors point language 9. The to in the amend- Georgia for a fraud 9 & claim. See notes April ed in commitment letter of 1974 infra. Mortgage which Hamilton stated that: “HMC clearly type 8. This observation most illustrated is an active lender desirous of this obligors’ argument financing competitive the opposition to the district court and will at all times be summary addition, obligors to the FDIC’s motion for with other lenders.” In quote judgment: Mortgage summary Hamilton a economic project negotiation will which states that: “This loan Defendants claim that HMC, repaid by funding development rep- be loans of the loan HMC financially pro- obligors to be resented that it was able to made us.” The claim that including representations, language vide LLC with a full line of loans with this and oral development parties Mortgage obligated all un- Hamilton to make loan which became necessary liqui- derstood was at that time to future loans.

145 Furthermore, 810, 810, no evidence was offered 240 S.E.2d 111 See also concerning development the amount of a Cleage, Keiley 215-16, 150 v. Ga. 103 loan, property how or when the was to be (1920). These cases upon S.E. 167 rest sev- developed, or the rate of interest its term. First, obligor an eral bases. should repay parties to a transaction do not If actually Second, funds he received. a court binding agreements, courts are create parties should not a contract for the make them, powerless to do it to afford for or a when, case, they speci- as in this have not breach, remedy for a . . . conclude [W]e fied such vital terms of the future loans promise, promise, a even a false to rate, principal amount, maturity perform an act not in the future is a false Third, promise period. a to do a future act pretense representation, or false and does normally representation is not of fact.10 constitute the basis for an action for Georgia law, Under this We fraud.... hold that failure to fund obligors not assert prom- a breach of a money principal or lend to a additional ise to future obligors extend credit. The sums, operate discharge guar- argument, make Georgia a clever but liability antors from the amount will prove not allow their actually advanced lend- case a second and unremediable er. Georgia breach law. We under do not be- Mortgage v. Bonner Wachovia 142 Ga. lieve that a circumvention of the 748, 750, App. (1977) (empha cases above proper. discussed If an obli- omitted). sis added citations The Geor gor may rely upon specific promise gia holding proposition eases for this extend future credit as a basis for a fraudu- See, g., legion. Development Corp. e. Clare action, lent inducement then he should not Bank, v. First Ga. be able out to make such a claim based (1979); Hornsby First Nation S.E.2d misrepresentation of a lender’s financial 155, 157-58, al ability condition as it relates to the lender’s (1980); Jones, Rizk v. 148 Ga. S.E.2d not, credit. extend future Solvent or 473, 474-75, (1978), App. S.E.2d Mortgage obligation had no aff’d, (1979); Ga. 255 S.E.2d subsequent obligors. make loans to the Colodny v. Realty Dominion & Trust, present did not a viable case S.E.2d under Ponder, Beasley Ga.App. Georgia law.11 general proposition proved by showing 10. As for which fraud upon predicated present promise action for fraud cannot be to dishonor the intent to un- promissory knowledge which are act statements their na dertake a future Builders, impossibility opinion. as to future of an ture Equitable acts. S & S Inc. v. 557, 564, Investment 219 Ga. Brown, (1964); might 134 S.E.2d 777 Jackson v. 209 11. We also note that we have some 78(2), (1952). obligors req 70 S.E.2d 756 But an action Ga. doubt the whether could show the upon diligence required fraud some cases be based uisite due as is under Geor misrepresentation regarding gia Green, 655, Dorsey future such act law. v. 202 Ga. 659, (1947); Lariscy Hill, when defendant knows that the future 44 377 S.E.2d v. 117 place. 152, 153-54, Hayes Ga.App. will not v. event take Hallmark 159 S.E.2d 443 308-09, 307, Apartments, Bank, 232 207 Ga. S.E.2d Scott v. Fulton National 92 (1974). apparently (1955); Funding Systems 197 Intent is irrelevant 89 S.E.2d 892 predicated upon Leasing Corp. Pugh, cases to fraud failure make v. 530 F.2d promised. 1976); Belger, loans as future See Bonner v. Wa Hannah Mtg. Co., 1971); chovia 750 [236 United States v. Northeast Con event, (1977). any obligors F.Supp. (S.D. In 877] S.E.2d struction 1140-41 37-211, knowing Ga.1969); not claim do misrepresentation such a or intentional also §§ see Ga.Code Ann. 37-212; because their brief labels the cf. Citizens & Southern National Bank Arnold, in this case as fraud” fraud “constructive 240 Ga. S.E.2d obligors inappropriate to which representation means “a material mis We think base our representa holding ground was made on this when the FDIC as mov HMC, innocently.” added). summary (emphasis judgment put of tives ant for point has not obligors’ according reading state But a fair in issue. of the record ments, appears obligors does not fall within the class of cases no efforts to disclose ranged during this reasons, from 10VH&to 11V2% court cor- these the district For always period. obligors’ sole claim has judgment for the granted summary rectly that the allowable interest was con- liability on the note FDIC on the issues of rate by Tennessee’s 10% maximum trolled obligors’ counterclaims and various interest received the after the bank Having this decision on reached defenses.12 XI, 7; art for- § note. Former Tenn.Const. reading we need not Ann. 47-14-104. There mer Tenn.Code policy would bar the whether federal decide nor in the district court was no contention law would have obligors’ claims if the state was usuri- appeal that the interest on this particular, we permitted claims. district court’s Georgia law. The ous under 1823(e) not decide whether U.S.C. § need holding usury Tennessee limits do not protects law the FDIC federal common on this note and apply to the interest recoupment claims based on from viable striking usury de- consequent court’s allegations.13 fraudulent inducement obligor-defendants’ appeal. fense draws affirm. Usury We obligors argue that Tennessee obligor-defendants appeal first also through operation applies law striking court’s of the defense of the National Bank Act: obligors in- usury. The contended that charged by Any banking] terest the Hamilton association [national 25,1975, receive, the date that a charge any Bank from October loan reserve and assigned made, notes, upon any in the note was bills 91.48% or discount bank, debt, when February exchange, until or other evidence of interest, acquired FDIC was usurious. interest at the rate allowed the laws State, Territory, the note of the or district where The interest verify Mortgage the statements Hamilton vanced. See Crider v. First National Ga.App. allegedly prompted proved crucial and See also Lauterbach, reliance. FDIC v. (7th 1338-39 obligors there existed did once claim that conspiracy keep knowledge them the from Mortgage’s shortcomings. But put ground on that 13. Our failure to case making transpired this action after the ques- our indicate that answer to raise on this loan and the did not negative. Although tion would be thority there is au- any grant appeal error in the district court’s subject holding that the FDIC is to the summary judgment against respect them with inducement, defense of fraud in the FDIC v. conspiracy to this claim. Webb, (E.D.Tenn. 1978), F.Supp. authority holding there is also the FDIC 12. The discuss an failure also takes its interest free of such defenses either of the note. It consideration for the 1823(e) gives appellants because protection the FDIC the same is unclear from their briefs whether course, argument separate available to a holder in due consider this to be from Rockelman, merit, F.Supp. FDIC v. (E.D.Wis.1978), fraud claim. It is without event. when Hamilton or because federal common convinced that requires light strong advanced over one million dollars to law such result in pay policies favoring pro be used to brought off the old debts it federal uniform federal holding sort, Hutcheson, itself under of this tection F.Supp. Gunter v. payment (N.D.Ga.1980). of an antecedent debt consti- Without adequate tutes consideration for a note. See entering holding ground simply on this we 1979); (Harrison Ga.Code Ann. Berry 109A-3-408 Court, to this an assertion of this Metals, Inc., 437, v. Atlas against merely defense the FDIC seems to con- Rothstein, 263 S.E.2d 179 Smith v. a claim a claim of fraud. If vert of breach into obligor may successfully an void a note and Moreover, to the claimed value the extent that recoup damages against the FDIC based on a bargain of the when was lost to the claim of fraudulent inducement from an un- ability Hamilton lost its to loan fur- agreement, he will have made an end written funds, “promise” ther upon we that the should note 1823(e) by asserting run around as fraudulent § obligors rely which the was enforceable the same unwritten of which a any in event and a failure to loan an additional may resulting damages in not under breach discharg- amount is not failure of consideration 1823(e) against the FDIC. § be asserted ing obligors liability from for amounts ad- located, however, level. district per is or at a rate of 1 The the bank conclud- applica- ed statute in the rate on that the mandated the centum excess of discount and, thus, tion law of struck the paper in effect ninety-day commercial at usury. of defense bank the reserve to the Federal Federal located, the reserve district where bank is argues The FDIC National Bank greater, the whichever be no inapplicable Act is because the loan was more, except by the laws of that where originally made and serviced rate is limited for State different Mortgage Corporation, according laws, organized banks state the participation agreement only the was then rate so limited shall allowed for associ- pay interest the bank. Absent a na- organized existing nay ations collecting bank the tional usurious chapter. interest, State under this the FDIC contends that the Na- addition, tional Act is irrelevant. Bank the They 85. claim that entire § U.S.C. only later, the bank after the usury interest must be forfeited under loan, part partial took of the note as a penalty They of U.S.C. contend § assignment. acceptance that Hamilton National Bank’s assignment partial brings of a of the note court assumed that operation that into because the bank Act applied Act to this transaction. The district charged ques- and reserved interest correctly that concluded provides tion. Act banks national determines whether this note was usurious. permitted charge interest rates in the The obligors contend 85§ U.S.C. rule of their location. Such a has controls this case because Hamilton Na applied loans made by interstate assignee partial tional Bank was an of a doing national banks business with resi- note. Under these permissible dents of with states lower levels circumstances, the Tennessee interest limit of Marquette interest. See National Bank apply of 10% does because a transfer of v. Corp., First of Omaha Service U.S. pre-existing debt to a national bank does 58 L.Ed.2d 534 All S.Ct. not cause the National Bank Act man parties apparently agree that Hamilton Na- application usury date the law of the tional was located in Bank Tennessee. state where the bank is national located.14 obligors argue Hence the the interest Although apply the statute does to usurious accruing while on it was held discounting of a note a national bank impermissibly high was disguised bank because purchases to usurious loans as intermediary, interest exceeded Tennessee 10% notes from such does not interpret prior holding subsequent Marquette holding 14. We this rule to be the Nation Lafayette Royale Compare of this Court. al Bank First of Omaha 439 U.S. Apartments, (1978), clearly Inc. v. Meadow Brook National S.Ct. L.Ed.2d that, 1968) upsets holding Recile even when there Massengill, purchase pre-ex Meadow Brook National Bank a loan rather than 1970) note, isting apply 1060-61 85 does not to loans made Recile, Meadow Brook National Bank v. F.Supp. outside National bank’s state of location. (E.D.La.1969). York, The Massen- The bank in Recile was located New gill applied applied Court law without refer- Louisiana and the Recile court Louisiana law. ring Marquette opinion to 12 U.S.C. 85 or the law the state man Clearly application was where the National bank located. date the of New York rather than facts, provision Court aware of because Louisiana laws on the Recile be obligors urged opinion Recile on cause the bank was held to have made an Rejecting applicability Court. Recile interstate loan. finding, purchase specific Although holding aof loan rather than a of a one of Recile it, overruled, pre-existing impact on the facts before now of the two Fifth Massengill involving turned to Louisiana law. Circuit decisions the Meadow Brook interpret, This failure to cite 12 we National ings remains. hold- U.S.C. Bank Their implicit holding preliminary as an rest issue whether between purchase maker quires a note and a national bank that ac- the transaction was a of a note rather note, pre-existing provision they than a loan and thus do not Recile’s share apply. interpreting flaws in 12 U.S.C. 85. § case, present Georgia usury we think the where the present case appear to be the guide laws should this Court and the bank either not claim that obligors do non-usurious, initially remains so.16 was the lender.15 the note or discounted character of a note should not of law rules to the non-usurious Applying normal choice by question are not bound the forum state’s choice of such a has faced 15. Court rules, apply the con but are free to law heard a suit under 12 U.S.C. that it has sense controversy.” pending challenged relevant to the sidered of a note a 85 where the maker Crist, 1226, (5th Matter of Cir. note to a National discount of the usurious (Pt. 2) 1980). 1A Federal obligee. See also Moore’s original Daniel v. First from the bank (2d 1981). 1)0.325, 1955), at 3406-13 ed. (5th Practice 227 F.2d 353 National rehearing an observation mean that a Such need not opinion, 228 F.2d 803 denied always applied, and this Court in federal rule is (1956). the maker could held that Court context, recognized bankruptcy has also against The Court held that recover the bank. that there be issues which should be re price” appeared a sales con- what to be “time by application of the forum state’s solved by the tract sold at a discount original to the bank rules even where a federal choice of law obligee really a loan to which the was question is free to do other Thus, in a federal privy from the start. bank was Leasing Corp. v. Hutche wise. Woods-Tucker from the start and the transaction was usurious Co., 744, son-Ingram Development recog- was the actual lender. The Court bank 1981). Note, Applica See also 748 n.8 nominally discount was nized that what was bility Rules When Issues of of State Conflicts disguised by the bank or a either in fact a loan Cases, 68 State Law Arise in Federal Question by originally usurious loan which the bank In discuss Harv.L.Rev. original to the transaction close association ing a some relevance to this case situation with agreed apparently was flawed. It also knew that: the Woods-Tucker Court stated respect discount if made with that a usurious The claim that the transaction is unenforcea- legal note would be the loss of to an otherwise ble as usurious under the law of the forum obligee previous See and not the maker. presented here would seem to be a case in 355-57, 228 F.2d at 227 F.2d at 805-07. point determination of whether Daniels in that here case differs from —the prevents enforcement of the claim should not allegedly usuri- assumed vary depending upon whether the defense is for non-usurious interest ous instrument called raised a state or instead a court of federal obligee held initial and the obli- when bottom, presents the forum. At question the issue gors that Hamilton Nation- have never claimed “independent bankruptcy that is al Bank in fact. was the lender Vanston, precedes supra it.” 329 U.S. at We think that a conflict of laws (Frankfurter, 16. it clear 67 S.Ct. at 243 J. concur- analysis Bank Act unaffected the National ring), and be in man- that should resolved remaining provision, but with the FDIC ner that is not inconsistent with the resolu- plaintiff, would result in an initial reference to tion that would have occurred had the bank- Tennessee, Georgia, usury law. rather than ruptcy proceeding not intervened. jurisdiction This Court has over this case 642 F.2d at 748 n.8. The Woods-Tucker Court 1331(a) question and 12 U.S.C. 1819. avoided the of whether to follow Klax- under U.S.C. question independent such a case on or follow an federal rule Because is federal appli deciding law is to some extent that under either the or federal where substantive cable, necessarily com test the same result Although Id. at this federal court would obtain. pelled by prior diversity precedent action de- Woods-Tucker Court did not apply the choice of law rules of the forum cide whether it was Klaxon or was bound relevant, state, Georgia. generally Klaxon free to choose the law it considered Manufacturing question 313 U.S. this v. Stentor Electric decided Crist, In 61 S.Ct. 85 L.Ed. 1477 Court quent 632 F.2d at 1229. The subse- stead, question we would face a that has been statements in Woods-Tucker can there- Mishkin, should, Bator, Shapi D. fore be taken to mean that this pushed if often reserved. P. P. Wechsler, question, free to choose the ro & H. Hart and Wechsler’s but, System (2d applicable Federal Courts and the Federal choice of law rule for the rea- above, 1973). apply See UAW Hoosier Cardinal sons stated the forum rule in ed. 8,n. some cases. 383 U.S. 705 n. 86 S.Ct. D’Oench, decision, (1966); 16 L.Ed .2d 192 Duhme & Co. Given the Crist the Woods-Tucker policy adopting state choice of law rules in 315 U.S. S.Ct. [62 Martin, good some makes sense. Professor 86 L.Ed. Fahs v. cases 956] policies that if the federal do Moore advocates law, apply recently indicated its views not refer to state “the court should Court has including regarding general question the conflict when it stated rule of substantive law— wholly independent disposition question of state law.” 1A federal that: “When of a rules — requires But Moore’s Federal Practice at 3412-13. reference to state federal courts

149 did, changes Act, change hands.17 Be- that Bank 12 when the note U.S.C. holding application we 86 cause of this do not find it also results in Geor- determine, gia law.18 necessary ap- as the district court court’s ultimate 238, 240, adopt (1895). really 97 847 there is no need a federal rule at Ga. 24 S.E. The same stage the present of a case such as the choice of laws conclusion would still follow from those cases First, rights may payable of the FDIC one. if even the note was made in Tennes- completely grounds, state law Weightier applica- be vindicated on making see. favor the factors must policy of federal invocation unnec- foreign Georgia tion of a state’s law before Second, essary. policy effectively can de- parties attempted courts will conclude that ultimately dispositive cide the is- crucial and non-Georgia example, to make a contract. For instance, stage, sues in later the case at a security providing where the land is in by policy holding that overrides the the federal Georgia may that factor be offset such facts initially adopted. Third, state substantive law payment foreign as in execution and state the same result be reached under either and that state’s control. law See Clark v. Fourth, it is conflicts rule. difficult to under- Corp., Ga.App. 389, Transouth Financial facially and stand how a reasonable neutral Lawman, (1977); 236 S.E.2d Jones v. state can choice of law rule disfavor federal Ga.App. (1937). 194 S.E. 416 policy except happenstance choice of an Thus, by any interpretation of reasonable Geor- unfavorable state law was selected on gia law, Georgia conflicts courts would con- principles completely independent from and present sider the have note to been intended to respect policy. neutral nally, to the federal with Fi- Georgia be a gia usury measured to be under Geor- usury in it would be less cases desirable laws, although which not discussed unpredictable to have an substantive result for side, apparently either would hold that the applying the sake of uniform federal conflicts loan was usurious to the debtor Martin, every rule in See Fahs case. v. corporation guarantors. or the individual 1955). F.2d For these rea- 57-118, -119; Ga.Code Ann. §§ Rothstein v. sons, Georgia this next turn to Court would Atlanta, First National Bank of 239 Ga. conflicts laws. (1972); 236 S.E.2d 350 Mercantile Nation law, Georgia Under the it is clear that Geor- Berger, al Bank v. gia usury apply. law would The contract was (1973); Paper S.E.2d 921 Waterman v. Howard Georgia, performed executed and in to be Co., payment Mortgage to be to Hamilton made in fact, only is the state with subject Savannah. which was The land any parties interest in the case because all the security Georgia. deed was (aside FDIC) from the residents Georgians. were also The sole Tennessee con- ironically argue applica- who strain to for the nection of this transaction the fact that Ham- tion of Tennessee law. Mortgage ilton and National Bank analysis sufficiently shows that under corporations. were Tennessee theory common choice of state circumstances, Georgia Under these courts applicable usury Georgia. law be that would apply Georgia Georgia legisla- would law. provided ture has that: “If, long ago 17. This Court observed that: in its Every according contract bear shall inception, the contract instrument contract, place to the law of unless purported by usury, to evidence was unaffected upon apparent face it shall by subsequent it was not invalidated transac- parties intention of referred the execution Longwell, tion.” (5th Huntsman v. forum; of the contract to another in this proposition was articulat- govern. the law former should Supreme ed as one of the “cardi- (Harrison 1977) (em Ga.Code phasis added). Ann. usury.” nal rules in Fearson, the doctrine Nichols v. interpreted This has been as a 103, 109-11, 32 U.S. 8 L.Ed. 623 provision choice of law which determines usury controlling. which state’s laws are And the choice of Georgia as law rule fleshed out hold, 1) Despite courts that where our belief we need would not reach 2) question, security Georgia; land held deed is in we do note Georgia; 3) usury applies, contract was claim executed that Tennessee when- Georgia, payable ever contract was made Georgia a National bank in Tennessee holds an apply Georgia appears law of interest in a note another made in place performance primary of the contract. untenable. placed First reliance is Rambo, Marquette interpretation National Bank of v. 143 Ga. a literal Quitman 665, 668-69, (1915); Byrd Equita 85 S.E. 840 National Bank v. Omaha Service First of 628, 639-40, Soc’y, ble Life Assurance 185 Ga. 439 U.S. 99 S.Ct. L.Ed.2d 534 (1978), Taylor 196 S.E. 63 see that 12 American where the court held U.S.C. 85§ Co., bank, applied Freehold (1898); Ga. S.E. 153 interstate loans that a state, loaning money American Underwood v. located in one in a second however, Georgia usury plication of HAMILTON, Jr., Eugene correct. and Idel Eddie

weis Hamilton, Plaintiffs-Appellants, la Conclusion COMPANY, DISCOUNT SOUTHERN argu- obligors’ appellate Defendant-Appellee. reject all the We statutory protection The FDIC’s ments. No. 80-7669. it from apply in this to shield does case agreements. unwritten side asserted Appeals, United States Court of claim, which, rather fraudulent inducement Fifth Circuit. asserting agreements oral than Unit B valid, many use of the same facts would Sept. 14, 1981. invalidating the written prove fraud Rehearing Finally, viable law. Denied is not under state Oct. 1981. usury apply to this Tennessee does and, therefore, the FDIC is

note or prevented ground on this from collec- short,

ting judgment either. court is AFFIRMED. CLARK, Judge, spe-

THOMAS A. Circuit concurring:

cially specially

I concur majority opinion

for the reasons set my specially forth in

concurring opinion Ventures, in Chatham

Inc., et (5th al. v. 651 F.2d 355 Cir. circumstances, may charge directly state rate allowed Under these interest at the if we question, might agree of location. faced this well with we the district bank which found that a National arguments state, making foreign a loan where in a being Bank U.S.C. Hamilton National banks, higher interest rates are allowed to state may only have held notes

located in Tennessee bearing rate, higher may charge foreign because the against the rule of interest cuts 10% in that bank could then said to “exist” generally applicable allegedly usu- validation foreign state. See v. First National Fisher relation with rious contracts a substantial Bank, (8th 1977); 548 F.2d 257-58 Cir. Martin, one state. Fahs v. more than See Bank, Fisher v. First National (5th 1955). The Tennessee 85; 1976); 1290-01 12 U.S.C. Ga. apply this rule to in- courts 41A-1313; seq. Ann. et §§ Code 57-101 contracts one in the terstate such as the This discussion further confirms our view Price, present case. See 143Tenn. Bowman v. acquisition pre-existing Vise, 226 S.W. 210 Denton v. National bank does limits not alter the See Tenn. S.W.2d applicable to this note when the National bank Homes, Inc., F.Supp. also In re Leeds (E.D.Tenn.1963), is located in a state restrictive laws with more aff'd, the state where was made. Al- than the note fact, 1969). In would be validation rules though alleged by appellants facts as on the particularly appropriate case where Ten- in this might be said to the Hamilton National Bank protecting Georgia no nessee has interest in “exist” Fisher in the sense used argu- usury. borrowers from courts, purchaser might often of a note ment, thus, appears purpose to undercut have no contacts with a state of the and be designed Bank the National Act which completely unsusceptible to such competitiveness national banks. enhance surely Congress in- characterization. did not Marquette 439 U.S. at National disadvantage in that banks tend manner. 99 S.Ct. at

Case Details

Case Name: Federal Deposit Insurance Corporation, as Liquidator for the Hamilton National Bank of Chattanooga v. Lattimore Land Corporation

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Sep 14, 1981

Citation: 656 F.2d 139

Docket Number: 80-7635

Court Abbreviation: 5th Cir.