MOTORCITY OF JACKSONVILLE, LTD., a limited partnership, By and Through its general partner MOTORCITY OF JACKSONVILLE, INC., a Florida corporation, David S. Hess, Plaintiffs-Appellants, v. SOUTHEAST BANK N.A., David Feigenbaum, Defendants, Federal Deposit Insurance Corporation, as receiver for Southeast Bank, N.A., Defendant-Appellee.
No. 93-4634
United States Court of Appeals, Eleventh Circuit
May 8, 1996
83 F.3d 1317 | 64 USLW 2709
Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit Judges.
Kipp A. Coddington, Christopher D. Cerf, Daniel E. Troy, Stephen Goldman, Washington, DC, for Motorcity & David Hess.
Julie Feigeles, Miami, FL, S. Alyssa Roberts, James Scott Watson, Washington, DC, for appellees.
Appeal from the United States District Court for the Southern District of Florida.
ANDERSON, Circuit Judge:
I. INTRODUCTION
In this decision, we consider whether the district court correctly granted a motion to dismiss in favor of appellee Federal Deposit Insurance Corporation (“FDIC“) based upon the D‘Oench doctrine. See D‘Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). For the reasons that follow, we affirm the judgment of the district court.
II. FACTS
This case arises from the banking relationship of appellants Motorcity of Jacksonville, Ltd., Motorcity of Jacksonville, Inc., and David S. Hess (collectively “Motorcity“)1 with the financial institution of Southeast Bank, N.A. (“Southeast“). We assume the following allegations from Motorcity‘s pleadings to be true for purposes of resolving the FDIC‘s motion to dismiss. In 1986, Motorcity and Southeast negotiated a floor plan financing agreement, under which Southeast agreed to lend Motorcity funds to purchase inventory for its used car dealership. During the negotiations, Motorcity orally informed Southeast that appellant David Hess and other Motorcity investors lacked experience in running a car dealership and planned to operate the dealership as absentee owners. Southeast orally assured Motorcity that its personnel were experienced with floor plan financing and that “the bank ‘knew what it was doing.‘” R2-58 Ex. 1 p 14. Of particular concern to both Southeast and Motorcity were “out-of-trust” sales, which occur whenever a dealership fails to use the proceeds from the sale of a vehicle to repay the loan designated for that vehicle. Continued unchecked, such out-of-trust sales could pose a threat to a dealership‘s financial viability.
Motorcity and Southeast executed a written floor plan financing agreement in June 1987. Pursuant to the floor plan financing agreement, Southeast retained the right to audit Motorcity‘s records.2 Southeast hired an independent contractor to audit Motorcity on a monthly basis. Through these audits, Southeast allegedly discovered a pattern of out-of-trust sales at the dealership: rather than repaying the floor plan loans, Motorcity‘s managers were using the sales proceeds from vehicles to pay themselves unearned bonuses. Although Southeast or its auditor sent summary audit reports to Motorcity, the bank failed to disclose these out-of-trust sales to Motorcity.
In February 1989, Motorcity learned from its newly-hired general manager that the dealership was out-of-trust more than $400,000. Motorcity immediately notified Southeast of the situation. Southeast demanded immediate payment for the entire out-of-trust amount, but Motorcity was unable to meet the bank‘s demand. Southeast took possession of Motorcity‘s collateral, including the dealership itself and $375,000 in certificates of deposit. Motorcity repaid all of its loans to Southeast by April 1990.
III. PROCEEDINGS BELOW
Motorcity sued Southeast and one of its employees in Florida state court, alleging breach of fiduciary duty, breach of oral contract, and negligence. Less than a year later, in September 1991, the Office of the Comptroller of the Currency declared Southeast insolvent and appointed the FDIC as receiver for the failed bank. The FDIC was substituted for Southeast as defendant in the state court action, and the FDIC removed the case to federal court.
Motorcity amended its complaint to state a claim only for breach of written contract. The district court dismissed this amended complaint for failure to state a claim upon which relief could be granted. The court found that the floor plan financing agreement gave Southeast the right, but not the duty, to audit Motorcity; thus Southeast was under no contractual obligation to inform Motorcity of the out-of-trust sales. The court further ruled that the D‘Oench doctrine and
Motorcity moved for a rehearing and for leave to amend its complaint to add tort claims for negligence and for breach of fiduciary duty to notify. The district court denied both motions. In its omnibus order, the court reiterated that the D‘Oench doctrine barred all oral contract claims, including those claims recast as tort actions by “‘artful pleading.‘” R2-67-1-2.
On appeal, a panel of this court held that Motorcity‘s state law tort claims for negligence and for breach of fiduciary duty were free standing torts, not barred by the D‘Oench doctrine. Motorcity of Jacksonville, Ltd. v. Southeast Bank, N.A., 39 F.3d 292 (11th Cir.1994). The FDIC‘s petition for en banc hearing was granted, thus vacating the panel opinion. 58 F.3d 589 (11th Cir.1995).3
Motorcity appeals solely the district court‘s denial of its motion to file a second amended complaint to add its proposed tort claims. Our review standard for a district court‘s denial of a motion to amend a complaint is abuse of discretion. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 802, 28 L.Ed.2d 77 (1971); Shipner v. Eastern Air Lines, Inc., 868 F.2d 401, 407 (11th Cir.1989). After a responsive pleading has been filed, subsequent amendments are permissible only with leave of court, which “shall be freely given when justice so requires.”
In this case, the district court denied Motorcity‘s motion to amend based on the court‘s legal determination that Motorcity‘s proposed tort claims were barred by the D‘Oench doctrine. The futility of a proposed amended complaint can be a justifiable reason for denying leave to amend. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9. L.Ed.2d 222 (1962); Moore, 989 F.2d at 1131. When a district court denies leave to amend a complaint because of futility, we review de novo. Keweenaw Bay Indian Community v. State, 11 F.3d 1341, 1348 (6th Cir.1993); see also In re Geri Zahn, Inc., 25 F.3d 1539, 1542 (11th Cir.1994) (explaining that the applicability of the D‘Oench doctrine is a question of law, subject to de novo review); Freer v. Dugger, 935 F.2d 213, 216 (11th Cir.1991) (“Regarding the standard of review, conclusions of law by the district court are not binding on appellate courts and this court is free to substitute its judgment for the district court‘s on matters of law.“) Accordingly, we review de novo the district court‘s determination that Motorcity‘s tort claims are barred by the D‘Oench doctrine and its statutory counterpart,
V. DISCUSSION
Our analysis begins with an examination of the D‘Oench doctrine‘s origins and with the leading case itself, D‘Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). In that case, the Supreme Court created a federal common law doctrine of estoppel to protect the FDIC from defenses raised by debtors based on “secret agreements” with failed banks. D‘Oench involved a securities dealer who sold a bank some bonds which later became worthless. To prevent the past due bonds from appearing among the assets of the bank, the dealer executed a demand note with the bank and entered into a separate agreement with the bank that the note would not be called for payment. The FDIC later acquired the note in a purchase and assumption transaction. When the FDIC demanded payment on the note, the maker defended on the basis of the side agreement with the bank, in which the bank promised not to call the note for payment. Id. at 454, 62 S.Ct. at 678. The lower courts applied Illinois state law and held that the FDIC was entitled to recover on the note as a “holder in due course.” Id. at 455, 62 S.Ct. at 678.
The Supreme Court rejected the lower courts’ use of state law and instead created a federal common law rule by drawing an analogy to provisions of the Federal Reserve Act, which “reveal[ed] a federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures or to which it makes loans.” Id. at 457, 62 S.Ct. at 679. The Court held that a “secret agreement” outside the documents contained in the bank‘s records would not operate as a defense against a suit by the FDIC on the note. Id. at 459, 62 S.Ct. at 680. Significantly, the Court added that the maker of the note did not have to intend to deceive anyone; it was sufficient “that the maker lent himself to a scheme or arrangement whereby the banking authority ... was likely to be misled.” Id. at 460, 62 S.Ct. at 681.
No agreement which tends to diminish or defeat the right, title or interest of the Corporation [FDIC] in any asset acquired by it under this section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement (1) shall be in writing, (2) shall have been executed by the bank and the person or persons claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the bank, (3) shall have been approved by the board of directors of the bank or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) shall have been, continuously, from the time of its execution, an official record of the bank.5
Thus, “[t]he statute makes the common law principle both more encompassing and more precise.” FDIC v. O‘Neil, 809 F.2d 350, 353 (7th Cir.1987). By allowing the FDIC to rely on the records of the bank, the specific recording requirements of
[This] evaluation, in particular, must be made “with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services.” Neither the FDIC nor state banking authorities would be able to make reliable evaluations if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions.
Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987) (quoting Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982) (citations omitted)). In addition to requiring an alleged agreement to appear in the bank‘s records,
These ... requirements ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure.
Id. However, it is “clear that the D‘Oench doctrine applies even where the customer is completely innocent of any bad faith, recklessness, or negligence.” Baumann v. Savers Fed. Sav. & Loan Ass‘n, 934 F.2d 1506, 1515 (11th Cir.1991), cert. denied, 504 U.S. 908, 112 S.Ct. 1936, 118 L.Ed.2d 543 (1992). Thus,
As originally enacted in 1950,
In a suit over the enforcement of an agreement originally executed between an insured depository institution and a private party, a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution‘s records.
Id. at 593 (quoting OPS, 992 F.2d at 308 and Baumann, 934 F.2d at 1515).7
In the wake a mounting crisis in the banking and thrift industry, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA“), Pub.L. No. 101-73, 103 Stat. 183, inter alia, “to give the FDIC power to take all actions necessary to resolve the problems posed by a financial institution in default.” FDIC v. Wright, 942 F.2d 1089, 1095-96 (7th Cir.1991) (quoting H.R.Rep. No. 54(I), 101st Cong., 1st Sess. 330, reprinted in 1989 U.S.Code Cong. & Admin.News 126), cert. denied, 504 U.S. 909, 112 S.Ct. 1937, 118 L.Ed.2d 544 (1992). FIRREA substantially codified several of the significant common law developments in the D‘Oench doctrine, expanding the applicability of
Motorcity makes several arguments in its effort to prevent the application of the D‘Oench doctrine to its claims against the FDIC. First, Motorcity argues that the federal common law D‘Oench doctrine has been preempted by statute and that therefore the FDIC must rely exclusively on
A. Has the Federal Common Law D‘Oench Doctrine Been Preempted by Statute?
We first address Motorcity‘s argument that the federal common law D‘Oench doctrine has been preempted by statute. In Murphy v. FDIC, 61 F.3d 34 (D.C.Cir.1995), the D.C. Circuit recently held that the Supreme Court‘s reasoning in O‘Melveny & Myers v. FDIC, 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), leads “ineluctably” to the conclusion that the common law D‘Oench doctrine has been preempted. Id. at 38; see also DiVall Insured Income Fund Ltd. Partnership v. Boatmen‘s First Nat‘l Bank of Kansas City, 69 F.3d 1398, 1402 (8th Cir.1995) (following Murphy‘s reasoning and holding that the federal holder in due course and D‘Oench doctrines have been preempted). We disagree with the analysis of the D.C. and the Eighth Circuits and hold that the federal common law D‘Oench doctrine has not been preempted by statute.
Our analysis of the preemption issue begins with a discussion of the effect of federal statutes on the federal common law, in light of the role that the federal common law plays in our system. In Swift v. Tyson, 41 U.S. (16 Pet.) 1, 18-19, 10. L.Ed. 865 (1842), the Supreme Court held that, in the absence of a state statutory or constitutional provision, federal courts sitting in diversity should not apply a state court‘s common law decisions. Rather, federal courts should fashion their own federal common law rules by consulting “the general principles and doctrines of ... jurisprudence.” Id. at 19. Almost a century later, in Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S.Ct. 817, 822-23, 82 L.Ed. 1188 (1938), the Supreme Court expressly overruled Swift, holding unconstitutional the federal common law regime created by that decision. Writing for the Court, Justice Brandeis flatly declared: “There is no federal general common law.” The Court explained that the Swift doctrine represented an unconstitutional invasion by the federal courts into the powers “reserved by the Constitution to the several states.” Id. at 79-80, 58 S.Ct. at 823.
Courts often examine the policies expressed by Congress in statutes in order to identify those “uniquely federal interests” that make necessary the development of federal common law. See, e.g., Kimbell Foods, 440 U.S. at 727, 99. S.Ct. at 1458 (describing federal common law as a means to “fill the interstices of federal legislation“); United States v. Little Lake Misere Land Co., Inc., 412 U.S. 580, 93. S.Ct. 2389, 37. L.Ed.2d 187 (1973) (refusing to apply state law to abrogate federal government contracts to acquire land for public use, in part because doing so “would deal a serious blow to the congressional scheme contemplated by the Migratory Bird Conservation Act and indeed all other federal land acquisition programs“). In these cases, the use of federal common law effectuates congressional intent and resembles the task of statutory interpretation.13 The D‘Oench case itself is a leading example of the Court‘s use of federal statutes to identify those “uniquely federal interests” that require the creation of federal common law. See D‘Oench, 315 U.S. at 456-57, 62. S.Ct. at 679 (analyzing statutory provisions that “reveal a federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures“).14
Because the application of federal common law is so closely tied to congressional intent, the task of determining whether a particular federal statute displaces existing federal common law requires courts to inquire carefully into the purposes of the legislation. Courts must be mindful that “the federal lawmaking power is vested in the legislative, not the judicial branch of government,” Northwest Airlines, Inc. v. Transp. Workers Union of Am., 451 U.S. 77, 95, 101. S.Ct. 1571, 1582, 67. L.Ed.2d 750 (1981), and that federal common law is often merely a “necessary expedient” in instances in which “Congress has not spoken to a particular issue.” City of Milwaukee v. Illinois, 451 U.S. 304, 313-14, 101. S.Ct. 1784, 1790-91, 68. L.Ed.2d 114 (1981) (”Milwaukee II“) (emphasis added). Accordingly, courts should not require from Congress “the same sort of evidence of a clear and manifest purpose” to preempt as they require in considering whether a federal statute displaces state law. Id. at 316-17, 101. S.Ct. at 1792.15 At the same time, “[s]tatutes which invade the common law ... are to be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident.” United States v. Texas, 507 U.S. 529, 534, 113. S.Ct. 1631, 1634, 123. L.Ed.2d 245 (1993) (quoting Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72. S.Ct. 1011, 1014, 96. L.Ed. 1294 (1952)). Therefore, although “Congress need not ‘affirmatively proscribe’ the common law doctrine at issue,” its purpose to preempt existing federal common law at a minimum must be “evident.” Texas, 507 U.S. at 534, 113. S.Ct. at 1634-35.
In Murphy, without mentioning the presumption that federal common law principles survive the enactment of federal legislation, the D.C. Circuit held that FIRREA‘s comprehensive nature caused the federal common law D‘Oench doctrine to disappear. 61 F.3d at 40. The court reached this startling conclusion by relying almost exclusively on certain language in the Supreme Court‘s decision in O‘Melveny & Myers v. FDIC, 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994). We disagree with Murphy‘s reliance on O‘Melveny.
The Supreme Court began by stating that it “would [not] adopt a court-made rule to supplement federal statutory regulation that is comprehensive and detailed; matters left unaddressed in such a scheme are presumably left to the disposition provided by state law.” Id. at 79, 114. S.Ct. at 2054. The Court analyzed
Although O‘Melveny never mentions the D‘Oench doctrine directly, the Court included one of D‘Oench‘s statutory cousins—
We believe that Murphy erred in relying on O‘Melveny. The question presented in O‘Melveny was whether the federal courts should create a new federal common-law doctrine in an area in which Congress had not expressed any special concern, nor indicated that a special federal rule of decision should govern.16 In this case, the question presented is not whether a new rule should be invented, but whether Congress intended to abrogate the previously-established federal common-law D‘Oench doctrine, which doctrine operates in an area of special federal concern as recognized by Congress, the Supreme Court, and the lower federal courts. The O‘Melveny analysis does not apply to this question.
We believe that United States v. Texas, 507 U.S. 529, 113. S.Ct. 1631, 123. L.Ed.2d 245 (1993), rather than O‘Melveny, provides the appropriate guidance for courts in their efforts to determine whether Congress intended that FIRREA abrogate the previously-established and longstanding federal common-law D‘Oench doctrine. Just a year before O‘Melveny, the Supreme Court in Texas addressed the question of whether Congress intended to abrogate a pre-existing and longstanding federal common-law doctrine. There, the Court held that the previously-established federal common-law doctrine was presumed to survive unless a congressional intent to the contrary was evident. The Court expressly rejected the argument that the “presumption favoring retention of existing law is appropriate only with respect to state common law.” The Court explained:
[T]here is no support in our cases for the proposition that the presumption has no application to federal common law.... “[C]ourts may take it as a given that Congress has legislated with an expectation that the [common law] principle will apply except ‘when a statutory purpose to the contrary is evident.‘”
Id. at 534, 113. S.Ct. at 1634-35 (quoting Astoria Fed. Sav. and Loan Ass‘n v. Solimino, 501 U.S. 104, 108, 111. S.Ct. 2166, 2170, 115. L.Ed.2d 96 (1991) (quoting Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783, 72. S.Ct. 1011, 1014, 96. L.Ed. 1294 (1952))).
In ascertaining whether the purpose of FIRREA was to eliminate the D‘Oench doctrine, Motorcity is correct in suggesting that we should attach significance to the comprehensiveness of the statutory scheme, and give full recognition to the fact that federal common law is subject to the paramount authority of Congress. Milwaukee II, 451 U.S. at 313, 101. S.Ct. at 1791. In some cases, the application of federal common law might interfere with a statutory scheme that is comprehensive in scope. See, e.g., id. at 317, 326, 101. S.Ct. at 1792, 1797 (describing the 1972 amendments to the Federal Water Pollution Control Act as a “comprehensive regulatory program supervised by an expert administrative agency” and explaining at length that the federal common law rule in question “would be quite inconsistent with this scheme“); Northwest Airlines, 451 U.S. at 97, 101. S.Ct. at 1583-84 (explaining that the enactment of a “comprehensive legislative scheme including an integrated system of procedures for enforcement” indicates that Congress’ omission of a particular remedy was deliberate and declining to “fashion new remedies that might upset carefully considered legislative programs“). More precisely, federal courts are not free to contradict a congressional policy choice that “speaks directly” to a particular question previously answered by federal common law. See Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625, 98. S.Ct. 2010, 2015, 56. L.Ed.2d 581 (1978) (holding that, although “Congress has never enacted a comprehensive maritime code,” federal courts may not award “loss of society” damages under general maritime law because the Death on the High Seas Act expressly prohibits recovery of such damages).
Thus, “the question whether a previously available federal common-law action has been displaced by federal statutory law involves an assessment of the scope of the legislation and whether the scheme established by Congress addresses the problem formerly governed by federal common law.” Milwaukee II, 451 U.S. at 315 n. 8, 101. S.Ct. at 1792 n. 8. Applying this analysis, several considerations persuade us that Congress in enacting FIRREA in 1989 did not intend to preempt the federal common law D‘Oench doctrine. In
As noted above, United States v. Texas, 507 U.S. 529, 534-36, 113. S.Ct. 1631, 1635, 123. L.Ed.2d 245 (1993) reaffirmed the principles that Congress legislates against the background of the existing common law, and that Congress has legislated with an expectation that that law will apply except when a statutory purpose to the contrary is evident. Id. at 534, 113. S.Ct. at 1635. In Texas, the long-established federal common law was that all parties, including states, who owed contractual debts to the federal government were obligated to pay prejudgment interest. The statute at issue, the Debt Collection Act of 1982, codified that obligation with respect to private debtors and made the obligation more specific and more onerous. The statute expressly defined the “persons” subject to the statute, and expressly excluded state and local governments and agencies.
Similarly, the question in the instant case is whether or not it is “evident” that Congress intended to preempt the longstanding federal common law D‘Oench doctrine. There is no indication in the statute or the legislative histories of either the 1950 or the 1989 acts that Congress intended to preempt the federal common law. See FDIC v.
Significantly, neither FIRREA in general, nor
Congress’ purpose in passing FIRREA was to strengthen the FDIC‘s long-established right to protect itself from secret agreements executed by failing banks. See Gibson v. RTC, 51 F.3d 1016, 1020 (11th Cir.1995) (“Congress enacted FIRREA in 1989 in response to the growing crisis in the nation‘s banking and savings and loan industries.“). One important goal of FIRREA was “to give the FDIC power to take all actions necessary to resolve the problems posed by a financial institution in default.” FDIC v. Wright, 942 F.2d 1089, 1095-96 (7th Cir.1991) (quoting H.R.Rep. No. 54(I), 101st Cong., 1st Sess. 330, reprinted in 1989 U.S.Code Cong. & Admin.News 126), cert. denied, 504 U.S. 909, 112 S.Ct. 1937, 118 L.Ed.2d 544 (1992). The coexistence of the common law D‘Oench doctrine and the statutory scheme presents no inconsistency with this purpose. Indeed, the history of the interaction between the D‘Oench common law and the statute strongly indicates that Congress did not intend preemption. The statute at issue began in 1950 as a partial codification of the D‘Oench case. Subsequently, just as the D‘Oench decision itself was a common law rule fashioned to fill the interstices of federal statutes, courts continued to apply the common law D‘Oench doctrine beyond the confines of the statutory language in order to fulfill Congress’ purposes in enacting
We conclude that it is even clearer in this case than in Texas that Congress did not intend to preempt the prior federal common law D‘Oench doctrine. Texas held that the statute did not “speak directly” to the issue, notwithstanding the fact that the statute addressed the area of the government‘s debt collection and addressed prejudgment interest in particular, and notwithstanding the fact that Congress expressly excluded states from the operation of the statute. In the instant case, no language in the statute refers directly to the common law D‘Oench doctrine. The only language in the statute even relevant to the issue presented by Motorcity--the range of oral agreements with respect to which the FDIC will be protected--is found in
As in Texas, our conclusion is supported by the evident purpose of FIRREA--to enhance the FDIC‘s ability to address the problems created by the increasing number of financial institutions in default. As in Texas, Motorcity‘s construction would have the “anomalous effect” of undermining the purposes of FIRREA. Specifically, Motorcity‘s interpretation seeks to take advantage of oral agreements, evading the statute and D‘Oench merely because Motorcity has paid off its loan. Such an interpretation would undermine the core purpose of both the D‘Oench doctrine and its statutory cousins, i.e., allowing the FDIC to make its necessary decisions and evaluations, which sometimes must be made with lightning speed, by relying on the written bank records.
For the foregoing reasons, we therefore hold that neither FIRREA, nor the Federal Deposit Insurance Act of 1950, preempted the federal common law D‘Oench doctrine.
B. Can Motorcity Avoid the D‘Oench Doctrine if it Repaid its Loans to Southeast Prior to Bringing this Lawsuit?
Our conclusion that the D‘Oench doctrine has not been preempted by statute is reinforced by an examination of Motorcity‘s argument that
In light of our holding that the federal common law D‘Oench doctrine has not been preempted, we need not decide whether
Motorcity‘s argument, that repaying a loan before filing tort claims precludes the FDIC from invoking the D‘Oench doctrine, would result in absurdity. For example, suppose that a plaintiff wished to bring tort claims against the FDIC on the basis of alleged oral representations made by the failed bank in connection with the negotiation of the plaintiff‘s loan, and suppose that the alleged oral representations contradict the written loan terms. This hypothetical plaintiff‘s claims would fall within the core of the D‘Oench doctrine and would be barred. See In re Geri Zahn, Inc., 25 F.3d 1539, 1544 (11th Cir.1994). Under Motorcity‘s argument, however, the plaintiff could circumvent the D‘Oench bar simply by paying off the balance of his or her loan before filing suit, leaving the FDIC without an interest in a specific asset. Such a result would seriously undermine the policies of the D‘Oench doctrine: to protect the bank examiners who rely on the bank‘s records in assessing the bank‘s condition, to protect the FDIC‘s ability to insure deposits, and to place the burden on borrowers to make sure that all of the terms of their loan agreements are in writing.
The Ninth and Sixth Circuits have held that the D‘Oench doctrine cannot be avoided by repaying a loan before filing suit. In Brookside, the plaintiff brought fraud claims against the RTC, as receiver for a failed bank (“Commerce“), alleging that the bank‘s officials misrepresented the appraised value of some condominiums. 49 F.3d at 490. In reliance on the alleged misrepresentations, the plaintiff purchased the condominiums, executing a nonrecourse note and first deed of trust in favor of the bank. The plaintiff defaulted on its loan, and the bank foreclosed on the condominiums. Six months later, the RTC took over the failed bank. At that time, the plaintiff‘s note and deed of trust were no longer on the bank‘s books because they had been extinguished by the foreclosure sale. The plaintiff argued that the D‘Oench doctrine did not apply, because the fraud claims did not diminish the RTC‘s interest in a specific asset it had acquired from the bank. The Ninth Circuit squarely rejected the plaintiff‘s argument:
[T]o strip the banking authority of D‘Oench, Duhme protection [in this situation] would give debtors a message: If you relied on unrecorded representations when you borrowed from the bank, wait until your note is extinguished--or extinguish it yourself by paying it off--before you file suit. It does not make sense, in light of D‘Oench, Duhme policy, to allow the doctrine‘s applicability to hinge on a procedural technicality easily manipulable by debtors.
Similarly, in Hall, the plaintiffs sued the FSLIC as receiver of a failed bank (“Commerce“), seeking damages arising out of Commerce‘s breach of an unwritten agreement to advance additional funds on the plaintiffs’ loan. 920 F.2d at 334. Approximately three years before Commerce fell into receivership, the plaintiffs secured a loan from another bank and repaid the Commerce loan. The plaintiffs argued that, because they owed Commerce nothing when the FSLIC took it over, the FSLIC had no interest in any specific Commerce asset and thus the D‘Oench doctrine did not apply. The Sixth Circuit rejected the plaintiffs’ argument:
There are ... instances where FDIC no longer has an interest in an asset, but where the logic of D‘Oench should still apply to protect FDIC. For example, an obligor and a bank in receivership might have mutual breach of contract claims growing out of loan documents in the bank‘s records. The obligor, anticipating a suit by FDIC, might quickly pay off the note in an attempt to block FDIC‘s resort to the D‘Oench doctrine. Under these circumstances, the fact that the obligor paid off the debt so as that FDIC did not have “an interest in an asset” should not prohibit FDIC from invoking D‘Oench.
Because the common law D‘Oench doctrine has not been preempted, and because the common law D‘Oench doctrine is not limited by a specific asset requirement, Motorcity‘s repayment of its loan does not preclude the application of the D‘Oench bar. We now turn to the application of the D‘Oench doctrine to Motorcity‘s proposed tort claims.
C. Application of D‘Oench; Are Motorcity‘s Claims “Free Standing” Torts?
The gravamen of Motorcity‘s complaint is that Southeast should have notified Motorcity‘s absentee owners that out-of-trust sales were occurring at the automobile dealership. Motorcity does not argue that Southeast breached the written floor plan financing agreement. As the district court found, the written agreement imposes no duty on Southeast to monitor the dealership for the benefit of Motorcity and no duty to inform Motorcity of any out-of-trust sales.
Motorcity does not challenge the district court‘s reading of the written contract; rather, Motorcity relies primarily on alleged oral agreements and representations that Southeast would monitor the business not only for its own benefit but also for the benefit of Motorcity‘s absentee owners. However, because the FDIC was entitled to rely on the bank‘s records to ascertain the extent of the bank‘s contractual obligations pursuant to the floor plan financing arrangement, D‘Oench prevents Motorcity from offering extrinsic evidence to alter or to explain the written loan terms. FSLIC v. Two Rivers Assocs., Inc., 880 F.2d 1267, 1276 (11th Cir.1989) (refusing to consider extrinsic evidence to interpret loan terms, because such evidence was not reflected in the bank‘s records); FDIC v. Merchants Nat‘l Bank of Mobile, 725 F.2d 634, 639 (11th Cir.) (rejecting the use of extrinsic evidence not meeting the requirements of
Thus barred from any contract claim based on either written or oral agreements, Motorcity argues that its proposed claims against the FDIC are tort claims that are not related to the floor plan financing agreement. Specifically, Motorcity contends that Southeast breached an alleged fiduciary duty to notify Motorcity of the out-of-trust sales discovered in the course of Southeast‘s audits, and that Southeast acted negligently by conducting its audits in an unreasonable and incompetent fashion. Motorcity argues that these two claims fall within the “narrow exception” to the D‘Oench doctrine for “free standing tort claims.” In re Geri Zahn, 25 F.3d 1539, 1543 (11th Cir.1994).
The D‘Oench doctrine bars all claims--even those sounding in tort--that are “sufficiently intertwined with regular banking transactions, such that exclusion of the alleged ‘secret agreement’ accords with the underlying policies of D‘Oench.” Id. at 1543; OPS Shopping Ctr. v. FDIC, 992 F.2d 306, 310 (11th Cir.1993).18 In other words, a tort claim involving any “scheme or arrangement whereby the banking authority is likely to be misled” cannot be asserted against the banking authority. RTC v. Dunmar Corp., 43 F.3d 587, 593 (11th Cir.) (en banc), cert. denied sub nom. Jones v. RTC, --- U.S. ----, 116 S.Ct. 74, 133 L.Ed.2d 33 (1995); see also Langley v. FDIC, 484 U.S. 86, 92-93, 108 S.Ct. 396, 402, 98 L.Ed.2d 340 (1987) (explaining that the term “agreement” in
Dunmar involved a borrower‘s tort claims arising from a failed S & L‘s oral representations that it would lend additional monies to the borrower, extend the time for payment of a loan, and permit a qualified buyer to assume the borrower‘s mortgage. 43 F.3d at 587. Because “the nature of each alleged oral agreement or representation relates to regular banking transactions and should have been documented in the bank records,” we held that the D‘Oench doctrine barred the borrower‘s tort claims. Id. at 595. Similarly, In re Geri Zahn involved claims of fraud, wrongful dishonor, and intentional interference with a business relationship. 25 F.3d at 1539. These claims arose out of agreements and misrepresentations alleged to have occurred during loan negotiations, and they contradicted the express terms of the loan documentation. We held that the claims fell “well within the core of the D‘Oench bar,” because “[t]he alleged oral agreements were obviously part and parcel of the loan negotiations” and involved “matters which would normally be reflected in the records of regular banking transactions.” Id. at 1544.
This circuit‘s decision in OPS is also relevant. 992 F.2d at 306. In that case, the plaintiff sued the bank for its refusal to pay on a letter of credit that was not reflected in any of the bank‘s records. The court held that the D‘Oench doctrine barred the plaintiff‘s claims against the FDIC, citing the principle that ” ‘a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution‘s records.’ ” Id. at 308 (quoting Baumann v. Savers Fed. Sav. & Loan Ass‘n, 934 F.2d 1506, 1515 (11th Cir.1991), cert. denied, 504 U.S. 908, 112 S.Ct. 1936, 118 L.Ed.2d 543 (1992)). Because the claims in OPS related directly to ordinary banking transactions (i.e., the rights and obligations relating to the issuance of a letter of credit by the bank), banking examiners reasonably would expect the records of regular banking transactions to reflect the plaintiff‘s letter of credit, and thus the D‘Oench bar applied. Id. at 310.
In deciding that the D‘Oench doctrine barred the plaintiff‘s claims against the FDIC, the OPS court extensively discussed the scope of the free standing tort exception articulated in Vernon v. FDIC, 981 F.2d 1230 (11th Cir.1993) (Vernon II ). The tort claims in Vernon II involved alleged violations of securities laws and related claims arising from the claimants’ purchase of preferred stock and warrants to purchase common stock in the failed institution itself. Because “the relevant records would reside in the department of the bank which handled the sale or transfer of the bank‘s own stock,” and would not appear among the records of “regular banking transactions,” the claims in Vernon II constituted free standing torts, not barred by the D‘Oench doctrine. OPS, 992 F.2d at 310-11. Thus, the court drew a distinction: on the one hand, typical claims like employment discrimination and automobile accidents would be free standing torts not barred by D‘Oench; on the other hand, those claims relating to “ordinary banking transactions” and imposing obligations on the bank with respect thereto--obligations that would ordinarily be reflected in the records of banking transactions--would be D‘Oench-barred unless thus recorded. In deciding whether the free standing tort exception applies, therefore, “the key inquiry is one of relatedness” to ordinary banking transactions, and “the relatedness requirement rests upon the recognition that the D‘Oench doctrine does not encompass those free standing torts which do not implicate the records of regular banking transactions.” In re Geri Zahn, 25 F.3d at 1543-44. The D‘Oench doctrine bars reliance on oral agreements to support tort claims that relate directly to ordinary banking transactions and involve obligations of the lender that should be reflected in the records of regular banking transactions. Id. at 1544.
Motorcity‘s claim is based primarily upon alleged oral agreements and representations that Southeast would monitor the business for Motorcity‘s benefit, would conduct regular audits, and would advise Motorcity of any irregularities, especially out-of-trust sales.19 Motorcity claims that such representations were made during the negotiations preceding the signing of the floor plan financing agreement and during the implementation thereof. It is clear that any such negotiations and representations are intimately related to the floor plan financing agreement and should have been reflected in the written agreement. Southeast‘s alleged promises and representations were “part and parcel” of the loan negotiations, and as such relate directly to the financing agreement, a regular banking transaction. In re Geri Zahn, 25 F.3d at 1544. Because “[b]anking examiners who inspect and evaluate the bank records reasonably expect the records of regular banking transactions to reflect all of the rights and liabilities of the bank regarding such regular banking transactions,” OPS, 992 F.2d at 310, it follows that banking examiners would reasonably expect Southeast‘s undertaking of unusual duties to Motorcity to be reflected in such records. Moreover, it accords with the policies underlying
Motorcity seeks to impose additional obligations on Southeast directly related to the financing agreement, obligations which one would expect to be reflected in the bank‘s records. However, the written documents did not reflect such additional obligations, nor did they otherwise appear in the bank‘s records. We readily conclude that the very core of the D‘Oench doctrine bars any reliance by Motorcity on such oral agreements and representations. The free standing tort exception does not apply.
D. Dissecting Motorcity‘s Claims; Assessing Whether a Viable Claim Remains After Stripping Away Reliance on Oral Agreements
In order to evaluate Motorcity‘s state law tort claims, we must focus precisely on the nature and contours of each. As noted above, the core of the D‘Oench bar prevents any reliance by Motorcity on oral agreements. We must carefully examine the elements of each state law claim and the source of the obligations Motorcity seeks to impose on Southeast; only then can we assess whether there is any viable state law claim after stripping away all reliance upon oral agreements or representations.
Motorcity asserts two state law claims, one based on fiduciary duty and one on negligence. We first address the fiduciary duty claim.
1. Fiduciary Duty Claim
Motorcity‘s proposed fiduciary duty claim requires it to establish that Southeast voluntarily assumed an obligation to act for Motorcity‘s benefit. The claim that Southeast breached a fiduciary duty to notify Motorcity about the out-of-trust sales necessarily depends upon the existence of a fiduciary relationship. See Barnett Bank of West Florida v. Hooper, 498 So.2d 923, 925 (Fla.1986) (“The usual relationship between a bank and its depositor is one of debtor to creditor ... not ordinarily imposing a duty of disclosure ... [but where the bank] has established a relationship of trust and confidence ... the bank may be found to have assumed a duty to disclose facts.“).20 Under Florida law, it is clear that a lender does not ordinarily owe fiduciary duties to its borrower. See, e.g., Keys Jeep Eagle, Inc. v. Chrysler Corp., 897 F.Supp. 1437, 1443 (S.D.Fla.1995) (holding that, under Florida law, a floor plan financing agreement does not create fiduciary duties); Metcalf v. Leedy, Wheeler & Co., 140 Fla. 149, 191 So. 690 (1939) (holding that, in an arms-length transaction, there is no duty on either party to act for the benefit or protection of the other party); Vassar v. Smith, 134 Fla. 346, 183 So. 705 (1938) (same); Edwards v. Lewis, 98 Fla. 956, 124 So. 746 (1929) (same); Capital Bank v. MVB, Inc., 644 So.2d 515, 518 (Fla.App. 3 Dist.1994) (“Generally, the relationship between a bank and its borrower is that of creditor to debtor, in which the parties engage in arms-length transactions, and the bank owes no fiduciary responsibilities.“), review denied, 659 So.2d 1086 (Fla.1995); Watkins v. NCNB Nat‘l Bank, 622 So.2d 1063, 1065 (Fla.App. 3 Dist.1993) (same), review denied, 634 So.2d 629 (Fla.1994). In order to establish a fiduciary relationship, there must be an allegation of dependency by one party and a voluntary assumption of a duty by the other party to advise, counsel, and protect the weaker party. Cripe v. Atlantic First Nat‘l Bank, 422 So.2d 820 (Fla.1982); Willis v. Fowler, 102 Fla. 35, 136 So. 358 (1931); Quinn v. Phipps, 93 Fla. 805, 113 So. 419 (1927); Watkins, 622 So.2d at 1065. Stated differently, “the fact that one party places its trust in the other does not create a confidential relationship in the absence of some recognition, acceptance, or undertaking of the duties of a fiduciary on the part of the other party.” Bankest Imports, Inc. v. ISCA Corp., 717 F.Supp. 1537, 1541 (S.D.Fla.1989) (citing Harris v. Zeuch, 103 Fla. 183, 137 So. 135 (1931)). See also Denison State Bank v. Madeira, 230 Kan. 684, 640 P.2d 1235, 1244 (1982) (“[O]ne may not ... unilaterally impose a fiduciary relationship on another without a conscious assumption of such duties by the one sought to be held liable as a fiduciary.“).
As noted above, the primary basis for Motorcity‘s allegation of a fiduciary relationship was the alleged oral agreements and representations by Southeast. Having determined that Motorcity cannot rely upon such oral representations to prove its allegations that Southeast voluntarily assumed a fiduciary duty, we now assess whether Motorcity has alleged any other source of a fiduciary duty. Motorcity suggests the following argument in its briefs. Motorcity argues that the act of auditing the dealership and sending the summary audit reports sufficiently alleges, as a matter of Florida law, that Southeast voluntarily assumed a fiduciary duty to perform the audits for Motorcity‘s benefit.21 We conclude that the mere act of auditing the dealership and sending the summary audit reports does not constitute “circumstances exceeding an ordinary commercial transaction,” Capital Bank, 644 So.2d at 521, and does not give rise to a fiduciary duty under Florida law.
A bank that audits its borrower‘s inventory and sends the borrower a courtesy copy or a “summary audit report” has not acted inconsistently with its role as a lender, and therefore Florida courts would not infer a fiduciary duty under these circumstances. See Pinnacle Port Community Ass‘n v. Orenstein, 872 F.2d 1536, 1540 (11th Cir.1989) (bank that became heavily involved in monitoring its borrower‘s business did not become a joint venturer because the bank‘s “actions are consistent with the role of a lender that became increasingly involved with the project to protect its collateral“); Saglio v. Chrysler First Commercial Corp., 839 F.Supp. 830, 833 (M.D.Fla.1993) (rejecting the existence of a fiduciary relationship between floor plan financing lender and guarantor where lender monitored borrower‘s inventory and provided periodic reports to guarantor); Armetta v. Clevetrust Realty Investors, 359 So.2d 540, 543 (Fla.App. 4 Dist.) (lender, who inspects construction project pursuant to right of inspection reserved in the loan agreement, is deemed to do so to protect its own interest in the loan; it has not acted beyond the role of a lender and thus owes no fiduciary duties), cert. denied, 366 So.2d 879 (Fla.1978); Greiner v. Gen. Elec. Credit Corp., 215 So.2d 61, 63 (Fla.App. 4 Dist.1968) (declining to find joint venture element where arrangement arguably indicative of the element is a well accepted business method not restricted to joint ventures). We therefore hold that the district court did not commit error in dismissing Motorcity‘s breach of fiduciary duty claim.22
In this case, the written financing agreement gave Southeast the right to audit. The mere conduct of that audit and sending a summary report thereof to Motorcity were entirely consistent with its role as lender. We readily conclude that no fiduciary duty was created under Florida law.23
2. Negligence Claim
Motorcity‘s other state law claim is based upon negligence. Having stripped away any proper reliance by Motorcity upon oral agreements or representations, we must determine whether Motorcity can state a viable negligence claim based merely upon the fact that Southeast conducted the audit and sent summary reports thereof.
The voluntary assumption of a duty to protect Motorcity is also a necessary element of Motorcity‘s claim that the negligent performance of the floor plan audits caused its financial losses. Under Florida law, no defendant may be held liable for negligence unless he or she owes a legal duty to protect the plaintiff from harm. Cooper Hotel Servs., Inc. v. MacFarland, 662 So.2d 710, 712 (Fla.App. 2 Dist.1995), review denied, 670 So.2d 939 (Fla.1996); Paterson v. Deeb, 472 So.2d 1210, 1214 (Fla.App. 1 Dist.1985), review denied sub nom., Langston v. Paterson, 484 So.2d 9 (Fla.1986). With respect to loan transactions, Florida law does not impose any duty on the lender to monitor the projects it finances for the protection of the borrower. See Chotka v. Fidelco Growth Investors, 383 So.2d 1169, 1170 (Fla.App. 2 Dist.1980) (“[A] lender is not under any duty to inspect the progress of construction for the benefit of anyone other than itself ...” even if the loan provisions allow the lender to inspect the construction.). To be held liable for negligence, then, the bank must somehow voluntarily assume a duty to protect the borrower through the performance of the audits. Saglio, 839 F.Supp. at 834 (“[T]he law does not impose a duty upon [the lender] to reasonably perform inventory checks for [the guarantor‘s] benefit, [but] liability for misfeasance can lie where a party voluntarily assumes a duty.” (emphasis added)); Capital Bank, 644 So.2d at 521 (“Where the lender has voluntarily assumed additional roles, accompanying responsibilities properly follow.” (emphasis added)), review denied, 659 So.2d 1086 (Fla.1995). In this sense, Motorcity‘s negligence claim is similar to its breach of fiduciary duty claim, in that both tort claims require Southeast to have voluntarily assumed some kind of duty to act for Motorcity‘s benefit and protection.
Motorcity suggests that Saglio, supra, supports its contention that Southeast voluntarily assumed a tort duty to Motorcity. In Saglio, a guarantor of a loan alleged that a floor plan financing lender had voluntarily assumed a duty to audit the borrower‘s inventory for the guarantor‘s benefit, even though the written contract between the lender and the guarantor did not require the lender to do so. Id. at 833-34. During the course of the loan, the lender routinely conducted audits and submitted reports of its inventory checks to the guarantor. According to the court, this created a material issue of fact regarding whether the lender and the guarantor had modified their written contract through their conduct, and the court therefore allowed the guarantor‘s breach of contract claim to survive summary judgment. Id. Thus, although finding no fiduciary duty, the court found a contractual duty. Relying on dicta in Banfield v. Addington, 104 Fla. 661, 140 So. 893 (1932), the court also held that the lender could be held liable for negligence if it had failed to discharge its contractual duty to conduct audits on behalf of the guarantor with reasonable care.
The Saglio court‘s finding that the lender‘s audit activities could constitute the necessary voluntary assumption of a duty may have been dependent upon its finding of a contractual duty. If so, Saglio is distinguishable, because Motorcity--in its effort to avoid the D‘Oench bar--has abandoned any contract claim. In any event, to the extent that Saglio suggests that the mere audit activities of a lender, as here, can give rise to the voluntary assumption of a duty in negligence, we find it unpersuasive.
We believe such a holding would be inconsistent with the Florida case law. The Florida courts have never applied the rationale of the Banfield dicta24 to infer a tort duty when the actions taken are taken for the actor‘s own benefit. Indeed, the very statement of the rule of the Banfield dicta in the cases cited by the district court in Saglio highlights the fact that the rule applies only where actions are undertaken for the benefit of another. See Barfield v. Langley, 432 So.2d 748, 749 (Fla.App. 2 Dist.1983) (explaining that “action undertaken for the benefit of another ... must be performed in accordance with an obligation to exercise reasonable care“); Kaufman v. A-1 Bus Lines, Inc., 416 So.2d 863 (Fla.App. 3 Dist.1982) (same); Padgett v. Sch. Bd. of Escambia County, 395 So.2d 584 (Fla.App. 1 Dist.1981) (same).
The only Florida cases which have squarely addressed the question of whether a duty is to be inferred from actions taken by a party for its own benefit have squarely rejected the inference of a duty. In Rice v. First Fed. Sav. & Loan Ass‘n, 207 So.2d 22, 23 (Fla.App. 2 Dist.) (per curiam), cert. denied, 212 So.2d 879 (Fla.1968), for example, a mortgage lender conducted frequent inspections of the borrower‘s construction site and charged the borrower an “inspection and supervision” fee. The lender‘s inspections failed to reveal certain construction defects, which caused considerable damage to the borrower. The borrower sued the lender for negligent inspection, thus breaching an implied contractual obligation. The borrower claimed that by undertaking to inspect the construction site and charging the borrower a fee therefor, the lender voluntarily assumed a duty to inspect the construction site with reasonable care for the borrower‘s benefit. The court flatly rejected the borrower‘s argument. Because a reasonable lender would be expected to inspect the construction site to protect its own interest in the mortgage, the court concluded that it would be “unreasonable” to infer from the bank‘s conduct that the bank had assumed a duty to perform the inspections on the borrower‘s behalf. Id.
Similarly, in Armetta v. Clevetrust Realty Investors, 359 So.2d 540 (Fla.App. 4 Dist.1978), the Florida court rejected a claim very similar to Motorcity‘s claim. There, the lender made a loan to a developer of a condominium construction project. Several condominium purchasers sought to impose liability on the lender “for a variety of alleged negligent acts in supervising the developer‘s actions.” Id. at 542. Rejecting the debtor‘s negligence claim, as well as other claims, the court held: “A lender owes no duty to others to supervise the construction and development of projects which it has financed.” Id. at 543.
Motorcity suggests that its complaint goes beyond Rice and Armetta because it alleges that Southeast periodically sent Motorcity summary reports of the audits. We do not believe that this allegation changes the result in this case. As a matter of common experience, it does not seem unusual for the lender to audit its borrower‘s business and, as a courtesy, to provide the borrower with a summary of the audit reports. Rather, such action is entirely consistent with the usual role of a lender. It would be unreasonable to infer from this everyday occurrence that Southeast voluntarily assumed a duty to audit the dealership for Motorcity‘s benefit and protection. In any event, it is implicit in both Rice and Armetta that the plaintiff was aware of the results of the lender‘s inspections; the claim was not that the lender failed to inform the plaintiff of defects revealed by the inspections, but rather the claim was that the inspections negligently failed to uncover the defects. We believe Rice and Armetta control the outcome of this case.
We conclude that the Florida case law would imply a tort duty only when actions are undertaken for the benefit of another. It would be inconsistent with well-established Florida law to infer a tort duty merely on account of actions undertaken pursuant to the protection of one‘s own interests.25
Motorcity‘s negligence claim also fails for another, entirely independent reason; it is barred by Florida‘s “economic loss” rule.
In AFM Corp. v. Southern Bell Telephone & Telegraph Co., 515 So.2d 180 (Fla. 1987), the Florida Supreme Court held that a purchaser of services may not recover purely economic losses26 in tort unless the other party‘s conduct establishes a “tort ‘distinguishable from or independent of [the] breach of contract.’ ” Id. at 181 (citing Lewis v. Guthartz, 428 So.2d 222, 224 (Fla. 1982)). See also East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). Following the AFM decision, courts have applied the economic loss rule to contracts involving financial services, including loans. See, e.g., Interstate Sec. Corp. v. Hayes Corp., 920 F.2d 769 (11th Cir. 1991) (applying Florida‘s economic loss rule to a contract for financial services); Keyes Jeep Eagle, Inc. v. Chrysler Corp., 897 F.Supp. 1437 (S.D. Fla. 1995) (applying economic loss rule to floor plan financing agreement); Strickland-Collins Const. v. Barnett Bank, 545 So.2d 476 (Fla.App. 2 Dist. 1989) (applying economic loss rule to construction loan agreement). The rationale underlying the economic loss rule is that parties who have allocated risks among themselves by contract should not be permitted to ignore their bargain after incurring a loss involving the subject matter of the contract. See Airport Rent-A-Car, Inc. v. Prevost Car, Inc., 660 So.2d 628, 630 (Fla. 1995) (holding that, in the absence of personal injury or damage to property outside the scope of the parties’ contract, there is “no reason to burden society as a whole with the losses of one who has failed to bargain for adequate contractual remedies....“); Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So.2d 899, 902 (Fla. 1987) (finding “no reason to intrude into the parties’ allocation of risk by imposing a tort duty and corresponding cost burden on the public” and holding that “contract principles [are] more appropriate than tort principles for resolving economic loss without an accompanying physical injury or property damage“); Strickland-Collins, 545 So.2d at 476 (economic loss rule bars suit by general contractor against developer‘s lender for negligent failure to prevent the developer from misappropriating the loan proceeds; because general contractor participated in the loan negotiations and signed the loan agreement, the general contractor should have bargained for the lender‘s assumption of a contractual duty to supervise its borrower).
Motorcity asserts that the economic loss rule does not apply here because Southeast‘s tort is “independent” of the contract. Motorcity suggests that the tort is independent because the floor plan financing agreement does not address the risk that the bank might send Motorcity negligently-prepared audits.
While it is true that the economic loss rule would not bar a tort which was independent of the contract, we readily conclude that Motorcity‘s claim falls well within the core of the economic loss rule. The basis of Motorcity‘s claim is that Southeast voluntarily assumed a duty to audit for the benefit of Motorcity. Thus, Motorcity seeks to impose on Southeast additional duties with respect to the financing arrangement. However, this is the precise subject about which the parties negotiated and concluded a contract; the contractual understandings allocated the risks among the parties. The core purpose of the economic loss rule is served by its application here. Accord Strickland-Collins, 545 So.2d at 477-78 (finding similar action on the part of a lender not to be a separate or independent tort).
Motorcity also argues that Florida courts would allow recovery of its economic damages in tort, because “no alternative means of recovery” on the contract exists.27 We conclude that the Florida courts would apply the economic loss rule in this case to bar Motorcity‘s negligence claim. In Airport Rent-A-Car, the Florida Supreme Court recently clarified and narrowed any operation of an exception for “no alternative recovery.” 660 So.2d at 628. There, the plaintiff‘s contract claim, a breach of warranty claim, failed for lack of privity. Nevertheless, the court rejected the “no alternative recovery” theory and applied the economic loss rule to bar the plaintiff‘s negligence claim. The court acknowledged
that the Latite [Latite Roofing Co., Inc. v. Urbanek, 528 So.2d 1381 (Fla.App. 4 Dist. 1988)] and Moyer [A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973)] decisions sanctioned the “no alternative theory of recovery” exception; however, we disagree with ... [plaintiffs‘] assertion that it falls within the exception. As stated above, Casa-Clara [Casa-Clara Condominium Ass‘n, Inc. v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993)] specifically disapproved Latite, and limited Moyer to its facts.
Id. at 631. Just as the plaintiffs’ contract claim in Airport Rent-A-Car was thwarted by a relevant legal principle (privity), so too was Motorcity‘s potential oral contract claim thwarted by a relevant legal principle, i.e., the D‘Oench doctrine.
This case is like many Florida cases in which the economic loss rule has been applied. Motorcity and Southeast actually were the contracting parties; they negotiated a contract and consciously allocated duties and risks relating to the financing arrangement.28 We conclude that the instant case falls well within the core purposes underlying the economic loss rule.
Indeed, the only Florida cases seemingly applying a “no alternative recovery” exception to the economic loss rule involve plaintiffs who were not parties to the underlying contract, and thus involve situations arguably lying outside of the core purposes of the economic loss rule. See, e.g., First Fla. Bank v. Max Mitchell & Co., 558 So.2d 9 (Fla. 1990) (accountant who negotiated loan on behalf of corporation and personally delivered audits of corporation to bank, with knowledge that bank would rely on statements in deciding whether to loan money to corporation, could be held liable for the bank‘s economic losses due to negligent preparation of the audits--despite lack of contractual privity between accountant and bank); First American Title Ins. Co., Inc. v. First Title Serv. Co. of the Florida Keys, Inc., 457 So.2d 467, 472 (Fla. 1984) (“[W]hen an abstract is prepared in the knowledge or under conditions in which an abstracter should reasonably expect that the employer is to provide it to third persons for purposes of inducing those persons to rely on the abstract as evidence of title, the abstracter‘s contractual duty to perform the service skillfully and diligently runs to the benefit of such known third parties.“); A.R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla. 1973) (permitting general contractor to recover purely economic tort damages from an architect for negligent supervision of a project; the general contractor had no contract with the architect). These cases involve the creation of a kind of third party beneficiary status through negligence law “when an existing, specifically identifiable, intended beneficiary has not been given that status in the contract.” Sandarac Ass‘n, Inc. v. W.R. Frizzell Architects, 609 So.2d 1349, 1353 (Fla.App. 2 Dist. 1992), review denied, 626 So.2d 207 (Fla. 1993); see also Airport Rent-A-Car, 660 So.2d at 630-31 & n. 4 (explaining that First American involved a third-party beneficiary cause of action rather than a negligence cause of action, and limiting Moyer strictly to its facts).
After the Airport Rent-A-Car clarification and narrowing of the “no alternative recovery” exception, it is not clear what the scope of the exception will be even for an intended third party beneficiary who is not a party to the contract and thus is unable to participate in the allocation of the contractual duties and risks. However, in this case we need not define the precise contours of the exception. Unlike an intended third party beneficiary of a contract, whose “status can be eliminated by language in a document over which the third party has no control,” Sandarac, 609 So.2d at 1353, Motorcity was a party to the floor plan financing agreement, actually participated in the contract negotiations and allocation of risks, and thus falls within the core purposes underlying the economic loss rule. Accordingly, we believe that Florida‘s courts would apply the economic loss rule to prevent Motorcity from seeking tort remedies for the negligent performance of the audits.
VI. CONCLUSION
In summary, we hold that the federal common law D‘Oench doctrine has not been preempted, that Motorcity‘s attempt to escape the D‘Oench bar by repaying its loan fails, that the free-standing tort exception to the D‘Oench bar is not applicable, and thus that D‘Oench bars any reliance by Motorcity on oral agreements and representations. Having thus stripped away all reliance on oral agreements, we conclude that Motorcity is left without a viable state law claim based either on fiduciary duty or negligence. Accordingly, the judgment of the district court is affirmed.
AFFIRMED.
BIRCH, Circuit Judge, concurring specially:
The majority‘s well-crafted and thorough analysis has persuaded me that the court has reached the correct result in this case--and for the right reasons. As the author of the original panel opinion in this case, my initial focus had been on the district court decision we were charged to review. In that opinion, there was no analysis done of the Florida law on negligence, the district court finding “that it need not determine what duty, if any, Florida law imposed on Southeast as a result of Southeast‘s exercising its right to conduct audits under the agreement. Such a duty would arise from Southeast‘s actions, not from the language of the written agreement.” R2-52-6. It appeared to us, in reviewing the district court‘s grant of a motion to dismiss and in refusing to allow a party to amend its complaint, that Motorcity had adequately pleaded Florida tort claims. Based upon the law argued to us, at the pleading stage, we concluded that:
These tort claims derive from Florida common law9; they do not depend upon any written or oral contract provision between Motorcity and Southeast. Indeed, Motorcity would appear capable of pleading the same two counts had the floor plan financing agreement never included any mention of audits.
* * * * * *
Motorcity of Jacksonville, Ltd. v. Southeast Bank N.A., 39 F.3d 292, 299 (11th Cir. 1994). Based upon In re Geri Zahn, 25 F.3d 1539, 1543 (11th Cir. 1994), and the cases cited therein, we concluded that Motorcity‘s negligent-auditing-and-disclosure tort claim was a “free standing tort,” the prosecution of which was not barred by D‘Oench or the statutory scheme. The majority‘s opinion presents an in-depth analysis of the Florida law of negligence, prefaced by the declaration “we must determine whether Motorcity can state a viable negligence claim based merely upon the fact that Southeast conducted the audit and sent summary reports thereof.” Majority at 1341. After an exhaustive analysis, the following conclusion is reached:
We conclude that the Florida case law would imply a tort duty only when actions are undertaken for the benefit of another. It would be inconsistent with well-established Florida law to infer a tort duty merely on account of actions undertaken pursuant to the protection of one‘s own interests.
Majority at 1342-43 (footnote omitted). Thus, the majority concludes that, under the facts as pleaded in this case, no viable independent tort claim exits under Florida law. Based upon the analysis of the pertinent law presented by the majority, I must agree. However, I do not read the majority‘s opinion to negate or question the continuing vitality of the “free standing tort” exception to the D‘Oench doctrine. Accordingly, I conclude that a well-pleaded, viable state law tort claim may still be pursued without the bar of D‘Oench or the applicable federal statute discussed in the opinion. The fact that the tort claim arose out of the banking relationship should not prevent its prosecution.