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.
Dyanne E. Feinberg, Miami, FL, for appellants.
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.
Before TJOFLAT, Chief Judge, and KRAVITCH, HATCHETT, ANDERSON, EDMONDSON, COX, BIRCH, DUBINA, BLACK, CARNES and BARKETT, Circuit Judges.
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,
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 12 U.S.C. § 1823(e)(1) required any agreement between a failed financial institution and its customer to be in writing; consequently, any claims for breach of oral contract were barred. Finally, the court held that the D'Oench doctrine also foreclosed Motorcity's putative tort claims. The court reasoned that "[t]he genesis of this action is the Southeast floor plan financing agreement, whose written provisions do not support a breach of contract claim against the FDIC. No amount of artful pleading, including further amendments to the complaint, can alter this result." R2-52-8.
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.,
IV. STANDARD OF REVIEW4
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.,
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,
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,
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,
Eight years later, Congress partially codified the holding in D'Oench as section 2(13)(e) of the Federal Deposit Insurance Act of 1950, 64 Stat. 873, 889, as amended, 12 U.S.C. § 1823(e)(1), which provided:
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,
Langley v. FDIC,
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,
As originally enacted in 1950, § 1823(e)(1) paralleled the facts of the D'Oench case itself: it applied only to the FDIC in its corporate capacity when it purchased bank assets from its receivership division. Vernon v. RTC,
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,
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,
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 §§ 1821(d)(9)(A) and 1823(e)(1), the statutory cousins of the D'Oench doctrine. Second, Motorcity argues that §§ 1821(d)(9)(A) and 1823(e)(1) bar only those claims that impair the FDIC's interest in a specific bank asset. Because Motorcity paid off its loan to Southeast before the FDIC's appointment as receiver, Motorcity argues that these statutory provisions do not apply to its claims. Third, Motorcity argues that its claims against the FDIC are "free standing tort claims," which are not barred by the D'Oench doctrine. Finally, even if the D'Oench doctrine prevents any reliance on oral agreements or representations, Motorcity suggests that its state law tort claims are still viable. We address each of Motorcity's arguments in turn.
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,
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,
However, the holding in Erie did not destroy all types of federal common law. Since Erie, the Supreme Court "has recognized the need and authority in some limited areas to formulate what has come to be known as 'federal common law.' " Texas Indus., Inc. v. Radcliff Materials, Inc.,
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,
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.,
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.
In O'Melveny, the FDIC as receiver for a failed savings and loan (S & L) brought a malpractice lawsuit against the S & L's former law firm, stating causes of action under California law for professional negligence and breach of fiduciary duty. Id. at ----,
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 ----,
Although O'Melveny never mentions the D'Oench doctrine directly, the Court included one of D'Oench 's statutory cousins--s 1821(d)(9)(A)--in its list of special federal rules of decision. In Murphy, the D.C. Circuit concluded that the Supreme Court "necessarily decided the D'Oench question" by including § 1821(d)(9)(A) in this list.
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,
[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,
Motorcity attempts to overcome the presumption that the federal common law D'Oench doctrine survived FIRREA by arguing that Congress' "evident" purpose was to displace the D'Oench doctrine. Motorcity points out that FIRREA is a comprehensive piece of legislation, and contends that §§ 1821(d)(9)(A) and 1823(e)(1) displace the D'Oench doctrine because those statutes "speak directly" to some of the questions previously addressed by the federal common law.
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,
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,
As noted above, United States v. Texas,
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. McClanahan,
Significantly, neither FIRREA in general, nor §§ 1821(d)(9)(A) and 1823(e)(1) in particular, comprehensively address the substance of the federal common law D'Oench doctrine. The particular argument that Motorcity raises in this case--i.e., that §§ 1821(d)(9)(A) and 1823(e)(1) do not bar claims based on oral agreements with a failed bank if the borrower's loan is repaid before the FDIC takes over--reflects an issue which was not addressed at all by Congress in 1989. Congress did not focus on the range of secret agreements with respect to which the FDIC would be afforded protection. Rather, in this regard, the only relevant language is in § 1823(e)(1), which Congress merely carried over from the statute originally enacted in 1950. We therefore see no indication either in the language of the statute itself or in the legislative history that Congress undertook a comprehensive examination of the federal common law D'Oench doctrine, or made any attempt to address comprehensively that vast doctrine. "[S]uch reticence while contemplating an important and controversial change in existing law is unlikely.... At the very least, one would expect some hint of a purpose to work such a change, but there was none." Edmonds v. Compagnie Generale Transatlantique,
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,
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 § 1823(e)(1), and its language was merely carried over intact from prior law.
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 §§ 1821(d)(9)(A) and 1823(e)(1) are inapplicable because Motorcity repaid its loan to Southeast before the FDIC was appointed receiver. Pointing to § 1823(e)(1)'s reference to an "agreement which tends to diminish or defeat the [FDIC's] interest ... in any asset acquired by it," Motorcity contends that § 1823(e)(1) does not bar any claims against the FDIC that do not affect the value of a specific asset of the bank, such as a note, acquired by the FDIC. Because it repaid its note, Motorcity argues that there is no longer any specific asset to which the alleged oral agreements relate. See Murphy v. FDIC,
In light of our holding that the federal common law D'Oench doctrine has not been preempted, we need not decide whether §§ 1821(d)(9)(A) or 1823(e)(1) are limited to claims that impair the FDIC's interest in a specific asset. See Brookside Assocs. v. Rifkin,
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.,
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, alleging that the bank's officials misrepresented the appraised value of some condominiums.
[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.
Id. at 496.
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.
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.
Id. at 339.
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.,
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,
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,
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.
This circuit's decision in OPS is also relevant.
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,
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,
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,
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,
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,
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,
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,
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,
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,
Similarly, in Armetta v. Clevetrust Realty Investors,
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.,
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,
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."
that the Latite [Latite Roofing Co., Inc. v. Urbanek,
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.,
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,
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.,
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.
Notes
Motorcity of Jacksonville, Ltd., was a limited partnership engaged in the business of selling used vehicles in Duval County, Florida. Motorcity of Jacksonville, Inc., a Florida corporation, was the limited partnership's general partner. David S. Hess, a Jacksonville cardiologist, was the president and a principal shareholder of Motorcity of Jacksonville, Inc
In the written agreement, Motorcity made the following affirmative covenant to Southeast:
[Motorcity] will keep and maintain full and accurate accounts and records of its operations ... and will permit [Southeast] and its designated officers, employees, agents and representatives, to have access thereto and to make examination thereof at all reasonable times, to make audits, and to inspect and otherwise check its properties, real, personal and mixed.
R1-35 Ex. B p 5.7.
Part IIA of the panel opinion was not reconsidered by the en banc court and is REINSTATED, with the exception of the last sentence
It is clear that the district court had jurisdiction for several reasons including the "deemer" clause, 12 U.S.C. § 1819(b)(2)(A), and the removal clause, id. § 1819(b)(2)(B), pursuant to which the district court properly allowed the FDIC to remove the case to federal court. The exception to federal jurisdiction provided by 12 U.S.C. § 1819(b)(2)(D) does not apply because Southeast was a national bank, not a state chartered institution, because a federal authority, not a state authority, appointed the FDIC as receiver of Southeast, and because the interpretation of federal law (i.e., the D'Oench doctrine and its statutory counterparts) is necessary to decide this case.
This Part substantially adopts the panel opinion's statement of the standard of review
As originally enacted in 1950, § 1823(e) also included a paragraph that authorized the FDIC to engage in purchase and assumption transactions. This paragraph was moved to 12 U.S.C. § 1823(c) by the Garn-St. Germain Depository Institutions Act of 1982, Pub.L. No. 97-320, 96 Stat. 1469 (1982)
When a bank fails, the FDIC acts simultaneously in two capacities: the receiver capacity ("FDIC-Receiver") and the corporate capacity ("FDIC-Corporate"). The corporate capacity of the FDIC refers to its role as the insurer of bank deposits. Rather than liquidating a bank when it fails, the FDIC whenever feasible employs a purchase and assumption transaction. In a purchase and assumption transaction, the FDIC-Receiver sells the failed bank as a going concern to a financially sound bank, in return for the purchasing bank's promise to assume all the failed bank's deposit liabilities. Unacceptable assets remain with the FDIC-Receiver. FDIC-Corporate then purchases the unacceptable assets with insurance funds, and attempts to collect on the unacceptable assets to minimize the FDIC's losses. See generally Gunter v. Hutcheson,
Courts that expanded the D'Oench doctrine often applied the common law and § 1823(e)(1) in tandem, reasoning that "the purposes of D'Oench and section 1823(e) were the same, and therefore ... the same analysis [applied] regardless of whether the party involved in the case was the FDIC or another federal banking regulator." Baumann,
Section 217(4) of FIRREA expanded the applicability of § 1823(e) to the FDIC in its receiver capacity by adding the words "or as receiver of any insured depository institution." 1989 U.S.Code Cong. & Admin.News (103 Stat.) 183, 256
12 U.S.C. § 1441a(b)(4)(A) (Supp. V 1993) (superseded) granted the RTC powers similar to those enjoyed by the FDIC, including the power to invoke § 1823(e)
12 U.S.C. § 1821(n)(4)(I) protects bridge banks with language borrowed from § 1823(e)
FIRREA made minor amendments to § 1823(e) by deleting the words "right, title and" from before the word "interest" and by changing the verbs in the subparagraphs to the present tense
There are other categories of federal common law in addition to the type created to protect "uniquely federal interests." For example, federal common law operates to resolve disputes between state governments. See, e.g., Illinois v. City of Milwaukee,
See Peter Westen and Jeffrey S. Lehman, Is There Life for Erie After the Death of Diversity?, 78 Mich.L.Rev. 311, 332 (1980) ("The difference between 'common law' and 'statutory interpretation' is a difference in emphasis rather than a difference in kind. The more definite and explicit the prevailing legislative policy, the more likely a court will describe its lawmaking as statutory interpretation; the less precise and less explicit the perceived legislative policy, the more likely a court will speak of common law. The distinction, however, is entirely one of degree.")
In a famous concurring opinion in D'Oench, Justice Jackson justified the development of federal common law as a means to implement federal statutes. He wrote:
The federal courts have no general common law, as in a sense they have no general or comprehensive jurisprudence of any kind, because many subjects of private law which bulk large in the traditional common law are ordinarily within the province of the states and not of the federal government. But this is not to say that wherever we have occasion to decide a federal question which cannot be answered from federal statutes alone we may not resort to all of the source materials of the common law or that when we have fashioned an answer it does not become part of the federal non-statutory or common law.
D'Oench,
In considering whether federal legislation preempts state law, the Supreme Court assumes "that the historic police powers of the States were not to be superseded by [a] Federal Act unless that was the clear and manifest purpose of Congress." Id. at 316,
See O'Melveny, --- U.S. at ----,
Also, of course, the Supreme Court in D'Oench initially identified this special area of federal concern as having been revealed in provisions of the Federal Reserve Act which that opinion construed.
The principal policies underlying the D'Oench doctrine are (1) to permit federal and state bank examiners to rely upon the bank's records of regular banking transactions in evaluating the institution's fiscal soundness; (2) to "ensure mature consideration of unusual loan transactions by senior bank officials," and (3) to "prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure." Langley v. FDIC,
Specifically, Motorcity alleges that Southeast acknowledged the concerns of Motorcity's absentee owners, and represented to Motorcity:
(1) that Southeast was experienced in handling floor plan financing, that it "knew what it was doing," and that it had handled floor plan financing for the largest car dealership in the country;
(2) that a senior executive at Southeast personally would manage the Motorcity account;
(3) that Southeast would audit the floor plan monthly and inform Motorcity's investors immediately upon discovering any irregularities, particularly with respect to out-of-trust sales; and
(4) that Southeast's duty to conduct audits and to inform Motorcity of the results would be set forth in the written agreement.
Hooper also suggested that a bank's duty to disclose material facts to its customer might arise "where a bank, having actual knowledge of fraud being perpetrated upon a customer, enters into a transaction with that customer in furtherance of the fraud." Id. at 925. See also Burger King Corp. v. Holder,
Motorcity also mentions that its principal, David Hess, was a long standing customer of Southeast's through his medical practice. However, it is clear that Southeast's long standing business relationship with Hess, without more, cannot transform the lender-borrower relationship into a fiduciary one. See e.g., Barnett Bank of West Florida v. Hooper,
Indeed, it is not surprising that Motorcity is unable to locate a single Florida case that imposes fiduciary-type duties on a bank without relying on oral representations. See Burger King Corp. v. Holder,
Because Motorcity's fiduciary duty claim fails as a matter of Florida law, and because its negligence claim also fails under Florida law, see infra, we need not address the argument that nonverbal course of conduct evidence (such as the audit here) is D'Oench-barred, just like oral evidence, because it does not appear in the bank's records. See Hall v. FDIC,
The Banfield dicta was to the effect that a duty in negligence arises where a person undertakes a course of action. However, Banfield was an ordinary tort case imposing a duty on the owner of a beauty parlor to exercise ordinary care in the administration of a permanent wave on a customer's hair.
In the similar context of the fiduciary duty cases discussed above, the Florida law is also clear that such actions do not constitute a voluntary assumption of a duty. We believe the fiduciary duty cases also support our conclusion that no tort duty is assumed
Economic loss includes " 'damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits--without any claim of personal injury or damage to other property.' " Casa Clara Condominium Ass'n, Inc. v. Charley Toppino & Sons, Inc.,
Were it not for the D'Oench doctrine, Motorcity might have a viable contract claim based upon alleged oral agreements and representations. Because of the D'Oench bar, however, Motorcity must base its claim against the FDIC upon the written terms of the floor plan financing agreement, or upon Southeast's conduct in auditing the dealership
See, e.g., Interstate Sec.,
See Barnett Bank of West Florida v. Hooper,