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FSLIC v. DILLON CONSTR. CO.

February 29, 1988

Federal Savings And Loan Insurance Corporation, Receiver for FirstSouth, F.A., Plaintiff,
v.
Dillon Construction Company, Inc., Gerald W. Dillon; Phyllis B. Dillon; Rock Venture; Home Federal Savings & Loan Association, Defendants


Henry Woods, U. S. District Judge.


The opinion of the court was delivered by: WOODS

HENRY WOODS, U. S. District Judge

 Pending now are the motions of the Federal Savings and Loan Insurance Corporation (FSLIC), in its capacity as receiver for FirstSouth, F.A., for: (1) reconsideration of this court's order of December 16, 1987; (2) summary judgment; and (3) dismissal of the counterclaim filed against it by Home Federal Savings and Loan Association (Home). Also pending is the motion of the separate defendants, Dillon Construction Company, Inc., Gerald W. Dillon and Phyllis B. Dillon (the Dillons), to conform the pleadings to the proof to seek equitable relief. The court's rulings are as follows.

 This is an action by the Federal Savings and Loan Insurance Corporation (FSLIC), in its capacity as Receiver for FirstSouth, F.A., to foreclose on five notes and mortgages executed in its favor by the Dillon defendants. Home Federal Savings and Loan is a party to this action only because it claims an interest in one of the properties on which the FSLIC seeks to foreclose. The facts as they apply to the various motions pending herein, are set out more particularly below.

 I. The FSLIC's Motion to Reconsider

 In its December 16, 1987, order the court denied the FSLIC's motion to strike the Dillon's affirmative defense of usury. The court's rationale was that the leading case of North Mississippi Savings and Loan v. Hudspeth, 756 F.2d 1096 (5th Cir.1985), cert. denied, 474 U.S. 1054, 106 S. Ct. 790, 88 L. Ed. 2d 768 (1986), held only that "claims" against the Receiver may not be pursued in federal court and that an affirmative defense is not in any sense a claim against the Receiver. The FSLIC now asks the court to reconsider in light of the decision in FirstSouth, F.A. v. LaSalle National Bank, No. 86-C-10247, slip op. (N.D. Ill. Sept. 9, 1987). The court finds LaSalle unpersuasive and declines to reconsider on that basis. *fn1"

 But the FSLIC also advances a second argument in support of its motion to reconsider which was not raised in its original motion. Relying on a body of common law emanating from the Supreme Court's decision in D'Oench, Duhme and Company, Inc. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), it is the FSLIC's position that the Dillons' usury defense cannot be asserted against it because it is based on an agreement not found in FirstSouth's records. In an opinion designated for publication, this court recently held that the D'Oench doctrine applies to the FSLIC as well as the FDIC and that a party is estopped from asserting a "side agreement" as a defense to a facially valid note in the hands of the Receiver. See Dill v. FSLIC, 678 F. Supp. 1404 (E.D.Ark. 1988). A discussion of that doctrine will not be reiterated here, but the facts relevant to its application will be briefly discussed.

 The Dillons state first, by way of affidavit of Gerald W. Dillon, that on June 17, 1985 they signed an agreement to purchase 37 lots in Otter Creek Community, an Addition to the City of Little Rock, Arkansas, from Rock Venture, a joint venture. The purchase price was $ 463,900 with FirstSouth financing $ 364,000 of the purchase price at Bank of America's prime rate plus 200 basis points, and Rock Venture carrying a note for $ 99,000. Second, the Dillons state that a special condition of the June 17 agreement was that they receive additional construction financing from FirstSouth according to the February 11, 1985, construction loan guidelines attached to the agreement. Those guidelines, which are typed on an unsigned FirstSouth letterhead, provide that FirstSouth's construction loan interest rate is Bank of America prime. And, third, the Dillons maintain that the special conditions of the June 17 contract reflect FirstSouth's agreement to provide them with construction loans on the 37 lots at Bank of America prime with principal and interest on the original loan not being made payable until the lots were actually "taken down" with the construction loans.

 The Dillons argue now that the actual loans from FirstSouth were usurious because interest was charged on the original purchase money loan before the lots were taken down and interest on the construction loans was at Bank of America prime plus 200 basis points, all in violation of the special conditions to the June 17 contract. *fn2" It is the court's opinion that if the June 17 contract was binding on FirstSouth and was made a part of the loan file, the Dillons would no doubt be entitled to a hearing on their defense, but the contract on its face was neither binding on FirstSouth nor was it a part of the loan file.

 The June 17 agreement was executed by the Dillons, Dan R. Robinson, II, a real estate broker with Fausett & Company, Inc., and Charles Rush as "Authorized Officer/Agent" of Rock Venture. Rush also happens to be a Vice President of FirstSouth, and Rock Venture is a joint venture of FirstSouth's service corporation, First Southern Service Corporation, but nonetheless the agreement was never executed by anyone purporting to represent FirstSouth. The fact that Rush was an officer of both FirstSouth and Rock Venture, and that Rock Venture was a partnership of FirstSouth's service corporation, lends credibility to the Dillons' claims. However, the question before the court does not allow an examination of the merits of the Dillons' defense. And the court need not decide whether Rush, or any officer of FirstSouth, represented to the Dillons that their agreement was other than appears in the loan file. *fn3"

 In the affidavit of Connie Wood, Assistant Asset Manager for the FSLIC, she states that the interest rate on construction loans to the Dillons as revealed from documents in the loan file was Bank of America prime plus 200 basis points, not to exceed the maximum rate permitted by law. She further states that neither she nor other senior personnel have knowledge of any agreement, written or oral, by which the Dillons were required to maintain an offsetting and compensating account of 10% of the loan balance -- the Dillons' original theory for their usury claim. Moreover, the court can find no reference to the January 17, 1985, agreement in any of the loan documents nor can it find reference to any other agreement. See Exhibits "A-1" - "A-14" to the FSLIC's motion for summary judgment.

 Accordingly, the court finds that the Dillons are estopped to assert their affirmative defense of usury based on agreements outside FirstSouth's records, that the FirstSouth loan documents do not support the Dillons' affirmative defense and that the FSLIC's motion to strike should be, and is hereby granted.

 II. The FSLIC's Motion for Summary Judgment against the Dillons and the Dillons' Motion to Amend

 The FSLIC moves for summary judgment in this action to foreclose the notes, endorsements and mortgages attached to its motion as Exhibits "A-1" - "A-14," arguing that because of the D'Oench doctrine there are no longer any issues of material fact in dispute and that the Dillons have no meritorious defense. In response the Dillons move to amend their pleadings to seek equitable rescission of the instruments based upon theories of misrepresentation, fraud, ...


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