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Lesal Interiors, Inc. v. Echotree Associates

filed: February 10, 1995.

LESAL INTERIORS, INC. APPELLANT
v.
ECHOTREE ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP; HLM/ECHOTREE, INC.; ECHELON GLEN COOPERATIVE, INC.; H. L. MICHAELS, INC.; M. J. RAYES INCORPORATED, A/K/A M. J. RAYNES, INC.; RESOLUTION TRUST CORPORATION, RECEIVER OF COREAST SAVINGS BANK F.S.B., WHOSE ADDRESS IS 808 MOOREFIELD PARK DRIVE, RICHMOND, VIRGINIA, 23236; FEDERAL DEPOSIT INSURANCE COMMISSION, AS RECEIVER FOR AMERICAN SAVINGS BANK, F.S.B.; GENERAL ELECTRIC CAPITAL CORPORATION; DLG FINANCIAL SERVICES CORPORATION, A/K/A DLG FINANCIAL SERVICES, INC.; COLONIAL EQUITY OF NEW YORK, INC.; JAMES D. DEMETRAKIS; VINCENT TRAVALINO; DEL MASTRO'S, INC., T/A DEL'S ENTERPRISE; DEL MASTRO ENTERPRISES, INC.; HORIZON I CORPORATION; COLONIAL DPC CORP., LESAL INTERIORS, INC. APPELLANT V. ECHOTREE ASSOCIATES, L.P., A NEW JERSEY LIMITED PARTNERSHIP; HLM/ECHOTREE, INC.; ECHELON GLEN COOPERATIVE, INC.; H. L. MICHAELS, INC.; M. J. RAYES INCORPORATED, A/K/A M. J. RAYNES, INC.; RESOLUTION TRUST CORPORATION, RECEIVER OF COREAST SAVINGS BANK F.S.B., WHOSE ADDRESS IS 808 MOOREFIELD PARK DRIVE, RICHMOND, VIRGINIA, 23236; FEDERAL DEPOSIT INSURANCE COMMISSION, AS RECEIVER FOR AMERICAN SAVINGS BANK, F.S.B.; GENERAL ELECTRIC CAPITAL CORPORATION; DLG FINANCIAL SERVICES CORPORATION, A/K/A DLG FINANCIAL SERVICES, INC.; COLONIAL EQUITY OF NEW YORK, INC.; JAMES D. DEMETRAKIS; VINCENT TRAVALINO; DEL MASTRO'S, INC., T/A DEL'S ENTERPRISE; DEL MASTRO ENTERPRISES, INC.; HORIZON I CORPORATION; COLONIAL DPC CORP.,I (CAMDEN NEW JERSEY DISTRICT CIVIL NO. 91-02595) LESAL INTERIORS, INC. V. RESOLUTION TRUST CORPORATION, AS RECEIVER FOR COREAST SAVINGS BANK; COLONIAL DPC CORP. I, A NEW JERSEY CORPORATION; THE ECHELON GLEN RESIDENTS AND OWNERS ASSOCIATION; THE POLIS HOUSING FOUNDATION CORPORATION VI, AND CERTAIN JOHN DOE DEFENDANTS, FINANCING INSTITUTIONS INVOLVED IN THE "REFINANCING" OF THE ECHELON GLEN PROJECT, AND CERTAIN JOHN DOE II DEFENDANTS, TRANSFEREES OF ASSETS FRAUDULENTLY CONVEYED BY COLONIAL DPC CORP. I; HOWARD L. MICHAELS (CAMDEN NEW JERSEY DISTRICT CIVIL NO. 93-05152) LESAL INTERIORS, INC., APPELLANT



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (D.C. Civil 91-02595).

Before: Becker and Alito, Circuit Judges and Brody, District Judge * * The Honorable Anita B. Brody, United States District Judge for the Eastern District of Pennsylvania, sitting by designation.

Author: Alito

Opinion OF THE COURT

ALITO, Circuit Judge :

Lesal Interiors, Inc. ("Lesal") has appealed a district court order entering judgment against it on claims that it originally asserted against Colonial DPC Corporation I ("Colonial") and CorEast Savings Bank ("CorEast"). Colonial was formerly the wholly owned nonbanking subsidiary of CorEast, which is now under the receivership of the Resolution Trust Corporation ("RTC"). The district court held that Lesal could not recover from Colonial on these claims due to the federal common law D'Oench Duhme doctrine*fn1 and its statutory counterpart, 12 U.S.C. § 1823(e). In addition, the court held that the failure of Lesal's claims against Colonial doomed its attempt to recover from CorEast based on the theory that Colonial was CorEast's alter ego. On appeal, the RTC defends the district court's decision based on 12 U.S.C. § 1823(e) and does not contend that the federal common law D'Oench Duhme doctrine provides broader protection. Looking to the plain language of 12 U.S.C. § 1823(e), we hold that this provision does not apply to claims against a depository institution's subsidiary, and we therefore reverse the order entering judgment against Lesal.

Lesal has also appealed a subsequent district court order denying its motion for garnishment under N.J.S.A. 2A:17-63 of a debt allegedly owed by Colonial to Lesal's judgment debtor. Because Colonial disputed this debt, we agree with the district court that the summary procedure provided by N.J.S.A. 2A:17-63 was inapplicable here, and we therefore affirm this order of the district court.

I.

In 1987, Echotree Associates, L.P. ("Echotree), a New Jersey limited partnership, acquired in fee simple an apartment complex in Voorhees, New Jersey, known as the Echelon Glen Apartments. Echotree undertook to renovate the apartments and to convert them into cooperatives, and CorEast, a federally chartered savings bank, provided secured financing for this project.

In December 1988, in order to carry out the renovation, Echotree entered into a contract with Lesal Interiors, Inc., which specializes in projects of this type. Under this contract, Echotree was obligated to pay Lesal $1,536,000. In addition, Lesal performed further work under change orders for a price of $390,000. Echotree failed to pay Lesal for $778,000 of the amount that it owed.

In February 1989, Echotree conveyed its fee simple interest to Echelon Glen Cooperative, Inc., a New Jersey nonprofit corporation. After this conveyance, Echotree held shares in Echelon Glen Cooperative, Inc., as well as proprietary leases for many of the cooperative units.

In 1990, the conversion project failed. As part of the workout of the loan relationship between Echotree and CorEast, CorEast formed a wholly owned subsidiary, Colonial DPC Corporation I, a Virginia corporation.*fn2 CorEast and Colonial then entered into a settlement agreement with Echotree and its managing general partner. Under this agreement, Echotree conveyed to Colonial both shares in Echelon Glen Cooperative, Inc. and its proprietary leases, and CorEast released certain debts and extended new loans. The "Recital" to the settlement agreement stated that "[Colonial] shall agree to . . . pay on behalf of Echotree, or indemnify Echotree against, certain expenses incurred by Echotree with respect to the property." App. 296. Paragraph 6 of the agreement obligated Colonial to "pay on behalf of Echotree, its partners and principals . . . Construction Payables, in an amount not to exceed $1,180,000 dollars . . . ." Paragraph 6 also appointed Colonial as Echotree's "attorney-in-fact . . . to negotiate, litigate or settle . . . with each of the specifically identified creditors shown in Schedule[] C . . . as [Colonial] wishes, in its sole discretion." Id. at 311-12. Schedule C listed construction payables totalling $1,180,000. Id. at 332. The first item on this list was: "Lesal Interiors - Amount Completed $690,000 Total $690,000." Paragraph 28 of the agreement stated:

This Agreement and the other Documents are solely for the benefit of the parties hereto, and may not be relied by [sic] any other persons or entities including, without limitation, any present or future creditors of [Colonial], Echotree, or Michaels [Echotree's managing general partner].

Id. at 330. Lesal did not participate in and was not aware of the negotiations leading to the settlement agreement.

In July 1990, Lesal brought suit in New Jersey Superior Court against Echotree, Echotree's general partner, Echelon Glen Cooperative, Inc., CorEast, Colonial, and other parties. Lesal sought recovery from Echelon Glen Cooperative, Inc., Echotree, and Echotree's general partner. As against CorEast and Colonial, Lesal sought only to establish the priority of its alleged mechanic's lien.

In early 1991, the Office of Thrift Supervision declared CorEast insolvent and appointed the RTC as CorEast's receiver. In April 1991, the New Jersey Superior Court substituted the RTC in the action in place of CorEast, and in May the RTC removed the case to the United States District Court for the District of Columbia. That court, in turn, ...


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