112 F. Supp.2d 89 (2000) | Cited 0 times | D. Massachusetts | August 22, 2000


Thomas R. Bateman sues the Federal Deposit InsuranceCorporation for breach of contract, breach of implied covenant ofgood-faith and fair dealing, specific performance and declaratoryjudgment. The claims arise primarily from oral agreementsBateman alleges to have entered into with the FDIC in itscapacity as receiver of Malden Trust Company and relate to thesettlement of his obligations under a "Replacement PromissoryNote." Bateman moves to amend his complaint to add claims forintentional and negligent misrepresentation, deceit andpromissory estoppel. The FDIC opposes the motion and moves forsummary judgment on the complaint. The FDIC also moves for theimposition of Rule 11 sanctions in connection with the filing ofthis action and the motion to amend. Bateman's motion to amendis denied. The FDIC's motion for summary judgment is granted andthe complaint is dismissed. The FDIC's motion for sanctions isdenied.


Bateman executed the Replacement Promissory Note (the"Note") in the amount of $1,680,000, which was originally payableto Spring Realty Trust, on January 24, 1992. At the time, SpringRealty Trust was a partner of Weston Realty Corporation, acompany controlled by Bateman, in a real estate developmentpartnership. On September 17, 1996, Spring Realty Trust endorsedthe Note in favor of the FDIC. The FDIC had been appointedreceiver of Malden Trust Company and the endorsement was part ofa settlement of Spring Realty Trust's outstanding loanobligations to Malden Trust Company.

Bateman alleges that the FDIC on at least threeoccasions agreed to sell the Note back to him at a stipulatedprice, and that the FDIC reneged on each of these agreements andinstead offered the Note in a package of notes at public sale.According to Bateman, his attorney, Jerry Peppers, begannegotiating, on Bateman's behalf, with the FDIC to repurchase theNote in January 1997. Bateman contends that, on February 4,1997, Vincent Leal, an FDIC Credit Specialist, on behalf of theFDIC, agreed to sell the Note to Bateman for $296,500. Inreaching this agreement, Bateman claims that there was no mentionof any further approvals by the FDIC's Credit Review Committee(the "CRC") as a condition precedent to this agreement.

Bateman claims that shortly thereafter Leal contactedPeppers to say that he had made a mistake in his valuationcalculation and could not approve the sale for less than$346,500. Bateman alleges that, on February 11, 1997, Pepperstelephoned Leal and accepted the FDIC's offer at the new price of$346,500. Bateman further asserts that this acceptance was"confirmed" in a February 20, 1997 letter from Peppers to Lealand that there was no mention of CRC approval being required atthis time either.

According to Bateman, Leal never responded to Pepper'sFebruary 20 letter. Instead, on April 14, 1997, Leal sentBateman a form letter notifying Bateman that the FDIC planned tosell the Note as part of a package of notes to a third party.The letter also informed Bateman that "the FDIC [would] consideran offer to resolve your obligation, should you choose to make aproposal" and that "[a]ll offers or agreements are subject toapproval by the proper delegation [sic] of authority within theFDIC." It stated further that in order for such an offer to beconsidered by the FDIC, Bateman was required to provide financialstatements, tax returns and an affidavit of indebtedness.

Upon receiving the April 14 letter, Peppers wrote toLeal on April 22, 1997 inquiring about the status of the allegedagreement at the price of $346,500. Peppers also attempted tocontact Leal by telephone on at least five occasions during thecourse of the next several months. Bateman further alleges thatwhen Peppers finally did reach Leal, Leal stated that the FDIC'sCredit Committee's formula for determining the present value ofthe Note required a purchase price of $521,661. Peppers thenconferred with Bateman and Bateman subsequently agreed to thisrevised purchase price.

Confirmation of Bateman's acceptance of the $521,661purchase price was set forth in a letter from Peppers to Lealdated June 25, 1997. In the letter, Peppers also indicated hisunderstanding "that Committee approval would be required" andthat Leal "expect[ed the approval] to be forthcoming on 3 July."The letter makes no mention of any requirement that Batemansupply financial statements, tax returns or an affidavit ofindebtedness.

Notwithstanding these discussions between Leal andPeppers, Bateman subsequently received a letter, dated July 13,1997, from Leal notifying Bateman that the FDIC again planned toinclude the Note in a package sale. However, on November 8,1997, Leal informed Peppers that the package containing Bateman'sNote was not sold. Leal also told Peppers that the FDIC waswilling to continue discussions with Bateman regarding Bateman'sintention to repurchase the Note. Before any agreement wasconsummated, however, Peppers was informed that Leal was nolonger employed by the FDIC. Over the next several monthsPeppers had discussions with at least two other FDIC creditspecialists in connection with Bateman's efforts to repurchasethe Note. None of these discussions were successful.

On March 17, 1999, the FDIC sued Bateman for failure topay the interest payments due on the Note. That suit wasvoluntarily dismissed on April 9, 1999 after Bateman agreed topay $200,000 in pastdue interest payments. Since then, according to the Complaint,the FDIC has "refuse[d] to consummate — or even resumenegotiations — regarding its agreement to sell the Note toMr. Bateman." On June 1, 1999, Bateman commenced this action.


A. Bateman's Motion to Amend the Complaint

Bateman moves to amend the complaint to add counts forintentional and negligent misrepresentation, deceit andpromissory estoppel. Fed. R. Civ. P. 15 provides that leave toamend the complaint "shall be freely given when justice sorequires." Nevertheless, a motion to amend is denied where anamendment would be legally futile or would serve no legitimatepurpose. Judge v. City of Lowell, 160 F.3d 67, 79 (1st Cir.1998).

Bateman alleges that, after the complaint was filed, helearned through discovery that despite Leal's representations toBateman that the purported oral agreements would be presented tothe FDIC's Credit Review Committee and that approval would be"forthcoming," Leal never presented the agreements for finalapproval. Accordingly, Bateman contends that leave to amend iswarranted under the circumstances and will not cause prejudice tothe FDIC.

The FDIC answers that the tort claims advanced by theattempted amendment are barred by section 2680(h) of the FederalTort Claims Act, which excludes recovery for "[a]ny claim arisingout of . . . misrepresentation [or] deceit." Additionally, itargues that the rule limiting estoppel of the governmentprecludes the promissory estoppel claim against the FDIC.

1. Sovereign Immunity

i) The Federal Tort Claims Act

The FDIC is an instrumentality and agency of the UnitedStates and cannot be sued absent a waiver of sovereign immunity.The Federal Tort Claims Act (the "FTCA"), 28 U.S.C. § 1346 (b),2671 et seq. (which governs in this case) does waive the defenseof sovereign immunity for certain torts committed by governmentemployees "under circumstances where the United States, if aprivate person, would be liable to the claimant in accordancewith the law of the place where the act or omission occurred."28 U.S.C. § 1346 (b). However, section 2680(h) of the FTCA expresslyexcludes from the waiver of sovereign immunity:

Any claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.

28 U.S.C. § 2680 (h) (emphasis added).

Bateman's proposed tort claims fall within section2680(h). The claims for misrepresentation and deceit areexpressly excepted from the waiver of sovereign immunity. SeeGertner v. FDIC, 814 F. Supp. 177, 179 (D. Mass. 1992) (holdingthat section 2680(h) "specifically bars an action against theUnited States for misrepresentation"); FDIC v. diStefano,839 F. Supp. 110, 121 (D.R.I. 1993) (concluding that a counterclaim forconspiracy to defraud against the FDIC was within section 2680(h)because that provision barred claims for misrepresentation anddeceit). The exception also excludes Bateman's proposed claimfor negligent misrepresentation. United States v. Neustadt,366 U.S. 696, 702 (1961) ("§ 2680(h) comprehends claims arising outof negligent, as well as willful, misrepresentation.").

Bateman nevertheless takes the position that section2680(h) does not apply to the proposed claims even though theyare entitled "misrepresentation." According to Bateman, thegravamen of his claims is that the FDIC personnel with whom hewas negotiating reached an oral agreement with him but thenfailed to take the necessary steps to obtain CRC approval. This"failure to act," Bateman argues, amounts to a breach of theimplied covenant of good faith and fair dealing, which is a dutythat is separate and apart from any duty to use care incommunicating information. Therefore, relying on Block v. Neal,460 U.S. 289 (1983), Bateman contends that the claims areactionable under the FTCA.

The argument is unpersuasive. Block v. Neal involved anegligence action against the government under the FTCA. Arecipient of a government loan sued the government for defectsshe alleged were partly attributable to the failure of governmentemployees properly to inspect and supervise the construction ofher house. Neal, 460 U.S. at 290. The Court held that becauseher negligence claim was based on the government's breach of aduty that was "distinct from any duty to use due care incommunicating information," it was not a claim of"misrepresentation" within the meaning of section 2680(h). 297. However, the Court noted that if the negligence claimhad been premised upon misstatements by government officials, itwould have been barred by the FTCA as a claim for negligentmisrepresentation. Id. at 298.

The distinction in Block v. Neal between a claim fornegligent misrepresentation and an action based on anotherspecies of negligence does not save Bateman's proposed claims.The only allegations of negligence advanced in the proposedamendment are misstatements by FDIC employees. For example,Bateman complains that the FDIC employees failed to exercise duecare when they told him that the FDIC had a "bona fide intention"of selling the Note to him. He also alleges negligence by Lealin representing to Bateman that Leal would present the agreementsto the CRC and that CRC approval would be forthcoming. Hefurther claims that he suffered damages due to his reliance onthese representations. A claim based on such allegations amountsto an assertion of "negligent misrepresentation" (as it isentitled in the proposed amendment). See Neal, 460 U.S. at 296("[T]he essence of an action for misrepresentation . . . is thecommunication of information on which the recipient relies.");Jimenez-Nieves v. United States, 682 F.2d 1, 4 (1st Cir. 1982)(holding that the essential element for determining whether ornot a claim was a misrepresentation claim within the meaning ofsection 2680(h) was reliance by the plaintiff upon the falseinformation)

Moreover, Bateman cannot transform his negligence claiminto something other than negligent misrepresentation bycharacterizing it as a claim for breach of the implied covenantof good faith and fair dealing. A breach of the implied covenantof good faith and fair dealing does not give rise to a negligenceaction. The covenant is a fixture of contract law as to whichthe FTCA provides no waiver of sovereign immunity.1

To cap it all even if Bateman's claims were legallysufficient, the proposed amendment cannot be permitted becauseclaims brought under the FTCA must be brought against the UnitedStates rather than against an individual agent or, as here, afederal agency. See FDIC v. Meyers, 510 U.S. 471, 476 (1994)(discussing 28 U.S.C. § 2679 (a)) ("[I]f a suit is `cognizable'under § 1346(b) of the FTCA, the FTCA remedy is `exclusive' andthe federal agency cannot be sued `in its own name,' despite theexistence of a sue-and-sued clause.")

ii) Waiver

Bateman argues that the FDIC waived the government'ssovereign immunitywhen it sued Bateman in March 1999 for the interest due on theNote. The argument is without merit. It is true that when theUnited States sues it waives immunity as to compulsory counterclaimsfor recoupment even if those claims would ordinarily be barredby the FTCA. United States v. Johnson, 853 F.2d 619, 621(8th Cir. 1988); see Bull v. United States, 295 U.S. 247, 261(1935) ("A claim for recovery of money . . . may be used by wayof recoupment and credit in an action by the United States arisingout of the same transaction."). However, that rule is inapplicablehere. The FDIC's complaint in the March 1999 suit was voluntarilyand effectively dismissed without prejudice by the FDIC beforean answer was filed. While the voluntary dismissal precludedBateman from asserting compulsory counterclaims, it does notfollow that Bateman may assert those claims as a plaintiff inthis suit, even assuming they might have been asserted ascounterclaims in a suit by the FDIC against him. Indeed, the factthat the FDIC's earlier suit against him was dismissed voluntarilymeans that Bateman is in no different a position than if the suithad not been filed.

2. Promissory Estoppel

Bateman seeks to add a promissory estoppel claimagainst the FDIC based on Leal's alleged promises on behalf ofthe FDIC to sell the Note to Bateman. The Supreme Court hasdeclined to adopt "a flat rule that estoppel may not in anycircumstances run against the Government," Heckler v. CommunityHealth Servs. of Crawford County, 467 U.S. 51, 60 (1984), and itsdecisions on this subject provide little guidance as to thecircumstances in which such claims may lie. However, thedecisions of the Courts of Appeals do specify that "an estoppelagainst the United States is not measured by the rules used forordinary litigants," Howell v. FDIC, 986 F.2d 569, 575 (1st Cir.1993), and that "[a] private individual asserting estoppelagainst the government has a very heavy burden to bear," Jones v.Dept. of Health & Human Servs., 843 F.2d 851, 853 (5th Cir.1988).

The principle that estoppel claims against thegovernment are disfavored has figured prominently in FirstCircuit opinions. For example, in Howell v. FDIC, the courtemphasized "the general rule against estoppel of the government"in affirming the district court's refusal to allow an amendmentadding a claim for promissory estoppel against the FDIC acting inits capacity as receiver. 986 F.2d at 575. Similarly, in Phelpsv. Federal Emergency Management Agency, the court reversed adistrict court decision allowing the assertion of equitableestoppel against the FEMA despite the hardship visited upon theplaintiff. 785 F.2d 13, 17 (1st Cir. 1986). In so holding, thecourt noted that "the Supreme Court has never shown hospitalitytoward claims of estoppel against the Government." Phelps, 785F.2d at 19.

In the present case, Bateman's proposed estoppel claimagainst the FDIC must be dismissed. First, even given the heavyburden a party bears in asserting estoppel against thegovernment, Bateman fails to specify any reason for departingfrom the rule that estoppel claims do not ordinarily lie againstthe government.

Moreover, to allow Bateman's estoppel claim wouldenable him to make an end run around the FTCA. See e.g., Office ofPersonnel Management v. Richmond, 496 U.S. 414, 430 (1990)(relying on the FTCA as an additional ground for disallowing anestoppel claim against the government because it "would nullify acongressional decision against authorization of the same class ofclaims"); Howell, 986 F.2d at 575 (citations omitted) (notingthat it was "hard to imagine a less attractive case for creatinga new judicial exception to the general rule against estoppel ofthe government" where permitting the claim "would be judiciallyto admit at the back door that which hasbeen legislatively turned away at the front door"). Despite the"estoppel" label, Bateman's claim is essentially for"misrepresentation" because it is premised upon Bateman's relianceupon erroneous information supplied by FDIC employees. However,as discussed above, the "misrepresentation" exception in the FTCA,28 U.S.C. § 2680 (h), specifically bars claims for misrepresentation.See Gertner v. FDIC, 814 F. Supp. at 179.

As if that were not enough, the plaintiff is furtherout of court because he has not alleged facts sufficient toinvoke estoppel. It is settled that an estoppel claim againstthe government cannot be erected on the basis of oralrepresentations by a government agent because reliance on suchrepresentations is not reasonable or appropriate. Heckler, 467U.S. at 65. Accordingly, Bateman's estoppel claim fails becauseany reliance by Bateman upon the oral representations of the FDICcredit specialist was unreasonable as a matter of law. See FDICv. Royal Park, 2 F.3d 637, 641 (5th Cir. 1993) (affirmingrejection of the defendants' estoppel defense against the FDIC onthe grounds that "reliance upon oral representations ofgovernment officials is unreasonable as a matter of lawregardless of whether the representation is of fact or law")

In sum, because the proposed claims fail as a matter oflaw, the motion for leave to amend is denied.

B. FDIC's Motion for Summary Judgment

The FDIC moves for summary judgment dismissing thecomplaint. Relying on Hachikian v. FDIC, 96 F.3d 502 (1st Cir.1996), abrogated by Hardemon v. City of Boston, 144 F.3d 24 (1stCir. 1998), the FDIC contends that even assuming that Leal, onbehalf of the FDIC, agreed to sell the Note back to Bateman,Bateman's contract-based claims fail as a matter of law becauseLeal, as a credit specialist, did not have actual authority toenter into the alleged settlement agreements on the FDIC'sbehalf. The FDIC also argues that it is entitled to summaryjudgment on Bateman's claim for a declaration that "the purportedendorsement in favor of the FDIC is without legal effect."According to the FDIC, the endorsement of the Note to the FDICwas valid because the Note was transferable under Article 3 ofthe Uniform Commercial Code, M.G.L. ch. 106, § 3-100 et seq.(repealed 1998), which was in effect in Massachusetts at the timeof the making and endorsement of the Note.

Bateman responds that the FDIC takes an overlyexpansive view of Hachikian and challenges the applicability ofHachikian to the "special facts" of this case. According toBateman, this case is distinct from Hachikian because there theplaintiff was seeking to settle or compromise an obligation,whereas here Bateman was seeking to repurchase a note. Batemanalso argues that Hachikian is inapplicable to his claim forbreach of the implied covenant of good faith and fair dealing.As for his declaratory judgment claim, Bateman contends that theFDIC's arguments on this issue are "largely immaterial" becausethe FDIC admitted in its answer to the complaint that the Note is

1. Breach of Contract

The First Circuit's decision in Hachikian, 96 F.3d at502, mandates granting summary judgment in favor of the FDIC onBateman's contract-based claims. There, the plaintiff sued theFDIC alleging that an agreement he had reached with an FDICaccount officer to settle all of his obligations to a failed bankwas binding on the FDIC. Id. at 504. While acknowledging thatthe FDIC Credit Review Committee had not approved the settlementand that approval was ordinarily required, he contended that theagreement was nevertheless enforceable because the FDIC accountofficer had told him that CreditReview Committee approval had been obtained. Id. at 505. TheFirst Circuit, referring to the rule that a party seeking torecover in contract against the United States must show that theagent who purported to bind the government had actual authorityto do so, rejected the plaintiff's argument. Id. (citing RockIsland, Ark. & La. R.R. Co. v. United States, 254 U.S. 141,143 (1920) and H. Landau & Co. v. United States, 886 F.2d 322,324 (Fed. Cir. 1989)). Based on the documentary evidence submittedby the FDIC, the court held that only the FDIC's Credit ReviewCommittee (and not the FDIC account officer) had the authorityto approve the settlements in question. Id. Because there wasno evidence that the Credit Review Committee had approved theagreement, the court concluded that "no reasonable factfindercould conclude that the purported agreement . . . ever materialized."Id.

The documentary evidence submitted by the FDIC in thecase at hand is similarly dispositive. The "Delegations ofAuthority," promulgated by the FDIC's Board of Directors,authorizes various committees and officials to conduct and expendfunds on behalf of the FDIC for asset management and disposition.By its terms, the authority "to compromise any asset . . . orapprove settlement . . . concerning any asset" with a book value of$25 million or less rests solely with the Committee onLiquidations, Loans and Purchases of Assets (also known as theCredit Review Committee). Nothing in the "Delegations ofAuthority" supports the claim that Leal, as a credit specialist,had the authority to enter into agreements on the FDIC's behalf.Since there is no evidence that any of the agreements Batemanalleges to have reached with Leal were ever approved by theCredit Review Committee, those agreements never became legallyeffective or binding on the FDIC.2 Moreover, even if Bateman didnot know that CRC approval was required, it does not affectLeal's lack of authority to enter into a binding agreement onbehalf of the FDIC. See Federal Crop Ins. Corp. v. Merrill,332 U.S. 380, 384 (1947) ("[A]nyone entering into an arrangement withthe Government takes the risk of having accurately ascertainedthat he who purports to act for the Government stays within thebounds of his authority.").

Bateman's argument that Hachikian is not controllinghere, because he, Bateman, was merely attempting to repurchasethe Note, rather than settle or compromise it (as in Hachikian'scase), is unpersuasive. The evidence establishes that thepurpose of Bateman's negotiations with the FDIC was to settle hisobligations under the Note. The letters drafted by Peppers,Bateman's attorney, submitted by Bateman in support of his claim,characterize the negotiations as "settlement" negotiations. ThatBateman's largest offer for the Note, which had a face value of$1.68 million, was $521,661 further undermines his contentionthat he was seeking to repurchase the note rather than settle it.

2. Implied Covenant of Good-Faith and Fair Dealing

Bateman's claim for breach of the covenant of good-faithand fair dealing also fails as a matter of law. "[T]o showbreach of the covenant, the plaintiff must show that thereexisted an enforceable contract between the two parties and thatthe defendant did something that had the effect of destroying orinjuring the right of [the plaintiff] to receive the fruits ofthe contract." Laser Labs, Inc. v. ETL Testing Lab., Inc.,29 F. Supp.2d 21, 24 (D. Mass. 1998) (internal citations and quotationmarks omitted). It follows that, since no enforceable contractto repurchase, compromise or settle the Note ever materialized,Bateman has no claim forbreach of the implied covenant of good faith and fair dealing.See Levenson v. LMI Realty Corp., 31 Mass. App. Ct. 127, 131,575 N.E.2d 370 (1991) (concluding that the implied covenantof good faith and fair dealing did not apply because the partieshad not reached a binding contract).

Furthermore, to the extent the obligations of goodfaith and fair dealing can be implied from the existence of theNote itself, the claim nevertheless fails because the obligationsextend only to the parties' duty to perform their specificobligations under the contract. See Badgett v. Security StateBank, 116 Wn.2d 563, 570, 807 P.2d 356 (1991) (citationsomitted) ("The duty to cooperate exists only in relation toperformance of a specific contract term. As a matter of law,there cannot be a breach of the duty of good faith when a partysimply stands on its rights to require performance of a contractaccording to its terms.")

3. Declaratory Judgment

The FDIC is also entitled to summary judgment on theplaintiff's declaratory judgment claim. In this count, Batemanseeks a declaration "that the Note is non-negotiable and theendorsement to the FDIC is without legal effect." Bateman makesmuch of the fact that the FDIC, in its answer to the complaint,admits that the Note is "non-negotiable," and mistakenly arguesthat the FDIC's admission is fatal to the FDIC's motion forsummary judgment. The question raised by the FDIC is not whetherthe Note was "negotiable," but whether the transfer to the FDICwas "without legal effect."

Article 3 of the Uniform Commercial Code sets forth therules governing negotiable instruments. Under the version ineffect in Massachusetts at the time of the making and theendorsement of the Note, for a writing to qualify as a negotiableinstrument, it must:

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article; and

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer.

M.G.L. ch. 106, § 3-104 (repealed 1998). If an instrument meetsall of these requirements, except for the words "to order or tobearer," it nevertheless does not fall outside the scope ofArticle 3. Section 3-805 provides that:

[Article 3] applies to any instrument whose terms do not preclude transfer and which is otherwise negotiable within [Article 3] but which is not payable to order or to bearer, except that there can be no holder in due course of such an instrument.

M.G.L. ch. 106, § 3-805 (repealed 1998). Thus, under thisprovision, a promissory note that is not payable "to order" or"to bearer" is non-negotiable only to the extent that there canbe no holder in due course of that note. In re McMeekin, 16 B.R. 805,808 (Bankr. D. Mass. 1982). However, if the terms of theinstrument "do not preclude transfer" and the instrument is"otherwise negotiable within [Article 3]," the rules in Article 3governing negotiable instruments are applicable.

Article 3 compels the conclusion that the endorsementof the Note to the FDIC was valid. Although the Note does notcontain the words, "to order" or "to bearer," but is payable toSpring Realty Trust, it nevertheless is governed by Article 3because its terms do not state that it is not transferable.Since all instruments encompassed by Article 3 may be transferredpursuant to former section 3-301, which authorizes the "holder ofan instrument whether or not he is the owner . . . [to] transfer ornegotiate it," it follows that the Note was transferable. Bateman'sclaim for a declaratory judgment that theNote to the FDIC was without legal effect is dismissed and theFDIC's motion for summary judgment is granted.

C. FDIC's Motion for Sanctions

The FDIC moves for Rule 11 sanctions against Batemanand his attorney for the filing of the complaint and the motionto amend the complaint. Rule 11 sanctions are appropriate ifpapers filed with the court contain factual allegations that haveno evidentiary support or advance legal arguments that are notwarranted by existing law or by a non-frivolous argument for theextension, modification, or reversal of existing law or theestablishment of new law. See Fed. R. Civ. P. 11(b)(3) and (2).The inquiry is an objective one.

The FDIC argues that sanctions are warranted in thiscase because there is no legal or factual basis for theplaintiff's claims premised on the alleged settlement agreements.Specifically, the FDIC asserts that the letters from Peppers,Bateman's attorney, to the FDIC, which Bateman alleges"confirmed" the existence of the agreements, actually reveal thatBateman knew that CRC approval was required before the agreementswould become binding on the FDIC and that the alleged agreementswere never approved by the CRC. The FDIC further asserts thatthe legal claims in the complaint and the proposed amendedcomplaint violate Rule 11 because they are precluded by FirstCircuit case law and the Federal Tort Claims Act.

Bateman's legal and factual claims are not so plainlyunmeritorious as to justify the imposition of sanctions. Thefactual allegations underlying the claims premised on thesettlement agreements have an adequate basis in the record.While the letters from Peppers to the FDIC arguably are not"confirmations" of oral agreements, they nevertheless indicatethat Leal, on the FDIC's behalf, offered to sell the Note back toBateman at a specific price and that Bateman agreed to thatprice. Moreover, in contrast with the cases cited by the FDIC,there is no evidence of bad-faith or extreme carelessness inconnection with these assertions. See e.g., Levine v. FDIC,2 F.3d 476, 478-79 (2d Cir. 1993) (affirming grant of Rule 11motion where affidavit "substantially contradicted in manymaterial respects" the testimony plaintiff provided in a priordeposition); Aviation Constructors v. Federal Express Corp.,814 F. Supp. 710, 716 (N.D. Ill. 1993) (awarding Rule 11 sanctionswhere "defendant intentionally concealed" evidence damaging toits counterclaims)

Furthermore, while Bateman's legal arguments do notprevail, they cannot fairly be characterized as frivolous. Seee.g., FDIC v. Calhoun, 34 F.3d 1291, 1298 (5th Cir. 1994)(reversing sanctions order when the attempted analogy to a lineof cases failed to persuade but nonetheless constituted agood-faith argument to extend the law); Thompson v. Duke,940 F.2d 192, 196-97 (7th Cir. 1991) (reversing sanctions order whenparty could argue plausibly, though unsuccessfully, that hisclaim was distinguishable from other cases or could mount agood-faith argument for modification of existing case law).

The FDIC's motion for sanctions is denied.


The plaintiff's motion to amend the complaint is deniedon grounds of futility. The FDIC's motion for summary judgmentdismissing the complaint is granted.

The FDIC's motion for sanctions is denied.

It is so ordered.

1. To the extent that Bateman asserts an independent claim forbreach of the implied covenant of good faith and fair dealingthat sounds in contract, as discussed below, that claim alsofails as a matter of law.

2. In fact, the evidence in this case weighs even morestrongly against the plaintiff than was true in Hachikian.Unlike Hachikian, there is no evidence here that Bateman was toldthat the CRC had approved the agreements.

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