35 F.

3d 18

FEDERAL DEPOSIT INSURANCE CORPORATION, as

Receiver of New
Bank of New England, N.A., Plaintiff, Appellee,
v.
FEDDERS AIR CONDITIONING, USA, INC., Defendant,
Appellant.
FEDDERS AIR CONDITIONING, USA, INC., Plaintiff,
Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as
Receiver of Bank
of New England, N.A., and as Receiver of New Bank
of New England, N.A., et al.,
Defendants, Appellees.
Nos. 93-1889, 93-1890.

United States Court of Appeals,

First Circuit.
Heard March 9, 1994.
Decided Sept. 15, 1994.

Richard d'A. Belin with whom Michael A. Albert and Foley, Hoag &
Eliot, Boston, MA, were on brief for appellant.
Marta Berkley, F.D.I.C.-Legal, Washington, DC, and Kathleen C. Stone
with whom David C. Aisenberg and Williams & Grainger, Boston, MA,
were on brief for appellees.
Before TORRUELLA, Chief Judge, COFFIN, Senior Circuit Judge, and
BOUDIN, Circuit Judge.
BOUDIN, Circuit Judge.

On December 1, 1986, Fedders Air Conditioning, USA, Inc. ("Fedders") signed

a contract with Liberty Effingham Limited Partnership ("Liberty") to sell to

Liberty a very large warehouse in Effingham, Illinois, owned by Fedders. The
warehouse covered 10 acres and the sale price was $7 million. The warehouse
was then under lease to a tenant, Sherwin-Williams, and the contract provided
that Liberty would assume Fedders' obligations as landlord with an important
qualification concerning roof repairs.

The Sherwin-Williams lease provided that Fedders would make certain roof
repairs, as well as other alterations, to eliminate leakage. In the sale of the
warehouse to Liberty, it was intended that Fedders would make the roof repairs
at its own expense. Accordingly, Fedders agreed to indemnify Liberty for any
loss or expense to Liberty arising under specific repair provisions of the
Sherwin-Williams lease. To assure Fedders' performance, the parties agreed
that of the $7 million purchase price to be paid by Liberty, Fedders would place
$250,000 in escrow with Bank of New England ("the bank").

Liberty made a deposit payment of $50,000 to Fedders and originally intended

to give Fedders the balance-$6,950,000-at the closing; Liberty expected to
borrow $6.7 million from Bank of New England and to furnish the balance
($250,000) itself from its own account in the same bank. Fedders, it was
intended, would then return $250,000 to Bank of New England to be held in an
escrow account for Fedders, pending completion of Fedders' repair obligations
under the lease. (The stated figures are approximate, as there were other minor
adjustments involved in the closing.)

At some point prior to the closing, it occurred to the parties that instead of
having the bank transmit the full balance due on the purchase to Fedders and
then take back $250,000 for the escrow account, it would be simpler to have
the bank retain $250,000 for the escrow account and pay Fedders only the net
amount. The parties agreed to follow this course. At the closing in December
1986, Fedders was paid the $6.7 immediately due to it (the $7 million purchase
less the $50,000 deposit and $250,000 escrow).

For its part, Liberty gave Bank of New England its promissory note for $6.7
million to cover the bank loan needed to complete the purchase. The bank in
turn signed the escrow agreement acknowledging that the bank had received
the $250,000 "deposit" to be held in escrow and invested in a "commercial bank
money market account" (unless otherwise directed). In fact, for reasons that are
not explained, the bank did not set up the escrow account, either then or later.
Although it held Liberty's note for $6.7 million, the bank appears to have
recorded a draw-down on the loan of only $6,450,000.

After the closing Fedders did not satisfactorily complete the roof repairs.
Liberty eventually replaced the entire roof at a cost of over $1 million. In 1987,
Liberty brought suit against Fedders in Massachusetts state court to recover the
repair cost from Fedders. Later Liberty added Sherwin-Williams as a
defendant, to obtain declaratory relief against it; and Sherwin-Williams then
claimed damages from Fedders and Liberty on account of roof leaks it had
suffered. In December 1990 Liberty assigned its claim in the case to Bank of
New England as part of a workout of its debt to the bank.

In January 1991, Bank of New England became insolvent and the Federal
Deposit Insurance Corporation became its receiver. 12 U.S.C. Sec. 1821(c)(2).
The FDIC transferred the Liberty claim against Fedders to New Bank of New
England, N.A. ("the bridge bank" ), see 12 U.S.C. Sec. 1821(n), as part of a
purchase and assumption agreement. New Bank of New England in turn
assumed Bank of New England's contractual liability for deposit accounts. In
July 1991, the bridge bank was itself dissolved and the FDIC became its
receiver. In August 1991 the FDIC, as receiver for New Bank of New England,
removed the Liberty suit against Fedders to the district court, see 12 U.S.C.
Sec. 1819(b)(2), and was substituted for Liberty.

In April 1992, Fedders filed suit in federal district court in Massachusetts

against the FDIC as receiver for both the failed Bank of New England and for
the dissolved bridge bank. On several theories (insured deposit, breach of
contract, breach of fiduciary duty, unjust enrichment), Fedders sought to
recover the alleged $250,000 escrow. The original Liberty action against
Fedders, previously removed to the district court, was partly consolidated with
the new Fedders action. The district court tried the two cases as a bench trial
beginning on April 12, 1993. Shortly before the trial, Sherwin-Williams made
its own settlement and ceased to be a litigant.

The district judge, sitting as the factfinder, found against Fedders in the original
Liberty action and awarded the FDIC $775,000 for the roof replacement. At a
later date, the district judge also rejected Fedders' claims to recover the escrow
amount from the FDIC. The court found that Fedders was not a "depositor"
entitled to recover an insured deposit because no escrow account had ever been
established, saying:

10 escrow account that [the failed Bank of New England] was contractually bound
The
to create and formally acknowledged that it had created was in fact never created.
Fedders therefore never acquired the status of a "depositor," in the sense relevant to
the present litigation, notwithstanding [the bank's] assurances in the Escrow
Agreement. Consequently, FDIC as receiver did not succeed to any "deposit"

liability associated with the phantom escrow account....

11

Although the failure to set up such an account gave Fedders a contract claim
against Bank of New England, the court found that Fedders had waived this
claim by failing to assert it within the time fixed for asserting claims against the
FDIC as receiver for a failed bank. 12 U.S.C. Sec. 1821(d).

12

Finally, returning to the original Liberty action, the court awarded the FDIC, as
receiver for New Bank of New England, attorneys' fees in the amount of
$64,855.91. The court ruled that Fedders was liable for this amount under its
indemnity agreement with Liberty, Liberty's rights having been assigned to the
failed bank, then acquired by the bridge bank pursuant to the purchase and
assumption agreement and finally held by the FDIC as the latter's receiver.
How this attorneys' fee award was calculated is an issue to which we will
return.

13

Fedders then appealed to this court. First, it disputes the district court's
disposition of Fedders' claims against the FDIC relating to the escrow amount.
Second, Fedders contests the award of attorneys' fees to the FDIC in the
original Liberty action; Fedders does not challenge the underlying award of
$775,000 to the FDIC for Fedders' failure to repair the roof. We begin with the
escrow issue which is by far the more complicated of the two, and thereafter
address the attorneys' fees award.

14

At the outset, it is important to understand that Fedders' central claim on appeal

is that it has made a "deposit" in Bank of New England, which the FDIC has
committed itself to honor without regard to the normal $100,000 limitation or
any objection as to the timeliness of a "deposit" claim.1 The FDIC in turn does
not dispute this alleged commitment but asserts that there was no "deposit"
within the meaning of the statute and, further, that its regulations make the
bank's records conclusive. This is a civil case, and we take the issues as the
parties have framed them.

15

One begins in construing a statute with its language. The statutory definition of
deposit is two pages long, 12 U.S.C. Sec. 1813(l ), but Fedders relies
principally upon clauses that include as deposits two specific categories: "the
unpaid balance of money or its equivalent received or held by a bank ... in the
usual course of business and for which it has given or is obligated to give
credit," and "money received or held by a bank ... in the usual course of
business for a special or specific purpose ... including ... escrow funds...." 12
U.S.C. Secs. 1813(l )(1), (3).

16

In response, the FDIC has chosen to stress the underlined phrase that is part of
the definition of deposit under both subparagraphs of section 1813(l ) relied on
by Fedders: money or its equivalent received or held by a bank in the usual
course of business. The FDIC also underlines the term "account" which appears
only in subparagraph 1, defining "deposit" to include

17 unpaid balance of money or its equivalent received or held by a bank ... in the
the
usual course of business and for which it has given or is obligated to give credit,
either conditionally or unconditionally, ... to a[n] ... account....
18

Here, says the FDIC, Bank of New England "did not receive any money from
Fedders, and there was no account." On the basis of this language, the FDIC
distinguishes a number of cases, several of which are older but otherwise
helpful to Fedders, such as FDIC v. Records, 34 F.Supp. 600 (W.D.Mo.1940)
(deposit insurance covered payment to cashier who pocketed the cash). More
important, the reference to money "received or held" encourages the FDIC to
rely on FDIC v. Philadelphia Gear Corp., 476 U.S. 426, 106 S.Ct. 1931, 90
L.Ed.2d 428 (1986). "The analysis" in that case, the FDIC tells us, "is much the
same in this case."

19

We can easily put to one side two of the FDIC's three points based on the
statute and Philadelphia Gear. The fact that Fedders paid no money to the bank
means nothing; Liberty gave the bank a note, readily described as "the
equivalent" of money, to cover a loan by the bank to Liberty, $250,000 of
which the bank promised to retain as an escrow deposit for Fedders. Thus, the
equivalent of money was "received." Indeed, nothing in the substance of the
transaction would be different if, as the parties had originally intended, the
bank had given Fedders the $250,000 and Fedders had immediately given it
back to the bank.

20

Philadelphia Gear is likewise not on point. There the Supreme Court rejected a
claim that a standby letter of credit backed by a contingent promissory note
qualified as a "deposit" under section 1813(l )(1). Although the FDIC admitted
that an ordinary letter of credit would be treated as a deposit, it distinguished
the standby letter (a promise by the bank to pay the seller only if the buyer did
not) based on an administrative practice of not treating standby letters as
deposits. In accepting this longstanding interpretation, the Court noted that the
buyer who authorized the letter had not even given the bank anything beyond a
contingent promise to pay. Id. at 440, 106 S.Ct. at 1939.

21

But Philadelphia Gear did not say that it is a condition of all "deposits" that hard
currency be paid to the bank; the Court was concerned with distinguishing

narrowly between standby and ordinary letters of credit. In fact the Court noted
the FDIC's own concession that an ordinary letter of credit in the seller's favor,
backed by the buyer's unconditional promissory note, would be a deposit. Id. at
440, 106 S.Ct. at 1939. Here, such an unconditional note for a sum including
the $250,000 escrow was given to the bank.
22

Although the "held or received" language and Philadelphia Gear are red
herrings, the remaining point in the FDIC's statutory argument--the statutory
reference to an "account"--does deserve attention. Under the statute, the money
or its equivalent must not only be held or received by the bank, but must (unless
another alternative condition is satisfied) be a payment "for which [the bank]
has given or is obligated to give credit ... to a[n] ... account." 12 U.S.C. Sec.
1813(l )(1). Here, the FDIC says, there was no account, so the money or its
equivalent cannot be deemed a deposit.

23

We agree with the FDIC, and with the district court, that there was no account
established pertaining to the $250,000 escrow; but the statute speaks not only of
money or its equivalent for which the bank "has given" credit to an account but
also money or its equivalent for which the bank "is obligated" to give credit to
an account. Here Liberty gave a promissory note to the bank in exchange for a
loan, $250,000 of which the bank promised to place in an escrow account for
Fedders. Although the bank failed either to create the account or deposit the
money in it, it does appear that it was "obligated" to give credit to an account
for this amount.

24

Fedders relied on the "obligated" language in its brief, and the FDIC has not
answered it. There may be answers not obvious to us in this very technical area.
Still, the five paragraphs of section 1813(l ) define "deposit," technically but
elaborately, to cover a very large number of transactions, many of which might
not be called deposits by a lay person. In sum, we hold that the promissory note
was the equivalent of money; that it was held or received by the bank in the
usual course of business to support a loan; and that in exchange the bank was
"obligated" to credit an account in the amount of $250,000.

25

We do not reach the alternative argument made by Fedders that the "escrow"
reference in subparagraph 3 makes the transaction a deposit even if
subparagraph 1 does not. We do note that there is no parallel "obligated"
language in subparagraph 3, and the FDIC could argue that only funds actually
treated by the bank as escrow funds are embraced by subparagraph 3. But the
FDIC has made no expressio unius argument that an escrow payment excluded
from subsection (3) is automatically outside subsection (1), and we doubt that
any such exclusivity is implied.

26

The FDIC's other line of defense is its own regulation; under 12 C.F.R. Sec.
330.3(h), it asserts that "the deposit account records of the failed bank are
controlling for purposes of determining deposit insurance coverage." That
section, after explaining that ownership under state law of funds on deposit is a
necessary condition for insurance coverage, continues:

27
"Deposit
insurance coverage is also a function of the deposit account records of the
insured depository institution ... which, in the interest of uniform national rules for
deposit insurance coverage, are controlling for purposes of determining deposit
insurance coverage."
28

The FDIC then tells us that "numerous courts" have held that the FDIC may
rely "exclusively" on the "account records" of the failed institution to determine
deposit insurance coverage.

29

Assuming this to be so, we fail to see why the FDIC believes that "account
records" are missing in this case. Far from defining "account records" narrowly,
a companion regulation states that "deposit account records" include a variety
of specific items (e.g., account ledgers, certificates of deposit, authorizing
corporate resolutions) and "other books and records of the insured depository
institution [including computer records] which relate to the depository
institution's deposit taking function...." 12 C.F.R. Sec. 330.1(d) (omitting
exclusions not here relevant).

30

In this case the district court made a specific finding, not challenged by the
FDIC on appeal, that Bank of New England "held.... a copy [of the escrow
agreement] in its records." This agreement, signed on behalf of the bank,
explicitly acknowledged "receipt of said amount [$250,000]," denominated the
"Deposit"; and the document provided for the deposit to be invested in a
"commercial bank money market account" (unless a different investment was
approved by Fedders in writing). In other words, the bank's books and records
did include evidence of the "deposit."

31

We might have a different case if the FDIC had disputed the amount of the
deposit and invoked 12 C.F.R. Sec. 330.3(i). That regulation does purport to
make the "deposit account" conclusive as to the "amount" of a deposit.
Assuming a "deposit account" is something narrower than the bank's books and
records--which it may well be--the FDIC has never challenged the $250,000
figure nor has it relied upon subsection (i). Once again, after years of litigation,
it is fair to resolve the case in the terms that the parties have presented it.

32

Accordingly, we think it is unnecessary for us in this case to plunge ourselves

32

Accordingly, we think it is unnecessary for us in this case to plunge ourselves

into the morass of decisions that bear on whether and when erroneous bank
records are conclusive against the depositor and when correctly recorded but
unauthorized activity by a bank (e.g., paying an insured account to a thief)
precludes an insurance claim.2 These cases reflect the severe tension between
two values: the legitimate expectations of the depositor and the regulator's
desire to rely upon existing records to expedite the handling of bank
emergencies. Not surprisingly, the cases do not all point the same way. Here,
however, the FDIC's premise that the "deposit account records" defeat Fedders'
claim is mistaken.

33

What remains is the Fedders attack on the district court's award of attorneys'
fees. The only basis for such fees was the clause in the indemnity agreement
between Fedders and Liberty incident to the purchase and sale of the warehouse
and the latter's assumption of the Sherwin-Williams lease. The agreement, as
construed by the district court, required Fedders to indemnify Liberty for
attorneys' fees arising from litigation related to certain roof-repair provisions of
the lease. The FDIC has succeeded to Liberty's rights of indemnification.

34

In the district court the FDIC urged that the indemnity covered all of its
attorneys' fees incurred in the roof repair action originally brought by Liberty
against Fedders. The district court, however, determined that only the portion of
Liberty's or the FDIC's attorneys' fees that related to Sherwin-Williams' own
lease claims, asserted by Sherwin-Williams in that case, were covered by the
indemnity agreement. Sherwin-Williams ceased to be a party after very lengthy
pretrial activity but shortly before the trial itself. On appeal, this construction of
the indemnity is not disputed by either side. The only issue concerns the district
court's apportionment of counsels' bills.

35

Because the Liberty and FDIC counsel had not kept records to segregate
particular hours to work relating to the Sherwin-Williams claims, the district
court made its own apportionment. Of the $165,000 of attorneys' fees incurred
by Liberty or the FDIC in Liberty's action, counsel estimated for the court that
50 percent of the total attorney time was attributable to the Sherwin-Williams
claims. The district court found this boilerplate conclusion insufficient standing
by itself; but its own evaluation of the record persuaded it that the work done
by Liberty or FDIC counsel on the Sherwin-Williams claims justified an award
of just under $65,000 in attorneys' fees, calculated as follows:

36

First, of the fees incurred by Liberty between April 1988 and March 1991, the
district court found that just under $25,500 was attributable to the SherwinWilliams claims (rather than the $36,000 claimed by the FDIC based on its 50

percent apportionment). The court examined each of the invoices submitted by

counsel and for each one made a separate estimate (ranging from 15 to 50
percent) as to the portion of each invoice so attributable. The court said it was
resolving all ambiguities against the FDIC since it bore the burden of proof as
to fees.
37

Second, of the fees incurred by the FDIC, as receiver of the banks who
succeeded to Liberty's interest, the court found that just under $40,000 was
attributable to the Sherwin-Williams claims (instead of the $46,500 claimed by
the FDIC). The court assigned to those claims 50 percent of the fees incurred
prior to December 31, 1992, based on its review of the relevant docket entries;
and it similarly assigned 25 percent of the fees between that date and April 8,
1993 (when Sherwin-Williams settled its claims) since by 1993 the roof repair
claim against Fedders was moving toward trial and the Sherwin-Williams
damage claims toward settlement.

38

Fedders' argument on this appeal is straightforward. The company does not

attack any of the specific computations made by the court. Instead, it says
simply that Fedders' indemnity commitment to Liberty is a contract governed
by Illinois law; that Illinois law requires "detailed proof of the amount and
basis" for attorneys' fees even where attorneys' fees are promised by contract;
and that such detailed proof was not supplied in this case. Fedders' main
authority, Kaiser v. MEPC American Properties, Inc., 164 Ill.App.3d 978, 115
Ill.Dec. 899, 518 N.E.2d 424 (1987), does indeed say that the attorneys' fee
claimant must present "detailed records maintained during the course of the
litigation containing facts and computations upon which the charges are
predicated." Id. 115 Ill.Dec. at 903, 518 N.E.2d at 428.

39

We will assume from the district court's description of what the court had to do
(and from the FDIC's silence on this point) that the FDIC counsel certainly did
not furnish information needed to separate the Sherwin-Williams time from the
remaining time. But while such a deficiency would surely permit the district
court to reject the fee application, nothing in Kaiser requires that the court do
so if it can fill the gap in proof itself. In fact, in Kaiser the appellate court
appeared to agree with the claimant that "the trial court ha[d] the discretion to
consider the content of the record [i.e., "the entire case file"] to determine a
reasonable fee"; but the court upheld the trial judge's discretionary decision not
"to conduct the in-depth examination necessary to locate documents and
pleadings" to substantiate individual items. 115 Ill.Dec. at 904, 518 N.E.2d at
429.

40

Even if we treat Kaiser as an authoritative statement of Illinois law--and the

40

FDIC disputes this--it arguably licenses, and certainly does not clearly preclude,
a trial judge's own decision to supply from elsewhere in the record supporting
information and inferences that the claimant neglected to collect. Here, the
district court made precisely this effort, explaining that the FDIC's original fee
request was based on a reasonable reading of the indemnity, even though the
court ultimately read the indemnity more narrowly. This course was not
required, but neither do we see why it was forbidden.

41

Fedders identifies no other error in the calculations. It does not try to show how
the fee request information was deficient beyond the obvious failure to allocate
(except by the inadequate boilerplate 50 percent estimate alleged to reflect all of
the work over a lengthy period). Nor does Fedders offer specific attacks upon
the district court's own computations (which were several pages long)--for
example, the decision to assign 25 percent of the April 1, 1988, invoice to the
Sherwin-Williams claims--by seeking to show that they are irrational or
without basis. Limiting ourselves to the narrow challenge made by Fedders, we
conclude that the award of attorneys' fees was justified.

42

More broadly, we think that the district court admirably handled this complex,
double-barreled law suit and agree with its treatment of practically all of the
issues raised. On the single one where we part company--the "obligated" clause
of section 1813(l )(1)--we note that the district court did not discuss the clause,
possibly because it was not stressed by counsel at the trial or the subsequent
hearing.

43

The judgment is affirmed in part and reversed in part and the matter remanded
to the district court in order to permit the judgment entered against Fedders in
favor of the FDIC to be adjusted--whether by reduction or by a counter
judgment in favor of Fedders--to reflect the $250,000 deposit that the bank was
obligated to escrow (including any interest adjustment that the district court
may find appropriate) and that is now owing to Fedders. No costs.

44

It is so ordered.

The FDIC as receiver is not the insurer of deposits--the FDIC insures in its
corporate capacity--but the FDIC does pay off insured deposits, taking the
money from the appropriate insurance fund. 12 U.S.C. Sec. 1821(f). The FDIC
waived the ordinary $100,000 limit in this case. It also has not claimed that the
request for return of an insured deposit is untimely, nor has it offered any
objection based on its separate capacity as insurer and receiver

See, e.g., In Re Collins Securities Corp., 998 F.2d 551 (8th Cir.1993); Abdulla
Fouad & Sons v. FDIC, 898 F.2d 482 (5th Cir.1990); Jones v. FDIC, 748 F.2d
1400 (10th Cir.1984); FDIC v. Irving Trust Co., 137 F.Supp. 145
(S.D.N.Y.1955); FDIC v. Records, 34 F.Supp. 600 (W.D.Mo.1940)