Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

In the last bank insolvency post, I promised to fill you in on the disagreement among federal judges about whether the D'Oench, Duhme doctrine and the federal holder in due course rule (the "FHDC Rule") are still alive after the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") became law amending Section 13(e) of the Federal Deposit Insurance Act (the "FDI Act"). The chart below will help you keep track of which judges say yes and which ones say no.

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This past spring 60 Minutes broadcast this segment on the failure of Heritage Community Bank in Chicago. Scroll down and watch CBS correspondent Scott Pelley take you through:

• FDIC officials secretly reviewing bids to buy the targeted bank through a Purchase and Assumption Transaction
• The FDIC bank closure crew preparing to go in and take over each branch on a Friday evening after the last customer leaves
• Explaining what's happening to the bank's president and employees at each branch
• Taking an inventory of the bank's assets, books, and records
• Re-opening the bank Saturday morning under the new banner of the purchaser: MB Financial
• FDIC specialists greeting depositors and reassuring them that their money is safe

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Software Advice's Chris Thorman recently published State by State: Is the Stimulus Bill Creating Construction, an article analyzing how effective the federal stimulus money actually is in preserving and creating construction jobs.

According to SA's calculations based on October 30, 2009 data from Recovery.gov, spending under the American Recovery and Reinvestment Act of 2009 ("ARRA") has created, or saved, 73,352 construction jobs across the nation, at a cost of $15.8B. That's $222,107 per construction job.

SA's piece also includes a chart sorting spending on a state-by-state basis, identifying for each state:

• Amount of stimulus money awarded
• Amont of stimulus money received
• Jobs created
• Cost per job

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In the last bank insolvency post, we covered why it's good to be the holder in due course (an "HDC") of a promissory note. And I promised to explain why it's even better if you're the Federal Deposit Insurance Corporation (the "FDIC"), or someone who buys a promissory note from them. Why? Because they get to use the federal holder in due course rule (the "FHDC Rule"). Today we'll talk about why the FHDC Rule is better.

Relaxed Holder In Due Course Requirements for the FDIC

In the general HDC post we identified the four statutory requirements you must satisfy to qualify as an HDC under state law. But in some of their decisions, federal judges created the FHDC Rule relaxing those requirements for the FDIC. So, if the FDIC doesn't satisfy each statutory requirement, they may still be an HDC of the notes they get from a failed bank. Paraphrasing one panel of federal judges summing up the FHDC Rule:

We have also held that where state law precludes the FDIC, when acting in its corporate capacity, from attaining HDC status, application of state law frustrates the objectives of the FDIC's federal program. State law is therefore inapplicable. Therefore, even if, as is argued by the borrower, Ohio laws stops the FDIC from attaining HDC status, the FDIC may still take the note as an HDC. When the FDIC, in its corporate capacity, as part of a Purchase and Assumption Transaction, acquires a note in good faith, and without actual knowledge of any personal defense against the note, the FDIC takes the note free of all defenses that would not prevail against an HDC

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The Cooperator's Erik D. Nevala-Lee reports in Green Building Insurance Practices on new insurance for building green and designing green. The principal focus:

• Professional errors and omission insurance for architects and engineers whose designs don't meet LEED requirements specified by owners
• Casualty insurers who will pay claims to re-build damages or destroyed property to be greener and more energy efficient

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If you're looking for a great way to roll into Thanksgiving this year, forget preparing turkey and stuffing a day early! Instead, drop by the Chicago Bar Association where I'll be speaking about the FDIC's D'Oench, Duhme powers at lunchtime.

• Topic: D'Oench, Dhume, Section 13(e) of the Federal Deposit Insurance Act, and How They Affect Real Estate Workouts
• Where: Chicago Bar Association, 321 South Plymouth Court, Chicago, Illinois
• When: Wednesday, November 25, 2009, 12:15 PM to 1:30 PM Central Time
• Food and Beverage: Lunch will be served
• CLE credit: Yes!
• Cost: CBA members: $9.50. Non-members and guests: $12

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Internet site BidForMaterials.com is a place where contractors can electronically request bids from material suppliers, sort them, and pick which to buy from. Here's how it works:

• Register
• Upload and post your material list
• Suppliers respond with bids
• Pick the best offer
Tags: Off Topic Posts
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According to Credit Unions Online, The FDIC closed 3 banks yesterday (November 13, 2009):

• Pacific Coast National Bank in San Clemente, California
• Orion Bank in Naples, Florida
• Century Bank, FSB in Sarasota, Florida

Want news of FDIC bank closures sooner? Click here and follow me on Twitter.

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A couple of weeks ago we talked about how Pepsi mishandled a Complaint suing the company for allegedly stealing trade secrets resulting in a $1.26 Billion default judgment.

In Judge Scraps $1.26 Billion Judgment Against Pepsi, the Milwaukee Journal Sentinel's Bruce Vielmetti reports that the Honorable Jacqueline Erwin, the judge hearing the case, granted Pepsi's motion to vacate the default judgment. Judge Erwin will now hear the case "on its merits." And according to Pepsi's lawyers, the company has some very meritorious defenses.

Pepsi lawyers, executives, and shareholders must be pleased. The gentlemen who sued Pepsi - Wisconsin businessmen Charles Joyce and James Voigt - probably aren't so pleased.

Learning from our mistakes is good. Learning from the mistakes of others is better, and cheaper:

• Prepare to get sued by ensuring that you, your registered agents, and everyone in your organization knows how to recognize a Complaint and what to do with it after getting it.

• If you sue someone and they don't respond to the Complaint on time, don't ask for stratospheric damages. That'll just make it so much easier for the judge to grant your opponent's request to vacate. Joyce and Voight's odds would have been a lot better if their judgment was for $126,000, or maybe even $1.26 Million. But they never had a chance with that eye-popping $1.26 Billion. Remember: pigs get fat, hogs get slaughtered

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To paraphrase Mel Brooks: "It's good to be a holder in due course!"

In the last bank insolvency post, we talked about how the buyers and assignees of loans from the Federal Deposit Insurance Corporation (the "FDIC") use the D'Oench, Duhme doctrine, and Section 13(e) of the Federal Deposit Insurance Act ("FDI Act"), a/k/a 12 U.S.C. §1823, to neutralize many of the defenses that borrowers and guarantors raise against repaying loans after a bank fails. Add one more: the federal holder in due course rule (the "FHDC Rule").

The Federal Holder In Due Course Rule

The FHDC Rule is the second, and last, of D'Oench, Duhme's companions. Like the D'Oench, Duhme doctrine and Section 13(e), the FHDC Rule neutralizes many defenses that borrowers and guarantors raise in their post-bank failure attempts to avoid re-paying loans. But the FHDC Rule is separate from, and operates independent of, D'Oench, Duhme and Section 13(e). Critically, D'Oench and Section 13(e) apply only where an "agreement" hurts the FDIC. But the FHDC Rule foils borrowers' and guarantors' defenses even when there is no agreement. For example, when the amount of interest on a loan is usurious.

Holder In Due Course Basics

First, we must start with the basics of holder in due course law before we get into how the FDIC (and buyers of loans from their failed bank receiverships) use the FHDC Rule against borrowers and guarantors. So, basic holder in due course law is our topic for this post. I promise to keep it short. In the next bank insolvency post, we'll talk about special federal rules that make it easier for the FDIC, and loan buyers, to qualify as holders in due course.

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The late Justice Robert H. Jackson suggested that often, the justices don't:

There is no doubt that if there were a super-Supreme Court, a substantial proportion of our reversals of state courts would also be reversed. We are not final because we are infallible, but we are infallible only because we are final.

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The Minneapolis-St. Paul Star Tribune's Jim Foti reports in I-35 Bridge Firm Settles Suits on Friday's settlement between Progressive Contractors, Inc. (the "contractor") on one side and State of Minnesota and the disaster survivors on the other. Terms of the settlement, approved Friday by Judge Deborah Hedlund, are confidential.

Kyle Hart, one of the contractor's lawyers, said the company's insurers "tendered the limits of the contractor's liability insurance." Chris Messerly, a lawyer for 103 survivors, suggested that the settlement isn't for a huge amount compared to claims against others with a role in the disaster. Others include the engineers who respectively designed and inspected the bridge: Jacobs Engineering Group, Inc and URS Corp. The state's lawsuits against Jacobs and URS, and URS's countersuit against the state, are still pending.

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YoChicago's Joseph Askins reports in Construction Checkup: Legacy at Millennium Park on construction progress at Mesa Development's Chicago residential condominium project known The Legacy at Millennium Park.

I confess I'm biased. I worked on contracts for this project with architect Solomon Cordwell Buenz and prime contractor Walsh Construction. Regardless of my own partisanship, or problems that may crop up in the Legacy's design or construction, this building adds a superlative aesthetic complement to the Chicago skyline. Go see the photos and see for yourself. Better yet, watch this slideshow of construction through the end of September 2009....

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Starting this morning, I'm attending the Fall Conference of the American Resort Development Association ("ARDA") in Washington, D.C.

ARDA is the principal trade association for the timeshare and fractional ownership industry. We'll be:

• Writing new laws affecting the development and offering of timeshare and fractional ownership to the public
• Discussing new models for timeshare and fractional ownership plans and financing
• Attending presentations on developments in the design and construction of timeshare and fractional ownership resorts

And if you're interested in timeshare or fractional ownership - buying, selling, or learning how to better use and trade timeshare or a fractional you or a relative already own - ARDA's home page is a prime place for you to start.

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Becky Yerak at the Chicago Tribune reports that the FDIC just seized 9 banks operated by FBOP Corporation, including Park National Bank in Oak Park, Illinois.

Park National's construction related initiatives include:

• Lending to redevelop 200 acres in the Pullman neighborhood
• Development and construction lending for the Christ the King Jesuit College Prep school and the Chicago Jesuit Academy

According to the FDIC's press release, U.S. Bank, NA from Minneapolis has entered into a Purchase and Assumption Agreement with the FDIC to buy the deposits of FBOP banks and ensure continued banking services for their depositors.

It's not clear yet whether U.S. Bank will assume and continue funding construction loans, lines of credit and other un-disbursed loan obligations of the FBOP banks. Borrowers are standing-by to see whether that happens or whether the FDIC will stop funding and repudiate their loans.

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