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Federal Deposit Insurance Corp. v. Cashion, No. 12-1588

Decided:  June 19, 2013

The Fourth Circuit held that the United States District Court for the Western District of North Carolina properly granted summary judgment to the Federal Deposit Insurance Corporation (“FDIC”) in its action to recover the balance owed on a promissory note (“Note”) executed by Avery T. Cashion, III (“Cashion”), as the FDIC proved it was the holder of the note, the district court did not abuse its discretion by granting the FDIC’s motion to strike Cashion’s surreply and an affidavit from his business partner, and the Internal Revenue Service (“IRS”) Form 1099-C (“the 1099-C Form” or “the Form”) offered by Cashion was insufficient evidence of cancellation or assignment of the Note.

In August 2006, Cashion signed a Note payable to The Bank of Asheville (“the Bank”).  Originally, the Note was secured by three additional promissory notes; in 2010, another promissory note was added as collateral.  In September 2010, the Bank filed an action in state court alleging that, as the holder of the Note, it was entitled to full payment plus interest because Cashion had failed to make payments on the Note and had therefore defaulted.  However, the Bank closed before the case reached trial and the FDIC was then substituted as the real party in interest.  The FDIC removed the case to the federal court and moved for summary judgment.  Cashion countered that there were two issues of material fact:  Whether the FDIC had proven that it was the holder of the Note, and whether the Note had been cancelled or assigned.  With regard to the first issue, Cashion noted that the FDIC had not produced the original Note; with regard to the second, Cashion included the 1099-C Form with an affidavit, arguing that the Form—labeled “Cancellation of Debt” and filled out with information on the Note—constituted evidence of the Note’s discharge.  The FDIC then attached a supplemental affidavit from a “Resolutions and Receiverships Specialist” who asserted that, inter alia, the copy of the original Note provided by the FDIC was “true and correct.”  Furthermore, the FDIC asserted that the 1099-C Form did not constitute competent evidence of cancellation.  In response, Cashion filed a surreply challenging the FDIC’s interpretation of the 1099-C Form.  Cashion also attached an affidavit from his business partner, in which the partner gave his interpretation of the 1099-C Form’s impact on the Note.  The district court granted the FDIC’s motion to strike the surreply and attached affidavit, and granted summary judgment to the FDIC.  Cashion appealed, challenging the summary judgment and the court’s decision to strike the surreply and affidavit.

The Fourth Circuit found that, though the FDIC did not produce the original Note, the copy of the Note and the specialist’s affidavit sufficiently proved that the FDIC was the holder of the Note under North Carolina law.  With regard to the surreply, the Fourth Circuit noted that such reply briefs are usually not permitted under the local rules of the district court and the briefing schedule did not authorize surreplies; additionally, Cashion’s surreply responded to his own arguments and evidence rather than presenting new matters.  Furthermore, the testimony from Cashion’s business partner did not reflect the partner’s “personal knowledge” of the 1099-C Form, in violation of the requirements stated in Federal Rule of Civil Procedure 56(c)(4).  Lastly, the Fourth Circuit found that the 1099-C Form constituted an IRS reporting requirement rather than a way to discharge a debt.  The court noted that, in combination with other evidence regarding its filing, a 1099-C Form could be properly considered as evidence of the Note’s status; on its own, however, a 1099-C Form cannot constitute sufficient evidence of cancellation.

Full Opinion

-Stephen Sutherland