Resolution Trust Corporation v. Cornelius R. Kennelly

The procedural history of this case is somewhat convoluted, but the facts relevant to this appeal are simple. Cornelius and So Nyum Kennelly (“Kennellys”) invested in Triad American Energy, Inc. (“Triad”), a California limited partnership that sold windmill-generated electricity. To finance their Triad investment, the Kennellys executed a promissory note for $205,000 in favor of Atlantic Financial Federal of Pennsylvania (“AFF”). Triad did not prove to be as profitable as the Kennellys expected (or as profitable as its promoters had promised) and, after making several payments on the note, the Kennellys defaulted. AFF sued to collect on the note, and the Kennellys responded with several counterclaims and defenses, including securities fraud, alteration of the note, failure of consideration, and breach of fiduciary duty.

During the pendency of the litigation, AFF became insolvent and declared bankruptcy. The Office of Thrift Supervision appointed the Resolution Trust Corporation (“RTC”) as receiver, and the RTC entered into a purchase and assumption agreement with Atlantic Financial Savings Bank of California (“AFSB”), pursuant to which the RTC transferred certain of AFF’s assets…