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5000 - Statements of Policy
{{2-28-97 p.5427}}
STATEMENT OF POLICY REGARDING FEDERAL COMMON LAW AND STATUTORY
PROVISIONS PROTECTING FDIC, AS RECEIVER OR
CORPORATE LIQUIDATOR,
AGAINST UNRECORDED AGREEMENTS OR
ARRANGEMENTS OF A DEPOSITORY
INSTITUTION PRIOR TO
RECEIVERSHIP
Introduction
The protection of the FDIC against unrecorded agreements or
arrangements between a federally-insured depository institution
(institution) and third parties is among the most important,
long-standing and powerful protections afforded the FDIC acting in
either its corporate liquidator capacity (FDIC/Corporate) or in its
capacity as a receiver for a failed institution (FDIC/Receiver). This
statement of policy is intended to inform persons doing business with
an institution of the circumstances in which: (1) The statutory
provisions (12 U.S.C.
1821(d)(9)(A),
1823(e)); and (2) the rule
enunciated by the Supreme Court in D'Oench, Duhme & Co. v. FDIC,
315 U.S. 447 (1942), will be asserted by the FDIC to bar certain
agreements or arrangements entered into with the institution prior to
receivership. Published as an addendum are "Guidelines For Use of
D'Oench and Statutory Provisions" (Guidelines), which are
discretionary and evolving by nature but nevertheless will serve to
moderate the circumstances in which the FDIC will exercise these
protections.
Background
More than fifty years ago, the Supreme Court in D'Oench
first recognized a federal policy of protecting FDIC/Corporate
from unrecorded schemes or arrangements that would tend to mislead
banking authorities. The Court articulated a rule of law prohibiting a
party who had lent himself or herself to such a scheme or arrangements
from asserting against the FDIC an unrecorded agreement. This rule of
law, as it subsequently has been applied by the courts, is referred to
as the "D'Oench doctrine".
In 1950, Congress enacted section 13(e), codified at 12 U.S.C.
1823(e) (section 1823(e)), as part of the Federal Deposit Insurance Act
of 1950, ch. 967, Section 2(13)(e), 64 Stat. 889 (81st Cong., 2d Sess.
1950). The strict approval and recording requirements of section
1823(e) supplemented the protection afforded by the D'Oench
doctrine. In 1982, this section was reenacted by Congress as part
of the Garn-St. Germain Depository Institution Act of 1982, Pub. L.
97--320, Section 113(m), 96 Stat. 1474. Both before and after 1982 the
federal courts of appeals and federal district courts consistently
construed section 1823(e) and the D'Oench doctrine in
tandem.
In August 1989, as part of the Financial Institution Reform,
Recovery and Enforcement Act (FIRREA), Public Law 101--73, 103 Stat.
183, Congress expanded section 1823(e) to cover defenses raised against
the FDIC in its receivership capacity, the newly created Resolution
Trust Corporation (in its corporate and receivership capacities) and
bridge banks. In relevant part, section 1823(e) now provides:
No agreement which tends to diminish or defeat the interest of the
[FDIC] in any asset acquired by it under this section or section 1821
of this title, either as security for a loan or by purchase or as
receiver of any insured depository institution, shall be valid against
the [FDIC] unless such agreement--
(A) Is in writing,
(B) Was executed by the depository institution and any person
claiming an adverse interest thereunder, including the obligor,
contemporaneously with the acquisition of the asset by the depository
institution.
(C) Was approved by the board of directors of the depository
institution or its loan committee, which approval shall be reflected in
the minutes of said board or committee, and
(D) Has been, continuously, from the time of its execution, an
official record of the depository institution.
12 U.S.C. 1823(e).
In addition, FIRREA added a new provision, section 11(d)(9)(A)
(codified at 12 U.S.C.
1821(d)(9)(A) (section 1821(d)(9)(A)), which states, in
relevant part, that "any agreement
{{2-28-97 p.5428}}which does not meet the
requirements set forth in section 1823(e) * * * shall not form the
basis of, or substantially comprise, a claim against the receiver or
the [FDIC in its corporate capacity]."
In the FDIC's view, Congress intended that sections 1823(e) (as
amended by FIRREA) and 1821(d)(9)(A) should be interpreted in a manner
consistent with the policy concerns underlying the D'Oench
doctrine. Accordingly, subject to the
Guidelines, 1
these sections bar claims that do not meet the enumerated recording
requirements set forth in section 1823(e), regardless of whether a
specific asset is involved, to the same extent as such claims would be
barred by the D'Oench doctrine.
More specifically, the statutory definition of the scope of
agreements to which section 1823(e) applies--i.e., those
agreements "which tend [ ] to diminish or defeat the interest of
the [FDIC] in any asset acquired by it'' (section 1823(e))--is
not a "requirement" that section 1823(e) imposes on
those agreements, which if not "met" renders section 1821(d)(9)
inapplicable. There is no reason to suppose that Congress intended the
scope of section 1821(d)(9)(A) to be coextensive with that of section
1823(e).
Section 1823(e) applies only with respect to agreements that pertain
to assets held by the FDIC because the function of that section is to
bar certain defenses to the FDIC's collection on such assets. Section
1821(d)(9)(A)'s function, in contrast, is to bar certain affirmative
claims against the FDIC. It does so in order to affect primary conduct
by providing an incentive for parties contracting with institutions to
document their transactions thoroughly. That in turn: (1) Allows
federal and state bank examiners to rely on an institution's records in
evaluating its worth; and (2) ensures mature consideration of unusual
banking transactions by senior bank or thrift officials and prevents
the fraudulent insertion of new terms when an institution appears
headed for failure. Cf. Langley v. FDIC, 484 U.S. 85, 91--92
(1987).
In interpreting the meaning of "agreement" in section 1823(e)
prior to its amendment in 1989, the Supreme Court in Langley
held that it would disserve the policies recognized in
D'Oench to interpret section 1823(e) in a more restricted
manner than D'Oench itself: "We can safely assume that
Congress did not mean agreement' in section 1823(e) to be
interpreted so much more narrowly than its permissible meaning as to
disserve the principle of the leading case applying that term to
FDIC-acquired notes." Langley, 484 U.S. at 92--93. In the
same way, it would disserve the policies recognized in D'Oench
and Langley to interpret section 1821(d)(9)(A) more
narrowly than D'Oench has been applied in so-called no-asset
cases. 2
Nevertheless, as reflected in the Guidelines, the FDIC, as a matter
of policy, will not seek to bar claims which by their very nature do
not lend themselves to the enumerated requirements of section 1823(e).
To that end, the FDIC will continue to assert the protections of the
D'Oench doctrine and FIRREA (sections 1821(d)(9)(A),
1823(e)) only in accordance with the Guidelines.
The FDIC has also determined, after careful consideration, that
sections 1823(e) (as amended by FIRREA) and 1821(d)(9)(A) cannot be
applied retroactively to alleged agreements or arrangements entered
into before the enactment of FIRREA on August 9, 1989. Following the
Supreme Court's decision in Landgraf v. USI Film Products,
511 U.S. 244, 144 S. Ct. 1483 (1994), the courts of appeals that
have addressed the issue have concluded that sections 1821(d)(9) and
1823(e) (as amended by FIRREA) do not apply in cases where the
transactions at issue occurred before FIRREA's
enactment. 3
{{2-28-97 p.5429}}
No provision within FIRREA addresses the temporal reach of section
1821(d)(9) or section 1823(e) (as amended by FIRREA). If the courts
were to apply those provisions to agreements made before the statute
was enacted, that would alter the rights possessed by the parties to
such agreements. 4
Under the principles articulated by the Supreme Court in
Landgraf, Congress must therefore be presumed to have
intended for those provisions to apply only with respect to agreements
made after the enactment of FIRREA. 5
Thus, because the statutory provisions establish "a categorical
recording scheme" (see Langley, 484 U.S. at 95) and
D'Oench is an equitable doctrine (id. 93-95),
sections 1821(d)(9)(A) and 1823(e) (as amended by FIRREA) cannot by
applied retroactively.
Accordingly, the statement of policy announces that the FDIC will
assert the D'Oench doctrine for pre-FIRREA claims to the
extent section 1823(e) (as it existed prior to FIRREA) is inapplicable
but the claim nevertheless runs afoul of the D'Oench
doctrine. For claims that relate to agreements or arrangements
entered into after the effective date of FIRREA, the FDIC will apply
only sections 1823(e) (as amended by FIRREA) and section 1821(d)(9)(A)
to bar claims not entered into in accordance with the enumerated
requirements of section 1823(e) (as amended by FIRREA). In either case,
these protections will be asserted only in keeping with the Guidelines.
FDIC Statement of Policy
1. Because sections 1821(d)(9)(A) and 1823(e) (as amended by
FIRREA) do not apply to agreements entered into before the effective
date of FIRREA (August 9, 1989), such agreements are governed by
pre-FIRREA law, including section 1823(e) and the D'Oench
doctrine.
2. Agreements made after the enactment of FIRREA are governed by
sections 1821(d)(9)(A) and 1823(e) (as amended by FIRREA).
3. This statement of policy does not supersede the FDIC's
Statement of Policy Regarding Treatment of Security Interests After
Appointment of the FDIC as Conservator or Receiver of March 23, 1993
(58 FR 16833).
Addendum—FDIC Guidelines for Use of D'Oench and Statutory
Provisions
1. Purpose. To set forth guidelines for the use of the
D'Oench doctrine and in 12
U.S.C. 1821(d)(9)(A),
1823(e) (statutory
provisions).
2. Scope. This directive applies to all Service Centers
and Consolidated Offices, to all future Servicers and, to the extent
feasible, to all current Servicers.
3. Responsibility. It is the responsibility of the FDIC
Regional Directors of the Division of Resolutions and Receiverships
(DRR) and Regional Counsel of the Legal Division (Legal) to ensure
compliance with applicable directives by all personnel in their
respective service centers.
4. Background
a. D'Oench Doctrine
In an effort to protect the federal deposit insurance funds and the
innocent depositors and creditors of insured financial institutions
(institution(s)), the Supreme Court in the case of D'Oench,
Duhme & Co. v. FDIC, 315 U.S. 447 (1942) adopted what is
commonly
{{2-28-97 p.5430}}known as the D'Oench
doctrine. This legal doctrine provides that a party who lends
himself or herself to a scheme or arrangement that would tend to
mislead the banking authorities cannot assert defenses and/or claims
based on that scheme or arrangement.
b. Sections 1821(d)(9)(A) and 1823(e)
In 1950, Congress supplemented the D'Oench doctrine with
12 U.S.C. 1823(e) which bars any agreement which "tends to diminish
or defeat the interest of the [FDIC] in any asset" unless the
agreement satisfies all four of the following requirements: (1) It is
in writing; (2) it was executed by the depository institution and any
person claiming an adverse interest under the agreement
contemporaneously with the acquisition of the asset; (3) it was
approved by the board of directors of the institution or its loan
committee as reflected in the minutes of the board or committee; and
(4) it has been continuously an official record of the institution.
In FIRREA, Congress added 12 U.S.C. 1821(d)(9)(A) which protects the
FDIC against all claims which do not meet the enumerated requirements
of section 1823(e).
c. Policy Considerations
The D'Oench doctrine and the statutory provisions embody
a public policy designed to protect diligent creditors and innocent
depositors from bearing the losses that would result if claims and
defenses based on undocumented agreements could be enforced against a
failed institution. The requirement that any arrangement or agreement
with a failed institution must be in writing allows banking regulators
to conduct effective evaluations of open institutions and the FDIC to
accurately and quickly complete resolution transactions for failed
institutions. This requirement also places the burden of any losses
from an undocumented or "secret" arrangement or agreement on the
parties to the transaction, who are in the best position to prevent any
loss.
Although the D'Oench doctrine and the statutory
provisions generally promote essential public policy goals, overly
aggressive application of the specific requirement of these legal
doctrines could lead to inequitable and inconsistent results in
particular cases. In order to ameliorate this possibility, the FDIC has
undertaken development of these guidelines and procedures to promote
the exercise of sound discretion in the application of D'Oench
or the statutory provisions.
5. Guidelines
These guidelines are intended to aid in the review of matters where
the assertion of D'Oench or the statutory provisions is
being considered. The examples given are intended to give clear
direction as to when particular issues must be referred. In particular,
if the use of D'Oench or the statutory provision is proposed
in a DRR--Operations matter within the categories set forth below, the
matter and recommendation must be referred to the Associate
Director--Operations for approval through the procedures contained in
section 6.
In the great majority of cases, however, it is anticipated that no
resort to Washington should be necessary. It is only in the categories
of cases highlighted in the guidelines that Washington approval must be
obtained.
a. Pre-Closing Vendors
D'Oench or the statutory provisions shall not be used as
a defense against claims by vendors who have supplied goods and/or
services to failed institution pre-closing when there is clear evidence
that the goods/services were received. In such case, D'Oench
or the statutory provisions shall not be asserted whether or not
there are written records in the institution's files confirming a
contract for the goods and/or services.
This does not mean that D'Oench or the statutory
provisions may never be asserted against a vendor, but only that each
claim must be examined carefully on its facts. When there is no
evidence that goods or services were received by the failed institution
or in other appropriate circumstances, the defenses may be asserted
after approval by Washington.
{{2-28-97 p.5431}}
Examples Requiring Washington Approval:
1. Landscaping service filed claim for planting trees around the
institution's parking lot. There is no contract for planting trees in
the books and records of the institution, but there are trees around
the parking lot and no record of any payment. In this example,
Washington approval must be obtained before asserting D'Oench
or the statutory provisions.
2. A contingency fee attorney is unable to produce any
contingency fee agreement, but there is evidence in the files that this
attorney has been paid for his collection work for the past 20 years
and his name appears on the court records for collection matters for
which he has not been paid. In this example also, Washington approval
must be obtained before asserting D'Oench or the statutory
provisions.
3. Contractor has construction contract with institution to
renovate any property owned by the institution. At the time the
institution fails, the contractor has completed 90% of the contract
and is owed about 50% of the contract price. Here too, Washington
approval must be obtained before asserting D'Oench or the
statutory provisions.
b. Diligent Party
D'Oench or the statutory provisions may not be
asserted without Washington approval where the borrower or claimant
took all reasonable steps to document and record the agreement or
understanding with the institution and there is no evidence that the
borrower or claimant participated in some activity that could likely
result in deception of banking regulators, examiners, or the FDIC
regarding the assets or liabilities of the institution. In particular,
Washington approval is required before D'Oench or the
statutory provisions may be asserted where the agreement is not
contained in the institution's records, but where the borrower or
claimant can establish by clear and convincing evidence that the
agreement was properly executed by the depository institution through
an officer authorized by the board of directors to execute such
agreements, as reflected in the minutes of the board. Cases involving
"insiders" of the depository institution require particularly
careful review because of the greater opportunities of such parties to
manipulate the inclusion of "agreements" within the institution's
records.
Further, where it is clear that a borrower or claimant has been
diligent in insisting on a written document in an apparently
arms-length transaction, and had no control over the section 1823(e)
requirement that the transaction be reflected in the Board of
Directors' or Loan Committee minutes, assertion of the statutory
provisions solely because the transaction is not reflected in those
minutes may not be appropriate. In such cases, Washington approval must
be obtained before asserting D'Oench or the statutory
provisions.
Examples Requiring Washington Approval:
1. Plaintiff sells a large parcel of land to the borrower
of the failed institution and the property description in the failed
institution's Deed of Trust mistakenly includes both the parcel
intended to be sold and a parcel of property not included in the sale.
Prior to the appointment of the receiver, the institution agrees orally
to amend the Deed of Trust, and indeed sends a letter to the title
company asking for the amendment. However, there is nothing in the
books and records of the institution to indicate the mistake. The
institution fails and the Deed of Trust has never been amended. The
borrower defaults and the FDIC attempted to foreclose on both parcels.
In this example, Washington approval must be obtained before asserting
D'Oench or the statutory provisions.
2. A limited partnership applies for refinancing. A commitment
letter is issued by the institution to fund a non-recourse permanent
loan which requires additional security of $1 million from a
non-partner. The Board of Directors minutes reflects that approval is
for a nonrecourse loan, however, the final loan documents, including
the note, do not contain the nonrecourse provisions. The institution
fails, the partnership defaults and it is determined that the
collateral plus the additional collateral is approximately $3 million
less than the balance of the loan. In a suit by the FDIC for the
deficiency, Washington approval must be obtained before asserting
D'Oench or the statutory provisions.
{{2-28-97 p.5432}}
3. A borrower completes payment on a loan, and he has cancelled
checks evidencing that his loan has been paid off. The institution's
records, however, do not document that the final payment has been
tendered. The institution fails and the FDIC seeks to enforce the note.
Washington approval must be obtained before asserting D'Oench
or the statutory provisions.
However, if it is clear that the borrower or claimant participated
in some fraudulent or other activity which could have resulted in
deception of banking regulators or examiners, then D'Oench
or the statutory provisions may be asserted without prior approval
from Washington.
Examples Not Requiring Washington Approval:
1. Borrower signs a note with several blanks including
the amount of the loan. An officer of the institution fills in the
amount of the loan as $40,000. Bank fails, loan is in default, the FDIC
sues to collect $40,000 and the borrower claims that he or she only
borrowed $20,000. There is nothing in the institution's books and
records to indicate the $20,000 amount, and, in fact, the institution's
books and records evidence disbursement of $40,000. D'Oench
or the statutory provisions may be asserted.
2. Guarantor, an officer of the borrower corporation, signs a
guaranty for the entire amount of a loan to the corporation. At the
time of the institution's failure, the loan is in default and the
corporation is in Chapter 7 bankruptcy. FDIC files suit against the
guarantor for the entire amount of the loan. The guarantor claims that
he has an agreement with the institution that he is only liable for the
first $25,000. There is no record in the institution's files of such an
agreement. Again, D'Oench or the statutory provisions may be
asserted.
Where the specific facts of a case raise any question as to whether
D'Oench or the statutory provisions should be asserted,
Washington approval must be obtained before asserting D'Oench
or the statutory provisions.
c. Integral Document
If there are documents in the books and records of the institution
which indicate an agreement under the terms asserted by the claimant or
borrower, the use of D'Oench or the statutory provisions
must be carefully evaluated. Particular care must be taken before
challenging a claim or defense solely because it fails to comply with
the 1823(e) requirement that the agreement be reflected in the minutes
of the Board of Directors or Loan Committee. While any number of cases
have held that the terms of the agreement must be ascertainable on the
face of the document, in some circumstances it may be appropriate to
consider all of the failed institution's books and records in
determining the agreement, not just an individual document. Where the
records of the institution provide satisfactory evidence of an
agreement, Washington approval must be obtained before asserting
D'Oench or the statutory provisions.
Examples Requiring Washington Approval:
1. Note in failed institution's file is for one year term
on its face. However, the loan application, which is in the loan file,
is for five years renewable at one year intervals. The borrower also
produces a letter from an officer of the institution confirming that
the loan would be renewed on a sixty month basis with a series of one
year notes. In this example, Washington approval must be obtained
before asserting D'Oench or the statutory provisions.
2. Debtor executes two notes with the proviso that there is no
personal liability to the debtor beyond the collateral pledged. When
the notes become due they are rolled over and consolidated into one
note which recited that it is a renewal and extension of the original
notes but does not contain the express disclaimer or personal
liability. All three notes are contained together in one loan file.
Here, all of the notes should be considered as part of the
institution's records. In this example also, Washington approval must
be obtained before asserting D'Oench or the statutory
provisions.
{{2-28-97 p.5433}}
d. No Asset/Transactions Not Recorded in Ordinary Course of
Business
The use of D'Oench or the statutory provisions should be
limited in most circumstances to loan transactions and other similar
ordinary banking transactions. If the ordinary banking transaction is
not related to specific current or former assets, Washington approval
must be obtained before asserting D'Oench or the statutory
provisions in such cases. The application of D'Oench or the
statutory provisions also should be carefully considered before it is
asserted in opposition to a tort claim, such as negligence,
misrepresentation or tortious interference with business relationships,
where the claim is unrelated to a loan or ordinary banking transaction
or to a transaction creating or designed to create an asset. Washington
approval must be obtained before asserting D'Oench or the
statutory provisions in such cases.
Examples Requiring Washington Approval:
1. Three years before failure the institution sells one
of its subsidiaries. The institution warrants that the subsidiary has
been in "continuous and uninterrupted status of good standing"
through the date of sale. The buyer in turn attempts to sell the
subsidiary and discovers that the subsidiary's charter has been briefly
forfeited. The prospective buyer refuses to go through with the sale
and the original buyer sues the institution for breach of warranty.
FDIC is appointed receiver. This transaction does not involve a lending
or other banking financial relationship between the institution and the
buyer. In addition, the subsidiary is not an asset on the books of the
institution at the time of the receivership. In this example,
Washington approval must be obtained before asserting D'Oench
or the statutory provisions.
2. In the case described above in the diligent party section,
where the property description in the failed institution's Deed of
Trust mistakably includes a parcel not included in the sale, the parcel
at issue is not an actual asset to the failed institution and the
assertion of D'Oench or the statutory provisions is not
appropriate. Here too, Washington approval must be obtained before
asserting D'Oench or the statutory provisions.
However, if a claim arises out of an asset which was involved in a
normal banking transaction, such as a loan, D'Oench or the
statutory provisions would be properly asserted against such a claim
despite the fact that the asset no longer exists. For example,
collection on the asset does not preclude the use of D'Oench
or the statutory provisions in response to claims by the former
debtor related to the transaction creating the asset.
Example Not Requiring Washington Approval:
1. A borrower obtains a loan from an institution, secured
by inventory and with an agreement that allows the institution to audit
the business. The business fails, the institution sells the remaining
inventory, and applies the proceeds of the sale to the business's debt.
Borrower sued the institution for breach of oral agreements, breach of
fiduciary duty, and negligence in performance of audits of the
business. Borrower then pays off remaining amount of loan and continues
the lawsuit. The institution subsequently fails. Despite borrower's
argument that there is no asset involved since the debt has been paid,
assertion of D'Oench or the statutory provisions would be
appropriate.
e. Bilateral Obligations
The facts must be examined closely in matters where the agreement
which the FDIC is attempting to enforce contains obligations on both
the borrower or claimant and the failed institution and the borrower or
claimant is asserting that the institution breached the agreement. If
the failed institution's obligation is clear on the face of the
agreement and there are documents supporting the claimed breach which
are outside the books and records of the institution, Washington
approval must be obtained before asserting D'Oench or the
statutory provisions.
f. Statutory Defenses
The appropriateness of using D'Oench or the statutory
provisions to counter statutory defenses should be evaluated on a case
by case basis. Although many such defenses may be
{{2-28-97 p.5434}}based on an agreement that is not
fully reflected in the books and records of the institution, a careful
analysis should be made before asserting D'Oench or the
statutory provisions. In such cases, Washington approval must be
obtained before asserting D'Oench or the statutory
provisions.
The clearest examples of situations where assertion of D'Oench
or the statutory provisions may be appropriate occur where the
opposing party is relying on a statutory defense based upon some
misrepresentation or omission by the failed institution. Examples of
this type of statute are unfair trade practice statutes.
On the other hand, application of D'Oench or the
statutory provisions may not be appropriate to oppose claims based on
mechanics lien statutes or statutes granting other recorded property
rights. The fact that all elements of those liens may not be reflected
in the books and records of the institution should not control the
application of D'Oench or the statutory provisions.
In analyzing the propriety of asserting the D'Oench or
the statutory provisions, at least the following three general factors
should be considered in preparation for seeking approval from
Washington:
• To what extent is the purpose of the statute
regulatory, rather than remedial? If the statute simply imposes
regulatory or mandatory requirements for a transaction such as a filing
requirement or maximum fee for services, assertion of D'Oench
or the statutory provisions is unlikely to be successful.
• To what extent is the application of the statute premised
upon facts that are not reflected in the books and records of the
institution? If the state statute requires the existence and/or
maintenance of certain facts, but those facts are not recorded in the
institution's records, then D'Oench or the statutory
provisions may be applicable.
• To what extent do the facts involve circumstances where the
opposing party failed to take reasonable steps to document some
necessary requirement or participated in some scheme or arrangement
that would tend to mislead the banking authorities.
Examples Requiring Washington Approval:
1. A priority dispute arises involving a mechanic's lien
against property on which the FDIC is attempting to foreclose. An
attempt to persuade a court that the mechanic's lien is a form of
secret agreement under D'Oench, which, if given priority
over the interests of the FDIC, will tend to diminish or defeat the
value of the asset may not be appropriate. In this example, Washington
approval must be obtained before asserting D'Oench or the
statutory provisions.
2. State law requires insurance companies doing business in the
state to deposit funds with the Commissioner of Insurance. Further, the
law provides that the deposit cannot be levied upon by creditors or
claimants of the insurance company. An insurance company purchases a
certificate of deposit from an institution and assigns it to the
Commissioner. At the same time a document is executed entitled
"Requisition to the Bank" which states that the institution would
not release the CD funds without authorization of the Commissioner.
Subsequently the insurance company borrows money from the institution.
After the loan goes into default, the institution does not roll the CD
over, but rather credits the proceeds to the loan account. The
institution then fails and the Commissioner files a proof of claim with
the FDIC seeking payment on the CD. The FDIC may not defend the suit by
claiming that the assignment documents did not meet the requirements of
section 1823(e). In this example, Washington approval must be obtained
before asserting D'Oench or the statutory provisions.
3. The FDIC attempts to collect on a note which the failed
institution acquired from a mortgage broker. The note is at a 15%
interest rate and the mortgage broker charged six and one half points.
State law provides that interest shall be no more than 13% and that no
more than one point may be charged. The FDIC may not defend the
borrower's counterclaim of a usurious loan by asserting D'Oench
or the statutory provisions. Here too, Washington approval must be
obtained before asserting D'Oench or the statutory
provisions.
{{8-31-98 p.5435}}
g. Section 1823(e)'s Contemporaneous Requirement
This requirement of section 1823(e) may not be asserted to
invalidate a good faith workout or loan modification agreement where
the sole issue is whether the contemporaneous requirement of section
1823(e) is met. Where there is an agreement which otherwise satisfies
the remaining requirements of the statute, but was not executed
contemporaneously with the acquisition of the asset, in most
circumstances the statutory provisions should not be asserted. This
applies only to workouts or loan modifications done by the failed
institution prior to receivership. The assertion of the section 1823(e)
contemporaneous requirement should be considered principally where the
facts demonstrate that the workout or restructure was entered into in
bad faith and in anticipation of institution failure.
Washington approval must be obtained before asserting D'Oench
or the statutory provisions in these cases.
6. Procedures To Obtain Washington Approval
DRR Operations: When facts involving the possible assertion of
D'Oench or the statutory provisions arise, Legal should be
consulted. When the assertion of D'Oench or statutory
provisions requires Washington approval, as outlined above, prior
approval must be received from the Deputy Director--Operations or his
designee in Washington in all such cases. Such approval must be
obtained by preparation of a memorandum identifying the facts of the
case forwarded through Legal Division procedures to the Deputy
Director--Operations or his designee.
DRR Asset Management: When facts involving the possible assertion
of D'Oench or the statutory provisions arise, Legal should
be consulted. When the assertion of D'Oench or the statutory
provisions requires Washington approval, as outlined above, Legal
Division procedures should be followed for referral to Washington.
Washington Legal will consult with Washington DRR where appropriate.
Legal: Each attorney must carefully review the facts of each
instance where the assertion of D'Oench or the statutory
provisions is being considered under revised Litigation Procedure 3 (LP
3). All cases requiring consultation or approval within these
Guidelines and/or PS must be referred to Washington pursuant to LP3
procedures.
These Guidelines are intended only to improve the FDIC's review and
management of utilization of D'Oench or the statutory
provisions. The Guidelines do not create any right or benefit,
substantive or procedural, that is enforceable at law, in equity, or
otherwise by any party against the FDIC, its officers, employees, or
agents, or any other person. The Guidelines shall not be construed to
create any right to judicial review, settlement, or any other right
involving compliance with its terms.
By order of the FDIC Board of Directors, February 4, 1997.
[Source: 62
Fed. Reg. 5984, February 10, 1997, effective February 4,
1997.]
[The page following this is 5437.]
1The Guidelines have been in effect since late 1994. Go Back to Text
2Two courts of appeals have applied section 1821(d)(9)(A) in a
more constricted manner. See John v. RTC, 39 F.3d 773, 776
(7th Cir. 1994); and Thigpen v. Sparks, 983 F.2d 644 (5th
Cir. 1993). Both of these cases involved pre-FIRREA facts and
consequently, as discussed infra, sections 1821(d)(9)(A) and
1823(e) (as amended by FIRREA) were inapplicable. Moreover, in any
future case involving similar post-FIRREA facts, any decision to raise
the statutory protections would have to be authorized pursuant to the
Guidelines, which were not in use at the time these cases were
litigated. Go Back to Text
3See Oklahoma Radio Assoc. v. FDIC, 987 F.2d 685,
695-96, motion to vacate denied, 3 F.3d 1436 (10th Cir.
1993); Murphy v. FDIC, 38 F.3d 1490, 1501 (9th Cir. 1994)
(en banc) (noting FDIC's concession in that regard). Go Back to Text
4Before FIRREA, a borrower could assert an affirmative claim
against the FDIC or FSLIC, or a defense against FDIC/Receiver or the
FSLIC, based on a written agreement that failed to meet the
contemporaneous-execution, approval, and recording requirements of
section 1823(e), so long as the borrower had not lent himself to an
arrangement or scheme likely to mislead bank examiners. D'Oench,
315 U.S. at 460. Go Back to Text
5The retroactivity of FIRREA, however, is not determined on an
all-or-nothing basis. There is no "reason to think that all the
diverse provisions of the [statute] must be treated uniformly for"
purposes of the retroactivity analysis. Landgraf v. US/Film
Prods., 511 U.S. at 280, 114 S. Ct. at 1505. Moreover, "[t]he
conclusion that a particular rule operates retroactively' comes at
the end of a process of judgment concerning the nature and extent of
the change in the law and the degree of connection between the
operation of the new rule and a relevant past event."
Landgraf, 511 U.S. at 270, 114 S. Ct. at 1499. Go Back to Text
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