Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-92-05384/USCOURTS-caDC-92-05384-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 7, 1994 Decided August 26, 1994

No. 92-5384

E. I. DU PONT DE NEMOURS AND COMPANY,

APPELLANT

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, RECEIVER

FOR UNITED NATIONAL BANK OF WASHINGTON,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(Civil Action No. 89cv00942)

Raymond Michael Ripple argued the cause for appellant. With him on the briefs was David W.

O'Brien. Dale A. Cooter and Cyrus J. Gardner entered an appearance. 

J. Scott Watson, Senior Attorney, Federal Deposit Insurance Corporation, argued the cause for

appellee. With him on the brief were Ann S. DuRoss, Assistant General Counsel, and Richard J.

Osterman, Jr., Senior Counsel, Federal Deposit Insurance Corporation, Dennis S. Klein and Steven

T. Corliss.

Before EDWARDS, BUCKLEY, and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Dissenting opinion filed by Circuit Judge EDWARDS.

GINSBURG, Circuit Judge: E. I. du Pont de Nemours and Co. sued the Federal Deposit

Insurance Corporation, in its capacity as receiver of the United National Bank, for the bank's breach

of its responsibilities under an escrow agreement. The district court granted summary judgment for

the FDIC on the ground that, under the teaching of D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447

(1942), the FDIC may not be sued on an escrow agreement that by its terms has expired. Because

we find D'Oench and its statutory counterparts inapplicable, we remand the case for further

proceedings in the district court.

I. Background

For the purpose of this appeal we accept as true the following facts alleged in du Pont's

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complaint. See Kowal v. MCI Communications Corp., 16 F.3d 1271, 1273 (D.C. Cir. 1994). In

November 1982 Kimberly Industries Co. was awarded a contract to supply the District of Columbia

with ferric chloride. On December 20, 1982 Kimberly contracted to buy from du Pont all of its

requirements for "delivery to the District of Columbia of liquid ferric chloride during 1983," and du

Pont agreed to make ferric chloride available to Kimberlyfor 1983 and thereafter under any extension

or renewal of its contract with the District of Columbia. Kimberly was not "obligated to continue to

obtain ferric chloride from [du Pont] for any period beyond December 31, 1983," but Kimberly did

agree to give du Pont the opportunity to match any better offer it received. The contract also

provided that du Pont and Kimberly would enter into an escrow agreement with Kimberly's bank, the

United NationalBank of Washington, "to provide for automatic payment to [du Pont] of all amounts

due to it" under the contract with Kimberly. The escrow agreement provided that Kimberly would

arrange for the District of Columbia to pay into the escrow account all "amounts payable to

[Kimberly] ... for delivery ofliquid Ferric Chloride during 1983." UNB would pay du Pont's invoices

"within ten (10) days of receipt of payment by the District of Columbia."

Throughout 1983 UNB made payments to du Pont in keeping with the terms of the escrow

agreement. Kimberly's contract with the District of Columbia was renewed several times, and from

all appearances so too was the escrow arrangement, for du Pont "generally received payments from

UNB on time from 1983 through 1985." Unbeknownst to du Pont, however, from March 1985 to

March 1988 the District sent checks directly to Kimberly rather than to UNB. Kimberly deposited

at least some of those funds into the escrow account and UNB continued to receive and to make

payments upon du Pont's invoices when Kimberly directed it to do so. In 1986, when du Pont's

accounts receivable began to mount and Kimberly told du Pont that the District was late in making

payments to the bank, UNB assured du Pont that the mechanics of the escrow agreement remained

in effect. By March 1988, du Pont had invoiced UNB for more than $1 million worth of ferric

chloride that Kimberly had not authorized the bank to pay.

Du Pont sued UNB in April 1989, alleging negligence, breach of the escrow agreement, and

breach of fiduciary duty. In March 1991, the district court denied UNB's motion for summary

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judgment, in which the bank claimed that the escrow agreement had expired in 1983. The district

court held that du Pont could try to prove that the parties had extended the escrow agreement bytheir

conduct. In April of that year UNB merged with Madison National Bank, which was declared

insolvent in May. The FDIC was then appointed receiver and substituted as the defendant in this

case.

The FDIC moved anew for summary judgment, arguing that in a suit against the FDIC as

receiver du Pont is barred by federal law from asserting liability under an agreement not reflected in

the records of the bank in receivership. The district court granted that motion, noting that the

substitution of the FDIC as receiver "fundamentally alter[ed] the posture of the case," because "the

FDIC's legal rights are significantly different than those of the banks for whom it is a receiver."

Whereas in a suit against UNB du Pont might be able to prove that the parties "perpetuated by

conduct the escrow relationship," the court held that, under D'Oench Duhme & Co. v. Federal

Deposit Insurance Corp., 315 U.S. 447 (1942), and its statutory counterparts such a showing may

not be made in a suit against the FDIC. Du Pont appeals.

II. Analysis

The question presented by this appeal is whether du Pont is barred under the doctrine of

D'Oench, or by 12 U.S.C. §§ 1823(e) or 1821(d)(9)(A), from asserting claims against the FDIC for

UNB's negligence and breach offiduciary duty arising out of the 1983 escrow agreement as allegedly

extended by the parties' conduct. We review such a question of law de novo.

The FDIC's "basicmissionisto protect insured depositors." Villafane-Neriz v. FDIC, 20 F.3d

35, 39 (1st Cir. 1994). When an insured bank fails, the FDIC plays two roles under the National

Bank Act, 12 U.S.C. § 21 et seq. In its corporate capacity, i.e. as insurer of deposits, the FDIC either

pays depositors' claimsin cash or "mak[es] available to each depositor a transferred deposit in another

insured bank in an amount equal to the insured deposit." 12 U.S.C. § 1821(f). In its capacity as

court-appointed receiver, the FDIC stepsinto the shoes of the failed bank and takes possession of its

assets and liabilities. Vernon v. FDIC, 981 F.2d 1230, 1234 (11th Cir. 1993). As receiver the FDIC

has a responsibility to marshal the assets ofthe bank and to distribute them to the bank's creditors and

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shareholders. Branch v. FDIC, 825 F. Supp. 384, 392 (D. Mass. 1993). In performance of its duties,

the FDIC may operate the institution, liquidate it, merge it with another insured bank, transfer some

or all of its assets to another bank, create a new bank, or structure a transaction that combines two

or more of those options. 12 U.S.C. § 1821(d). In the vast majority of cases, however, the FDIC

arranges a "purchase and assumption" of the failed bank's assets and liabilities respectively.

[T]he FDIC as receiver arranges to sell acceptable assets of the failed bank to an

insured, financially sound bank, which assumes all of the corresponding deposit

liabilities and reopens the failed bank without an interruption in operations or loss to

depositors. The FDIC as receiver then sells to the FDIC in its corporate capacity the

assets that the assuming bank declined to accept. The corporate entity of the FDIC

in turn attempts to collect on the unacceptable assets to minimize the loss to the

insurance fund.

Grubb v. FDIC, 868 F.2d 1151, 1155 (10th Cir. 1989). A purchase and assumption "must be made

with great speed, usually overnight, in order to preserve the going concern value of the failed bank

and avoid an interruption in banking services." Langley v. FDIC, 484 U.S. 86, 91 (1987) (internal

quotation marks omitted).

Du Pont brings suit against the FDIC in its capacity as receiver. The FDIC claims immunity

on the basis of a federal common law doctrine that originated with the D'Oench case. In that case

a securities dealer had sold the Belleville Bank & Trust Company of Illinois bonds upon which the

issuer subsequently defaulted. So that the bank could avoid carrying past due bonds on its books,

the securities dealer executed unconditional notes in the face amount of the bonds and made certain

interest payments upon them for the purpose of keeping them up "as live paper." Id. at 454. The

receipt for the dealer's notes indicated that they would not be called for payment and that all interest

payments would be repaid. When the bank failed the FDIC stepped in as receiver and demanded

payment of the notes. The securities dealer asserted lack of consideration, as well as the side

agreement, but the Supreme Court held that "an accommodation maker is not allowed th[e] defense

[of no consideration] as against the receiver of the bank ... where his act contravenes a general policy

to protect the institution of banking from such secret agreements." Id. at 458. The Court said that

although the arrangement was not an outright violation of the National Bank Act, to allow the

defense would nonetheless violate the policy behind the Act, viz. "to protect [the FDIC] from

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misrepresentations made to induce or influence [it,] including misstatements asto the genuineness or

integrity of securities in the portfolios of banks which it insures or to which it makes loans." Id. at

459. The Court explained:

The test is whether the note was designed to deceive the creditors or the public

authority or would tend to have that effect. It would be sufficient in this type of a

case that the maker lent himself to a scheme or arrangement whereby the banking

authority on which respondent relied in insuring the bank was or was likely to be

misled.

D'Oench at 460.

In 1950, as part of the Federal Deposit Insurance Act, 28 U.S.C. § 1811 etseq., the Congress

supplemented and in part codified the D'Oench doctrine with a provision that bars anyone from

asserting against the FDICanyagreement not properly recorded in the records ofthe bank that would

diminish the value of an asset held by the FDIC. 12 U.S.C. § 1823(e). That provision currently reads

as follows:

No agreement which tendsto diminish or defeat the interest ofthe [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

(1) is in writing,

(2) 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,

(3) 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

(4) has been continuously, from the time of its execution, an official record of

the depository institution.

As originally enacted the first sentence of § 1823(e) did not include the "or as receiver"

clause; some courts nonetheless interpreted § 1823(e) to cover claims brought against (i.e. rather

than by) the FDIC, see e.g. Beighley v. FDIC, 868 F.2d 776, 783-84 (5th Cir. 1989). The Congress

expressly dealt with such claims in 1989 as part of the Federal Institutions Reform, Recovery, and

Enforcement Act, Pub. L. No. 101-73, 103 Stat. 183. It provided first that "any agreement which

does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or

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substantially comprise, a claim against the [FDIC]," 12 U.S.C. § 1821(d)(9)(A), and it added the "or

as receiver" clause to the first sentence of § 1823(e).

Although §§ 1823(e) and 1821(d)(9)(A) substantially codify D'Oench, see OPS Shopping

Center, Inc. v. FDIC, 992 F.2d 306, 309 n.3 (11thCir. 1993); Bowen v. FDIC, 915 F.2d 1013, 1015

n.3 (5thCir. 1990); Mainland Savings Ass'n v. Riverfront Assoc., Ltd., 872 F.2d 955, 956 (10thCir.

1989), cases that do not fit neatly into one of the statutory provisions the courts continue to decide

under the federal common law following from D'Oench. Thus, one court describes D'Oench 's

continuing role as that of "a safety net":

§ 1823(e) and § 1821(d)(9)(A) are Congress's attempts to codify, at least in part, the

policy represented by D'Oench, but D'Oench remains to cover situations which fall

through the cracks.

In re NBW Commercial Paper Litigation, 826 F. Supp. 1448, 1466 (D.D.C. 1992). In fact, the

statute is both broader and narrower than the D'Oench doctrine itself. It is broader in that the statute

makes the fault of the party asserting the unwritten agreement irrelevant, whereas the common law

doctrine is based upon the concept of equitable estoppel, Tuxedo Beach Club Corp. v. City Federal

Savings Bank, 749 F. Supp. 635, 642 (D.N.J. 1990); non-fault may be asserted as a defense. FDIC

v. Meo, 505 F.2d 790, 792-93 (9th Cir. 1974). It is narrower, however, in that most courts have read

the statute as applicable only to cases involving a specific asset, usually a loan, which in the ordinary

course of business would be recorded and approved by the bank's loan committee or board of

directors. See, e.g., In re NBW Commercial Paper Litigation, 826 F. Supp. at 1463-64. The

common law doctrine, on the other hand, has been extended beyond traditional loan transactions.

Taken together, however, there can be no doubt that D'Oench and its analogues "greatly limit the

types of claims and defenses that borrowers may assert against the FDIC." Villafane-Neriz, 20 F.3d

at 40.

A. §§ 1823(e) and 1821(d)(9)(A) 

Du Pont argued in the district court, and reiterates on appeal, that the statutory provisions are

no bar to itssuit. The district court took note of du Pont's argument, but did not squarely decide the

issue. The FDIC asserts that both the statute and the common law D'Oench doctrine bar du Pont's

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suit, but it frames no argument specifically in terms of either statutory provision. Instead, quoting

In re NBW Commercial Paper Litigation, 826 F.Supp. at 1457, it says rather unhelpfully that

"D'Oench and the statute have "cross-pollinated such that it is very difficult to decide where the

statute ends and D'Oench begins.' " We think it clear, however, that the statutory provisions do not

apply to this case. Du Pont does not rely upon the escrow agreement in order to diminish the FDIC's

interest in "any asset," as contemplated by § 1823(e). The bank, of course, never had an interest in

the money in escrow, nor does du Pont allege that the bank converted that money to its own use.

Indeed, as the district court pointed out in In re NBW Commercial Paper Litigation, 826 F. Supp.

at 1463, the requirements of § 1823(e) effectively limit that provision to conventional loan

transactions:

[S]ubsection (3) specifically refers to the loan committee and the other subsections

describe a processthat might be followed in the course of making a loan. The writing

requirements, which are stringent, will almost never be satisfied by investors ...

creditors, or tort claimants. There is no hint in any of Congress' pronouncements that

such individuals should be disfavored.

Section 1821(d)(9)(A) incorporates by reference the requirements of § 1823(e). Therefore

it does not apply either to the escrow agreement at issue in this case. We turn therefore to the

centerpiece of the parties' arguments, the federal common law.

B. The D'Oench Doctrine

Du Pont arguesthat the common law D'Oench doctrine does not bar itssuit against the FDIC

because du Pont "is not an obligee trying to avoid a commitment to a financial institution or the

FDIC"; rather, the "transaction involves deposit of funds with the bank and a concurrent obligation

of the bank to properly account the funds and make disbursements to Du Pont." (Emphases in du

Pont brief). Du Pont is, of course, correct that this is not the paradigmatic D'Oench doctrine case

of an obligee seeking to avoid a financial commitment to a failed bank. See Vernon v. RTC, 907 F.2d

1101, 1107 (11th Cir. 1990); FDIC v. Aetna Casualty & Surety Co., 947 F.2d 196, 207 (6th Cir.

1991). That is not the end of the matter, however. For, as the FDIC correctly points out, the

doctrine has been applied in other situations as well. And rightly it should be, we think, when the

purposes served by the doctrine arise in those situations. As one court has stated:

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The focal point is not the type oftransaction, but whether it contradicts what the bank

has stated to the FDIC or is part of any effort to mislead the FDIC as to the financial

status of any banking institution.

Castleglen, Inc. v. RTC, 984 F.2d 1571, 1581 (10th Cir. 1993).

According to the Supreme Court (which was actually interpreting § 1823(e) in the light of

D'Oench, the "leading case in this area prior to enactment" of the statute) the doctrine serves three

purposes:

1. "One purpose ... isto allow [the FDIC] to rely on a bank'srecordsin evaluating the

worth of the bank's assets" when it is "deciding whether to liquidate a failed bank ...

or to provide financing for purchase of its assets (and assumption of its liabilities) by

another bank...." Such an evaluation, as we have seen, must be made "with great

speed, usually overnight."

2. "Asecond purpose" isto "ensure mature consideration of unusual loan transactions

by senior bank officials." 

3. The third is to "prevent fraudulent insertion of new terms, with the collusion of the

bank employees, when a bank appears headed for failure."

Langley, 484 U.S. at 91-92, 95; see also OPS Shopping Center, 992 F.2d at 311.

The FDIC maintains more broadly that "[t]he D'Oench doctrine must necessarily provide

prophylactic protection against all manner of unsound or illegitimate banking practices that threaten

the solvency of financial institutions insured by the FDIC." That position has some support in the

broadest ofstatements made by some other circuits, see, e.g., Bowen v. FDIC, 915 F.2d 1013, 1015-

16 (5th Cir. 1990) ("Simply put, transactions not reflected on the bank's books do not appear on the

judicial radar screen either"), but no court has been willing to grant the FDIC the near-absolute

immunity from suit that it seeks here. See, e.g. Vernon, 907 F.2d at 1107 (declining RTC's request

to extend D'Oench so as to shield "all assets, whether actually possessed or receivable, acquired by

a federalinsurer or itssuccessor in interest fromall claimstending to diminish those assets,save those

claims clearly supported by the records of the insolvent bank").

Despite the FDIC's suggestion to the contrary, we think the D'Oench doctrine must have

some boundaries. As our colleagues in the Fifth Circuit recently put it, "[D'Oench ] is not a limitless,

per se guarantee of victory by federal banking agencies and their successors in interest." Alexandria

Associates, Ltd. v. Mitchell Co., 2 F.3d 598, 602 (1993). The wisdom of that observation is brought

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home when one bearsin mind what is at stake here, namely the negation of potentially valid state law

claims arising at the border between contract and tort. 

By far the majority of D'Oench doctrine cases involve attempts to resist collection on notes

the FDIC has acquired from the failed bank. In that paradigmatic D'Oench situation, the courts have

in effect deemed the FDIC a quasi-holder-in-due-course, with a complete defense against claims of

common law fraud and violation of state or federal securities laws, and with immunity to the

affirmative defenses of waiver, estoppel, unjust enrichment, failure of consideration, and usury. See

Vernon, 907 F.2d at 1106.

A substantial body of case law, however, extends D'Oench beyond the paradigm in which a

debtorseeksto assert a defense to liability on a note held by the FDIC. Courts have applied D'Oench

to bar a suit to collect upon a letter of credit issued in violation of an FDIC cease and desist order and

not approved by the proper officers or recorded in the bank's files, OPS Shopping Center, Inc. v.

FDIC, 992 F.2d at 311; to bar any defense to collection on a note, as well as affirmative claims of

lenderliability, based upon breach of an oral promise to make a loan, Timberland Design, Inc. v. First

Service Bank for Savings, 932 F.2d 46, 50-51 (1st Cir. 1991); and to bar suit for specific

performance of an oral loan repurchase agreement, where the loan on itsface, as well as a report filed

with the FDIC, indicated that it was without recourse. First State Bank v. City and County Bank,

872 F.2d 707, 718 (6th Cir. 1989). Where the failed bank was the beneficiary on a letter of credit,

some courts have also barred the defenses of non-transferabilityand fraud. FDIC v. Bank of Boulder,

911 F.2d 1466, 1475 (10th Cir. 1990); FDIC v. Bank of San Francisco, 817 F.2d 1395, 1399-1400

(9th Cir. 1987).

As we have said, however, the D'Oench doctrine does have itslimits. One court has declined

the FDIC's invitation to extend D'Oench to bar a suit sounding in fraud, to wit the bank's failure to

disclose its true financial condition before a stock offering. See Vernon, 981 F.2d at 1234. In that

case, the court held that D'Oench does not "operate[ ] to bar free standing tort claims that are not

related to a specific asset acquired by the FDIC." Id. at 1233-34. Another court has held that the

receiver cannot avoid suit for wrongful dishonor of a letter of credit executed by the bank's president

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where the letter of credit was not "intended to deceive, nor likely to deceive, banking authorities."

Agri Export Co-op. v. Universal Savings Ass'n, 767 F. Supp. 824, 832 (S.D. Tex. 1991). That court

questioned whether "D'Oench applies when the agreement that the insuring institution is trying to

nullify is what might be characterized as a pure obligation of the failed bank." Id.; see also Murphy

v. FDIC, 12 F.3d 1485, 1494 (Norris,J., dissenting) (reh'g en banc granted, 22 F.3d 903) ("D'Oench,

Duhme was never intended to be used as a shield against a holder of a letter of credit. [The plaintiff],

after all, is suing as a creditor of the Bank, not as a borrower"). Yet another court allowed suit for

the failed bank's alleged breach of the duty of care undertaken in a participation agreement; "[t]hat

proof ofthe breach of the agreement may require resort to evidence not contained in [the bank's] files

does not bring the rule of estoppel into play." Royal Bank of Canada v. FDIC, 733 F. Supp. 1091,

1098 (N.D. Tex. 1990); accord Howell v. Continental Credit Corp., 655 F.2d 743, 746 (7th Cir.

1981) (D'Oench held inapplicable where "the document the FDIC seeks to enforce is one ... which

facially manifests bilateral obligations and serves as the basis of the lessee's defense"). The Fifth

Circuit has declined to extend D'Oench to a non-banking transaction, such as the sale of partnership

interests in real estate by officers of a subsidiary of a failed bank. Alexandria Associates, 2 F.3d at

603. The Ninth Circuit has developed a "completely innocent party" exception to D'Oench, in a case

where "a bank borrower who was neither a party to any deceptive scheme involving, nor negligent

with respect to, circumstances giving rise to the claimed defense to his note." FDICv. Meo, 505 F.2d

790, 792-93 (9th Cir. 1974).

No court has yet considered whether D'Oench should bar a suit against the FDIC as receiver

for negligence or breach of fiduciary duty arising out of an escrow agreement. Because the escrow

agreement in this case can be seen from its face to have expired, and was extended if at all only by

the conduct of the parties thereto, the FDIC argues that du Pont "lent itself to an arrangement that

would tend to mislead bank examiners .... [and therefore] falls squarely within the traditional scope

of D'Oench." True, a bank examiner might have thought that the agreement had expired by its terms,

but the inquiry cannot stop there. We return to the three purposes of the D'Oench doctrine. Only

the first of those purposesenabling the FDIC to rely upon the records of the bank in deciding

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whether to liquidate itis even arguably relevant to the instant case.

In fact, however, the FDIC could not glean fromexamining even an on-going written escrow

agreement any information that could affect its decision whether to liquidate the bank or to initiate

a purchase and assumption transaction. That decision must be made "with great speed, usually

overnight, in order to preserve the going concern value of the failed bank and avoid an interruption

in banking services." Langley, 484 U.S. at 91. Even if the escrow agreement clearly extended until

1987, as du Pont alleges it did by virtue of the parties' conduct, a bank examiner conducting a quick

overnight examination of the bank's net worth could not conceivably learn that bank officials had not

abided by the terms of the agreement from some time in 1985 until the account was closed in 1987,

thereby exposing the bank to liability in both contract and tort. See FDIC v. Aetna Cas. & Sur. Co.,

947 F.2d 196, 202 (6th Cir. 1991) (an insurance policy is "not the type of asset that lends itself easily

to an "overnight' or instantaneous assessment"). As in a suit for employment discrimination or for

damages in a slip and fall case, the information relevant to proof of liability in this type of case will

not be readily available to a bank examiner. As the Eleventh Circuit stated in OPS Shopping Center,

992 F.2d at 310,

Banking examiners who inspect and evaluate the bank records reasonably expect the

records of regular banking transactions to reflect all of the rights and liabilities of the

bank regarding such regular banking transactions.... If the free-standing tort claim

had related to the discriminatory treatment of an employee, the relevant records

would reside in the personnel department of the bank. In the case of an automobile

accident in the scope of an employee's employment, there would be no record at all,

at least until the investigatory process took shape.

So, too, here. That the escrow agreement might have appeared to have expired could not possibly

have caused the FDIC to act any differently in this case.

Our analysis is in accord also with the Eleventh Circuit's test, recently reaffirmed in FDIC v.

Govaert (In re Geri Zahn, Inc.), No. 93-4120, 1994 WL 283959, (11th Cir. July 14, 1994). Under

that court's approach, D'Oench is a bar only to those tort claimsthat are "sufficiently intertwined with

regular banking transactions, such that exclusion of the alleged "secret agreement' accords with the

underlying policies of D'Oench." Id. at *4 (citing OPS Shopping Center, 992 F.2d at 310). The key

question is whether "the oralrepresentations"or in this case the actions that allegedly renewed the

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escrow agreementwere "matters that would generally be reflected in the records of ordinary

banking transactions. This reflects the central purpose of D'Oench." Id. at *5. Du Pont's claims for

breach of the escrow agreement and breach of fiduciary duty pass this functional test.

To allow the FDIC to avoid liability for UNB's alleged breach of fiduciary duty would serve

no purpose reflected in the FDIA. "To be sure, paying [du Pont] would diminish the Bank's total

assets, specifically its cash account, since [du Pont] would presumably be paid in cash. But so would

paying the electricity bill." Murphy, 12 F.3d at 1496 (Norris, J., dissenting). As the Fifth Circuit so

graphically put the matter, D'Oench should not be converted into a "meat-axe for avoiding debts

incurred in the ordinary course of business." Thigpen v. Sparks, 983 F.2d at 649. We therefore

decline to extend it to the facts of this case.

III. Conclusion

The principle of equitable estoppel set forth in D'Oench and codified in §§ 1823(e) and

1821(d)(9)(A) does not apply in this case. Even if the records of the bank fully reflected the allegedly

continuing existence and validity of the escrow agreement with du Pont, that information would not

have apprised the FDIC ofthe bank's potential liability for breach ofitsfiduciaryduty, and thus would

not have had any bearing upon the FDIC's decision whether to liquidate the failed bank or to arrange

a purchase and assumption transaction. The judgment of the district court is therefore

Reversed.

EDWARDS, Circuit Judge, dissenting: Were we writing on a clean slate, we might be free to

decide this case on the basis of the "policy" considerations that obviously have influenced the

majority. We are not so unconstrained, however. I recognize that this circuit has not had occasion

to address the common law doctrine embodied in D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S.

447 (1942), and itsstatutory cousin, 12 U.S.C.sec. 1823(e), which controlsthe judgment in this case.

But the Supreme Court and our sister circuits have had numerous occasions to consider and apply

the doctrine. As I read their decisions, I see no principled way to distinguish this case from the

myriad of factually similar cases in which the D'Oench doctrine has been routinely enforced to bar

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the presentation of claims of the sort at issue here.

The law is clearthat, under D'Oench, no agreement maybe asserted against the FDICeither

as an affirmative claim or as a defenseunlessthe principal terms ofthe agreement are manifest from

the bank's written records. See Timberland Design, Inc. v. First Serv. Bank for Sav., 932 F.2d 46,

48-49 (1st Cir. 1991). There are two important purposes underlying this doctrine: (1) federal

examiners must be able rapidly and accurately to determine the health of a failed institution based

solely on the formally maintained records of that institution, Langley v. FDIC, 484 U.S. 86, 91-92

(1987); and (2) as between bank customers and the American taxpayers, the risk of nonrecovery

from a failed institution should be placed on customers who have failed to protect themselves by

committing their agreements with the bank to writing, id. at 94; see also In re NBW Commercial

Paper Litig., 826 F. Supp. 1448, 1461 (D.D.C. 1992) ("D'Oench ... insure[s] that creditors and

depositors ... are favored over those who can protect themselves against harm."). The D'Oench bar

is "expansive and perhaps startling in its severity," Bowen v. FDIC, 915 F.2d 1013, 1015 (5th Cir.

1990), but it has been seen to be fully justified by a well-established national policy that protects

federal insurers (and the taxpayers they represent) against challenges based on unrecorded

agreements.

Du Pont does not ground its substantive claims on a current written agreement that resided

in the bank'srecords at the time the bank failed. The written escrow agreement that originally set out

the parties' obligations, by its own terms, expired at the end of 1983. Thus, du Pont's claim that the

bank violated the terms of the escrow agreement in years beyond 1983 is dependent on evidence that

the escrow agreement was extended. Yet, du Pont has not produced a written extension agreement,

nor any other document that clearly evidencesthat the escrow agreement covered the period relevant

to its complaint.

Du Pont instead relies on an alleged oral agreement with the bank to treat the escrow

agreement as coterminous with the underlying contract between Kimberly and the District of

Columbia, and on the parties' "course of conduct," which du Pont asserts evidences the ongoing

nature of the agreement. In a simple contract action under state law, both types of evidence might

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demonstrate that parties intended to be bound by the terms of the escrow agreement beyond 1983,

despite the written agreement's limited duration. But the context here is quite different: this case

involves a bank failure requiring the federal government to take over the institution and find a

successor bank to assume the failed bank's assets and liabilities. In such a circumstance, du Pont's

putative agreement to extend the terms of the written escrow agreement cannot serve as a basis for

holding the Government liable, because it is unrecorded and plainly barred by D'Oench. See Twin

Constr., Inc. v. Boca Raton, Inc., 925 F.2d 378, 384 (11th Cir. 1991) (rejecting the use of parol

evidence to validate an otherwise flawed agreement, the court stated that "[w]hile such an inquiry

may be permissible in the context of normal contract construction, we do not believe that D'Oench

and section 1823(e) permit this inquiry.").

The fact that this case involves an "escrow agreement," rather than a more typical debt

instrument, does not change the result under D'Oench. See OPS Shopping Ctr., Inc. v. FDIC, 992

F.2d 306, 308 (11th Cir. 1993) (noting that D'Oench "now applies in virtually all cases where a

federal depository institution regulatory agency is confronted with an agreement not documented in

the institution's records."). In its brief, du Pont asserts that in order for D'Oench and its attendant

bar to apply, the legal challenge arising from the asserted agreement must diminish an asset of the

bank, and that an escrow agreement is not an asset. However, every court that has considered the

question has held that the existence of a specific asset is not a prerequisite to applying the D'Oench

bar. See id. at 309-10 (providing citations). Further, absolutely nothing in the record supports du

Pont's claim that an escrow agreement is such that it would be unimportant to a bank examiner

evaluating the relative health of a failed institution. Indeed, at oral argument, the FDIC argued it does

evaluate escrow agreements and that such agreements can be important to its examination, a

contention du Pont did not even attempt to rebut. In light of the record, I do not see how we can

second-guess the FDIC on this point.

Additionally, it is quite easy to imagine how an escrow agreement might represent an asset

or a liability for a bank: such an agreement might permit the bank to take advantage of a "float" of

funds; it might provide significant fees to the bank for servicing the agreement; and it might be

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transferable. At oral argument, in response to these very hypotheticals, du Pont's counsel conceded

that an escrow agreement might be a thing of value to a bank, and subsequently to bank examiners

who are pressed to make a quick assessment ofthe bank'sfinancialsoundness. We should be mindful

that an escrow agreement is a negotiated contract, and there are an infinite number of ways, limited

onlybythe parties' ingenuity, that an escrow agreement and the bank's escrow servicemight be drawn

so as to be an important aspect of the bank's portfolio. For these reasons, I do not see how this court

can "exempt" escrow agreements from D'Oench's reach. The majority has simply rewritten the law,

with neither authority nor good basis.

In this case, an application of D'Oench does not "punish" du Pont; rather, the law merely

requires du Pont to bear the consequences of failing to commit to writing an alleged understanding

that the escrow agreement extended beyond its terms. Du Pont failed to avail itself of numerous

opportunities to protect its interests; the American taxpayer should not have to pay for du Pont's

poor dealings. In short, both the law and the equities in this case favor the FDIC. Du Pont's attempt

to assert claims premised on the extension of a written agreement beyond itstermsevidence ofsuch

extension being unrecordedis the paradigmatic situation to which D'Oench applies. Accordingly,

I dissent.

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