5984 Federal Register / Vol. 62, No. 27 / Monday, February 10, 1997 / Notices

1The Guidelines have been in effect since late

1994.

FEDERAL DEPOSIT INSURANCE

CORPORATION

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

AGENCY: Federal Deposit Insurance

Corporation (FDIC).

ACTION: Statement.

SUMMARY: The FDIC has adopted a

statement of policy which sets forth

when the FDIC will assert the federal

common-law doctrine enunciated by the

Supreme Court in D’Oench, Duhme &

Co. v. FDIC, 315 U.S. 447 (1942) and

when the FDIC will assert the statutory

protections set forth in 12 U.S.C.

1821(d)(9)(A) and 1823(e).

EFFECTIVE DATE: February 4, 1997.

FOR FURTHER INFORMATION CONTACT:

Charlotte Kaplow, Counsel (202–736–

0248), Legal Division, Federal Deposit

Insurance Corporation, 550 17th Street,

N.W., Washington, D.C. 20429.

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, longstanding, 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

arrangement 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 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. 86, 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
Federal Register / Vol. 62, No. 27 / Monday, February 10, 1997 / Notices 5985

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.

3See Oklahoma Radio Assocs. 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).

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.

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.

USI 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.

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, 114 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

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

be 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).

By order of the FDIC Board of Directors.

Dated at Washington, DC, this 4th day of

February, 1997.

Federal Deposit Insurance Corporation.

Jerry L. Langley,

Executive Secretary.

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 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
5986 Federal Register / Vol. 62, No. 27 / Monday, February 10, 1997 / Notices

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

provisions 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.

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.

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
Federal Register / Vol. 62, No. 27 / Monday, February 10, 1997 / Notices 5987

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 of 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.

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 mistakenly includes a parcel not

included in the sale, the parcel at issue is not

an actual asset of the failed institution and

the assertion of D’Oench or the statutory

provisions is not be 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 sues 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 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
5988 Federal Register / Vol. 62, No. 27 / Monday, February 10, 1997 / Notices

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.

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.

[FR Doc. 97–3190 Filed 2–7–97; 8:45 am]

BILLING CODE 6714–01–P

FEDERAL MARITIME COMMISSION

[Docket No. 97–02]

McKenna Trucking Company, Inc. v.

Maersk Incorporated; Notice of Filing

of Complaint and Assignment

Notice is given that a complaint filed

by McKenna Trucking Company, Inc.

(‘‘Complainant’’) against Maersk

Incorporated (‘‘Respondent’’) was

served February 5, 1997. Complainant

alleges that Respondent has violated

sections 10(b)(1), (4), (6), (10), (11), and

(12) of the Shipping Act of 1984, 46

U.S.C. app. sections 1709(1), (4), (6),

(10), (11), and (12), by receiving rebates

of intermodal trucking charges, thereby

charging, demanding, collection and

receiving greater compensation for the

transportation of property than the rates

shown in its service contracts, and

subjecting complainant to an

unreasonable refusal to deal, while

continuing to charge shippers the

higher, listed rate as a portion of the

total through rate.

This proceeding has been assigned to

the Office of Administrative Law Judges.

Hearing in this matter, if any is held,

shall commence within the time

limitations prescribed in 46 CFR 502.61,

and only after consideration has been

given by the parties and the presiding

officer to the use of alternative forms of

dispute resolution. The hearing shall

include oral testimony and crossexamination in the discretion of the

presiding officer only upon proper

showing that there are genuine issues of

material fact that cannot be resolved on