1 United States Court of Appeals,

Fifth Circuit.

No. 93-2144.

Harry LEMAIRE, et al., Plaintiffs,

Hilmar R. Zeissig, et al., Plaintiffs-Appellants, CrossAppellees,

v.

The FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for MBank

Abilene, N.A., Defendant-Appellee, Cross-Appellant,

and

The Deposit Insurance Bridge Bank, N.A., Intervenor-Defendant,

Appellee-Cross-Appellant.

May 17, 1994.

Appeal from th e United States District Court for the Southern

District of Texas.

Before GOLDBERG, DAVIS and DeMOSS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Hilmar Zeissig, Deiter Scherfenberg and Bert Scales appeal the

district court's order adopting the Texas Court of Appeal's

judgment reversing most of the state trial court's judgment in

Appellants' favor. Because all of Appellants' claims are barred by

the D'Oench Duhme doctrine, we affirm that portion of the district

court judgment denying Appell ants recovery on their underlying

claims and reverse the district court's grant of attorneys' fees.

I.

This appeal grows out of a lender liability action against

MBank Abilene ("MBank"), formerly known as Abilene National Bank

("ANB"), for breach of an oral loan promise. Harry Lemaire and1 The court rendered a take nothing judgment on Scales' fraud

claim.

2 Richard Patto n originally brought suit in Texas state district

court in 1984, and Appellants Zeissig, Scherfenberg and Scales

("Appellants") later joined the suit as plaintiffs.

The p etition alleged that in 1982, Don Earney, ANB's chief

executive officer, chairman of the board, and majority stockholder,

orally promised to loan $3 million to Lingen Energy Corporation, an

entity owned by Lemaire, Patton and Appellants. Lingen intended to

use the loan to finance its oil and gas drilling program. ANB

never funded the loan, and Lingen ultimately failed because it was

unable to finance its drilling program.

In 1986, after a five week trial, the trial court submitted

the case to the jury on theories of breach of contract, promissory

estoppel, fraud, tortious interference with business relations,

defamation, and violations of the Texas Deceptive Trade Practices

Act ("DTPA"). The jury returned a verdict for the plaintiffs, and

the trial court rendered a judgment on the verdict against MBank

for approximately $69 million. MBank then appealed to the Texas

Court of Appeals for the Fourteenth District.

On April 6, 1989, the Texas Court of Appeals rendered its

judgment. With respect to Appellants, the court reversed and

rendered take nothing judgments on the breach of contract claims;

it also reversed and remanded for retrial the fraud and tortious

interference claims, 1 and reversed and remanded for retrial one

DTPA claim but reversed and rendered take nothing judgments on the2 The court affirmed Patton and Lemaire's recovery under a

theory of promissory estoppel, reversed and remanded their fraud

and tortious interference claims, reversed and rendered take

nothing judgment on their defamation claim, and reversed and

remanded two DTPA claims but rendered a take nothing judgment on

the remaining DTPA claims.

3 The district court followed the procedure for cases that

are removed from state courts of appeal adopted in In re

Meyerland Co., 960 F.2d 512 (5th Cir.1992) (en banc).

4 The terms of this settlement are not on the record nor are

they relevant to this appeal.

3 remaining DTPA claims. 2 The court also affirmed the trial court's

award of attorneys' fees to all plaintiffs. Thus, the only portion

o f the Appellants' judgment that remained intact after the Texas

Court of Appeals decision was the attorneys' fees award. The

remainder of the judgment was either reversed outright or vacated

and remanded for retrial.

On March 28, 1989, nine days before the Texas Court of Appeals

rendered i ts judgment, MBank failed, and the FDIC was appointed

receiver. On April 20, the FDIC filed a Notice of Substitution and

removed the case to federal court.

Ultimately, on January 19, 1993, the district court adopted as

its own judgment the judg ment of the Texas Court of Appeals. 3

Therea fter, Patton and Lemaire settled their claims against the

FDIC. 4 Appellants filed this appeal, seeking to reinstate their

fraud and breach of contract recove ries. The FDIC, as

cross-appellant, seeks to set aside the attorneys' fees awards.

II.

The FDIC argues for the first time on appeal that Appellants'

claims are barred by the doctrine of D'Oench Duhme & Co. v. Federal5 Appellants argue that § 1823(e) does not apply in this

action because at the time this litigation was reduced to

judgment and at the time the Bank failed, § 1823(e) did not apply

to the FDIC acting in its capacity as receiver. The statute was

amended to include the FDIC as receiver in August, 1989. See

Financial Institutions Reform, Recovery, and Enforcement Act,

Pub.L. No. 101-73, 103 Stat. 183. However, we need not consider

whether the statute applies retroactively because we have long

held that both the statutory and common law doctrines bar similar

defenses and claims. See Resolution Trust Corp. v. Camp, 965

F.2d 25, 31 (5th Cir.1992); Kilpatrick v. Riddle, 907 F.2d 1523,

1526 n. 4 (5th Cir.1990), cert. denied, 498 U.S. 1083, 111 S.Ct.

954, 112 L.Ed.2d 1042 (1991).

4 Deposit Insurance Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956

(1942) and that doctrine's codification in 12 U.S.C. § 1823. 5 This

court generally will not hear arguments not raised first in the

district court. U .S. v. Villarreal, 920 F.2d 1218, 1222 (5th

Cir.1991). However, if "the FDIC had neither opportunity nor

occasion to assert the D'Oench doctrine in the trial court," we

will ordinarily consider this argument on appeal. U nion Fed. Bank

of Indianapolis v. Minyard, 919 F.2d 335, 336 (5th Cir.1990).

We have held that the D'Oench Duhme doctrine may be raised for

the first time on appeal "in circumstances where the FDIC succeeds

to the bank's interest in a judgment in the bank's favor which the

promisor seeks to avoid based on an oral understanding." FDIC v.

Hadid, 947 F.2d 1153, 1157 (4th Cir.1991) (policy behind D 'Oench

Duhme would be frustrated if the FDIC could not defend against an

attack made to overturn a judgment favorable to the bank based on

an oral understanding); M cMillan v. MBank Fort Worth, N.A., 4 F.3d

362, 368 (5th Cir.1993) (FDIC-Receiver can raise defense for first

time on appeal when it is urging the af firmance of a favorable

judgment that it inherited as an asset when it became Receiver);6 The Eleventh Circuit has even allowed the RTC to raise

D'Oench Duhme for the first time on appeal to attempt to reverse

a trial court judgment. The court held that because the RTC was

5 In re 5300 Memorial Investors, Ltd., 973 F.2d 1160, 1164 (5th

Cir.1992) (same). Here, the FDIC is seeking an affirmance of the

Texas Court of Appeals judgment that favors the failed institution

on the merits.

Appellants argue that when fed eral regulators are appointed

after entry of judgment, they are not allowed to assert D'Oench

Duhme for the first time on appeal. T hurman v. FDIC, 8 89 F.2d

1441, 1447 (5th Cir.1989). In T hurman, the FSLIC, in its corporate

capacity, was assigned promissory notes by the FSLIC-Receiver after

a final judgment forfeiting the notes had been rendered in the

trial court. I d. at 1443. This court did not allow the FSLIC, in

its corporate capacity, to raise D'Oench Duhme on appeal as a

post-judgment intervenor because the assets were void prior to the

receivership. The new defense would not have changed the outcome

of the case as it was tried. Id. at 1447.

Here, however, the FDIC does not seek to enforce an asset that

became void before the appointment of the FDIC as receiver.

Instead, the FDIC seeks to defend from Appellants' attack the Texas

Court of Appeals judgment adopted by the district court.

Appellants' reliance on Thurman is misplaced. While this court in

Thurman refused to permit the FDIC to raise D'Oench Duhme for the

first time on appeal to reverse a judgment that rendered assets

void, we do allow the FDIC to raise the doctrine on appeal to

defend against an attack on a judgment. 6not a party to the suit when the case was tried, it should not be

penalized for not raising a defense it had no opportunity to

present. Baumann v. Savers Federal Sav. & Loan Assoc., 934 F.2d

1506 (11th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct.

1936, 118 L.Ed.2d 543 (1992).

6 Appellants had no vested rig ht in the state trial court

judgment because it was subject to appea l and, as it turns out,

most of it was reversed outright and the remainder was vacated and

remanded. The FDIC did not have an opportunity in the trial court

to present its defense against the plaintiffs' attempt to enforce

an oral agreement. This is the FDIC's first opportunity to present

the D'Oench Duhme defense and it does so as an alternative ground

to affirm the judgment in the bank's favor. We conclude,

therefore, that the FDIC is entitled to assert its rights under

D'Oench Duhme.

III.

Under the D'Oench Duhme doctrine, a party cannot rely on an

oral agreement between the bank's customer and the bank as the

basis for defenses or claims against the FDIC. It is

uncontroverted that the claims in this suit are predicated on

Earney's oral promise to loan Appellants $3 million. The oral

promise was never put in wri ting. D 'Oench Duhme renders such a

promise unenforceable. B owen v. FDIC, 915 F.2d 1013 (5th Cir.1990)

(oral promise to make a loan not enforceable against the FDIC);

Beighley v. FDIC, 868 F.2d 776 (5th Cir.1989) (same).

Appellants argue that D'Oench Duhme does not apply because at

the tim e MBank failed and the FDIC was appointed receiver,

examination of MBank's records would have revealed a judgment7

liability. Thus, Appellants argue that the FDIC would not have

been misled as to the value of any assets or liabilities of the

failed institution.

Howev er, whether the regulator had actual knowledge is not

relevant. The Supreme Court has expressly rejected the argument

that the receiver's knowledge renders D'Oench Duhme inapplicable:

Harm to the FDIC ... is not avoided by knowledge at the time

of acquiring the note. The FDIC is an insurer of the bank,

and is liable for the depositors' insured loss whether or not

it decides to acquire the note. The harm to the FDIC caused

by the failure to record occurs no later tha n the time at

which it conducts its first bank examination that is unable to

detect the unrecorded agreement and to prompt the invocation

of available measures, including termination of the bank's

deposit insurance.

Langley v. FDIC, 484 U.S. 86, 94-95, 108 S.Ct. 396, 403, 98 L.Ed.2d

340 (1987). In applying D 'Oench Duhme, the relevant inquiry is

whether the individual or institution lent itself to a transaction

that is likely to mislead banking authorities. McMillan v. MBank

Fort Wort h, N.A., 4 F.3d at 368 n. 12. The focus is on the

transaction between the bank and the borrower, not on the knowledge

of the FDIC.

D'Oench Duhme is meant to ensure more than just that the

bank's records are reliable. A second purpose is to "ensure mature

considerati on of unusual loan transactions by senior bank

officials, and prevent fraudulent insertion of new terms, with the

collusion of bank employees, when a bank appears headed for

failure." L angley, 484 U.S. at 91-92, 108 S.Ct. at 4 01. If the

transaction is not proper ly examined and recorded, D 'Oench Duhme

applies. McMillan, 4 F.3d at 368.7 Although the Texas Court of Appeals remanded a number of

claims for trial, our conclusion that D'Oench Duhme bars

Appellant's claims makes remand unnecessary.

8 Earney's oral promise to make a loan was never recorded or

properly examined. Therefore, the appellants' claims are all

barred by D'Oench Duhme.

Because all of Appellants underlying claims are barred, the

award of attorney fees mu st be reversed. Attorney fees are not

recoverable by parties who do not prevail on their cause of action.

Jay-Lor Textiles, Inc. v. Pacific Compress Warehouse Co., 547

S.W.2d 738, 743 (Tex.Civ.App.1977, writ ref'd n.r.e.).

IV.

In summary, a bank customer ordinarily cannot prevail against

the FDIC on the basis of an oral promise made by the failed bank's

officer. Our precedent simply does not support Appellants'

contention that because MBank fai led while their suit was on

appeal, government regulators cannot raise D'Oench Duhme defenses.

We therefore AFFIRM that portion of the district court

judgment denying Appellants recovery on their underlying claims and

REVERSE the district court judgment awarding Appellants recovery of

attorneys' fees. 7

AFFIRMED IN PART, REVERSED IN PART.