Opinion ID: 739299
Heading Depth: 2
Heading Rank: 2

Heading: D'Oench, Duhme

Text: 26 We review a grant of summary judgment de novo. Briones v. Runyon, 101 F.3d 287, 291 (2d Cir.1996). Summary judgment is proper only where no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. Graham v. Henderson, 89 F.3d 75, 79 (2d Cir.1996). We may however affirm the district court on any ground that finds support in the record. United States v. International Brotherhood of Teamsters, 948 F.2d 1338, 1347 (2d Cir.1991). 27 The district court held that the RTC was entitled to summary judgment on Duraflex's claim because the subordination agreements were unenforceable against the RTC under 12 U.S.C. § 1823(e), the statutory codification of the common-law D'Oench Duhme doctrine. Put simply, the D'Oench Duhme doctrine precludes obligors from asserting side deals or secret agreements which may mislead bank examiners against the [RTC]. RTC v. Midwest Fed. Sav. Bank of Minot, 36 F.3d 785, 793 (9th Cir.1994) (citation omitted). 28 The doctrine was first articulated by the Supreme Court in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), in which the FDIC sued to enforce a promissory note that it had acquired from a failed bank. The maker interposed as a defense that the note was given without consideration and upon the understanding that it would never be called for payment. In rejecting this defense, the Court relied on the federal policy of protecting federal corporations from misrepresentations made to induce or influence the actions of [the FDIC], including misstatements as to the genuineness or integrity of securities in the portfolios of banks which it insures or to which it makes loans. Id. at 459, 62 S.Ct. at 680; see also FDIC v. Suna Assocs. Inc., 80 F.3d 681, 684 (2d Cir.1996). 29 Congress codified the D'Oench, Duhme doctrine at 12 U.S.C. § 1823(e), as follows: 30 No agreement which tends to diminish or defeat the interest of the [RTC] 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 [RTC] 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)(1). 4 31 Like the common law doctrine, [o]ne purpose of § 1823(e) is to allow federal and state bank examiners to rely on bank's records in evaluating the worth of the bank's assets. Langley v. FDIC, 484 U.S. 86, 91, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987). The RTC cannot act with the necessary speed and accuracy in deciding whether to liquidate a bank or provide financing for the purchase of its assets if bank records contain[ ] seemingly unqualified notes that are in fact subject to undisclosed conditions. Id. at 91-92, 108 S.Ct. at 401. A second purpose of § 1823(e) is implicit in its requirement that the 'agreement' not merely be on file ... but also have been executed and become a bank record 'contemporaneously ' with the making of the note. Id. at 92, 108 S.Ct. at 401 (emphasis added). This requirement ensures mature consideration of unusual transactions and defeats the fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure. Id. 32 Under the common law doctrine, the question of whether a borrower's defense is barred depends upon whether the purported agreement relied upon by the private party was ever memorialized in writing or otherwise made explicit such that ... the [RTC] would have knowledge of the bank's obligations during an evaluation of the bank's records. Suna Assocs., 80 F.3d at 684 (quoting FDIC v. McCullough, 911 F.2d 593, 600 (11th Cir.1990)). But in the codification, Congress opted for certainty: an agreement that meets the requirements of the statute survives even if the [RTC] did not know of it; and an agreement that does not meet them fails even if the [RTC] knew. Langley, 484 U.S. at 95, 108 S.Ct. at 403. 33 This appeal potentially raises two difficult questions concerning § 1823(e): (1) whether the subordination agreements tend to prejudice the RTC's interests in the manner contemplated by the statute; and (2) if so, whether the contemporaneity requirement of the statute has been met. 34 The statute applies in this case only if the subordination agreements tend[ ] to diminish or defeat the interest of the [RTC] in any asset acquired by it. 12 U.S.C. § 1823(e). We will assume that the relevant asset of the RTC is the Charter Federal mortgage on the Hemingway property. On their face, the subordination agreements in part relinquish Charter Federal's lien priority; on the other hand, the agreements were entered into in order to improve the cash position of the troubled project so that the project that secured Charter Federal's note could be completed. In short, the subordination agreements may have tend[ed] to diminish the value of the Charter Federal mortgage; but it is also possible that the asset value increased, or was essentially unaffected, depending upon when the value is measured and indeed on whether one views the relevant asset as being the mortgage or instead the mortgage note (which may be diminished by the subordination regardless of any cash influx). We therefore think that there are remaining issues of law and fact as to whether § 1823(e) should apply to the subordination agreements. 35 However, even if the subordination agreements do tend to diminish the relevant asset, resolution of this case under the federal statute would require decision of a second issue raised by Duraflex: whether, in light of commercial reality, the subordination agreements comply with the statute's requirement that agreements be executed by the depository institution and any person claiming an adverse interest thereunder ... contemporaneously with the acquisition of the asset by the depository institution. 12 U.S.C. § 1823(e)(1)(B) (emphasis added). The district court ruled that the asset here is the mortgage and that the subordination agreements are unenforceable as against the RTC because the execution of the agreements was not contemporaneous with the mortgage transaction. However, a bank's agreement to subordinate its mortgage lien will ordinarily postdate the mortgage itself; thus the district court's approach might make nearly all subordination agreements unenforceable as against the RTC, and thereby impair the ability of any bank to grant such a concession in order to facilitate a transaction calculated to preserve or enhance the value of a security interest. Admittedly, a strict and categorical construction of the statute, which may very well be appropriate in light of Langley, 484 U.S. at 95, 108 S.Ct. at 403, would appear to render subordination agreements unenforceable against the RTC. But such a construction of the statute might not reflect the intention of Congress in imposing the contemporaneity requirement; and some courts have noted that commercial reality should be considered in applying the statute. See, e.g., FDIC v. Manatt, 922 F.2d 486, 489 n. 4 (8th Cir.1991) (contemporaneity requirement would not apply to valid accord and satisfaction agreements, which are never contemporaneous with initial documents incurring debt); RTC v. Midwest Fed. Sav., 36 F.3d at 797-98 (commitment letter rendered two months prior to final loan considered contemporaneous with loan because contemporaneousness requirement should be considered in light of commercial reality). 5 36 However, regardless of whether the district court erred in determining that the contemporaneity requirement had not been met, or for that matter, whether the subordination agreements tend to diminish the relevant asset, we can affirm on the basis of the issues presented under Connecticut common law. We do so because, even if the subordination agreements are enforceable against the RTC, the priority of the Duraflex mechanic's lien would not be altered by giving effect to those agreements.