Opinion ID: 2210624
Heading Depth: 1
Heading Rank: 5

Heading: The FDIC's Cases.

Text: The FDIC, we think, distinguishes the executor's cases. In addition it cites persuasive authority for its position that section 1823(e) does apply. In an amended brief the FDIC cites three cases from the eighth circuit in support of its position: FDIC v. Virginia Crossings Partnerships, 909 F.2d 306 (8th Cir.1990); FDIC v. Krause, 904 F.2d 463 (8th Cir.1990); FDIC v. Newhart, 892 F.2d 47 (8th Cir.1989). In Krause the court rejected the same argument the executor raises here. In oral arguments the executor's attorney virtually conceded that Krause would control but argues that we should not follow that case because it lacks analysis. The executor's argument that the guaranty was satisfied long before the FDIC acquired the assets of the bank is appealing and tempting. It also avoids a harsh and seemingly inequitable result. Nevertheless we choose to follow the eighth circuit court of appeals' interpretation of the federal statute as set out in these three cases. See FDIC v. Oehlert, 252 N.W.2d 728, 730 (Iowa 1977) (holding that federal law rather than state law controls in determining rights of FDIC concerning assets it acquires from a failed bank). We do so because of the important policy reasons underlying section 1823(e). A. Virginia Crossings. In Virginia Crossings two individuals signed personal guaranties of a note to a partnership. The guaranties were limited to $210,000. An accompanying memorandum provided that these guaranties would be limited to a joint guaranty of $42,000 when the partnership obtained permanent financing. However, when the permanent financing came through, no lower limit guaranties were ever executed by the guarantors. Virginia Crossings, 909 F.2d at 307-08. Similar to what happened here, the $210,000 guaranties were in the bank files when the bank was declared insolvent. The FDIC acquired in its corporate capacity the assets of the bank, including the partnership notes and the $210,000 guaranties. The FDIC sued the partnership on the notes and the guarantors on the guaranties. Id. at 308. The guarantors claimed the memorandum terminated their $210,000 guaranties when the permanent financing came through. The district court granted the FDIC's summary judgment motion, determining that section 1823(e) controlled. Id. at 308-09. The eighth circuit court of appeals explained the purpose underlying 12 U.S.C. section 1823(e): In Langley [ v. FDIC ], the Court explained that [12 U.S.C. section 1823(e) ] was designed with two purposes in mind: first, to allow federal and state bank examiners to rely on a bank's records in evaluating the worth of the bank's assets; and, second [to] ensure mature consideration 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. In enacting this categorical recording scheme, Congress opted for the certainty of the requirements set forth in § 1823(e). Id. at 309 (citing Langley, 484 U.S. at 91, 92, 95, 108 S.Ct. at 401, 403, 98 L.Ed.2d at 347, 348) (citations omitted). The eighth circuit court of appeals went on to hold that the earlier memorandum, which lowered the guaranties to $42,000, failed to meet the contemporaneous execution requirement of section 1823(e). The memorandum had not been executed by the bank and the two guarantors contemporaneously with the making of the note. Id. at 309-10. The court rejected a substantial compliance argument. It strictly applied the statute: In view of the `categorical' requirements of [section] 1823(e), we are constrained to reject this assertion. Id. at 309. B. Krause. Interestingly, Citizens State Bank was also involved in Krause. There, three individuals executed promissory notes to the bank. The FDIC, as in this case, purchased the notes in their corporate capacity. The FDIC sued on the notes. The individuals claimed the debts had been paid and settled pursuant to a settlement agreement with the bank's president several months before the bank failed. Krause, 904 F.2d at 464. The FDIC moved for summary judgment. It argued that under section 1823(e) any approval of the agreement was not reflected in the minutes of the board of directors or loan committee. It also argued the original promissory notes acquired by the FDIC did not bear the paid notation appearing on the individual's copies. Id. at 464-65. The individuals resisted on two grounds. First, the board knew and authorized the agreement. Any failure to record the agreement in the minutes or to mark the original notes paid was inadvertent or a scrivener's error. Second, section 1823(e) applies only to an asset acquired by the FDIC. Here, the notes were not such assets because they were the subject of an accord and satisfaction before the FDIC acquired any assets from the bank. The district court granted the motion. Id. at 465. Rejecting the first ground, the circuit court of appeals said: If section 1823(e) applies (and as discussed below, we hold that it does), it is immaterial whether the bank's board actually approved the settlement if that approval was not reflected in the minutes. As to this second issue, we think the bank's president's affidavit, upon which the [individuals] rely, is not sufficient to establish a factual dispute.... Id. at 466. And rejecting the second ground, the court said: We believe it is unnecessary for this court to determine whether the settlement agreement constituted accord and satisfaction under Iowa law. There is no genuine issue as to the material facts that at the time the FDIC took over the bank, the original promissory notes were in the bank's files, the notes bore no notation that they had been paid, and the minutes of neither the board of directors nor the loan committee indicated any settlement agreement. This court recognizes that the FDIC must be able to rely on the records of the failed bank, and such reliance would be defeated if `seemingly unqualified notes [were] subject to undisclosed conditions.' In view of the purpose of section 1823(e) to permit this reliance, we believe that the section's requirements must be applied to the agreement purportedly settling the promissory notes which were found in the bank's files. The evidence shows the agreement failed to meet at least one of the requirementsthat approval by the board of directors or loan committee be reflected in the minutes of the board or committee. Id. (citations omitted) (emphasis added). The court went on to affirm the district court's summary judgment ruling. Id.