Opinion ID: 700608
Heading Depth: 2
Heading Rank: 2

Heading: Federal common law: herein of D'Oench, Duhme & Co.

Text: 20 The D'Oench case involved a securities dealer who had sold certain bonds to a bank insured by the FDIC. The issuer later defaulted on the bonds. In order to allow the bank to avoid carrying past due bonds on its books, the securities dealer executed unconditional notes in the amount of the bonds, pursuant (the dealer alleged) to a secret side agreement that the bank would not call the notes for payment. When the bank failed, however, the FDIC was appointed receiver and it demanded payment of the notes. The Supreme Court held that to allow the securities dealer to rely upon the secret agreement as a defense to payment of its note would violate the policy behind the Federal Reserve Act, viz. to protect [the FDIC], and the public funds which it administers, against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures. 315 U.S. at 457, 62 S.Ct. at 679. 21 Thus was born the federal common law doctrine that courts have since expanded beyond the paradigm in which a debtor seeks to assert a defense to liability on a note held by the FDIC to bar a variety of both claims made and affirmative defenses raised against the FDIC as receiver. See du Pont, 32 F.3d at 597-99 (and cases cited therein). Indeed, in the instant case the district court held that the D'Oench doctrine extends to (and therefore bars) Murphy's substantive claim that the bank by its actions assumed the liabilities of a joint-venturer because that theory of liability contradicts the written agreements between the bank and Orchid in the records of the bank. 22 Although various circuits, including this one, have had occasion to apply the common law D'Oench doctrine since the passage of the FIRREA in 1989, Murphy argues that the Supreme Court's recent decision in O'Melveny & Myers now makes clear that the common law doctrine was preempted by that statute. To be sure, in O'Melveny & Myers the Supreme Court does not flatly state that D'Oench has been preempted by the FIRREA, but it does set forth some more general propositions that, we think, lead ineluctably to that conclusion. 23 In O'Melveny & Myers the FDIC, as receiver of a California savings bank, sued a law firm that had performed services for the bank; it claimed that the firm had been negligent and had breached its fiduciary duty by failing to uncover the wrongdoing of certain officers of the bank. --- U.S. at ----, 114 S.Ct. at 2052. The district court entered summary judgment in favor of the law firm, apparently upon the ground that under California law knowledge of the employees' misconduct is imputed to the employer--and thence to the FDIC as receiver in the employer's stead. Id. The FDIC argued that the question whether to impute knowledge of a bank employee's conduct to the FDIC is governed not by California law but by federal common law. Id. The Supreme Court unanimously rejected that contention, holding that the FIRREA preempted the creation of federal common law on this issue and that the rule of decision is therefore to be found either in the federal statute itself or in state law. Id. at ---, 114 S.Ct. at 2054. 24 The Court began its discussion of preemption with the proposition that it would [not] adopt a court-made rule to supplement federal statutory regulation that is comprehensive and detailed; matters left unaddressed in such a scheme are presumably left subject to the disposition provided by state law. Id. The Court then turned to 12 U.S.C. Sec. 1821(d)(2)(A)(i), which, as amended by the FIRREA, provides that the FDIC shall ... by operation of law, succeed to all rights, titles, powers, and privileges of the insured depository institution, and explained that this provision appears to indicate that the FDIC as receiver steps into the shoes of the failed S & L [so that] any defense good against the original party is good against the receiver. Id. 25 The Court went on to hold that the above-quoted provision is an exclusive grant of rights to the FDIC as receiver, which can be neither supplemented [nor] modified by federal common law. Id. Here the Court cited four provisions of the FIRREA--including Sec. 1821(d)(9), which it described parenthetically as excluding certain state-law claims against FDIC based on oral agreements by the S & L--that specifically create special federal rules of decision regarding claims by, and defenses against, the FDIC as receiver.... Inclusio unius, exclusio alterius. Id. The Court concluded this aspect of the opinion with the broad observation: 26 It is hard to avoid the conclusion that Sec. 1821(d)(2)(A)(i) places the FDIC in the shoes of the insolvent S & L, to work out its claims under state law, except where some provision in the extensive framework of FIRREA provides otherwise. To create additional federal common-law exceptions is not to supplement this scheme, but to alter it. 27 Id. 28 Although the Court's reasoning appears to leave no room for a federal common law D'Oench doctrine, the FDIC here emphasizes that the continuing vitality of D'Oench was not directly before the Supreme Court and that the Court did not specifically mention D'Oench in its opinion. That is hardly compelling, however, when one considers that [i]n cases of doubt, the institutional role of the Supreme Court weighs in favor of considering its rulings to be general rather than limited to the particular facts. Cowin v. Bresler, 741 F.2d 410, 425 (D.C.Cir.1984). That point has particular force in this instance, for while the vitality of D'Oench was not directly at issue in O'Melveny & Myers the Court was specifically advised by both sides on brief and at oral argument that resolution of the issue before it could also affect the D'Oench doctrine. Moreover, although the opinion for the Court does not specifically mention D'Oench, it does expressly include one of the D'Oench-like statutory provisions (Sec. 1821(d)(9)) in the list of special federal statutory rules of decision from which it infers that [i ]nclusio unius, exclusio alterius. O'Melveny & Myers, --- U.S. at ----, 114 S.Ct. at 2054. In so doing the Supreme Court, we think, necessarily decided the D'Oench question. To translate: the inclusion of Sec. 1821(d)(9) in the FIRREA implies the exclusion of overlapping federal common law defenses not specifically mentioned in the statute--of which the D'Oench doctrine is one. 29 The FDIC next contends that this interpretation is inconsistent with both the Supreme Court's earlier decision in Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987), and the decisions of several lower courts (including this one) holding that D'Oench survives the enactment of the FIRREA. The FDIC suggests that in Langley the Court signalled the continuing validity of the D'Oench doctrine because it relied upon the D'Oench case itself to inform its interpretation of the term agreement in Sec. 1823(e). Even if we accepted that interpretation of Langley, however, it would surely not dispose of the present issue because the Court decided Langley before the Congress enacted the FIRREA. In any event, in Langley itself the Court suggested, if anything, that D'Oench was even then a dead letter: 30 That agreement in Sec. 1823(e) covers more than promises to perform acts in the future is confirmed by examination of the leading case in the area prior to the enactment of Sec. 1823(e) in 1950 ... D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942).... 31 Id. at 92, 108 S.Ct. at 401. Referring to D'Oench as the leading case prior to the enactment of Sec. 1823(e) in 1950 implies that D'Oench had lost its vitality as federal common law with the enactment of the FDIA in 1950. At most the Court in Langley left that question open. 32 As for the post-FIRREA decisions of the lower courts, the FDIC is undeniably correct in its assertion that many courts, including we, have either explicitly stated or implicitly assumed that the federal common law remains alive and well alongside its statutory cousin. See, e.g. du Pont, 32 F.3d at 596-97; NBW, 826 F.Supp. at 1457-61 (and cases cited therein). Most courts, however, have done so without even considering the preemption question. NBW, 826 F.Supp. at 1458. More specifically, not one court has discussed the impact of last year's decision in O'Melveny & Myers upon the continuing vitality of D'Oench. As the FDIC notes, our own du Pont opinion issued after O'Melveny & Myers; but it was briefed and argued before the Supreme Court decision issued, and no party in du Pont brought the pendency of the issue in O'Melveny & Myers to the attention of the court. We can therefore state with confidence that this court has not heretofore decided what impact O'Melveny & Myers has upon the D'Oench doctrine. 33 Finally, as a fallback the FDIC characterizes the O'Melveny & Myers opinion as a prohibition only upon the creation of new federal common law, thus suggesting that the Supreme Court decision does not reach the question whether already extant federal common law was preempted by the enactment of the FIRREA. That interpretation is not literally inconsistent with anything the Supreme Court says in O'Melveny & Myers: The federal common law rule at issue in that case appears to have been newly announced by the court of appeals post-FIRREA, and at one point the Court framed the issue before it as whether to adopt a court-made rule to supplement federal statutory regulation. --- U.S. at ----, 114 S.Ct. at 2054. 34 The problem with such a narrow focus upon O'Melveny & Myers is that it excludes from view all that the Supreme Court has said before about the impact of comprehensive new legislation upon existing federal common law. Although federal common law is sometimes a necessary expedient, Milwaukee v. Illinois, 451 U.S. 304, 314-15, 101 S.Ct. 1784, 1791-92, 68 L.Ed.2d 114 (1981), the Court has made clear that 35 when Congress addresses a question previously governed by a decision rested on federal common law the need for such an unusual exercise of law-making by federal courts disappears.... [The Court's] commitment to the separation of powers is too fundamental to continue to rely on federal common law ... when Congress has addressed the problem. 36 By stating that Sec. 1821(d)(2)(A)(i) places the FDIC in the shoes of the insolvent S & L, to work out its claims under state law, except where some provision in the extensive framework of FIRREA provides otherwise, O'Melveny & Myers, --- U.S. at ----, 114 S.Ct. at 2054, the Supreme Court appears to have concluded that the Congress in the FIRREA did indeed address the question previously governed by D'Oench. It follows that the need for a body of federal common law under the rubric of D'Oench has now disappeared and that the district court erred in holding that Murphy's claims are barred under D'Oench.