Opinion ID: 707618
Heading Depth: 2
Heading Rank: 1

Heading: the development of federal common law powers of the fdic

Text: 11 In D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), the Supreme Court created a federal common law rule barring the invocation of secret agreements which were not recorded in a bank's records as defenses against payment of a promissory note. See generally, James J. White & Robert S. Summers, Uniform Commercial Code Sec. 14-12, at 740 (3d ed. 1988); Murphy v. FDIC, 61 F.3d 34, 38 (D.C.Cir.1995). In D'Oench, a securities broker had sold certain bonds to a bank. When the bonds defaulted, the broker executed a promissory note to the bank in the amount of the bonds, pursuant to a secret agreement that the bank would not request payment of the note. The arrangement effectively concealed the worthlessness of the bonds and misrepresented to bank examiners the value of the bank's assets. When the bank failed, the FDIC became the bank's receiver and in its capacity as receiver demanded payment of the note. The broker asserted the secret agreement and lack of consideration as defenses. The Supreme Court held that federal common law prohibited the obligor from raising the defenses. Id. at 461-62, 62 S.Ct. at 681-82. 12 Although the Supreme Court acknowledged that the arrangement was not an outright violation of the Federal Reserve Act, it created the common law rule to facilitate the federal policy behind the Act. Id. at 459, 62 S.Ct. at 680. The Court stated that the Act revealed a federal policy 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. Id. at 457, 62 S.Ct. at 679. 13 Congress subsequently adopted the D'Oench decision in the 1950 amendments to the Federal Deposit Insurance Act. 5 Congress amended the provision in 1989 as part of FIRREA. 6 The amendment broadened the statute to protect assets acquired by the FDIC when it acts as receiver for a failed bank. The current version may be found at 12 U.S.C. Sec. 1823(e). Section 1821(d)(9)(A), which was also a part of FIRREA, further provides that any agreement which does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the [FDIC]. 12 U.S.C. Sec. 1821(d)(9)(A) (1994). 14 The D'Oench decision also spawned the development of a body of federal common law which protected the FDIC against certain defenses as well as affirmative claims. See White & Summers, Uniform Commercial Code Sec. 14-12, at 740; Fred Galves, FDIC and RTC Special Powers in Failed Bank Litigation, 22 Colo.Law. 473 (1993); Marie T. Reilly, The FDIC as Holder in Due Course: Some Law and Economics, 1992 Colum.Bus.L.Rev. 165, 176-97 (1992). These federal common law rules served to advance federal policy by furthering the FDIC's ability to protect and transfer the assets of failed banks. See FDIC v. Newhart, 892 F.2d 47, 50 (8th Cir.1989); FDIC v. Gulf Life Ins. Co., 737 F.2d 1513, 1517-18 (11th Cir.1984). 15 Among these federal common law protections are the D'Oench Duhme doctrine and the federal holder in due course doctrine. The common law D'Oench Duhme doctrine is roughly analogous to the statutory provision but does provide the FDIC with broader protections in certain instances. See E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 596-97 (D.C.Cir.1994); Inn At Saratoga Associates v. FDIC, 60 F.3d 78, 81-82 (2d Cir.1995). The federal holder in due course doctrine bars makers of promissory notes from asserting personal defenses against the FDIC and its successors even though the defenses are based on a written agreement. Sunbelt Sav., FSB Dallas, Texas v. Montross, 923 F.2d 353, 355 modified on other grounds in RTC v. Montross, 944 F.2d 227 (5th Cir.1991); FDIC v. Aetna Cas. & Sur. Co., 947 F.2d 196, 203 (6th Cir.1991).