Court Opinion

ID: 9480722
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:56:27.467874+00
Date Added: 2024-06-11T17:47:52.008834
License: Public Domain

BALDOCK, Circuit Judge,
with whom TACHA and BRORBY, Circuit Judges, join, concurring in part and dissenting in part.
I concur in the court’s decision that Colo. Rev.Stat. § 11-5-106(1)1 (Supp.1989) does not operate to make this letter of credit (documentary credit) assignable from FDIC-receiver to FDIC-corporation given the express provision against such assignment contained in the UCP and Colo.Rev. *1478Stat. § 4-5-116(1)2 (1974). The two statutes speak to different subjects, and do not conflict if § 11-5-106(1) is read as a rule of administration rather than a substantive rule of property controlling the assignment of bank assets. See Moran v. Carlstrom, 775 P.2d 1176, 1182-83 (Colo.1989) (court should harmonize potentially conflicting statutes whenever possible so as to give effect to each statute). Even if the potential conflict between § 11-5-106(1) and § 4-5-116(1) was viewed as irreconcilable, § 4-5-116(1) concerning assignment of letters of credit would prevail because it is the later and more particular enactment. See Public Employees Retirement Assn. v. Greene, 580 P.2d 385, 387 (Colo.1978) (when statutes conflict, later enactment controls); Moran, 775 P.2d at 1183 (when statutes conflict, more specific statute controls).
I also concur in the court’s decision that we have jurisdiction to consider FDIC-corporation’s claim under 12 U.S.C. § 1819 (Fourth) because FDIC in its corporate capacity acquired the documentary credit from itself in its capacity as receiver. “[T]he presence of an intra-FDIC transfer does not deprive the district court of subject matter jurisdiction.” See FDIC v. Nichols, 885 F.2d 633, 636-37 (9th Cir.1989). Thus, we have jurisdiction to consider the appeal.
I respectfully dissent, however, from the court’s decision that FDIC-corporation may draw upon the documentary credit. The court decides that FDIC-corporation takes free of assignment restrictions created by state law because FDIC-corporation has the power to purchase any asset of a failed bank under 12 U.S.C. § 1823(c)(2)(A). Having decided the question before it on federal statutory preemption, the court then forges federal common law. However, when a federal statute provides the answer, we are without authority to supplement the field with federal common law. See City of Milwaukee v. Illinois, 451 U.S. 304, 312-14, 101 S.Ct. 1784, 1789-91, 68 L.Ed.2d 114 (1981); Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625, 98 S.Ct. 2010, 2015, 56 L.Ed.2d 581 (1978). The court’s approach is in marked contrast with courts which have developed federal common law to allow the FDIC to prevail; other courts have done so only when federal statutory preemption was not an available ground. See, e.g., FDIC v. Leach, 772 F.2d 1262, 1268 (6th Cir.) (12 U.S.C. § 1823(e) does not bar failure of consideration defense, but federal common law does); FDIC v. Wood, 758 F.2d 156, 159 (6th Cir.1985) (§ 1823(e) does not grant FDIC holder in due course status which would be unavailable under state law, but federal common law does), cert. denied, 474 U.S. 944, 106 S.Ct. 308, 88 L.Ed.2d 286 (1985).
What drives the court’s opinion is the notion that the FDIC undertakes purchase and assumption transactions in a fire-drill atmosphere and cannot be expected to review or abide by state law restrictions concerning the assignment of letters of credit.3 To be sure, the Supreme Court in Langley v. FDIC, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987), has indicated that in such transactions the evaluation of a failed bank’s assets “must be made ‘with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services.’ ” Id. at 91, 108 S.Ct. at 401 (quoting Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982)). *1479But this language should be read in the context of Langley’s holding that 12 U.S.C. § 1823(e)4 bars a defense of “fraud in the inducement even when the fraud did not take the form of an express promise.” 5 Langley, 484 U.S. at 90, 96, 108 S.Ct. at 400. In discussing the purposes underlying 12 U.S.C. § 1823(e) the Court indicated that “[o]ne purpose of § 1823(e) is to allow federal and state bank examiners to rely on a bank’s records in evaluating the worth of a bank’s assets.” Langley, 484 U.S. at 91, 108 S.Ct. at 401. The Court stated:
The last kind of evaluation [for purchase and assumption], in particular, must be made “with great speed, usually overnight, in order to preserve the going concern value of the failed bank and avoid an interruption in banking services.” Gunter v. Hutcheson, 674 F.2d at 866. Neither the FDIC nor state banking authorities would be able to make reliable evaluations if bank records contained seemingly unqualified notes that are in fact subject to undisclosed conditions.
Langley, 484 U.S. at 91-92, 108 S.Ct. at 401-02. The FDIC under § 1823(e) is not held to undisclosed oral conditions, even if fraudulent and known. Langley, 484 U.S. at 93-96, 108 S.Ct. at 402-03. Other cases have justified the result that the FDIC takes, free of fraud in the inducement and other personal defenses in part because a purchase and assumption agreement must be accomplished quickly. See Leach, 772 F.2d at 1264, 1266-67 (FDIC takes free of personal defenses including failure of consideration and usury because FDIC is a holder in due course as a matter of federal common law); Wood, 758 F.2d at 160-61 (same concerning personal defense of usury); Gunter, 674 F.2d at 865, 868 (FDIC takes free of defense of fraud in the inducement as a matter of federal common law); FDIC v. Merchants Nat’l Bank of Mobile, 725 F.2d 634, 639 (11th Cir.) (FDIC takes under § 1823(e) free of claim that bank participated only in unguaranteed portion of loan), cert. denied, 469 U.S. 829, 105 S.Ct. 114, 83 L.Ed.2d 57 (1984).
The documentary credit in this case is not a “seemingly unqualified” asset “that [is] in fact subject to undisclosed conditions,” which would escape the attention of the FDIC. See Langley, 484 U.S. at 92, 108 S.Ct. at 401. Nor is this a situation in which the Bank of Boulder should be precluded from asserting its defense to payment because it knowingly contributed to a misrepresentation which affected the FDIC. See D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 459-61, 62 S.Ct. 676, 680-82, 86 L.Ed. 956 (1942). On its face, the letter of credit states:
This credit is subject to the “Uniform Customs and Practices for Documentary Credits [UCP]” (1974 Revision), International Chamber of Commerce Brochure No. 290.
The 1974 UCP referenced in the letter of credit provides that: “A credit can be transferred only if it is expressly designated as ‘transferable’ by the issuing bank.” 1974 UCP art. 46(b).
Although UCP art. 46(b) is similar to Colo.Rev.Stat. § 4-5-116(1) concerning as*1480signment, the court never addresses the fact that the source of the assignment restriction in this case is not state law, but rather a private agreement which incorporated the 1974 UCP as the rule of decision. Surely the parties have the right to have the documentary credit controlled by the UCP, rather than by state law, even if the two are similar concerning assignment. See 2 J. White & S. Summers, Uniform Commercial Code § 19-3 at 16-18, § 19-4 at 22 (“the general principle of freedom of contract reigns in Article 5.”) (1988); Colo. Rev.Stat. § 4-1-102(3) (1974) (effect of UCC provisions generally may be varied by agreement). While the FDIC has prevailed in many instances on a theory of federal preemption of state law, see e.g., NCNB Texas Nat’l Bank v. Cowden, 895 F.2d 1488, 1501-03 (5th Cir.1990), federal law should not be allowed to displace the private agreement between the parties.
The FDIC might benefit handsomely by allowing it to judicially and unilaterally redraft the instruments it acquires from a failed bank to avoid the acquisition of worthless assets. For example, additional collateral might be added to secure a worthless note or a better legal description of real property might be added to mortgaged real property about to be foreclosed. But no one would suggest that merely because FDIC-Corporation has the power under 18 U.S.C. § 1823(c)(2)(A) “to purchase any ... assets” of a failed bank, it may change the express written terms of those assets so as to increase their value. Yet, that is what the court has done by ignoring the source of the assignment restriction in this case. The private provision concerning the applicability of the UCP to this documentary credit, hence the UCP restriction on assignment, has been read out of the parties’ agreement.
Even assuming, arguendo, that the source of the assignment restriction was grounded in state law, I do not agree that a rule concerning “the assignability of tort claims is equally applicable to the assigna-bility of letters of credit.” Court’s Opinion at 1474. In deciding that 12 U.S.C. § 1823(c)(2)(A) allows FDIC-corporation to purchase or acquire assets free of transferability restrictions, the court relies upon cases involving the assignability of tort actions to the FDIC against those who may have contributed to the bank’s insolvency. See FDIC v. Main Hurdman, 655 F.Supp. 259 (E.D.Cal.1987) (tort action against accounting firm which prepared allegedly false financial statements for borrower); FDIC v. Hudson, 643 F.Supp. 496 (D.Kan.1986) (tort action against bank’s officers, directors and employees); FDIC v. Abraham, 439 F.Supp. 1150, 1153 (E.D.La.1977) (tort action against former directors; any state law prohibition on assignment not an issue); FSLIC v. Fielding, 309 F.Supp. 1146 (D.Nev.1969) (suit against officers, directors and others associated with savings and loan association), cert. denied, 400 U.S. 1009, 91 S.Ct. 567, 27 L.Ed.2d 621 (1971); FDIC v. Rectenwall, 97 F.Supp. 273 (N.D.Ind.1951) (tort action against cashier who allegedly paid drafts when drawer’s accounts were insufficient to cover the drafts). A case cited by the court which did not involve a tort or quasi-tort action, Chatham Ventures, Inc. v. FDIC, 651 F.2d 355 (5th Cir.1981), cert. denied, 456 U.S. 972, 102 S.Ct. 2234, 72 L.Ed.2d 845 (1982), also did not involve a state law prohibition on assignment of the note in question. The court in that case specifically noted that it “need not decide what result would obtain if state law made the FDIC’s rights worthless.” Id. at 358 n. 4.
The court holds that the language in the cases concerning assignment of tort actions to the FDIC “is universal in scope and reasoning, thus including letters of credit, particularly when discussing the need for speed in a P & A transaction.” Court’s Opinion at 1474. Apart from obvious differences between a tort. and a contract, different implications arise from the assignment of tort actions and letters of credit which should inform our judgment. The commercial usefulness of a documentary credit depends upon the doctrines of independence6 and strict compliance.7 Allow*1481ing the beneficiary to assign its interest, contrary to the express terms of the credit, impairs these principles. See J. Dolan, The Law of Letters of Credit ¶ 10.03 (1984 & 1990 Supp.). An issuer will not be able to discharge its responsibility merely by determining whether the documents conform on their face with the terms of the credit. Rather, the issuer’will be forced to examine the underlying transaction between the customer and the beneficiary and decide whether strict compliance with the terms of the credit should be required. This materially alters (increases) the risk the issuer has bargained for and it also diminishes the certainty associated with letters of credit.8 See FDIC v. Bank of Boulder, 865 F.2d 1134, 1143-46 (10th Cir.1988) (Baldock, J., dissenting). To recognize a transfer by operation of law may be permissible even in light to these policies, but recognizing a subsequent voluntary transfer, i.e., from FDIC-receiver to FDIC-corporation, unnecessarily compromises these state-law policies which are fundamental to the commercial utility of documentary credits. See Colo.Rev.Stat. § 4-5-116 comment 1 (allowing beneficiary to assign credit may deprive customer of “real and intended security”).
Unlike a documentary credit, a tort is not a commercial instrument which constitutes a medium of exchange. Choses in action generally do not facilitate commerce. They are not regularly exchanged. The underlying conduct giving rise to tort actions hardly will be affected if the tort is assignable. Thus, the statement in FDIC v. Rectenwall, 97 F.Supp. at 274, that the language of § 1823(c)(2)(A) “contemplates the unrestricted transferability of every asset of an insured bank, at least where necessary to accomplish the assumption of its deposit liabilities by another insured bank,” simply is too broad. For example, it is unlikely that a personal service contract would be assignable. But see NCNB Texas Nat’l Bank, 895 F.2d at 1499-1503 (fiduciary appointments, non-transferable under Texas-law, may be transferred by FDIC-receiver to federally created bridge bank under former 12 U.S.C. § 1821(i)). While tort actions for the malfeasance of bank officers and directors may be assignable as a matter of federal law, there is no requirement that federal law must supply a rule of decision at odds with uniform state law. See United States v. Kimbell Foods, 440 U.S. 715, 728, 99 S.Ct. 1448, 1458, 59 L.Ed.2d 711 (1979) (holding that a national rule is not needed to determine the priority of liens arising from federal lending programs); D’Oench, 315 U.S. at 473-74, 62 S.Ct. at 686-87 (Jackson, J., concurring) (“No doubt many questions as to the liability of parties to commercial paper which comes into the hands of the [FDIC] will best be solved by applying the local law with reference to which the makers and the insured bank presumably contracted.”).
*1482“Commercial agreements traditionally are the domain of state law.” Aronson v. Quick Point Pencil Co., 440 U.S. 257, 263, 99 S.Ct. 1096, 1099, 59 L.Ed.2d 296 (1979). The presence of a uniform rule restricting assignment, absent an express provision, argues forcefully against a contrary federal rule for the benefit of the FDIC. The UCC provision concerning assignment is in use in all fifty states, 2A Uniform Laws Ann. § 5-116 (Master Ed.1977 & 1990 Pamp.), and the UCP is in use throughout the world. The court’s opinion would be on much firmer ground if the UCP and the UCC prohibited assignment altogether, but that is not the case. Both the UCP and the UCC allow for a right to assign proceeds even when the beneficiary’s right to draw upon the credit is not assignable. 1974 UCP art. 47; Colo.Rev.Stat. § 4-5-116(2) (1989 Supp.). Both the UCP and the UCC allow for assignment if the credit is expressly designated as transferable or assignable by the issuer. 1974 UCP art. 46(b); Colo.Rev.Stat. § 4-5-116(1) (1974). Thus, the UCC and the UCP provisions hardly stand as a bar to potential FDIC collection efforts; the FDIC is free to insist that its member banks only accept assignable letters of credit as security for loans. Moreover, assuming that Colorado law would recognize a transfer by operation of law to FDIC-receiver, FDIC-receiver could have assigned the. proceeds to FDIC-corporate. These alternatives within the present scheme suggest that this is hardly an unsolvable problem for the FDIC that would justify federal preemption either by statute or federal common law. Like any creditor, the FDIC wants to collect on its own terms, United States v. Yazell, 382 U.S. 341, 348-49, 86 S.Ct. 500, 504-05, 15 L.Ed.2d 404 (1966), but only if the UCC provision concerning assignment is a “significant threat” to the accomplishment of the FDIC's objectives would that uniform provision be preempted. See Wallis v. Pan American Petroleum Co., 384 U.S. 63, 68, 86 S.Ct. 1301, 1304, 16 L.Ed.2d 369 (1966). Given the range of options which was available to the FDIC to collect on this documentary credit, the FDIC has not shown a sufficient conflict with the FDIC’s objectives to warrant preemption. See P. Bator, D. Meltzer, P. Mishkin & D. Shapiro, Hart and Weschsler’s The Federal Courts and the Federal System 896 (3rd ed. 1988) (“The general proposition that state law cannot contradict or impede or violate a valid federal regulatory program is easily stated. Whether under the circumstances a contradiction really exists may, however, raise difficult and subtle problems.”). The national and international consistency concerning assignment of documentary credits should give us pause before adopting a rule which disrupts commercial relationships based upon established state law.

. Colo.Rev.Stat. § 11-5-106 (Supp.1989) provides in part:
Assets sold or pledged as security. (1) With respect to any banking institution closed on account of inability to meet the demands of its depositors or by action of the banking board or by action of its directors or in the event of its capital inadequacy or suspension, the liquidator of such institution may borrow from the federal deposit insurance corporation and furnish any part or all of the assets of said institution to said corporation as security for a loan from same, but, if said corporation is acting as such liquidator, the order of a court of record of competent jurisdiction shall be first obtained approving such loan. Upon the order of a court of record of competent jurisdiction, all or any part of the assets of such institution may be sold to the corporation by the banking board, or by the liquidator with the permission of the banking board.
1957 Colo.Sess.Laws ch. 86, § 1 at 271, as amended by I 1989 Colo.Sess.Laws ch. 93, § 17 at 541.

. Colo.Rev.Stat. § 4-5-116 (1974) provides in part:
Transfer and assignment. (1) The right to draw under a credit can be transferred or assigned only when the credit is expressly designated as transferable or assignable.
This provision was enacted in 1965 when Colorado enacted the Uniform Commercial Code, including art. 5 which deals with letters of credit. See 1965 Colo.Sess.Laws ch. 330, § 155-5-116 at 1401.

. As a factual matter, the note backed by the documentary credit was contained in the failing bank’s records; no snap decision on the part of the FDIC was necessary. The FDIC decided to keep this asset (in all likelihood long before the failed bank’s assets were offered for sale) well-knowing that if the asset was sold to another bank, the documentary credit would be worthless to the assuming bank.

. 12 U.S.C. § 1823(e) provides:
Agreements against Interests of the Corporation. No agreement which tends to diminish or defeat the right, title or interest of the Corporation in any asset acquired under this section, either as security for a loan or by purchase, shall be valid against the Corporation unless such agreement (1) shall be in writing, (2) shall have been executed by the bank and the person or persons claiming an adverse interest thereunder, including the ob-ligor, contemporaneously with the acquisition of the asset by the bank, (3) shall have been approved by the board of directors of the bank or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) shall have been, continuously, from the time of its execution, an official record of the bank.

. In Langley, the Court reaffirmed the broad protection afforded the FDIC under § 1823(e). The Court rejected a distinction, discussed in several cases, see FDIC v. Langley, 792 F.2d 541, 546 (5th Cir.1986), aff’d, 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987); FDIC v. Hatmaker, 756 F.2d 34, 37 (6th Cir.1985); Gunter, 674 F.2d at 867, that § 1823(e) only barred a defense of an oral side agreement pursuant to a contract, but not a defense that an entire contract was void due to fraud not tied to any contractual promise. Langley, 484 U.S. at 90-93, 108 S.Ct. at 401-02.

. The relationship between the issuer and the beneficiary is independent of the underlying (Footnote 6 continued on p. 1481)

. See note 7 on page 1481.
*1481Footnote 6 continued
transaction between the customer and the beneficiary. 1974 UCP, General provisions and definitions c.; Colo Nat’l Bank v. Board of County Comm’rs, 634 P.2d 32, 37 (Colo.1981).
7. An issuer must insist that the documents presented by the beneficiary strictly comply on their face with the terms of the documentary credit. The issuer will then have a limited responsibility — if the documents conform, the issuer must honor the draft; if not, the issuer must not honor the draft. Colo.Rev.Stat. § 4-5-114 (1974 & 1989 Supp.); American Coleman v. Intrawest Bank, 887 F.2d 1382, 1386 (10th Cir.1989) (“The duty of the issuing Bank is ministerial in nature, confined to checking the presented documents carefully against what the letter of credit requires.”); Arbest Constr. Co. v. First Nat’l Bank & Trust Co., 777 F.2d 581, 584-85 (10th Cir.1985). In our diversity jurisdiction, we have discussed the importance of the strict compliance principle and determined that Colorado law would retain a strict compliance test, not one based upon substantial compliance, even when the deviation between the draft and the credit is trivial or technical in nature. American Coleman, 887 F.2d 1385-87.

. Bankers generally know the risks involved when they issue a documentary credit. Bankers are not philanthropists, but rather charge a fee for issuing a letter of credit. That fee is a function of the risks involved. By changing the rules governing documentary credits, both state and international, and thus allowing assignment of a credit in the absence of an express designation of transferability, the court will contribute to an increased fee associated with the issuance of documentary credits to compensate for increased risk. See J. Dolan, The Law of Letters of Credit ¶ 10.03[3] (1984) (discussing risk of litigation inherent in erosion of strict compliance principle).