Court Opinion

ID: 9745808
Source: CourtListenerOpinion
Date Created: 2023-08-27 13:32:45.916933+00
Date Added: 2024-06-11T07:25:04.747891
License: Public Domain

CHIEF JUSTICE BILANDIC, dissenting: The majority opinion is fatally flawed by its erroneous application of section 1823(e) to the facts of this case. O’Malley’s guarantee was discharged by mutual releases exchanged between O’Malley and the Bank. The FDIC has no authority to enforce a nonexistent guarantee. For this reason, I respectfully dissent. Section 1823(e) provides that the rights and interests of the FDIC in assets acquired from a bank pursuant to its statutory duties cannot be diminished or defeated by agreements that do not meet certain requirements. (12 U.S.C. § 1823(e) (1988).) This section was enacted to protect the FDIC from secret agreements, and deceptive schemes or arrangements, between a bank and an obligor, which tend to misrepresent a bank’s assets and ultimately mislead the FDIC. See Langley v. Federal Deposit Insurance Corp. (1987), 484 U.S. 86, 92-93, 98 L. Ed. 2d 340, 347-48, 108 S. Ct 396, 401-02; Commerce Federal Savings Bank v. Federal Deposit Insurance Corp. (6th Cir. 1989), 872 F.2d 1240, 1245; Armstrong v. Resolution Trust Corp. (1993), 157 Ill. 2d 49, 61-62. Section 1823(e), by its own terms, is not applicable under the facts of this case. Section 1823(e) applies only to assets acquired by the FDIC in a takeover. It does not apply to situations where no asset exists because it has been extinguished prior to the FDIC’s takeover of the bank. See Commerce Federal Savings Bank v. Federal Deposit Insurance Corp. (6th Cir. 1989), 872 F.2d 1240; Federal Deposit Insurance Corp. v. Prann (D.P.R. 1988), 694 F. Supp. 1027, aff’d (1st Cir. 1990), 895 F.2d 824. In this case, the guarantee that O’Malley executed in 1975 did not exist and thus was not an asset of the Bank at the time the FDIC acquired the Bank’s assets. Approximately four years before the FDIC took over the Bank, O’Malley received a written release from the Bank, signed by its president, which released O’Malley from all obligations owed to the Bank. In consideration for this release, O’Malley released the Bank from any obligations it owed to him. Section 1823(e) does not apply to the facts here because O’Malley’s release was not a secret agreement designed to deprive the FDIC of an otherwise valid asset. Rather, the release demonstrates that the guarantee was not an asset of the Bank at the time the FDIC took over the Bank. Thus, the majority incorrectly applies section 1823(e) in this case to prevent an innocent party from asserting a valid release. Several courts have recognized that section 1823(e) does not apply under circumstances such as those at issue here. In Commerce, a deed of trust was executed as security for a loan. The deed of trust contained a clause covering future debts. The balance of the loan was subsequently paid, and the bank orally agreed to release the deed of trust. Meanwhile the bank failed and the FDIC was appointed as receiver of its assets. The FDIC acquired various assets of the failed bank, including the deed of trust and a second promissory note. The FDIC refused to release the deed of trust, contending that the second promissory note was secured by the deed of trust. The FDIC argued that the oral agreement to release the deed was barred by section 1823(e). The Sixth Circuit rejected the FDIC’s position and held that the deed of trust was not an asset acquired by the FDIC. (Commerce, 872 F.2d at 1246.) The court concluded that the original loan had been satisfied before the FDIC’s involvement and that the oral agreement to release the trust deed was enforceable and not barred by section 1823(e). Commerce, 872 F.2d at 1246. Similarly, in Prann, the FDIC sought to recover on a promissory note. The court held that section 1823(e) was not applicable because the debt underlying the note was satisfied before the FDIC acquired the bank’s assets. (Prann, 694 F. Supp. at 1037.) Consequently, the note was not an asset protected by section 1823(e). The majority opinion attempts to distinguish Commerce and Prann by pointing out that the underlying debts had been paid, whereas in the instant case O’Malley relies on a release. The majority fails to comprehend that an obligation can be discharged in a number of ways, including obtaining a valid release. Consequently, the fact that the methods of discharge differed in those cases and the instant case is insignificant. Nonetheless, it is significant that full payment in Commerce and Prann and full release of O’Malley in the instant case both occurred prior to the FDIC’s acquisition of any assets. By discharging the release prior to the FDIC’s takeover of the Bank, the guarantee did not exist as an asset. For the reasons stated, the FDIC had no authority to consider the guarantee as an asset of the Bank. Since it was not an asset of the Bank, it could not be enforced against O’Malley. Accordingly, I dissent from the majority’s decision.