Court Opinion

ID: 8934392
Source: CourtListenerOpinion
Date Created: 2022-11-27 07:24:13.599473+00
Date Added: 2024-06-11T17:09:35.938114
License: Public Domain

MERRITT, Circuit Judge,
dissenting.
I agree that under the doctrine of Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838, (1943), and United States v. Kimbell Foods, Inc., 440 *1269U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979), federal common law governs the question of whether the defenses of usury and failure of consideration may be asserted against the FDIC when it attempts to collect on notes it has acquired in its corporate capacity in a purchase and assumption transaction. But that does not mean that federal common law has to reject state law in the interest of what seems to me an unnecessarily bureaucratic national uniformity. The majority’s federal common law rule rudely displaces state law and disrupts the ordinary expectations of consumers and businessmen based on that law, and it does not further the FDIC’s administration of any statutory program or policy.
My basic problem is that I do not see any very good reason to create for the FDIC an immunity from state law defenses that its assignor, the troubled bank, does not share. To allow such an immunity for the FDIC seriously undermines the expectations of borrowers and the symmetry of the law. If there were some indication that such an immunity is needed in order to preserve the banking system, that would be a different question. The FDIC has neither made, nor attempted to make, such a showing.
The FDIC’s immunity from the state law defenses of usury and failure of consideration should be determined in the following manner: under D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 460, 62 S.Ct. 676, 680, 86 L.Ed. 956 (1942), ORA and Henderson should be estopped from asserting the failure of consideration defense if they are found to have participated in a scheme or arrangement intended or likely to deceive the FDIC in insuring the bank. If not, then the defense should be available to them if it would be under Michigan law. So the question comes down to whether the bank was a holder in due course under Michigan law. Similarly, assuming that the usurious rate on the note by Leach and Bartneck was not agreed to as part of a scheme intended or likely to mislead the FDIC, the Corporation should be barred from collecting interest on the usurious note if the bank would have been barred under Michigan law.
The majority’s decision rests primarily on this court’s recent holding in FDIC v. Wood, 758 F.2d 156, 159 (6th Cir.1985), that the FDIC is immune from the defense of usury as a matter of federal common law. The court in Wood found that important federal policies would be frustrated if the FDIC’s vulnerability to personal defenses such as usury and failure of consideration was determined by reference to state law.. The first policy concern expressed in Wood was that since the FDIC will not qualify usually as a holder in due course because it does not acquire notes in the ordinary course of business, makers will be free to assert personal defenses to the note when the FDIC attempts to collect on it and thereby effectively have an absolute priority over other creditors of failed banks. 758 F.2d at 160.' The court in Wood also found that 12 U.S.C. § 1823(c)(4)(A) expressed a “congressional mandate that purchase and assumption transactions be less expensive than liquidations,” and found that since the presence of state law defenses would necessarily reduce the amount of collectible notes and increase the cost of a purchase and assumption transaction, the supposed “congressional mandate” required the FDIC’s immunization from those defenses. 758 F.2d at 161.
The Wood panel’s characterization of note makers who assert state law defenses as creditors of the bank is strange indeed. A note maker is indebted to the bank which holds his note and has no priority as a creditor. Assertion of a valid state law defense does not establish a claim against the bank, but relieves the maker of his liability on the note.
With regard to the second policy justifying the result in Wood, it is crucial to note that under 12 U.S.C. § 1823(c)(4)(A), the FDIC may choose the purchase and assumption alternative whenever the cost of purchase and assumption is lower than that amount which the “Corporation determines to be reasonably necessary to save the cost *1270of liquidating,” or “when the Corporation determines that the continued operation of such insured bank is essential to provide adequate banking services in its community.” 1 Thus, under the current statutory policy, there are circumstances in which the relative costs of purchase and assumption and liquidation need not be considered by the FDIC, and even when this comparison must be made, the Corporation need only estimate the expenses “reasonably necessary” to save the cost of liquidation. The court in Wood misinterpreted a statute instructing the FDIC to choose purchase and assumption only when it thinks this will be cheaper than liquidation as mandating the minimization of the actual cost of purchase and assumption by immunizing the FDIC from state law defenses. The Wood rule is clearly not justified by the policy underlying this statute, and its only certain effect is to redistribute the cost of bank failure from taxpayers, each of whom bears only a small fraction of the total cost, to a small number of note makers whose individual liability may be significant.
In addition, the creation of federal common law immunity for the FDIC threatens to unnecessarily disrupt “commercial relationships predicated on state law.” United States v. Kimbell Foods, Inc., 440 U.S. 715, 729, 99 S.Ct. 1448, 1459, 59 L.Ed.2d 711 (1979). For although note makers are well aware that the transferee may be a holder in due course, there is little question but that the Wood approach paves the way for the elevation of the FDIC to a status far exceeding that of an ordinary holder in due course. The Wood case and the court in this case would essentially do away with the actual notice limitation on holder in due course status when the FDIC is involved. And while the plaintiffs here and in Wood appear to be relatively sophisticated businessmen with little need for judicial protection, many state courts have lifted holder in due course immunity when consumer loans are involved, see J. White & R. Summers, Uniform Commercial Code § 14-8 (2d ed. 1980), but under the approach of the majority and the Wood panel, the legitimate expectations of innocent consumers of the protections afforded under the traditional state authority to regulate commercial transactions will be overriden by the judicially-created powers of a federal agency.
The undesirable effects of the majority’s approach can be eliminated without interfering with the FDIC’s administration of its statutory mandate by understanding the interplay between federal statute, federal common law and state law. In 12 U.S.C. § 1823(e), Congress has protected the FDIC from secret agreements which would defeat rights it would otherwise have as a bank’s successor. This statute was enacted well after the decisions in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and it codifies the D’Oench rule protecting the FDIC from secret agreements. Read in light of this statute, D’Oench now stands for the narrow and supplementary proposition that where an accomodation maker executes an agreement intended or likely to mislead banking authorities, he is equitably es-topped from raising state law defenses that would void the agreement as between himself and the bank. 315 U.S. at 460, 62 S.Ct. at 680. This supplementary common law rule is necessary because in a bad faith transaction of the D’Oench sort, the bank does not acquire any rights under state law to which the FDIC could succeed. However, as a matter of federal policy, where ordinary, good faith transactions are in*1271volved, the D’Oench estoppel rule does not apply, and “the liability of the parties to commercial paper which comes into the hands of the Corporation will be best solved by applying the local law with reference to which the makers and the insured bank presumably contracted.” 315 U.S. at 474, 62 S.Ct. at 687 (Jackson, J., concurring). See FDIC v. Meo, 505 F.2d 790, 793 (9th Cir.1974).
Under this standard, ORA and Henderson should be allowed to defend against collection on the ground that consideration failed because the land was never released if Michigan law would have permitted them to assert that defense against the insured bank, provided that they are not estopped under the rule of D’Oench. The existence of an estoppel in turn depends on whether ORA and Henderson should have known that the note would be used as collateral by Leach and Bartneck. Henderson vigorously denies any knowledge that the note would be used as collateral, and contends that he was in fact told that the note had been destroyed. In addition, Henderson denied that the note was a renewal of an earlier note that ORA did not know would be used as collateral. In this posture, it was inappropriate for the District Court to grant summary judgment for the Corporation, and I would remand for further proceedings on this issue.
On the usurious note from Leach and Bartneck to the bank, the majority would remand for a determination of whether the FDIC had actual knowledge that the note had a usurious rate at the time of the purchase and assumption transaction. Although this result is dictated by the erroneous panel decision in Wood, I believe that the proper question, however, is not whether state law would have allowed the defense against a holder in due course, but whether the defense could have been asserted against the bank, since the preservation of ordinary commercial expectations is best achieved by placing the FDIC in the bank’s position prior to its failure.
This question was not decided by the District Court, which held that federal common law immunized the Corporation from the usury defense. The issue under Michigan law is whether the 13 per cent interest rate on the Leach and Bartneck note is exempt from the M.C.L.A. § 438.31 maximum of 7 per cent because it is a business loan under M.C.L.A. § 438.61. That section requires that a sworn statement specifying the business purpose of the loan must be filed with the lender in order for a loan to a natural person to qualify as a business loan exempt from the statutory maximum.2 It is undisputed that Leach and Bartneck never filed a business purpose affidavit, and I would remand to the District Court for consideration of whether Michigan law would recognize their usury defense under these circumstances.

. 12 U.S.C. § 1823(c)(4)(A) states:
No assistance shall be provided under this subsection in an amount in excess of that amount which the Corporation determines to be reasonably necessary to save the cost of liquidating, including paying the insured accounts of, such insured bank, except that such restriction shall not apply in any case in which the Corporation determines that the continued operation of such insured bank is essential to provide adequate banking services in its community.
As explained in the Senate Report, "the amount of FDIC assistance is limited to that necessary to save the cost of liquidation, unless the FDIC finds that the institution is essential to provide adequate banking service in its community, in which case the limit does not apply." S.Rep. No. 97-536, 97th Cong., 2d Sess., reprinted in 1982 U.S.Code Cong. & Ad.News 3099.

. In pertinent part, M.C.L.A. § 438.61 (Supp. 1984) provides that:
(1) as used in this act "business entity" means: ...
(b) A natural person who furnishes to the extender of credit a sworn statement in writing specifying the type of business and business purpose for which the proceeds of the loan or other extension of credit will be used, but the exemption ... does not apply if the extender of credit has notice that the person signing the sworn statement was not engaged in the business indicated.
(2) ... it is lawful in connection with the extension of credit to a business entity ... for the parties to agree in writing to any rate of interest.