33 F.3d 532 (5th Cir. 1994), 93-5262, F.D.I.C. v. McFarland

Docket Nº:93-5262.
Citation:33 F.3d 532
Party Name:FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee-Appellant, v. Rory S. McFARLAND, et al., Defendants, Rose Long McFarland, Co-trustee, Defendant-Appellant. Premier Venture Capital Corp., Third Party Defendant-Appellee, David L. Jump, Third Party Defendant Intervenor-Plaintiff-Appellee.
Case Date:October 05, 1994
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 532

33 F.3d 532 (5th Cir. 1994)

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee-Appellant,

v.

Rory S. McFARLAND, et al., Defendants,

Rose Long McFarland, Co-trustee, Defendant-Appellant.

Premier Venture Capital Corp., Third Party Defendant-Appellee,

David L. Jump, Third Party Defendant Intervenor-Plaintiff-Appellee.

No. 93-5262.

United States Court of Appeals, Fifth Circuit

October 5, 1994

Page 533

[Copyrighted Material Omitted]

Page 534

John L. Schober, Jr., and Kenneth R. Antee, Jr., Shreveport, LA, for Rose Long McFarland.

Daniel Ryan Sartor, Jr., and Charles C. Trascher, III, Snelling, Breard, Sartor, Inabnett & Trascher, Monroe, LA, for appellee.

Paul M. Adkins, Blanchard, Walker, O'Quin & Roberts, P.C., Shreveport, LA, for Premier Venture.

Thomas J. Wyatt, Hargrove, Pesnell & Wyatt, Shreveport, LA, for Jump.

David Klotz and Robert Liles, Jr., Bodenheimer, Jones, Klotz & Simmons, Shreveport, LA, for Texaco, Inc.

Roberta H. Clark, Ann S. DuRoss, Anne Buxton Sobol, and Susan R. Laporte, Sobol & Pitts, Washington, DC, for F.D.I.C.

Appeals from the United States District Court for the Western District of Louisiana.

Before REYNALDO G. GARZA, SMITH and PARKER, Circuit Judges.

Page 535

ROBERT M. PARKER, Circuit Judge:

This suit concerns the FDIC's attempt to recover from viable loans found in a failed bank's portfolio. Two related appeals emerged from one trial and one memorandum opinion of the district court.

Rose Long McFarland appeals the district court's enforcement under 12 U.S.C. Sec. 1823(e) of a continuing guaranty agreement which she contends was released prior to the FDIC's acquisition of the notes which it secured. Concluding that Sec. 1823 does not apply to the release, we reverse the district court's decision holding Rose McFarland liable under her continuing guaranty. FDIC appeals the district court's ruling that a special mortgage held by the failed bank as collateral did not cover oil and gas produced from lands that were previously part of the lease but were declared subject to a different lease prior to the time the bank took the lease as collateral. Finding no error in the district court's resolution of this issue, we affirm.

I. THE RELEASE

A.

Rose McFarland executed a Continuing Guaranty Agreement of $450,000, dated September 4, 1980, guarantying all debts and liabilities to the Bank of Commerce (BOC) incurred by her son, Rory McFarland. In January 1981, a bank officer wrote a letter to Rory Mcfarland, advising him that the bank had misplaced Rose McFarland's Guarantee Agreement and requesting a replacement guaranty, which they provided. The letter was found in the bank's files after FDIC took control.

In the early 1980's, Rory Mcfarland obtained the three loans from the BOC that are the subject of this suit. One of the loans was made to New Age Industries, Inc. and Rory Mcfarland in solido, and was secured by a lien on equipment and Rose McFarland's continuing guaranty. The other two loans were made to Rory Mcfarland personally and secured primarily by an interest Rory Mcfarland held in some offshore minerals, a pledge of life insurance on Rory Mcfarland's life, and Rose McFarland's continuing guaranty. In 1985 these loans were restructured and increased. The New Age loan was not involved in the restructuring. Rory Mcfarland paid a 1% origination fee, an increased rate of interest, and agreed to the cancellation of a $500,000 line of credit which he had previously received from the bank, in return for the release of Rose McFarland's Guaranty Agreement and an increased loan balance. Two of the bank officers wrote Rory Mcfarland a letter dated April 2, 1985, delineating the terms of his re-structured loan and stating the bank's agreement to release Rose McFarland from the 1980 Guaranty Agreement. Rory Mcfarland was to sign and return if he agreed to the terms, which he did. At approximately the same time, the bank returned an executed copy of the Guaranty Agreement to Rory Mcfarland and he destroyed it.

The minutes of the Directors Loan Committee reflect that on March 8, 1985 two loans were approved for Rory Mcfarland and his $500,000 line of credit was canceled. The listed collateral included a requirement that Rose McFarland's Guaranty agreement be increased to $1,750,000. On March 15, 1985 the Officer's Loan Committee approved the same package. Rory Mcfarland refused this loan structure and continued to negotiate, finally agreeing to the terms set forth in the April 2, 1985 letter. The promissory notes, executed by Rory Mcfarland on April 5, 1985, list the collateral for the notes and there is no reference in either note to a Guaranty by Rose McFarland. The minutes from the Director's Loan committee held on April 30, 1985 note the new renewal loans to Rory Mcfarland and list collateral for the loan, which did not include the guarantee.

On June 13, 1986 the bank was closed and FDIC was appointed receiver. In an assignment dated January 1991, the FDIC as Receiver assigned Rory Mcfarland's notes to FDIC in its corporate capacity, stating that the assignment was effective as of June 13, 1986.

At the time FDIC examined the bank records to determine the value of the Rory Mcfarland loan asset, the records included the letter requesting a replacement of Rose

Page 536

McFarland's continuing guaranty, an executed copy of Rose McFarland's Guaranty Agreement, the letter releasing it, the minutes of the Loan Committees listed above, and a "Relationship Report" (summary of customer's indebtedness) for Rory Mcfarland dated October 15, 1985 (6 months after the release) which still listed Rose McFarland's Guaranty as collateral for Rory Mcfarland's notes.

Rory Mcfarland defaulted and Rose McFarland did not pay anything on the disputed Guaranty. FDIC-Corporate brought this suit. After bench trial, the district court held that 12 U.S.C. Sec. 1823(e) applied to the release and found that the release failed to meet the requirements of Sec. 1823(e), 1 so the bank's release of Rose McFarland's Guaranty was not valid against FDIC. Specifically, the district court found that the release was not executed by Rose McFarland and that the bank's loan committee minutes do not "reflect" the release.

B.

The district court decided this case after conducting a bench trial. Our standard of review for bench trials is well established: findings of fact are reviewed for clear error; legal issues de novo. Seal v. Knorpp, 957 F.2d 1230, 1233 (5th Cir.1992). The district court held that 12 U.S.C. Sec. 1823(e) precluded Rose McFarland from raising the release agreement as a defense against FDIC. We review de novo the applicability of Sec. 1823(e) to this case.

Section 1823 is the statutory counterpart to D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). Courts often consider the D'Oench, Duhme doctrine and Sec. 1823(e) in tandem, looking to the common law when construing the statute. Beighley v. FDIC, 868 F.2d 776, 784 (5th Cir.1989). Section 1823(e) and D'Oench, Duhme basically prohibit the enforcement against the FDIC of undisclosed agreements that would tend to diminish the FDIC's interest in an asset acquired from the failed bank. The purpose behind Sec. 1823(e) and D'Oench, Duhme is to allow federal and state bank examiners to rely on a bank's records in evaluating the bank's assets, ensuring mature consideration of unusual loan transactions by senior bank officials, and preventing fraudulent insertion of new terms, with collusion of bank employees, when the bank appears headed for failure. Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987).

The purposes of Sec. 1823 and D'Oench, Duhme are not implicated in the agreement to release Rose McFarland's guaranty. There was no question of collusion, fraud, or bad faith. There was no undisclosed or secret agreement. Rather, the release of Rose McFarland's guaranty was negotiated at arm's length in conjunction with the renewal of two of Rory Mcfarland's loans, and the release is reflected in the loan documents. At least with respect to the renegotiated loans, the release of Rose McFarland's guaranty with respect to these two loans falls within an exception to the D'Oench, Duhme doctrine recognized in this circuit.

This Court has held that D'Oench, Duhme does not apply where the agreement which the FDIC seeks to avoid is spelled out in the loan agreement. FDIC v. Laguarta, 939 F.2d 1231 (5th Cir.1991); see also FDIC v. Waggoner, 999 F.2d 826, 828 (5th Cir.1993). We have come close to explicitly applying this principle to Sec. 1823(e) as well. See Bank One Texas National Association v. Morrison, 26 F.3d 544, 551 (5th Cir.1994) (stating that "[t]he integrated loan documents which evidence the parties agreement...

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