Bell & Murphy and Associates, Inc. v. Interfirst Bank Gateway, N.A.

• Decision Date: 21 February 1990
• Docket Number: No. 89-1719,89-1719
• Parties: BELL & MURPHY AND ASSOCIATES, INC., John W. Bell, Jr., Harold D. Barnett, Robert D. Hamer, Jr., and Richard L. Mears, Plaintiffs-Appellants, v. INTERFIRST BANK GATEWAY, N.A., and Charles E. Jobe, Defendants-Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 750

894 F.2d 750

58 USLW 2554

BELL & MURPHY AND ASSOCIATES, INC., John W. Bell, Jr., Harold D. Barnett, Robert D. Hamer, Jr., and Richard L. Mears, Plaintiffs-Appellants, v. INTERFIRST BANK GATEWAY, N.A., and Charles E. Jobe,

Defendants-Appellees.

No. 89-1719

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Feb. 21, 1990.

Joseph E. Ashmore, Jr., Gregory Shamoun, Vassallo & Ashmore, Dallas, Tex., for plaintiffs-appellants.

Bruce L. Collins, William Frank Carroll, John Mitchell Nevins, Baker, Mills & Last, Dallas, Tex., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before WILLIAMS, SMITH and DUHE, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Bell & Murphy and Associates, Inc., and four of its employees (collectively, "Bell & Murphy") filed suit in Texas state court against First RepublicBank Dallas, N.A. ("Republic"), and Republic officer Charles E. Jobe, seeking monetary damages for alleged fraudulent misrepresentations by the bank. The Federal Deposit Insurance Corporation ("FDIC") intervened as receiver for the insolvent Republic, removed the case to federal district court, and then successfully moved to dismiss Bell & Murphy's claims as barred by the doctrine of D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). We affirm.

I.

Like many companies in the oil and gas industry, Bell & Murphy fell upon hard times in 1985. ¹ Severe "cash flow" difficulties prompted the company to seek assistance from Republic, its longtime bank, and to agree to an arrangement suggested by bank officer Charles E. Jobe. Under the terms of that agreement, Bell & Murphy was to surrender its accounts receivable and funds from its pension and profit sharing plans to the bank; in return, the bank was to extend open corporate loans and to honor certain checking account overdrafts, thereby enabling Bell & Murphy to stay in business. This agreement was embodied in a letter from Jobe to Bell & Murphy, but it was not reflected in Republic's records.

In April 1988, Bell & Murphy filed suit against Republic ² in Texas state court, alleging that the bank had induced it to enter the agreement through fraudulent misrepresentations and then had breached its obligations under the agreement. Republic was declared insolvent in July 1988, and the FDIC was appointed as receiver pursuant to 12 U.S.C. Sec. 1821(c). NCNB Texas National Bank, N.A. ("NCNB"), was then named by the FDIC to act as the "bridge bank" to acquire a portion of the assets and liabilities of the failed Republic. ³

The FDIC then intervened in this action and removed it to federal district court, basing jurisdiction upon 12 U.S.C. Sec. 1819. After considering extensive briefing by both sides, the district court concluded that even if Bell & Murphy's allegations were true, its claims were barred as to the FDIC and NCNB by the D'Oench, Duhme doctrine. The court therefore granted the defendants' motion to dismiss.

II.

A.

We begin our review of the judgment below with a brief discussion of the history and purposes of the D'Oench, Duhme rule. In D'Oench, Duhme, the defendant executed a note in favor of a bank in order to deceive state regulators by falsely inflating the value of the bank's assets. The defendant and the bank had agreed that the note would not be called for payment, but, for obvious reasons, this agreement was not reflected in the bank's records. Some years later, the bank obtained a loan from the FDIC, which took a security interest in the defendant's note. When the bank failed and the FDIC sued to collect on the note, the defendant raised the side agreement and also asserted that the note was invalid because it had been given without consideration.

The Supreme Court examined the statutory scheme that created the FDIC and concluded that it evidenced a "federal policy to protect ... [the FDIC] and the public funds which it administers, against misrepresentations as to ... the assets in the portfolios of the banks which ... [the FDIC] insures or to which it makes loans." D'Oench, Duhme, 315 U.S. at 457, 62 S.Ct. at 679. In order to effect this federal policy, the Court fashioned a common law rule of estoppel precluding a borrower from asserting against the FDIC defenses based upon secret or unrecorded "side agreements" that altered the terms of facially unqualified obligations.

Congress later ratified the result in D'Oench, Duhme by enacting 12 U.S.C. Sec. 1823(e), which affords the FDIC, when acting in its corporate capacity, comprehensive protection against any

... agreement which tends to diminish or defeat ... [its] interest ... in any asset acquired by it ... unless such agreement (1) is in writing, (2) was executed by the depository institution and ... the obligor, contemporaneously with the acquisition of the asset by the depository institution, (3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and (4) has been, continuously, from the time of its execution, an official record of the depository institution.

Although the FDIC may not rely upon the enumerated requirements of section 1823(e) where, as here, it acts as receiver rather than in its corporate capacity, see FDIC v. McClanahan, 795 F.2d 512, 516 (5th Cir.1986), it is nonetheless entitled to the protection of the common law D'Oench, Duhme rule. See Beighley v. FDIC, 868 F.2d 776, 783 (5th Cir.1989). With this background in mind, we now examine each of Bell & Murphy's efforts to take its claims outside the scope of the D'Oench, Duhme doctrine.

B.

Bell & Murphy first advances the argument that the D'Oench, Duhme rule bars only claims or defenses based upon unrecorded side agreements that defeat the FDIC's interest in a specific asset acquired from a bank. According to Bell & Murphy, the side agreement at issue here, while affecting Republic's total worth, does not diminish the value of Bell & Murphy's admitted outstanding debt to Republic. The side agreement thus could not have misled the FDIC regarding the value of Republic's assets, and D'Oench, Duhme does not preclude Bell & Murphy from asserting that side agreement against the FDIC.

We find this inventive argument to be meritless in light of our recent holding in Beighley that the D'Oench, Duhme rule bars affirmative claims based upon unrecorded agreements to extend future loans. There, we noted that the "alleged oral agreement to finance future loans ... [was] not clearly evidenced in the bank's records, and would not ... [have been] apparent to bank examiners." 868 F.2d at 784. Although the agreement that Bell & Murphy seeks to enforce against the FDIC allegedly is embodied in a letter, it was not contained in Republic's records. Thus, it could not have been discovered by bank examiners and is not enforceable against the FDIC.

We can dispense easily with Bell & Murphy's contention that the D'Oench, Duhme rule bars only claims or defenses based upon illegal side agreements entered into for the purpose of deceiving banking authorities. Although the obligor in D'Oench, Duhme was in fact a knowing participant in such a fraudulent scheme, the Court there suggested that even a borrower who was "very ignorant and ill-informed of the transaction" and did not "intend[ ] to deceive any person" would likewise be precluded from asserting defenses based upon unrecorded side agreements that altered the terms of a facially unqualified note. D'Oench, Duhme, 315 U.S. at 458-59, 62 S.Ct. at 679-80.

Moreover, cour...