Landcastle Acquisition Corp. v. Renasant Bank
| Decision Date | 12 January 2023 |
| Docket Number | 20-13735 |
| Parties | LANDCASTLE ACQUISITION CORP., Plaintiff-Appellee, v. RENASANT BANK, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Amy Elizabeth Buice, Edward D. Burch, Jr., David C. Newman, Benjamin E. Reed, Edward Henry Wasmuth, Jr., Smith Gambrell & Russell, LLP, Atlanta, GA, for Plaintiff-Appellee.
Michael Paul Kohler, Miller & Martin, PLLC, Atlanta, GA, Robert F. Parsley, Miller & Martin, PLLC, Chattanooga, TN, for Defendant-Appellant.
John Guarisco, Federal Deposit Insurance Corporation Appellate Litigation - Legal Division, Arlington, VA, for Amicus Curiae Federal Deposit Insurance Corporation.
Edmund Scott Sauer, Richard Swor, Bradley Arant Boult Cummings, LLP, Nashville, TN, for Amici Curiae Georgia Bankers Association, American Bankers Association.
Before William Pryor, Chief Judge, and Grant and Hull, Circuit Judges.
This case arises out of the insolvency of the Crescent Bank and Trust Company ("Crescent") and the conduct of its customer-lawyer Nathan Hardwick, a manager of his law firm, Morris Hardwick Schneider, LLC ("Hardwick law firm"). In 2009, Crescent, a Georgia bank, made Hardwick a loan for $631,276.71. Hardwick, as his law firm's manager, signed a security agreement that pledged, as collateral, his law firm's certificate of time deposit ("CD") for $631,276.71. So far, all looked hunky-dory, or facially valid in legal speak.
For five years, Hardwick's loan remained current. When Crescent failed, the Federal Deposit Insurance Corporation ("FDIC"), as receiver, took over and sold Hardwick's loan and CD collateral to Renasant Bank. Hardwick then made loan payments to Renasant, and Renasant held the CD collateral.
When Hardwick defaulted in 2014, the security agreement permitted Renasant to liquidate the CD collateral to pay the loan balance, which Renasant did. Renasant notified the Hardwick law firm of the loan default and CD liquidation but received no response—much less any objection—from the law firm.
Eventually, Hardwick's and his law firm's financial troubles caught up with them. The law firm filed for bankruptcy, and Hardwick was convicted of wire and financial fraud. See United States v. Maurya , 25 F.4th 829, 835 (11th Cir. 2022). The bankrupt law firm had countless creditors, including plaintiff Landcastle Acquisition Corporation ("Landcastle"), which was assigned the law firm's potential claims against others.1
In 2017, Landcastle sued Renasant (as successor to the FDIC and Crescent), claiming Renasant was liable for $631,276.71, the CD amount. Landcastle's lawsuit seeks to invalidate the Hardwick law firm's security agreement.
That security agreement is unconditional and facially valid. But Landcastle alleges that Hardwick, the law firm's agent and manager, lacked authority to pledge its CD as collateral. In its attempt to invalidate the security agreement, Landcastle introduces and relies on the law firm's corporate records and testimony. Landcastle's evidence thus comes from outside the failed bank's records .
This case requires us to apply federal law developed from a combination of federal common law and a statute, known collectively as the " D'Oench doctrine." See D'Oench, Duhme & Co. v. Fed. Deposit Ins. Corp. , 315 U.S. 447, 62 S. Ct. 676, 86 L.Ed. 956 (1942) ; 12 U.S.C. § 1823(e). That estoppel doctrine applies when the FDIC takes over a failed bank and sells it to a solvent bank. See D'Oench , 315 U.S. at 460, 62 S. Ct. at 681. Just as the parol evidence rule bars extrinsic evidence to contradict a written contract, the D'Oench doctrine bars the use of evidence outside the failed bank's records to challenge the validity of a facially valid note, guaranty, or collateral pledge acquired by the FDIC from a failed bank and sold to a solvent bank, like Renasant. To be clear, D'Oench does not bar such challenges; rather, it limits what evidence can be used to mount those challenges.
Courts have developed this robust federal common law because the FDIC must be able to rely upon the failed bank's official records when it quickly estimates and sells a failed bank's assets—loans and collaterals—to a successor bank that takes over the failed bank's deposit liabilities. The FDIC's immediate sale enables the purchaser-successor bank, like Renasant, to open the failed bank the next morning with deposits (the failed bank's liabilities) available to customers without interruption. See Langley v. Fed. Deposit Ins. Corp. , 484 U.S. 86, 91–92, 108 S. Ct. 396, 401, 98 L.Ed.2d 340 (1987) ; Fed. Sav. & Loan Ins. Corp. v. Gordy , 928 F.2d 1558, 1564 (11th Cir. 1991). Practically too, D'Oench affords the FDIC a super-charged, holder-in-due-course protection.
There's more relevant D'Oench law and more to Hardwick's tale but that gets us to the certified question:
Does D'Oench bar a claim (or defense) that the agent [Hardwick] who signed the agreement [the CD security agreement] with the bank [Crescent] purportedly lacked authority to do so?
Applying the Supreme Court's and our Circuit's D'Oench precedent, we hold that Landcastle's lack-of-authority claims are barred because they rely on evidence that was outside Crescent's records when the FDIC took over that failed bank and sold the Hardwick loan and CD collateral to Renasant.
Indeed, none of Landcastle's evidence was in Crescent's records. Undisputedly too, Crescent had no knowledge that Hardwick lacked authority to pledge his own law firm's CD.
Although D'Oench bars Landcastle's non-bank-records evidence, Landcastle tries to escape D'Oench ’s estoppel doctrine altogether. Landcastle makes a novel argument that seeks to slip in and use its non-bank-records evidence through another avenue.
To do that, Landcastle isolates the 2009 transaction and then tries to use the same non-bank-records evidence to claim the security agreement was "void," a legal nullity, and non-existent. From that, Landcastle argues Crescent itself never had any interest in the CD security agreement, the FDIC took over nothing from Crescent, the FDIC sold nothing to Renasant, and D'Oench protection was never triggered.
But to allow Landcastle to do indirectly—introduce non-bank-records evidence—what it cannot do directly in an FDIC case would eviscerate D'Oench equitable protection of the FDIC. That would mean every facially valid and unqualified note, mortgage, or collateral pledge assumed and sold by the FDIC as receiver would be subject to after-the-fact litigation based on non-bank-records evidence alleging a former customer's manager lacked authority. That use of evidence outside the bank's records is precisely what D'Oench is designed to avoid.
The Supreme Court teaches us that even if a note is "voidable," a failed bank can "transfer to the FDIC voidable title, which is enough to constitute ‘title or interest’ in the note" for purposes of the D'Oench doctrine. See Langley , 484 U.S. at 93–94, 108 S. Ct. at 402. Therefore, agent Hardwick's lack of authority, even if proven by non-bank-records evidence ,2 would render the security agreement, at most, voidable by the principal, but not void. So Crescent had and transferred at least a voidable interest to the FDIC, which is adequate for D'Oench purposes.
Simply put, D'Oench bars Landcastle's attempt to use non-bank-records evidence to challenge the facially valid and unconditional security agreement acquired by the FDIC as receiver from the failed bank Crescent and sold by the FDIC to Renasant.
We divide our opinion into these six parts:
The FDIC, created by Congress, works to insure deposits at banks and savings institutions. See 12 U.S.C. § 1811(a). When Crescent failed in 2010, the FDIC took over as receiver and, overnight, sold Crescent's assets and liabilities—including the Hardwick loan and CD collateral—to Renasant.
Prior to Crescent's failure, Hardwick induced Crescent in 2009 to make him a loan for $631,276.71: (1) by procuring a CD for $631,276.71 in the name of "Morris Hardwick Schneider, LLC"; and (2) by signing, on the same day, an agreement granting Crescent a security interest in the CD as collateral for his loan. Crescent also had his law firm's corporate resolution as to that CD.
When the FDIC took over as receiver, Crescent's bank records included Hardwick's note and these documents: (1) a Hypothecation Agreement (the "security agreement") granting Crescent a security interest in the CD; (2) an Assignment of the CD; and (3) the Hardwick law firm's Corporate Resolution as to the CD. We review each in turn.
The parties to the security agreement are: (1) Crescent, the "Lender"; (2) Nathan Hardwick, the "Borrower"; and (3) the Hardwick law firm, the "Pledgor." The first page of the agreement states, "[I]n consideration of loans granted by Lender [Crescent] to Borrower [Hardwick], the [Pledgor Hardwick law firm] ... hereby assigns the Lender all its right, title and interest to, and grants Lender a security interest in ," the CD collateral , described as CD #55529696. Hardwick signed for the Pledgor Hardwick law firm as "MANAGING MEM[BER]."
The security agreement provides that in the event of default, Crescent may dispose of the CD collateral as a secured party. Undisputedly, the plain terms of the agreement permitted Renasant to liquidate the CD to pay off Hardwick's...
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