Murphy v. F.D.I.C., s. 93-5268

• Citation: 61 F.3d 34,314 U.S.App.D.C. 24
• Decision Date: 04 October 1995
• Docket Number: Nos. 93-5268,93-5412,s. 93-5268
• Parties: , 64 USLW 2081 Bruce G. MURPHY, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Southeast Bank, N.A., Appellee. District of Columbia Circuit
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 34

61 F.3d 34

314 U.S.App.D.C. 24, 64 USLW 2081

Bruce G. MURPHY, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Southeast Bank, N.A., Appellee.

Nos. 93-5268, 93-5412.

United States Court of Appeals,District of Columbia Circuit.

Argued April 7, 1995.

Decided Aug. 1, 1995.

Rehearing and Suggestion for Rehearing In Banc Denied Oct. 4, 1995.

Bruce G. Murphy, pro se, argued the cause and filed the briefs as appellant.

John P. Parker, Sr. Atty., F.D.I.C., Washington, DC, argued the cause, for appellee. With him on the brief was Ann S. DuRoss, Asst. Gen. Counsel, and Colleen J. Bombardier, Sr. Counsel, F.D.I.C., Washington, DC. Claire L. McGuire and David A. Felt, Attys., F.D.I.C., Washington, DC, entered appearances.

Before: EDWARDS, Chief Judge; WALD and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge:

Bruce Murphy, an investor in an unsuccessful real estate venture, seeks damages from the FDIC on the theory that the failed bank that financed the venture, of which the FDIC is the receiver, was responsible for his loss. The district court granted summary judgment in favor of the FDIC upon the ground that the appellant's claims are barred both by federal common law, see D'Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and by 12 U.S.C. Sec. 1823(e). We hold that (1) Sec. 1823(e) does not bar Murphy's claims because the FDIC has not demonstrated, as required by that statute, that the FDIC's interest in a specific asset would be diminished if the claims were upheld; and (2) the Supreme Court's recent decision in O'Melveny & Myers v. FDIC, --- U.S. ----, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), removes the federal common law D'Oench doctrine as a separate bar to such claims. We therefore reverse the district court and remand the case for further proceedings.

I. BACKGROUND

In his complaint Murphy tells the following story (which we take as true for the purpose of this appeal). In 1989 he paid approximately $515,000 for one "partnership unit" in the Orchid Island Associates Limited Partnership, which was then in the process of developing the Orchid Island Golf and Beach Club near Vero Beach, Florida. The investment contract guaranteed that he would receive a "6.1 multiple return on investment" but to date he has received nothing.

Southeast Bank, N.A. was the lead lender for the Orchid Island project. In the late 1980's and early 1990's the bank made several loans to the partnership, in a total amount approximating $50 million. Southeast was also involved in a plan whereby Orchid would engage in a public bond offering to raise additional funds in order to complete the project. Pursuant to that plan, Orchid would take a "bridge loan" from Southeast to cover expenses until the bonds were sold, and the proceeds from the bond offering would be used both to repay the bridge loan and to reduce the amounts outstanding on Southeast's earlier loans. When Southeast informed Orchid's other lenders that the proposed bond financing would result in a lien on the project superior to theirs, however, they rejected the proposal and the deal fell through. Orchid subsequently defaulted on its loan obligations, and Southeast foreclosed upon the property. Shortly thereafter Southeast was itself declared insolvent, the FDIC was appointed receiver of the bank, and Murphy filed this lawsuit.

Although somewhat vague, the gravamen of Murphy's claim is that the bank effectively controlled Orchid and thus assumed the role, and the corresponding legal duties, of a joint venturer or partner. Murphy contends that the bank is therefore responsible for various misdeeds allegedly committed by Orchid officials, including: "failure to register securities" (count 3); "unlawful offer and sale of securities" (count 4); "breach of fiduciary duties" (count 5); "breach of contract" (count 6); and "accounting" improprieties (count 7). Murphy further contends that, in its role as promoter of the aborted bond offering, the bank itself engaged in "fraud" (count 8) and made "negligent misrepresentation[s]" (count 9). In addition, Murphy complains that the FDIC has failed to establish alternative dispute resolution (ADR) procedures, as required by statute, and therefore has improperly denied him the opportunity to pursue his claim through an ADR channel (counts 1 and 2). Murphy seeks money damages (in counts 3-6 and 8-9), and an order requiring the FDIC to give him certain accounting statements (count 7) and to adopt ADR procedures and apply them to his claim (counts 1-2).

Each of the loan agreements between Orchid and the bank contains a provision to the following effect: "The Lender is a lender only and shall not be considered a shareholder, joint venturer or partner of the Borrower." Relying upon those written provisions, Murphy's inability to point to any written agreement that supports his joint-venture theory of liability, the federal common law D'Oench doctrine, and 12 U.S.C. Sec. 1823(e), the district court granted summary judgment in favor of the FDIC on counts 3 through 9. The district court also granted summary judgment in favor of the FDIC on the first two counts, holding that, under the governing statute, the FDIC has the discretion to decide whether to adopt an ADR procedure and, if it does so, whether a particular claim is suitable therefor.

II. ANALYSIS

Murphy raises distinct substantive and procedural points before this court. First, he argues that 12 U.S.C. Sec. 1823(e) does not apply to his substantive claims and that the recent Supreme Court decision in O'Melveny & Myers v. FDIC makes clear that the federal common law D'Oench doctrine has been displaced by a federal statute. Second, he renews his claim that the FDIC is required to establish an ADR procedure and to apply it to his claim.

A. 12 U.S.C. Sec. 1823(e)

In 1950, eight years after the Supreme Court decided D'Oench, the Congress enacted the Federal Deposit Insurance Act, 12 U.S.C. Sec. 1811 et seq., which "bars anyone from asserting against the FDIC any agreement not properly recorded in the records of the bank that would diminish the value of an asset held by the FDIC." E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 596 (D.C.Cir.1994). That provision, as modified in 1989 by the Financial Institutions Reform, Recovery, and Enforcement Act, Pub.L. No. 101-73, 103 Stat. 183 (better known as the FIRREA), currently provides that:

No agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the [FDIC] unless such agreement--

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(C) 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

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

12 U.S.C. Sec. 1823(e)(1). The Congress further provided in the FIRREA that "any agreement which does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the [FDIC]." 12 U.S.C. Sec. 1821(d)(9)(A).

By their terms, these statutory provisions bar any claim that (1) is based upon an agreement that is either (a) unwritten or (b) if in writing, does not meet the stringent requirements of Secs. 1823(e)(1)(B)-(D), and (2) would diminish or defeat the interest of the FDIC in an asset acquired by it in its capacity as receiver of a failed depository institution. Murphy concedes that his claims (save one) are (1) premised upon the existence of an unwritten joint-venture agreement between the bank and Orchid, but argues that Sec. 1823(e) does not bar his claims because (2) the FDIC has failed to demonstrate that its interest in any specific asset assigned from Southeast would be diminished were he to prevail. He points out that he is not a borrower (or "obligor" per the statute) attempting to avoid payment of a loan owed to Southeast Bank but is rather an investor in a failed business venture in which, he claims, the failed bank was a culpable participant. To be sure, Murphy's claims, if successful, would diminish the value of the bank in the hands of the FDIC but that, according to Murphy, is not sufficient to meet the "asset" requirement of Sec. 1823(e). We agree.

We recently held that Sec. 1823(e)(1) is "applicable only to cases involving a specific asset, usually a loan, which in the ordinary course of business would be recorded and approved by the bank's loan committee or board of directors" and that "the requirements of Sec. 1823(e) effectively limit that provision to conventional loan transactions." du Pont, 32 F.3d at 597. That interpretation gains support from subsection (C) of Sec. 1823(e)(1), which specifically requires that, if a suit is to go forward, the agreement upon which it is based must have been approved by "the board of directors of [the bank] or its loan committee." See In Re NBW Commercial Paper Litigation, 826 F.Supp. 1448, 1463-64 (D.D.C.1992) (Sec. 1823(e) applies primarily to loan transactions). An agreement that does not involve an extension of credit would not ordinarily be submitted to the board or to a loan committee for approval. Moreover, while any agreement to make a significant loan will ordinarily meet the exacting requirements of Sec. 1823(e), see Langley v. FDIC, 484 U.S. 86, 92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987) (requirements of Sec. 1823(e) "ensure mature consideration of unusual loan...