OPS Shopping Center, Inc. v. F.D.I.C.

• Decision Date: 28 May 1993
• Docket Number: No. 92-2297,92-2297
• Citation: 992 F.2d 306
• Parties: OPS SHOPPING CENTER, INC., Plaintiff-Appellant, v. FEDERAL DEPOSIT INS. CORP., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 306

992 F.2d 306

OPS SHOPPING CENTER, INC., Plaintiff-Appellant, v. FEDERAL DEPOSIT INS. CORP., Defendant-Appellee.

No. 92-2297.

United States Court of Appeals, Eleventh Circuit.

May 28, 1993.

David L. Fleming, Gulf Breeze, FL, for plaintiff-appellant.

J. Scott Watson, FDIC, Washington, DC, for defendant-appellee.

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

Before KRAVITCH and ANDERSON, Circuit Judges, and HILL, Senior Circuit Judge.

ANDERSON, Circuit Judge:

OPS Shopping Center (OPS) appeals from the district court's entry of summary judgment in favor of the Federal Deposit Insurance Corporation (FDIC). OPS sued the FDIC as receiver of the American Bank, in an effort to collect on a $100,000 letter of credit that the bank had issued to Fred and Vasila Konstand. ¹ The district court granted the FDIC's motion for summary judgment, holding that OPS's claim was barred by both the common law D'Oench doctrine and 12 U.S.C. § 1823(e), which codified the doctrine. For the reasons that follow, we affirm the district court's order.

I. FACTS AND PROCEEDINGS BELOW

On May 22, 1985, the Blanding Partnership (Blanding), through Gary Spaniak and two other general partners, executed and delivered a promissory note to David and Linda Fleming and to Fred and Vasila Konstand. That same day, Joseph Amato, acting on behalf of Blanding, applied for a $100,000 letter of credit from the American Bank in Wisconsin. Alan Kirchner, the bank's president, issued an irrevocable $100,000 letter of credit designating the Konstands as its "beneficiary" and Amato as the "applicant." It provided that in order to draw on the letter of credit, the beneficiary must submit an affidavit from the Konstands' attorney stating that there had been a default "under the terms and conditions of that certain mortgage note and mortgage agreement from Joseph Amato" to the Flemings and the Konstands. The letter of credit did not reveal that it was for the benefit of Spaniak or Blanding, or that they were the actual borrowers.

At the time the letter of credit was issued, the bank was subject to a cease and desist order issued by the FDIC, which prohibited the bank from extending credit to Spaniak or to others for Spaniak's benefit. The order further prohibited the bank from making a loan to a borrower located outside a fifty mile radius of the bank's offices, unless the bank's board of directors gave unanimous advance approval. The bank's internal loan policy limited Kirchner's power to extend credit without the approval of the board of directors or the loan committee; Kirchner's limit was $5,000 for unsecured loans or $10,000 for secured loans. If Kirchner wanted to extend credit in excess of his limit, he was required to obtain the approval of the board of directors or the loan committee. At the time the letter of credit was issued, there was no loan committee operating. Moreover, the minutes of the meetings of the board of directors do not reflect that the board considered or approved the issuance of the letter of credit. There was no record whatsoever of the letter of credit in the bank records.

On May 1, 1986, Spaniak and Blanding defaulted on the underlying note. On or before May 22, 1986, demand was made for payment on the letter of credit; an affidavit was submitted which stated that a default existed under that "certain mortgage and mortgage agreement made from Joseph Amato to David L. Fleming and Linda M. Fleming and Fred Konstand and Vasila Konstand dated May 22, 1985 by failure to make payments in full on May 1, 1986 as per the terms of that note and mortgage." ²

The bank refused to pay on the letter of credit. A complaint was filed against the American Bank in state court on June 11, 1986, for non-payment of the letter of credit. On June 20, 1986, the Wisconsin State Banking Commission declared the bank insolvent and took possession and control of it. The FDIC accepted the Commission's tender of the appointment of receivership, pursuant to Wis.Stat. § 220.081. A claim was filed with the FDIC. After the FDIC denied the claim, a complaint was filed in state court against the FDIC; the FDIC removed the lawsuit to federal court. Following discovery, both OPS and the FDIC moved for summary judgment. The district court granted the FDIC's motion, holding that the letter of credit claim was barred by both 12 U.S.C. § 1823(e) and the common law D'Oench doctrine. OPS brought this appeal.

II. DISCUSSION

In D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), the FDIC acquired a note as part of the collateral securing a loan to an insured bank. The FDIC sued the maker, who alleged that there was an undisclosed agreement between it and the failed bank that the note would not be called for payment. The Court concluded that such a "secret agreement" could not be a defense to a suit by the FDIC, stating:

The test is whether the note was designed to deceive the creditors or the public authority or would tend to have that effect. It would be sufficient in this type of case that the maker lent himself to a scheme or arrangement whereby the banking authority on which respondent relied in insuring the bank was or was likely to be misled.

Id. at 460, 62 S.Ct. at 681. In Baumann v. Savers Federal Savings and Loan Assoc., 934 F.2d 1506 (11th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1936, 118 L.Ed.2d 543 (1992), this court noted that the D'Oench doctrine has expanded beyond the factual background of the D'Oench case itself, so that it "now applies in virtually all cases where a federal depository institution regulatory agency is confronted with an agreement not documented in the institution's records." Id. at 1510. This court enunciated the D'Oench rule as follows:

In a suit over the enforcement of an agreement originally executed between an insured depository institution and a private party, a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution's records.

934 F.2d at 1515. In Langley v. Federal Deposit Ins. Corp., 484 U.S. 86, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987), the Supreme Court articulated the purpose of the D'Oench doctrine:

One purpose ... is to allow federal and state bank examiners to rely on a bank's records in evaluating the worth of the bank's assets. Such evaluations are necessary when a bank is examined for fiscal soundness by state or federal authorities, ... and when the FDIC is deciding whether to liquidate a failed bank ..., or to provide financing for purchase of its assets (and assumption of its liabilities) by another bank....

A second purpose ... is implicit in its requirement that the "agreement" not merely be on file in the bank's records at the time of an examination, but also have been executed and become a bank record "contemporaneously" with the making of the note and have been approved by officially recorded action of the bank's board or loan committee. These latter requirements ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure.

Id. at 91-92, 108 S.Ct. at 401. In the D'Oench case itself, the Supreme Court set out the test quoted above: a maker who lends himself to a scheme or arrangement whereby the banking authority is likely to be misled cannot make a claim against the FDIC on the basis of such a secret scheme or arrangement. ³

Application of the D'Oench doctrine to bar appellant's claim based upon the letter of credit would clearly serve the purposes of the doctrine. In this case, it is undisputed that the letter of credit was not reflected in the bank's files, records, or board minutes. In inspecting the records of the bank, bank examiners would have found no record of the letter of credit; thus application of the D'Oench bar would serve the first purpose of the doctrine. The second purpose of the doctrine--to ensure mature consideration of unusual loan transactions by senior bank officials--also focuses precisely on the instant situation. Here, the lack of consideration by the loan committee or the board of directors resulted in the extension of credit to parties which an existing cease and desist order would have prohibited. Finally, the relevant parties here clearly lent themselves to a scheme or arrangement whereby the banking authority was likely to be misled. The Konstands, beneficiaries of the letter of credit, did not insist upon approval by a loan committee or board of directors. They also disregarded the fact that the text of the letter of credit incorrectly described Joseph Amato as payor of the note and mortgage, rather than the true payor.

Appellant's primary argument on appeal is that the D'Oench doctrine does not apply to bar the instant claim because the "secret agreement" upon which appellant relies relates to a liability of the bank rather than to a specific asset of the bank which has been acquired by the FDIC. ⁴ We can discern nothing in the purpose of the D'Oench doctrine which would support appellant's proposed limitation of the doctrine. Moreover, every circuit court of appeals which has expressly addressed this argument has rejected it. Jackson v. Federal Deposit Ins. Corp., 981 F.2d 730 (5th Cir.1992) (rejecting the argument); North Arkansas Medical Center v. Barrett, 962 F.2d 780, 788-89 (8th Cir.1992) (holding that policy behind D'Oench applies to obligations owed by bank as well as loans owed to bank); Timberland Design, Inc. v. First Service Bank for Savings, 932 F.2d 46, 49-50 (1st Cir.1991) ("D'Oench protects the FDIC from Timberland's affirmative claims which are based upon an alleged oral agreement to lend money in the future"); Hall v. Federal...