[Congressional Record Volume 140, Number 35 (Thursday, March 24, 1994)]
[Extensions of Remarks]
[Page E]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 24, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
    STATEMENT OF HON. BILL McCOLLUM D'OENCH DUHME CLARIFICATION ACT

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                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                        Thursday, March 24, 1994

  Mr. McCOLLUM. Mr. Speaker, today my colleagues and I are introducing 
legislation to clarify what is known as the D'Oench Duhme doctrine in 
order to allow individuals that perform services for banks and other 
innocent third parties to raise claims against the receivers of failed 
banks. This is not a major piece of legislation, but it will provide 
for a small measure of justice for individuals that have legitimate 
claims.
  In the 1942 Supreme Court case D'Oench Duhme and Co. versus FDIC, the 
Court held that in disputes over a failed bank's assets, the FDIC was 
only bound by written agreements contained in the bank's records. This 
decision was first codified in Federal statutory law in 1950. It was 
subsequently modified in the savings and loan legislation of 1989. 
Unfortunately, the 1989 changes did not specify that an asset of the 
bank must be involved for the doctrine to apply. This has caused a 
number of individuals and small businesses (with valid claims against 
failed banks for breach of fiduciary duty, fraud, and breach of 
contract) to be denied their day in court.
  This bill will restore the statutory and common law to its original 
intent, and ensure that the D'Oench Duhme doctrine would apply only in 
situations where Congress originally intended it to apply. This is 
accomplished by putting the asset test back into the statute and ratify 
its existence in the common law doctrine. Individuals with valid tort 
claims would once again be allowed to have a hearing on the merits of 
their cases rather than face peremptory dismissals based on FDIC-RTC 
motions.
  I am sure that the regulatory agencies affected by this bill will 
oppose its enactment. I can foresee a great hue and cry from the FDIC 
and the RTC complaining that this legislation will hamper their ability 
to limit insurance fund losses in failed institutions. Since 1989 these 
agencies have been given enhanced powers in litigating causes of action 
relating to failed financial institutions. In my opinion, these powers 
have been abused--especially in cases against bank directors and 
officers. Another example of regulatory zeal is the use of the 1989 
statute by agencies to urge the dismissal of good-faith claims against 
receiverships even when there is no asset in question. The following 
five cases are a few examples of why the asset requirement needs to be 
put back in the law:
  1. Hawke Associates v. City Federal Savings Bank, 787 F. Supp. 423 
(D.N.J. 1991).
  The landlord entered into an agreement with City Federal Savings Bank 
for the lease of additional space in the building on favorable terms, 
in return for the bank's commitment to continue to occupy its existing 
space. Shortly after the lease was signed, the landlord sued the bank 
for damages, alleging that the bank had breached the lease by (1) 
engaging in fraudulent conduct and (2) making misrepresentations during 
the lease negotiations. However, before the case was heard by the 
court, the Government determined that the bank was insolvent, and the 
RTC was appointed receiver of the institution. Citing the D'Oench Duhme 
statute, 12 U.S.C. sections 1821(d)(9)(A) and 1823(e), but disregarding 
the asset requirement, the court held that the bank's alleged lease 
with the landlord was not enforceable against the RTC because the lease 
would tend to diminish or defeat the interest of the RTC.

  2. Bell & Murphy and Associates, Inc. v. Interfirst Bank Gateway, 
N.A., 894 F.2d 750 (5th Cir.), cert. denied, 498 U.S. 895 (1990).
  Bell & Murphy, a company in the oil and gas industry, sought 
financial assistance from First Republic Bank Dallas, N.A., in the mid-
1980s. Under the terms of an agreement embodied in a letter from a 
Republic loan officer to Bell & Murphy, the bank agreed to extend 
financing, but only if the company surrendered to the bank as security 
for the loan its account receivables and funds from its pension and 
profit sharing plans. Several years later, Bell & Murphy filed suit 
against the bank, alleging that the bank breached the agreement after 
intentionally inducing the company to surrender its assets. Interfirst 
Bank failed shortly thereafter, and the FDIC was appointed receiver. 
Relying upon the Federal common law D'Oench doctrine, the court 
dismissed Bell & Murphy's claims against the FDIC as receiver for the 
institution, despite the fact that the FDIC had not actually acquired 
an asset.
  3. Hall v. FDIC, 920 F.2d 334 (6th Circuit 1990), cert. denied, 111 
S. Ct. 2852 (1991).
  A group of borrowers and investors sued Commerce Federal Savings and 
Loan Association for breach of a loan agreement under which Commerce 
allegedly agreed to fund a secured loan. FSLIC, which was appointed 
receiver of Commerce when the institution failed, defended its failure 
to fund and argued that the plaintiffs' claims were barred by 12 U.S.C. 
section 1823(e) and the Federal common law D'Oench doctrine. The Sixth 
Circuit agreed with the FSLIC, noting, in dictum, that ``the logic of 
D'Oench should still apply to protect'' the Government even when the 
Government does not have an interest in an asset.
  4. McCaugherty v. Sifferman, 772 F. Supp. 1128 (N.D. Cal. 1991).
  The claims of the partners in a limited partnership were barred in 
D'Oench in this case. The partners purchased securities from Farmers 
Savings. The partners subsequently filed an action against Farmers, 
citing misstatements by Farmers concerning the existence of other 
bidders for the securities and alleging ``causes of action for fraud, 
negligence, misrepresentations, and violations of the Federal and 
State securities laws.'' Among other forms of relief, the partners 
sought recovery of damages from the receivership estate. The court 
ruled that the plaintiffs' damages claims, though not related to any 
specific asset, were barred by 12 U.S.C. sections 1821(d)(9)(A), 
1823(e) and the Federal common law D'Oench doctrine: ``the D'Oench 
doctrine applies even where the unrecorded agreement at issue is 
wholly-unrelated to any specific monetary obligation of the bank, but 
is merely asserted to recover damages.''

  5. Bowen v. FDIC, 915 F. 2d 1013 (5th Cir. 1990).
  The shareholders of a corporation sued First Republic Bank-El Paso 
for its failure to fund a loan which, according to plaintiffs, the bank 
had orally agreed to fund. In reversing the district court judgment for 
the plaintiffs, the Fifth Circuit applied the Federal common law 
D'Oench doctrine, thereby barring the plaintiffs' assertion of an 
unrecorded loan commitment. Recognizing that D'Oench had evolved to a 
``rule that today is expansive and perhaps startling in its severity,'' 
the court nevertheless concluded that D'Oench applies even when the 
FDIC has not acquired an asset.
  The regulatory agencies, like any powerful bureaucracy, will complain 
that this legislation will inhibit their efforts to recover assets in 
failed banks. In the interest of justice, however, good-faith claimants 
at least deserve their day in court, which is what this bill will 
provide.

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