[Congressional Record Volume 140, Number 107 (Friday, August 5, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 5, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                          FAIRNESS OR JUSTICE

  Mr. COHEN. Mr. President, there is tremendous frustration among the 
American public with Government. Nothing turns that frustration more 
quickly to anger than acts of Government that violate fundamental rules 
of fairness.
  Americans have a reasonable expectation that Government will be fair 
and just. Whether dealing with a Government agency or a court of law, 
citizens expect justice to be served.
  In many cases, injustice or unfairness occur because the law allows 
them to occur. The rule of law is sometimes contrary to justice. As a 
young lawyer practicing in Bangor, ME, I worked on plenty of cases 
where justice was on my side but the law was on my opposition's side. 
Although I lost those cases, they serve as a reminder that law requires 
both a heart and a head.
  If a judge does not have a heart, the law becomes a sterile set of 
rules removed from human problems. If the judge does not use his or her 
head, then every case would be decided on the emotional reaction to the 
facts and the rule of law would be of little use. So it becomes a 
question of balance.
  Mr. President, today I would like to discuss a case that illustrates 
what happens when the law does not achieve the necessary balance 
between the heart and the head.
  This case has resulted in an injustice because an agency of the 
Federal Government went strictly by the book. It turned a blind eye to 
fairness because the law allowed it to. As a result, innocent people 
are being asked to pay for the illegal activity of wrongdoers who are 
not being pursued.
  The case involves John and Rhetta Sweeney of Hamilton, MA, and the 
Resolution Trust Corporation [RTC]. The Sweeneys defaulted on a loan 
because officers of their bank engaged in unfair and deceptive trade 
practices. A Massachusetts Superior Court found that the bank, not the 
Sweeneys, was to blame for the default.
  The situation was complicated, however, when the bank failed and was 
taken over by the RTC. After the RTC stepped in as receiver, the S&L 
bailout agency hired the failed bank's counsel and began to 
aggressively pursue a new strategy to defeat the Sweeneys.
  With the full knowledge that the superior court decision on the 
Sweeneys' unfair and deceptive trade practices claim was pending, the 
failed bank's former counsel, now working on behalf of the RTC, 
removed the case from the State court to the Federal District Court. 
This removal to Federal court was completed just 19 days before the 
superior court judge filed her opinion in favor of the Sweeneys.

  The removal to the U.S. District Court also enabled the RTC's hired 
counsel to invoke a provision of law reserved for the RTC and the 
Federal Deposit Insurance Corporation [FDIC] when they are party to a 
lawsuit. This provision, known as the ``D'Oench Duhme'' doctrine 
prevented the Sweeneys from arguing the case on its merits before the 
U.S. District Court.
  The D'Oench Duhme doctrine provides that only claims in writing, 
approved by the failed bank's board of directors, and recorded in the 
bank's official minutes will be valid in the event the Federal 
Government becomes the receiver of a failed bank.
  Because much of the Sweeney claim involved verbal and written 
representations by the bank that were not formally approved by the 
bank's directors and recorded in the bank's official minutes, it did 
not meet the D'Oench Duhme standard. Consequently, the U.S. District 
Court barred the Sweeneys from presenting their claim in Federal court.
  Last year, I introduced legislation, S. 1725, to redefine the use of 
the D'Oench Duhme doctrine so that it can only be applied in cases 
where there is a secret agreement entered for the specific purpose of 
defrauding the failed bank. The legislation would therefore prevent the 
RTC and the FDIC from invoking the D'Oench Duhme doctrine to bar 
legitimate claims against failed banks.
  The bill is currently before the Banking Committee and I am working 
with Senator D'Amato and others, as well as the FDIC, to move this 
legislation out of Committee and to the Senate floor.
  While I strongly believe the applicability of the existing law should 
be changed, I am not suggesting that the RTC acted improperly or 
outside its legal rights in this case. In fact, I do not categorically 
oppose the use of the D'Oench Duhme doctrine. It legitimately exists to 
prevent bad actors from using secret informal agreements that were 
clearly meant to defraud the failed bank, to defraud the Government.
  The Sweeney case is different. The superior court found that a verbal 
contract existed which, at the very least, is good evidence that the 
Sweeney's claim is legitimate and should not be ignored by the Federal 
Government.
  The circumstances surrounding this case also raise questions of 
fundamental fairness. First, the Sweeney case was litigated 9 months 
before the RTC took over as receiver of the bank.
  Second, the parties involved were awaiting the superior court's 
decision on two key counts at the time of the bank's failure.
  Finally, before the bank failed, the superior court jury found that 
there was, in fact, intentional infliction of emotional distress by the 
bank. Shortly after the bank failed, the superior court judge 
determined that the bank committed unfair and deceptive trade 
practices, and it engineered the default of the Sweeney mortgage.
  The Sweeneys were clearly defrauded by representatives of the bank as 
evidenced by the rare jury award of damages for intentional infliction 
of emotional distress.
  The RTC should be commended when it aggressively looks out for the 
taxpayers' interest. At the same time, the RTC should be reminded that 
it must, with equal vigor, ensure that its actions are fair and just 
for the individuals who are affected.
  The Sweeney case illustrates how justice and fairness took a back 
seat to the RTC's well-intentioned aggressiveness.
  Mr. President, on July 13, Senator John Kerry and I wrote to John 
Ryan, the acting Chief Executive Officer of the RTC, asking that he 
review this case and consider an equitable adjustment which weighs 
fairness with the RTC's obligation to protect the interests of the 
taxpayer.
  In the coming days, I would like to facilitate an open meeting with 
Mr. Ryan and myself to discuss the possibility of an equitable solution 
to this situation. I am also requesting that the RTC promptly open a 
dialogue with the Sweeneys and begin discussing a mutually satisfactory 
agreement.
  In the future, the RTC and the courts should be reminded that the 
D'Oench Duhme doctrine was designed to shield taxpayers from fraud--it 
should not be used as a sword against victims of fraud.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. MOYNIHAN. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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