4.17 B. Federal Codification

• Jurisdiction: New York

B. Federal Codification

In 1950, a variation of the D’Oench, Duhme doctrine was legislated by Congress under 12 U.S.C. § 1823(e). The statute provides:

No agreement which tends to diminish or defeat the interest of the Corporation 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 Corporation 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. ⁶²³

This statutory counterpart bars certain claims that tend to diminish or defeat the interests of the FDIC. If the claims are based on either oral side agreements or misrepresentations that do not comply with the statute’s requirements, they can be set aside.⁶²⁴ Thus, no agreement or action that in effect prevents the making of an accurate valuation of a bank’s assets will be valid against the corporation. In fact, the Supreme Court has gone so far as to recognize the FDIC’s right to reject a claim or defense even where the corporation was aware of an alleged agreement or misrepresentation prior to a bank’s insolvency and closing.⁶²⁵

The D’Oench, Duhme doctrine should significantly affect the manner in which the parties to a transaction structure their deal. This effect stems from the ability of the FDIC as receiver to reject any agreement or conduct (e.g., loan modification, repurchase or indemnity agreements) by a depository institution that does not comply with the standards of 12 U.S.C. § 1823(e).⁶²⁶

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Notes:

^[623] . 12 U.S.C. § 1823(e)(1). There is disagreement among the federal courts about whether section 1823(e) has completely preempted common law under D’Oench. See, e.g., Adams v. Zimmerman, 73 F.3d 1164, 1168 n.2 (1st Cir. 1996) (recognizing the circuit split). Compare Young v. FDIC, 103 F.3d 1180, 1187 (4th Cir.), cert. denied, 522 U.S. 928 (1997) (FIRREA does not preempt D’Oench) and Motorcity of Jacksonville, Ltd. v. Se. Bank, N.A., 83 F.3d 1317...