The case involves the Federal Deposit Insurance Corporation (FDIC) seeking recovery related to loans from a failed bank. Rose Long McFarland appeals a district court decision enforcing a continuing guaranty she had executed for debts incurred by her son, Rory McFarland. She argues that this guaranty was released before the FDIC acquired the notes secured by it. The court concludes that the relevant statute, 12 U.S.C. § 1823(e), does not apply to the release, resulting in a reversal of the district court's ruling that held her liable.
The FDIC also appeals the district court's finding that a special mortgage held by the failed bank did not cover oil and gas produced from lands previously part of a lease that was reclassified before the bank took the lease as collateral. The appellate court affirms the district court's decision on this matter.
Key details include:
- Rose McFarland's continuing guaranty was for $450,000, dated September 4, 1980.
- In January 1981, the bank requested a replacement for the misplaced guaranty, which was later found by the FDIC.
- Rory McFarland obtained three loans from the Bank of Commerce (BOC) in the early 1980s, secured by various collaterals including Rose's guaranty.
- In 1985, Rory restructured his loans, which led to the release of Rose's guaranty as part of the agreement.
- Documentation from the bank confirms the release, with no reference to the guaranty in the new promissory notes.
Thus, the appellate court reversed the district court's enforcement of the guaranty against Rose McFarland while affirming the decision regarding the special mortgage.
On June 13, 1986, the bank was closed, and the FDIC was appointed as receiver. In January 1991, the FDIC assigned Rory McFarland's notes to its corporate capacity, effective retroactively to June 13, 1986. The examination of bank records revealed a request to replace Rose McFarland's guaranty, an executed Guaranty Agreement, a release letter, and a Relationship Report from October 15, 1985, which still listed her guaranty as collateral despite the release. After Rory McFarland defaulted, the FDIC-Corporate initiated a lawsuit. The district court ruled that 12 U.S.C. § 1823(e) applied to the release but found it did not meet the statutory requirements, specifically noting that Rose McFarland did not execute the release and the loan committee minutes did not reflect it. The court's decision followed a bench trial, where findings of fact were reviewed for clear error, and legal issues de novo. The court concluded that § 1823(e) barred Rose McFarland from using the release as a defense. This statute, along with the D'Oench, Duhme doctrine, prohibits the enforcement of undisclosed agreements that could undermine the FDIC's asset interests. The purpose of these laws is to ensure reliable bank records for asset evaluation and to prevent fraudulent alterations during bank failures. In contrast, the release of Rose McFarland's guaranty was negotiated transparently during the renewal of Rory McFarland's loans and was documented in the loan agreements, which is an exception to the D'Oench, Duhme doctrine. Previous court rulings support that if an agreement is included in loan documents, it is not subject to avoidance under these doctrines.
The legal principles addressed involve the applicability of 12 U.S.C. § 1823(e) and the D'Oench, Duhme doctrine concerning agreements that affect the rights of the FDIC. The court aligns with the Sixth Circuit’s interpretation that § 1823(e) strictly applies to separate, collateral agreements rather than to those explicitly found within loan documents. In this case, the agreement releasing Rose McFarland from liability was included in the loan documents maintained by the bank and was not merely collateral to the loan note. The execution of a letter detailing the loan renewal, which was signed by both Rory McFarland and the bank officers, constituted part of the loan documents. As such, the release of McFarland's guaranty is enforceable against the FDIC concerning the renegotiated loans.
However, the New Age loan, executed before the release, is not subject to the release as it was not part of the renegotiated documents. The excerpt also discusses the “no asset” exception to the D'Oench, Duhme doctrine and § 1823(e), which allows for challenges to the validity of an asset when it is contended that no valid asset exists, or if the asset is rendered invalid due to independent actions. This exception has been acknowledged in various legal precedents, particularly concerning fraud or breaches of bilateral obligations.
The 'no asset' exception has been applied in specific circumstances prior to the FDIC acquiring a bank's assets. This includes cases where an asset was voided by court judgment (Grubb v. FDIC), discharged by debt payment (FDIC v. Bracero, Rivera, Inc.), or extinguished due to the bank's failure to meet state law notice requirements (FDIC v. Percival). However, this exception is not applicable if the relevant agreement is not recorded in the bank's official records, as established in case law emphasizing the importance of the FDIC's reliance on these records (FDIC v. Merchants Nat'l Bank). In instances where agreements were unrecorded or not clearly reflected in bank records, such as oral agreements or unexecuted agreements, the 'no asset' exception has been consistently denied (e.g., RTC v. McCrory, FDIC v. Wright). Despite this, Rose McFarland was determined not to be barred from invoking the 'no asset' exception since her guaranty was neither listed as collateral on the note nor mentioned in any loan committee minutes related to the New Age loan.
The guaranty in question was only linked to the New Age loan after a bank file search revealed its release. Consequently, there was no understanding or side agreement that could mislead the FDIC. The court determined that the 'no asset' exception to 1823(e) and D'Oench, Duhme applies, reversing the district court's decision, and affirming the effectiveness of the release of Rose McFarland's guaranty against the FDIC.
Regarding the lease, two notes were secured by a mortgage on 'State Lease 340,' granted in 1984, which covered property defined as belonging to the State of Louisiana, with its southern boundary initially extending three leagues from shore. However, a 1950 Supreme Court ruling established that Louisiana's boundary was limited to the ordinary low-water mark. Subsequent legislation, including the Submerged Lands Act and the Outer Continental Lands Act, validated state leases outside the three-mile belt, leading to the creation of a separate lease referred to as 'OCS 310.'
David Jump and Premier Venture Capital Corp., who recorded judgments against Rory McFarland after the FDIC's mortgage, contended that the mortgage did not cover McFarland's interest in OCS 310, thus making it available for their claims. The trial court sided with Jump, interpreting the mortgage language to reflect the Louisiana boundary as it was in 1984 and concluded that the FDIC's recorded mortgage did not adequately notify third parties about the coverage of OCS 310. The FDIC's appeal argued for the consideration of extrinsic evidence regarding party intentions, but the court found the mortgage language to be clear and unambiguous, negating the need for extrinsic evidence. The court affirmed the trial court's ruling that the FDIC’s notes were not secured by a mortgage on OCS 310.
