Article

Factual Summary: As part of a transaction to acquire financing for an oil and gas reserve acquisition, borrower obtained a $550,000 loan and purchased a surety bond from an insurance company. Borrower had been led to believe that his loan was secured by an LC obtained (and apparently issued by the insurance company in favor of the lender. The borrower alleged that the defendant bank agreed to confirm the LC. Upon borrower's default, the beneficiary presented documents to the purported confirmer. When the bank refused to pay, apparently because it had no record of agreeing to confirm the LC, the borrower filed suit.

Subsequent to the filing of the suit, the purported confirmer was declared insolvent and the FDIC was appointed receiver. The trial court granted summary judgment to the FDIC and the purported confirmer on the wrongful dishonor claims. The borrower appealed to the US Court of Appeals for the Fourth Circuit. Held: Affirmed.

Legal Analysis:

1. Insolvency: D' Oench Doctrine: Because the confirmation was not reflected in the bank's records, the trial court had granted summary judgment to the FDIC, as receiver for the purported confirmer, on the ground that the D'Oenchdoctrine, and its partial codification (12 U.S.C.A. 1823(e)), barred plaintiffs claims.

On appeal, the Fourth Circuit upheld the trial court, noting that theD'Oenchdoctrine "prohibits claims based upon agreements which are not properly reflected in official books or records of a failed bank or thrift," and that the doctrine "applies in virtually all cases where the FDIC is confronted with an agreement not documented in the institution's records." The borrower's failure to refute the affidavit of an FDIC official that the confirming bank's records contained neither the LC, nor the confirmation or acknowledgment of the LC, were fatal to his wrongful dishonor claim.

Plaintiff argued that theD'Oenchdoctrine did not apply to his claim under an exception for a "completely innocent borrower" as developed by the Ninth Circuit inFDIC v. Meo,505 F. 2d 790 (9 th Cir. 1974). This approach was rejected as "conflict[ing] with the underlying rationale of theD'Oenchdoctrine." Such an exception, the Fourth Circuit panel concluded, would run counter to the doctrine's "broad purpose of preventing private claims against the FDIC based upon agreements not found in the bank's records."

Plaintiff's argument that 12 U.S.C.A. 1823(e) (partially codifying theD'Oenchdoctrine), applies only to assets of a bank, ant not to liabilities (of which an LC is one) was not addressed, the court having found that theD'Oenchdoctrine barred his claims. Regardless of the reach of 12 U.S.C.A. 1823(e), the appellate court noted that several other appellate courts had found that theD'Oenchdoctrine applies to liabilities as well as assets (citing, e.g.,at Saratago Assocs. v. FDIC,60 F.3d 78, 82 (2d Cir. 1995);OPS Shoping Ctr., Inc. v. FDIC,992 F.2d 46, 50 (1 st Cir. 1991)).

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