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Date: 01-12-2023
Case Style:
Landcastler Acquisition Corp. v. Renasant Bank
Case Number: 20-13735
Judge: Hull
Court: United States Court of Appeals for the Eleventh Circuit on appeal from the Northern District of Georgia (Fulton County)
Plaintiff's Attorney:
Defendant's Attorney: Michael Paul Kohler
Description: Atlanta, Georgia civil litigation lawyer represented Plaintiff, which sued Defendant on a “D’Oench doctrine” theory.
This case arises out of the insolvency of the Crescent Bank
and Trust Company (“Crescent”) and the conduct of its customerlawyer Nathan Hardwick, a manager of his law firm, Morris
Hardwick Schneider, LLC (“Hardwick law firm”). In 2009,
Crescent, a Georgia bank, made Hardwick a loan for $631,276.71.
Hardwick, as his law firm’s manager, signed a security agreement
that pledged, as collateral, his law firm’s certificate of time deposit
(“CD”) for $631,276.71. So far, all looked hunky-dory, or facially
valid in legal speak.
For five years, Hardwick’s loan remained current. When
Crescent failed, the Federal Deposit Insurance Corporation
(“FDIC”), as receiver, took over and sold Hardwick’s loan and CD
collateral to Renasant Bank. Hardwick then made loan payments
to Renasant, and Renasant held the CD collateral.
When Hardwick defaulted in 2014, the security agreement
permitted Renasant to liquidate the CD collateral to pay the loan
balance, which Renasant did. Renasant notified the Hardwick law
firm of the loan default and CD liquidation but received no
response—much less any objection—from the law firm.
Eventually, Hardwick’s and his law firm’s financial troubles
caught up with them. The law firm filed for bankruptcy, and
Hardwick was convicted of wire and financial fraud. See United States v. Maurya, 25 F.4th 829, 835 (11th Cir. 2022). The bankrupt
law firm had countless creditors, including plaintiff Landcastle
Acquisition Corporation (“Landcastle”), which was assigned the
law firm’s potential claims against others.1
In 2017, Landcastle sued Renasant (as successor to the FDIC
and Crescent), claiming Renasant was liable for $631,276.71, the
CD amount. Landcastle’s lawsuit seeks to invalidate the Hardwick
law firm’s security agreement.
That security agreement is unconditional and facially valid.
But Landcastle alleges that Hardwick, the law firm’s agent and
manager, lacked authority to pledge its CD as collateral. In its
attempt to invalidate the security agreement, Landcastle
introduces and relies on the law firm’s corporate records and
testimony. Landcastle’s evidence thus comes from outside the
failed bank’s records.
This case requires us to apply federal law developed from a
combination of federal common law and a statute, known
collectively as the “D’Oench doctrine.” See D’Oench, Duhme &
Co. v. Fed. Deposit Ins. Corp., 315 U.S. 447, 62 S. Ct. 676 (1942); 12
U.S.C. § 1823(e). That estoppel doctrine applies when the FDIC
takes over a failed bank and sells it to a solvent bank. See D’Oench,
315 U.S. at 460, 62 S. Ct. at 681. Just as the parol evidence rule bars
extrinsic evidence to contradict a written contract, the D’Oench doctrine bars the use of evidence outside the failed bank’s records
to challenge the validity of a facially valid note, guaranty, or
collateral pledge acquired by the FDIC from a failed bank and sold
to a solvent bank, like Renasant. To be clear, D’Oench does not
bar such challenges; rather, it limits what evidence can be used to
mount those challenges.
Courts have developed this robust federal common law
because the FDIC must be able to rely upon the failed bank’s
official records when it quickly estimates and sells a failed bank’s
assets—loans and collaterals—to a successor bank that takes over
the failed bank’s deposit liabilities. The FDIC’s immediate sale
enables the purchaser-successor bank, like Renasant, to open the
failed bank the next morning with deposits (the failed bank’s
liabilities) available to customers without interruption. See
Langley v. Fed. Deposit Ins. Corp., 484 U.S. 86, 91–92, 108 S. Ct.
396, 401 (1987); Fed. Sav. & Loan Ins. Corp. v. Gordy, 928 F.2d
1558, 1564 (11th Cir. 1991). Practically too, D’Oench affords the
FDIC a super-charged, holder-in-due-course protection.
There’s more relevant D’Oench law and more to
Hardwick’s tale but that gets us to the certified question:
Does D’Oench bar a claim (or defense) that the agent
[Hardwick] who signed the agreement [the CD
security agreement] with the bank [Crescent] Applying the Supreme Court’s and our Circuit’s D’Oench
precedent, we hold that Landcastle’s lack-of-authority claims are
barred because they rely on evidence that was outside Crescent’s
records when the FDIC took over that failed bank and sold the
Hardwick loan and CD collateral to Renasant.
Indeed, none of Landcastle’s evidence was in Crescent’s
records. Undisputedly too, Crescent had no knowledge that
Hardwick lacked authority to pledge his own law firm’s CD.
Although D’Oench bars Landcastle’s non-bank-records
evidence, Landcastle tries to escape D’Oench’s estoppel doctrine
altogether. Landcastle makes a novel argument that seeks to slip
in and use its non-bank-records evidence through another avenue.
To do that, Landcastle isolates the 2009 transaction and then
tries to use the same non-bank-records evidence to claim the
security agreement was “void,” a legal nullity, and non-existent.
From that, Landcastle argues Crescent itself never had any interest
in the CD security agreement, the FDIC took over nothing from
Crescent, the FDIC sold nothing to Renasant, and D’Oench
protection was never triggered.
But to allow Landcastle to do indirectly—introduce
non-bank-records evidence—what it cannot do directly in an FDIC
case would eviscerate D’Oench equitable protection of the FDIC.
That would mean every facially valid and unqualified note,
mortgage, or collateral pledge assumed and sold by the FDIC as receiver would be subject to after-the-fact litigation based on The Supreme Court teaches us that even if a note is
“voidable,” a failed bank can “transfer to the FDIC voidable title,
which is enough to constitute ‘title or interest’ in the note” for
purposes of the D’Oench doctrine. See Langley, 484 U.S. at 93–94,
108 S. Ct. at 402. Therefore, agent Hardwick’s lack of authority,
even if proven by non-bank-records evidence,2 would render the
security agreement, at most, voidable by the principal, but not
void. So Crescent had and transferred at least a voidable interest
to the FDIC, which is adequate for D’Oench purposes.
Simply put, D’Oench bars Landcastle’s attempt to use
non-bank-records evidence to challenge the facially valid and
unconditional security agreement acquired by the FDIC as receiver
from the failed bank Crescent and sold by the FDIC to Renasant.
Outcome: We conclude that Landcastle’s lack-of-authority claims are
barred under D’Oench because they rely on evidence that was
outside Crescent’s records when the FDIC took over and sold the
Hardwick loan and CD collateral to Renasant.
We do not “invent” any new, much less “radical and
untenable,” rules of agency or contract law. Id. at 1, 37–38. Rather,
we also conclude that Hardwick’s acting outside the scope of his
authority did not render the security agreement void but, at most,
only voidable. As Langley teaches, a voidable interest is sufficient
to pass the CD security agreement to the FDIC and to trigger the
D’Oench shield. See 484 U.S. at 94, 108 S. Ct. at 402.
Accordingly, we reverse the district court’s order, dated June
8, 2020, and remand with instructions to enter final judgment in
favor of Renasant.
REVERSED AND REMANDED.
Plaintiff's Experts:
Defendant's Experts:
Comments: