Recently, the Sixth Circuit renewed Detroit-based Commercial Law Corporation’s (CLC) lawsuit against the Federal Deposit Insurance Corporation (FDIC) for $176,750 in deferred attorney’s fees for legal services provided by CLC to a now-failed Michigan bank. The Sixth Circuit overturned summary judgment for the FDIC, and while the court did not resolve the unpaid fees claim, it did clarify the interpretation of some important banking laws and the somewhat abstruse D’Oench doctrine.

The Sixth Circuit first explained the origins of D’Oench and its statutory analogues, which essentially “protect [the FDIC] . . . from misrepresentations made to induce or influence the action of [the FDIC].” The court noted that the Supreme Court’s 1942 D’Oench rule arose from a case in which a bond salesman attempted to escape liability to the FDIC for a demand note by asserting that the bank originally holding the note secretly promised not to collect on it; the Court refused to allow this. Congress essentially codified this rule in 1950 by providing in 12 U.S.C. § 1823(e) that an “agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it under this section” must meet several requirements, including being in writing. Because CLC’s fee-deferral arrangement with HFSB did not meet § 1823’s requirements, the FDIC viewed it as unenforceable.

With this background in place, the court proceeded to dispose of the FDIC’s statutory and jurisprudential arguments against CLC’s claim. The FDIC first relied on § 1821, which states that an agreement failing a prong of § 1823 cannot form the basis of a claim against the FDIC. Leaning on the Fifth Circuit’s prior examination of this issue, the court reasoned that a broad application of § 1821 to any claim against the FDIC would prevent anyone who had provided services to the bank—without an agreement meeting § 1823’s requirements—would be unable to enforce the claim, including janitors and landscapers. The court thus held that § 1821 was limited to claims of the nature contemplated by § 1823 (i.e., loan-related transactions), which CLC’s claim was not.

Turning to D’Oench, the FDIC argued that Sixth Circuit precedent applied the doctrine broadly to “misleading or deceptive behavior toward the FDIC with regard to either [an acquired bank’s] assets or liabilities.” The Sixth Circuit responded with a more limited view: these precedents “speak of D’Oench in broad terms, but they do not justify a blanket extension of D’Oench to liabilities unrelated to traditional banking activities.” Thus, the FDIC’s attempted common-law defense to CLC’s claim also failed.

In remanding the case, the Sixth Circuit also held that the mere temporal proximity of the attorney’s liens on the bank properties did not warrant a conclusion that they violated § 1823 as a matter of law. In light of this and the court’s other holdings, it is important to note that this opinion does not guarantee a victory for CLC; indeed, the Sixth Circuit noted that CLC must still actually prove its claims on remand, and that the FDIC still may assert multiple defenses, including fraud. However, most importantly in the wake of this case, the FDIC may not rely on §§ 1821 and 1823 as a broad “statute of frauds”-type defense to vitiate any claim against it as the result of an acquired failed bank.