Weitz Morgan’s Litigation Practice Wins At Tenth Circuit For Appellate Client
Weitz Morgan’s Litigation Practice recently received a favorable ruling on behalf of a long time client from the United States Court of Appeals for the Tenth Circuit. The case centered on the application of the “D’Oench Doctrine,” first developed by the United States Supreme Court case of D’Oench, Dhume & Company v. FDIC (1942) and later codified into statutory law under 12 U.S.C. 1823(e).
The client challenged a lower court ruling that D’Oench protected a successor bank that had purchased a note from the FDIC after the prior bank had been declared insolvent. The specific issue addressed whether the insolvent bank’s failure to have complied with the U.S. Bankruptcy Code and receive court approval to revive a pre-petition debt could be raised as a defense to the successor bank’s effort to collect on that note. The district court held that it could not because the “D’Oench Doctrine” precluded the debtor from raising the defense since the alleged fraud was not evident from the contents of the debtor’s loan file when the note was purchased.
The 10th Circuit disagreed, reversed the district court’s summary judgment, and remanded the case back to the lower court. In doing so, the appellate court held the failure to have complied with the U.S. Bankruptcy Code as to the revival of a pre-petition debt was “fraud in fact” and as such the “D’Oench Doctrine” did not shield the successor bank from the debtor’s use of that defense. Unlike a fraud in the inducement defense that merely creates a voidable note, the fraud in fact here rendered the note void from its inception, and a void note could not benefit from the protection of D’Oench.