C&C Investment Properties, L.L.C. v. Trustmark National Bank

Case: 16-60166 Document: 00513701614 Page: 1 Date Filed: 10/03/2016

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit

FILED
No. 16-60166 October 3, 2016
Summary Calendar
Lyle W. Cayce
Clerk
C&C INVESTMENT PROPERTIES, L.L.C.; GLEN L. COLLINS,

Plaintiffs - Appellants

v.

TRUSTMARK NATIONAL BANK,

Defendant-Third Party Plaintiff - Appellee

v.

CHARLOTTE D. COLLINS

Third Party Defendant - Appellant

Appeal from the United States District Court
for the Southern District of Mississippi

Before KING, DENNIS, and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
At the height of the savings & loan crisis, we considered a number of
cases involving the D’Oench, Duhme doctrine. See, e.g., Resolution Trust Corp.
v. Murray, 935 F.2d 89 (5th Cir. 1991); Fed. Sav. & Loan Ins. Corp. v. Cribbs,
918 F.2d 557 (5th Cir. 1990); Fed. Sav. & Loan Ins. Corp. v. Murray, 853 F.2d
1251 (5th Cir. 1988). That doctrine, which originated in the federal common
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No. 16-60166

law and is now codified at 12 U.S.C. § 1823(e), prevents borrowers from relying
on oral agreements they allegedly had with a failed bank to defend against
collection efforts of a federal receiver like the Federal Deposit Insurance
Corporation (FDIC). D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 459–60
(1942). The failure of a Mississippi bank in the aftermath of the 2008 financial
crisis 1 requires us to again consider the doctrine.
I.
In 2004, Glen and Charlotte Collins formed C&C Investment Properties,
LLC to buy, rent, and flip real estate. Between 2006 and 2009, C&C bought
several foreclosed properties from Heritage Banking Group. C&C financed
these purchases through promissory notes payable to Heritage, which were
secured by deeds of trust encumbering the properties and guaranteed
personally by the Collinses. According to the Collinses, the purchases were
subject to the following side agreement: C&C would pay Heritage amounts
equal to what Heritage paid for the properties at foreclosure and Heritage
would later refinance the properties to account for their renovation value.
C&C stopped making payments on the loans because Heritage
purportedly did not live up to the side agreement. As a result, it defaulted on
the notes and guaranties. In response, Heritage foreclosed on the properties.
Aggrieved, Glen Collins and C&C sued Heritage for breach of contract and
fraudulent inducement.
While the suit was pending, Heritage was declared insolvent and the
FDIC was appointed as receiver. That same day, the FDIC entered into a
Purchase and Assumption Agreement with Trustmark National Bank, under

1 More than four hundred FDIC-insured banks failed from 2008–2012. Only ten had
failed in the five years prior to 2008. See FDIC: Failed Bank List, FEDERAL DEPOSIT
INSURANCE CORPORATION, https://www.fdic.gov/bank/individual/failed/banklist.html (last
updated Sept. 15, 2016).

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No. 16-60166

which it transferred to Trustmark various Heritage assets and liabilities,
including the C&C notes and guaranties.
Upon being substituted for Heritage as a defendant, the FDIC moved to
dismiss the case. Before the court could rule on the motion, however, Mr.
Collins and C&C sought and obtained leave to amend, adding Trustmark as a
defendant. The FDIC thereafter renewed its motion, which was granted.
Once added as a party, Trustmark pleaded section 1823(e) as a defense
and filed counterclaims against C&C and the Collinses (hereafter referred to
jointly as the “borrowers”) for the amount still owing on the notes. Trustmark
also sought reimbursement for its costs and expenses related to collection and
enforcement of the loans.
Trustmark filed a motion for summary judgment, arguing that because
the claims against it and the defenses to its counterclaims are based on an
unwritten side agreement between C&C and Heritage, section 1823(e) bars
them. The borrowers objected, asserting that Trustmark either affirmatively
or by being dilatory waived this defense. They further argued that, even if
there was no waiver, there is a material fact dispute about whether the side
agreement exists in a written form sufficient to overcome section 1823(e). The
district court granted Trustmark’s motion.
II.
We review a summary judgment ruling de novo. Davis v. Fort Bend Cty.,
765 F.3d 480, 484 (5th Cir. 2014). We interpret all facts and draw all
reasonable inferences in favor of the nonmovant. Ion v. Chevron USA, Inc.,
731 F.3d 379, 389 (5th Cir. 2013). Summary judgment is appropriate only
when the record reveals “no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).
D’Oench, Duhme bars parties from “rely[ing] on an oral agreement

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between [a failed bank and its customer] as the basis for defenses or claims
against the FDIC.” Lemaire v. FDIC, 20 F.3d 654, 657 (5th Cir. 1994). Enacted
in 1950, not long after the Supreme Court decided D’Oench, Duhme, section
1823(e) codifies that common law ruling. Bowen v. FDIC, 915 F.2d 1013, 1015
n.3 (5th Cir. 1990). The statute provides that any “agreement which tends to
diminish or defeat the interest of the [FDIC] in any asset acquired by it under
this section” shall not “be valid against the [FDIC] unless such agreement” is:
(1) in writing; (2) contemporaneously executed by the depository institution
and the person claiming an adverse interest; (3) approved by the board of
directors of the depository institution and reflected in the minutes of the board;
and (4) continuously, from the time of its execution, an official record of the
depository institution. 12 U.S.C. § 1823(e)(1). We have extended these
protections to private parties, like Trustmark, that purchase the assets of
insolvent banks from the FDIC. Porras v. Petroplex Sav. Ass’n, 903 F.2d 379,
381 (5th Cir. 1990).
There are two reasons for the D’Oench, Duhme rule. First, it “allow[s]
federal and state bank examiners to rely on a bank’s records in evaluating the
worth of the bank’s assets.” Langley v. FDIC, 484 U.S. 86, 91 (1987). Second,
it “ensure[s] mature consideration of unusual loan transactions by senior bank
officials, and prevent[s] fraudulent insertion of new terms, with the collusion
of bank employees, when a bank appears headed for failure.” Id. at 92.
The borrowers do not dispute these general principles of section 1823(e)
or their applicability to this case. Instead, they attempt to avoid the defense
in three ways. The first two involve waiver, as the borrowers contend that
Trustmark substantively waived the defense in its agreement for the purchase
of the Heritage assets and also procedurally waived the defense by asserting it
too late in this lawsuit.

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An affirmative waiver occurs when a party voluntarily or intentionally
surrenders a known right. Salzstein v. Bekins Van Lines Inc., 993 F.2d 1187,
1191 (5th Cir. 1993). The borrowers maintain that Trustmark, through
Section 2.1(n) of its Purchase and Assumption Agreement with the FDIC, did
just that. Section 2.1(n) states:
The Assuming Institution expressly assumes at Book Value (subject to
adjustment pursuant to Article VIII) and agrees to pay, perform, and
discharge, all of the following liabilities of the Failed Bank as of the Bank
Closing Date, except as otherwise provided in this Agreement (such
liabilities referred to as “Liabilities Assumed”);
...
(n) all asset-related offensive litigation liabilities and all asset-related
defensive litigation liabilities, but only to the extent such liabilities
relate to assets subject to a Shared-Loss Agreement, and provided that
all other defensive litigation and any class actions with respect to credit
card business are retained by the Receiver.

This language, the borrowers assert, makes clear that Trustmark assumed
liability on the subject loans free of any section 1823(e) defense. We disagree.
Our sole case dealing with affirmative waivers in this context suggests
the borrowers have not made a sufficient showing. In Tex. Refrigeration
Supply, Inc. v. FDIC, 953 F.2d 975 (5th Cir. 1992), we remarked that the
borrowers’ “most appealing argument” was that a purchaser of failed bank
assets “waived any D’Oench, Duhme defenses to [the] claims [against it]”
through its “Purchase and Assumption Agreement” with the FDIC. 953 F.2d
at 983–84. That agreement stated, in pertinent part, that the purchaser
assumed certain “liabilities as shall be certified by the Receiver . . . whether or
not they [we]re reflected on the books of the Failed Bank as of Bank Closing.”
Id. (emphasis added) (internal quotation marks omitted). The borrowers
argued that purchasing the assets irrespective of whether they were recorded
on the books of the failed bank waived the D’Oench, Duhme rule that only

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recorded agreements are enforceable. We found no waiver without having to
interpret this provision, however, relying instead on the provision stating that
the lender only assumed liability for claims certified as valid by the FDIC,
which had not been done for the claims being asserted. Id.
Unlike the agreement in Texas Refrigeration, Trustmark’s agreement
with the FDIC makes no mention of liabilities not reflected on the books of the
failed bank. It merely addresses which Heritage asset-related litigation
liabilities, assumed by the FDIC, were transferred to Trustmark. Nothing
about it expressly or impliedly indicates a voluntary or intentional surrender
by Trustmark of the section 1823(e) defense it inherited from the FDIC.
We also reject the borrowers’ assertion that Trustmark waived this
defense by raising it in a dilatory manner. Even when a party has failed to
assert an affirmative defense in its answer, we may allow it to assert the
defense “if it is raised at a pragmatically sufficient time and [the plaintiff] was
not prejudiced in its ability to respond.” Arismendez v. Nightingale Home
Health Care, Inc., 493 F.3d 602, 610 (5th Cir. 2007) (alteration in original)
(internal quotations omitted); see also Rogers v. McDorman, 521 F.3d 381, 386–
87 (5th Cir. 2008) (finding no unfair surprise when, despite the defense not
being pleaded, plaintiffs had notice in light of it being alluded to in the answer
and a pretrial brief, as well as during a pretrial hearing); Standard Waste Sys.
Ltd. v. Mid-Continent Cas. Co., 612 F.3d 394, 398–99 (5th Cir. 2010) (finding
the failure to plead an affirmative defense did not result in unfair surprise
when defendant expressly mentioned it in denial letters, a joint status report,
and the expert witness designation list).
Unlike the defendants in the cases just cited, Trustmark raised its
section 1823(e) defense in its answer so there is no basis for the borrowers to
argue unfair surprise. Indeed, they don’t do so. Instead, they argue Trustmark

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was required to include the defense in a Rule 12 motion to dismiss, like the
FDIC did. Trustmark’s failure to do so, according to the borrowers, caused an
unnecessary continuation of the litigation that should preclude it from
asserting the defense at the summary judgment stage.
This argument reveals a basic misunderstanding of the rules of civil
procedure. Rule 12(b)(6) provides a means by which a defendant may seek to
dismiss a claim at the pleading stage; it does not require that a defense be
asserted through that procedure. FED. R. CIV. P. 12(b) (“Every defense to a
claim for relief must be asserted in the responsive pleading if one is required.
But a party may assert the following defenses by motion . . . (6) failure to state
a claim upon which relief can be granted.” (emphasis added)); FED. R. CIV. P.
12(h)(1) (omitting a Rule 12(b)(6) defense from the defenses that may be subject
to waiver by failure to assert at the Rule 12 stage). Rule 12 expressly provides
that a defendant not pursuing a Rule 12(b)(6) defense at the pleading stage
may raise it later in the litigation, including at trial. FED. R. CIV. P. 12(h)(2)(C)
(stating that “failure to state a claim upon which relief can be granted . . . may
be raised . . . at trial”). And it is common that affirmative defenses sometimes
raised in Rule 12(b)(6) motions, take a limitations defense as but one example,
may also be raised via a summary judgment motion. See e.g., FDIC v. Dawson,
4 F.3d 1303, 1306 (5th Cir. 1993). One obvious reason a defendant may wait
is that a Rule 12(b)(6) motion typically cannot rely on evidence outside the
complaint. See Brand Coupon Network, LLC v. Catalina Mktg. Corp., 748 F.3d
631, 635 (5th Cir. 2014). But even when there is no apparent reason for doing
so, the rules allow a defendant to assert an affirmative defense that may have
been suitable for Rule 12(b)(6) disposition at the summary judgment stage.
As for the efficiency concerns the borrowers raise, a plaintiff desiring
early resolution of an affirmative defense may seek to strike it under Federal

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Rule of Civil Procedure 12(f). See 5C CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE & PROCEDURE § 1381 (3d. ed. 2004) (explaining
that the “insufficient defense” language in Rule 12(f) had been read to allow a
challenge to the legal sufficiency of an affirmative defense). Or the parties can
agree to file an early summary judgment motion without the need for full
discovery. But there is nothing that barred Trustmark from pursuing the
section 1823(e) defense, asserted in its answer, at the summary judgment stage
after discovery concluded.
Apart from their unsuccessful waiver arguments, the borrowers argue
that a material fact dispute exists that should have precluded summary
judgment: whether the side agreement is in a written form sufficient to
overcome section 1823(e). They point to the testimony of a Heritage division
president who, when asked whether something in writing described the
arrangement between C&C and Heritage, replied, “there may have been—well,
I would have . . . gotten—and I can’t remember whether it was an e-mail or
something from Tim Leitaker saying it was okay for me to do that.” The
executive was then asked whether there was something in writing other than
the email, to which he replied, “I don’t remember the exact communication,
but, yeah . . . I guess I’m positive that it was communicated in writing. If not,
it still had to be signed off on every time I turned a loan in for it.”
Even viewing the executive’s testimony about the purported side
agreement in favor of the borrowers, there is no evidence from which a jury
might conclude that all of the conditions necessary to overcome section 1823(e)
are present. At most, the statements are evidence of communications
describing the purported side agreement. We have doubts whether such
writings would meet even the first requirement: that the “agreement” itself be
in writing—not other communications referring to it. 12 U.S.C. § 1823(e)(1)(A).

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That the agreement be in writing, however, is only one requirement of section
1823(e). The written agreement must also meet the three other non-secrecy
requirements. 12 U.S.C. § 1823 (e)(1)(B)–(D). The bank executive does not
state that the communication was signed by Heritage and the borrowers,
approved by Heritage’s Board of Directors, or continuously kept as an official
Heritage record. Nor do the borrowers point to any other evidence supporting
these additional statutory requirements. See Resolution Trust Corp. v.
McCrory, 951 F.2d 68, 72 (5th Cir. 1992) (holding that a copy of an agreement
executed by an insolvent bank found in the draft documents of the bank’s
attorney did not satisfy section 1823(e)’s requirements because it was not an
official record of the failed bank); Twin Constr., Inc. v. Boca Raton, Inc., 925
F.2d 378, 383–84 (11th Cir. 1991) (holding that a written form, despite
outlining the obligations of both parties and existing in the insolvent bank’s
records, did not meet section 1823(e)’s requirements because it had not been
executed by the failed bank); FDIC v. Gardner, 606 F. Supp. 1484, 1488 (S.D.
Miss. 1985) (finding that a written agreement executed by a failed bank
president could not be enforced against the FDIC because it was not
specifically approved by the board).
***
The judgment of the district court is AFFIRMED.

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