560 B.R. 501
Bankr. N.D. Ill.2016Background
- EAR (debtor) engaged in repeated sale/resale and leaseback transactions using an affiliate (MTD) to conceal that the same equipment was being pledged repeatedly; EAR filed Chapter 11 and a plan appointed Brandt as plan administrator to pursue avoidance actions.
- Brandt sued Charter (later placed in FDIC receivership) to avoid and recover approximately $1.5 million in prepetition payments as fraudulent transfers under 11 U.S.C. § 548 and the Illinois Uniform Fraudulent Transfer Act, and to recover under § 550 and disallow Charter’s claim under § 502(d).
- Charter’s relationship with EAR was evidenced by three promissory notes totaling $593,964.99 outstanding at petition; EAR made monthly payments to Charter totaling $1,496,514.72 prepetition.
- FDIC (as receiver) moved for summary judgment, arguing the plaintiff’s case depends on a secret side‑agreement/scheme (EAR–MTD) not reflected in Charter’s bank records and thus barred by the D’Oench doctrine and 12 U.S.C. § 1823(e).
- Parties stipulated there are no material factual disputes; the sole question is the legal effect of D’Oench/§ 1823(e) on the fraudulent‑transfer claims and the consequent § 502(d) relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether D’Oench / § 1823(e) can be asserted by the FDIC in bankruptcy to block reliance on unrecorded side‑agreements | § 1823(e) should not nullify trustee/administrator avoidance powers that arise by operation of law | FDIC can assert D’Oench / § 1823(e) in bankruptcy; both statutes and doctrine protect FDIC interests and apply in bankruptcy | Court: D’Oench and § 1823(e) apply in bankruptcy and may be asserted by FDIC |
| Whether the secret agreement must be between the debtor and the failed bank for D’Oench/§ 1823(e) to apply | Plaintiff contends defenses only apply where the bank was party to the secret agreement | FDIC argues doctrine/statute bar use of any unrecorded arrangement that diminishes FDIC’s acquired assets, regardless of the bank’s participation | Court: No requirement that the bank be a party; defenses apply even where secret scheme was between debtor and third party |
| Whether fraudulent‑transfer claims are exempt because they arise by operation of law and do not necessarily rely on bank records | Brandt argues fraudulent intent can be proved without bank records; trustee powers should not be trumped by § 1823(e) | FDIC: plaintiff’s proof of intent here depends on the secret EAR–MTD scheme (outside bank records), so § 1823(e)/D’Oench bar its evidence | Court: Where a claimant’s proof of fraudulent intent depends on an unrecorded scheme that is outside bank records, D’Oench/§ 1823(e) preclude reliance on that evidence; thus defenses apply to these fraudulent‑transfer claims |
| Whether Charter’s claim should be disallowed under § 502(d) if transfers are avoided | If transfers avoided, claim should be disallowed | FDIC asserts transfers cannot be avoided (D’Oench/§ 1823(e) bar proof), so claim stands | Court: Because transfers cannot be avoided, § 502(d) disallowance not warranted; Charter’s claim is not disallowed |
Key Cases Cited
- D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (establishing doctrine barring reliance on unrecorded side agreements against FDIC)
- Langley v. FDIC, 484 U.S. 86 (broadening D’Oench scope to misrepresentations/omissions that mislead bank regulators)
- John v. Resolution Trust Corp., 39 F.3d 773 (7th Cir. discussion of interplay between D’Oench and statute)
- United Cent. Bank v. Davenport Estate LLC, 815 F.3d 315 (7th Cir. affirming use of § 1823(e) to bar claims against FDIC)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard referenced by the court)