Despite an impassioned dissent by Chief Judge William Pryor, the Eleventh Circuit applied the "D'Oench doctrine" to uphold a loan to a partner of a failed law law firm. The law firm's assignee argued that the partner had no authority to enter into the loan and that it was for his own personal purposes. The bank later failed and was acquired by the FDIC as receiver, which sold the loan to a successor bank. The assignee sued the successor bank in an attempt to invalidate the loan.
The federal 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. Judge Pryor argued that because the partner had no authority to enter into the loan on the law firm's behalf, the D'Oench doctrine simply did not apply. The other two judges on the panel saw it differently: Because the partner's lack of authority was not apparent in the failed bank records, the lack of authority was no defense to the law firm's liability on the loan.
Pay attention to the fine print on this one: The law firm's assignee, Landcastle, made a $300,000 bulk purchse of any claims that the law firm potentially had against others (presumably including the former partner). The loan amount here was $631,276.71.
Landcastle Acquisition Corp. v. Renasant Bank (11th Cir. Jan. 12, 2023).
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