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Commercial Law Corp. P.C. v. Federal Deposit Insurance Corp.

United States Court of Appeals, Sixth Circuit

January 27, 2015

COMMERCIAL LAW CORPORATION, P.C., Plaintiff-Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Home Federal Savings Bank, Defendant-Appellee

Argued: November 19, 2014

Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:10-cv-13275--Sean F. Cox, District Judge.

ARGUED:

L. Fallasha Erwin, COMMERCIAL LAW CORPORATION, P.C., Detroit, Michigan, for Appellant.

Jerome A. Madden, FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for Appellee.

ON BRIEF:

L. Fallasha Erwin, COMMERCIAL LAW CORPORATION, P.C., Detroit, Michigan, for Appellant.

Jerome A. Madden, FEDERAL DEPOSIT INSURANCE CORPORATION, Arlington, Virginia, for Appellee.

Before: DAUGHTREY, CLAY, and COOK, Circuit Judges.

OPINION

Page 325

COOK, Circuit Judge.

Plaintiff Commercial Law Corporation, P.C. (CLC) sued the Federal Deposit Insurance Corporation (FDIC) in its capacity as receiver for the Detroit-based Home Federal Savings Bank (" the bank" ), claiming $176,750 in unpaid attorneys' fees for legal services rendered to the bank in 2008 and 2009. The district court granted the FDIC's motion for summary judgment, concluding that 12 U.S.C. § § 1821(d)(9)(A) and 1823(e)(1) precluded enforcement of plaintiff's unrecorded fee agreement with

Page 326

the bank. These statutes, which impose documentation requirements for bank agreements, derive from the common-law D'Oench doctrine, an estoppel rule akin to a statute of frauds that shields the FDIC from claims and defenses based on unwritten agreements that reduce bank assets. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 456-62, 62 S.Ct. 676, 86 L.Ed. 956 (1942); First State Bank of Wayne Cnty. v. City & Cnty. Bank of Knox Cnty., 872 F.2d 707, 715-16 (6th Cir. 1989).

CLC appeals, arguing that D'Oench and its statutory progeny do not apply to its legal services arrangement with the bank. We agree and REVERSE.

I.

CLC's principal, L. Fallasha Erwin, served as general counsel for the bank from the late 1980s until the fall of 2009. According to CLC, it began deferring invoicing for services to the bank in 2008 when the bank fell on hard times. The bank continued to struggle, and the Office of Thrift Supervision closed the bank and put it into receivership during the first week of November 2009. CLC claims that, five days before the FDIC takeover, the bank granted it security interests in two bank properties. Inexplicably, CLC waited until late January 2010 to record the attorney liens for these security interests.

Following the bank's failure, CLC filed a claim with the FDIC seeking $176,750 in deferred legal fees for the period May 2008 to November 2009. The FDIC denied the claim, prompting this litigation. Though CLC's complaint mentions the security interest in passing and requests only the " attorneys fees as invoiced plus attorney fees and costs . . . wrongfully incurred in this matter," the district court construed the complaint as presenting separate breach-of-contract and attorney-lien claims.

CLC's characterization of its fee arrangement with the bank evolved over the course of this litigation. Although CLC initially denied possessing the original retainer agreement, resting its claim on a series of oral agreements and modifications, CLC's position changed in 2013 after the FDIC moved for summary judgment. Presented with the FDIC's challenge to the enforceability of his undocumented fee arrangement, Erwin produced a 1989 retainer agreement and stated that the deferral of fee payments " was not an amendment of the original retainer agreement." The FDIC moved to strike the newly produced evidence under Federal Rule of Civil Procedure 37(c).

The district court granted the FDIC's motions to strike and for summary judgment. With regard to the newfound retainer agreement, the court found the evidence prejudicial and the delay not " substantially justified," stating that CLC " offered no credible reason why it produced the purported written agreement after the close of discovery." Yet, considering the stricken retainer agreement for purposes of argument, the court deemed the fees arrangement unenforceable against the FDIC because it did not comply with § 1823(e)'s documentation requirements. And, to the extent CLC relied on the security interests to establish the fees claim, the court found them similarly deficient.

Essential to these holdings, the district court rejected CLC's argument that the documentation requirements of § 1823(e) and the D'Oench doctrine apply only to secret agreements affecting traditional banking transactions, like loans. Citing this court's decision in First State Bank of Wayne County v. City & County Bank of Knox County, 872 F.2d at 716, the district

Page 327

court reasoned that § 1823(e) governs agreements implicating both bank assets and liabilities, including liabilities on service contracts.

In addition to these findings, the court found the attorney liens unenforceable under 12 U.S.C. § 1821(e)(12) because they " were taken in contemplation of the Bank's insolvency." The court also acknowledged evidence indicating that Erwin and the bank chairman may have backdated the security interests to predate the FDIC's takeover of the bank. The court observed that " Mr. Erwin may well have fraudulently created and back-dated the lien documents at issue," but " conclude[d] that it would not be appropriate to make a ruling on this issue without . . . an evidentiary hearing." CLC timely appeals.

II.

Although it objects to numerous aspects of the district court's decisions, CLC adequately develops only three issues for our review: (1) the applicability of D'Oench and § 1823(e)(1) to its claim for attorneys' fees; (2) the district court's exclusion of the retainer agreement as a discovery sanction; and (3) the court's conclusion that CLC's security interests were granted in contemplation of the bank's insolvency.[1] The district court had federal-question jurisdiction to hear this ...


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