Nebraska Supreme Court
Case Citation: 283 Neb. 263, 812 N.W.2d 260 (2012)
Background: Heritage Bank (Heritage) sued Jerome J. Bruha on promissory notes that it had purchased from the Federal Deposit Insurance Corporation (FDIC). The FDIC had obtained the notes after it became a receiver for the failed bank that had initially lent the money to Bruha. The notes secured lines of credit for Bruha’s benefit.
Bruha claims that Sherman County Bank misled him into borrowing money that, in turn, he invested with a trading company that generated trade commissions through risky and speculative commodity trading. In his amended answer, Bruha admitted that he signed the note, but claims that he did not do it voluntarily. He claimed that Sherman County Bank had procured his signature “by fraud and/or misrepresentation.” Bruha admitted that he had not paid the note but denied that he was obligated to do so.
The district court granted Heritage’s motion for summary judgment citing 12 U.S.C. § 1823(e) (2006).
Issues: Whether either the holder-in-due-course rule of Nebraska’s Uniform Commercial Code or federal banking law bars Bruha’s defenses to the enforcement of the note?
Analysis: The Court initially found that Heritage is not a holder in due course because the note was not “negotiable” and article 3 of the Uniform Commercial Code does not apply. Here, the note fails to meet the definition of a “negotiable instrument” because it was not a promise “to pay a fixed amount of money.” Stated simply, a note given to secure a line of credit under which the amount of the obligation varies, depending on the extent to which the line of credit is used, is not negotiable.
Bruha next argues that the district court erred in applying the D’Oench doctrine and its codification at 12 U.S.C. § 1823(e).
The D’Oench doctrine, which is codified at 12 U.S.C. § 1823(e), generally applies to bar defenses or claims against federal regulators in those instances where a financial institution enters into an oral or secret agreement that alters the terms of an existing unqualified obligation. This doctrine is separate from the doctrine of holder in due course, so whether the document is negotiable is irrelevant.
In bringing a claim of fraud in the inducement, Bruha must show that the agreement, including the allegedly fraudulent assertions made by Sherman County Bank regarding the profitability of the accounts, has met § 1823(e)’s requirements as follows: The agreement is in writing; was executed by the depository institution and any person claiming an adverse interest there under, including the obligor, contemporaneously with the acquisition of the asset by the depository institution; was approved by the board of directors of the depository institution or its loan committee, with such approval reflected in the minutes of said board or committee; and has been, continuously, from the time of its execution, an official record of the depository institution.
Bruha does not point to anything regarding the fraud in any writing. Nor does he explain how the alleged fraudulent misrepresentations satisfy any of the other requirements of § 1823(e). Summed up, his defense does not meet the requirements § 1823(e). Thus, § 1823(e) bars Bruha from asserting the defense against Heritage.
Judgment: Affirmed in part, and in part reversed and remanded to correct the district court’s interest calculation.
To see the Court’s complete opinion, click here.