On January 12, 2023, the U.S. Court of Appeals for the Eleventh Circuit reversed the dismissal of a claim against Renasant Bank seeking to invalidate a security interest that Renasant acquired through an FDIC receivership. Applying the D’Oench doctrine, which arises when the FDIC takes over a failed bank and sells its assets to a solvent bank, the court held that evidence outside of the failed bank’s records may not be used to challenge the validity of a facially valid security agreement. The split ruling reversed a district court decision that allowed the creditor of an insolvent law firm to claw back a certificate of deposit that a firm partner had pledged as loan collateral to the failed bank.
In 2009, now-jailed lawyer Nathan Hardwick obtained a loan from Crescent Bank and Trust Company and, as his law firm’s manager, signed a security agreement pledging the firm’s certificate of deposit—in the amount of $631,276.71—as collateral. After Crescent Bank failed and its assets were sold to Renasant Bank through FDIC receivership, Hardwick stopped paying on the loan, and the law firm went into bankruptcy. One of the firm’s creditors, Landcastle Acquisition Corp., sued Renasant (as successor to Crescent), claiming Renasant was liable for the CD amount on the ground that Hardwick had signed the law firm’s security agreement without requisite authority. Denying summary judgment to both parties, the district court determined that genuine fact issues existed as to whether Hardwick had apparent authority to pledge the CD. In its order, however, the district court certified for immediate appeal the question of whether the D'Oench doctrine bars a claim (or defense) that the agent who signed the agreement with the bank purportedly lacked authority to do so.
The Eleventh Circuit accepted the appeal and reversed. In a 2-1 decision, the court rejected Landcastle’s argument that Hardwick’s lack of authority rendered the security agreement entirely void and incapable of being transferred to the FDIC (and then Renasant). The court held that Landcastle’s lack-of-authority claims were barred under D’Oench because they relied on evidence outside of Crescent’s records when the FDIC took over and sold the Hardwick loan and CD collateral to Renasant. In a dissent, Chief Judge Pryor contended that the lack of authority should preempt application of the D’Oench doctrine.
The case is Landcastle Acquisition Corp. v. Renasant Bank, No. 20-13735 (11th Cir. Jan. 12, 2023). Landcastle is represented by Smith Gambrell & Russell LLP. Renasant is represented by Miller & Martin PLLC. The order is available here.
