Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

The O'Melvany and Atherton Decisions

In the mid-1990s, the U.S. Supreme Court justices decided O'Melvany & Myers v. FDIC and Atherton v. FDIC. These decisions were about the standard of care that a bank's lawyers, officers, and directors (all collectively together "bank fiduciaries") each respectively owe to the bank they're working for.

The Federal Deposit Insurance Corporation (the "FDIC") urged the justices to impose a uniform, federal standard of care that would apply to all bank fiduciaries throughout the United States. The bank fiduciaries observed that state laws have traditionally set the standard of care they owe and they urged the justices to leave that alone. They suggested that creating a federal standard of care would require the justices to use their "common law" powers to impose new, judge made law, something they're usually reluctant to do.

In both decisions the justices agreed with the fiduciaries and declined to impose a federal standard of care. Their principal reason: Congress enacted FIRREA as a comprehensive set of laws affecting the rights and duties of failed banks, their bank fiduciaries, and their successors, including the FDIC. If the senators and representatives wanted to impose a federal standard of care, they would have put it in FIRREA. Congress didn't. And the justices said they wouldn't use their common law powers to do it either.

Circuit Split

Some of the justices' remarks in the O'Melvany and Atherton decisions suggest to judges on some of the federal circuit courts of appeal -- lower federal courts just below the U.S. Supreme Court -- that FIRREA's amendments to Section 13(e) supplant the D'Oench, Duhme doctrine and the FHDC Rule too. According to these judges, after FIRREA, D'Oench and the FHDC Rule are dead.

Other federal judges in other circuits disagree. They say that in O'Melvany and Atherton, the FDIC asked the justices to create a new common law rule. But the D'Oench, Duhme doctrine isn't new. It's a venerable and long standing stalwart of federal banking jurisprudence. So, when deciding whether FIRREA supplants D'Oench, judges should apply an analysis different from what the Supreme Court justices used in O'Melvany and Atherton. And the result of using a different analysis is that the D'Oench, Duhme doctrine is still alive and well, at least until the justices say otherwise.

So, the circuit courts of appeal split on whether the D'Oench Duhme doctrine and FHDC Rule are dead after FIRREA. Some say yes, some say no, and some haven't considered it. It's hard for me to keep track of which ones say what, where, and why. This chart helps me keep track:

Upcoming Posts

In the next bank insolvency post, we're going to talk about the FDIC's 1997 policy for use of the D'Oench, Duhme doctrine and Section 13(e) of the FDI Act. Under this policy, in select situations, FDIC personnel are supposed to get special approval from headquarters in Washington, DC before they use either the D'Oench doctrine or Section 13(e). Several of these select situations specifically affect architects, engineers, and construction contractors. More about that in the next bank insolvency post.