The borrower executed a bridge loan promissory note, security agreements, and a personal guaranty as part of a multilayered tax-credit financing structure used to renovate a historic theater in Louisiana. After the borrower defaulted on the note, the originating bank then failed, and a Louisiana state court appointed the FDIC as receiver. The FDIC subsequently assigned the indebtedness through a series of several transfers to the creditor, who sued to enforce the matured note in question, related security interests, and the guaranty. The borrower and guarantor asserted a fraudulent-inducement defense, arguing that the originating bank orally represented that both state and federal tax credit proceeds would fully satisfy the indebtedness and that repayment would not be required directly from the borrower or guarantor. The borrower and guarantor further argued internal bank credit documents referencing tax-credit proceeds constituted written support for those alleged repayment limitations agreed to. Additionally, the borrower and the guarantor contended that the creditor had “manufactured” the default by interfering with efforts to unwind the broader tax credit financing structure and by alleged improper conduct surrounding the post-default assignment of the indebtedness.
In BY Equities, L.L.C. v. Carver Theater Productions, L.L.C., No. 24-30799, 2026 WL 542632, 2026 U.S. App. LEXIS 5887 (5th Cir. Feb. 26, 2026) (unpublished opinion), the Fifth Circuit affirmed summary judgment in favor of the creditor and the denial of a relief from judgment. Reviewing de novo, the Fifth Circuit applied the D’Oench, Duhme doctrine, which “bars borrowers and guarantors from defeating the enforcement of bank assets by invoking unwritten or unrecorded understandings that are not reflected in the bank's official records.” See Campbell Leasing, Inc. v. FDIC, 901 F.2d 1244, 1248 (5th Cir. 1990). The court held that the alleged oral representations constituted precisely the type of unwritten side agreement barred by the D’Oench, Duhme doctrine and 12 U.S.C. § 1823(e). The court explained that the internal credit documents failed to satisfy § 1823(e) because they were not executed contemporaneously by both the bank and the obligors and had expressly preserved guarantor liability and liquidation of collateral as secondary repayment sources. As a result, the relief from judgment appeal fared no better. The D’Oench, Duhme doctrine barred both the enforcement and relief order because they both relied on the unwritten or unrecorded understandings. The Fifth Circuit also rejected the borrower’s “manufactured default” theory because the note had matured and had been unpaid years before the creditor first acquired the indebtedness. Further, the court explained that Louisiana law is friendly to the free assignment of indebtedness and that the alleged unwinding of the financing structure would only have altered the collateral securing the note rather than having extinguished the borrower’s unconditional repayment obligation. Accordingly, the court held that the borrower and the guarantor failed to establish a genuine issue of material fact and affirmed judgment enforcing the note and guaranty, despite the alleged side-deal arrangements.
By Landon Womack [email protected]
Edited By Andrew Fielden [email protected]
Edited By Taylor O’Brien [email protected]