Wade A. Kilpatrick, Stan E. Golub v. John C. Riddle, the Federal Deposit Insurance Corp., as Receiver for First Republicbank Houston, N.A.

E. GRADY JOLLY, Circuit Judge:

This case presents the following question: Does the D’Oench, Duhme doctrine,¹ which protects the Federal Deposit Insurance Corporation from the effect of unrecorded agreements between an insured bank and its customers, preclude borrowers who were defrauded by failed banks, from bringing an action under federal securities laws against the FDIC as receiver? Although several circuits have touched on this question, none have squarely considered it. Supreme Court precedent, however, now makes clear that debtors may not raise bank fraud as a defense to the FDIC’s collection efforts. The D’Oench, Duhme doctrine would be effectively nullified if borrowers could characterize their fraud-based defenses as independent causes of action and maintain them against the federal receiver. Thus, although the plaintiffs may, of course, pursue actions for securities fraud against the individuals involved, we conclude that they may not recast their barred defenses as causes of action under the federal securities laws.

I

This case arises from a summary judgment granted defendants, the FDIC, and NCNB, the bridge bank used to rescue the failed institutions in this case. The plaintiffs are investors who executed promissory notes in favor of First RepublicBank (“FRB”), the failed bank. When FRB failed, these notes were acquired by the FDIC in its capacity as receiver. The FDIC then assigned the plaintiffs’ notes to the bridge bank. The plaintiffs originally sued FRB for alleged fraud in the promotion and sale of certain bank stock, which FRB underwrote by inducing the plaintiffs to execute the promissory notes at issue. The plaintiffs then added the defendants FDIC and NCNB, as successors-in-interest.

This litigation has a complex procedural history that is not relevant to the issue on appeal. As this case appears before us, the plaintiffs seek rescission of these notes on the ground that they are invalid because they were originally obtained through fraud. They allege that FRB assisted two men, who were heavily in debt to it, in a scheme to defraud investors. The two alleged swindlers promoted a plan to open several branches of the Texas National Bank (TNB). FRB financed the plan by loaning the investors money for the purchase of new TNB stock. The investors executed promissory notes and FRB thus acquired new collateral for the debts owed it by the alleged swindlers.

The plaintiffs allege fraud in that FRB never told them that the TNB stock was subject to a voting trust, which gave control over the stock to the two alleged swindlers. Furthermore, the plaintiffs allege that the stock was overvalued, and that the new banks were doomed to fail from the outset, and that this was all known by FRB. In the end, however, the net result of the stock-for-promissory note transactions was to give FRB fresh obligations from creditworthy investors by simply loaning money for a very short time in paper transactions that were essentially riskless to FRB. Although it was FRB that is alleged to have committed the fraud, the plaintiffs contend that the FDIC had acquired knowledge of FRB’s fraud by the time it became receiver, because it had previously participated in litigation involving the failed TNB branches. Since the FDIC knew of FRB’s fraud, and informed NCNB of it, neither the FDIC nor NCNB can escape FRB’s liability as “innocent purchasers” of the notes.

The plaintiffs seek recovery from the FDIC and NCNB on eight bases, all of which involve alleged misrepresentation or fraud on the part of the alleged swindlers and FRB. Among these causes of action are claims under federal and state securities laws.² They assert that the FDIC was liable for FRB’s fraudulent actions, and thus cannot collect on the notes, because it acquired them with actual knowledge of the fraud gained from its participation in the TNB litigation. NCNB, as assignee of FDIC, can have no greater right to collect on them than did the FDIC. NCNB counterclaimed to enforce the notes.

The defendants rely on the D’Oench, Duhme doctrine in two ways: they argue ' that it is a complete defense to the investors’ fraud claims and that it bars their defenses against enforcement of the notes. The district court granted summary judgment to the defendants. It concluded that the federal common law D’Oench, Duhme doctrine, which precludes defenses to recovery against a closed bank that are premised on undisclosed agreements between the borrower and the bank, both barred the plaintiffs’ claims and allowed the defendants’ counterclaims. Plaintiffs filed a timely notice of appeal.

II

The plaintiffs raise three arguments. First, although they concede that the D’Oench, Duhme doctrine precludes many of their claims, they contend that it cannot bar their actions under the federal securities laws. Second, they argue that,, the FDIC and NCNB cannot escape liability for securities violations as “innocent purchasers” under section 29 of the Securities Exchange Act, because they took the notes with actual knowledge of the plaintiffs’ claims and defenses. Finally, they argue that summary judgment was inappropriate because genuine issues of material fact remain concerning misrepresentations made by FRB in the issuance of the securities. Our resolution of the first issue is dispositive of the entire appeal.

III

The essence of the plaintiffs’ argument is that the D’Oench, Duhme doctrine cannot bar their federal securities law claims, because this result would empower the FDIC to enforce agreements that are illegal under federal securities laws. They contend that the Supreme Court has held insolvent national banks liable for misrepresentations made in the sale of their own stock,³ and that this court has not held that the D’Oench, Duhme doctrine trumps federal securities law. They further argue that, as a policy matter, protecting investors by holding the FDIC liable for securities fraud on the part of failed banks need not undercut the system of national bank regulation. They assert that the FDIC’s liability may appropriately be limited to cases in which it assumes a failed bank’s liabilities with actual knowledge of the bank’s fraudulent securities dealings. Given the FDIC’s participation in the TNB litigation, the plaintiffs argue that the FDIC had knowledge of the fraud behind this transaction before it acquired FRB and consequently was not an “innocent purchaser” of the notes in question.

Although the plaintiffs are correct that only one court has explicitly held that federal securities claims may be barred by the D’Oench, Duhme doctrine, recent Supreme Court precedent makes clear that claims that are in essence indistinguishable from those the plaintiffs seek to maintain are barred by the doctrine. Moreover, several courts have held that the doctrine bars state securities fraud claims, which often provide causes of action that overlap the federal securities laws. Finally, and most importantly, permitting borrowers to maintain federal securities claims would enable them to simply recast as affirmative causes of action the very defenses that the Supreme Court has long held are precluded by the doctrine.

A

The D’Oench, Duhme doctrine, as originally stated, holds that when a federally insured bank fails, borrowers from the bank may not later defend against collection efforts of a federal receiver by arguing that they had an unrecorded agreement with the bank. D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 459-60, 62 S.Ct. 676, 680, 86 L.Ed. 956 (1942). In D’Oench, the borrower had executed obligations to an insured institution but claimed, after the bank failed, that the bank had orally agreed that these obligations would not be enforced. This oral side arrangement became the paradigmatic “secret agreement” barred by the doctrine. Congress has embodied this common law doctrine in statute.⁴ As codified, the doctrine precludes borrowers from avoiding obligations to failed banks unless they have an arrangement in writing, that was executed by the bank and the borrower, approved by the bank’s board and listed in the bank’s records.⁵

As the Supreme Court has recently explained, the doctrine has two purposes.

One purpose ... is to allow federal and state bank examiners to rely on a bank’s records in evaluating the worth of the bank’s assets_ A second purpose ... [is to] ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure.

Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401, 98 L.Ed.2d 340 (1987). Since the initial statement of the doctrine in D’Oench, Duhme, the Court has expanded its preclusive effect well beyond the context of an oral “secret agreement” between the bank and the borrower. Most recently, in Langley the Supreme Court extended the doctrine to preclude the same defense that the plaintiffs seek to advance here: that the obligation to the failed bank was procured through fraud in the inducement.

In Langley, the Langleys borrowed money from a bank in order to buy land, and executed a mortgage as security for the loan. After the bank failed the Langleys sued it, claiming that the bank had deceived them concerning the land’s value. They alleged that the bank had represented the land as larger and more valuable than it in fact was. None of these representations were recorded in any of the loan documents.

As receiver, the FDIC acquired the Lang-leys’ mortgage among the bank’s assets and sought to enforce it. The Langleys claimed that the mortgage was unenforceable because it had been predicated on fraud. They argued that the statute bars only defenses based on an unrecorded “agreement,” and an agreement obviously requires mutual consent. Their defense, by contrast, alleged an unrecorded misrepresentation by the defrauding bank. Unilateral misrepresentation, their argument urged, is not an “agreement,” and thus is not barred by the D’Oench, Duhme doctrine.

The Court rejected the Langleys’ argument and held that agreements invalidated by section 1823(e) include “agreements” predicated on fraud, noting that D’Oench, Duhme itself applied whenever the maker “lent himself to a scheme or arrangement whereby the banking authority ... was likely to be misled.” 315 U.S. at 460, 62 5.Ct. at 681. Unwritten representations concerning the actual size of the land or the value of the mineral deposits would naturally mislead an outside examiner, simply because they were unwritten. “Certainly, one who signs a facially unqualified note subject to an unwritten and unrecorded condition upon its repayment has lent himself to a scheme or arrangement that is likely to mislead the banking authority, whether the condition consists of performance of a counter-promise (as in D’Oench, Duhme) or of the truthfulness of a warranted fact.” 484 U.S. at 93, 108 S.Ct. at 402 (emphasis added).⁶ Thus, it is now clear that borrowers who execute facially unqualified obligations may not prevent a federal receiver’s collection efforts by claiming that they were induced to execute the obligations by fraud.

B

As we have noted, the plaintiffs have alleged that they were fraudulently induced to execute promissory notes. The notes were part of a scheme in which they were induced to’ purchase worthless stock with the loan proceeds. Viewing the facts and inferences in the light most favorable to the nonmovants, we presume, without deciding, that the plaintiffs have stated a claim for securities fraud against the promoters and FRB. Barrett v. Computer Servs., Inc., 884 F.2d 214, 215 (5th Cir.1989). We also observe at the outset that if the D’Oench, Duhme doctrine protects the FDIC, it also protects NCNB, because “we recently extended D’Oench, Duhme to ‘assignees of the FDIC.’ ” Porras v. Petroplex Sav. Ass’n, 903 F.2d 379, 381 (5th Cir.1990) (citing Bell & Murphy & Assocs. v. Interfirst Bank Gateway, 894 F.2d 750, 754-55 (5th Cir.1990)).

It is further clear that if the plaintiffs’ defenses are barred by the D’Oench, Duhme doctrine, then their defenses framed as causes of action must also be barred, because any other result would nullify the doctrine. Bell & Murphy & Assocs. v. Interfirst Bank Gateway, 894 F.2d 750, 753 (5th Cir.1990) (“this argument [is] meritless in light of our recent holding in Beighley that the D’Oench, Duhme rule bars affirmative claims based upon unrecorded agreements”). Furthermore, prior knowledge of FRB’s alleged fraud that the FDIC may have gained from the TNB litigation will not aid the plaintiffs’ defense, because “even if the FDIC had knowledge of the oral misrepresentation prior to its acquisition of the note[s], such knowledge is not relevant to whether § 1823(e) applies. The voidable interest is transferable whether or not FDIC knows of the misrepresentation or fraud which produces the voidability.” FDIC v. Kratz, 898 F.2d 669, 671 (8th Cir.1990) (citing Langley). See also FDIC v. Roldan Fonseca, 795 F.2d 1102, 1107 (1st Cir.1986) (claim of knowledge is “precisely what FDIC is protected from by virtue of Section 1823(e)”). The question then is this: may the plaintiffs distinguish themselves from all the previously cited authority, and defend against the collection efforts of the federal receiver on the ground that the “agreement” violated federal securities laws? In a word, no.

It seems clear to us that under the rule of Langley and the principles underlying the D’Oench, Duhme doctrine, the plaintiffs’ claims and defenses must be barred. We think that Langley v. FDIC refutes the plaintiffs’ arguments since it barred a borrower’s defense that is essentially indistinguishable from the plaintiffs’ claims in this case. “Following Langley, we have held that misrepresentations to borrowers cannot be asserted as a defense to recovery by the FSLIC on facially unqualified loan documents.” McLemore v. Landry, 898 F.2d 996, 1002 (5th Cir.1990). As in Langley, the borrowers here argue that certain warranted facts concerning their loans, namely the value of the underlying asset securing their promissory notes, were misrepresented to them by the bank. Except for the fact that the asset in this case is stock rather than land,' and its sale thus regulated by federal law, the cases are the same.

It is true that only one court has expressly rejected federal securities law defenses on the basis of the D’Oench, Duhme doctrine. In FDIC v. Investors Associates X, Ltd., 775 F.2d 152, 156 (6th Cir.1985), the court rejected arguments of “fraud in the inducement, and state and federal securities law defenses” asserted against the FDIC. But.see Gilman v. FDIC, 660 F.2d 688, 693-94 (6th Cir.1981) (suggesting possible right of borrowers to rescind obligations made in violation of securities laws), and Gunter v. Hutcheson, 674 F.2d 862, 874 (11th Cir.1982) (identifying but not deciding question). These decisions were all rendered before the Supreme Court’s decision in Langley. Although’ no Fifth Circuit case has expressly extended the D’Oench, Duhme doctrine to bar claims arising under the federal securities laws, this court has held (after Langley was decided) that a plaintiff cannot assert similar state common law claims of fraud, breach of contract, or breach of fiduciary duty against an FDIC receiver. Beighley v. FDIC, 868 F.2d 776, 784, n. 12 (5th Cir.1989).

We find the fact that the “agreement” in this case allegedly involved securities fraud is unimportant for purposes of D’Oench, Duhme analysis. It is not the nature or enforceability of an agreement between a bank and borrower that controls the application of the D’Oench, Duhme doctrine; if the agreement is unwritten, D’Oench, Duhme applies. D’Oench, 315 U.S. at 459, 62 S.Ct. at 680. See also 12 U.S.C. § 1823(e). The plaintiffs contend, nevertheless, that a “balancing of federal policies ... demands that investor protection embodied in the securities laws outweigh the federal policies behind the D’Oench, Duhme doctrine.” We do not see that this case requires striking such a balance.

First, as we have noted earlier, precluding this action does not deprive the plaintiffs of protection under the federal securities laws. They -may sue the individuals who actually defrauded them. Application of the doctrine here only denies a certain remedy, namely, rescission of voluntarily undertaken obligations to the federally insured bank. Second, no authority suggests a right to be compensated by the federal government because one’s investments fail. Although there is no federal policy of protecting investors by the government underwriting privately issued securities,⁷ Huddleston v. Herman & MacLean, 640 F.2d 534, 549 (5th Cir.1981) there is a federal policy of protecting federally insured banks from the effect of unrecorded agreements. Obviously, D’Oench, Duhme is not designed to protect investors. The “doctrine thus favors the interests of depositors and creditors of a failed bank, who cannot protect themselves from secret agreements, over the interests of borrowers, who can.” Campbell Leasing, Inc. v. FDIC, 901 F.2d 1244, 1248 (5th Cir.1990).

Finally, this result is not only consistent with recent precedent concerning the scope of the D’Oench, Duhme doctrine, but also reaffirms a basic principle underlying that doctrine, which is of particular relevance today. It is the “federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [it] insures or to which it makes loans.” D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 457, 62 S.Ct. 676, 679, 86 L.Ed. 956 (1942). This policy is undermined just as much by unrecorded representations regarding securities as by secret agreements that condition the enforceability of obligations to a federally insured bank. We must therefore conclude that claims under the federal securities laws provide no basis from which to carve an exception from the D’Oench, Duhme doctrine.

IY

Because we conclude that the D’Oench, Duhme doctrine bars the plaintiffs’claims and defenses even if FRB committed fraud of which the FDIC had knowledge, we need not consider whether the defendants are “innocent purchasers” or whether there were genuine issues of material fact concerning the alleged fraud.

For the foregoing reasons, the judgment of the district court is

AFFIRMED.

1 . The doctrine was originally stated in D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and was later codified at 12 U.S.C. § 1823(e).

2 . Their claims are based on section 10(b) of the Securities Exchange Act of 1934 and Rule lob-5, section 33 of the Texas Securities Act, civil conspiracy, statutory and common law fraud, breach of the duty of good faith and fair dealing, and violations of section 29 of the Securities Exchange Act of 1934 and section 12(2) of the Securities Act of 1933.

3 . Oppenheimer v. Harriman Nat’l Bank & Trust Co. of City of N.Y., 301 U.S. 206, 57 S.Ct. 719, 81 L.Ed. 1042 (1937). Oppenheimer, decided several years before D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), simply holds that bank stockholders defrauded into purchasing bank stock have the same priority after the bank fails as other unsecured creditors. It says nothing about their ability to recover from a federal receiver.

4 . There are two D’Oench, Duhme doctrines, one statutory (12 U.S.C. § 1823(e)) and one of common law. Until recently, only the common law version protected the FDIC when it acted in its capacity as receiver. See Beighley v. FDIC, 868 F.2d 776, 783 (5th Cir.1989) ("Section 1823(e) is not available as a bar to claims of defenses against the FDIC when it is acting in its capacity as receiver”). On August 9, 1989 Congress amended the statutory version, making it available to the FDIC-Receiver. 12 U.S.C. § 1823(e). This action was brought before section 1823(e) was amended, and involves the FDIC in its capacity as receiver. We need not consider, however, whether this change applies to this case, because we have long held that both doctrines bar similar defenses by borrowers. See Beighley v. FDIC, 868 F.2d 776, 784 (5th Cir.1989) (noting that “[c]ourts often consider the [common law] D’Oench, Duhme doctrine and § 1823(e) in tandem, looking to the common law when construing the statute”) and cases cited therein; Olney Sav. & Loan Ass’n v. Trinity Banc Sav. Ass’n, 885 F.2d 266, 274 (5th Cir.1989) ("[a]s the aims of § 1823(e) and D’Oench are identical and § 1823(e) is a codification of D’Oench and its progeny, the reasoning applied in § 1823(e) cases is applicable to D’Oench cases”). See also FDIC v. Condit, 861. F.2d 853, 858, n. 5 (5th Cir.1988).

5 .12 U.S.C. § 1823(e) provides:

(e) Agreements against interests of Corporation No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement—

(1) is in writing,

(2) was executed by the depository institu-

tion and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(3) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(4) has been, continuously, from the time of its execution, an official record of the depository institution.

6 . The Supreme Court did identify one exception to the broad reach of section 1823(e) but it is inapplicable in this case. Where the bank engages in fraud "in the factum" rather than fraud in the inducement, there is no valid obligation on the part of the borrower under the principle that fraud vitiates consent. The borrowers here knowingly executed promissory notes in favor of FRB. They claim that they did not realize the risk of the venture because of the disguised voting trust, the heavy indebtedness of the promoters, and the inflated value of the TNB stock. These are allegations of fraud in the inducement. The plaintiffs' obligations to the bank, and thus to NCNB, would therefore be voidable rather than void.

7 . As a matter of equity, we see no reason the plaintiffs should be in a better position simply because the institutions that defrauded them happened to fail rather than survive. We reiterate that barring their suit against the federal receiver does not preclude their suing the individuals who actually defrauded them.