No. 00-46 

IN THE 

Supreme Court of the United States 

Supreme Court of the United States 

Supreme Court of the United States 

Supreme Court of the United States 

BRUCE G. MURPHY, 

Petitioner, 

v. 

JEFFREY H. BECK, 
as Successor Agent for Southeast Bank, N.A., 

Respondent. 

On Writ of Certiorari 
to the United States Court of Appeals for the Eleventh Circuit 

REPLY BRIEF FOR PETITIONER 

JOHN F. BLOSS 
CLARK BLOSS & 

MCIVER, PLLC 
Post Office Box 1349 
Greensboro, NC 27402 
(336) 275-7275 
ERIK S. JAFFE 

Counsel of Record 
ERIK S. JAFFE, P.C. 
5101 34 

th Street, N.W. 
Washington, DC 20008 
(202) 237-8165 

THOMAS C. GOLDSTEIN 
AMY HOWE 
THOMAS C. GOLDSTEIN, P.C. 
4607 Asbury Place, N.W. 
Washington, DC 20016 
(202) 237-7543 

Counsel for Petitioner 

TABLE OF CONTENTS 

Pages 

TABLE OF CONTENTS......................................................... i 

TABLE OF AUTHORITIES .................................................. ii 

SUMMARY OF ARGUMENT.............................................. 1 

ARGUMENT.......................................................................... 2 

I. No Valid Federal Common Law Is Applicable to 
this Case........................................................................ 2 

A. O’Melveny and Atherton Both Apply..................2 

B. The D’Oench Doctrine Is Independently 

Invalid as Applied to this Case............................3 

C. FIRREA Preempts the Field for Federal 

Common Law Defenses in Connection with 
Receiverships.......................................................9 

II. There Is No Basis for Avoiding the Rule of 
O’Melveny and Atherton............................................... 9 

A. Invalid Federal Common Law Is Not 

Presumed Retained, Regardless of Its Age. ......10 

B. O’Melveny and Atherton Both Apply to 

Pre-Existing Federal Common Law. .................10 

C. The Texas Approach Does Not Apply to the 

Common-Law Rules Asserted in this Case. ......12 

D. FIRREA Overcomes Even the Texas 

Presumption.......................................................16 

CONCLUSION..................................................................... 21 

ii 

TABLE OF AUTHORITIES 

Pages 

Cases 

Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 
104 (1991)......................................................................... 17 

Atherton v. FDIC, 519 U.S. 213 (1997) ........................ passim 

Boyle v. United Techs. Corp., 487 U.S. 500 (1988) ......... 6, 15 

Caspari v. Bohlen, 510 U.S. 383 (1994) ................................ 4 

Cuyler v. Sullivan, 446 U.S. 335 (1980)................................. 4 

D’Oench, Duhme & Co., Inc. v. FDIC, 315 U.S. 447 
(1942).............................................................................. 6, 9 

Guaranty Trust Co. v. York, 326 U.S. 99 (1945).................. 14 

Gunter v. Hutchinson, 674 F.2d 862 (CA11), cert. 
denied, 459 U.S. 826 (1982) ........................................... 4, 5 

Isbrandtsen Co. v. Johnson, 343 U.S. 779 (1952)................ 17 

Langley v. FDIC, 484 U.S. 86 (1987) .............................. 9, 15 

Lebron v. National R.R. Passenger Corp., 513 U.S. 374 
(1995).................................................................................. 4 

Ledo Fin. Corp. v. Summers, 122 F.3d 825 (CA9 1997)........ 5 

Lutwak v. United States, 344 U.S. 604 (1953) ............... 13, 14 

Milwaukee v. Illinois, 451 U.S. 304 (1981)................... passim 

Miree v. DeKalb County, 433 U.S. 25 (1977) ........................ 7 

O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994) ....... passim 

United States v. Standard Oil Co., 332 U.S. 301 (1947)...... 14 

United States v. Texas, 507 U.S. 529 (1993).......................... 2 

Statutes 

12 U.S.C. § 197....................................................................... 3 

12 U.S.C. § 1821(d)(9)(A).................................................... 16 

iii 

12 U.S.C. § 1821(d)(11)(A).................................................... 6 

12 U.S.C. § 1821(g) ................................................................ 6 

12 U.S.C. § 1823(e) ........................................................ 16, 19 

Other Authorities 

Brief for the FDIC, O’Melveny & Myers v. FDIC, No. 
93-489 (Feb. 18, 1994) ............................................... 11, 14 

H.R. Rep. No. 54, 101st Cong., 1st Sess., Pt. I (1989) ......... 19 

Hearing on S. 648 Before the Senate Comm. on Banking, 

Housing, and Urban Affairs, 104th Cong., 1st Sess. 49 
(1995)................................................................................ 20 

O’Melveny Oral Arg.Tr., 1994 U.S. Trans. Lexis 155 
(March 21, 1994) .............................................................. 15 

S. 648, 104th Cong., 1st Sess. (1995) ................................... 20 

REPLY BRIEF FOR PETITIONER 

The federal common-law rule invoked by respondent 
shares little with the original D’Oench decision beyond its 
name: not only are the rights of the United States not impli- 
cated, but the basic equitable principles underlying D’Oench 
are either absent from or actively subverted by the rule in- 
voked here. Federal statutes have thoroughly addressed any 
federal interests driving the original D’Oench case, and the 
application of state law in this case poses no significant con- 
flict with any federal interest sufficient to support extra- 
statutory federal rules of decision. 

SUMMARY OF ARGUMENT 

The validity vel non of respondent’s asserted common- 
law rule is a prior and independent requirement that respon- 
dent cannot meet. The various asserted interests in speedy 
evaluation of failed banks, avoiding circumvention of asset 
recoveries, and deterring unrecorded agreements may be 
served by statutory defenses enacted by Congress and not 
questioned here, but those interests do not support extension 
of a common-law rule beyond the statute to this case, and in 
many respects such extension would actually undermine those 
interests. The valid scope of any common-law rule entirely 
depends on a conflict with federal interests, and with no such 
conflict, there is no valid rule. 

The passage of FIRREA, and the 1950 Act before it, both 
eliminated the need for federal common law and spoke di- 
rectly to the questions supposedly addressed by federal com- 
mon law, thus creating an exclusive negative inference re- 
gardless of whether the common law at issue is old or new. 
Furthermore, there is no question that the particular rule 
sought by respondent did not pre-exist FIRREA. The attempt 
to shift to a presumption preserving an abstract and mutable 
principle not yet applied as a concrete rule is not supported by 
the cases and would contradict this Court’s restrictive view of 

2 

conflict-based federal common law. Indeed, that variety of 
common law is so questionable to begin with that it should 
not benefit from any preserving presumption. Finally, even if 
a presumption in favor of existing common law were applied, 
FIRREA and the 1950 Act spoke directly to the relevant 
questions and hence overcome that presumption. 

ARGUMENT 

I. NO VALID FEDERAL COMMON LAW IS APPLICABLE 

TO THIS CASE. 

A. O’Melveny and Atherton Both Apply. 

Though disputing the applicability of the field-preemption 
analysis of O’Melveny & Myers v. FDIC, 512 U.S. 79 (1994), 
respondent does not dispute the holding of both O’Melveny 
and Atherton v. FDIC, 519 U.S. 213 (1997), that the validity 
of federal common law must be established independently of 
any issue of statutory displacement. As in Atherton, that re- 
quirement applies with full force regardless of whether the 
lower courts have been erroneously applying the relevant 
common-law rule for decades. 

Nor does respondent dispute the limitations established in 
O’Melveny and Atherton regarding the availability and valid- 
ity of federal common-law rules for the benefit of the FDIC- 
Receiver: the FDIC-Receiver “is not the United States”; it is 
required to establish a rare “‘significant conflict’” between 
state law and federal policy; and “[n]ot only the permissibility 
but also the scope of judicial displacement of state rules turns 
upon such a conflict.” O’Melveny, 512 U.S. at 85, 87-88 
(emphasis added) (citation omitted). 

As for O’Melveny’s field-preemption analysis, respondent 
only claims that it does not apply to supposedly pre-existing 
and well-established federal common law, defending the 
Eleventh Circuit’s reliance on United States v. Texas, 507 
U.S. 529 (1993). Importantly, aside from that attempt at 
avoiding O’Melveny, respondent does not even attempt to 

3 

suggest that his extraordinarily expansive version of the 
D’Oench doctrine would survive O’Melveny’s displacement 
analysis. As discussed below, the Texas approach does not 
apply to this case, and hence O’Melveny mandates reversal. 

B. The D’Oench Doctrine Is Independently Invalid as 

Applied to this Case. 

Even when the FDIC-Receiver was a party to this case, it 
asserted only private interests, not those of the United States. 
Atherton, 519 U.S. at 225; O’Melveny, 512 U.S. at 85. And 
prior to the district court’s sua sponte ruling on the unbriefed 
D’Oench issue, the FDIC-Receiver had left the scene entirely, 
and the remaining assets of the bank had been returned to the 
agent for the shareholders. Whereas the FDIC-Receiver once 
merely stood in the Bank’s shoes, those shoes were returned 
to their original owners and are now occupied by respondent.1 

1 Respondent deems this mere happenstance, and the Solicitor General 
claims the issue was not raised below. Resp. Br. 14 n.11, 49; U.S. Br. 7, 

27. Neither is correct. The substitution of respondent was the expected 
and required result of the receivership completing its task with a surplus. 
Respondent is a successor not through purchase or the like, but solely as 
an agent of the shareholders appointed to take receipt of the excess from 
the receivership. 12 U.S.C. § 197. That is no happenstance. Petitioner 
objected to application of D’Oench for the benefit of such a successor and 
argued that barring his claim ran contrary to the purposes underlying the 
original D’Oench decision. Br. of Appellant (CA11), at 20; Reply Br. 
(CA11), at 8, 13-15. Similarly, petitioner argued before the Eleventh Cir- 
cuit that both O’Melveny and Atherton barred application of the D’Oench 
doctrine. Br. of Appellant (CA11), at 20. Those cases addressed the basic 
validity of federal common law for the benefit of the FDIC-Receiver, not 
merely issues of statutory displacement, and their invocation below is 
more than adequate to preserve an argument that respondent’s rule is un- 
supported by any conflict with federal interests or policies. Finally, dis- 
cussions of whether the details of respondent’s rule comport with the 
D’Oench decision or had even evolved prior to 1989 are appropriate re- 
sponses to the Eleventh Circuit’s reliance on Texas, and in any event are 
squarely encompassed within the Question Presented and the discussion in 
the Petition. And they constitute prior issues properly addressed regard- 
less of whether they were raised below. See Lebron v. National R.R. Pas- 

4 

Despite the private interests served by both respondent 
and his predecessor the FDIC-Receiver, respondent and the 
Solicitor General nonetheless assert several putative federal 
interests in support of an extended D’Oench doctrine: (1) al- 
lowing reliance on the speedy evaluation of a failed bank 
when making the decision to liquidate or to use a purchase 
and assumption (“P&A”) transaction, Resp. Br. 4, 12-13; U.S. 
Br. 2; (2) avoiding circumvention of the primary rule applica- 
ble to asset collection by barring affirmative claims, Resp. Br. 
4, 12-13, 45-46; (3) deterring use of unrecorded agreements 
and promoting proper lending practice, U.S. Br. 2, 9; (4) pro- 
tecting creditors, depositors, and the FDIC from absorbing 
losses, U.S. Br. 2; and (5) promoting prompt and cost- 
effective resolution of litigation, id. at 2, 9. But such sup- 
posed interests are fully served by statute and cannot support 
the extra-statutory scope of the federal common-law rule re- 
spondent seeks.2 

Reliance on Rapid Evaluations of Failed Banks. The 
rapid evaluation/reliance interest is only implicated if and 
when the FDIC-Corporate chooses a P&A transaction instead 
of a liquidation. In such a case, the FDIC-Corporate may in- 
deed rely on its favorable § 1823(e)-enhanced assessment of 
the bank’s condition when deciding to make payments from 
the insurance fund in exchange for bank assets. Cf. Resp. Br. 
12-13 (acknowledging connection between policy interest and 
P&A transactions, citing Gunter v. Hutchinson, 674 F.2d 862 
(CA11), cert. denied, 459 U.S. 826 (1982)). The economics 
of the P&A decision could well be undermined if unrecorded 

senger Corp., 513 U.S. 374, 379 (1995); Caspari v. Bohlen, 510 U.S. 383, 
390 (1994); Cuyler v. Sullivan, 446 U.S. 335, 342 n.6 (1980). 

2 The FDIC’s assertions regarding the need for expansive application of 
D’Oench have also been the subject of criticism generally. E.g., Hearing 
of S. 648 Before the Senate Comm. on Banking, Housing, and Urban Af- 
fairs, 104th Cong., 1st Sess. 93-106 (1995) (prepared testimony of Prof. 
Peter P. Swire). 

5 

agreements subsequently blocked collection on the assets 
taken by the FDIC-Corporate. 

But where even the enhanced valuation of a failed bank is 
still so unfavorable as to trigger liquidation instead of a P&A 
transaction, there is no conceivable reliance on the value- 
inflating qualities of the D’Oench doctrine or even the statute. 
If the bank later proves worse off than originally thought, that 
only corroborates the choice to liquidate and undermines 
nothing. This alleged interest simply does not apply in the 
liquidation context. 

That the statutory defense nonetheless extends to the 
FDIC-Receiver does not rebut the lack of a federal interest. 
Respondent offers no explanation of the policy behind such 
statutory extension, Resp. Br. 44, none is particularly evident, 
and Congress is free to act for reasons trivial or mistaken. 
The mere existence of a limited statutory defense for FDIC- 
Receiver, inapplicable to this case, does not demonstrate the 
“high federal interest” required for federal common law. 
O’Melveny, 512 U.S. at 86; see Atherton, 519 U.S. at 218.3 

Respondent’s observation that D’Oench itself cited state- 
law equitable defenses available to state receivers and banks, 
Resp. Br. 44, does not show that it intended to create federal 
law governing receivers and private parties as well as the 
FDIC-Corporate. Rather, D’Oench took that state-law rule as 
the touchstone for its own rule applicable to the rights of the 
United States, leaving state law to address the rights of other 
parties, including receivers. See D’Oench, Duhme & Co., 

3 Respondent’s claim that “no court of appeals has ever accepted the dis- 
tinction” between FDIC-Corporate and FDIC-Receiver, Resp. Br. 44, is 
disproved by his own citations to Ledo Financial Corp. v. Summers, 122 
F.3d 825, 829 & n.2 (CA9 1997), and Gunter v. Hutchinson, 674 F.2d 
862, 873 n.15 (CA11), cert. denied, 459 U.S. 826 (1982), making pre- 
cisely such a distinction, Resp. Br. 33 n.18, 45-46 n.26. Any contrary and 
ill-considered views in other lower-court cases hardly undermine a mate- 
rial distinction that this Court itself has twice relied upon in similar cir- 
cumstances. See O’Melveny, 512 U.S. at 85; Atherton, 519 U.S. at 225. 

6 

Inc. v. FDIC, 315 U.S. 447, 457-59 (1942). And that is how 
the case has been understood over time – as having developed 
federal common law because the rights of the United States 
were involved. See Boyle v. United Technologies Corp., 487 
U.S. 500, 519 (1988) (citing D’Oench as an example of fed- 
eral common law governing the “obligations to and rights of 
the United States under its contracts”). The claim that 
D’Oench meant to federalize all of the state law it cited, even 
as to situations not involving the rights of the United States, 
has no support in the case and could not be reconciled with 
subsequent cases limiting federal common law. 

No Circumvention Through Affirmative Claims. Re- 
spondent incorrectly asserts that failure to extend the 
D’Oench doctrine to affirmative claims would “swallow the 
rule” as applied to asset collections by allowing a borrower to 
“recoup the monies sought by the FDIC simply by bringing 
an unbarred counterclaim based upon a secret agreement.” 
Resp. Br. 45. Whatever the merit of this concern in the 
FDIC-Corporate context, it makes absolutely no sense in the 
receivership context because a successful claim against a re- 
ceivership would not automatically offset even a related col- 
lection effort.4 Rather, recognizing a valid claim in this con- 
text only generates the right to stand in line along with other 
recognized claimants and await potential payment according 
to the applicable payment priorities. Receivership expenses, 
depositor liabilities, and any reimbursement to the FDIC- 
Corporate all take priority over general liability claims such 
as in this case. 12 U.S.C. §§ 1821(d)(11)(A), 1821(g). With 
direct statutory protection against defenses to asset collection 
itself, the prioritization of recovery for affirmative claims 
eliminates any purported conflict with federal interests. In- 
deed, the only consequence of disallowing petitioner’s claim 

4 The circumvention rationale is even more preposterous as applied to 
“no-asset” claims such as in this case because there is no attempted asset 
recovery to be circumvented. 

7 

entirely will be to enhance the recovery of the bank’s share- 
holders at the expense of a victim of the bank’s secret agree- 
ment, a result entirely at odds with the equitable and policy 
concerns underlying the original D’Oench decision. 

No Federal Policy Requiring Maximum Deterrence of 
Unrecorded Agreements. While the original D’Oench deci- 
sion may have somewhat discouraged unrecorded agree- 
ments, that does not establish a significant federal interest in 
maximizing the deterrence of such agreements by continually 
expanding the doctrine beyond the scope of what Congress 
has seen fit to enact after repeated consideration. As this 
Court recognized in Miree v. DeKalb County, 433 U.S. 25, 32 
(1977), the fact that a rule “might be thought to advance fed- 
eral * * * policy by inducing compliance with” federal regu- 
lations is insufficient to justify adoption of such rule as fed- 
eral common law where only the rights of private parties, not 
the rights of the United States, are at issue. See also 
O’Melveny, 512 U.S. at 89 (rejecting claim that state rule 
would “disserve the federal program”). 

Furthermore, the alleged deterrence interest is not served 
in cases such as this, where petitioner was not a customer of 
the bank and had no involvement in or responsibility for 
making the agreement. See Pet. App. C6 (noting absurdity of 
applying recording requirements to bar claims by third parties 
such as Murphy). To bar Murphy’s claim against the Bank 
would not deter such secret agreements, it would reward them 
by permitting them to form the basis of a fraud for which the 
victim cannot recover. The claimed deterrence interest thus 
does not support extending the “scope” of federal common 
law to the type of claims at issue in this case. 

Protection of Depositors, Creditors, and the FDIC- 
Receiver. As noted above, neither depositors nor the FDIC- 
Receiver face any risk from application of state law to allow 
the type of affirmative claims in this case. Those claims have 
lower priority than claims by depositors of the FDIC-Receiver 
itself. And as for protecting creditors, Murphy is also an in- 

8 

nocent potential judgment creditor, and there is absolutely no 
federal interest in balancing the private rights of one creditor 
against another in a manner different from state law. Adjust- 
ing such wholly private rights is the province of state law. 
See O’Melveny, 512 U.S. at 84. 

Litigation Ease. The assertion that the FDIC-Receiver’s 
litigation success and ease is the type of federal interest suffi- 
cient to underpin federal common law is both unsupported 
and incredible. As this Court noted in O’Melveny, there is no 
federal interest in seeing that the FDIC-Receiver wins more 
frequently, much less in helping it avoid the ordinary conse- 
quences of litigation. 512 U.S. at 88.5 

What is most telling about the various interests alleged to 
justify the common-law rule invoked in this case is how little 
they have to do with the federal interest actually articulated in 
D’Oench itself: a “federal policy to protect [FDIC-Corporate] 
and the public funds which it administers against misrepre- 

5 In response to the contradiction between the assertion of federal interests 
in the D’Oench doctrine and FDIC-Receiver’s policy to eschew all reli- 
ance on such common law in pre-FIRREA cases, Pet. Br. 20, the Solicitor 
General responds with the non-sequitur that FDIC’s policy statement has 
no bearing on Congress’ intent when enacting FIRREA. U.S. Br. 22 n.10. 
But the FDIC-Receiver’s abandonment of the common-law D’Oench 
doctrine, including, presumably, the inchoate and evolving D’Oench 
“principle” in favor of the statutory defenses, forcefully demonstrates the 
absence of a conflict with a significant federal interest beyond the con- 
fines of the statute. Indeed, the government repeatedly touted the irrele- 
vance of the common-law doctrine in Briefs in Opposition to this Court 
when trying to avoid review. See Pet. Br. 20 (citing FDIC’s prior opposi- 
tions). If the D’Oench doctrine remains as valuable as the Solicitor Gen- 
eral now conveniently claims, the FDIC-Receiver would be confessing its 
own malfeasance in abandoning such an important defense and in mis- 
leading the Court as to its continuing importance. Petitioner prefers to 
think the FDIC-receiver was half right in the first place: the common-law 
D’Oench doctrine serves no significant federal interests, particularly after 
FIRREA, and its continuing importance as far as this Court is concerned 
arises from the failure of private successors to abandon the defense as the 
FDIC-Receiver claims to have done. 

9 

sentations as to the securities or other assets in the portfolios 
of the banks which [FDIC-Corporate] insures or to which it 
makes loans.” 315 U.S. at 457. That policy has no applica- 
tion to the FDIC-Receiver, to successor agents for the share- 
holders, or to no-asset affirmative claims. Accordingly, there 
is no legitimate basis for applying the expanded federal com- 
mon-law rule sought by respondent. Respondent’s ultimate 
notion that D’Oench is needed “as a ‘safety net’ to ensure that 
the beneficial purposes of the FIRREA statutes are fully real- 
ized,” Resp. Br. 49, is no different than the FDIC’s earlier 
claim that state law would “‘disserve the federal program,’” 
which this Court found to be a “facile approach to federal- 
common-law-making.” O’Melveny, 512 U.S. at 89. 

C. FIRREA Preempts the Field for Federal Common 
Law Defenses in Connection with Receiverships. 

Aside from his purported creation/abrogation dichotomy 
as a means of avoiding O’Melveny’s field-preemption and 
inclusio unius analysis, respondent essentially concedes that if 
the relevant common law did not exist prior to FIRREA, its 
creation post-FIRREA is forbidden. And even assuming that 
respondent’s common-law defense here pre-existed FIRREA, 
that would not eliminate the inclusio unius inference; it would 
merely pit it against a competing presumption of preservation. 
Petitioner’s initial discussion of O’Melveny and Langley v. 
FDIC, 484 U.S. 86 (1987), demonstrates that the exclusivity 
inference is extremely strong, and that the preservationist pre- 
sumption is weak given the nature of the common-law rule 
asserted in this case. Pet. Br. 18-20 & n.7. That inclusio 
unius inference is sufficient to overcome even the Texas pre- 
sumption. See infra, Part II(D). 

II. THERE IS NO BASIS FOR AVOIDING THE RULE OF 

O’MELVENY AND ATHERTON. 

Respondent’s attempt to avoid O’Melveny and Atherton 
turns primarily on the claim that those decisions deal only 
with creation of new rules whereas United States v. Texas 

10 

provides a distinct and exclusive analytical framework for old 
common-law rules. But respondent fails to justify application 
of the Texas approach to the very different circumstances of 
this case. 

A. Invalid Federal Common Law Is Not Presumed 

Retained, Regardless of Its Age. 

Respondent does not dispute that if the federal common- 
law rule at issue is invalid on its own merits it is not pre- 
served by subsequent congressional action. The Texas prin- 
ciple assumes neutrality, not approval, and will not save prior 
common law the defect of which is subsequently revealed. 
That was the case in Atherton, where erroneous lower court 
application of the Briggs rule was not validated by FIRREA. 
Likewise, if respondent’s proposed rule fails the primary va- 
lidity analyses from O’Melveny and Atherton, there is nothing 
in Texas that would save the rule and the displace- 
ment/preservation issue becomes irrelevant. 

B. O’Melveny and Atherton Both Apply to Pre- 
Existing Federal Common Law. 

Citing the occasional reference to the “creation” of federal 
rules of decision, respondent claims that the analytical tools in 
O’Melveny and Atherton do not apply to pre-existing federal 
common law. Resp. Br. 22, 23, 29-31. But neither case sug- 
gested that a different analysis would apply when scrutinizing 
previously created federal common law, and both in fact cited 
a variety of such cases as part of their reasoning. That Ath- 
erton was not limiting its discussion to novel acts of creation 
can be seen by its consideration of “whether relevant federal 
common-law standards could have survived Erie.” 519 U.S. 
at 218. The issue was not whether to create a new rule, but 
whether an old rule remained viable after the rejection of an 
underlying predicate. Given that the lower courts and federal 
agencies had continued to apply the rule for decades after 
Erie and prior to FIRREA, that rule was far better established 
from Congress’ perspective at the time of FIRREA’s enact- 

11 

ment than were the then-non-existent mutations of the 
D’Oench doctrine upon which respondent relies here. 

And in O’Melveny, while the Court may have viewed the 
specific requested rule as new, the FDIC-Receiver in that case 
made the same claim it makes here: that the particular rule 
was merely an application of a more general federal common- 
law “principle.” Brief for the FDIC, O’Melveny & Myers v. 
FDIC, No. 93-489, at 41 (Feb. 18, 1994). In fact, it claimed 
that the applicable federal principle derived from the 
D’Oench doctrine itself and that “Congress did not intend to 
overrule that principle when it enacted FIRREA.” Id. While 
the particular rule sought in O’Melveny thus may have been 
new, the government’s reliance on an allegedly pre-existing 
“principle” raised exactly the same analytical issue that re- 
spondent raises here. 

Respondent cites to Milwaukee v. Illinois, 451 U.S. 304 
(1981), for a supposed “distinction between the creation and 
the abrogation of federal common law.” Resp. Br. at 35 (em- 
phasis in original). But the Milwaukee passage quoted by re- 
spondent speaks of the use of federal common law under a 
variety of circumstances, and does not suggest that the initial 
decision to create common law is significantly different from 
the subsequent analysis of whether such law remains viable. 
See 451 U.S. at 313-14 (noting that federal common law is 
created only as a “necessary expedient” in the “absence of an 
applicable Act of Congress,” and that once “Congress ad- 
dresses a question previously governed by a decision rested 
on federal common law the need for such an unusual exercise 
of lawmaking by federal courts disappears”). Rather than 
distinguishing creation and retention, Milwaukee equates 
them and holds that where the “need” that would justify initial 
creation of common law ceases to exist because a federal 
statute is available, the justification for continuation of an 
earlier rule would likewise disappear. The proper test, there- 
fore, is that if a rule could not be justified as new common 
law, it cannot be retained as an old common law. 

12 

Furthermore, Milwaukee’s caution against supplementa- 
tion that makes a statute “meaningless,” 451 U.S. at 315, ap- 
plies to both new and old common law and is particularly 
relevant to respondent’s sweeping vision of the D’Oench 
doctrine. If the D’Oench doctrine represents an encompass- 
ing principle rather than specific rules, it would render the 
provisions of FIRREA entirely meaningless. There is nothing 
covered by the statute that would not be covered by the over- 
stated D’Oench doctrine, and there is no defense eliminated 
by the statute that would not be covered by the common law. 
But there is no reasonable explanation for why, as respondent 
asserts, Congress would have partially codified the D’Oench 
doctrine in this fashion.6 

C. The Texas Approach Does Not Apply to the Com- 
mon-Law Rules Asserted in this Case. 

Regardless of whether the Texas approach is in fact dis- 
tinct and more forgiving than the O’Melveny analysis, it does 
not properly apply in this case because the relevant common- 
law rules were not well-established when FIRREA was 
passed, extension of D’Oench to this case would not involve 
core federal common law, and any such presumption would 
clash with the greater presumption in favor of retaining state 
rules of decision. Any favorable Texas presumption should 
be limited to the far more compelling circumstances present 
in that case, where the elimination of a core federal common- 
law rule governing the rights of the United States itself would 
have led to absurd results.7 

6 Respondent relies upon Astoria Federal Savings & Loan Association v. 
Solimino, 501 U.S. 104, 108 (1991), for a presumption of common-law 
retention. Resp. Br. 37. But Astoria notes that the presumption in favor 
of a more policy-based common law rule does not demand a “clear state- 
ment” in order to be overcome, and can be defeated by implication from 
other aspects of a statute. 501 U.S. at 108-10. 

7 Texas also is easily distinguishable because the statute in that case 

addressed the federal government's right to secure interest from private 

13 

Absence of Pre-FIRREA Common Law Applicable to 
this Case. Respondent cannot deny that the federal common 
law rule as invoked in this case was not established in 1989 
when FIRREA was passed. Compare Pet. Br. 26-28 (pre- 
FIRREA cases mixed on applicability to FDIC-Receiver and 
non-existent on affirmative claims or successors) with Resp. 
Br. 13-14 (citing mostly post-FIRREA cases on FDIC- 
Receiver and successors, never denying that the few pre- 
FIRREA cases were mixed).8 Respondent’s own citations 
demonstrate that a major aspect of its asserted rule was af- 
firmatively rejected by some courts prior to FIRREA. Resp. 
Br. 45-46 n.26 (citing pre-FIRREA case limiting D’Oench to 
FDIC-Corporate and noting its rejection only in a post- 
FIRREA decision). And, of course, the true test of the exis- 
tence of a federal common-law rule – recognition by this 
Court – has never occurred for the specific rule invoked by 
respondent. The vastly different and narrower D’Oench deci- 
sion simply does not suffice. 

Unable to defend the specifics of his rule, respondent in- 
stead claims that it is the “policy underlying” the D’Oench 
decision that was preserved by the Texas presumption and 
thus remains available to “‘adapt[] itself to varying condi- 
tions.’” Resp. Br. 47 (quoting Lutwak v. United States, 344 
U.S. 604, 615 (1953)). Lutwak, however, involved an express 

parties rather than states, which were not included within the definition of 
"person." Nothing in FIRREA's comprehensive scheme of regulation, by 
contrast, indicates that Congress left a particular application of the D'O- 
ench doctrine to be addressed through common law. 

8 The federal amici’s citation to several pre-FIRREA cases finding 
D’Oench applicable to FDIC-Receiver conveniently ignores the other 
cases from the same period finding precisely the opposite. U.S. Br. 12-13 
(selective reference to cases). Furthermore, many of the cases cited 
therein merely applied the doctrine to the FDIC-Receiver without dis- 
cussing whether such application was proper. Courts that actually consid- 
ered the issue pre-FIRREA reached differing results. Pet. Br. 26-27. Con- 
flicting lower court decisions provide nothing on which to hang the Texas 
presumption. 

14 

delegation of authority to the courts to interpret and develop 
common-law rules of evidence. 344 U.S. at 614. That is far 
different from the highly restricted variety of federal common 
law at issue here, which is at best available if, and only to the 
extent that, a conflict with federal policy exists. Such com- 
mon law is neither mutable nor flexible, but rather highly 
constrained by the conflicts which justify its existence. 

The notion that the Texas presumption applies not to spe- 
cific rules but rather to sweeping policies has never been ac- 
cepted by this Court and is fully inconsistent with any number 
of cases, including O’Melveny. Indeed, in O’Melveny the 
FDIC-Receiver unsuccessfully made the virtually identical 
argument that the longstanding “principle” of D’Oench 
formed the basis for the particular rule it was seeking. FDIC 
Br. in O’Melveny, at 41; see also id. at 31, 34.9 

In petitioner’s view, the proper level of generality when 
analyzing supposedly pre-existing common law is at the level 
of a particular and well-established rule. Any presumption 
saving open-ended “principles” that could animate new com- 
mon-law rules would in effect eliminate the O’Melveny 
analysis even if that case were viewed as limited to new rules. 

Respondent’s claim that this Court has recognized 
D’Oench as a “valid declaration of common-law principles,” 
Resp. Br. 10, ignores the nature of the “principle” so recog- 
nized. See United States v. Standard Oil Co., 332 U.S. 301, 
305 (1947) (citing D’Oench as example involving the rights 
of the United States); Guaranty Trust Co. v. York, 326 U.S. 
99, 101 (1945) (merely citing D’Oench as an example of a 
claim based on federal law, without elaboration). This Court 
in Langley did not acknowledge any continuing common-law 

9 The FDIC-Receiver’s prior position creates a dilemma: either 
O’Melveny dealt with a pre-existing “principle” and hence is on all fours 
with respondent’s view of this case, or the proper focus is not on the prin- 
ciple, but on the particular rule, in which event this case involves the post- 
FIRREA “creation” of a rule just as much as did O’Melveny. 

15 

validity to D’Oench at all, but rather used it as a tool of 
statutory construction and effectively rejected the notion of 
extra-statutory federal rules. See 484 U.S. at 95. And in 
Boyle v. United Technologies, a case cited by amici, U.S. Br. 
13, 22 n.9, D’Oench was given as an example of federal 
common law governing the “obligations to and rights of the 
United States under its contracts.” 487 U.S. at 519. Insofar as 
this Court recognized a “principle” from D’Oench, it is a 
principle that does not apply to this case. 

10 

Suspect Category of Federal Common Law. Regardless 
of whether the Texas approach applies to preservation of core 
federal common law, it should not apply here given that this 
case involves the much disfavored category of conflict-based 
judicial policymaking. Any such judicial lawmaking raises 
constitutional doubts distinct from other types of federal 
common lawmaking, uniquely burdens state law, and under- 
mines the much stronger presumption favoring preservation 
of those rules. Pet. Br. 18 n.7, 24-26. And because the par- 
ticular rule has never previously been recognized by this 
Court, there is even greater reason to withhold any presump- 
tion favoring continuance of the rule. Indeed, respondent 
cites not a single case where the presumption was applied to a 
rule not specifically recognized by this Court. 

Respondent claims that denying the Texas presumption to 
federal common law that displaces state common law would 

10 Quoting a redacted line from the oral argument in O’Melveny, respon- 
dent claims that a member of this Court observed that “FIRREA ‘was 
legislated against a background of federal common law,’ which included 
D’Oench.” Resp. Br. 22 n.16. But the unredacted comment at oral argu- 
ment demonstrates the precise opposite sentiment: “the legislation at issue 
in that case [D’Oench] was undoubtedly enacted on the assumption that 
Federal courts applied Federal law, period. You wouldn’t have to dance 
around Erie and Claxton and all of that stuff. But we’re in a different age 
now. You can’t --- * * * -- and I don't think Congress when it passes a 
statute like this assumes that there’s some brooding Federal law that gov- 
erns all of this stuff.” O’Melveny Oral Arg.Tr., 1994 U.S. Trans. Lexis 
155, *34 (March 21, 1994). 

16 

be inconsistent with the “significant conflict” basis of certain 
federal common law rules and would therefore “write Texas 
out of existence.” Resp. Br. 40 n.22 (addressing Pet. Br. 24- 
26). But Texas did not involve a “conflict”-based federal 
common-law rule, but rather involved the rights of the United 
States. Denying the presumption to conflict-based federal 
common law would not eliminate the Texas decision, but 
would properly confine it to only those legitimate instances of 
federal common law involving direct federal rights rather than 
federal intercession into areas more properly the province of 
the states. Far from being unsupported by authority from this 
Court, that proposed limitation best harmonizes Texas with 
this Court’s admonitions regarding the limits on judicial poli- 
cymaking outside of the traditional federal areas. See Mil- 
waukee, 451 U.S. at 317 n.9 (“the very concerns about dis- 
placing state law which counsel against finding pre-emption 
of state law in the absence of clear intent actually suggest a 
willingness to find congressional displacement of federal 
common law”). 

D. FIRREA Overcomes Even the Texas Presumption. 

Even assuming application of the Texas presumption to 
the supposed “principles” of D’Oench, FIRREA (and the 
1950 statute) overcomes that presumption. FIRREA’s exten- 
sion of the statutory rule to additional parties and claims nec- 
essarily would have limited, not enhanced, the far more 
sweeping D’Oench principle postulated by respondent. If 
nothing else, § 1823(e)’s “asset” requirement places a consid- 
erable restriction on the scope of the defense. 

11 That re- 

11 Respondent cites with uncertain favor to the FDIC’s 1997 Statement of 
Policy for the proposition that § 1821(d)(9)(A) does not incorporate the 
asset requirement of § 1823(e). Resp. Br. 42; see also U.S. Br. 26 n.11 
(same). This argument was litigated and lost in the D.C. Circuit, not re- 
newed before the Eleventh Circuit, and is not part of the Question Pre- 
sented. Respondent does not even ask this Court to so construe the stat- 
ute. Resp. Br. 43 n.24; U.S. Br. 26 n.11 (statutory issue not presented). 

17 

quirement, and indeed, the statutory defense in its entirety, 
would be utterly meaningless if the sweeping common-law 
principle claimed by respondent continued to exist. 

Respondent questions the comprehensiveness and speci- 
ficity of FIRREA in an attempt to reduce the inclusio unius 
inference. Resp. Br. 41-42. But this Court has previously 
rejected such arguments about FIRREA and held that the 
statute comprehensively and exclusively covered the field of 
special federal defenses for the FDIC-Receiver. O’Melveny, 
512 U.S. at 86-87. And as regards the D’Oench-related pro- 
visions themselves, FIRREA directly spoke to the types of 
claims covered and the entities that could invoke the defense, 
notably including a limited class of assignees and transferees 
– bridge banks. Pet. Br. 18-19 (discussing statute). FIRREA 
is more than comprehensive enough to trigger a strong exclu- 
sionary inference. Such an inference is sufficient to displace 
pre-existing common law. See Isbrandtsen Co. v. Johnson, 
343 U.S. 779, 783 (1952); Astoria, 501 U.S. at 110. 

12 

Respondent’s suggestion, Resp. Br. 35-37, that Milwaukee 
requires a greater level of specificity is mistaken. As the 
Court noted in Milwaukee, the “question is whether the field 
has been occupied, not whether it has been occupied in a par- 
ticular manner.” 451 U.S. at 324. 

Interestingly, the limitations on pollution at issue in Mil- 
waukee were only minimum limitations, and the scheme al- 
lowed for more stringent state regulation of pollution. But the 
fact that the scheme did not address pollution control beyond 
the minimum requirements was not sufficient to leave room 

12 Respondent’s citation to Atherton for the proposition that when enacting 
FIRREA Congress “‘wanted to leave other law * * * exactly where Con- 
gress found it,’” Resp. Br. 40 (quoting 519 U.S. at 231), conveniently re- 
dacts the sentence immediately following, which, referring to a specific 
savings clause, continuues: “That, after all, is what the statute says.” 519 
U.S. at 231. But there is no such savings clause applicable to the com- 
mon-law D’Oench doctrine. 

18 

for federal common law above those minimum restrictions. 
451 U.S. at 319-20 & n.14. The statute’s failure expressly to 
preclude more restrictive federal limits, did not detract from 
its comprehensive and preemptive effect on prior federal 
common law. FIRREA is no different. 

13 

Even apart from FIRREA, the 1950 Act spoke directly to, 
and hence displaced, the then-fledgling D’Oench doctrine. 
Indeed, respondent’s amici describe the 1950 Act as having 
“codified the application of the D’Oench rule on facts parallel 
to the D’Oench case,” U.S. Br. 17, and respondent himself 
recognizes that the 1950 Act “had the effect of making the 
common-law principles of D’Oench ‘both more encompass- 
ing and more precise.’ * * * The statute is narrower because it 
is applicable only to specific assets of an insolvent institution, 
but it is broader because it applies regardless of the cus- 
tomer’s blameworthiness.” Resp. Br. 11 (citation omitted); 
see also id. at 12 n.9 (quoting FDIC testimony that the 1950 
legislation “‘may be characterized as a codification of the law 
pertaining to the [FDIC]’”) (citation omitted). 

These descriptions amply demonstrate that the 1950 Act 
spoke directly to the question formerly addressed by the 
common-law D’Oench decision and in so doing fully dis- 
placed such common law even under the Texas standard. 

14 

Respondent’s only answer to this is that no court has previ- 
ously so held. But the failure of lower courts to consider or 

13 The federal amici imply that Congress is required affirmatively to ”ex- 
press disapproval” before pre-existing common law will be displaced. 
U.S. Br. 22; see also id. at 4. But that has never been the test and is not 
required. Indeed, it would be an odd statute indeed that contained such an 
expression of an intent to abrogate the common law, and the Solicitor 
General cites to none despite the many cases in which this Court has 
found statutory displacement of federal common law. 

14 Respondent’s recognition that after 1950 the common-law D’Oench 
“doctrine lay dormant until the late 1970s,” Resp. Br. 4, seems to corrobo- 
rate that for decades courts and the FDIC understood the statute to have 
displaced the common law. 

19 

correctly resolve an issue is hardly a reason for this Court to 
acquiesce in or compound that error. No court for over 60 
years had held that the Briggs rule under consideration in 
Atherton had been overruled by Erie. Extended error is 
nonetheless error, and should be corrected. 

The notion that the reenactment and expansion of 
§ 1823(e) by FIRREA demonstrated “acceptance of the prior 
interpretations of the 1950 enactment,” Resp. Br. 46, even if 
correct, would actually support petitioner given that the 1950 
statute was interpreted narrowly as not reaching the FDIC- 
Receiver or assigns or affirmative claims and as being limited 
to “asset” cases – hence the supposed need for federal com- 
mon law. Congressional acceptance of statutory interpreta- 
tion does not even remotely signal acceptance of federal 
common law not purporting to interpret the statute. 

Finally, the Solicitor General’s fleeting reference to the 
legislative history of FIRREA is also unavailing. Nothing in 
that history indicates Congress intended to preserve D’Oench 
as a common-law principle, much less D’Oench’s frequently 
mutating, modern offspring. To the contrary, the legislative 
history does not even acknowledge the common-law doctrine, 
referring only to the government’s statutory defense, a fact 
that supports petitioner’s view that D’Oench was abrogated as 
early as 1950. See H.R. Rep. No. 54, 101st Cong., 1st Sess., 
Pt. I, at 128 (1989) (“In general the FIRRE Act provides, as 
the FDI Act presently provides, that no agreement can form 
the basis of a claim against the Corporation or the conservator 
or receiver unless it is in writing and properly approved and 
maintained in the records of the institution.”); id. at 214 
(similar). The single sentence on which Solicitor General re- 
lies, U.S. Br. 13 – that FIRREA’s amendment to 12 U.S.C. § 
1823 “clarifies the current provision invalidating certain se- 
cret agreements against the interests of the FDIC,” H.R. Rep. 
No. 54, at 334 – again refers only to the statutory defense, and 
even if it referred to the common law doctrine would equally 
support petitioner’s view that FIRREA represents the full ex- 

20 

tent to which Congress intended to codify “the D’Oench prin- 
ciple,” U.S. Br. 2 n.1. 

To the extent Congress’ failure to adopt a particular stat- 
ute can ever have persuasive effect, the Solicitor General’s 
reliance on Congress’ failure to enact The D’Oench Duhme 
Reform Act, S. 648, 104th Cong., 1st Sess. (1995), is particu- 
larly misplaced. It appears that any momentum for the bill 
was killed by the FDIC’s response to it: FDIC’s issuance of 
the policy statement providing that it would no longer assert 
the common law D’Oench doctrine as to post-FIRREA trans- 
actions. See Hearing on S. 648 Before the Senate Comm. on 
Banking, Housing, and Urban Affairs, 104th Cong., 1st Sess. 
49 (1995) (“S. 648 Hearing”) (prepared statement of Sharon 
Powers Silverstein, Asst. Gen. Couns., FDIC) (describing 
“the recent implementation by the FDIC of guidelines,” 
which were issued after original introduction of bill). Moreo- 
ver, the government’s assertion that “the common law 
D’Oench doctrine * * * * was the impetus for the bill,” U.S. 
Br. 15, is simply not supported by the bill’s history and the 
Solicitor General offers no citation or explanation for that 
claim. Indeed, the bill would have cut back on the statutory 
defense, see S. 648 Hearing at 117-20, so Congress’ failure to 
enact it hardly indicates an intent to preserve D’Oench as a 
common law doctrine. 

21 

CONCLUSION 

For the foregoing reasons, this Court should reverse the 
judgment of the Eleventh Circuit and remand for further pro- 
ceedings. 

JOHN F. BLOSS 
CLARK BLOSS & 

MCIVER, PLLC 
Post Office Box 1349 
Greensboro, NC 27402 
(336) 275-7275 

Respectfully submitted, 

ERIK S. JAFFE 

Counsel of record 

ERIK S. JAFFE, P.C. 
5101 34 

th Street, N.W. 
Washington, DC 20008 
(202) 237-8165 

THOMAS C. GOLDSTEIN 
AMY HOWE 
THOMAS C. GOLDSTEIN, P.C. 
4607 Asbury Place, N.W. 
Washington, DC 20016 
(202) 237-7543 

Counsel for Petitioner 

Dated: December 29, 2000.