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Court Bolsters Power of Federal Regulators

December 1, 1987

WASHINGTON (AP) _ The Supreme Court today bolstered the power of federal regulators to collect debts owed failed banks that are taken over by the government.

The court ruled 8-0 against a Louisiana couple seeking to avoid repayment of a $468,000 loan that financed purchase of a farm.

The couple said the loan is invalid because the now-defunct bank misrepresented the value of the property.

The justices ruled that the Federal Deposit Insurance Corp., which acquired the bank’s assets when it was declared financially unsound, is entitled to repayment of the loan.

Justice Antonin Scalia, writing for the court, said the FDIC must be able to rely on bank records when it takes over a failing bank. A loan secured by alleged misrepresentations is not canceled in such circumstances, he said.

The case stems from the purchase of a farm in Pointe Coupee Parish, La., in 1980 by W.T. and Maryanne Langley.

They borrowed $450,000 from Planters Trust & Savings Bank of Opelousas, La., to finance the purchase. The amount later was increased to $468,000 as the loan was renewed several times.

The sale of the property was negotiated by bank officers.

When the Langleys failed to pay the first installment due on the $468,000 loan, the bank sued them for payment of the principle and interest. The Langleys counter-sued for $5 million, alleging that the loan was based on misrepresentations.

The Langleys said the bank described the property as consisting of 1,628 acres when in fact it was only 1,522 acres. Also, they said the property included only 75 mineral acres, instead of the 400 acres described in bank papers.

Louisiana officials shut down Planters in 1984 because of its unsound condition and appointed the FDIC as receiver. The FDIC arranged for the bank to be taken over by another bank, paying the acquiring bank nearly $37 million because Planters’ liabilities exceeded its assets.

The FDIC then moved to collect the loan from the Langleys and lower federal courts ruled in the federal agency’s favor.

The Supreme Court, in upholding those rulings today, said the Langleys can not be excused from repayment.

The ruling is a significant one for the FDIC, which has faced a drain on its insurance fund due to a wave of bank failures in recent years.

The case is W.T. Langley vs. FDIC, 86-489.

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