State v. Hogg
| Decision Date | 01 September 1987 |
| Docket Number | No. 94,94 |
| Citation | 535 A.2d 923,311 Md. 446 |
| Parties | STATE of Maryland and State of Maryland Deposit Insurance Fund Corporation v. Charles C. HOGG et al. , |
| Court | Maryland Court of Appeals |
Evelyn O. Cannon, Asst. Atty. Gen. , for appellant.
Andrew H. Marks (John I. Stewart, Jr., Keith Fischler and Crowell & Moring, Washington, D.C.), for appellees Leonard Bass, Michael J. Dietz, Jerome E. Dolivka.
Henry R. Elsnic and Thomas J. Bodie and Power & Mosner, Towson, for appellee James D. Laudeman, Jr.
Harold H. Burns and Maureen F. Mackey, Baltimore, for appellee Terry Neifeld.
Jerold Oshinsky, Nancy A. Markowitz and Anderson, Baker Kill & Olick, Washington, D.C., for appellee George W.H. Pierson.
Joshua R. Treem and Schulman & Treem, P.A., Baltimore, for appellee Ralph K. Holmes.
Francis S. Brocato and Brocato & Keelty, Baltimore, for appellee Paul V. Trice.
Thomas R. Kline, Kathleen H. McGuan and Manatt, Phelps, Rothenberg & Evans, Washington, D.C., for appellees Judith Miles Budoff and Jerry D. Whitlock.
Howard B. Possick and Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., for appellee John D. Faulkner, Jr.
John H. Zink, III and Cook, Howard, Downes & Tracy, Towson, for appellee (Charles C. Hogg, III, on the brief).
Argued Before MURPHY, C.J., COLE, RODOWSKY, McAULIFFE, ADKINS and BLACKWELL, JJ., and MARVIN H. SMITH, Associate Judge of the Court of Appeals of Maryland (retired), Specially Assigned.
This action is brought in the name of the State of Maryland Deposit Insurance Fund Corporation (MDIF), a unit of the Department of Licensing and Regulation (DLR) of the State of Maryland. The defendants are certain individuals who had been officers and directors of the former Maryland Savings-Share Insurance Corporation (MSSIC). MDIF is the surviving corporation of a special statutory merger with MSSIC. MDIF seeks money damages to compensate for harm allegedly caused by the defendants' breaches of duty to MSSIC. The defendants assert by way of answer and counterclaim that the harm complained of resulted wholly or partly from the negligence of state employees in the Division of Savings and Loan Associations (DSL), also a unit in DLR. A motion to dismiss the counterclaim as barred by sovereign immunity was denied by the circuit court. From that denial this appeal was noted. We must first decide whether there is a final judgment. If the appeal is properly before us, we must further decide whether, in principle, a recoupment defense is precluded by sovereign immunity and, if not, whether the defendants' position here is a recoupment defense.
This case arises out of the 1985 savings and loan crisis in Maryland. 1 At that time MSSIC was an insurer of accounts in certain savings and loan associations in Maryland. MSSIC was a nonstock, nonprofit corporation created by Ch. 131 of the Acts of 1962. 2 It is the State's position, unchallenged by the defendants, that MSSIC was not an agent of the State. 3
By mid-May of 1985 approximately $630 million had been withdrawn from MSSIC insured accounts in the preceding three months, including $116 million withdrawn by depositors on May 13 when two large associations were placed in conservatorship. See Chevy Chase Sav. & Loan, Inc. v. State, 306 Md. 384, 392, 509 A.2d 670, 674 (1986). An extraordinary session of the Maryland General Assembly was convened on May 17 to respond to the crisis. One response was the creation of MDIF in DLR by Ch. 6 of the Acts of the First Special Session of 1985, now codified as Md. Code (1980, 1986 Repl.Vol.), § 10-102 of the Financial Institutions Article (FI). Chapter 6, an emergency bill approved May 18, 1985, merged MSSIC into MDIF by uncodified § 4 which reads in relevant part:
[U]pon the effective date of this Act: (i) [MSSIC] shall be and is hereby merged into [MDIF], with [MDIF] as the surviving corporation, without need of the execution or filing of any confirmatory or other articles or instruments and (ii) all of the assets ... all of the liabilities, including but not limited to taxes, incurred losses, and other insurance liabilities, and all of the rights, powers, duties, obligations and functions of [MSSIC] are hereby transferred to [MDIF], to the extent consistent with this act....
FI § 10-121(a), enacted by ch. 12 of the Acts of 1986, provided that "[n]otwithstanding any other provision of law, and except as otherwise expressly provided in this section, [MDIF] retains and may raise the defense of sovereign immunity in any action." Uncodified § 3 of ch. 12 in part states that "[t]he General Assembly did not intend waiver of immunity by any of the Acts of the First Special Session of 1985."
According to a January 1986 report prepared by the Department of Fiscal Services eleven savings and loan associations, previously insured by MSSIC and then in receivership, conservatorship, or subject to withdrawal limits, had a combined assets/liability deficit of over $400 million. Crediting against that deficit only the MSSIC insurance fund and $60 million from a recovery, but without taking any credit for assets in the eleven associations or for any recovery on various possible causes of action, the report projected the State's potential obligation for the deficit to be $172.4 million. Department of Fiscal Services, Analysis of Funding State Liability for Savings and Loan Obligation (January 22, 1986). The instant case is part of the State's effort to reduce its exposure.
MDIF here claims against twenty-six former officers and directors of MSSIC who had been elected at various times from savings and loan industry positions. The theory of the suit, which sounds in negligence and in breach of fiduciary duties, is that the defendants violated duties owed to MSSIC and that MSSIC's rights arising out of those violations were acquired by MDIF in the merger. MDIF's first amended complaint, consisting of forty-seven pages, enlarged the number of parties defendant from an original group of ten persons. It alleges that the defendants failed to utilize their power and positions to correct unsafe and unsound practices of member associations. Subdivisions of that pleading present more particular allegations concerning First Progressive and Old Court, Merritt Commercial, First Maryland, and Community savings and loan associations.
Many issues have been joined by the defendants' answers. 4 There is a general denial, as permitted by Maryland Rule 2-323(d), which is analogous to the former general issue plea. Fifteen defenses are specially raised, including contributory negligence, assumption of risk, estoppel, waiver, unclean hands, and in pari delicto.
Defendants sued in the initial complaint filed a counterclaim on October 7, 1986. That counterclaim names DLR and the State of Maryland as counterdefendants, in addition to the named plaintiff, MDIF. That counterclaim alleges that DLR, acting through DSL and the Board of Savings and Loan Commissioners, had a "duty to obtain all material information about MSSIC's member associations and to share with MSSIC all material information...." It further alleges that DLR "[b]y virtue of its regular practice of transmitting information to MSSIC ... about MSSIC's member associations" assumed the duty to exercise reasonable care to obtain and transmit to MSSIC all material information about MSSIC's members. The counterclaim characterizes the alleged negligent breach of those asserted duties as primary and active, and requests indemnification. Alternatively, the counterclaim requests contribution from the counterdefendants if the counterclaimants are adjudged liable for the harm to MSSIC alleged in the complaint. Consequently, one of the theories embraced in the counterclaim is that negligence on the part of the State's agents was a concurrent proximate cause of the harm to MSSIC which is the subject of the MDIF complaint. 5
The counterdefendants moved to dismiss the counterclaim of October 7, 1986, principally on the ground of a sovereign immunity bar. 6 When evaluating this motion to dismiss the circuit court treated all other counterclaiming defendants, whether they had joined in the October 7 counterclaim or not, as bound by the determination of the motion to dismiss the October 7 counterclaim. The circuit court held that the State was the real party in interest with respect to the claim asserted by MDIF and refused to dismiss as to the State and MDIF but did order DLR dismissed. 7 That court further held, in substance, that the counterclaim was purely defensive, in the nature of recoupment, and that recoupment was not barred by sovereign immunity.
An appeal in the names of MDIF and the State was noted from the order and a petition by those appellants for the writ of certiorari was filed. We granted the petition prior to consideration of the appeal by the Court of Special Appeals.
Appellants submit that the challenged order is appealable under the collateral order doctrine. We have said that the requirements of that doctrine are:
"[T]he order must [ (1) ] conclusively determine the disputed question, [ (2) ] resolve an important issue [, (3) be] completely separate from the merits of the action, and [ (4) ] be effectively unreviewable on appeal from a final judgment." [ Clark v. Elza, 286 Md. 208, 213, 406 A.2d 922, 925 (1979) (quoting Coopers & Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 2458, 57 L.Ed.2d 351, 357-58 (1978) (footnote omitted)).]
Here the trial court clearly rejected any sovereign immunity bar to the counterclaim and thereby decided an important issue. Further, MDIF and the State contend that their absolute immunity prevents the defendants from so much as...
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