McNeily v. U.S.

• Decision Date: 10 November 1993
• Docket Number: No. 92-1618,92-1618
• Citation: 6 F.3d 343
• Parties: Peter W.G. McNEILY, Liquidator for Independent American Participating Income Fund, L.P., Plaintiff-Appellant, v. UNITED STATES of America; Resolution Trust, as Conservator for Sunbelt Federal Savings, FSB; Resolution Trust Corporation, as Receiver for Sunbelt Savings, FSB; Federal Deposit Insurance Corporation, as Manager of the Federal Savings and Loan Insurance Corporation Resolution Fund, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 343

6 F.3d 343

Peter W.G. McNEILY, Liquidator for Independent American Participating Income Fund, L.P., Plaintiff-Appellant, v. UNITED STATES of America; Resolution Trust, as Conservator for Sunbelt Federal Savings, FSB; Resolution Trust Corporation, as Receiver for Sunbelt Savings, FSB; Federal Deposit Insurance Corporation, as Manager of the Federal Savings and Loan Insurance Corporation Resolution Fund, et al., Defendants-Appellees.

No. 92-1618.

United States Court of Appeals Fifth Circuit.

Nov. 10, 1993.

Rehearing Denied Dec. 8, 1993.

Richard G. Elliott, Jr., John T. Dorsey, Richards, Layton & Finger, Wilmington, DE, for plaintiff-appellant.

Paul Boudreaux, Trial Atty., Paul F. Figley, Deputy Director, U.S. Dept. of Justice, Torts Branch, Washington, DC, Marvin Collins, U.S. Atty., Dallas, TX, for U.S.

Donald A. Wall, Squire, Sanders & Dempsey, Phoenix, AZ, Thomas L. Holzman, Washington, DC, for F.D.I.C.

Appeal from the United States District Court for the Northern District of Texas.

Before GARWOOD, DAVIS and SMITH, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Appellant challenges the dismissal of his damage suit against the United States and the Federal Deposit Insurance Corporation (FDIC) ¹ for actions taken by federal regulators with respect to a failed thrift and its subsidiaries. Finding the claims barred under the Federal Tort Claims Act, we affirm.

I.

Appellant W.G. McNeily is the liquidator of Independent American Participating Income Fund, L.P. (the Income Fund), a dissolved Delaware limited partnership. He was appointed liquidator after the Income Fund's managing general partner, Independent American Real Estate, Inc. (IARE), filed a bankruptcy petition. IARE was a wholly owned subsidiary of Independent American Savings Association (IASA), formerly a Texas-chartered savings and loan association.

McNeily's fifth amended complaint alleges that in 1983, IASA's controlling stockholder, Thomas A. Gaubert, embarked on an aggressive program of lending and investing in Texas's commercial real estate market. The complaint further alleges that IASA created the Income Fund as a part of a scheme to deceive and defraud investors. The fund's stated purpose was to buy participations in first and second mortgage loans and other real estate loans which were held by IASA. By means of three instruments, the partnership agreement, the prospectus, and the mortgage service agreement, investors were led to believe that they would be buying into a safe investment in a diversified commercial loan portfolio for Individual Retirement Accounts and Keough Plans. According to these documents, IASA was the income fund's sole source of loan participations. IASA agreed to identify loan opportunities for the Income Fund, negotiate the terms of the loans, investigate the borrower's financial condition, and obtain its own independent appraisals. The ultimate decision of whether the fund would invest in any participation was up to the Income Fund's loan committee. The documents set forth various rules that the loan committee was required to follow. For example, each participation had to be "economically advantageous to the partnership in light of all surrounding circumstances"; the Income Fund could not acquire a participation which exceeded 15% of the value of the portfolio, or which caused the portfolio to be invested more than 50% in risky land and constructions. All construction loans required a construction bond, and the Income Fund was required to obtain a written opinion from an "independent, qualified advisor" that the purchase price of the participation was fair. Between March of 1985 and March of 1986, the Income Fund raised about $21,000,000.

The fifth amended complaint alleges that, notwithstanding what the investors were told, IASA intended, from the beginning, to use the fund as a means of pawning off its bad loans. The Income Fund's loan committee, consisting of Richard H. Crowe, Jr., Jack R. Gaubert (J. Gaubert) and Tommy G. Lane, was never independent from IASA: Crowe was a member of IASA's Board of Directors, a Vice-President of IASA, a member of IASA's loan committee and executive committee, a substantial stockholder of IASA, a member of IARE's board and, at various times, IARE's chairman, CEO and president; J. Gaubert was a member of IASA's Board of Directors, at various times, the Board's vice-chairman and chairman, an officer of IASA, a member of IASA's loan committee and executive committee, a substantial stockholder of IASA, a member of IARE's board, and a senior vice-president of IARE; and Lane was IASA's Chairman of the Board and president, a member of IASA's loan committee and executive committee. The "independent qualified advisor" promised in the documents turned out to be Arthur L. Westcot, a senior vice-president of IASA, a member of IASA's senior loan committee, and a substantial stockholder of IASA. Not surprisingly, the Income Fund's loan committee did not turn down a single proposal offered by IASA.

The fifth amended complaint details a list, stretching from July 1985 to April 1986, of risky and/or worthless loan participation purchases proposed by IASA and approved by the Income Fund's loan committee. For example, between July and September of 1985, the Income Fund purchased participations in loans known as Trafalgar, Trinity, Regency, and Landmark. The complaint alleges that IASA and the Income Fund's loan committee violated material provisions of the partnership agreement prospectus and mortgage service agreement.

For example, with respect to the Trafalgar transaction, the complaint alleges that IASA failed to disclose to the Income Fund that the borrower had a $720,956 negative cash flow, the participation was in a second mortgage, and that the loan was for almost two million dollars more than the value of the property. With respect to the Landmark participation, IASA did not disclose that the guarantor had substantial other nonperforming or defaulted loans with IASA.

The complaint alleges that, in the fall of 1985, Crowe, J. Gaubert, Westcot, and others profited from their manipulation of the Income Fund by having IASA buy back their stock at grossly inflated prices using cash generated by the Income Fund's purchase of participations in IASA loans.

The complaint further alleges that during the months of March and April of 1986, IASA proposed and the Income Fund's loan committee approved, purchases of participations in several more risky and/or worthless loans. The Income Fund purchased participations known as Preston Frankford (supplemental) and Bean/Landmark (supplemental) on March 6. It purchased participations known as Northgate Construction, Hunter's Crossing and HCD/DeClara on March 31, and a participation known as Piper Glen on April 7. According to the complaint, Crowe and J. Gaubert, fraudulently approved "certain" of these loan participation purchases on behalf of the Income Fund's loan committee.

With respect to the Piper Glen transaction, the complaint alleges that the loan committee apparently never met, but further alleges that Crowe, J. Gaubert and Westcot "fraudulently participated" in this purchase at various steps. The complaint alleges that only one member of the loan committee, Lane, approved the purchase of the participation in the HCD loan. The complaint does not specify who approved the Northgate construction and Hunter's crossing loan participation purchases. However, it alleges that Wescot served as the Income Fund's "independent qualified advisor" in connection with all six March/April purchases. In addition, Thomas C. Gragg, a vice president of IARE, signed the purchase agreement on behalf of the Income Fund. This same officer signed the purchase agreement for the 1985 participations as well.

McNeily alleges that federal regulators are responsible for losses stemming from the loan participation transactions completed in March and April of 1986. By February of 1986, IASA had run into serious financial difficulties. At that time, the Federal Home Loan Bank of Dallas (FHLB-Dallas) formally told IASA that it needed to enter into a supervisory agreement because its liability growth had increased for two consecutive quarters at an annual rate greater than 25%. IASA's board agreed to FHLB-Dallas's proposed supervisory agreement. In March of 1986, IASA's Board approved a resolution requiring the federal regulators to approve any sale of loan participations by IASA to the Income Fund. During that month, federal regulators obtained the resignations of key officers and directors of IASA, two of which were members of the Income Fund's loan committee. On April 1, 1986, Milton Thomas, a former federal home loan bank board (FHLBB) member became chief executive officer of IASA. On April 7, Tom Hendricks, a former FHLB-Dallas vice president, became IASA's chief operating officer. Hendricks immediately installed himself as IASA's chief operating officer of real estate and as head of the Income Fund's loan committee.

The fifth amended complaint alleges that the FSLIC and FHLB-Dallas either tacitly or explicitly approved of or ratified the prior misconduct of IASA and further alleges that federal regulators, while in control of the day-to-day operations of IASA, caused IASA to breach its contractual and fiduciary obligations to the Income Fund. It alleges that the federal regulators did this in order to use the Income Fund's assets to keep IASA afloat. The complaint alleges that the federal regulators kept the Income Fund in the dark about IASA's financial condition and about IASA's numerous breaches of the partnership agreement prospectus and the mortgage services agreement in order to use the Income Fund's assets. McNeily further alleges that the regulators failed to disclose material facts concerning the Income Fund's participation purchases during March and April, facts which, if disclosed, would have led the Income Fund to take immediate action to...