F.D.I.C. v. Cocke

• Decision Date: 15 October 1993
• Docket Number: 92-1994 and 92-1996,Nos. 92-1987,s. 92-1987
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate capacity as an instrumentality of the United States, Plaintiff-Appellant, v. Charles P. COCKE, Defendant-Appellee. FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate capacity as an instrumentality of the United States, Plaintiff-Appellant, v. Julius F. FOGEL, Defendant-Appellee. FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate capacity as an instrumentality of the United States Receiver of McLean Savings and Loan Association, Plaintiff-Appellant, v. Lloyd B. RAMSEY; Preston L. Walker; Richard E. Blair; John E. Harn, II; Terry B. Light; John E. Harrison; Light & Harrison, PC, Defendants-Appellees, and Thomas J. Leonard, III; Frank M. Howard; Julius F. Fogel, Defendants.

Page 396

7 F.3d 396

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate

capacity as an instrumentality of the United

States, Plaintiff-Appellant, v. Charles P. COCKE, Defendant-Appellee.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate

capacity as an instrumentality of the United

States, Plaintiff-Appellant, v. Julius F. FOGEL, Defendant-Appellee.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate

capacity as an instrumentality of the United

States Receiver of McLean Savings and Loan Association, Plaintiff-Appellant, v. Lloyd B. RAMSEY; Preston L. Walker; Richard E. Blair;

John E. Harn, II; Terry B. Light; John E.

Harrison; Light & Harrison, PC,

Defendants-Appellees,

and

Thomas J. Leonard, III; Frank M. Howard; Julius F. Fogel,

Defendants.

Nos. 92-1987, 92-1994 and 92-1996.

United States Court of Appeals Fourth Circuit.

Argued May 6, 1993.

Decided Oct. 15, 1993.

Richard Joseph Osterman, Jr., Senior Counsel, F.D.I.C., Washington, D.C., argued (Ann S. DuRoss, Asst. Gen. Counsel, Robert D. McGillicuddy, Deputy Senior Counsel, Marta W. Berkley, Charles McDonald, Professional Liability Claims Section, F.D.I.C., Washington, D.C., on brief) for plaintiff-appellant.

J. Jonathan Schraub, Melrod, Redman & Gartlan, P.C., Washington, DC, Thomas L. Appler, McGuire, Woods, Battle & Boothe, McLean, VA, Douglas Frank Curtis, Miller, Cassidy, Larroca & Lewin, Washington, DC, argued (Danny M. Howell, Niccolo N. Donzella, Melrod, Redman & Gartlan, P.C., Washington, DC, Randall J. Turk, Miller, Cassidy, Larroca & Lewin, Washington, DC, William T. Freyvogel, Adams, Porter & Radigan, Ltd., McLean, VA, on brief), for defendants-appellees.

Before ERVIN, Chief Judge, MURNAGHAN, Circuit Judge, and BUTZNER, Senior Circuit Judge.

OPINION

ERVIN, Chief Judge:

The Federal Deposit Insurance Corporation ("FDIC"), acting as receiver of McLean Savings & Loan Association ("McLean"), elected to proceed with a breach of duty action against various parties affiliated with the savings and loan. The district court summarily disposed of all the FDIC's claims as untimely filed under the applicable Virginia ¹ statute of limitations. This appeal presents the issue whether federal or Virginia law may operate to toll the running of the statute of limitations on any of the FDIC's claims. Concluding that Virginia's equitable estoppel doctrine could toll the running of the statute of limitations making some or all of the FDIC's claims timely, we reverse the district court's dismissal of the claims on the basis of the running of the statute of limitations. To the extent that individual defendants contend that action against them is inappropriate on grounds other than the statute of limitations, we will discuss their situations in turn.

I

The issues raised by this appeal revolve largely around interpretation and application of law; therefore, only a limited familiarity with the facts is necessary. McLean was a state-chartered, federally-insured stock savings association located in McLean, Virginia. By participating in the federal insurance program, McLean subjected itself to federal examinations and, in troubled times, oversight. For several years, McLean operated without incident, making traditional home mortgages. As interest rates became more competitive, McLean sought additional ways to generate revenues, however. In 1981 McLean formed McLean Financial Corporation ("MFC"), a financial service subsidiary to McLean, to originate, broker, buy, sell, and service residential real estate loans. Many of McLean's directors also sat on the board of MFC. ²

MFC, though initially very profitable, began to suffer losses in 1985, prompting McLean to attempt to bolster the subsidiary's slumping financial performance. McLean began making unsecured loans to MFC, allegedly without seeking the required regulatory approval. In 1986 the McLean board also approved the payment of dividends to McLean shareholders despite the institution's financial inability to make such payments. This misconduct together with other asserted fraudulent and unscrupulous transactions propelled McLean into receivership on July 8, 1988. ³ As receiver the FDIC retained any potential claims the corporation could have maintained against its former directors, officers, or attorneys for their breaches of duty owed to the corporation. Therefore, on November 29, 1991, the FDIC brought the first of three lawsuits alleging breaches of duty based on the conduct involving the management of McLean and MFC. ⁴ The first action was filed against Thomas J. Leonard, III, Frank M. Howard, ⁵ Lloyd B. Ramsey, Preston L. Walker, and Richard E. Blair--former directors of McLean and MFC--for breach of their fiduciary duty of care to the corporations for which they served. Amending this complaint, the FDIC added similar charges against John E. Harn, II, McLean's president; John E. Harrison, McLean director and attorney; Terry B. Light, McLean attorney; and Light & Harrison, P.C., general counsel to McLean. After failed attempts to add additional directors through amendment, the FDIC filed separate complaints against Charles P. Cocke and Julius F. Fogel. The FDIC entered into tolling agreements with the directors and attorneys named in the three actions to establish the filing of its complaints on June 5, 1991, for purposes of invoking the statute of limitations.

In the district court, the FDIC claims were maintained as FDIC v. Leonard (CA-91-1773-A); FDIC v. Cocke (CA-92-350-A); and FDIC v. Fogel (CA-92-496-A). Defendants in FDIC v. Leonard brought a motion to dismiss or alternatively for summary judgment. The district court granted summary judgment for the defendants on the basis that the applicable Virginia statute of limitations had run before the FDIC acquired rights in the cause of action. See FDIC v. Leonard, No. CA-91-1773-A, orders (E.D.Va. Jul. 20, 1992 & May 2, 1992) (dismissing claims against Thomas J. Leonard, III and Frank M. Howard); order (E.D.Va. May 20, 1992) (dismissing claims against Lloyd B. Ramsey and Preston L. Walker); order (E.D.Va. May 1, 1992) (dismissing claims against Richard E. Blair, John E. Harn, II, Terry B. Light, John E. Harrison, and Light & Harrison, P.C.). The district court, recognizing the factual similarity of FDIC v. Cocke and FDIC v. Fogel, dismissed them on the basis articulated in FDIC v. Leonard. See FDIC v. Cocke, No. CA-92-350-A, order (E.D.Va. Aug. 12, 1992); FDIC v. Fogel, No. CA-92-496-A, order (E.D.Va. June 17, 1992). The FDIC appealed the summary disposition of all three cases. We consolidated the cases and deal with them as one in this opinion.

II

A

Federal banking regulation, in an effort to mitigate the costs to the taxpayer of bank and savings and loan failures, permits the FDIC to pursue any claims a corporation might have against its officers or directors once the FDIC becomes receiver of that corporation. See 12 U.S.C. § 1821(d); Texas Am. Bancshares, Inc. v. Clarke, 954 F.2d 329, 339 (5th Cir.1992). These breach of duty causes of action are hybrid in nature--authorized and enabled by state law, but appropriated by the FDIC as a means of redress for violations of various federal banking acts. Therefore, the analysis required to determine the viability of such an action is somewhat tedious, incorporating components of both state and federal law. The most problematic aspect of these actions is the determination of whether a statute of limitations bars the claim. This determination proves taxing because the applicable state statute of limitations controls whether the action is viable when the right to bring the action inures to the FDIC, while the applicable federal statute of limitations controls whether the action was timely filed.

To determine whether a statute of limitations bars the FDIC's actions in this case, we must first answer the following question: Did the Virginia statute of limitations run between the time the action accrued and the date of receivership? To answer this question, we must determine the applicable Virginia statute of limitations and the effect, if any, of any provisions of Virginia law to toll the running of the statutory period.

The FDIC attempts to add a gloss to our analysis by suggesting that federal law must guide and inform the application of the state statute of limitations. The FDIC cites United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979), for this proposition, urging us, in applying the state statute of limitations, to incorporate a uniform federal tolling rule patterned after the doctrine of adverse domination. In Kimbell Foods the Supreme Court discussed when federal common law must govern federal actions complicated by state substantive components. The Court noted that

[t]o resolve this question, we must first decide whether federal or state law governs the controversies; and second, if federal law applies, whether this Court should fashion a uniform ... rule or incorporate state ... law.

Id. at 718, 99 S.Ct. at 1453.

In Kimbell Foods the Court was called upon to determine "whether contractual liens arising from certain federal loan programs take precedence over private liens, in the absence of a federal statute setting priorities." Id. at 718, 99 S.Ct. at 1453. The Court held:

That the statutes authorizing these federal lending programs do not specify the appropriate rule of decision in no way limits the reach of federal law. It is precisely when Congress has not spoken "in an area comprising issues substantially related to an established program of government operation," that Clearfield directs federal courts to fill the interstices of federal legislation "according to their own standards."

Id., at 727, 99 S.Ct. at 1457 (quoting United States v. Little Lake Misere Land Co., 412 U.S. 580, 593, 93 S.Ct. 2389, 2397, 37 L.Ed.2d 187 (1973) and Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943)) (citations...