Gaff v. Federal Deposit Ins. Corp.

• Decision Date: 20 March 1987
• Docket Number: No. 86-1119,86-1119
• Citation: 814 F.2d 311
• Parties: , Fed. Sec. L. Rep. P 93,206 Joel R. GAFF, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver of National Bank and Trust Company of Traverse City, a National Banking Association; David E. Pearce; and Bruce W. Mann, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 311

814 F.2d 311

55 USLW 2525, Fed. Sec. L. Rep. P 93,206

Joel R. GAFF, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver of National

Bank and Trust Company of Traverse City, a

National Banking Association; David E.

Pearce; and Bruce W. Mann,

Defendants-Appellees.

No. 86-1119.

United States Court of Appeals, Sixth Circuit.

Argued Jan. 20, 1987.

Decided March 20, 1987.

Larry C. Willey, Grand Rapids, Mich., Stephen Novak, argued, Novak & Macey, Chicago, Ill., Kenneth S. Schlessinger, Richard A. Rossman, argued, Mark W. Yonkman, Detroit, Mich., for defendants-appellees.

Stuart D. Hubbell, Traverse City, Mich., J.B. Donaldson, argued, Dykema, Gossett, Spencer, et al., Bloomfield Hills, Mich., Lawrence G. Campbell (Pearce), Dickinson, Wright, Moon, et al., Detroit, Mich., R.A. Wilhelm, for plaintiff-appellant.

Before ENGEL and BOGGS, Circuit Judges; and CONTIE, Senior Circuit Judge.

CONTIE, Senior Circuit Judge.

Plaintiff Joel R. Gaff appeals from the district court's order dismissing, pursuant to Fed.R.Civ.P. 54(b), amended Count V of Gaff's complaint. Gaff asserts that Count V sufficiently states three sets of claims which he may pursue in federal court: federal claims arising out of the federal banking laws; federal claims arising out of the federal securities laws; and pendent state law claims. We find that the district court correctly dismissed with prejudice Gaff's federal law claims, but should not have dismissed with prejudice Gaff's state law claims. Accordingly, we affirm in part and reverse in part the judgment of the district court.

I.

This procedurally complex case began on March 20, 1981, when James Dalrymple filed a Michigan state court action against the National Bank and Trust Company of Traverse City (NBT), David E. Pearce (the Chairman of the Board of NBT), and Bruce W. Mann (NBT's president). Dalrymple, who was NBT's past legal officer, originally asserted a claim of wrongful discharge and later amended his complaint in September of 1981 to include derivative claims against the bank challenging as violative of state law certain bank transactions and activities of Pearce and Mann which transpired in the late 1970's. On November 4, 1981, appellant Gaff filed a similar complaint against NBT, Pearce and Mann in Michigan state court.

The defendants removed both cases to federal district court in late 1981 on the ground that they involved claims arising under the laws of the United States, including the provisions of the National Bank Act, 12 U.S.C. Sec. 21 et seq. The district court subsequently remanded both cases to state court. On remand, the state court consolidated the cases, entering an order to that effect on July 28, 1983.

On February 22, 1984, Gaff and Dalrymple filed an "Amended and Supplemental Consolidated Complaint" in state court. Counts I-IV of the Consolidated Complaint alleged shareholder derivative actions on behalf of NBT. Count V was labeled as a "Stockholder's Class Action," and incorporated by reference the same facts alleged in support of Counts I-IV. Count V alleged that Pearce and Mann breached fiduciary duties owed both to NBT and the shareholders by engaging in transactions for the purpose of ensuring their control over NBT and by failing to fully disclose the nature and details of such transactions. The relief sought with respect to claims in Count V included (1) a declaration that the defendants' conduct was wrongful, (2) a declaration that the formation of a voting trust violated preemptive rights of the shareholders of NBT, (3) damages "in such amount as the Court shall deem appropriate to sanction such defendants' conduct," and (4) an accounting by the defendants to determine the amount of damages sustained by the shareholders.

On March 9, 1984, the Comptroller of the Currency declared NBT insolvent, closed the bank, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of the bank's assets. The FDIC in its corporate capacity advanced a substantial sum of money to the FDIC as receiver in order to protect and insure the bank's depositors and creditors; in exchange, the FDIC in its corporate capacity received, among other things, an assignment of all causes of action against NBT's former officers and directors for damages caused to NBT. On March 15, 1984, the FDIC in its capacity as receiver removed the consolidated Gaff case to federal court. On March 21, 1984, the FDIC in its corporate capacity filed a "Motion to Intervene and Motion to Dismiss Present Party Plaintiffs," in an attempt to assume control over the consolidated Gaff case, and a motion for a stay of the proceedings in the consolidated case. Defendants Pearce and Mann subsequently filed a motion to dismiss Count V of the Gaff consolidated Complaint, alleging that although Count V purported to be a direct shareholder action, it was in reality merely another derivative claim for injuries sustained by NBT.

The district court resolved these pending motions at a hearing held on February 11, 1985. The court granted the FDIC's motion to intervene, reasoning that the FDIC was a proper party plaintiff, but denied the FDIC's motion to dismiss. Instead of completely dismissing Gaff and Dalrymple from the action, the court stayed any further action by them on the derivative counts (Counts I-IV) of their Consolidated Complaint, thus enabling the FDIC to pursue unfettered the derivative claims. To this end, the court accepted the FDIC's second amended complaint which named various former officers and directors of NBT, including Pearce and Mann, and which sought fifteen million dollars in damages. With regard to Count V of the Consolidated Complaint, the court denied the defendants' motion to dismiss and granted leave to Gaff and Dalrymple to amend the claim.

Gaff filed on February 26, 1985, his amendment to Count V, alleging federal banking and federal securities law claims in addition to the previously alleged state common law claims. ¹ Amended Count V did not allege any facts different from those previously alleged. For standing to assert his federal banking law claims, Gaff relied on Sec. 53 of the National Bank Act, 13 Stat. 116, presently codified at 12 U.S.C. Sec. 93, and Sec. 22 of the Federal Reserve Act, 38 Stat. 272, presently codified at 12 U.S.C. Sec. 503. Gaff sought essentially the same declaratory, injunctive and monetary relief previously requested in Count V of the Consolidated Complaint.

On March 20, 1985, defendants Pearce and Mann filed a motion to dismiss amended Count V pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. The defendants argued that Count V contained only derivative claims and therefore could not be maintained as an individual shareholder action. In support of their assertion that Count V raised only derivative claims, the defendants noted the lack of allegations of personal injury to Gaff as distinct from harm to the corporate entity on the whole.

The district court held a hearing on that motion and others on April 4, 1985, and on April 19, filed an opinion denying the motion. The court acknowledged the common law rule that generally a shareholder cannot bring an individual action for harm done to the corporation itself, but went on to note that the rule does not preclude a shareholder from bringing a direct cause of action for injuries sustained personally. After observing that 12 U.S.C. Sec. 93 provides a private right of action in shareholders under proper circumstances, the court concluded that Gaff had sufficiently stated a claim under Sec. 93. As support for its decision, the court relied on a prior Sixth Circuit decision, Marx v. Centran Corp., 747 F.2d 1536, 1540 (6th Cir.1984), cert. denied, 471 U.S. 1125, 105 S.Ct. 2656, 86 L.Ed.2d 273 (1985), and a Ninth Circuit decision quoted in Marx, Harmsen v. Smith, 542 F.2d 496 (9th Cir.1976), cert. denied, 464 U.S. 822, 104 S.Ct. 89, 78 L.Ed.2d 97 (1983).

Thereafter, the defendants moved for reconsideration or, in the alternative, for certification of a question to the Sixth Circuit, in light of Warren v. Manufacturers National Bank, 759 F.2d 542 (6th Cir.1985), a just-published decision by this court which the defendants believed cast doubt upon the district court's initial holding. Satisfied that the defendants' motion presented sufficient reasons for reconsideration, the district court filed an opinion on December 26, 1985, granting the defendants' motion to dismiss amended Count V on the grounds that Gaff lacked the requisite standing to pursue the claims raised in Count V.

The court first addressed the claims arising under the federal banking acts. After noting that the standing provisions under those acts, 12 U.S.C. Sec. 93 and 12 U.S.C. Sec. 503, are essentially identical, the court observed that the Harmsen case held that minority shareholders of an insolvent bank sufficiently stated an individual action under Sec. 93 even though the only personal injury alleged was the diminution in the value of their stock. The court then explained that it initially seemed that the Marx decision adopted this holding of Harmsen. However, upon analyzing the more recent decision in Warren, the court concluded that the Sixth Circuit rejected the notion that diminution in the value of stock, standing alone, is sufficient personal injury to provide a shareholder standing to bring a direct cause of action under federal law. The court applied its interpretation of Warren to the instant case and found that Gaff did not have standing to bring an individual suit under the federal banking laws because he had alleged only injuries which were suffered by the bank, instead of injuries which were personal in nature.

The court also found that Gaff lacked standing to pursue his federal securities claims because he had failed to allege sufficient personal injury arising from the alleged securities law violations. More specifically, the court determined that Gaff only could...