In re Southeast Banking Corp.

• Decision Date: 13 August 1993
• Docket Number: No. 92-1600-CIV.,92-1600-CIV.
• Citation: 827 F. Supp. 742
• Court: U.S. District Court — Southern District of Florida
• Parties: In re SOUTHEAST BANKING CORPORATION, Debtor. William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Plaintiff, v. Florence S. BASSETT, as Personal Representative of The Estate of Harry Hood Bassett, Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.C. Henry, Jr., Paul L. Hill, Melvin Jacobs, Kenneth O. Johnson, Nicholas deB. Katzenbach, James W. McLamore, William E. Moeller, William D. Plechaty, John E. Porta, Willie C. Robinson, Charles D. Towers, Jr., Dorothy C. Weaver, J. Steven Wilson, Charles J. Zwick, and John Does 1-25, Defendants. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Southeast Bank, N.A., Intervenor-Plaintiff, v. William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Intervenor-Defendant.

827 F. Supp. 742

In re SOUTHEAST BANKING CORPORATION, Debtor.

William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Plaintiff, v. Florence S. BASSETT, as Personal Representative of The Estate of Harry Hood Bassett, Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.C. Henry, Jr., Paul L. Hill, Melvin Jacobs, Kenneth O. Johnson, Nicholas deB. Katzenbach, James W. McLamore, William E. Moeller, William D. Plechaty, John E. Porta, Willie C. Robinson, Charles D. Towers, Jr., Dorothy C. Weaver, J. Steven Wilson, Charles J. Zwick, and John Does 1-25, Defendants.

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Southeast Bank, N.A., Intervenor-Plaintiff, v. William A. BRANDT, Jr., as Trustee of Southeast Banking Corporation, Intervenor-Defendant.

No. 92-1600-CIV.

United States District Court, S.D. Florida.

July 22, 1993.

As Amended August 13, 1993.

Mark David Bloom, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, FL, for William A. Brandt, Jr.

Robert Thomas Wright, Jr., Mershon, Sawyer, Johnston, Dunwody & Cole, P.A., Miami, FL, for Florence S. Bassett.

Aaron Samuel Podhurst, Podhurst, Orseck, Josefsberg, Eaton, Meadow, Olin & Perwin, Miami, FL, Stuart J. Baskin, Shearman & Sterling, New York City, for Donald N. Boyce, Joseph A. Boyd, M. Anthony Burns, Edward D. Duda, Alfonso Fanjul, Jr., James J. Forese, R. Ray Goode, H.C. Henry, Jr., Melvin Jacobs, Kenneth O. Johnson, Nicholas deB. Katzenbach and James W. McLamore, Willie C. Robinson, Charles D. Towers, Jr., Dorothy C. Weaver and J. Steven Wilson.

Thomas Meeks, Floyd Pearson Richman Greer Weil Brumbaugh & Russomanno, P.A., Miami, FL, Michael R. Smith, Charles K. McKnight, Michael W. Youtt, King & Spaulding, Atlanta, GA, for Paul L. Hill, William E. Moeller and William D. Plechaty.

Edward Soto, Baker & McKenzie, Miami, FL, for G. Dodson Mathias.

Barry Douglas Hunter, Paul, Landy, Bailey & Harper, P.A., Thomas Meeks, Floyd Pearson Richman, Greer Weil Brumbaugh & Russomanno, P.A., Michael R. Smith, Charles K. McKnight, Michael W. Youtt, Atlanta, GA, for John E. Porta.

Michael Nachwalter, Kenny, Nachwalter, Seymour, Arnold, & Critchlow, P.A., Miami, FL, for Charles J. Zwick.

James Patrick Paul, Haley, Sinagra & Perez, P.A., Miami, FL, Karen Wildau, Randall L. Hughes, Richard C. Mitchell, Christopher P. Galanek, Daniel R. King, Jeffrey D. Raquin, Adrienne E. Marting, Powell Goldstein Frazer & Murphy, Atlanta, GA, for F.D.I.C.

OMNIBUS ORDER

ARONOVITZ, District Judge.

Plaintiff, William A. Brandt, as Bankruptcy Chapter 7 successor Trustee of Southeast Banking Corporation ("S.E.B.C." or "the holding company") sued officers and directors of Southeast Bank ("SEBNA" or "the Bank") a national bank, alleging breach of legal duties, negligence, gross negligence and conscious disregard of the best interests of the holding company, a Florida corporation. The Bank is the wholly owned subsidiary corporation of the holding company. Federal Deposit Insurance Corporation ("FDIC") was granted leave to intervene to assert sole and exclusive ownership of those same claims through a Complaint in Intervention.¹

Motions and Cross-Motions to Dismiss, Motions and Cross-Motions for Summary Judgment have been filed by the respective parties, and all such motions were the subject of an Order of Reference of same to United States Magistrate Judge Linnea R. Johnson.

Judge Johnson has now submitted an "Omnibus Report and Recommendation" dated April 29, 1993, wherein she recommends finding for the defendants and FDIC by holding that the Complaint pleads "classic derivative claims since they turn on acts taken by and injury to, the Bank, and therefore they can only be asserted by the successor in interest to the Bank, the FDIC." (Omnibus Report p. 9).²

The Trustee has filed Objections and Exceptions to the Magistrate Judge's Omnibus Report and Recommendation; the FDIC has filed a Reply thereto; and the defendants have responded. This Court has reviewed the entire record herein, including all memoranda briefs of the parties and has heard extensive oral argument by counsel for the parties, although no evidentiary hearing has yet been held, and based upon the aforegoing, and for the reasons herein stated this Court holds that:

1. The Magistrate Judge's Omnibus Report and Recommendation is hereby ADOPTED, RATIFIED and CONFIRMED except as otherwise expressly held, so stated, and modified in this Order. A copy of that Report and Recommendation is attached hereto and made a part hereof as if fully set forth herein.

2. The two claims alleged against defendants relating to acquisition of two thrift institutions, First Federal & Loan Association of Jacksonville ("First Federal") and South Florida Savings, acquired in whole, or in part, may sustain direct claims against the officers and directors of the holding company.

3. The payment of special dividends authorized by defendants so that such proceeds could be used to acquire one of said thrift institutions, although not alleged in the Complaint, has been argued in briefs and orally rather extensively, and may be found to sustain a direct claim against the officers and directors (defendants).

4. The Plaintiff should be allowed to amend his Complaint to state more specifically and succinctly claims 2 and 3 above, and to assert only with great specificity such other direct claims as Plaintiff can assert. No derivative claims may be asserted in the Amended Complaint.

Direct v. Derivative Claims

The Trustee asserts that the claims in its Complaint against the individual officers and directors of SEBNA are claims by Southeast Banking Corporation against its own officers and directors for duties owed to it and not Southeast Bank and therefore they are claims which belong to the Trustee and not to FDIC. Trustee maintains that its claims are direct, not derivative, and outside the scope of 12 U.S.C. § 1821(d)(2)(A)(i) (1988). FDIC insists otherwise.

Whether a claim is considered direct or derivative is a matter of state law, and is determined from the body of the complaint rather than from the label employed by the parties. In re Sunrise Securities Litigation, 916 F.2d 874, 879-882 (3d Cir. 1990) (citations omitted). Under Florida law, a shareholder may bring an individual action for injuries suffered directly by the shareholder that are separate and distinct from injuries to all other shareholders, i.e., an injury separate from that sustained by the bank as a corporate entity. Id. at 880 (citations omitted). A derivative claim is a wrong to an incorporated group as a whole that depletes or destroys corporate assets and, as a consequence, reduces the value of the corporation's stock. If the gravamen of the complaint is injury primarily to the corporation or to the shareholders generally, then the claim belongs to the corporation and the shareholder's right to bring the action derives from the corporation. Id. (citations omitted).

The Eleventh Circuit has held that the FDIC, as receiver of a failed bank, has no priority over, and could not stay the prosecution or collection of, non-derivative claims brought by bank shareholders against former officers, directors and professionals FDIC v. Jenkins, 888 F.2d 1537 (11th Cir.1989); cf. Leach v. FDIC, 860 F.2d 1266 (5th Cir.1988), cert. denied, 491 U.S. 905, 109 S.Ct. 3186, 105 L.Ed.2d 695 (1989) and Gaff v. FDIC, 814 F.2d 311 (6th Cir.) mod. on reh'g., 828 F.2d 1145 (6th Cir.1987).

The Eleventh Circuit held that the legislative history of the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") and the Federal Deposit Insurance Act reflected that Congress did not intend to grant a priority to the FDIC in such non-derivative actions. In fact, the Court found, Congress had specifically rejected an amendment to FIRREA which, if passed, would have granted the FDIC priority in any claims against officers, directors, attorneys, and other third party agents of a failed savings institution over shareholders, depositors, and creditors. Id. at 1538, n. 1. According to U.S. Congressman Harley O. Staggers of West Virginia:

"Among the policy reasons we cited for opposing this priority were that it would undermine bank fraud enforcement efforts by discouraging private suits against wrongdoers, penalize the innocent victims of fraud, lessen the incentive for the FDIC to pursue its own actions promptly and vigorously, and be patently unfair to private litigants who have spent the time and money to develop a case — only to see the FDIC step in and assert a priority."

136 Cong.Rec. E547-02. There being no language in FIRREA or the Federal Deposit Insurance Act, nor legislative history of either to support such a favorable status, the Court refused to create a priority in favor of the FDIC with regard to non-derivative claims brought by bank shareholders against former officers, directors and professionals.

This Court finds that the Complaint is substantially dominated by derivative allegations, rather than pleading distinct harm to S.E.B.C.³ Specifically, averments in Complaint paragraphs 10-13, 14(b), 15-19, 24(a), (b), (d), 26-28 and 31 are all derivative and turn on acts taken by, and injury to, the Bank. These allegations plead classic derivative claims which can only be asserted by the successor in interest to the Bank, the FDIC. In re Sunrise Securities Litigation, 916 F.2d 874 (3d Cir.1990) (interpreting Florida law) (derivative claims belong to the FDIC as receiver). See Alario v. Miller, 354 So.2d 925, 926 (Fla. 2d DCA 1978) ("A stockholder's derivative action is an action brought by one or more stockholders of a corporation to enforce a corporate right.... An action brought by a stockholder is derivative if the gravamen of the complaint is injury to the corporation or to the whole body of its stock or property and not injury to the plaintiff's individual interest as a...