Bender v. Carolyn D. Jordan Independence Fed. Sav. Bank, No. 08-7150.

• Decision Date: 22 October 2010
• Docket Number: No. 08-7150.
• Citation: 623 F.3d 1128
• Parties: Morton A. BENDER and Grace M. Bender, Appellees v. Carolyn D. JORDAN, et al., Appellants Independence Federal Savings Bank, Appellee.
• Court: U.S. Court of Appeals — District of Columbia Circuit

623 F.3d 1128

Morton A. BENDER and Grace M. Bender, Appellees

v. Carolyn D. JORDAN, et al., AppellantsIndependence Federal Savings Bank, Appellee.

No. 08-7150.

United States Court of Appeals,District of Columbia Circuit.

Argued Sept. 13, 2010.

Decided Oct. 22, 2010.

Appeal from the United States District Court for the District of Columbia (No. 1:06-cv-00092-RMC).

Frederick D. Cooke Jr. argued the cause and filed the briefs for appellants. Peter E. Strand entered an appearance.

Dale A. Cooter argued the cause for appellee Independence Federal Savings Bank. With him on the brief was Donna S. Mangold. Griffin V. Canada Jr. entered an appearance.

Before: BROWN, Circuit Judge, and EDWARDS and WILLIAMS, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge WILLIAMS.

WILLIAMS, Senior Circuit Judge.

This is a fee dispute arising out of prolonged litigation between various parties interested in Independence Federal Savings Bank (“IFSB” or the “Bank”), a federal stock savings association regulated at the time of the relevant events by the Office of Thrift Supervision (“OTS”). ¹ One substantive phase, possibly the last, began in 2006 when shareholders Morton and Grace Bender filed a securities law suit against IFSB, five then directors and its president and CEO. Those six individuals executed agreements with IFSB under which the Bank advanced funds for defense of the suit, on the condition that each individual would repay the expenses if later determined not to be entitled to indemnification under an OTS regulation, 12 C.F.R. § 545.121.

On the merits, the district court granted a preliminary injunction in favor of the Benders, Bender v. Jordan, 439 F.Supp.2d 139 (D.D.C.2006), who soon thereafter acquired control of the Bank. With them in charge, the district court dismissed their substantive claims as moot. Bender v. Jordan, 515 F.Supp.2d 10 (D.D.C.2007).

IFSB's new board of directors then unanimously approved a resolution stating that three of the original six individual defendants-namely, two former directors and the former president and CEO-were not entitled to indemnification and demanding repayment of legal fees advanced pursuant to their respective agreements. Joint Appendix (“J.A.”) 130. These three individuals refused to repay. IFSB filed a cross-claim against them for breach of contract, and the district court granted summary judgment in favor of IFSB. Bender v. Jordan, 570 F.Supp.2d 37 (D.D.C.2008). The district court also rejected the three cross-defendants' argument that the obligation should be split six ways among the original six individuals, and ruled that each of the three cross-defendants should be severally liable for one-third of the entire amount advanced. It absolved the three original defendants not named by IFSB as cross-defendants, saying, “Because [the other three defendants] were not found to be actively involved [in the securities law violations alleged by the Benders] ..., it was not unreasonable for the current Board to decide that their ‘fair share’ of the legal fees and expenses was $0.00.” Id. at 48.

The three cross-defendants (here called for simplicity's sake the “former directors”) appeal on the grounds that IFSB failed to comply with the procedures set forth in 12 C.F.R. § 545.121 and that they therefore are not required to reimburse IFSB under the terms of the agreements. They also appear to make an obscure argument that the agreements themselves obligate the IFSB to initiate procedures alluded to in the regulation. Because their reading of 12 C.F.R. § 545.121 is mistaken (as is their reading of the contract, to the extent that they rely on it at all), we affirm the judgment of the district court. In their brief to this court the former directors did not specifically challenge the district court's exclusion of the other three original defendants, and only did so indirectly at oral argument. See Oral Arg. Recording at 38:18-40:18. The apportionment issue is therefore forfeited. See Williams v. United States, 396 F.3d 412, 415 (D.C.Cir.2005) (argument inadequately raised in opening brief is forfeited).

* * *

Although the parties do not raise the issue, we must first consider whether the district court properly exercised jurisdiction. A case arises under federal law within the meaning of 28 U.S.C. § 1331 “if ‘a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.’ ” Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 690, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006) (quoting Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)). IFSB's cause of action-breach of contract-appears on its face to be one created by state law. But even where that is true, the federal courts have jurisdiction when, as here, it is apparent that the federal questions overwhelmingly predominate.

For federal courts to have jurisdiction, the state law claim must turn on an “actually disputed and substantial” issue of federal law, Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 314, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005), and federal jurisdiction must be “consistent with congressional judgment about the sound division of labor between state and federal courts governing the application of § 1331.” Id. at 313-14, 125 S.Ct. 2363. The Court has said that this depends on such factors as the strength of the federal interest in a federal forum to resolve questions of federal law and whether federal jurisdiction would “materially affect” the “normal currents of litigation.” Id. at 315, 319, 125 S.Ct. 2363. Federal jurisdiction is favored in cases that present “a nearly ‘pure issue of law’ ... ‘that could be settled once and for all and thereafter would govern numerous ... cases.’ ” Empire, 547 U.S. at 700, 126 S.Ct. 2121 (quoting Richard H. Fallon, Jr., Daniel J. Meltzer, & Daniel L. Shapiro, Hart & Wechsler's The Federal Courts and the Federal System 65 (2005 Supp.)). Conversely, federal jurisdiction is disfavored for cases that are “fact-bound and situation-specific” or which involve substantial questions of state as well as federal law. Empire, 547 U.S. at 701, 126 S.Ct. 2121.

As in Grable (but not in Empire ), this case presents a nearly pure issue of federal law, and none of the other relevant factors weighs against federal jurisdiction. Although breach of contract is a state law cause of action, the agreements themselves are “creatures of federal law,” see Jackson Transit Authority v. Local Division 1285, Amalgamated Transit Union, 457 U.S. 15, 23, 102 S.Ct. 2202, 72 L.Ed.2d 639 (1982), in the sense of being intended to implement the scheme designed by 12 C.F.R. § 545.121. The former directors and IFSB entered into the agreements because federal law requires the execution of such contracts before legal fees can be advanced to defendant officers and directors. Id. § 545.121(e). And the parties' legal duties turn almost entirely on the proper interpretation of that regulation. The federal interest in a federal forum for this case is substantial. At stake is the interpretation of a federal regulation that governs the conduct of a federal agency-the Office of Thrift Supervision-and federally chartered savings associations. By contrast, there is no discernable state interest in a state forum.

The Court's opinions in this area call on the federal courts to make predictive judgments about, for example, whether jurisdiction over such actions as the one in question will “materially affect, or threaten to affect, the normal currents of litigation,” Grable, 545 U.S. at 319, 125 S.Ct. 2363, presumably by leading to a wave of new filings in federal court. Creation of precedent interpreting 12 C.F.R. § 545.121 is likely in fact to reduce the frequency of disputes over contracts under 12 C.F.R. § 545.121(e). And in many instances (indeed, it may be the case here, but we need not reach it), the federal courts would have supplemental jurisdiction over 12 C.F.R. § 545.121(e) breach of contract claims. Here we have turned first to federal question jurisdiction primarily because idiosyncrasies of the record pose special problems for supplemental jurisdiction. In any case, we do not anticipate that this exercise of federal jurisdiction will portend any more than “a microscopic effect on the federal-state division of labor.” Grable, 545 U.S. at 315, 125 S.Ct. 2363.

Our finding of jurisdiction under Empire and Grable makes it unnecessary to consider alternative grounds. These include federal question jurisdiction under the opinion in Jackson Transit (for cases where Congress has intended that “all rights and duties stemming from” a contract should be governed by federal law, see Empire, 547 U.S. at 693, 126 S.Ct. 2121) and supplemental jurisdiction under 28 U.S.C. § 1367.

* * *

Thus we reach the merits, which depend on the federal regulation and, to a much lesser extent, on the identically worded agreements seeking to implement that regulation. We start with the latter:

Pursuant to Regulations of the Office of Thrift Supervision (the “OTS”) governing advancement of expenses to directors and officers of a federal savings association, 12 C.F.R. § 545.121(e), (the “Regulation”), with respect to claims brought against a director or officer arising from service as a director or officer of a federal savings association, I hereby request that Independence Federal Savings Bank (the “Bank”) pay reasonable expenses and costs that have been or will be incurred in the defense or settlement of the litigation styled as Morton A. Bender, et al. v. Carolyn D. Jordan, et al. Under the Regulation, I hereby agree that I will repay the Bank any amounts so paid on my behalf by the Bank if it is later determined that I am not entitled to...