Eureka Federal Sav. and Loan Ass'n v. Kidwell, C-86-1245 WHO.

• Decision Date: 03 June 1987
• Docket Number: No. C-86-1245 WHO.,C-86-1245 WHO.
• Parties: EUREKA FEDERAL SAVINGS AND LOAN ASSOCIATION, a federal association, et al., Plaintiffs, v. Kenneth L. KIDWELL, et al., Defendants.
• Court: U.S. District Court — Northern District of California

672 F. Supp. 436

EUREKA FEDERAL SAVINGS AND LOAN ASSOCIATION, a federal association, et al., Plaintiffs, v. Kenneth L. KIDWELL, et al., Defendants.

No. C-86-1245 WHO.

United States District Court, N.D. California.

June 3, 1987.

Bartlett A. Jackson, Debra S. Belaga, Jane B. Wishner, Jackson, Tufts, Cole & Black, San Francisco, Cal., for plaintiffs.

Geoffrey Becker, Becker & Becker, Millbrae, Cal., for Gilliam.

Thomas J. O'Dowd, Los Gatos, Cal., Paul H. Dawes, Adam F. Gambel, John R. Foote, Thelen, Marrin, Johnson, Bridges, San Francisco, Cal., for Harris.

Bruce G. Spicer, Law Offices of Bruce G. Spicer, San Jose, Cal., for Keuper.

Joseph L. Alioto, Lawrence Alioto, Alioto & Alioto, San Francisco, Cal., for Kidwell.

Lauren R. Poplack, Hallinan & Poplack, and Daniel J. Furniss, Timothy F. Perry, Louise E. Ma, June D. Beltran, Khourie, Crew & Jaeger, San Francisco, Cal., for Jamieson.

OPINION AND ORDER

ORRICK, District Judge.

In this case involving the Home Owners' Loan Act of 1933 ("HOLA"), 12 U.S.C. § 1461, et seq., plaintiffs, Eureka Federal Savings and Loan Association, a federally chartered savings and loan association, and Eureka Financial Corporation and Eureka Mortgage Investment Company, two wholly-owned subsidiary California corporations (hereinafter collectively "Eureka"), charge certain of its former officers, directors, and employees with violating their fiduciary duties in the conduct of the internal affairs of Eureka. Defendants, by their Federal Rule of Civil Procedure 12(b)(1) motion, raise the threshold question as to whether or not this Court has jurisdiction over the subject matter of the complaint. For the reasons hereinafter stated, this Court holds that although HOLA does not create an express or implied private right of action against defendants, Eureka has such a right under the federal common law and, therefore, this Court has subject matter jurisdiction.

I

Eureka's complaint alleges gross violations by defendants¹ of prudent lending practices committed during their tenure at Eureka and asserts the same four causes of action against each defendant: (1) breach of fiduciary duty; (2) violation of HOLA, the regulations promulgated thereunder, and memoranda "regulations" issued by the Federal Home Loan Bank Board ("Bank Board"); (3) negligence and mismanagement; and (4) waste. Eureka alleges that as a result of the defendants mismanagement of Eureka, it suffered substantial losses in excess of $100,000,000 and that only the infusion of more than $150,000,000 of capital into Eureka by the Federal Savings and Loan Insurance Corporation ("FSLIC") prevented the insolvency and failure of Eureka. See Declaration of Peter Pickslay, filed Oct. 9, 1986, at 2.

Defendants seek the dismissal of this action, arguing that under HOLA, there is neither an express nor implied private right of action, and that the general federal interest in the functioning of the federal savings and loan association system is insufficient to warrant the creation of federal common law. Defendants also assert that Eureka has an adequate remedy under state law and should be prevented from expanding federal law beyond its proper bounds.

A

The principles governing when a private right of action may be implied from the alleged violation of a federal statute have undergone significant transformation within the past ten years. Opportunities for the courts to judicially imply private rights of action, thus "smoothing out the rough egdes" of federal legislation, have been severely restricted by the more recent decisions of the Supreme Court and the Ninth Circuit. Fidelity Financial Corp. v. Federal Home Loan Bank, 589 F.Supp. 885, 890 (N.D.Cal.1983), aff'd 792 F.2d 1432 (9th Cir.1986). Accord In re Fortune Systems Securities Litigation, 604 F.Supp. 150 (N.D.Cal.1984).

In 1975, the Supreme Court unanimously reversed its prior liberal approach to the implication of private rights of action in the case of Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). The Court ruled that four factors must be satisfied in order to support the implication of a private right of action: (1) the plaintiff must be "one of the class for whose especial benefit the statute was enacted"; (2) there must be some "legislative intent, explicit or implicit," to create such a remedy; (3) the implication of a private remedy must be "consistent with the underlying purposes of the legislative scheme"; and (4) the cause of action must not be one "traditionally relegated to state law, in an area basically the concern of the States, such that it would be inappropriate to infer a cause of action based solely on federal law." Id. at 78, 95 S.Ct. at 2088. Subsequently, the Court has restricted the implication of private remedies even further by telescoping the inquiry into the single paramount issue of whether Congress intended the implication of the private right of action. See Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d 82 (1979); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 377-78, 102 S.Ct. 1825, 1838-39, 72 L.Ed.2d 182 (1982).

The Ninth Circuit has also made clear that the focus of the Cort test is to be the intent of Congress. In Osborn v. American Ass'n of Retired Persons, 660 F.2d 740, 743 (9th Cir.1981), the Ninth Circuit refused to imply a private right of action on behalf of a group of employees seeking recovery for an alleged violation of an "equal pay" statute, stating that the "sole factor to be considered ... is whether Congress intended that the statute's provisions be enforced through private litigation." Id. As the concurrence points out, this establishes an even stricter standard than that apparently expressed in Cort. Id. at 747. The Ninth Circuit's chary view of the implication of private remedies for the violation of federal statutes was firmly reiterated in Le Vick v. Skaggs Companies, 701 F.2d 777 (9th Cir.1983). In Le Vick, the court denied an employee a private right of action to sue for a termination in contravention of a federal statute. The court stated that the focus of the analysis was "whether Congress intended to create a private right of action, regardless of its purpose in enacting the statute." Id. at 779 (emphasis added).

Eureka seeks to have the Court imply a private remedy for the violation of the provisions of HOLA, despite its acknowledgment that HOLA does not expressly approve or provide for a private remedy. The enforcement of HOLA and the regulations promulgated thereunder rests almost in its entirety with the Bank Board. See 12 U.S.C. § 1464(d). There are only two express provisions for a private right of action to enforce HOLA: (1) "any Federal savings and loan association or director or officer thereof" may bring an action against the Bank Board, but only with respect to a matter arising under § 1464, see § 1464(d)(1); and (2) in 1982, Congress amended § 1464 to add a new subsection entitled "(q),"² which expressly provided for a private civil remedy to obtain redress for certain unfair credit practices. Aside from these two remedies, Congress has failed to give any indication that it intended that there be a private right of action under the provisions of HOLA. As the Supreme Court held in Middlesex County Sewage Authority v. National Sea Clammers Ass'n, 453 U.S. 1, 15, 101 S.Ct. 2615, 2623, 69 L.Ed.2d 435 (1981), the absence of a "strong indicia of a contrary congressional intent" compels the conclusion that "Congress provided precisely the remedies it considered appropriate." Congress has provided for two express private rights of action, and there is no indicia that Congress intended there to be others. Eureka has failed to present this Court with evidence of congressional intent or judicial authority justifying the implication of a private remedy for the violation of HOLA as set forth in its complaint.

In a similar situation, the issue of whether to imply a private remedy under HOLA was presented to the court in First Hawaiian Bank v. Alexander, 558 F.Supp. 1128 (D.Hawaii 1983). In First Hawaiian Bank, Chief Judge King noted that HOLA was amended in 1966 to expand the enforcement powers of the Bank Board; despite the power to do so, Congress neither mentioned nor provided for a private cause of action at that time. Thus, Judge King found that "in light of the more restrictive approach of Cort and its progeny, this court cannot imply a private cause of action for violations of HOLA and its accompanying federal regulations." Id. at 1131.

This Court notes that in the 1982 amendment to HOLA, Congress also had the opportunity to provide for, or indicate that it approved of, a private right of action to enforce the provisions of HOLA. Because Congress chose not to do so, and has nowhere else indicated any intent to do so, this Court is constrained from granting recognition to an implied private remedy in this action. In light of the authority of Cort, Middlesex, and Le Vick, the Court finds that there is no private right of action to enforce the provisions of HOLA in the manner that Eureka seeks to do so under this complaint. Therefore, the Court dismisses Eureka's causes of action seeking to hold defendants liable for a violation of HOLA and/or the regulations promulgated thereunder.

B

Alternatively, Eureka's complaint seeks to hold the defendants liable under federal common law for their alleged violations of their fiduciary duties. Despite Justice Brandeis' proclamation that "there is no federal general common law," Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), the Supreme Court has since recognized the "need and authority in some limited areas for the courts to formulate ... `federal common law.'" These instances "fall into essentially two categories: those in which a federal rule of decision is `necessary to protect uniquely federal interests,' and those in which the Congress has...