F.D.I.C. v. Wheat, 91-1669

• Citation: 970 F.2d 124
• Decision Date: 02 September 1992
• Docket Number: No. 91-1669,91-1669
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff-Appellee, v. Jerry D. WHEAT, et al., Defendants, Ben D. Sudderth, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 124

970 F.2d 124

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate

capacity, Plaintiff-Appellee, v. Jerry D. WHEAT, et al., Defendants, Ben D. Sudderth, Defendant-Appellant.

No. 91-1669.

United States Court of Appeals, Fifth Circuit.

Sept. 2, 1992.

Rehearing and Rehearing En Banc

Denied Oct. 19, 1992.

Mark H. How, Marcia F. Pennell, Dallas, Tex., for Ben D. Sudderth.

Brenda Collier, Wagstaff, Alvin, Stubbeman, Seamster & Longacre, Dallas, Tex., Edward J. O'Meara, F.D.I.C., Washington, D.C., for F.D.I.C.

Appeal from the United States District Court for the Northern District of Texas.

Before BROWN, GARWOOD, and EMILIO M. GARZA, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

This case involves a bank director sued by the FDIC/Corporate ¹ for negligence, breach of fiduciary duty, and breach of contract. After a jury verdict against Appellant on one loan, and the district court's subsequent denial of his motions for new trial and judgment notwithstanding the verdict, the bank director appeals to this court.

Alleging the statute of limitations expired before the FDIC filed suit, and the absence of any duty to the bank at the time the loan was made, Appellant seeks reversal of the jury verdict with a judgment that the FDIC take nothing. In the alternative, Appellant seeks reversal and remand for new trial. We disagree and affirm the judgment entered on the jury verdict.

The "Loan" Arranger

In 1980, Sudderth opened the Early Bank, a state chartered financial institution, in Early, Texas. Sudderth was the Chairman of the Board of Directors and majority stockholder until November 20, 1984. Early on, the bank experienced loan problems. Periodic FDIC and state inspections found numerous violations in loan procedures and banking regulations.

On June 21, 1984 Sudderth entered negotiations with George Day to sell the bank. Eight days later, Early Bank made a personal, unsecured loan of $125,000 to Day ("Day loan"). Day subsequently bought United Travelers Insurance Company. ²

On November 16, 1984 Day sent the president of United Travelers, Jack Pike, to

                Early Bank to sign for a loan to United Travelers for $126,753.41 ("UT loan").   Pike did not sign that day, but, after speaking with Day and compiling financial statements on himself and United Travelers, Pike signed on November 20. 3  Although someone at UT then received the money for the loan, it was not Pike.   Pike testified he only saw the cashier's check once, in the bank's loan file, and never saw the check or its proceeds again. 4  Pike also testified he never met or saw Sudderth on his visits to the bank
                

Early Resignation; Early Demise

According to Sudderth, the sale of Early Bank should have closed on November 16, with all existing directors resigning that same day. Day called and requested the closing be postponed until November 20th; Sudderth contends he complied and resigned effective on the 20th. Sudderth claims Day called again, asking if the old board could reconvene, elect new board members nominated by Day (as new owner), and then resign again. This, Sudderth claims, he did, resigning again on November 26.

The decline of the bank continued under Day's leadership as well. In October, 1985 the Texas Banking Commission appointed the FDIC as receiver for Early Bank. On October 18, 1985 the FDIC/Receiver assigned all assets of Early Bank to the FDIC/Corporate. ⁵ Bad loan practices, a malady common to financial institutions in the 1980's, precipitated Early Bank's insolvency.

On July 15, 1988, the FDIC/Corporate brought suit in the district court for the Northern District of Texas. FDIC's claims against Sudderth were for damages on eleven loan transactions proximately caused by Sudderth's negligence, breach of contract, and breach of fiduciary duty. ⁶ After lengthy and extensive discovery, the FDIC put Sudderth to trial for alleged losses on three loans. Sudderth filed a motion in limine to prevent admission of any evidence or testimony about the bank's insolvency. Judge Woodward denied this motion. The jury returned a verdict for the FDIC on the UT loan, and the court entered the jury's judgment for $211,466.50. The court subsequently denied Sudderth's motions for new trial and JNOV. Sudderth then filed a timely appeal to us.

Late Claim?

Sudderth argues the statute of limitations expired before the FDIC brought suit. He asserts that a breach of fiduciary duty claim arises in tort, accruing on the Section 2415 is subject to section 2416, which states:

                day the loan is made.   Therefore, Sudderth contends the cause arose in November, 1984, with a limitation period of three years;  the general limitation for tort claims when the United States is a party.  28 U.S.C.A. § 2415(b) (West Supp.1992). 7
                

For the purpose of computing the limitations periods established in section 2415, there shall be excluded all periods during which-- ...

(c) facts material to the right of action are not known and reasonably could not be known by an official of the United States charged with the responsibility to act in the circumstances....

28 U.S.C.A. § 2416(c) (West 1978) (emphasis added).

The plain language of section 2416 leads us to conclude the limitations period could not begin until the FDIC had constructive knowledge of the cause of action. Since Early Bank made the UT loan in November 1984, between FDIC and state inspections (September 1984) and receivership in October 1985, neither the FDIC nor the State could reasonably have known about this loan until October 1985. We conclude, therefore, that the statute of limitations began to run when the FDIC was appointed receiver, in October, 1985. See, e.g., FDIC v. Former Officers & Directors of Metro. Bank, 884 F.2d 1304, 1307-09 (9th Cir.1989) (interpreting the statute of limitations in favor of the government), cert. denied, sub nom. Lee v. FDIC, 496 U.S. 936, 110 S.Ct. 3215, 110 L.Ed.2d 662 (1990); FDIC v. Hinkson, 848 F.2d 432, 435 (3d Cir.1988) (interpreting congressional intent to toll the statute of limitations until the FDIC has constructive knowledge); FDIC v. Cardona, 723 F.2d 132, 134 (1st Cir.1983) (same).

Since the FDIC commenced the action in July of 1988, the claim was not barred, as a tort or contract claim. Therefore, the lengthy discussions by both parties in their briefs characterizing the claim as tort or contract is essentially a moot point; the claim is neither barred by the three year statute for tort, nor by the six year statute for contract actions. 28 U.S.C.A. § 2415(a) (West Supp.1992).

Duty

Sudderth contends the district court erred by implying Sudderth held a legal duty; therefore, special issues for the jury regarding negligence, breach of fiduciary duty, and breach of contract were in error. He claims no duty existed because no evidence supported Sudderth's alleged knowledge of the loan, and, in addition, Sudderth no longer served as director of the bank when the loan cleared. ⁸

The director's duty to the bank has both statutory and common law origins. The Texas Banking Code of 1943 states "[p]rior to taking office each director ... shall take an oath that ... he will not violate ... the laws of the State of Texas in the conduct of the business of the bank; and that he will diligently perform his duties as director." Tex.Rev.Civ.Stat.Ann. art. 342-407 (Vernon Supp.1992) (emphasis added). ⁹ Specifically As to the common law existence of the director's duty to the bank, witness the eloquent statement of over a century ago:

                a director's duties include the obligation to "review and approve or disapprove each loan and investment made."   Tex.Rev.Civ.Stat.Ann. art. 342-409 (Vernon Supp.1992) (emphasis added)
                

Directors of banking corporations occupy one of the most important and responsible of all business relations to the general public. By accepting the position, and holding themselves out to the public as such, they assume that they will supervise and give direction to the affairs of the corporation, and impliedly contract with those who deal with it that its affairs shall be conducted with prudence and good faith. They have important duties to perform towards its creditors, customers, and stockholders, all of whom have the right to expect that these duties will be performed with diligence and fidelity, and that the capital of the corporation will thus be protected against misappropriation and diversion from the legitimate purposes of the corporation.

Seale v. Baker, 70 Tex. 283, 289, 7 S.W. 742, 744 (1888). ¹⁰

Such a duty exists, however, only if Sudderth knew or should have known about the loan. Lyman v. Bank of the United States, 53 U.S. (12 How.) 225, 243, 13 L.Ed. 965, 973 (1851); Hoye, 795 F.2d at 896; Seale, 70 Tex. at 290, 7 S.W. at 745. The record reflects Sudderth wrote the loan procedures and guidelines for Early Bank. ¹¹ The record further reveals the UT loan's express terms did not comply with those instructions. See supra note 3. He also presided over the loan committee when the loan was made. Furthermore, Sudderth wrote the FDIC inspectors in October, 1984 that "every loan (regardless of size) [must] be approved by the loan committee," with "[myself] ... attending all loan committee meetings." Additionally, the bank cashier testified that she provided daily loan information to Sudderth. These facts are sufficient for us to hold that Sudderth had a fiduciary duty when the loan was made, as a matter of law. Fuqua v. Taylor, 683 S.W.2d 735, 737 (Tex.App.--Dallas 1984, writ ref'd n.r.e.).

Breach of that duty depends on the circumstances of the case, and so becomes a question of fact. Fuqua, 683 S.W.2d at 737; Jewett v. Capitol Nat'l Bank, 618 S.W.2d 109, 112 (Tex.Civ.App.--Waco 1981, writ ref'd n.r.e.). Early Bank loaned $126,753.41 to a borrower with $10,100 worth of assets. The note plainly designates Pike's personal guarantee as sole collateral. The FDIC need only rely on this documentation; therefore, the jury could reasonably infer the UT...