F.D.I.C. v. Clark

• Decision Date: 22 October 1992
• Docket Number: Nos. 89-1342,89-1343,s. 89-1342
• Citation: 978 F.2d 1541
• Parties: The FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellant and Cross-Appellee, v. Glen B. CLARK, Jr.; Hamilton, Myer, Swanson, Faatz & Clark; and Robert K. Swanson, Defendants-Appellees and Cross Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1541

978 F.2d 1541

61 USLW 2315

The FEDERAL DEPOSIT INSURANCE CORPORATION Plaintiff-Appellant and Cross-Appellee, v. Glen B. CLARK, Jr.; Hamilton, Myer, Swanson, Faatz & Clark and Robert K. Swanson, Defendants-Appellees and Cross Appellants.

Nos. 89-1342, 89-1343.

United States Court of Appeals Tenth Circuit.

Oct. 22, 1992.

Robert D. McGillicuddy, Washington, D.C. (Todd L. Vriesman, Kirkland & Ellis, and Gary Cornwell and Kent E. Hanson, Cornwell & Blakey, Denver, Colo., on the Brief), for plaintiff F.D.I.C.; John Thomas and Joan S. van Berg, F.D.I.C., Washington, D.C., of counsel.

Kenneth C. Groves, Denver, Colo. (Philip A. Rouse, Jr., and John S. Butcher, on the Brief), for defendants-appellees and cross appellants.

Before McKAY, Chief Judge, and TACHA, Circuit Judge, and BROWN, Senior District Judge. ^*

WESLEY E. BROWN, Senior District Judge.

This action was brought by the Federal Deposit Insurance Corporation against two attorneys, defendants Clark and Swanson, and their law firm, to recover damages sustained by the Aurora Bank, a Colorado state bank, which was closed on November 1, 1985, when the Colorado State Bank Commissioner determined that it was insolvent.

The losses to the bank arose from a fraudulent conspiracy, known as the "heist money scheme," which involved the purchase of stolen money through bank loans procured from the Aurora bank. The defendant attorneys were not personally involved in the fraud, but the jury found them to be liable for negligence in their capacity as attorneys for the bank.

The claims against the defendant attorneys were brought under Colorado state law for professional negligence and/or for breach of an implied warranty of professional capacity and ability.

In a bifurcated trial, the jury first found that both defendants Swanson and Clark were "negligent or at fault by breach of implied warranties," and that such "negligence or fault" was a cause of loss to the bank, and that both were acting in their authority as partners in the defendant law firm.

In addition, the jury fixed proportionate liability among defendants and others not named in the case, finding that Clark should be charged with 14% and Swanson with 5% of the damages arising from negligence.

In the second phase of the trial, the jury found that the damages sustained by the bank between October 18, 1984, and December 20, 1984, were in the total sum of $914,013.19. In accordance with the verdicts of the jury, judgment was entered against the defendant Clark in the sum of $127,961.80, against Swanson in the sum of $45,700.00, and against their firm, Hamilton, Myer, Swanson, Faatz & Clark, jointly and severally.

In this appeal, the defendant attorneys claim that the district court lacked subject matter jurisdiction, that they are not responsible for damages because their client, the Aurora Bank, by and through its dishonest agent, Nowfel, provided them with false information, that the case should never have been submitted to the jury because there was no proof that they were engaged to perform the duties alleged to have been breached, that they were not negligent and breached no duty, that they cannot be liable for representing potentially conflicting interests when their client consented to dual representation, and when there was no conflict of interest, and that the jury was erroneously instructed on causation.

The plaintiff FDIC has appealed upon a claim that the district court should not have proportioned liability, that the damage phase of the case was conducted improperly, and that the damage verdict was inconsistent and insufficient.

Jurisdiction

The initial issue for our review is defendants' claim that the district court lacked subject matter jurisdiction because at the time the complaint was filed, April 27, 1988, and at the conclusion of the liability phase of the trial, July 18, 1989, the FDIC was asserting the rights of a state bank, and therefore could not prosecute this action in federal court in its corporate capacity.

In this respect, defendants allege that since the bank's claims arise from a personal service contract, a claim not assignable under Colorado law, the assignment was invalid; and under such circumstances, the FDIC can only sue on the contract in its capacity as receiver of the state bank. In overruling defendants' motion to dismiss for absence of subject matter jurisdiction, the trial court found that the Tenth Circuit had "recently reestablished the law regarding the validity of assignments from FDIC/Receiver to FDIC Corporation," citing Federal Deposit Ins. Corp. v. Bank of Boulder, 911 F.2d 1466 (10th Cir.1990), opinion on rehearing en banc, cert. denied --- U.S. ----, 111 S.Ct. 1103, 113 L.Ed.2d 213 (1991).

Prior to August 9, 1989, when the FDIC brought a suit in its capacity as a receiver of a state bank, asserting the rights of the bank and its depositors, shareholders, or creditors, the FDIC was required to bring its action in state court. 12 U.S.C. Sec. 1819(a) (Fourth) (1982), and see Federal Deposit Ins. Corp. v. Bank of Boulder, 865 F.2d 1134, n. 1, p. 1135 (10th Cir.1988), opinion on rehearing, en banc, Federal Deposit Ins. Corp., v. Bank of Boulder, supra. ¹

Title 12 U.S.C. Sec. 1819(a) (Fourth) (1988) grants FDIC the power:

To sue and be sued, complain and defend, in any court of law or equity, State or Federal. All suits of a civil nature at common law or in equity to which the Corporation shall be a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction thereof ... (emphasis supplied).

There is an exception to this broad grant of federal jurisdiction in FDIC cases, in that "any suit to which the Corporation is a party in its capacity as receiver of a State bank and which involves only the rights or obligations of depositors, creditors, stockholders and such State bank, under State law shall not be deemed to arise under the laws of the United States." (Emphasis supplied). 12 U.S.C. Section 1819(a) (Fourth) (1988), and see, Bank of Boulder, supra, 911 F.2d at 1471.

Defendants' argument is that upon appointment as receiver by the Colorado State Bank Commissioner, the FDIC acquired no greater rights than possessed by the bank, and since the bank could not "sell and assign" an attorney malpractice suit, neither could its receiver.

In view of the Tenth Circuit en banc decision on rehearing in the Bank of Boulder case, supra, 911 F.2d 1466, it is clear that the district court had subject matter jurisdiction under 12 U.S.C. Section 1819(a) (Fourth). There, the FDIC, which was appointed as receiver of the bank by the Colorado State Bank Commissioner, sold "acceptable" assets to another bank; and, in its corporate capacity, purchased one of the "unacceptable" assets, a letter of credit issued by the Bank of Boulder. When the FDIC, in its corporate capacity, attempted to draw on the letter, the new owner of the bank refused to honor the drafts, and the FDIC filed an action in federal court to enforce the letter of credit. It appeared that under Colorado law, the letter of credit was not transferable. The district court found that the FDIC could not acquire or enforce the letter in federal court but would have to bring suit on the letter in state court in its capacity as receiver.

The only issue presented on appeal in the Bank of Boulder case was whether the FDIC/Corporation could purchase a letter of credit from the FDIC/Receiver, notwithstanding the fact that the letter was not transferable under state law. In finding that the federal court had jurisdiction of the case, and holding that federal law preempted Colorado law which prohibited the assignment of letters of credit, our circuit reviewed the alternatives that the FDIC/Receiver have when a state agency finds an insured bank to be insolvent. These alternatives include a straight liquidation of the bank in which the FDIC sells the assets of the failed bank and pays off the depositors from the proceeds, making up any shortfall from the insurance fund. In an alternative "Purchase and Assumption" plan, which is the situation of the Aurora Bank, three parties are involved--the FDIC as "Receiver," the purchasing bank, and the FDIC as insurer. "When a state bank fails and FDIC is tendered the appointment as receiver, it is statutorily obligated to accept the appointment ... Thus, FDIC cannot avoid acting in two capacities in a P & A transaction." 911 F.2d at 1470. ²

In a P & A transaction, the assuming bank buys the assets of the failed bank that are of the highest banking quality. The assuming bank also assumes the deposit liabilities of the failed bank. As a result, the amount of deposit liabilities that the bank assumes is greater than the value of the assets it purchases. In order to make the purchase of the failed bank attractive to the assuming bank, FDIC/Receiver pays cash to the assuming bank in an amount sufficient to cause the assets the bank purchases to be equal to the liabilities it assumes, less some credit for the going concern value of the failed bank. The cash paid by the FDIC/Receiver to the assuming bank is paid from the FDIC/Corporation's insurance fund. In consideration for these funds, FDIC/Corporation acquires the assets of the failed bank that are not transferred to the assuming bank. FDIC/Corporation's "purchase" of the non-transferred assets is authorized by 12 U.S.C. Sec. 1823(c)(2)(A) (1988). FDIC/Receiver is authorized to offer the assets of the failed bank for sale to FDIC/Corporation by 12 U.S.C. Sec. 1823(d) (1988). Ultimately, then, FDIC/Corporation finances the P & S transaction by providing the funds with which FDIC/Receiver pays the assuming bank....

After FDIC/Corporation acquires the nontransferred assets in the P & A, it attempts to enforce and liquidate these assets to recoup its cash outlay and thereby minimize the loss to the insurance fund. In so doing,...