F.D.I.C. v. Healey, 3:91CV00342 GLG.

• Decision Date: 15 January 1998
• Docket Number: No. 3:91CV00342 GLG.,3:91CV00342 GLG.
• Court: U.S. District Court — District of Connecticut
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Housatonic Bank & Trust Co., Plaintiff, v. Henry F. HEALEY, Jr., James F. Rogers, III, David A. Einbinder, Saturno P. Francini, John A. Frey, James Uberti, and Joel M. Young, Defendants.

991 F.Supp. 53

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Housatonic Bank & Trust Co., Plaintiff, v. Henry F. HEALEY, Jr., James F. Rogers, III, David A. Einbinder, Saturno P. Francini, John A. Frey, James Uberti, and Joel M. Young, Defendants.

No. 3:91CV00342 GLG.

United States District Court, D. Connecticut.

January 15, 1998.

Bonnie L. Amendola, Amendola & Amendola, LLC, Fairfield, CT, Harold James Pickerstein, Pepe & Hazard, LLC, Southport, CT, for Plaintiff.

Keith R. Fisher, Washington, D.C., Richard C. Robinson, Sorokin, Sorokin, Gross, Hyde & Williams, P.C., Hartford, CT, for Defendants.

OPINION

GOETTEL, District Judge.

Plaintiff, the Federal Deposit Insurance Corporation ("FDIC"), as Receiver for Housatonic Bank & Trust Company ("HBT"), has filed an objection to Magistrate Judge Smith's Recommended Ruling dated October 22, 1997, which denied the FDIC's Motion to Strike the affirmative defenses asserted by defendants David A. Einbinder and Joel M. Young ("defendants"). In reversing his earlier decision on the Motion to Strike, the Magistrate adopted the holding of this Court in FDIC v. Haines, Slip Op., No. 3:94CV0473(AVC) ___ F.Supp. ___ (Ruling on Partial Motion for Summary Judgment dated Sept. 9, 1997)(Covello, J.), which held that the defendants' state-law affirmative defenses against the FDIC as receiver, addressed to post-receivership conduct, were not barred by the federal common-law "no duty" rule or by the discretionary function exception of the Federal Tort Claims Act, 28 U.S.C. § 2680(a). In so holding, Haines specifically rejected the rationale of two recent rulings of this Court in FDIC v. Raffa, 935 F.Supp. 119 (D.Conn.1995)(Eagen, M.J., Recommended Ruling adopted by Covello, J.), and FDIC v. Collins, 920 F.Supp. 30 (D.Conn.1996)(Eagen, M.J., Recommended Ruling adopted by Daly, J.).

Pursuant to Rule 72(a), Fed.R.Civ. P., the FDIC objects to the Magistrate's Ruling and asks us to depart from the holding in Haines, and adhere to the federal common-law "no duty" rule. Because of the conflict within this district on this issue, and the lack of Second Circuit precedent, we review de novo the legal issues of whether the "no duty" rule survives recent Supreme Court decisions and whether the discretionary function exception of the Federal Tort Claims Act applies to bar the affirmative defenses raised by defendants.¹

Background

The FDIC in its receivership capacity has brought the instant suit against seven former directors and officers of HBT, a state-chartered bank, alleging that they repeatedly mismanaged HBT during the three years prior to its closing in February of 1991, despite two strong regulatory warnings. The FDIC asserts that defendants breached the duties of care due and owing to HBT by embarking on an aggressive lending program, which included the granting of large and risky loans in contravention of prudent banking principles, as well as HBT's own lending policies. The complaint sets forth four causes of action: common-law negligence; common-law gross negligence; gross negligence under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821(k); and breach of fiduciary duty. By way of affirmative defenses, defendants Einbinder and Young have asserted that the FDIC, as Receiver of HBT, is guilty of negligence in its efforts to collect and realize on the collateral that HBT had acquired from the borrowers, and that the FDIC has failed to mitigate its damages. Significantly, the affirmative defenses at issue are addressed solely to conduct of the FDIC post-receivership. The FDIC in its Motion to Strike asserts that these affirmative defenses are legally insufficient based upon the established federal "no duty" rule, which precludes defendants sued for damages allegedly caused to a federally-insured depository institution from putting the conduct of federal liquidators on trial. The FDIC further asserts that its conduct is protected by the discretionary function exception in the Federal Tort Claims Act, 28 U.S.C. § 2680(a).²

Discussion

Our analysis of whether a federal commonlaw "no duty" rule applies to post-receivership conduct of the FDIC begins with an examination of the Supreme Court's decisions in O'Melveny & Myers v. FDIC, 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994), and Atherton v. FDIC, ___ U.S. ___, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997), and their impact on the existence of federal common law. Defendants contend that, after O'Melveny and Atherton, there is no federal common law and, therefore, the federal common-law "no duty" rule cannot override state-law defenses. The FDIC disagrees and seeks to distinguish these decisions on the basis that they did not apply to post-receivership conduct of the FDIC in the discharge of its statutory duties, but rather to pre-receivership conduct of the former attorneys, officers and directors of the failed institution.

In O'Melveny, a suit by the FDIC as receiver of a federally insured savings bank, the Supreme Court addressed whether federal or state law governed the issue of whether the defendant-attorneys could impute knowledge of the bank's former officers to the bank, and thus to the FDIC as receiver. The defendant-attorneys had moved for summary judgment, arguing that under California law knowledge of the fraudulent conduct of the bank's controlling officers must be imputed to the bank, and hence to the FDIC as receiver, thereby estopping the FDIC from pursuing its claims. The FDIC argued that federal common law, not California law, determined whether the knowledge of the bank's officers would be imputed to the bank. Alternatively, the FDIC argued that, even if California law determined the first issue, federal common law applied to the more narrow question of whether the bank's knowledge could be imputed to the FDIC as receiver. The Court initially cited Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), for the proposition that "[t]here is no federal general common law," and further noted "the remote possibility that corporations may go into federal receivership is no conceivable basis for adopting a special federal common-law rule divesting States of authority over the entire law of imputation." 512 U.S. at 83. The Court then addressed the question of whether federal law would preempt state law in those instances where the FDIC is suing as receiver. The Court first analyzed this issue assuming that FIRREA would apply and then, to avoid having to resolve the retroactivity question,³ analyzed the issued assuming FIRREA did not apply.

Under the first scenario, the Court held that the FDIC as receiver "steps into the shoes" of the failed institution, "obtaining the rights `of the insured depository institution' that existed prior to receivership." Id. at 86 (emphasis added). Therefore, "any defense good against the original party is good against the receiver." Id. (internal citations and quotations omitted). The Court specifically rejected the argument that FIRREA, 12 U.S.C. § 1821(d)(2)(A)(i),<sup>4</sup> should be read as a nonexclusive grant of rights to the FDIC, which can be supplemented or modified by federal common law. Noting that FIRREA does in fact contain specific provisions that create federal rules of decision regarding claims by, and defenses against, the FDIC as receiver, the Court adhered to the principle of "inclusio unius, exclusio alterius," the inclusion of one is the exclusion of another.<sup>5</sup> Id. The Court held "[t]o create additional `federal common-law' exceptions is not to `supplement' this scheme, but to alter it." Id. at 87.

Under the second scenario, assuming FIRREA did not apply, the Court held that this was not one of the "few and restricted" cases in which the judicial creation of a special federal rule would be justified. Id. Those cases are limited to situations where "there is a significant conflict between some federal policy or interest and the use of state law." Id. at 88 (citations and internal quotations omitted). The Court held that there is "not even at stake that most generic (and lightly invoked) of alleged federal interests, the interest in uniformity. The rules of decision at issue here do not govern the primary conduct of the United States or any of its agents or contractors, but affect only the FDIC's rights and liabilities, as receiver, with respect to primary conduct on the part of private actors that has already occurred." Id. (emphasis added). The Court also rejected the argument that maximizing the FDIC's insurance fund was a sufficient justification for the creation of federal common law. Accordingly, the Court held that this was not one of those "extraordinary cases" in which the judicial creation of a federal rule of decision was warranted. Id. at 89. Thus, without resolving how the imputation issue should be decided under California law, the Supreme Court remanded the case to the Ninth Circuit.

Subsequently, in Atherton, supra, the Supreme Court revisited the issue of whether a court should look to state law, federal common law, or FIRREA, 12 U.S.C. § 1821(k),⁶ to determine the proper standard of care applicable to the conduct of officers and directors of a federally-insured bank. The Court reaffirmed that state law sets the standard of conduct, so long as the state standard (such as simple negligence) is stricter than that of the federal statute. The Court interpreted the "gross negligence" standard of FIRREA as a floor, which applies only if the state standard is more relaxed. 519 U.S. at ___, 117 S.Ct. at 669. In reaching this conclusion, the Court first considered whether, in the absence of the gross negligence standard of FIRREA, state or federal law would provide the applicable legal standard. 519 U.S. at ___, 117 S.Ct. at 670. Recognizing that it had articulated a federal, commonlaw corporate governance standard in Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662 (1891), ...