FDIC v. Gonzalez-Gorrondona

• Decision Date: 19 March 1993
• Docket Number: No. 91-2791-CIV.,91-2791-CIV.
• Citation: 833 F. Supp. 1545
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. Jose Joaquin GONZALEZ-GORRONDONA, Jr., a/k/a Jose Joaquin Gonzalez Gorrondona Centeno, a/k/a Jose Joaquin Gonzalez Centeno, George L. Childs, Jr., John E. Davis, Jr., Leland D. O'Connell, Andrew F. Toxey, A.E. "Bo" Raney, Robert L. Shevin, Reuben M. Schneider, Clarke Walden, Thaddeus R. Chamberlain, and Juan David Morgan, Defendants.
• Court: U.S. District Court — Southern District of Florida

833 F. Supp. 1545

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. Jose Joaquin GONZALEZ-GORRONDONA, Jr., a/k/a Jose Joaquin Gonzalez Gorrondona Centeno, a/k/a Jose Joaquin Gonzalez Centeno, George L. Childs, Jr., John E. Davis, Jr., Leland D. O'Connell, Andrew F. Toxey, A.E. "Bo" Raney, Robert L. Shevin, Reuben M. Schneider, Clarke Walden, Thaddeus R. Chamberlain, and Juan David Morgan, Defendants.

No. 91-2791-CIV.

United States District Court, S.D. Florida.

March 19, 1993.

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Jon Zeder, Adorno & Zeder, Frank R. Rodriguez, Diane D. Ferraro, Paulino A. Nunez, Jr., Friedman, Rodriguez & Ferraro, Miami, FL, for plaintiff F.D.I.C.

Bruce W. Greer, Joseph A. Demaria, Greer, Homer & Bonner, Miami, FL, for defendants Jose Joaquin Gonzalez-Gorrondona, Jr., and George Childs, and intervenor-defendant Caribank Corp.

Robert G. Hewitt, Harper & Hewitt, Miami, FL, for defendant Clark Walden.

Jonathan Goodman, Richey, Munroe & Rodriguez, Miami, FL, for defendant Robert L. Shevin.

Gerald B. Wald, Murai, Wald, Biondo, Moreno & Mendoza, Miami, FL, for defendant Thaddeus R. Chamberlain.

Maurice M. Garcia, Abrams, Anton, Robbins, Resnick & Schneider, Hollywood, FL, for defendant Reuben M. Schneider.

Joseph A. Hubert, Hubert & Tompkins, Ft. Lauderdale, FL, for defendants John E. Davis, Jr., Leland D. O'Connell and Andrew F. Toxey.

Thomas H. Seymour, Deborah A. Sampieri, Kenny Nachwalter Seymour Arnold & Critchlow, Miami, FL, for defendant Juan David Morgan.

ORDER ON MOTIONS TO DISMISS AND MEMORANDUM OPINION

MARCUS, District Judge.

THIS CAUSE comes before the Court upon motions of defendants, Jose Joaquin Gonzalez-Gorrondona, Jr., Juan David Morgan, George L. Childs, Jr., Thaddeus R. Chamberlain, Reuben M. Schneider, Robert L. Shevin and A.E. Raney, former directors and officers of Caribank, a failed state-chartered and federally insured savings and loan association, to dismiss several counts of the Verified Complaint filed by the FDIC for failure to state a claim upon which relief can be granted.¹ Defendants move to dismiss Count I (negligence), Count II (breach of fiduciary duty), Count III (breach of contract), and Count VII (restitution). In addition, Defendants seek dismissal for vagueness or in the alternative move for a more definite statement under Fed.R.Civ.P. 12(e). For the reasons detailed at some length below, we DENY Defendants' motion to dismiss Count I, GRANT the motions to dismiss Count II WITHOUT PREJUDICE, GRANT Defendants' motions to dismiss Count III, and GRANT George L. Childs, Jr.'s motion to dismiss Count VII. We also DENY the Rule 12(e) motion.

I. Count I — Negligence

Count I of the Verified Complaint alleges that the defendants "failed, neglected and refused to discharge properly their duties as directors and officers of the Bank, and negligently failed, neglected and refused to exercise that degree of care, skill, diligence, and good faith, and obedience to law which persons similarly situated would have exercised," and that "as a direct and proximate result of defendant's negligence, bad faith and mismanagement, the Bank incurred substantial losses and impairment of its assets." See Verified Complaint at ¶¶ 60, 61.

Directors and officers of a corporation, as corporate fiduciaries, owe a duty to use "due care" in conducting the affairs of the corporation. See Hanson Trust PLC v. SCM Acquisition, Inc., 781 F.2d 264, 273-74 (2d Cir.1986). "Due care" is the type of care that an ordinary prudent person in a like position would exercise under similar circumstances. In order to define what constitutes the type of care required of a corporate director or officer, the law has devised the concept of varying "degrees of negligence" corresponding to the requisite "degrees of care." See W. Page Keeton et al., Prosser and Keeton on Torts 209 (5th ed. 1984). A claim sounding in simple negligence alleges a violation of "ordinary care." Ordinary care requires directors and officers to exercise customary diligence, intelligence, and judgment in managing corporate business. See 3A Fletcher's Cyclopedia Corporations § 1035. A claim sounding in "gross negligence" asserts the lack of even slight care. See, e.g., Leite v. City of Providence, 463 F.Supp. 585, 591 (D.R.I.1978) (distinguishing ordinary and gross negligence in that "one requires only a showing of unreasonableness while the other demands evidence of near recklessness or shockingly unjustified and unreasonable action").

Gross negligence has been described as a failure to exercise even that care which a careless person would use. Several courts, however, dissatisfied with a term so nebulous, and struggling to assign some more or less definite point of reference to it, have construed gross negligence as requiring willful, wanton, or reckless misconduct, or such utter lack of care as will be evidence thereof — sometimes on the ground that this must necessarily have been the intent of the legislature.

Prosser, supra at 212 (footnotes omitted). See generally Smith v. Van Gorkom, 488 A.2d 858 (Del.1985) (finding directors "grossly negligent in approving the `sale' of the Company upon two hours' consideration, without prior notice, and without exigency of a crisis or an emergency").

Also pursuant to their fiduciary relationship to the corporation, directors and officers owe a duty of loyalty (itself often called the "fiduciary duty" as opposed to the "duty of care"). The duty of loyalty is distinct from but closely intertwined with the duty to exercise due care, and can best be distinguished as the duty to avoid fraud, bad faith, usurpation of corporate opportunities and self-dealing. See, e.g., Hanson Trust, 781 F.2d at 274; Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545 (1928) (Cardozo, J.).

First, Defendants argue that to the extent that the FDIC's complaint alleges any claims sounding in simple negligence, those claims must be dismissed. Their argument is that Section 211(k) of the Federal Deposit Insurance Act, added by section 212(A) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (August 9, 1989) (codified at 12 U.S.C. § 1821(k)), enacts a heightened nationwide standard of liability for directors and officers of federally insured banks, such that any claims which allege a dereliction of duty less than gross negligence are insufficient as a matter of law. In particular, Defendants argue that § 1823(k) permits such suits against directors and officers of federally insured banks only for gross negligence, recklessness, or intentional torts, and thereby displaces any federal common law and pre-empts any state common or statutory law to the contrary. Defendants thus ask this Court to dismiss those portions of the complaint which state claims sounding in simple negligence, and to require the FDIC to bear the greater burden at trial of proving gross negligence on the part of the Defendants.

Plaintiff counters that § 1823(k) of FIRREA permits liability for lesser wrongful conduct, such as ordinary negligence. Claims for ordinary (simple) negligence and breach of fiduciary duty, the FDIC contends, exist under the federal common law. Further, Plaintiff argues, by virtue of the Supremacy Clause, the federal common law supersedes any state law providing for more relaxed standards where the two conflict.

Resolution of these arguments rests on our construction of § 1821(k) of FIRREA. That provision reads in pertinent part:

A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by the FDIC for gross negligence, including any similar conduct or conduct that demonstrates a greater disregard of a duty of care (than gross negligence) including intentional tortious conduct, as such terms are defined and determined under applicable State law. Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law.

12 U.S.C. § 1821(k) (1989). We decline to read this statute as erecting a national standard of gross negligence. Instead, we hold that § 1821(k) of FIRREA displaces any conflicting pre-existing federal common law and pre-empts state statutory or judge-made law only to the extent that such state law protects bank directors and officers against claims alleging gross negligence, recklessness or intentional torts committed against the corporation.

At the outset, we observe the stated purposes of the statute:

To strengthen the enforcement powers of Federal regulators of depository institutions and to strengthen the civil sanctions and criminal penalties for defrauding or otherwise damaging depository institutions and their depositors.

P.L. 101-73, § 101(9) and (10). See also H.R.Rep. No. 101-54(I), reprinted in, 1989 U.S.C.C.A.N. 86, 107 (1989). Defendants argue that the first sentence of this section establishes a national standard of gross negligence, and in doing so, totally preempts state law and displaces federal common law. In response, the FDIC points to the "savings clause." The FDIC maintains that "other applicable law" governing director and officer liability, although silent as to whether it refers to federal or state law, refers to federal common law in this case. In support of this position, the FDIC argues that federal common law provides for director and officer liability based on simple negligence, citing Briggs v. Spaulding, 141 U.S. 132, 152, 165, 11 S.Ct. 924, 931, 935, 35 L.Ed. 662 (1891) and Bowerman v. Hamner, 250 U.S. 504, 511-12, 39 S.Ct. 549, 552, 63 L.Ed. 1113 (1919). The FDIC urges further that federal common law should be applied since federally insured banks, subject to extensive federal regulation, mandate the application of a uniform body of federal law. Moreover, the FDIC argues, where state law conflicts, e.g., by prohibiting claims in simple negligence against...