FDIC v. Harrington

• Citation: 844 F. Supp. 300
• Decision Date: 18 January 1994
• Docket Number: Civ. A. No. 3:93-CV-0213-H.
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. Robert L. HARRINGTON, Jr., et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

844 F. Supp. 300

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff, v. Robert L. HARRINGTON, Jr., et al., Defendants.

Civ. A. No. 3:93-CV-0213-H.

United States District Court, N.D. Texas, Dallas Division.

January 18, 1994.

James P. Laurence, U.S. Atty., U.S. Attorney's Office, Dept. of Justice, Dallas, TX, Michael F. Hertz, U.S. Dept. of Justice, Civ. Div., Washington, DC, Kenneth Tucker, FDIC, Legal Div., Dallas, TX, Polly A. Dammann, Patricia L. Hanower, U.S. Dept. of Justice, Civ. Div., Washington, DC, for F.D.I.C.

Robert M. Cohan, Cohan Simpson Cowlishaw Aranza & Wulff, Dallas, TX, for Robert L. Harrington, Jr., Charles E. Howard, Norman McMurray, Fred R. Orr, Stephen L. Goodman, Ted Luce, David T. Roberts, Frederick Burr Cordray, Jerry R. Long, Frank L. Williams, Jr., Thomas B. Shultz, Harold E. Mahanay, Robert W. Pope, John (Bobby) Ray.

Eric Arthur Liepins, James P. Moon, Simpson Dowd & Moon, Dallas, TX, for Jimmy B. Eubank.

George Webb, pro se.

Scott Edward Kurth, Law Office of Scott E. Kurth, DeSoto, TX, for Al W. Strzinek.

Stephen J. Segal, Law Office of S.J. Segal, Dallas, TX, for Willis C. Dearing.

Edward P. Perrin, Jr., Crouch & Hallett, Dallas, TX, for Donald D. Dismore.

E.W. Switzer, pro se.

Ted Luce, pro se.

James W. Mullen, pro se.

Eugene F. Weimer, pro se.

Maureen Powers, Atty. Gen. of Texas, Finance Div., Austin, TX, for State of Tex. Atty. Gen.

Mark Xavier Mullin, Haynes & Boone, Dallas, TX, for Peggy Hunsucker.

MEMORANDUM OPINION AND ORDER

SANDERS, Chief Judge.

Before the Court is Defendants Harrington, Howard, McMurry, Orr, Goodman, Roberts, Cordray, Long, Williams, Shultz, Mahanay, Pope, and Ray's ("Thirteen Defendants") Motion to Dismiss, filed July 12, 1993; Defendant Strzinek's Motion to Dismiss, filed July 12, 1993; Defendant Hunsucker's Motion to Dismiss, filed July 12, 1993; Defendant Dismore's Motion to Dismiss, filed July 12, 1993; Defendant Mullen's Motion to Dismiss, filed July 14, 1993; Plaintiff FDIC's Response, filed September 8, 1993; Thirteen Defendants' Reply, filed October 20, 1993; Defendant Dismore's Reply, filed October 20, 1993; Defendant Hunsucker's Reply, filed October 21, 1993; Defendant Switzer's Motion to Dismiss, filed October 8, 1993; Plaintiff's Response, filed November 1, 1993; and Dan Morales, Attorney General for the State of Texas' Motion to Intervene, filed January 3, 1994.

I. BACKGROUND

Defendants are among the former officers and directors of United City Corporation ("UCC"), a bank holding company, and/or its five subsidiary banks: City National Bank of Plano; United National Bank of Plano; First National Bank of DeSoto; City National Bank of Irving; and First State Bank of McKinney. Defendants Cordray, Luce, Roberts, Muller, and Weimer were officers, as well as directors, of UCC and/or its subsidiary banks. The remaining Defendants were directors of UCC and/or its subsidiary banks. All of the five subsidiary banks, which were insured by the FDIC, had failed by September 1990. The FDIC was appointed as receiver for each of the failed banks. Plaintiff brings the present suit to recover for damages sustained by the subsidiary banks due to Defendants' alleged negligence, gross negligence, negligence per se, and breach of fiduciary duties.

II. ANALYSIS

A. Standard for Dismissal under Rule 12(b)(6)

When considering a motion to dismiss a complaint for failure to state a claim, the Court must accept all well-pleaded facts as true. Associated Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974). On the other hand, conclusory allegations and unwarranted deductions of fact are not admitted as true. See id. The Court may not look beyond the pleadings. See Mahone v. Addicks Util. Dist., 836 F.2d 921, 936 (5th Cir.1988). A Plaintiff's complaint "should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). See also Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974) ("The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.").

Dismissal for failure to state a claim is not favored by the law. Mahone, 836 F.2d at 926. However, "there are times when a court should exercise its power to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure." Id. at 927 (emphasis in original). See In re Plywood Antitrust Litig., 655 F.2d 627, 641 (5th Cir.1981) ("Despite the liberality of modern rules of pleading, a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory."), cert. dism'd, 462 U.S. 1125, 103 S.Ct. 3100, 77 L.Ed.2d 1358 (1983); Orange Nat'l Bank v. Bank of La., 382 F.2d 945, 949 (5th Cir.1967) ("Sterile allegations do not suffice to save a complaint from a motion to dismiss."); Delgado v. Federal Bureau of Prisons, 727 F.Supp. 24, 27 (D.D.C.1989) ("Even a pro se complaint must outline all of the elements of the claim.").

With these general principles in mind, the Court turns to the motions to dismiss filed by Defendants in the present case. Because the separate motions filed by Defendants offer essentially the same arguments, the Court will consider them together.¹

B. Defendants' Motions to Dismiss

1. Introduction

Defendants argue that Plaintiff's claims of negligence, negligence per se, and breach of fiduciary duty, as asserted in Counts I, III, and IV of Plaintiff's Complaint, must be dismissed because no cause of action exists under Texas law against officers and directors of financial institutions for acts of simple negligence.² Some Defendants also contend that no cause of action exists for gross negligence under Texas law against officers and directors; they seek dismissal of Plaintiff's Count II as well. All Defendants agree that, if Texas law imposes any liability on officers and directors for breaching the duty of care, Texas law applies a gross negligence standard of liability. Defendants further argue that the Texas legislature recently codified the common law gross negligence standard in House Bill 1076. Tex.Rev.Civ.Stat.Ann. art. 342-410 (West Supp.1994) ("House Bill 1076"). Finally, Defendants argue that Plaintiff's Complaint should be dismissed because it is devoid of factual allegations that give rise to liability for gross negligence.

In response to Defendants' motions, Plaintiff first argues that federal common law, rather than state law, supplies the relevant standard of liability. Plaintiff's argument necessarily assumes that federal common law regarding the liability of officers and directors was not preempted by the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). Alternatively, if Texas law applies, Plaintiff argues that Texas common law holds officers and directors liable for acts of simple negligence. Plaintiff further argues that House Bill 1076 is inapplicable to the present case, and that it is unenforceable because it violates the United States and Texas Constitutions. In reply, Defendants argue that FIRREA preempts federal common law, but not state law, claims against officers and directors. The Court will address each of these arguments in turn.

2. FIRREA Preemption of Federal Common Law

In 1989, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA").³ Section 1821(k) of FIRREA creates a federal liability standard for officers and directors of federally insured depository institutions. 12 U.S.C. § 1821(k) (1989 & Supp.1993); FDIC v. Barham, 794 F.Supp. 187, 191 (W.D.La.1991), aff'd on other grounds, 995 F.2d 600 (5th Cir.1993). By its express terms, the statute requires a showing of gross negligence or greater violations of the duty of care. 12 U.S.C. § 1821(k). However, the final clause of the provision has caused confusion about whether officers and directors may be held liable under other state and federal laws for conduct less culpable than gross negligence. The clause reads, "Nothing in this paragraph shall impair or affect any right of the FDIC under other applicable law." Id. As Defendants note, "Courts have engaged in a spirited three-way debate as to whether Section 1821(k) displaces both state and federal common law, displaces federal common law but not state law, or displaces neither state nor federal common law." Thirteen Defendants' Reply Brief, at 2. The Court first addresses Plaintiff's argument that Section 1821(k)'s final clause was intended to preserve a federal common law cause of action for simple negligence against officers and directors of failed banks. FDIC's Response, at 5.

Although the Fifth Circuit has yet to rule on this issue, other district courts within the circuit have held that the federal common law regarding officer and director liability does not survive FIRREA. See RTC v. Miramon, 1993 WL 35131 1993 LEXIS 1624 (E.D.La.1993); FDIC v. Brown, 812 F.Supp. 722 (S.D.Tex.1992); RTC v. Holmes, 1992 U.S.Dist. LEXIS 18962 (S.D.Tex.1992); Barham, 794 F.Supp. 187; FDIC v. Mijalis, 1991 WL 501602 (W.D.La.1991). To date, the Seventh Circuit is the only circuit that has ruled on the issue. It held:

Based on the plain language of 1821(k), its legislative history and the Supreme Court's decision in Milwaukee v. Illinois, 451 U.S. 304, 101 S.Ct. 1784, 68 L.Ed.2d 114 (1981) Milwaukee II, we find that Congress intended to pre-empt federal common law and establish a gross negligence standard of liability for officers and directors of failed federally chartered financial institutions.

RTC v. Gallagher, 10 F.3d 416, 424 (7th Cir.1993). For the reasons stated below, the Court is persuaded by the reasoning of the Seventh Circuit and ...