FDIC v. Mintz

• Citation: 816 F. Supp. 1541
• Decision Date: 02 March 1993
• Docket Number: No. 92-6779-CIV.,92-6779-CIV.
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund, Plaintiff, v. Loren A. MINTZ; Stanley Margulies; Jacques Francoeur and Ronald Wilson, Defendants.
• Court: U.S. District Court — Southern District of Florida

816 F. Supp. 1541

FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC Resolution Fund, Plaintiff, v. Loren A. MINTZ; Stanley Margulies; Jacques Francoeur and Ronald Wilson, Defendants.

No. 92-6779-CIV.

United States District Court, S.D. Florida.

March 2, 1993.

Robyn C. Mitchell, Adorno & Zeder, Miami, FL, Mark Miller, John Hartness, FDIC (of counsel), Atlanta, GA, for plaintiff.

Frank Walker, Stuart & Walker, Fort Lauderdale, FL, David Pollack, Strook Strook & Lavan, Miami, FL, for defendants.

Loren Mintz, pro se.

ORDER

GONZALEZ, District Judge.

THIS CAUSE has come before the Court upon the defendants' motions to dismiss complaint. The FDIC has responded to the motions in a consolidated pleading and the defendants have replied in a timely fashion. The motion is now ripe for disposition. Though the defendants have moved to dismiss in separate pleadings, the subject matter of the motions is the same and will be treated accordingly.

The FDIC filed this action against the defendants who are former officers and directors of Cypress Savings Association. The suit seeks to recover damages for breach of fiduciary duty (Count I), simple negligence (Count II), gross negligence (Count III), and breach of contract (Count IV). The defendants have moved to dismiss all counts of the complaint.

The underlying theory of the motions to dismiss Counts I, II, and IV is that the claims are based on a lesser standard than the "gross negligence" standard found in 12 U.S.C. § 1821(k). The FDIC asserts that it is entitled to sue under the federal statutory gross negligence standard, the federal common law simple negligence standard or the state common law simple negligence standard. In essence, the FDIC claims that it may sue under whatever standard is most beneficial to the FDIC. Not surprisingly, the defendants disagree. They make the simple but elegant argument that 12 U.S.C. § 1821(k) means exactly what it says—that officers and directors "may be held personally liable for monetary damages in any civil action ... for gross negligence." (emphasis added.)

The motions to dismiss require an analysis of § 1821 and the preemption effect, if any, on state law and federal common law regarding liability of corporate directors and officers. On its face, the FDIC's argument seems convoluted—they argue that § 1821 clearly preempts all state law "insulating" statutes (which afford greater protection to officers and directors) but does not preempt any state common law or statutory law which allows liability for simple negligence. In addition, notwithstanding the seemingly clear language of § 1821(k), the FDIC also argues that federal common law (arguably allowing liability for simple negligence) is not preempted. The purposes behind FIRREA must be scrutinized to determine the preemptive effect of § 1821(k).

The FDIC's response to the motions to dismiss is nothing if not thorough. The defendants perhaps put it best when their reply stated that the

FDIC has responded to defendants' short, plain motions to dismiss with a 43 page magnum opus of stupefying density and detail. FDIC cites 120 cases and a slew of other sources, including legislative history, learned treatises, and Webster's unabridged dictionary (1986 edition), and peppers its memorandum with footnotes so plentiful and so long that they would make the editors of the Harvard Law Review proud.

Indeed, the FDIC has supplied the court with seemingly every authority, including the most recent unreported cases on this issue, necessary for an informed decision. While the court will not comment on every assertion in the FDIC's response regarding FIRREA, a brief review of preemption and statutory interpretation should be helpful to this inquiry.

STATUTORY CONSTRUCTION AND PREEMPTION

The court notes from the outset that many courts have wrestled with the very proposition facing this court today. Given the unclear wording of FIRREA, it is not surprising that the decisions vary. Many and perhaps the majority of courts have found that § 1821(k) does not preempt either federal or state law. FDIC v. Black, 777 F.Supp. 919 (W.D.Okla.1991); FDIC v. McSweeney, 772 F.Supp. 1154 (S.D.Cal.1991), aff'd, 976 F.2d 532 (9th Cir.1992).¹ Other courts have held that FIRREA (specifically § 1821(k)) preempts both federal and state law on the standard of liability. FDIC v. Swager, 773 F.Supp. 1244 (D.C.Minn.1991); FDIC v. Canfield, 763 F.Supp. 533 (D.C.Utah 1991), rev'd, 967 F.2d 443 (10th Cir.1992). Some courts have ruled that the statute preempts federal common law but not state common or statutory law. FDIC v. Miller, 781 F.Supp. 1271 (N.D.Ill.1991); FDIC v. Isham, 777 F.Supp. 828 (D.Colo.1991). This "middle ground" approach was also the implicit holding of FDIC v. Canfield, 967 F.2d 443 (10th Cir.1992), which relied on state law and not federal common law in allowing the FDIC to proceed on a negligence standard.

The FDIC's response includes sections on the meaning of the word "may," the legislative history of FIRREA, the "plain meaning" of the statute, the goal of national uniformity, and "other well settled rules of statutory construction."

The Court will resist the temptation, at least as much as possible, of relying on a particular axiom of statutory interpretation to justify its decision. This is not to say that there are no helpful principles in construing a statute—the court simply notes that one can find a "principle" to mandate a particular desired result. As stated by the dissent in Canfield,

Few are so naive as to believe there exists but a single correct interpretation of any given statute. Those who are intellectually honest admit the real question is: Which "correct" interpretation will the court adopt, and why?¹ Canfield, 967 F.2d at 449.

In footnote one, the court further commented:

For nearly every canon of statutory construction, there exists an opposing canon which supports a contrary interpretation.² Id.

A review of the cases cited above reveals that Judge Brorby's dissent is well taken. A multitude of courts, relying on their chosen tenets of statutory construction, find that neither state nor federal law is preempted by § 1821(k). In this court's view, such a determination renders the "gross negligence" portion of the statute meaningless.

THE STATUTE

12 U.S.C. § 1821(k) provides 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 Corporation ... 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.

Based on the pleadings filed in this case and the disagreement in the case law on this issue, the meaning of the above statute is far from clear. The majority of courts seem to have placed great emphasis on the "savings clause" of the statute, finding that no other law (state or federal) has been preempted. While such an interpretation is supportable, that result may be attributed to losing "sight of the forest but for a single tree." (Canfield, 967 F.2d at 449).

FEDERAL COMMON LAW

The FDIC asserts that the federal common law standard of liability is simple negligence. FDIC v. Berry, 659 F.Supp. 1475 (E.D.Tenn.1987). Further, the FDIC maintains that it may bring suits against officers and directors under the federal common law, notwithstanding the clear language of "gross negligence" found in the statute. This court disagrees.

The FDIC argues that § 1821(k) should be read to harmonize all of its parts because statutes should be construed to avoid inconsistencies among its parts. Louisiana Public Service Commission v. FCC, 476 U.S. 355, 370, 106 S.Ct. 1890, 1895, 90 L.Ed.2d 369 (1986). The FDIC's construction, however, not only makes the various parts of the statute inconsistent, it renders meaningless the gross negligence standard set out in the statute by Congress.

The court finds that the federal common law standard of simple negligence is preempted by § 1821(k). While conceding that reasonable minds may differ as to the construction of the statute, the finding that federal common law is preempted is required. A reading of the savings clause to include federal common law makes the rest of the statute a nullity. Why would Congress need to pass § 1821(k) if the FDIC already had the ability to defeat state laws with the federal common law of simple negligence? If Congress intended for the federal standard to be the common law simple negligence threshold, then such could have been codified. Instead, Congress chose to enact the gross negligence threshold as the federal standard.

The above finding is supported by City of Milwaukee v. Illinois and Michigan, 451 U.S. 304, 316, 101 S.Ct. 1784, 1792, 68 L.Ed.2d 114 (1981). The analysis of whether a statute preempts an issue previously covered by federal common law is different than the preemption inquiry when state law is involved. Id. The requirement of Congress' "clear and manifest purpose" to preempt is not necessary, and the inquiry begins with the assumption that "it is for Congress, not federal courts, to articulate the appropriate standards to be applied as a matter of federal law." City of Milwaukee, 451 U.S. at 317, 101 S.Ct. at 1792. Here, Congress has clearly set a standard of gross negligence or above. Accordingly, the court finds that federal common law is preempted and is not included in the "other applicable law" language found in the savings clause. Any other interpretation of the savings clause eviscerates the "gross negligence" standard completely. The court refuses to interpret the savings clause in a way which destroys the meaning of the rest of the statute. FDIC v. Miller, 781 F.Supp....