Fed. Deposit Ins. Corp. v. Dee

• Decision Date: 05 December 2016
• Docket Number: No. CIV 14–0066 JB/KBM,CIV 14–0066 JB/KBM
• Parties: FEDERAL DEPOSIT INSURANCE CORP., as Receiver for First Community Bank, Plaintiff, v. H. Patrick DEE; Paul D. DiPaola; V. William Dolan, Jr.; John E. Fanning ; Marshall G. Martin; Bobby J. Nafus; Ronald R. Sanchez and Pamela J. Smith, Defendants.
• Court: U.S. District Court — District of New Mexico

222 F.Supp.3d 972

FEDERAL DEPOSIT INSURANCE CORP., as Receiver for First Community Bank, Plaintiff,

v.H. Patrick DEE; Paul D. DiPaola; V. William Dolan, Jr.; John E. Fanning ; Marshall G. Martin; Bobby J. Nafus; Ronald R. Sanchez and Pamela J. Smith, Defendants.

No. CIV 14–0066 JB/KBM

United States District Court, D. New Mexico.

Filed December 5, 2016

Mary T. Torres, Beall & Biehler Law Firm, Albuquerque, New Mexico, and Dennis S. Klein, Hughes Hubbard, Miami, Florida, Attorneys for the Plaintiff.

Andrew G. Schultz, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, New Mexico, William Frank Carroll, Thomas B. Alleman, Aubrey Colvard Labanowski, Dykema Cox Smith, Dallas, Texas, Attorneys for Defendants H. Patrick Dee, Paul D. DiPaola, V. William Dolan, Jr., John E. Fanning, Marshall G. Martin, Ronald R. Sanchez, and Pamela J. Smith.

Phil Krehbiel, Marian B. Hand, Nicholas L. Pino, Keleher & McLeod, Albuquerque, New Mexico, Attorneys for Defendant Bobby J. Nafus.

MEMORANDUM OPINION AND ORDER¹

JAMES O. BROWNING, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on: (i) Plaintiff's Motion for Leave to Amend its Complaint in Accordance with the Court's March 3, 2015 Order, filed March 10, 2015 (Doc. 67)("Motion for Leave to Amend Complaint"); (ii) Plaintiff's Motion to Stay Deadlines in this Court's Scheduling Order, filed March 10, 2015 (Doc. 68)("Motion to Stay Deadlines"); (iii) Notice of Adoption of Previously Filed Certain Defendants' Motion to Dismiss and Defendants' Joint Response in Opposition to Plaintiff's Motion for Leave to Amend, filed March 31, 2016 (Doc. 97)("Notice of Adoption of Previously Filed Motion to Dismiss"); and (iv) Defendant Nafus's Renewed Motion to Dismiss, filed March 31, 2016 (Doc. 98)("Nafus' Renewed Motion to Dismiss"). The primary issues are whether: (i) the Plaintiff Federal Deposit Insurance Corporation's Amended Complaint, filed March 10, 2015 (Doc. 67–1)("Amended Complaint"), sufficiently alleges an injury and causation to cure deficiencies in the original Complaint, filed January 23, 2014 (Doc. 1)("Complaint"); (ii) whether a stay of discovery deadlines in this case is appropriate; and (iii) whether the Amended Complaint contains sufficient factual allegations to plead negligence, gross negligence, and breach of fiduciary duty as to all, or some, of the Defendants. The Court concludes (i) that the Amended Complaint sufficiently cures deficiencies in the original Complaint; (ii) granting a stay to the discovery deadlines would not unduly delay the case or prejudice the parties; and (iii) the Amended Complaint contains sufficient factual allegations to plead negligence, gross negligence, and breach of fiduciary duty as to all of the Defendants. Accordingly, the Court will: (i) grant the FDIC's Motion for Leave to Amend; (ii) grant the FDIC's Motion to Stay Deadlines; (iii) deny the Notice of Adoption of Previously Filed Motion to Dismiss; and (iv) deny Nafus' Renewed Motion to Dismiss.

FACTUAL BACKGROUND

This case arises out of a series of loans that First Community Bank of Taos, New Mexico, issued between January 29, 2007, and February 16, 2010. The Court takes its facts from the Amended Complaint, as it must when considering a motion to dismiss for failure to state a claim under rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court has reorganized the Complaint's allegations to explain the facts more clearly.

1. The Parties .

The FDIC is a corporation and an instrumentality of the United States of America that Congress established in the Federal Deposit Insurance Act, 12 U.S.C. §§ 1811 –35(a). See Amended Complaint ¶ 7, at 3. On January 28, 2011, the New Mexico Regulation & Licensing Department, Financial Institutions Division ("NMFID") appointed the FDIC as the Receiver² for First Community. Amended Complaint ¶ 7, at 3.

Dee was First Community's President from May 16, 2001, to January 28, 2011, and Chief Executive Officer ("CEO") from December 31, 2009, to January 28, 2011. See Amended Complaint ¶ 8, at 3. He was also a member of First Community's Board of Directors from January 9, 1992, to January 28, 2011, and a member of First Community's Credit Committee from October 17, 2005, to January 28, 2011. See Amended Complaint ¶ 8, at 3.

DiPaola was First Community's Regional President of New Mexico from 2003 to January 28, 2011. See Amended Complaint ¶ 9, at 4. DiPaola was a Board member from March 28, 1994, to January 28, 2011, and a Credit Committee member from July 25, 2005, to January 28, 2011. See Amended Complaint ¶ 9, at 4.

Dolan was a First Community loan officer from October 28, 1991, to September 16, 2009, and head of First Community's Special Assets Group from February 11, 2009, to September 16, 2009. See Amended Complaint ¶ 10, at 4. Dolan was a Board member from July 15, 1993, to August 4, 2009, and a Credit Committee member from July 25, 2005, to September 8, 2009. See Amended Complaint ¶ 10, at 4.

Fanning was First Community's Regional President for Southern New Mexico and Arizona from November 14, 2005, to October 21, 2008, and Chief Credit Officer ("CCO") from October 27, 2008, to January 28, 2011. See Amended Complaint ¶ 11, at 4. Fanning was a Board member from January 23, 2006, to January 28, 2011, and a Credit Committee member from November 15, 2005, to January 28, 2011. See Amended Complaint ¶ 11, at 4.

Martin was corporate counsel at First Community from September 17, 2003, to January 28, 2011. See Amended Complaint ¶ 12, at 4. Martin was a Board member from September 15, 2003, to August 4, 2009, an advisory director from August 5, 2009, to January 28, 2011, and a Credit Committee member from July 25, 2005, to October 20, 2009. See Amended Complaint ¶ 12, at 4.

Nafus was a senior vice president and a loan officer in First Community's "Northern New Mexico territory" from June 17, 1991, to September 11, 2009. Amended Complaint ¶ 13, at 4. Sanchez was First Community's Regional President for Northern New Mexico and Utah from 2004 to October 5, 2009. See Amended Complaint ¶ 14, at 4. Sanchez was a Board member from December 16, 1993, to September 11, 2009, and a Credit Committee member from July 25, 2005, to September 8, 2009. See Amended Complaint ¶ 14, at 4.

Smith was a loan reviewer at First Community from July 12, 2004, to October 30, 2006, CCO from October 30, 2006, to October 27, 2008, and Deputy CCO from October 27, 2008, to January 28, 2011. See Amended Complaint ¶ 15, at 4–5. Smith was a Credit Committee member from July 25, 2005, to January 28, 2011, and served as its Chairwoman from November 21, 2006, to October 21, 2008. See Amended Complaint ¶ 15, at 5.

2. Background .

In or about 2002, First Community began to expand its operations into unfamiliar markets and promote a production-driven lending culture while ignoring appropriate credit-risk management practices. See Amended Complaint ¶ 21, at 5. As a result, First Community's commercial real estate ("CRE") loan concentrations—including acquisition, development, and construction loans ("ADC")—rapidly increased "to dangerous levels." Amended Complaint ¶ 21, at 5. By 2007, those loans constituted more than seventy-four percent of First Community's loan portfolio—placing it in the upper ninetieth percentile of its peer group from 2007 to 2010. See Amended Complaint ¶ 21, at 5–6. This "reckless lending" ultimately led to a significant increase in classified assets,³ which increased sharply from thirty-two million dollars in 2006 to $538 million in 2009. Amended Complaint ¶ 23, at 6.

At all relevant times, First Community's Loan Policy ("Loan Policy") required senior management to "instill a credit culture that fosters and actively supports the extension of credit on sound, fundamental lending principles." Amended Complaint ¶ 25, at 6 (internal quotation marks omitted). The Loan Policy mandated that "[c]redit was only to be granted to reputable borrowers and only when supported by acceptable and reliable financial information." Amended Complaint ¶ 25, at 6.

For each loan, the Loan Policy required, among other things:

(a) that the loan comply in all respects with the spirit and letter of all applicable laws and regulations; (b) a loan write up that referenced the industry outlook, the borrower's position within the industry, and, if applicable, the current concentration guideline, exposure, and control limits for each credit; (c) two years (three years, as of August 11, 2009) of financial information from the borrower and all guarantors, and a current interim financial statement if the loan request occurred more than 6 months after the borrower's last fiscal year end; (d) an accountant-prepared compilation statement for loans under $3 million, a CPA–prepared financial statement for loans between $3 million and $5 million, or an audited financial statement for loans over $5 million; (e) an analysis of the adequacy and reliability of historic and anticipated cash flows; (f) financial spreads for operating companies with relationship amounts of $250,000 or more; (g) a maximum term of 2 years, or 3 years with supporting authority, for ADC loans; and a maximum term of 18 months for non-owner occupied commercial construction loans; (h) a maximum loan-to-value ratio⁴ of the lesser of 75 percent of the appraised value or 85 percent of costs (75 percent of costs, as of January 1, 2009) for ADC loans; a maximum loan-to-value ratio of the lesser of 75 percent of the appraised value or 80 percent of costs (75 percent of costs, as of January 1, 2009) for non-owner occupied commercial construction loans and non-owner occupied CRE loans; and a maximum loan-to-value of the lesser of 65 percent of the appraised value or cost for loans to acquire unimproved land; and (i) an appraisal less than a year old from an independent source for all property taken as collateral.

Amended Complaint ¶ 26, at 6–7 (internal quotation marks omitted).

3. The Kitts Development, LLC, Loans .

On or about January 29, 2007, Nafus...