Fed. Deposit Ins. Corp. v. Arrillaga-Torrens
| Decision Date | 26 August 2016 |
| Docket Number | CIVIL NO. 13–1328 (PAD) |
| Citation | 212 F.Supp.3d 312 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Rafael ARRILLAGA–TORRENS, Jr., et al. Defendants. |
| Court | U.S. District Court — District of Puerto Rico |
212 F.Supp.3d 312
FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff,
v.
Rafael ARRILLAGA–TORRENS, Jr., et al. Defendants.
CIVIL NO. 13–1328 (PAD)
United States District Court, D. Puerto Rico.
Signed August 26, 2016
Clint R. Latham, Robert R. Bell, Steven L. Hoard, Mullin Hoard & Brown LLP, Amarillo, TX, Hector J. Orejuela–Davila, Tessie Leal–Garabis, Jairo A. Mellado–Villarreal, Mellado & Mellado Villareal, San Juan, PR, Linette Vega–Ortiz, Aon Risk Solutions of Puerto Rico, Inc., San Juan, PR, Steven C. Morrison, Fdic Professional Liability & Financial Crimes, Jacksonville, FL, for Plaintiff.
Antonio Moreda–Toledo, Moreda & Moreda, San Juan, PR, Charles E. Whorton, Maria Paula Aguila, PHV Alan H. Rolnick, PHV Carlos Rodriguez, PHV Jorge A. Mestre, PHV Kadian Blanson, PHV Utibe Ikpe, Rivero Mestre LLP, Miami, FL, Irma R. Valldejuli–Perez, San Juan, PR, PHV Andres Rivero, Rivero Mestre, Coral Gables, FL, Ana Maria Barton–De Cardenas, Astigarraga Davis Mullins & Grossman, PA, Miami, FL, Adrian Sanchez–Pagan, Sanchez Pagan LLC, San Juan, PR, Jaime Sifre–Rodriguez, Luis Sanchez–Betances, Rosa L. Irizarry–Millan, Sanchez–Betances, Sifre & Munoz–Noya Law Offices, PSC, San Juan, PR, Damaris Ortiz–Gonzalez, Sifre & Munoz
Noya, San Juan, PR, Eric Perez–Ochoa, Mariel Y. Haack–Pizarro, Adsuar Muniz Goyco Seda & Perez Ochoa PSC, San Juan, PR, Jack A. Wilson, Jessica Lovejoy, Marc V. Ayala, Robin A. Henry, Boies, Schiller & Flexner LLP, Armonk, NY, Alejandro H. Mercado–Martinez, San Juan, PR, David Andrew Shedd, Michael Robert Goodstein, Bailey Cavalieri LLC, Columbus, OH, Francisco E. Colon–Ramirez, Colon & Colon PSC, San Juan, PR, Leslie S. Ahari, PHV John R. Gerstein, Stacey E. Rufe, Clyde & Co., Washington, DC, Harold D. Vicente–Colon, Vicente & Cuebas, San Juan, PR, for Defendants.
OPINION AND ORDER
Delgado–Hernández, District Judge.
The Federal Deposit and Insurance Corporation ("FDIC") as receiver of Eurobank, initiated this action against Eurobank's former Directors, related spouses and conjugal partnerships to recover approximately $55 Million in losses that it attributes to the Directors' gross negligence in approving twelve "obviously risky and deficiently underwritten" unpaid loans, "which they knew or should have known were extremely unlikely to be paid back" (Docket No. 1 at ¶ 81). As part of the same action, it sued Liberty Mutual Insurance Company, ACE Insurance Company, and XL Insurance Company, maintaining the insurers issued policies providing for coverage for the claims asserted against the Directors. Id. at ¶¶ 14, 15, 16.
Defendants answered the complaint denying liability (Docket Nos. 29, 31, 45, 48, and 200). Liberty cross claimed against the Directors, and counterclaimed against the FDIC (Docket No. 29 at pp. 22–49). Discovery followed (Docket No. 104). In the meantime, the parties filed various motions seeking judgment on the pleadings or summary judgment, all of which have been opposed, and with respect to most of which the parties have replied and surreplied. The motions address (1) different aspects of FDIC's gross negligence claim and corresponding affirmative defenses (Category I); and (2) insurance coverage (Category II). Motions to strike were filed under both categories. All relevant issues have been exhaustively briefed. The motions under Category I awaiting disposition are:
1. The FDIC's "Motion of the Federal Deposit Insurance Corporation to Strike Certain Defenses Raised by the Director Defendants" (Docket No. 54), which the Directors except Arrillaga opposed (Docket No. 67). The FDIC replied (Docket No. 69), and the Directors surreplied (Docket No. 77–1). Later, Arrillaga opposed the FDIC–R's motion (Docket No. 78), and the FDIC replied (Docket No. 80).
2. The FDIC's "Motion for Partial Summary Judgment" (Docket No. 364), which Rafael Arrillaga opposed (Docket No. 419). The FDIC replied (Docket No. 455), and Arrillaga surreplied (Docket No. 485).
3. Rafael Arrillaga's "Motion for Summary Judgment relating to the Statute of Limitations and Causation" (Docket No. 378), which the FDIC opposed (Docket No. 413). Arrillaga replied (Docket No. 438), and the FDIC surreplied (Docket No. 478).
4. Arrillaga's "Motion for Partial Summary Judgment as to the Jocar Loan" (Docket No. 367), which the FDIC opposed (Docket No. 397). Arrillaga replied (Docket No. 441), and the FDIC surreplied (Docket No. 486).
5. Arrillaga's "Motion for Partial Summary Judgment based on the FDIC's Admissions and Representations
as to the Acor, Marat, and City Walk Loans" (Docket No. 369), which the FDIC opposed (Docket No. 406). Arrillaga replied (Docket No. 443). The FDIC surreplied (Docket No. 477).
6. The FDIC's "Motion to Preclude Rafael Arrillaga–Torréns from using Certain Affidavits obtained in Lieu of Depositions" (Docket No. 354), which Arrillaga opposed (Docket No. 360), the FDIC replied (Docket No. 383) and Arrillaga submitted a surreply (Docket No. 387).
In the same way, the following motions correspond to Category II:
1. "Liberty Mutual Insurance Company's Motion for Judgment on the Pleadings" (Docket No. 73), which the FDIC–R and the Directors opposed (Docket Nos. 88 and 92, respectively). Arrillaga joined both responses (Docket No. 95). Liberty Mutual replied (Docket No. 102), and the FDIC and the Directors surreplied (Docket Nos. 117 and 119, respectively).
2. The FDIC's "Motion for Partial Summary Judgment against Liberty Mutual Insurance Company and ACE Insurance Company" (Docket No. 358). ACE and Liberty opposed (Docket No. 427).
3. "XL Specialty Insurance Company's Motion for Partial Summary Judgment" (Docket No. 365), which the FDIC opposed (Docket No. 399). XL replied (Docket No. 447), and the FDIC surreplied (Docket No. 476).
4. In addition, the FDIC filed "Federal Deposit Insurance Corporation as Receiver for Eurobank's Opposition to Liberty Mutual Insurance Company and ACE Insurance Company's Motion for Summary Judgment" (Docket No. 404), and the Directors a "Director Defendants' Response in Opposition to Liberty–ACE's Joint Motion for Summary Judgment (Docket No. 410). In response, Liberty and ACE filed "Liberty Mutual Insurance Company and ACE Insurance Company's Joint Reply to FDIC–R's and the Director Defendants' Responses in Opposition to the Insurers' Motion for Summary Judgment (Docket No. 457), to which the FDIC surreplied (Docket No. 482).
5. "Liberty Mutual Insurance Company and ACE Insurance Company's Joint Motion to Strike" [the FDIC–R's Sur-reply at Docket No. 482] (Docket No. 487), which the FDIC opposed (Docket No. 490).
Careful evaluation of these motions leads the court to conclude that the action cannot be dismissed at this stage on timeliness grounds; some of the affirmative defenses are not amenable to resolution through summary judgment; there are grounds to conclude that Liberty's and ACE's policies are ambiguous; and that XL's policy should be considered an excess policy. The sworn statements under penalty of perjury procured—but not disclosed—will not be excluded, but must be produced for an in camera inspection. To facilitate review, the materials have been organized under the following topics:
I. BACKGROUND...327
II. STANDARD OF REVIEW ...329
III. DISCUSSION...329
A. Timeliness...337
B. Loans...337
1. Acor/Marat Loans...337
a. Acor Loan...337
b. Marat Loan...337
c. Contentions...338
2. Jocar Loan...340
C. FDIC's Role....343
a. Comparative Negligence/Mitigation ...345
b. Tortfeasors...346
c. Genesis/Functions...346
d. O'Melveny...347
e. FTCA...349
f. Setoff...349
g. Dividing Line...351
D. Great Recession...353
E. Articles of Incorporation...355
F. Insurers...356
1. Background...356
2. Legal Standard...357
3. Analysis...357
a. Insured v. Insured Exclusion...357
b. Professional Services Exclusion...362
c. Disposition...364
d. Excess Coverage...364
G. Third–Party Affidavits/Depositions...367
IV. CONCLUSION...370
I. BACKGROUND
Eurobank was established in 1980 as an uninsured trust company named Española de Finanzas Trust Company (Docket No. 1 at ¶ 20). It became an FDIC-insured state nonmember bank in 1987, assuming its current name in 1993. Id. In 2001, it became a wholly-owned subsidiary of EuroBancshares, Inc., a one-bank holding company. Id.
According to the FDIC, in the early to mid–2000s, Eurobank began aggressively growing its commercial real estate ("CRE") portfolio, including acquisition, development, and construction ("ADC") loans, despite recognition that these loans carried a higher risk for the bank. From June 30, 2005 to June 30, 2009, the ADC portfolio grew by 240%, over six times the growth rate of its peer group for the same period. Id. at ¶ 21.
The growth of the CRE and ADC portfolios was largely responsible for the bank's assets growing from $1.3 Million as of December 31, 2003, to $2.9 Billion by December 31, 2008. Id. Yet from 2004 to 2007, the bank's income had plummeted 80%, with charge-offs increasing 250%. Id. at ¶ 28. From 2005 to 2008, various reports mentioned...
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