Federal Deposit Ins. Corp. v. Swager

• Citation: 773 F. Supp. 1244
• Decision Date: 19 September 1991
• Docket Number: Civ. No. 3-91-283.
• Parties: The FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Oak Park Bank, formerly known as Oak Park Heights State Bank, Plaintiff, v. Norvin L. SWAGER, Norris M. SWAGER, Daniel R. Mortenson, Leonard E. Lindquist, David C. Lindquist, Walter L. Bush, Jr., Maria Nolte Field, David A. Brooks, Abraham C. Abbariao, Albert J. Hofstede and Robert H. Paradise, Defendants.
• Court: United States District Courts. 8th Circuit. United States District Court of Minnesota

773 F. Supp. 1244

The FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Oak Park Bank, formerly known as Oak Park Heights State Bank, Plaintiff, v. Norvin L. SWAGER, Norris M. SWAGER, Daniel R. Mortenson, Leonard E. Lindquist, David C. Lindquist, Walter L. Bush, Jr., Maria Nolte Field, David A. Brooks, Abraham C. Abbariao, Albert J. Hofstede and Robert H. Paradise, Defendants.

Civ. No. 3-91-283.

United States District Court, D. Minnesota, Third Division.

September 19, 1991.

Wayne G. Popham and Katherine C. Bloomquist, Popham, Haik, Snobrich & Kaufman, Minneapolis, Minn., and Jeffrey A. Hassan and James H. Clark, Hassan & Reed, Golden Valley, Minn., for plaintiff Federal Deposit Ins. Corp.

Louis W. Brenner and Michael J. Orme, Brenner Law Firm, Minneapolis, Minn., for defendant Abraham C. Abbariao.

Timothy D. Kelly and Andrea L. Sahlin, Kelly & Berens, Minneapolis, Minn., for defendant Walter L. Bush, Jr.

Samuel L. Hanson, Richard G. Mark, Janel E. LaBoda and Brian W. Parker, Briggs and Morgan, Minneapolis, Minn., for defendants Leonard E. Lindquist and David C. Lindquist.

John A. Cotter and Alan L. Kildow, Larkin, Hoffman, Daly & Lindgren, Minneapolis, Minn., for defendants Norris M. Swager and Norvin L. Swager.

MEMORANDUM OPINION AND ORDER

DEVITT, District Judge.

Introduction

Plaintiff Federal Deposit Insurance Corporation (FDIC) commenced this action in its capacity as receiver of the Oak Park Bank of Stillwater, Minnesota against former directors of the bank seeking to recover $2.4 million in damages allegedly caused by defendants' mismanagement. The FDIC's complaint contains breach of fiduciary duty (count I), gross negligence in the performance of duties (count II), and unjust enrichment (count III) claims.

The cause is before the court upon various motions brought by several defendants. Defendants Norvin L. Swager, Norris M. Swager, Leonard E. Lindquist, David C. Lindquist, Walter L. Bush, and Abraham C. Abbariao move the court to dismiss counts I and III of the complaint contending that 12 U.S.C. § 1821(k) (§ 1821(k)) preempts breach of fiduciary duty and unjust enrichment claims brought under Minnesota law. Subsequent to the filing of defendant's motions, the FDIC consented to withdraw count III.¹ Thus, the court only need consider whether § 1821(k) preempts count I. The same defendants move to dismiss count II contending that the facts set forth in the complaint fail to state a claim of gross negligence under Minnesota law. Finally, several defendants move for a more definite statement and defendant Leonard E. Lindquist challenges the service of process. The court heard oral argument upon defendants' motions Monday, September 16, 1991.

For the reasons set forth below, the court will grant defendants' motions to dismiss count I of the complaint. The court will deny defendants' motions to dismiss count II and for a more definite statement. Finally, the court will deny defendant Leonard E. Lindquist's motion to dismiss for defective service of process and/or defective process.

Background

Minnesota's commerce commissioner closed the Oak Park Bank in late April, 1988 after determining the bank was insolvent and unable to meet the withdrawal demands of its depositors. Subsequently, the commissioner appointed the FDIC as sole receiver. In this capacity the FDIC became responsible for liquidating the bank's assets. The FDIC maintains that defendants caused the bank's downfall by disregarding insider loan abuse, mismanagement, and the massive misappropriation of funds by bank officers. The FDIC further contends that defendants failed to institute appropriate corrective measures.

Discussion

A.

The court first analyzes whether § 1821(k) of the Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) preempts count I of the complaint. As noted earlier, count I states a claim for breach of fiduciary duty under Minnesota law. Section 1821(k) provides:

A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by, on behalf of, or at the request or direction of the Corporation, which action is prosecuted wholly or partially for the benefit of the Corporation —

(1) acting as conservator or receiver of such institution,

(2) acting based upon a suit, claim, or cause of action purchased from, assigned by, or otherwise conveyed by such receiver or conservator, or

(3) acting based upon a suit, claim, or cause of action purchased from, assigned by, or otherwise conveyed in whole or in part by an insured depository institution or its affiliate in connection with the assistance provided under section 1823 of this title,

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).

Defendants argue that § 1821(k) permits the FDIC to file civil actions against directors and officers of institutions for damages only if the conduct alleged by the FDIC meets or exceeds the "gross negligence" standard. According to defendants, the statute preempts actions based upon state law targeting less culpable conduct (e.g. simple negligence). Thus, defendants maintain that the FDIC may not sue for a breach of fiduciary duty because, under Minnesota law, a party may establish a prima facie case of breach of fiduciary duty without a showing of gross negligence.

The FDIC maintains in response that the plain language and legislative history of § 1821(k) indicate a Congressional intent to preempt only those state laws which shield bank directors and officers from liability for grossly negligent acts or other more blameworthy conduct. The FDIC interprets the final sentence of § 1821(k) to authorize simple negligence actions and other claims against bank directors and officers which may not rise to the level of gross negligence but which have, to this day, been available under state law.

Our Eighth Circuit Court of Appeals has yet to delimit the preemptive breadth of § 1821(k). In analyzing whether the section preempts the FDIC's cause of action for breach of fiduciary duty in this case, the court is mindful of "`the elementary canon of construction that a statute should be interpreted so as not to render one part inoperative.'" Mountain States Telephone and Telegraph Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249, 105 S.Ct. 2587, 2594, 86 L.Ed.2d 168 (1985). "The starting point for interpretation of a statute `is the language of the statute itself. Absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive.'" Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, ___, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990).

The parties agree that § 1821(k) authorizes the FDIC to sue bank directors where (1) the bank directors' conduct has caused the bank to suffer monetary damage, and (2) the damaging conduct satisfies the definition of "gross negligence" (as the term is defined according to applicable state law) or amounts to a more grievous transgression such as intentional tortious conduct. It seems clear that section 1821(k) preempts state law to the extent state law proscribes such actions. The court agrees with the parties' interpretation of the "plain language" of the statute to this point.

The FDIC and defendants part ways, however, with respect to the import of the final sentence of § 1821(k). Specifically, the parties disagree over the precise meaning of the language "other applicable law" contained within the final sentence. This language appears susceptible to two diametric interpretations. First, "other applicable law" could mean applicable law other than state law (i.e. federal law). Thus, § 1821(k) would not affect rights which the FDIC enjoys under other applicable federal law but would impair the FDIC's rights under formerly applicable state law. Under this construction, § 1821(k) authorizes the FDIC to prosecute claims against directors and officers only for gross negligence or worse. Second, "other applicable law" could mean applicable law other than state law regarding gross negligence or a greater dereliction of a duty of care. Under this construction, § 1821(k) preempts only those state laws shielding directors from liability for gross negligence or worse.

Two published decisions of which the court is aware adopt the first position. In Gaff v. Federal Deposit Insurance Corp., 919 F.2d 384 (6th Cir.1990), the court of appeals determined, albeit without extended discussion, that § 1821(k) "nationalized the law of directors' and officers' liability when banks are taken over by the FDIC." Id. at 391. The court stated: "Congress has clearly indicated that the liability of officers and directors of a bank are sic determined under federal law." Id. The FDIC characterizes the court of appeals' discussion concerning § 1821(k) as dicta. However, the court's conclusion respecting § 1821(k) contributed meaningfully to the disposition of the issues before it and, therefore, may not be dismissed as mere verbosity.

In Federal Deposit Insurance Corp. v. Canfield, et al., 763 F.Supp. 533 (D.Utah 1991), the district court concluded that "other applicable law" means other sections of FIRREA. Id. at 537. First, the court found significant that other provisions within FIRREA, including § 1821(k), refer specifically to "state law" when such reference is intended. Id. at 536. Second, the court recognized that, if adopted, the FDIC's interpretation of § 1821(k) would broaden the FDIC's enforcement powers. Id. at 537. The court reasoned that § 1821(k) was not intended to broaden the FDIC's powers, but to impair them:

the last sentence provides, "nothing in

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