Federal Deposit Ins. Corp. v. Jennings, 85-2411

• Decision Date: 29 April 1987
• Docket Number: No. 85-2411,85-2411
• Citation: 816 F.2d 1488
• Parties: , 7 Fed.R.Serv.3d 619 FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Penn Square Bank, N.A., Plaintiff-Appellee, v. Bill P. JENNINGS, et al., Defendants-Appellees, Peat, Marwick, Mitchell & Company, a partnership, Additional Party Defendant-Appellee, Kenneth L. Spears, as Trustee for First Penn Corporation, Proposed Intervenor-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1488

816 F.2d 1488

55 USLW 2667, 7 Fed.R.Serv.3d 619

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Penn Square Bank, N.A., Plaintiff-Appellee, v. Bill P. JENNINGS, et al., Defendants-Appellees Peat, Marwick, Mitchell & Company, a partnership, Additional Party Defendant-Appellee Kenneth L. Spears, as Trustee for First Penn Corporation Proposed Intervenor-Appellant.

No. 85-2411.

United States Court of Appeals Tenth Circuit.

April 29, 1987.

Ted N. Pool of Sherman, Pool, Thompson, Coldiron & Blankenship, Del City, Okl., for proposed intervenor-appellant.

David L. Bryant (Charles C. Baker and Richard B. Noulles also of Gable & Gotwals, Tulsa, Okl., with him on the briefs) for plaintiff-appellee Federal Deposit Ins. Corp.

Victor M. Earle, III (William E. Hegarty and Allen S. Joslyn, also of Cahill Gordon & Reindel, New York City, and J. William Conger of Hartzog, Conger & Cason, Oklahoma City, Okl., on the briefs) for defendant-appellee Peat, Marwick, Mitchell & Co.

Ross Arbiter, Stanley Levy and Barbara Brown of Weinberg, Zipser, Arbiter, Heller & Quinn, Los Angeles, Cal., Erwin E. Adler and Carol W. Lynch of Richards, Watson, Dreyfuss & Gershon, Los Angeles, Cal., and Gene A. Castleberry and Robert A. Weiner of Castleberry & Kivel, Oklahoma City, Okl., filed a brief for third party defendants-appellees Professional Asset Management, Inc., James C. Chafee, William Goldsmith, Susan K. Holly and Judith A. Davidson.

Before LOGAN, ANDERSON, and TACHA, Circuit Judges.

LOGAN, Circuit Judge.

In this appeal we review a district court order denying intervention of right under Fed.R.Civ.P. 24(a)(2). The case is one of many arising out of the Penn Square Bank, N.A. (Penn Square) insolvency.

In June 1984, the Federal Deposit Insurance Corporation (FDIC), as appointed receiver for Penn Square, filed suit against certain former officers and directors of Penn Square for breach of fiduciary duty. The FDIC amended its original complaint in December 1984 to join the public accounting firm of Peat, Marwick, Mitchell & Co. (Peat Marwick) as an additional party defendant. The FDIC's amended complaint charged Peat Marwick with negligence and breach of contract in connection with Peat Marwick's audit of Penn Square's 1981 financial statements.

On April 22, 1985, First Penn Corporation (First Penn), Penn Square's holding company, ¹ filed a motion to intervene in the FDIC suit. In its original and amended complaints, First Penn alleged both derivative and direct injury as a result of Peat Marwick's audit of Penn Square. ² In its derivative claims First Penn sought as a shareholder of Penn Square to recover losses, allegedly incurred as a result of the Peat Marwick audit, from uncollectible loans that Penn Square made. In its nonderivative claims First Penn sought to recover losses incurred directly by selling to and buying from Penn Square participation interests in various loans. ³

On July 30, 1985, the district court denied First Penn's motion to intervene. FDIC v. Jennings, 107 F.R.D. 50 (W.D.Okla.1985). The district court found that First Penn's interests in securing derivative damages were adequately represented by the FDIC, and that the issues involved in First Penn's nonderivative claims were "sufficiently different from those issues in the pending litigation as to warrant separate attention in a separate lawsuit," stating further that if those claims were consolidated, "the conglomeration would be unmanageable." Id. at 55. The district court subsequently denied First Penn's motions for reconsideration or a new trial, and First Penn filed a timely notice of appeal.

On July 18, 1986, while this appeal was pending but before oral argument, the FDIC settled its claims with Peat Marwick. The FDIC then filed a motion with this court to dismiss First Penn's appeal as moot. We reserved judgment on the motion for dismissal and requested supplemental briefing on the issue of mootness. At oral argument, First Penn abandoned its derivative claims against Peat Marwick. We now consider whether First Penn's appeal is mooted by the settlement between the FDIC and Peat Marwick. Then, because we hold that the appeal is not mooted, we consider whether the district court correctly denied intervention of right to First Penn.

I

The doctrine of mootness requires that "an actual controversy must be extant at all stages of review, not merely at the time the complaint is filed." Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 94 S.Ct. 1209, 1216, n. 10, 39 L.Ed.2d 505 (1974). "It necessarily follows that when pending an appeal from the judgment of a lower court, ... an event occurs which renders it impossible ... to grant [plaintiff] any effectual relief whatever, the Court will not proceed to a formal judgment but will dismiss the appeal." Mills v. Green, 159 U.S. 651, 653, 16 S.Ct. 132, 133, 40 L.Ed. 293 (1895); see also Blinder, Robinson & Co. v. SEC, 748 F.2d 1415, 1418 (10th Cir.1984) ("relief sought must be capable of addressing the alleged harm"), cert. denied, 471 U.S. 1125, 105 S.Ct. 2655, 86 L.Ed.2d 272 (1985).

Both the FDIC and Peat Marwick claim that their settlement moots First Penn's claims. With some exceptions, a settlement involving all parties and all claims moots an action. Tosco Corp. v. Hodel, 804 F.2d 590, 592 (10th Cir.1986). But if a settlement moots some issues and not others, we are not deprived of jurisdiction to consider those remaining issues. ⁴ To allow a settlement between parties to moot an extant appeal concerning intervention of right might well provide incentives for settlement that would run contrary to the interests of justice.

First Penn has abandoned its derivative claims against Peat Marwick. But nothing about the settlement resolves First Penn's nonderivative claims against Peat Marwick regarding the loan participation interests, and the court's approval of the settlement does not foreclose an effective remedy. If First Penn was entitled to intervention of right, Peat Marwick's liability on the nonderivative claims is still subject to determination at trial. Accordingly, we have jurisdiction to consider whether First Penn is entitled to intervention of right under Fed.R.Civ.P. 24(a)(2).

II

Because First Penn has abandoned its derivative claims, we do not consider whether the FDIC could adequately represent First Penn's interest with respect to those claims. Obviously, however, the FDIC would not adequately represent First Penn's interest as to the nonderivative claims. We therefore focus upon the other two requirements for intervention of right: whether First Penn "claims an interest relating to the property or transaction which is the subject of the action," and whether First Penn "is so situated that the disposition of the action may as a practical matter impair or impede [its] ability to protect that interest." Fed.R.Civ.P. 24(a)(2).

The district court found that the nature of Peat Marwick's duties to First Penn and the foreseeability of First Penn's reliance are "legally and conceptually distinct from the interests and issues asserted" in the underlying litigation. 107 F.R.D. at 54. In deciding whether a movant for intervention of right has a sufficient interest in the subject of the suit we have not required that "the movant in intervention have a direct interest in the outcome of the lawsuit," Natural Resources Defense Council, Inc. v. United States Nuclear Regulatory Commission (NRDC), 578 F.2d 1341, 1344 (10th Cir.1978) (emphasis in original), but have required rather that "the 'interest' asserted in the subject of the litigation ... be a specific legal or equitable one." Allard v. Frizzell, 536 F.2d 1332, 1333 (10th Cir.1976). See also Donaldson v. United States, 400 U.S. 517, 531, 91 S.Ct. 534, 542, 27 L.Ed.2d 580 (1971) (Rule 25(a)(2) "obviously meant ... a significantly protectable interest").

Because "courts have enjoyed little success in attempting to define precisely the type of interest necessary for intervention," Sanguine, Ltd. v. United States Department of Interior, 736 F.2d 1416, 1420 (10th Cir.1984), we look to the policy concerns underlying the interest requirement to determine whether an applicant's interest is sufficient. Id; accord Rosebud Coal Sales Co. v. Andrus, 644 F.2d 849, 850 (10th Cir.1981). "[T]he 'interest' test is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process." Nuesse v. Camp, 385 F.2d 694, 700 (D.C.Cir.1967).

First Penn's asserted interest stems from a duty that Peat Marwick allegedly owed to First Penn. First Penn claims that, had Peat Marwick given an accurate opinion regarding Penn Square's finances, First Penn would have refrained from buying and selling participation interests in certain loans. Thus, although both the FDIC and First Penn raise the issue whether Peat Marwick's audit of Penn Square was improperly and negligently performed, the district court correctly recognized that First Penn's intervention would interject new issues of Peat Marwick's "duty, forseeability and notices as to First Penn." 107 F.R.D. at 55 (emphasis added). In resolving those issues, what First Penn's directors and controlling shareholders knew or should have known about the practices of Penn Square would no doubt be litigated. These matters would be separate and distinct from the other issues in the underlying litigation between the FDIC and Peat Marwick. ⁵

Turning to the question of impairment, we have recognized that the interest and impairment requirements of Rule 24(a)(2) are intertwined. NRDC, 578 F.2d at 1345 ("the question of impairment is not separate from the question of existence of an interest"). The magnitude or extent of an intervenor's interest will be in part a function of how much "the disposition of the action may as a practical matter impair or impede [the applicant's] ability to protect that interest...." Fed.R.Civ.P. 24(a)(2)....