Federal Deposit Ins. Corp. v. Jennings

• Decision Date: 15 August 1985
• Docket Number: No. CIV-84-1612-W.,CIV-84-1612-W.
• Court: U.S. District Court — Western District of Oklahoma
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Penn Square Bank, N.A., Plaintiff, v. Bill P. JENNINGS; Eldon L. Beller; William G. Patterson; John R. Preston; Carl W. Swan; and C.F. Kimberling, Sr., Defendants, and Peat Marwick Mitchell & Co., a partnership, Additional Party-Defendant.

615 F. Supp. 465

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Penn Square Bank, N.A., Plaintiff, v. Bill P. JENNINGS; Eldon L. Beller; William G. Patterson; John R. Preston; Carl W. Swan; and C.F. Kimberling, Sr., Defendants and Peat Marwick Mitchell & Co., a partnership, Additional Party-Defendant.

No. CIV-84-1612-W.

United States District Court, W.D. Oklahoma.

August 15, 1985.

Richard B. Noulles, Charles C. Baker, David L. Bryant, Gable & Gotwals, Tulsa, Okl., Ted N. Pool, Sherman, Pool, Thompson & Coldiron, Del City, Okl., for plaintiff.

Charles C. Green and Robert Turner, Turner, Turner, Green & Braun, Oklahoma City, Okl., for Jennings.

Richard Talley and L. Keye Farrar, Norman, Okl., for Beller.

Burck Bailey, Warren F. Bickford, IV, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., for Patterson.

John Goodman, Oklahoma City, Okl., for Preston.

John W. Vardaman, Jr., Washington, D.C., Peter B. Bradford, Bradford, Haswell & Jones, Oklahoma City, Okl., for Swan.

John E. Green, Asst. U.S. Atty., Oklahoma City, Okl., for the U.S.

Ross Arbiter, Stanley W. Levy, Weinberg, Zipser, Arbiter & Heller, Los Angeles, Cal., Erwin E. Adler, Carol Lynch, Richards, Watson, Dreyfuss & Gershon, Los Angeles, Cal., Gene A. Castleberry, Robert A. Wiener, Oklahoma City, Okl., for Professional Asset Management, Inc.

Gary A. Bryant, G. Blaine Schwabe, III, Mock, Schwabe, Waldo, Elder, Reeves & Bryant, Oklahoma City, Okl., Larry K. Griffis, Butzell, Keidan, Simon, Myers & Graham, Detroit, Mich., for Michigan Nat. Bank, N.A.

J. William Conger, James C. Prince, Hartzog, Conger & Cason, Earl D. Mills, Mills, Whitten, Mills & Mills, Oklahoma City, Okl., Edwin D. Scott, Peat, Marwick, Mitchell & Co., New York City, William E. Hegarty, Mathias E. Mone, Dean Ringer, Cahill, Gordon & Reindel, New York City, for Peat, Marwick, Mitchell & Co.

David T. Hedges, Jr., Vinson & Elkins, Houston, Tex., James E. Work, Shirk, Work, Robinson & Williams, Oklahoma City, Okl., for Coe, Cook, Haugland, Richardson, Smelser, Kenworthy, Randolph and Ross.

James A. Kirk, Kirk & Chaney, Oklahoma City, Okl., for Stubbs.

Robert C. Margo, Oklahoma City, Okl., for Marvin K. Margo, M.D.

Harold M. Durall, Oklahoma City, Okl., for Murphy.

K. Phillip Knierim, Mark S. Simonian, Wood, Lucksinger & Epstein, Los Angeles, Cal., Joan M. Bernott, Special Litigation Counsel, Torts Branch, Civ. Div., U.S. Dept. of Justice, Washington, D.C., for James and Roe.

James W. Bill Berry, Oklahoma City, Okl., Wilmer Cutler Pickering, Washington, D.C., for Burks.

Phillip F. Horning, Horning, Johnson & Grove, Judson M. Fink, Oklahoma City, Okl., for Dunn.

ORDER

LEE R. WEST, District Judge.

Background

The Federal Deposit Insurance Corporation, as Receiver for Penn Square Bank, on behalf of the Bank's depositors and shareholders, has filed suit against the Bank's officers, directors and independent auditors. As to the auditors, Peat, Marwick, Mitchell & Co. ("Peat"), the Receiver alleged negligence, malpractice, and breach of common law duties and professional standards. Peat responded by filing a third-party action against the FDIC, in its corporate capacity, and the Office of the Comptroller of Currency ("OCC"), alleging that the Comptroller's examination and declaration of the Bank's insolvency, and the FDIC's determination to liquidate the Bank, constituted common law negligence, breach of statutory duties to depositors and creditors, and concurrent liability for any damages recovered from Peat. Presently before the Court is the motion of the United States, on behalf of OCC and FDIC as third party defendants, to dismiss Peat's counterclaim and third party action.

DISCUSSION

The Federal Tort Claims Act is a limited waiver of sovereign immunity allowing certain enumerated kinds of lawsuits to proceed against the government. 28 U.S.C. § 1346(b). The Act contains express exceptions for suits which remain barred by sovereign immunity. The exceptions include:

"(a) Any claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused;"

and

"(h) Any claim arising out of misrepresentation ..." 28 U.S.C. § 2680(a), (h).

The Act's legislative history indicates that Congress did not intend to create liability for errors by government agencies or officials in administration, policy judgments or exercise of "discretionary functions". Dalehite v. United States, 346 U.S. 15, 33-37, 73 S.Ct. 956, 966-69, 97 L.Ed. 1427 (1953); Emch v. United States, 630 F.2d 523 (7th Cir.1980). The Court finds that Peat's third-party claims fall within the "discretionary function" exceptions to the Tort Claims Act. The Court also finds that Peat's claims in Counts I and II of its third-party complaint are premised on concepts of governmental duty that case law does not recognize. Accordingly, for the reasons explained below, Peat's third party complaint is dismissed.

Liquidation and Receivership

Counts III and IV

Peat critizes the FDIC for "refusing" to arrange a purchase and assumption of Penn Square and for failing to devise other means of financially assisting the Bank and protecting its depositors. Peat alleges that the FDIC's decision to liquidate the Bank, rather than attempt to "revive" it, was a concurrent cause of the Bank's losses for which Peat is being sued. (Although Peat has targeted the FDIC as the defendant on these counts, presumably because of the Corporation's authority to arrange emergency loans and "purchase and assumption" transactions (12 U.S.C. § 1823(c), (e), the Comptroller of the Currency, who is empowered to declare a national bank insolvent and appoint a receiver (12 U.S.C. § 192, 1821(c)) seemingly would also be involved.)

It is evident that the decisions of whether and how to intervene in failing banks is discretionary with the FDIC. 12 U.S.C. § 1823 provides that:

"(c) The Corporation is authorized, in its sole discretion and upon such terms and conditions as the Board of Directors may prescribe, to make loans to, to make deposits in, to purchase the assets or securities of, to assume the liabilities of, or to make contributions to, any insured bank —

(A) if such action is taken to prevent the closing of such insured bank;

(B) if, with respect to a closed insured bank, such action is taken to restore such closed insured bank to normal operation; or

(C) if, when severe financial conditions exist which threaten the stability of a significant number of insured banks or of insured banks possessing significant financial resources, such action is taken in order to lessen the risk to the Corporation posed by such insured bank under such threat of instability.

(2)(A) In order to facilitate a merger or consolidation of an insured bank described in subparagraph (B) with an insured institution or the sale of assets of such insured bank and the assumption of such insured bank's liabilities by an insured institution, or the acquisition of the stock of such insured bank, the Corporation is authorized, in its sole discretion and upon such terms and conditions as the Board of Directors may prescribe—

(i) to purchase any such assets or assume any such liabilities;

(ii) to make loans or contributions to, or deposits in, or purchase the securities of, such insured institution or the company which controls or will acquire control of such insured institution;

(iii) to guarantee such insured institution or the company which controls or will acquire control of such insured institution against the loss by reason of such insured instution's merging or consolidating with or assuming the liabilities and purchasing the assets of such insured bank or by reason of such company acquiring control of such insured bank; or

(iv) to take any combination of the actions referred to in subparagraphs (i) through (iii)."

Similarly, the FDIC can issue cease and desist orders if, in its "opinion", the Bank is engaging in unsafe and unsound practices. 12 U.S.C. § 1818(b)(1). This determination is also a matter of agency discretion. Davis v. Federal Deposit Insurance Corporation, 369 F.Supp. 277 (D.Colo.1974).

Just as the Comptroller and FDIC have been attacked for not giving adequate assistance to some banks, they have been critized for giving too much to others. In the Franklin National Bank situation, "rescue attempts" through emergency reserve infusions and merger efforts were unsuccessful. Appellants in Huntington Towers Ltd. v. Franklin National Bank, 559 F.2d 863 (2d Cir.1977), argued that the Comptroller's rescue attempts were "in effect throwing good money after bad (and) should not have been made," but the Second Circuit held that such claims based on the Comptroller's decision and manner of intervention were barred. Observing that under the Federal Reserve Act the Comptroller "may" appoint a Receiver "whenever ... he shall become satisfied of the insolvency of a national banking association," the Court noted that "needless to say, the powers of determining the point at which a bank is no longer able to meet its obligations as they fall due involves a substantial amount of discretion", 559 F.2d at 870. Accord, Matter of American City Bank & Trust Co., 402 F.Supp. 1229, 1231 (D.Wis.1975) (Comptroller's discretion in insolvency determinations). As explained by the Second Circuit:

"Both the fixing of the date of declaration of insolvency by the Comptroller and the granting of rescue funds to FNB (Franklin) by the Federal Reserve Board were exercises of judgment by the public officials concerned and were well within their competence and authority. Absent clear evidence of grossly arbitrary or capricious action on the

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