Federal Deposit Ins. Corp. v. Butcher

• Decision Date: 01 May 1987
• Docket Number: Civ. No. 3-84-762.
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its separate corporate capacity, Plaintiff, v. C.H. BUTCHER, Sr., et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

660 F. Supp. 1274

FEDERAL DEPOSIT INSURANCE CORPORATION, in its separate corporate capacity, Plaintiff, v. C.H. BUTCHER, Sr., et al., Defendants.

Civ. No. 3-84-762.

United States District Court, E.D. Tennessee, N.D.

May 1, 1987.

COPYRIGHT MATERIAL OMITTED

James R. Buckner & Charles B. Lee, Miller & Martin, Chattanooga, Tenn., for plaintiff.

David E. Rodgers, Kramer, Rayson, McVeigh, Leake & Rodgers, Knoxville, Tenn., Robert Delaney, Passino, Delaney & Hildebrand, Nashville, Tenn., Jerome Templeton, McCord, Weaver & Templeton, Jack L. Draper, Arnett, Draper & Hagood, Harold Stone, Stone & Hinds, Knoxville, Tenn., Patricia Fritts & J. Polk Cooley, Cooley, Simmons & Wms., Rockwood, Tenn., Jack Tallent, Kennerly, Montgomery & Finley, Sarah Sheppeard & Scott R. Fransen, Allen & Taylor, Lewis S. Howard, Jr., Howard & Ridge, Charles A. Wagner, III & Bill Mason, Wagner, Myers & Sanger, Knoxville, Tenn., Frederick Humbracht, Jr. & Robert J. Warner, Jr., Dearborn & Ewing, Nashville, Tenn., for defendants.

ORDER

VINING, District Judge.

This order is being entered in response to several motions filed in the instant case which are to a great degree interconnected. These motions include the following:

(1) plaintiffs' motions to strike defenses of defendants C. H. Butcher, Sr. (Butcher, Sr.), Robert Clem (Clem), Earl Duff (Duff), Jerry Duncan (Duncan), Jack Lay (Lay), J.C. Parker (Parker), Sam Rose (Rose), Jack Walls (Walls), Bob Young (Young), William Moore (Moore), Jack Staff (Staff), and Emmett Foster (Foster),

(2) motions to amend, file counterclaim and file third party claims by defendants Edward C. Browden (Browden), Walls, Duncan, Lay, Butcher, Sr., Duff, Clem, Parker, Staff, Moore, and Young,

(3) motion of plaintiff to strike, dismiss, for judgment on the pleadings or in the alternative for summary judgment against Robert M. Delaney (Delaney).

FACTS

The City and County Bank of Roane County (CCR) was a Tennessee state bank insured by the Federal Deposit Insurance Corporation. The FDIC in its corporate capacity under 12 U.S.C. § 1811, et seq., as insurer of the deposits of UAB/HC did periodic examinations of the bank prior to its closing in 1983. These reports were provided to bank officials and board members after completion of the examinations. However, the purpose of the examinations was to protect the depositor insurance fund of the FDIC.

Due to the financial condition of CCR the Commissioner of Banking of the State of Tennessee pursuant to TCA § 45-2-1502 on May 27, 1983, took exclusive custody and control of the property and affairs of CCR and appointed the FDIC as receiver (FDIC/Receiver) of the bank. The FDIC/Receiver then sold the deposits, certain assets, and certain liabilities of CCR to the Bank of Oak Ridge, Oak Ridge, Tennessee for a premium of $1,351,000 in order to keep the CCR banking business as a going concern. To facilitate this purchase and assumption, the FDIC/Receiver and the FDIC in its corporate capacity (FDIC/Corporation) entered into a separate but related agreement pursuant to 12 U.S.C. § 1823(c)(2)(A) whereby FDIC/Corporation purchased the remaining assets of CCR which included all contracts, rights, claims, demands, and choses of action whatsoever not purchased by the Bank of Oak Ridge. The price paid by FDIC/Corporation for these assets was $18,514,900.

On October 9, 1984, as a result of the closing of CCR the FDIC/Corporation pursuant to the transfer of assets and assignments it received from FDIC/Receiver filed suit against the officers and directors of CCR for breach of statutory, contractual and common law duties owed by the defendants to CCR requesting damages in excess of $10 million.

MOTION TO STRIKE

Motions to strike are authorized under Federal Rules of Civil Procedure 12(f). Among the purposes contemplated by Rule 12(f) are a determination by the court of the legal sufficiency of defenses advanced in the pleadings, the saving of time and money where defenses presented confuse the issues in the case and elimination of issues where as a matter of law no set of facts will support the issues subject to the motion to strike. Kinnear-Weed Corp. v. Humble Oil and Refining Co., 214 F.2d 891 (5th Cir.1954), cert. denied 348 U.S. 912, 75 S.Ct. 292, 99 L.Ed. 715.

Rule 12(f) provides:

Upon motion made by a party before responding to a pleading or, if no responsive pleading is permitted by these rules, upon motion made by a party within 20 days after the service of the pleading upon him or upon the court's own initiative at any time, the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent or scandalous matter.

Although motions to strike are generally not favored and should be used sparingly, Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819 (6th Cir.1953), as Rule 12 iterates, the motion should be granted where the defenses to be stricken are insufficient as a matter of law, Anchor Hocking Corp. v. Jacksonville Electric Authority, 419 F.Supp. 992 (D.C.Fla.1976), immaterial in that they "have no essential or important relationship to the claim for relief or the defenses being pleaded," Fleischer v. A.A.P., Inc., 180 F.Supp. 717, 721 (D.C.N.Y.1959), or are impertinent in that the "matter consists of statements that do not pertain, and are not necessary, to the issues in question." Commonwealth Edison Co. v. Allis-Chalmers Manufacturing Co., 245 F.Supp. 889 (D.C.Ill. 1965), rev'd in part, aff'd in part on other grounds, 323 F.2d 412 (7th Cir.1963), cert. denied, 379 U.S. 939, 84 S.Ct. 794, 11 L.Ed.2d 659. The granting of a motion to strike is in the discretion of the court. If the court determines the defenses to be insufficient as a matter of law, immaterial, or impertinent the granting of a motion to strike is appropriate.

As more fully discussed below this court finds that the defenses and counterclaims subject to the motion to strike are insufficient as a matter of law, immaterial and impertinent to the issues before this court.

DUTY OF OFFICERS AND DIRECTORS

Though defendants admit a duty to CCR as its officers and directors, the gist of defendants' counterclaims against the FDIC/Corporation, third party claims against the FDIC/Receiver of CCR, and the United States and motions to amend answers is an attempt to transfer the duty of managing the affairs of CCR from the officers and directors of the bank to the FDIC. The FDIC/Corporation performed examinations of CCR pursuant to requirements of the Federal Deposit Insurance Act. The defendants are asserting a reliance upon those examinations in performance of their duties as officers and directors of the CCR. These examinations, however, were for the sole benefit of the FDIC and the protection of the depositors' insurance fund. This court finds that the safe operation of the bank was the responsibility of the directors acting through the officers of the bank and cannot be transferred to the FDIC/Corporation.

The United States Supreme Court has provided a cornerstone for determining the responsibility of officers and directors to their banks. In Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.E.D. 662 (1891) the court held:

Directors must exercise ordinary care and prudence in the administration of the affairs of a bank, and this includes something more than officiating as figure heads. They are entitled under the law to commit banking business, as defined, to their duly authorized officers, but this does not absolve them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrongdoing, if that ignorance is the result of gross inattention, ... Briggs at U.S. 165-166.

Further in Bowerman v. Hamner, 250 U.S. 504, 39 S.Ct. 549, 63 L.Ed. 1113 (1919) quoting from an earlier decision by the court in Martin v. Webb, 110 U.S. 7, 3 S.Ct. 428, 28 L.Ed. 49 (1884), the court espouses that the executive officers of a bank transact its business by direction of the board of directors. The executive officers are the arm in the management of a bank's financial operations. These are recognized sound principles.

Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business and to exercise reasonable control and supervision of its officers. They have something more to do than from time to time, to elect the officers of the bank, and to make declaration of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business.

Martin at U.S. 15, 3 S.Ct. at 433.

These decisions of the United States Supreme Court requiring ordinary care and diligence provide general definitions of the duties undertaken by the officers and directors of a bank. The court in each of these cases determined that the facts in each case did not warrant any more specific definitions of the duty of care required. However, the Tennessee Supreme Court has in two cases defined specific acts which would constitute negligence on the part of bank officers and directors. In the most recent of these cases, Neese v. Brown, 218 Tenn. 686, 405 S.W.2d 577 (1964), a suit was filed by the trustee of a bank in receivership against the bank directors for losses resulting from "failure of the defendants to use due care and diligence in the discharge of their duties as such directors." Neese, 405 S.W.2d at 579. The Chancellor of the lower court overruled demurrers filed by the defendant directors and defendants appealed. The Tennessee court found the averments of the bill as stated within the sphere of the duties of officers and directors espoused by...