Federal Deposit Ins. Corp. v. Carter

• Decision Date: 28 July 1987
• Docket Number: No. CV 86-2557 MRP.,CV 86-2557 MRP.
• Citation: 701 F. Supp. 730
• Court: U.S. District Court — Central District of California
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Perry CARTER, et al., Defendants.

701 F. Supp. 730

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Perry CARTER, et al., Defendants.

No. CV 86-2557 MRP.

United States District Court, C.D. California.

July 28, 1987.

Tuttle & Taylor by Miles Ruthberg, Los Angeles, Cal., Julie Blackshaw, Los Angeles, Cal., and Dina Biblin, Asst. U.S. Atty., Washington, D.C., for plaintiff Federal Deposit Ins. Corp.

Sheppard, Mullin, Richter & Hampton by Alfred C. Yen, Los Angeles, Cal., for defendant Perry Carter.

Rosen, Wachtell & Gilbert by John Longerbone and Carol L. Newman, Los Angeles, Cal., for defendants Carpenter and Olson.

Slaff, Mosk & Rudman by Norman G. Rudman, Los Angeles, Cal., for defendant Parsons.

Alfonso, Klonsky, Sternberg & Margulies by Elizabeth Reinhart, Woodland Hills, Cal., for defendant Girdlestone.

Hurwitz, Remer & DiVincenzo by Joseph P. DiVincenzo, Corona del Mar, Cal., for defendant Ferrell.

Pizer & Michaelson by Bradley Pizer, Santa Ana, Cal., for defendant Cleveland.

AMENDED OPINION

PFAELZER, District Judge.

This Court heard oral argument on March 9, 1987, on plaintiff Federal Deposit Insurance Corporation's ("FDIC") motion to reconsider the Court's order filed December 19, 1986. Because the Court concludes that the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671 et seq. (1965, 1976, and 1986 Supp.) ("FTCA") does not bar compulsory counterclaims for recoupment against a federal agency such as the FDIC, and because the "discretionary function" exemption of the FTCA, 28 U.S.C. § 2680(a) (1965), immunizes a federal agency from liability for certain policy decisions, the FDIC's motion to dismiss counterclaims and strike affirmative defenses is granted in part and denied in part.

I. Background

This case arises out of the collapse of the Garden Grove Community Bank ("Garden Grove") in June, 1984. On June 1, 1984, the California Superintendent of Banks, pursuant to Cal. Fin.Code § 3100 et seq. (West 1981 and 1986 Supp.), determined that Garden Grove was insolvent and should be liquidated. On that date, the Superintendant appointed the FDIC as receiver of Garden Grove. On the same date, the FDIC in its receivership capacity sold some of the least salable assets of Garden Grove to the FDIC in its corporate capacity. With this $25 million infusion of capital, the FDIC in its receivership capacity was able on the same day to sell the remainder of the assets of Garden Grove to an assuming bank.¹ The FDIC in its corporate capacity retains certain of the assets of Garden Grove, including some allegedly bad loans made by Garden Grove and the right to bring this suit against the former officers and directors of Garden Grove.

The FDIC brought this suit on April 22, 1986. The FDIC alleges that the defendants, the directors and officers of Garden Grove, were negligent in their operation of the bank, breached their fiduciary duty to the bank, and breached contracts with the bank. The FDIC filed a motion on October 21, 1986 to dismiss the counterclaims of defendants Jack Carpenter ("Carpenter") and Don Olson ("Olson") and to strike certain affirmative defenses of defendants Carpenter, Olson, Perry Carter, Victor Ferrell, Alan Girdlestone, and Lindsley Parsons.² This Court has jurisdiction under 12 U.S.C. § 1819 (1980).

II. The Recoupment Counterclaims

Defendants Carpenter and Olson are represented by the same law firm, and have filed identical counterclaims, which they label as being "For Declaratory Relief/Recoupment." In substance, these counterclaims allege that the FDIC's losses from the collapse of Garden Grove were the fault of the FDIC, not defendants. Aside from attorneys' fees and costs, the counterclaims only seek a set-off against the FDIC's recovery in the case; the counterclaims do not involve additional recovery to be satisfied out of the general funds of the U.S. Treasury. In essence, these counterclaims raise the same issues as an affirmative defense of contributory negligence.

The FDIC primarily relies on the FTCA for its argument that tort-law counterclaims against it are absolutely barred.³ As a general rule, tort claims against the FDIC are subject to the FTCA. Safeway Portland Employees' Federal Credit Union v. FDIC, 506 F.2d 1213, 1215 (9th Cir. 1974). However, the courts are virtually unanimous that certain procedural requirements of the FTCA do not apply to a compulsory counterclaim for recoupment, in a suit where the FDIC (or any other government agency) is the original plaintiff. Frederick v. United States, 386 F.2d 481, 488 (5th Cir.1967); FDIC v. Lattimore Land Corp., 656 F.2d 139, 143 (5th Cir. 1981); FSLIC v. Williams, 599 F.Supp. 1184, 1209 (D.Md.1984); FDIC v. Imperial Bank, CV 85-3250-HLH (C.D. Cal. Mar. 19, 1986); FSLIC v. Huang, CV 85-8305-LTL (C.D. Cal. Oct. 8, 1986).⁴

Indeed, the FTCA specifically exempts counterclaims from its exhaustion of administrative remedies requirement. 28 U.S.C. § 2675(a) (1986 Supp.); see Spawr v. United States, 796 F.2d 279, 281 (9th Cir. 1986). Further, a defensive counterclaim for recoupment, which does not exceed the value of the FDIC's claim against the counterclaimant, need not name the United States as a party, as required by 28 U.S.C. § 2679(a) (1965 and 1986 Supp.).⁵

Several courts have grappled with the government's contention that the FTCA is the sole waiver of the government's sovereign immunity, and that even compulsory counterclaims are subject to the FTCA. Some of these courts have held that it is "the institution of the particular action," and not the FTCA, which provides the waiver of sovereign immunity as to the particular set of facts. Frederick, 386 F.2d at 488; see also, Morrison-Knudsen Co., Inc. v. CHG Int'l, Inc., 811 F.2d 1209, 1222-23 (9th Cir.1987) (FSLIC's waiver of sovereign immunity implied from statutory authority to "sue and be sued"). It is perhaps more accurate to say that the institution of the action waives the procedural requirements of the FTCA. Since the defendants' recovery, if any, on the counterclaim will come out of the FDIC's recovery from the defendants, and not from the U.S. Treasury, the policy considerations which have led to limitations on the right to name the United States as a party in a lawsuit are not implicated in a compulsory counterclaim. Since the interest in administrative settlements behind the administrative remedies requirement is not present when an agency of the government affirmatively brings a suit, Frederick, 386 F.2d at 489, this requirement as well is waived as to a compulsory counterclaim. However, the waiver of sovereign immunity implied from the FDIC's decision to bring this suit should not be understood as a waiver of the substantive, non-procedural exclusions from liability contained in the FTCA. (See section III, infra.)

It is clear that the recoupment counterclaims made by defendants Carpenter and Olson in this case are compulsory under Fed.R.Civ.P. 13(a) (1986). Rule 13(a) requires that a counterclaim be brought if "it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim." The Ninth Circuit broadly construes the terms "transaction or occurrence" in Rule 13(a). Albright v. Gates, 362 F.2d 928, 929 (9th Cir.1966). Williams, 599 F.Supp. at 1210, holds that the relevant "transaction or occurrence" in a bank failure case is the bank's "movement towards insolvency." Using this standard, both the acts of the FDIC and those of the directors and officers of Garden Grove which contributed to the bank's insolvency are part of the same transaction or occurrence under Rule 13(a). Permissive counterclaims involving unrelated transactions under Fed.R.Civ.P. 13(b) (1986) may not create procedural waivers of the FTCA. FDIC v. Citizens Bank & Trust Co., 592 F.2d 364, 365 (7th Cir.), cert. denied, 444 U.S. 829, 100 S.Ct. 56, 62 L.Ed. 2d 37 (1979) (distinguishing permissive from compulsory counterclaims). However, the recoupment counterclaims in this case are compulsory, and therefore cannot be dismissed for failure to comply with the procedural requirements of the FTCA.⁶

III. The Discretionary Function Exception and the Duty of the FDIC

The FDIC also urges two related arguments in support of its contention that both the counterclaims and the affirmative defenses should be dismissed. First, the FDIC argues that examining banks is a "discretionary function," and cannot give rise to liability under the FTCA. 28 U.S.C. § 2680(a). Second, the FDIC argues that under 12 U.S.C. § 1820(b) (1986 Supp.), its duty when examining banks is only to protect its insurance fund. Since it has no duty to warn bank officers or directors about any irregularities it finds, it cannot be liable for any breach of duty. In fact, these arguments produce the same result.

A number of courts have considered whether the discretionary function exception of 28 U.S.C. § 2680(a) even applies to a suit like this. Some courts have held that a compulsory counterclaim for recoupment is not subject to § 2680(a), on the theory that the government's waiver of sovereign immunity comes not from the FTCA, but from the government's decision to initiate the lawsuit. See, e.g., Morrison-Knudsen, 811 F.2d at 1223; Williams, 599 F.Supp. at 1209; Huang, supra, slip op. at 4; Imperial Bank, supra, slip op. at 2; but see FDIC v. Jennings, 615 F.Supp. 465, 467 (W.D. Okla.1985) (FTCA exemptions do apply).

The better view is that the substantive portions of the FTCA which relate to the determination of liability do apply both to affirmative suits brought against the government and to counterclaims and affirmative defenses in suits brought originally by the government. To grant a litigant additional substantive rights against the government as a defendant over those rights the litigant would have as a plaintiff would result in an unacceptable anomaly. Chemehuevi Indian Tribe v. California State Board of Equalization, 757 F.2d 1047, 1053 (9th Cir.), rev'd on other grounds, 474 U.S. 9, 106 S.Ct. 289, 88...