Federal Deposit Ins. Corp. v. Canfield, 90-C-0541-S.

• Decision Date: 25 April 1991
• Docket Number: No. 90-C-0541-S.,90-C-0541-S.
• Citation: 763 F. Supp. 533
• Parties: The FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized under the laws of the United States, and acting in its corporate capacity, Plaintiff, v. Charles R. CANFIELD, Benjamin F. Armstrong, Theodore May, Newell P. Parkin, Mac Christensen, Richard A. Christensen, Dale R. Curtis, Frank Diston, Robert Garff, Lee K. Irvine, Ellis Ivory, Arch Madsen, Gus Paulos, Aline Skaggs, Ronald Swenson, Harold W. Milner and Ernest Wilkinson, Defendants.
• Court: U.S. District Court — District of Utah

763 F. Supp. 533

The FEDERAL DEPOSIT INSURANCE CORPORATION, a corporation organized under the laws of the United States, and acting in its corporate capacity, Plaintiff, v. Charles R. CANFIELD, Benjamin F. Armstrong, Theodore May, Newell P. Parkin, Mac Christensen, Richard A. Christensen, Dale R. Curtis, Frank Diston, Robert Garff, Lee K. Irvine, Ellis Ivory, Arch Madsen, Gus Paulos, Aline Skaggs, Ronald Swenson, Harold W. Milner and Ernest Wilkinson, Defendants.

No. 90-C-0541-S.

United States District Court, D. Utah, C.D.

April 25, 1991.

Stephen L. Roth, W. Cullen Battle, Fabian & Clendenin, Warren Patten, Craig J. Jacobsen, Jathan W. Janove, Van Wagoner & Stevens, Salt Lake City, Utah, Jeffrey Ross Williams, F.D.I.C., Legal Div., Washington, D.C., for plaintiff.

Daniel L. Berman, Patricia A. O'Rorke, Peggy A. Tomsic, Berman and O'Rorke, Douglas J. Parry, Parry & Murray, John W. Lowe, Michael N. Zundel, Jardine, Linebaugh, Brown & Dunn, Roger H. Hoole, Mark R. Madsen, Lynda Cook, James R. Holbrook, Callister, Duncan & Nebeker, Dale J. Lambert, George J. Romney, Salt Lake City, Utah, for defendants.

MEMORANDUM DECISION

SAM, District Judge.

I. BACKGROUND

This matter is before the court on the motion of defendants Charles R. Canfield, Benjamin F. Armstrong, Theodore May, Newell P. Parkin, Mac Christensen, Richard A. Christensen, Dale R. Curtis, Robert Garff, Lee K. Irvine, Arch Madsen and Ernest Wilkinson to dismiss the complaint. Defendants Aline Skaggs, Ellis Ivory, Ronald Swenson and Frank Diston either filed separate, but substantially similar, motions to dismiss or joined in the present Canfield, et al. defendants' motion to dismiss. The magistrate heard the motion on October 30, 1990 and subsequently issued a report and recommendation ("R & R") that the action be dismissed. The FDIC objected to the R & R. The parties presented oral argument to this court March 7, 1991. Jeffrey Ross Williams and Warren Patten appeared for plaintiff Federal Deposit Insurance Corporation ("FDIC"). Daniel L. Berman, James R. Holbrook, Morris O. Haggerty and George J. Romney appeared for defendants.

The issue before the court is whether 12 U.S.C. § 1821 permits the FDIC to sue former directors or officers of a federally insured depository institution in Utah for monetary damages for conduct amounting to less than gross negligence. The FDIC filed this action against former directors and officers of Tracy Collins Bank & Trust Company seeking $7 million in damages for "imprudent" loans made or approved by the defendants, and damages for waste of bank assets and mismanagement. The complaint contains two causes of action: (1) breach of fiduciary duties; and (2) breach of contract (written or oral employment agreements or directors' oaths).¹

The motion to dismiss is based on Section 212(a) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183 (August 9, 1989), codified at 12 U.S. C.A. § 1821(k) (1989) (hereinafter referred to as "§ 1821(k)"). § 1821(k) reads:

(k) Liability of directors and officers.

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 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.

II. PARTIES' POSITIONS

Defendants argue that § 1821(k) establishes a federal standard for the liability of directors and officers of insured depository institutions for money damages in civil actions by the FDIC. That federal standard limits the liability of directors and officers in such actions to fault amounting to gross negligence or a higher degree of culpability. Since the complaint does not present claims for aggravated fault, but merely alleges claims for negligence or simple breach of the defendants' duty of care, defendants argue that it must be dismissed for failure to state a claim upon which relief can be granted, among other reasons.

Defendants allege their position is supported by the plain language of § 1821(k), language that was adopted for the first time by the Conference Committee; the legislative history of § 1821(k) contained in the Conference Committee report and elsewhere; and the sound public policy implemented by Congress to balance the government's need to recover money damages for conduct amounting to aggravated fault on the part of directors and officers with the need to insure that competent and qualified people serve on bank and thrift boards. Defendants argue that this balance is intended to be accomplished through the adoption of a national standard of liability for gross negligence or a higher degree of aggravated fault.

The FDIC's position is that, consistent with the objectives of FIRREA, § 1821(k) preserves the ability of the FDIC to bring suit, when authorized by state law, for monetary damages against directors and officers for ordinary negligence. It relies on the last sentence of the statute which reads: "Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law." The FDIC urges that § 1821(k) only limits the ability of states to insulate directors and officers by imposing a minimum liability standard of gross negligence or intentional tortious conduct. Utah law does not insulate directors and officers with such a standard, but requires only a showing of negligence. Utah law is, therefore, unaffected by § 1821(k), and the FDIC is authorized under Utah common law to hold defendants personally liable for ordinary negligence.

Like defendants, the FDIC argues that its position is fully supported by a literal interpretation of the statute. It contends further that its interpretation is reinforced by the compelling legislative history, the stated purposes of FIRREA, and the strong public policy favoring holding officers and directors liable for their mismanagement and other wrongdoing.

The court will address each of these tools for statutory interpretation and their application to § 1821(k).

III. RULES OF STATUTORY CONSTRUCTION

A. The Plain Language of § 1821(k) Holds Directors and Officers Personally Liable for Gross Negligence or a Higher Degree of Fault

This court agrees with both parties that the plain language of a statute is controlling in the interpretation of a statutory provision. See Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. ___, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990) ("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.") (citation omitted).²

§ 1821(k) clearly states:

"A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by ... the Corporation ... 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...."

This part of the statute expressly defines the parameters of liability for officers and directors where the FDIC is acting as a successor in interest to the claims of a depository institution. It carefully sets the standard and defines the terms used, including a reference to state law where one is intended and encompassed. This portion of the statute, standing alone, does not leave room for any interpretation other than that urged by defendants. Congress clearly intended to preempt conflicting state and federal law on the issue of director and officer liability in this area and set a standard of gross negligence. However, the last sentence of § 1821(k) has created a dispute regarding the scope of that preemption.

The last sentence of § 1821(k) states: "Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law." The FDIC argues that the plain meaning of this last sentence, when combined with the other provisions of the statute cited above, creates a partial preemption of state law. This partial preemption overrides state laws which set a standard higher than gross negligence for claims against directors and officers for money damages, but leaves intact the statutory and common law of states, like Utah, which allow suits based on ordinary negligence or breach of fiduciary duty. This interpretation results in a chaotic situation where the liability of directors and officers of federal depository institutions is governed not by a uniform federal standard, as surely was intended by this sweeping federal legislation governing the issue, but by varying state standards which leave liability and exposure mostly dependent on state of residence. Congress did not intend and this court does not read that result as the plain meaning of the statute.

To read the last sentence of § 1821(k) as suggested by the FDIC would require this court to ignore the plain meaning of the rest of the statute. Where Cong...