Federal Sav. and Loan Ins. Corp. v. Burdette

• Decision Date: 03 October 1988
• Docket Number: 3-88-132.,Civ. A. No. 3-87-809
• Citation: 696 F. Supp. 1196
• Court: U.S. District Court — Eastern District of Tennessee
• Parties: The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. J. Garrett BURDETTE, Clayton Christenberry, Jr., Alex Curtis, Estate of Howell C. Curtis, Steve Curtis, William H. Curtis, Michael M. Downing, John J. Duncan, John J. Duncan, Jr., Joe S. Duncan, Ralph H. Newman, Jr., William Regas, C.A. Ridge, Richard G. Rutherford, Burton B. Simcox, and Estate of David M. Stair, Defendants. The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. The AETNA CASUALTY & SURETY CO., a Connecticut Corporation, Defendant, v. J. Garrett BURDETTE, et al., Third-Party Defendants.

696 F. Supp. 1196

The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. J. Garrett BURDETTE, Clayton Christenberry, Jr., Alex Curtis, Estate of Howell C. Curtis, Steve Curtis, William H. Curtis, Michael M. Downing, John J. Duncan, John J. Duncan, Jr., Joe S. Duncan, Ralph H. Newman, Jr., William Regas, C.A. Ridge, Richard G. Rutherford, Burton B. Simcox, and Estate of David M. Stair, Defendants.

The FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Knox Federal Savings & Loan Association, Plaintiff, v. The AETNA CASUALTY & SURETY CO., a Connecticut Corporation, Defendant, v. J. Garrett BURDETTE, et al., Third-Party Defendants.

Civ. A. Nos. 3-87-809, 3-88-132.

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

October 3, 1988.

Ronald C. Koksal, Butler Vines Babb & Threadgill, J. Michael Winchester, Lacy & Winchester, P.C., David L. Buuck, Michael M. Downing, Clairborne Davis Buuck & Hurley, Charles A. Wagner, III, Wagner Myers & Sanger, P.C., R. Franklin Norton, Norton & Luhn, P.C., Randall E. Nichols, Harwell & Nichols, Richard L. Hollow, McCampbell & Young, Steven Oberman, Daniel & Oberman, Johnathan H. Burnett, Hodges Doughty & Carson, Lewis S. Howard, Jr., Howard & Ridge, Bernard E. Bernstein, Bernstein Susano & Stair, Charles W.B. Fels, Archie R. Carpenter, Carpenter & O'Connor, Knoxville, Tenn., for defendants and third-party defendants.

Elizabeth S. Tonkin, Walt Dyer & James, Knoxville, Tenn., John L. Conlon, Hopkins & Sutter, Chicago, Ill., for plaintiff.

Arnold Tackett, Chattanooga, Tenn., for third-party defendants.

William B. Luther, Luther Anderson Clearly Ruth & Speed, Chattanooga, Tenn., for defendant.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

These matters come before the court on two related motions to dismiss, or in the alternative summary judgment, one filed in each of these cases. The first, filed by then third-party defendant C.A. Ridge, Jr., and joined by most of his fellow third-party defendants, seeks the dismissal of the third-party complaint by Aetna in Case No. 3-88-132. The second, also filed by Ridge, but this time as a defendant, seeks the dismissal of the complaint by the FSLIC in Case No. 3-87-809. The court having heard oral argument in Knoxville, Tennessee, on July 18, 1988, and the parties having fully briefed the issues, these motions are now ready for disposition.¹

The central question at issue in both motions is whether the FSLIC is barred by the statute of limitations from bringing suit against former officers and directors of Knox Federal Savings & Loan Association (Knox) for alleged breaches of fiduciary duties.² Knowledge of the history leading up to the filing of these actions by the FSLIC is essential to a disposition of these matters. The events described below are not in dispute by any party.

On May 1, 1982, the blanket bond issued by Aetna covering Knox went into effect. On May 13, 1983, the last of the loans or loan participations alleged by the FSLIC to have been unsafe or unsound occurred, the first occurring in December of 1981. On June 10, 1983, Knox and the Federal Home Loan Bank Board (FHLBB) entered into a supervisory agreement based on a FHLBB finding that Knox had allegedly violated certain regulations and/or engaged in unsafe/unsound banking practices. The agreement provided that the FHLBB would not initiate enforcement measures against Knox in return for Knox making certain operational changes. However, due to potential Knox losses of $20 million, a consent resolution was entered into by Knox and the FHLBB on August 19, 1983. Pursuant to this resolution, the FHLBB/FSLIC took over effective control of Knox, and became authorized to appoint a receiver/conservator if it saw fit. One of the first actions that resulted from this resolution was that Arnold Tackett was replaced as president and CEO of Knox by Richard B. Alexander, an individual selected by the FHLBB/FSLIC.

On December 22, 1983, Alexander notified Aetna that Knox had discovered losses caused by the alleged fraudulent conduct of former Knox officers and directors, and that such losses were covered under the Aetna bond. On January 3, 1984, Alexander wrote to the FHLBB, naming former Knox officials which Knox intended to sue for alleged breaches of fiduciary duties. Several days later the FHLBB wrote back, suggesting that these actions should not be filed at that time. The lawsuits were not filed, and on November 16, 1984, Knox was declared insolvent and the FSLIC was appointed receiver. On November 13, 1987, Case No. 3-87-809 was filed, and on February 24, 1988, Case No. 3-88-132 was filed by the FSLIC. The former action alleges that certain former Knox officials breached their fiduciary duties to Knox, and the later action seeks recovery from Aetna under the blanket bond due to some of these same alleged breaches of fiduciary duties.

Discussion

In ruling on a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), all allegations in the pleading in question are assumed to be true, and all reasonable inferences are to be drawn in favor of the non-movant. Westlake v. Lucas, 537 F.2d 857, 858-59 (6th Cir.1976); Great Lakes Steel, Division of National Steel Corp. v. Deggendorf, 716 F.2d 1101, 1104-1105 (6th Cir.1983). Taking all well-pled allegations as true, a motion to dismiss will be granted only if the non-movant will be unable to recover on its claim. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983), cert. denied, 469 U.S. 826, 105 S.Ct. 105, 83 L.Ed.2d 50 (1984).

Summary judgment under Fed.R.Civ.P. 56 is appropriate when the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party. In such a case there is no genuine issue for trial. Matushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). When ruling on a motion for summary judgment, all inferences drawn from the facts must be viewed in a light most favorable to the non-moving party. Matsushita, supra, 475 U.S. at 587, 106 S.Ct. at 1356. However, a movant need not negate every aspect of the non-movant's claim, it need only support its claim that there is no genuine issue of fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Ridge argues that the applicable Tennessee statute of limitations period is the three-year statute covering injuries to real or personal property. He contends that this period began to run no later than December 22, 1983, when Knox notified Aetna of the loss to Knox due to alleged breaches of fiduciary duties, and that actually this period began to run sooner, probably August of 1983 when the consent resolution was entered into. Ridge concludes that using either date, the FSLIC action was filed longer than three years after the statute began to run, therefore the FSLIC action is time-barred. Aetna and the FSLIC assert that the six-year statute for contract actions is the appropriate statute to apply as actions for breaches of fiduciary duties are quasi-contractual in nature, and that since six years had not passed since the statute began to run, the FSLIC action is not barred. The FSLIC additionally argues that in the alternative, the state statute of limitations ran only until the FSLIC was appointed receiver of Knox, and at that point the federal limitations period began to run, and that federal limitations period had not expired when the FSLIC filed suit.

Thus, an initial determination must be made as to which limitations period is applicable. The FSLIC is a federal agency, 12 U.S.C. § 1730(k)(1)(A); FLSIC v. Williams, 599 F.Supp. 1184, 1192 (D.Md.1984), and as such the federal limitations period would be applicable to any action brought by it. 28 U.S.C. § 2415(a) provides that in actions brought by the United States or an agency of the United States founded upon any implied or express contract, a six-year limitations period applies, and 28 U.S.C. § 2415(b) provides a three-year period for tort actions. However, because some time passed between the point the cause of action by Knox accrued and the FSLIC acquired the right to assert this claim, the Tennessee statute of limitations is not wholly irrelevant to an analysis of these motions.

Consequently, a two-stage analysis is necessary to resolve the issue before the court: first, did the state statute of limitations expire prior to the time the FSLIC acquired the Knox claim, and second, if the statute had not expired, did the federal limitations period expire prior to the point the FSLIC filed the actions at issue. FDIC v. Hinkson, 848 F.2d 432, 434 (3d Cir.1988); FDIC v. Bird, 516 F.Supp. 647, 650 (D.P.R. 1981); FSLIC v. Williams, supra, 1192; FDIC v. Hudson, 673 F.Supp. 1039, 1041-1043 (D.Kan.1987). Once the FSLIC acquired the Knox claim against the former officers and directors when it was appointed receiver of Knox, the state statute of limitations no longer applied. From that point forward, the federal limitations period controls and the state statute neither lengthens nor shortens the period provided for in the applicable federal statute:

Section 2415(a) means what it says — a contract suit by the government must be filed within six years of accrual. Congress's intent to establish a uniform time limitation and to encourage the expeditious disposition of government litigation would be frustrated if the period could be lengthened in some instances by state law. Although state law may treat a non-federal government plaintiff more favorably in such circumstances, this disparity does not justify bypassing the congressional policy that favors the government's initiation of suits within six years. Simply stated, Congress has

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