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

• Decision Date: 28 July 1988
• Docket Number: Civ.A. No. 3-87-809.
• Citation: 696 F. Supp. 1183
• 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.
• Court: U.S. District Court — Eastern District of Tennessee

696 F. Supp. 1183

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.

Civ.A. No. 3-87-809.

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

July 28, 1988.

COPYRIGHT MATERIAL OMITTED

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

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

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

William B. Luther, Luther, Anderson, Cleary, Ruth & Speed, Chattanooga, Tenn., for defendants.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

This matter comes before the court on plaintiff's motion to dismiss counterclaims brought by most of the defendants in this action¹ and to strike certain affirmative defenses asserted by defendants. The parties having fully briefed the issues, and oral argument having been heard on July 18, 1988, in Knoxville, Tennessee, the court will grant plaintiff's motion.

On November 11, 1987, plaintiff filed the instant action against sixteen former officers and directors of the now closed Knox Federal Savings & Loan Association (Knox), alleging that these defendants breached their fiduciary duties to Knox in relation to twenty-six different loan transactions in which Knox was involved.² Plaintiff is suing in its capacity as the Receiver of Knox as appointed by the Federal Home Loan Bank Board on November 16, 1984. Defendants have counterclaimed against the FSLIC for recoupment, asserting that the FSLIC was negligent in its conduct of examinations of Knox when it was solvent, and contributed to the eventual insolvency of Knox via its negligence in the operation of the savings and loan after the FSLIC took control of Knox under a consent resolution in August 1983.³ Defendants have also filed numerous affirmative defenses related to the regulation and control of Knox by the FSLIC.

Plaintiff now moves to have these counterclaims dismissed and affirmative defenses struck, and raises six different issues in its motion which are identified by all parties as follows:

Issue I Whether defendants' counterclaims and affirmative defenses relate to the conduct or activities of FSLIC/Receiver;

Issue II Whether the FHLBB or the FSLIC/Corporate owed any duties to defendants;

Issue III Whether defendants' counterclaims are barred by sovereign immunity;

Issue IV Whether defendants have failed to exhaust their administrative remedies as to any counterclaims against the FSLIC/Receiver;

Issue V Whether any claim against FSLIC/Corporate must be brought against the United States, and must defendants have exhausted administrative remedies before bringing such claims; and

Issue VI Whether defendants' counterclaims are improper because they do not relate to the same transactions involved in the complaint?

As discussed below, the court resolves Issues I, II, and VI in favor of plaintiff. The result is that defendants will not be permitted to raise any claims of negligence on the part of the FSLIC prior to its being appointed the Receiver of Knox on November 16, 1984, in this action whether in the form of a counterclaim for recoupment or some other type of counterclaim or third party claim. Consequently, Issues III, IV, and V are moot, and will receive no further consideration.

Discussion

In ruling on a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), all allegations are assumed to be true in the pleading in question, and all reasonable inferences are drawn in favor of the non-movant. Westlake v. Lucas, 537 F.2d 857, 858-859 (6th Cir.1976); Great Lakes Steel, Division of National Steel Corporation v. Deggendorf, 716 F.2d 1101, 1104-1105 (6th Cir. 1983). A motion to dismiss will be granted only if, treating all well-pled allegations as true, the non-movant will be unable to recover under the pleading in question. 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).

In resolving a motion to strike affirmative defenses pursuant to Fed.R. Civ.P. 12(f), it must be remembered that these motions are generally disfavored, but are within the sound discretion of the district court. FDIC v. Berry, 659 F.Supp. 1475, 1479 (E.D.Tenn.1987); FDIC v. Butcher, 660 F.Supp. 1274, 1277 (E.D.Tenn. 1987). A motion to strike affirmative defenses seeks to strike those defenses that are insufficient, redundant, immaterial, impertinent, or scandalous. Berry, supra, 1479; Butcher, supra, 1277. An affirmative defense is immaterial if it bears no essential or important relationship to the primary claim for relief, and is impertinent if it contains statements that do not pertain to or are unnecessary to the issues in question. Berry, supra, 1479; Butcher, supra, 1277. An affirmative defense is insufficient if, as a matter of law, the defense cannot succeed under any circumstances. Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir. 1953); United States v. Hardage, 116 F.R. D. 460, 463 (W.D.Okla.1987). Forthrightly dealing with inadequate or improper affirmative defenses and counterclaims at an early stage in the litigation helps the parties focus discovery on the real issues in the case and reduces the cost of litigation to the parties.

I. Whether counterclaims arise out of same transaction as complaint.

Plaintiff contends that for a recoupment counterclaim to be valid, it must arise out of the same transaction as the plaintiff's claim, and that defendants' counterclaims here deal with occurrences far beyond the twenty-six loans identified in the complaint. Defendants respond that the transaction which is really at the heart of plaintiff's complaint is the movement of Knox towards insolvency, and because their counterclaims allege that the actions of the FSLIC contributed to the Knox insolvency, proper recoupment claims have been alleged.

Recoupment is a right to claim damages in reduction of a plaintiff's claim for failure by the plaintiff to comply with some cross-obligation or for the violation of some duty imposed by law in the making and performance of the contract. Complaint of American Export Lines, Inc., 568 F.Supp. 956, 961 (S.D.N.Y. 1983); Mack v. Hugger Bros. Construction Co., 153 Tenn. 260, 283 S.W. 448, 449 (1926); 20 Am.Jur.2d, Counterclaim, Recoupment, Etc., § 1 (1965). Recoupment claims relate to cross-demands that are inseparably connected with and arising out of the same transaction on which the plaintiff's suit is grounded. Rothensies v. Electric Battery Company, 329 U.S. 296, 299, 67 S.Ct. 271, 272, 91 L.Ed. 296 (1946); American Training Services v. Commerce Union Bank, 415 F.Supp. 1101, 1104 (M.D.Tenn.1976), aff'd, 612 F.2d 580 (6th Cir.1979); Arco Co. v. Garner & Co., 143 Tenn. 262, 227 S.W. 1025 (1921); Mack, supra, 283 S.W. at 449-450. "Transaction" is a word of flexible meaning, and it may comprehend a series of many occurrences, depending not so much on the immediateness of their connection as upon their logical relationship. Moore v. New York Cotton Exchange, 270 U.S. 593, 610, 46 S.Ct. 367, 371, 70 L.Ed. 750 (1926); Republic Health Corporation v. Lifemark Hospitals of Florida, 755 F.2d 1453, 1455 (11th Cir.1985).

Defendants take the position espoused by several courts in similar situations that the transaction at issue here is the movement of Knox towards insolvency. See FSLIC v. Williams, 599 F.Supp. 1184, 1210 (D.Md.1984); FDIC v. Carter, ___ F.Supp. ___, No. 86-2557, slip op. at 5 (C.D.Cal., July 23, 1987). The court does not agree that this is the transaction in this case. The insolvency of Knox is not what is at issue in the complaint; rather, the case revolves around allegations of breach of fiduciary duties by officers and directors which lead to specific losses on certain enumerated loan transactions. If Knox had not become insolvent, these claims might still have been brought against defendants. Knox, rather than the FSLIC, would have been the plaintiff. Because the transaction at issue is not the move to insolvency but the specific action of discrete persons causing losses in identified loans, these counterclaims do not relate to the transaction at issue in the complaint, they do not properly allege a claim for recoupment, and therefore must be dismissed. See FDIC v. Ernst & Whinney, No. 3-87-364, slip op. at 3 (E.D. Tenn, December 15, 1987) available on WESTLAW, 1987 WL 39943.

II. Whether counterclaims and affirmative defenses relate to the conduct of the FSLIC as a Receiver.

Plaintiff argues that FSLIC serves two very different functions: (1) an examiner/insurer of savings and loans (corporate) and (2) that of an appointed receiver of a failed saving and loan (receiver). It contends that it is suing as the Receiver of Knox, and that many of the affirmative defenses and all counterclaims raised by defendants relate to its conduct in its corporate capacity instead, and as such are...