Federal Sav. and Loan Ins. Corp. v. Reeves
| Decision Date | 09 April 1987 |
| Docket Number | Nos. 85-2340,s. 85-2340 |
| Parties | FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, a corporate instrumentality and agency of the United States, Appellee, v. Robert N. REEVES, Appellant, and Frank E. Williams, Jr.; Seymour S. Abensohn; E. Fulton Brylawski; W. Evans Buchanan; John C. Kelly; Glen J. Koepenick, Jr.; Robert K. Maddox; Harry H. Semmes, Jr.; Abe Pollin; Thomas J. O'Halloran, Jr.; Raymond L. Ellis, Jr.; Leolla L.J. Fisher; Michael L. Heup; Samuel J. Pierce; Walter L. Hagman; Richard A. Reed; Real Property Associates, Inc., a Maryland corporation; Lee Shoe; Arthur C. Older; Sharon A. Manuel O'Halloran, Defendants, and FEDERAL SAVINGS & LOAN INSURANCE CORPORATION, the United States of America, and John Doe, one or more unknown agents of Federal Savings and Loan Insurance Corporation (FSLIC) and/or the Federal Home Loan Bank Board (FHLBB), Counterclaim Defendants, v. METROPOLITAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF BETHESDA and Hoye, Graves, Bailey & Associates, P.A., Third Party Defendants. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION; a corporate instrumentality and agency of the United States, Appellee, v. Leolla L.J. FISHER, Appellant, and Frank E. Williams, Jr.; Robert N. Reeves; Seymour S. Abensohn; E. Fulton Brylawski; W. Evans Buchanan; John C. Kelly; Glen J. Koepenick, Jr.; Robert K. Maddox; Harry H. Semmes, Jr.; Abe Pollin; Thomas J. O'Halloran, Jr.; Raymond L. Ellis, Jr.; Michael L. Heup; Samuel J. Pierce; Walter L. Hagman; Richard A. Reed; Real Property Associates, Inc., a Maryland corporation; Lee Shoe; Arthur C. Older; Sharon A. Manuel O'Halloran, Defendants, and FEDERAL SAVINGS & LOAN INSURANCE CORPORATION, the United States of America, and John Doe, one or more unknown agents of Federal Savings and Loan Insurance Corporation (FSLIC) and/or the Federal Home Loan Bank Board (FHLBB), Counterclaim Defendants, v. METROPOLITAN FEDERAL SAVINGS AND LOAN ASSOCIATION OF BETHESDA and Hoye, Graves, Bailey & Associates, P.A., Third Party Defendants. FEDERAL SAVINGS AND LOAN INSURANCE C |
| Court | U.S. Court of Appeals — Fourth Circuit |
Jacob A. Stein (John A. Pirko, Stein, Mitchell & Mezines, Washington, D.C., Leolla L.J. Fisher, on brief), for appellant.
Neil J. Dilloff, David H. Bamberger (Henry R. Lord, Jonathan D. Smith, M. Rosewin Sweeney, Piper & Marbury, Baltimore, Md., Ralph W. Christy, Deputy Gen. Counsel, William K. Black, Sr. Associate Gen. Counsel, Charlotte A. Reid, Trial Atty., Federal Home Loan Bank Bd., Washington, D.C., on brief), for appellee.
Before WINTER, Chief Judge, BUTZNER, Senior Circuit Judge, and McMILLAN, United States District Judge for the Western District of North Carolina, sitting by designation.
This suit was brought by the Federal Savings and Loan Insurance Corporation ("FSLIC") against former officers and directors of County Federal Savings & Loan Association ("County Federal"), a federally insured institution which, prior to suit, was merged into Metropolitan Federal Savings and Loan Association ("Metropolitan"). FSLIC sought damages for mismanagement of loans, fraud, breach of contract, and breach of fiduciary duties.
Early in the trial, various settlements were reached, including one for $1,320,000 with County Federal's outside directors. Trial proceeded against Robert Reeves (former President of County Federal), Leolla Fisher (former Vice President and head of the Construction Loan Department), Thomas O'Halloran (former Executive Vice President and head of the Loan Department), and Real Property Associates (a business owned by Fisher, O'Halloran and Michael Heup, a settling defendant).
The jury reached its verdict after a seven-week trial. Compensatory damages were assessed against Reeves ($4,300,000), Fisher ($1,000,000), O'Halloran ($4,502,500), and Real Property Associates ($500). 1 The judgments against O'Halloran & Real Property Associates were paid, while Reeves and Fisher unsuccessfully moved for judgment notwithstanding the verdict, or a new trial. Reeves and Fisher appeal, contending that FSLIC lacked standing to bring this suit, that continuance of the suit against them was barred by the release of the outside directors, that the jury verdict improperly apportioned damages and was insufficiently certain to support the judgments, and that the district court erred in implying a civil cause of action from various federal criminal code provisions (Count I, as renumbered by the district court). 2
We agree with the last of these arguments, and accordingly vacate the judgment on Count I. 3 However, we find no merit in the other errors claimed by defendants and therefore affirm the remainder of the judgment.
Defendants argue that FSLIC, as assignee of Metropolitan, lacks standing to pursue the claims at issue here. This argument misconceives both the nature of the assignment and the controlling legal principles.
In 1981, FSLIC helped to arrange the merger of County Federal (on the verge of default) with Metropolitan. The merger agreement provided that Metropolitan would acquire all of County Federal's assets, rights and liabilities, and was contingent upon execution of an agreement between Metropolitan and FSLIC. Under this latter agreement, FSLIC would indemnify Metropolitan for losses attributable to the merger, through the device of a "Special Reserve Account." In exchange, Metropolitan agreed to assign, upon request, "County Claims" to FSLIC, and to credit to the Special Reserve Account any recovery on County Claims. Such claims expressly included claims against former directors, officers, employees or agents of County Federal. On April 21, 1983 the County Claims were assigned and FSLIC then filed this suit.
Defendants contend that Metropolitan has no cause of action for losses suffered by County Federal prior to the merger, relying on Bangor Punta Operations, Inc. v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 94 S.Ct. 2578, 41 L.Ed.2d 418 (1974). However, as the district court thoroughly explained, Bangor Punta is readily distinguishable.
In Bangor Punta, a corporation that purchased railroad stock at a depressed price was held to be equitably estopped from subsequently suing the former owners/sellers for mismanagement. The Court held that, since the stock price already reflected the harm due to pre-purchase mismanagement, plaintiff had suffered no injury and any additional recovery would constitute a windfall. Id. at 708, 94 S.Ct. at 2581. In this case, Metropolitan would neither suffer injury nor realize a windfall, but only because FSLIC agreed to indemnify Metropolitan for certain losses in exchange for Metropolitan's agreement, among other things, to assign County Claims to FSLIC, if requested. Assignment of the claims was part of the consideration for FSLIC's financial assistance, which was itself consideration for Metropolitan's participation in the merger. In addition, the agreement between Metropolitan and FSLIC provides that any recovery on County Claims go into the Special Reserve Account, thereby minimizing the financial assistance needed from FSLIC. "Thus," as the district court noted, "recovery by the plaintiff here is not the unexpected gain, windfall or unjust enrichment condemned by the Court in Bangor Punta [417 U.S. at 714-15, 94 S.Ct. at 2584-85]." 622 F.Supp. 132, 135 (D.Md.1985) See also Meyers v. Moody, 693 F.2d 1196 (5 Cir.1982), cert. denied, 464 U.S. 920, 104 S.Ct. 287, 78 L.Ed.2d 264 (1983) ().
The district court further correctly recognized that the nature of FSLIC's role in arranging and effectuating the merger rendered it an appropriate party to this litigation:
[T]he FSLIC is not simply a private assignee of, or successor to, County Federal's claims. This is not a case involving the private acquisition of the stock or assets of a business enterprise on the open market for fair market value. Instead the transactions here are part of an agency supervised and subsidized merger undertaken to stabilize the savings and loan industry generally, as well as to salvage an insolvent member association in exchange for the right to pursue certain claims against those allegedly responsible, at least in part, for the institution's precarious financial position.... As regulator and supervisor, the FSLIC has been an indispensable party throughout the merger and stabilization process. Metropolitan has simply been a vehicle through which the FSLIC has attempted to maintain and insure the efficient utilization of County Federal's assets. Therefore, the Court will not take a formalistic view of County Federal's merger with Metropolitan as a single and discrete private acquisition for fair market value. The FSLIC's subsidization and supervision of the merger qualifies the FSLIC as a party to the acquisition for the purpose of resolving the issue of the applicability of the Bangor Punta holding in this...
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