Federal Sav. & Loan Ins. Corp. v. Huff, 57932
| Decision Date | 26 July 1985 |
| Docket Number | No. 57932,57932 |
| Citation | 704 P.2d 372,237 Kan. 873 |
| Parties | FEDERAL SAVINGS & LOAN INSURANCE CORPORATION, As Receiver for North Kansas Savings Association, Plaintiff, v. Howard D. HUFF, et al., Defendants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
1. If contributory negligence or an analogous defense would not have been a defense to a claim prior to the adoption of the comparative negligence statute, K.S.A. 60-258a, it does not apply following its adoption.
2. The comparative negligence statute (K.S.A. 60-258a) is inapplicable to an action by the receiver of a savings and loan institution against the institution's officers seeking damages for economic loss sustained by the institution occasioned by the officers' breach of fiduciary duties owed.
3. Based upon the limited facts before the court, it is held: (1) Defendants, savings and loan association officers, have no valid cause of action under Kansas law seeking contribution or implied indemnity from other persons (nonparties to the litigation); and (2) defendants have no present right of subrogation against such other persons.
Daniel Bukovac of Watson, Ess, Marshall & Enggas, Kansas City, Mo., argued the cause, and Rolland J. Exon, of the same firm, Olathe, for defendant Donald R. Pierce.
R. Kent Sullivan of Payne & Jones, Chartered, Overland Park, for defendants William C. Chaffee, Gertrude Erickson, Charles Fleming and Robert Johnson.
Charles White Hess of Linde Thomson Fairchild Langworthy Kohn & Van Dyke, P.C., Overland Park, and Albert Thomson, of the same firm, Kansas City, Mo., for defendant Howard D. Huff.
Richard E. McLeod of Shook, Hardy & Bacon, Kansas City, Mo., and Thomas R. Buchanan, of the same firm, Overland Park, for defendants Mark Eaton, John Highland and Pat Waggoner, were with him on the briefs for defendants.
Alan V. Johnson of Sloan, Listrom, Eisenbarth, Sloan & Glassman, Topeka, argued the cause, and Gregory J. Bien, of the same firm, was with him on briefs for defendant Fidelity & Deposit Co. of Maryland.
P. John Owen of Morrison, Hecker, Curtis, Kuder & Parrish, Kansas City, Mo., argued the cause, and Nancy L. Shelledy, Kansas City, Mo., and A. Bradley Bodamer, Overland Park, and Norman H. Raiden, Gen. Counsel, Ralph W. Christy, Deputy General Counsel, William K. Black, Associate Gen. Counsel, and Dorothy L. Nichols, Trial Atty., Federal Home Loan Bank Bd., Washington, D.C., were with him on briefs for plaintiff.
Robert T. Stephan, Atty. Gen., and Jeffrey S. Southard, Deputy Atty. Gen., were on amicus curiae brief for Attorney General of Kansas.
Julia L. Young, General Counsel, Topeka, was on amicus curiae brief for the Kansas Banking Dept.
The case comes before us on a certification from the United States District Court for the District of Kansas under the authority of the Uniform Certification of Questions of Law Act, K.S.A. 60-3201 et seq.
The two certified questions are:
1. DOES THE COMPARATIVE NEGLIGENCE STATUTE, K.S.A. 60-258a, APPLY TO AN ACTION FOR ECONOMIC LOSS BROUGHT BY THE RECEIVER OF A SAVINGS AND LOAN ASSOCIATION AGAINST INDIVIDUAL OFFICERS AND DIRECTORS OF THE ASSOCIATION FOR NEGLIGENT BREACH OF FIDUCIARY DUTIES UNDER BOTH THE COMMON LAW AND THE STATUTORY LAW?
2. IF THE COMPARATIVE NEGLIGENCE STATUTE, K.S.A. 60-258a, IS NOT APPLICABLE, CAN THE DEFENDANTS STATE VALID IMPLIED INDEMNITY, SUBROGATION, AND/OR CONTRIBUTION CLAIMS AGAINST OTHER PERSONS INVOLVED IN THE TRANSACTIONS AT ISSUE?
North Kansas Savings and Loan Association (NKSA) was a state chartered but federally insured savings and loan association situated in Beloit, Kansas. NKSA became insolvent and the Federal Home Loan Bank Board appointed the Federal Savings and Loan Insurance Corporation (FSLIC) receiver for the institution. FSLIC, in its receivership capacity, brought this action against various former officers and employees of NKSA seeking recovery of damages for economic loss sustained by NKSA in connection with the making of certain allegedly improvident loans which had resulted in the collapse of the institution. The defendants and their connection to the litigation are as follows:
(1) Howard D. Huff--Chairman of NKSA's Board of Directors, its executive officer and a member of its Executive Committee;
(2) Donald R. Pierce--NKSA's President, a member of its Board of Directors and Executive Committee;
(3) William C. Chaffee, Gertrude Erickson, Charles Fleming, and Robert Johnson--members of NKSA's Board of Directors;
(4) Mark Eaton, John Highland, and Pat G. Waggoner--officers of NKSA serving on its Loan Committee; and
(5) Fidelity & Deposit Company of Maryland--underwriter of a fidelity bond to indemnify NKSA from losses to it resulting from dishonest and fraudulent acts of officers and employees (sued by virtue of a count alleging dishonest and fraudulent acts of defendant Huff).
Specifically, plaintiff FSLIC contends the individual defendants breached their fiduciary duties in failing to protect the assets and economic viability of NKSA and in undertaking (or failing to prevent) numerous unsound and unlawful transactions engaged in by NKSA. The transactions of which FSLIC complains are described by it as follows:
(1) On November 4, 1981, with the approval of the directors, NKSA loaned $2,270,000 to Grandpa John's, Inc. (an Illinois corporation operating discount department stores in southern Illinois), at a time when its (NKSA's) net worth was approximately $1,212,815 and received as collateral first mortgages on six commercial properties whose market value was $1,650,000 or less;
(2) On March 9, 1982, with the approval of the directors, NKSA loaned $1,200,000 to Orient Coal Trust II (an Illinois land trust newly organized to engage in recovery of coal from refuse coal gob and tailings) at a time when its (NKSA's) net worth was approximately $1,111,511 and received as collateral a first mortgage on unimproved real property (the site of the refuse) whose market value was less than $175,000;
(3) Beginning in 1981, NKSA loaned the Double Cee syndicate of investors money to finance the lease of a cruise ship; these loans were refinanced in June, 1982, with the approval of the directors; the aggregate amount of all loans was $1,200,000 at a time when NKSA's net worth was approximately $1,143,982; NKSA was given as collateral a certificate of deposit in a nonexistent bank purportedly in the British West Indies;
(4) Beginning in August, 1981, and continuing to June 1, 1982, with the approval of the directors, NKSA loaned $2,108,750 to Citation, Inc. (a Minnesota corporation with a negative net worth of $350,000), and its affiliates or nominees and received first mortgages on six properties in Minnesota whose market value was $795,000 or less; NKSA's net worth on June 1, 1982, was approximately $1,143,982;
(5) On July 12, 1982, at the direction of Huff and Pierce, NKSA loaned Heinz Weimhoff $170,000 without collateral and without requiring him to execute a note evidencing his receipt of and obligation to repay these funds; and
(6) On July 15, 1982, with the approval of the directors, NKSA loaned $11,000,000 to United Development Corporation (a Colorado corporation newly organized to purchase and develop ranch property in Colorado and Utah) at a time when its (NKSA's) net worth was approximately $1,127,329; NKSA received a second mortgage on the ranch property, whose market value was less than $3,500,000 and which was encumbered by a first mortgage with an outstanding loan balance of $1,431,873.
Of the above six transactions, no payments of principal or interest were made on four and one payment of interest and principal was made on the remaining two. These transactions allegedly caused NKSA's insolvency and are alleged to have been unsafe and unsound practices entered into in violation of federal rules and regulations.
Defendants seek to have their respective negligence compared to each other as well as to certain nondefendants (borrowers, guarantors, and appraisers). As stated by plaintiff FSLIC, "[D]efendants want to compare themselves to the six borrowers to whom loans should not have been extended, to guarantors whose guarantees were not credit worthy, and to appraisers selected by the defaulting borrowers instead of, as required, by the directors of NKSA."
This brings us to the first certified question (hereinafter reiterated for convenience):
DOES THE COMPARATIVE NEGLIGENCE STATUTE, K.S.A. 60-258a, APPLY TO AN ACTION FOR ECONOMIC LOSS BROUGHT BY THE RECEIVER OF A SAVINGS AND LOAN ASSOCIATION AGAINST INDIVIDUAL OFFICERS AND DIRECTORS OF THE ASSOCIATION FOR NEGLIGENT BREACH OF FIDUCIARY DUTIES UNDER BOTH THE COMMON LAW AND THE STATUTORY LAW?
It is the position of plaintiff FSLIC that this question should be answered in the negative on the basis that violation of federal law is asserted in the action and state law is therefore inapplicable. The petition filed herein alleges violation of federal and state statutory law as well as the common law. In this certified question we are asked to determine a specific question under Kansas law. We believe the issue raised by plaintiff is outside the purview of the certified question.
We turn now to the discussion of this certified question on its merits.
K.S.A. 60-258a provides:
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