FIRST SAV. AND LOAN INS. CORP. v. Alexander
| Decision Date | 09 July 1984 |
| Docket Number | Civ. No. 82-0299,82-0090. |
| Citation | 590 F. Supp. 834 |
| Parties | FIRST SAVINGS AND LOAN INSURANCE CORPORATION, a federal corporation, Plaintiff, v. Denis D. ALEXANDER, Clifford K. Fujiwara, Glenn K. Okada, William E. Takabayashi, Richard A. Cooke, Jr., Michael Provan, and Henry K.F. Kersting, Defendants. FIRST HAWAIIAN BANK, Plaintiff, v. Denis D. ALEXANDER, Richard A. Cooke, Jr., Clifford K. Fujiwara, Glenn K. Okada, William E. Takabayashi, Henry K.F. Kersting, Michael Provan, and Paul Simplson, Defendants. |
| Court | U.S. District Court — District of Hawaii |
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Steven H. Levinson, Diane D. Hastert, Honolulu, Hawaii, for plaintiffs.
Alexander C. Marrack, Honolulu, Hawaii, for Richard A. Cooke, Jr.
John A. Chanin, Honolulu, Hawaii, for Clifford K. Fujiwara.
Walter G. Chuck, W. Gregory Chuck, Honolulu, Hawaii, for Glenn K. Okada and William E. Takabayashi.
Thomas P. Dunn, Honolulu, Hawaii, for Henry K.F. Kersting.
George W. Brandt, Gail M. Kang, Lyons, Hagerman & Brandt, Honolulu, Hawaii, for Denis D. Alexander.
On February 25, 1980, the State of Hawaii placed First Savings and Loan Association ("First Savings") in receivership. The Federal Home Loan Bank Board ("FHLBB") federalized that receivership and appointed the Federal Savings and Loan Insurance Corporation ("FSLIC") as receiver. Pursuant to that receivership, FSLIC sold the assets and liabilities of First Savings to First Federal Savings and Loan Association ("First Federal") on February 25, 1980.
First Savings, through its directors, filed two suits against FSLIC and others, one on February 26, 1980 and the other on May 7, 1981, alleging that the receivership was improper and illegal. Both suits were dismissed. See First Savings & Loan Association, et al. v. First Federal Savings & Loan Association of Hawaii, et al., 547 F.Supp. 988 (D. Hawaii 1982); First Savings & Loan Association v. First Federal Savings & Loan Association et al., 531 F.Supp. 251 (D. Hawaii 1981).
On February 24, 1982, the First Hawaiian Bank ("FHB"), as the assignee of the claims of the First Savings stockholders, filed suit against the directors of First Savings at the time of the receivership. The suit alleged, primarily, that the directors had mismanaged First Savings to the detriment of First Savings and the stockholders.
FSLIC filed suit against the directors on June 9, 1982, on substantially the same grounds alleged in the FHB action. The FSLIC and FHB actions were consolidated on August 18, 1982. Answers to the complaints were filed by all the defendants except three by July 19, 1982. A default judgment has been entered against one of the defendants, Michael Provan, and two other defendants, Okada and Takabayashi, were given leave to file their Answers by Order of the Court of April 11, 1984.
Defendants Fujiwara, Alexander, Cooke, Okada, and Takabayashi now seek leave to amend their original Answers to include further defenses, cross-claims, counterclaims and third-party claims and bring in new parties, i.e., Federal Home Loan Bank Board ("FHLBB") and Federal Home Loan Bank-Seattle ("FHLB-S").
Defendants move for leave to amend their answers to the complaints. Plaintiffs request a discovery conference order limiting discovery and tentatively identifying the issues for discovery purposes, i.e., and order from this court precluding the defendants from inquiring into the twenty (20) areas listed in Appendix A.
1. Motion for Leave to Amend Answers to the Complaints
Defendants now desire to add various counterclaims and third-party claims in the consolidated actions. In essence, these new claims charge plaintiffs and various third parties with the following:
1. Knowledge of defendant Henry Kersting's unsavory reputation with respect to other savings and loan associations and failure to divulge this information to the defendants;
2. Mismanagement of First Savings in the role of receivership;
3. Pre- and post-receivership bad faith, arbitrariness and capriciousness in dealing with First Savings and the defendants;
4. Knowledge of FHB loan to First Savings secured by First Savings stock and failure to warn defendants of this loan transaction;
5. Knowledge of or participation by FHB in an illegal compensating balance scheme with First Savings which caused the liquidity crisis that forced First Savings into insolvency and the ensuing receivership; and
6. Unconstitutionality of 12 U.S.C. §§ 1464 and 1729, on their face and as applied to defendants, in that they operated to deprive First Savings and defendants of valuable property rights without due process of law, in violation of the Fifth Amendment.
F.R.Civ.P. 15(a) permits a party to amend his pleadings by leave of court after 20 days have passed since the filing of the original pleadings. Rule 15(a) states that "leave shall be freely given when justice so requires." If an amendment adds a party to the action, the claim asserted against such party must have arisen out of the "conduct, transaction, or occurrence set forth in the original pleading", and if so, the amendment relates back to the date of the original pleading. Rule 15(c).
On their face, the proposed amendments do state claims that arose out of the original transaction, i.e., the failure and insolvency of First Savings. However, leave to freely amend is not warranted if there would be substantial prejudice to the opposing party or the proposed amendments would fail to state a claim upon which relief could be granted.
Under these conditions, the following proposed amendments cannot be added to defendants' original answers:
(A) Defendants' claims that FSLIC, FHLBB, FHLB-S, FHB and the United States failed to warn defendants of Henry Kersting's reputation and/or the FHB loan secured by First Savings stock ("FHB loan").
These allegations fail to state a claim upon which relief can be granted, for two reasons. First, defendants allege negligent misrepresentation on the part of the United States and the various federal agencies. Under the Federal Tort Claims Act no action can be maintained against the government or its agents for negligent misrepresentation. Second, plaintiffs and proposed third-party defendants (FHLBB, FHLB-S, United States) did not have a duty to warn defendants of either Henry Kersting's unsavory financial reputation or of the FHB loan to First Savings.
Assuming defendants' facts to be true, they merely allege that FSLIC and others were negligent in not informing defendants of Kersting's questionable activities in the past. The gravamen of this claim is negligent misrepresentation, which is excepted from the Federal Torts Claim Act (FTCA) under 28 U.S.C. § 2680(h), which states, in pertinent part, that the FTCA does not apply to "(h) Any claim arising out of ... misrepresentation, deceit ...." The United States has not consented to be sued for misrepresentation or deceit. Thus, no counterclaim or third party claim alleging negligent misrepresentation on the part of the United States or its agents can be asserted against the government parties. Defendants' allegation that the plaintiffs and others failed to warn them of Kersting and the FHB loan is but a claim for misrepresentation or failure to disclose and, as such, is barred by § 2680(h) of the FTCA. Redmond v. United States, Securities and Exchange Commission, 518 F.2d 811 (7th Cir.1975); City and County of San Francisco v. United States, 615 F.2d 498 (9th Cir.1980).
In addition, even if defendant's claims could be construed as alleging a cause of action other than negligent misrepresentation, such claims still fail to state a claim upon which relief can be granted. The government agencies had no duty to warn defendants of Kersting or the FHB loan. In Re Franklin National Bank Securities Litigation, 445 F.Supp. 723, aff'd on rehearing, 449 F.Supp. 574 (E.D.N.Y.1978); Emch v. United States, 630 F.2d 523, 527 (9th Cir.1980), cert. denied, 450 U.S. 966, 101 S.Ct. 1482, 67 L.Ed.2d 614 (1981); First State Bank of Hudson County v. United States, 599 F.2d 558 (3d Cir.1979), cert. denied, 444 U.S. 1013, 100 S.Ct. 662, 62 L.Ed.2d 642 (1980).
Thus, as a matter of law, this court finds that there was no duty on the part of FSLIC, FHLBB, FHLB-S, or the United States to warn defendants of either the unsavory financial reputation of Henry Kersting, or the loan by FHB secured by First Savings' stock. Therefore, this claim does not and cannot state a claim upon which relief can be granted. The motion to amend is hereby DENIED.
(B) Defendants' claims that FHB also had a duty to warn defendants of Kersting and the FHB loan.
Defendants' new allegations run up against the very valid contention by FHB that it is too late in these proceedings for the defendants to bring such matters before the court. It is difficult for this court to believe that the defendants did not know, or should not have known, about the loan by FHB secured by First Savings stock until now. This loan transaction took place years before First Savings was placed into receivership. Directors of banks have a duty to inform themselves of these types of transactions. Atherton v. Anderson, 99 F.2d 883, 889-90 (6th Cir.1938). See also Joy v. North, 692 F.2d 880, 896 (2nd Cir. 1982), cert. denied, 460 U.S. 1051, 103 S.Ct. 1498, 75 L.Ed.2d 930 (1983).1 In addition, defendants have not supported, by affidavit or otherwise, the allegation that FHB was aware of Kersting's reputation.
The decision to grant leave to amend is discretionary. Delay by a party seeking leave to amend a complaint or pleading may not alone foreclose amendment, but if prejudice results to another party, then leave to amend may be denied. In addition, if the amending party knew or should have known the facts upon which the amendment is based at the time of the original pleading, then leave to amend should be denied unless there is excusable neglect or oversight. See Jordon v. County of Los Angeles, 669 F.2d...
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