Gaubert v. Federal Home Loan Bank Bd.
| Decision Date | 09 December 1988 |
| Docket Number | No. 88-5077,88-5077 |
| Citation | 863 F.2d 59,274 U.S.App. D.C. 153 |
| Parties | , 57 USLW 2361, 12 Fed.R.Serv.3d 1144 Thomas M. GAUBERT, et al., Appellants, v. FEDERAL HOME LOAN BANK BOARD, et al., Appellees. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Abbe David Lowell, with whom Sean Connelly and Elizabeth C. Brooks, Washington, D.C., were on the brief, for appellants.
Kirk K. Van Tine, with whom Perry O. Barber, Jr., Timothy S. Durst, and Jordan Luke, Gen. Counsel, Jack D. Smith, Deputy Gen. Counsel, Dorothy L. Nichols, Senior Associate Gen. Counsel, and Colleen B. Bombardier, Asst. Gen. Counsel, Federal Home Loan Bank Board, Washington, D.C., were on the brief, for appellees.
Before WALD, Chief Judge, and STARR and SENTELLE, Circuit Judges.
Opinion for the court filed by Chief Judge WALD.
Appellant Thomas M. Gaubert brought this derivative action on behalf of Independent American Savings Association ("IASA"), a federally-insured savings and loan association of which he is the majority shareholder, against the Federal Home Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance Corporation ("FSLIC"). Gaubert alleges that these federal agencies plundered IASA, and challenges the decision of the FHLBB to appoint the FSLIC as receiver for IASA on May 20, 1987. The district court dismissed Gaubert's complaint on the ground that it failed to aver with sufficient particularity why it would have been futile for Gaubert to demand that IASA's board of directors carry the suit forward before proceeding with it himself in a derivative capacity. See Fed.R.Civ.P. 23.1. We find that the district court did not abuse its discretion in dismissing this suit, and we affirm its judgment.
In January 1983, Gaubert acquired a controlling interest in a Texas savings and loan that he subsequently renamed Independent American Savings Association. According to Gaubert's Amended Verified Complaint, 1 Appellants' Appendix ("App.") at 26-47, IASA was profitable when he gained control, and it remained profitable through the end of 1984 under his supervision as chairman of the board of directors. Indeed, Gaubert argues that IASA grew steadily under his direction through early 1986.
Gaubert alleges the inception in April 1986 of a far-reaching conspiracy of corporate intrigue and regulatory sabotage. According to his complaint, the Federal Home Loan Bank of Dallas ("FHLB-D") threatened to close IASA unless the Association's board of directors tendered their resignations. When they did so, Gaubert alleges, the FHLB-D replaced them with its own "handpicked" directors, and IASA's financial picture became less rosy: although conceding that the shareholders approved these directors, Gaubert argues that this board (and officers selected by the FHLB-D) mismanaged and looted IASA, and was responsible for creating reported negative net worth of $440 million at the end of fiscal year 1986. Gaubert also maintains that the FHLB-D sought to induce IASA to acquire another savings and loan, Investex Savings of Tyler, Texas, which was failing and would otherwise have required a $40 to 50 million payout from the FSLIC. Moreover, Gaubert contends that the FHLBB conspired to remove him from the day-to-day operations at IASA at precisely the time that IASA needed him most.
In January 1987, the complaint continues, IASA shareholders met and rejected the slate of directors allegedly backed by the FHLB-D and replaced them with some of IASA's previous directors. These directors convinced the state of Texas to come in as conservator, and the state replaced the board elected by the shareholders with a new and final board. It was upon this final board that Gaubert would have had to make demand, or provide an explanation why he had not done so.
During April and May of 1987, the final board hired consultants to investigate IASA's predicament. According to Gaubert's complaint, at least one of these consultants concluded that the officials installed by the FHLB-D were responsible for IASA's economic problems, but that these problems could be worked out. The complaint further alleges, however, that the FHLBB ultimately persuaded the final board that IASA would never be able to correct its problems, and the final board therefore closed IASA. The FHLBB in turn determined that IASA was insolvent, which allowed it on May 20, 1987, to appoint the FSLIC as receiver pursuant to 12 U.S.C. Sec. 1464(d)(6)(A)(i).
On June 19, 1987, the last day of the 30-day period established by the statute for challenging the appointment of the receiver, see 12 U.S.C. Sec. 1464(d)(6)(A), Gaubert filed this derivative action with the district court for the District of Columbia. The complaint alleges that the federal authorities "placed the institution into receivership for the dual self-serving purpose of covering their conspiracy, and frustrating the shareholders' legitimate claims on behalf of the association and themselves." Amended Verified Complaint p 7 (App. at 28). Gaubert charges that these alleged facts show that the FHLBB and the FSLIC did not have grounds to seek the closing of and receivership of IASA. He argues further that the federal agencies had unclean hands and were estopped from acting to place IASA into receivership. Gaubert also claims that the agencies deprived shareholders and IASA of their fifth amendment due process rights.
Gaubert forthrightly concedes that he did not make a demand on the final board to institute this action on behalf of the association. Rather, he argues that such demand would have been futile under the circumstances and therefore should be excused. The specific allegations lodged against this final board in the complaint are set out below.
8. ... During the entire period from April 1986 until IASA was closed in May 1987, except for a brief period of several days when the board of directors of IASA consisted of independent people duly elected at an annual meeting of the stockholders, the IASA board was a captive, and served at the sufferance of, government regulators, either federal or, for the four months prior to the appointment of the receiver, state....
9. ... [The final board of directors ] was chosen by and was beholden to the Texas Savings and Loan Commissioner, the person who ultimately ordered IASA wrongfully to be closed. This board was also the subject of relentless pressure to close IASA being exerted by the FHLBB and the [FHLB-D]. Such a board could hardly be expected to agree to challenge an action which it, and the state and federal regulators who controlled it, had collaborated and schemed to take.
10. In addition, the board of directors put into IASA by the state regulators had no financial ties or stake in the association. After they carried out the FHLB-D's bidding, by closing IASA so that a receivership could be appointed, they literally dispersed and never met again.... The transient, state-appointed directors were in not position [sic ]--because of their having left and because of the lack of time--to pursue any claims on behalf of IASA. Indeed, by the last day of the period established by law for challenging a receivership, the state-selected board had taken no action to do so.
App. at 28-30 (emphasis added). The italicized portions of these passages reflect the sum total of what Gaubert claims are adequately particularized reasons for not making a demand on the board to legally challenge the appointment of a receiver.
On the basis of these allegations, the district court dismissed the complaint. Reasoning that "[s]uch allegations might survive a motion to dismiss where notice pleading is in order," the court nevertheless concluded that Gaubert v. Federal Home Loan Bank Board, Civil Action No. 87-01682, slip op. at 2 (D.D.C. Nov. 23, 1987) (). The district court's dismissal was with prejudice. Gaubert v. General Home Loan Bank Board, Civil Action No. 87-01682, Order (D.D.C. Feb. 12, 1988).
Rule 23.1 provides in pertinent part that parties bringing derivative actions to enforce a right of a corporation must "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors ... or ... [the reasons] for not making the effort." In challenging the district court's dismissal of his complaint, appellant raises several issues with regard to this requirement. First, does federal law or state law define the substantive contours of the demand requirement, and when as a substantive matter will demand be excused as futile? 2 Second, are there certain circumstances--such as in the receivership context--where the demand requirement should be held per se inapplicable? And third, if the requirement does apply, what factual allegations are required by the Rule to satisfy the procedural requirement of "particularity" in pleading? We will deal with these issues in turn.
The requirement of the exhaustion of intracorporate remedies as a precondition to the commencement of a shareholder derivative suit originated in the English courts of equity. See, e.g., Foss v. Harbottle, 2 Hare 461, 67 Eng.Rep. 189 (V.Ch.1843). In the United States, the Supreme Court first articulated the "demand requirement" for derivative actions in Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827 (1882). There the Court required the shareholder-plaintiff to
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