Imperial Corp. of America, In re

• Decision Date: 19 August 1996
• Docket Number: 95-55236,95-56045,Nos. 95-55233,s. 95-55233
• Citation: 92 F.3d 1503
• Parties: , 96 Cal. Daily Op. Serv. 6152, 96 Daily Journal D.A.R. 10,100 In re IMPERIAL CORPORATION OF AMERICA, Related Litigation. FEDERAL DEPOSIT INSURANCE CORPORATION, * in its corporate capacity and as receiver for Imperial Federal Savings Association, Plaintiff-Appellant, v. Robert S. ALSHULER, Defendant, and Barclay Davidson, Michael Lea, and Anthony E. Maniscalco, II, Defendants-Appellees. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as receiver for Imperial Federal Savings Association, Plaintiff-Appellant, v. Mark L. KLINE, Defendant-Appellee. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as receiver for Imperial Federal Savings Association, Plaintiff-Appellant, v. Robert S. ALSHULER, et al., Defendants, and Gary M. Cypres, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1503

92 F.3d 1503

65 USLW 2126, 96 Cal. Daily Op. Serv. 6152,

96 Daily Journal D.A.R. 10,100

In re IMPERIAL CORPORATION OF AMERICA, Related Litigation.

FEDERAL DEPOSIT INSURANCE CORPORATION, ^* in

its corporate capacity and as receiver for

Imperial Federal Savings Association, Plaintiff-Appellant, v. Robert S. ALSHULER, Defendant, and Barclay Davidson, Michael Lea, and Anthony E. Maniscalco, II, Defendants-Appellees.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate

capacity and as receiver for Imperial Federal

Savings Association, Plaintiff-Appellant, v. Mark L. KLINE, Defendant-Appellee.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate

capacity and as receiver for Imperial Federal

Savings Association, Plaintiff-Appellant, v. Robert S. ALSHULER, et al., Defendants, and Gary M. Cypres, Defendant-Appellee.

Nos. 95-55233, 95-55236, 95-56045.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 11, 1996.

Decided Aug. 19, 1996.

Roberta H. Clark, Federal Deposit Insurance Corporation, Washington, D.C., for the plaintiff-appellant.

Seth Aronson, O'Melveny & Myers, Los Angeles, California, for defendant-appellee Gary M. Cypres.

Peter K. Rosen and Mark P. Lynch, Weisman & Rosen, Los Angeles, California, for defendants-appellees Mark L. Kline and Michael Lea.

Paul M. Mahoney, Jones, Mahoney & Brayton, Claremont, California, for defendant-appellee Anthony E. Maniscalco, II.

Jeffrey L. Jackson, San Diego, California, for defendant-appellee Barclay Davidson.

Appeals from the United States District Court for the Southern District of California, Irma E. Gonzalez, District Judge, Presiding. D.C. Nos. CV-93-0992-IEG, CV-93-0509-IEG and CV-93-0992-IEG.

Before: O'SCANNLAIN and TROTT, Circuit Judges; VAN SICKLE, ^** District Judge.

O'SCANNLAIN, Circuit Judge:

In this first of two related cases ¹ arising out of the failure of the Imperial Savings Association, we must decide whether a court-approved settlement of a shareholder derivative suit precludes the receiver from bringing mismanagement claims against former officers and directors.

I

The Federal Deposit Insurance Corporation ("FDIC"), as receiver for failed savings and loan Imperial Savings Association ("ISA"), appeals the district court's summary judgment for ISA's former officers and directors in the FDIC's actions for negligence and breach of fiduciary duty (the "mismanagement claims"). The district court concluded that claim preclusion barred the FDIC from obtaining judgment against the officers and directors because of a court-approved, class action shareholder derivative suit, Shields v. Thygerson, ² which settled shortly before federal regulators seized ISA.

ISA, a San Diego-based savings and loan, was a wholly-owned subsidiary of Imperial Corporation of America ("ICA"), a financial institution holding company. ICA and ISA shared the same board of directors. The Shields settlement resolved consolidated shareholder derivative and federal securities class actions involving ICA's investments in junk bonds and consumer loans. These investments arose from transactions with Michael Milken and Drexel Burnham Lambert in the late 1980s.

Appellees Barclay Davidson, Mark L. Kline, Michael Lea, and Anthony E. Maniscalco II (collectively "the officers") were ISA officers between 1987 and 1989 and were allegedly involved in imprudent investments and transactions. Appellee Gary M. Cypres served on the ICA and ISA boards as an outside director from March 1987 to December 1988. ³

Davidson claims that he was only an officer (vice president) of ISA between May and July of 1988, and that he was "a mere employee" (marketing representative) when the allegedly imprudent loans were arranged prior to January 1988. According to the FDIC's complaint, Kline was "Executive Officer in charge of First Financial Equities Corporation," an ISA subsidiary "involved in acquisition of real estate, and was a member of the Executive Lending and Investment Committee, which was responsible for credit risk underwriting of all lending investments" at ISA. In the Shields complaint, Lea was named as a "Senior Vice-President Financial and Economic Analysis" of ICA. Maniscalco took part in a $16 million loan made in 1988 by ISA to Global Motors, the importer of the Yugo automobile--the loan went into default. Although Maniscalco was not named in the Shields complaint, the complaint referred to the defaulted Global Motors loan, which is also cited in the FDIC's allegations against Maniscalco.

The Shields class action and derivative complaint alleged violations of federal securities laws, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and relevant state laws. The complaint specifically alleged that between 1987 and 1989, officers and directors of ICA and ISA engaged in imprudent financial policies, including inadvisable loans.

The parties prepared a Stipulation of Settlement, which provided that American Casualty Company would make a $12.5 million payment to an escrow fund, of which $10 million would be "deemed" to be in settlement of the class actions and $2.5 million would be "deemed" to be in settlement of the derivative actions. ICA was obligated to contribute an additional $500,000 to the escrow fund, creating a total settlement fund of $13 million for payment to the plaintiffs in the class actions. The settlement released the directors and officers of ICA and ISA from any claims that might have been brought against them by ICA or ISA.

On December 15, 1989, the ICA Board approved the Stipulation of Settlement. ⁴ The settlement included ICA, ISA, and all ICA subsidiaries and affiliates in the definition of "Signatory Defendants." At a hearing on February 22, 1990, U.S. Magistrate Judge Harry McCue approved the settlement under Federal Rules of Civil Procedure 23 and 23.1 and signed the final judgment. ⁵ Magistrate Judge McCue concluded that (1) the notice provided to shareholders was "the best notice practicable under the circumstances"; (2) the settlement was "the product of good faith arm's length negotiations"; and (3) the settlement was "fair, reasonable and adequate as to" ICA and the shareholders.

On the same day that Magistrate Judge McCue approved the settlement, the United States Office of Thrift Supervision ("OTS") ordered the seizure of ISA and placed it into conservatorship under the RTC. OTS Order No. 90-375 (Feb. 22, 1990). On February 28, 1990, ICA filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.

In its corporate capacity and as receiver for ISA, the Resolution Trust Corporation ("RTC") filed actions against the officers, as well as the directors and other executives of ISA, to recover damages for the losses suffered by ISA as a result of the imprudent transactions that took place between 1987 and 1989. On June 22, 1994, the district court granted the officers' and directors' motion for summary judgment on the two mismanagement claims (negligence and breach of fiduciary duty), concluding that the claims were barred by claim preclusion. Pursuant to Federal Rule of Civil Procedure 54(b), the district court entered judgments on the mismanagement claims in favor of Appellees Cypres, Davidson, Kline, Lea, and Maniscalco. The RTC timely filed notices of appeal.

II

The doctrine of claim preclusion (res judicata) provides that a final judgment on the merits bars a subsequent action between the same parties or their privies over the same cause of action. Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir.1985) (citations omitted). "The judgment prevents litigation of all grounds and defenses that were or could have been raised in the action." Id. (citing Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414-15, 66 L.Ed.2d 308 (1980)). The parties must have had "a full and fair opportunity to litigate." Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 973, 59 L.Ed.2d 210 (1979).

This court has held that "when two parties are so closely aligned in interest that one is the virtual representative of the other, a claim by or against one will serve to bar the same claim by or against the other." Nordhorn v. Ladish Co., Inc., 9 F.3d 1402, 1405 (9th Cir.1993) (citations omitted). Furthermore, "[c]orporate affiliations may be relevant in determining whether two parties are in privity for purposes of issue or claim preclusion." Id. (citing In re Gottheiner, 703 F.2d 1136, 1139-40 (9th Cir.1983) (defendant in prior suit was wholly owned by defendant in subsequent suit, and collateral estoppel barred second suit)).

In determining whether successive lawsuits involve the same cause of action, this court considers the following factors:

(1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts.

Nordhorn, 9 F.3d at 1405 (quoting Costantini v. Trans World Airlines, 681 F.2d 1199, 1201-02 (9th Cir.) (citation omitted), cert. denied, 459 U.S. 1087, 103 S.Ct. 570, 74 L.Ed.2d 932 (1982)); see Costantini, 681 F.2d at 1202 (citation omitted) ("The last of these criteria is the most important.").

A

Here, the district court held that claim preclusion barred the FDIC's mismanagement claims against the officers and director Cypres. The court concluded that although ISA was neither a named defendant in the Shields litigation nor a signatory in the Shields settlement agreement, ISA was nonetheless a party to the Shields action for the purposes of claim preclusion.

Emphasizing that ISA was a wholly-owned subsidiary of ICA, which was a named defendant and signatory in Shields, and that the boards of ICA and ISA were identical, the court reasoned that ICA was the "virtual representative" of ISA in the...