Lafayette Federal Credit Union v. U.S., CIV.A. MJG-99-78.

Decision Date07 October 1999
Docket NumberNo. CIV.A. MJG-99-78.,CIV.A. MJG-99-78.
Citation76 F.Supp.2d 645
PartiesLAFAYETTE FEDERAL CREDIT UNION, et al., Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — District of Maryland

Christopher B. Mead, Mark London, London & Mead, Washington, DC, for Plaintiff.

Colette J. Winston, United States Department of Justice, Washington, DC, for Defendant.

GARBIS, District Judge.

The Court has before it Defendant's Motion to Dismiss and the materials submitted relating thereto. The Court finds that a hearing is unnecessary to resolve the motion.

A. The Parties

This suit arose out of the National Credit Union Administration's ("NCUA")1 decisions to place Capital Corporation Federal Credit Union ("CapCorp") into conservatorship on January 31, 1995 and subsequently to liquidate CapCorp. Plaintiffs are ninety-four credit unions and former holders of Preferred Capital Shares ("PCS") in CapCorp, a now-defunct corporate federal credit union that provided financial services to other credit unions2 and held no deposits or shares of individuals. Defendant is the United States of America ("Defendant" or "the Government"), being sued under the theory of vicarious liability for NCUA's alleged negligence and breach of fiduciary duties.

B. Lafayette I

On November 2, 1996, in their own right and on behalf of CapCorp, plaintiffs filed a ten-count3 suit ("Lafayette I") in the U.S. District Court for the Eastern District of Virginia against NCUA in its corporate capacity, NCUA as conservator and liquidating agent of CapCorp, and the Government as respondeat superior. Plaintiffs brought a claim under the Administrative Procedure Act, 5 U.S.C. § 702 et seq., alleging that NCUA's regulatory decisions concerning CapCorp were "`erroneous, unlawful, arbitrary, and capricious[.]'" See Lafayette Federal Credit Union v. National Credit Union Admin., 960 F.Supp. 999, 1001 (E.D.Va.1997). Plaintiffs alleged that NCUA had made the following conclusions regarding CapCorp which were unsupported and unlawful:

• Collateralized Mortgage Obligations ("CMOs"),4 which comprised a large portion of CapCorp's portfolio in late 1994, were risky investments;

• CapCorp's CMO-laden portfolio threatened CapCorp's liquidity;

• CapCorp should be liquidated;

• Priority should be given to uninsured depositors rather than to PCS holders in distributing CapCorp's liquidated assets; and

• Deposits should be frozen for 60 days.

Id. at 1000-01.

The Lafayette I plaintiffs also claimed the following:

• The NCUA's January 31, 1995 order placing CapCorp into conservatorship was based upon four erroneous, unlawful, and arbitrary reasons: (1) CapCorp was insolvent; (2) there might be a run on shares when the 60-day deposit freeze expired; (3) CapCorp had exceeded its legal borrowing limit; and (4) CapCorp's CMO portfolio was risky.

• NCUA based its decisions upon inaccurate and incomplete information provided by NCUA staff as well as on improper factors, such as an erroneous conclusion that CMOs were risky investments, that PCS holders were somewhat culpable for chasing yield, and that CapCorp's field of membership was too large.

• NCUA failed to follow Generally Accepted Accounting Practices and its own regulations in determining the value of CapCorp, and information was withheld from NCUA Board members, denying them the ability to make fully informed decisions.

• NCUA officials acted outside their regulatory and statutory authority in liquidating CapCorp, and these officials were seeking to cover up their role in hiding pertinent facts from NCUA Board members.

Id. at 1001. The Lafayette I plaintiffs requested an equitable accounting, detinue, and restitution for approximately $20 million that NCUA's actions allegedly cost plaintiffs. Id. at 1000.

The Lafayette I court dismissed plaintiffs' suit based upon four grounds. First, because plaintiffs and CapCorp failed to meet the exhaustion requirements of FIRREA, the court had no subject matter jurisdiction. Id. at 1004-05. Second, plaintiffs failed to state a constitutional due process claim. Id. at 1005. Third, plaintiffs' derivative suit on CapCorp's behalf was independently barred because CapCorp had failed to challenge the conservatorship order within the statutory ten-day period under 12 U.S.C. § 1786(h)(3) and, therefore, plaintiffs could not bring an action that CapCorp itself could not assert. Id. Finally, defendants had assumed any rights once held by CapCorp's shareholders. Id.

The U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of plaintiffs' case. See Lafayette Federal Credit Union v. National Credit Union Admin., 133 F.3d 915 (4th Cir.1998) (table case). The U.S. Supreme Court then denied plaintiffs' petition for certiorari. See Lafayette Federal Credit Union v. National Credit Union Admin., ___ U.S. ___, 119 S.Ct. 60, 142 L.Ed.2d 47 (1998).

B. Lafayette II

After the dismissal of the complaint in Lafayette I, on January 12, 1999, Plaintiffs,5 in their own right and on behalf of CapCorp, filed a two-count complaint ("Lafayette II") under the Federal Tort Claims Act, 28 U.S.C. § 1346(b) et seq. ("FTCA"), against the Government as the sole defendant. Count I presents a negligence claim, and Count II, a breach of fiduciary duty claim. Plaintiffs allege the following:

• The Government is vicariously liable for the negligence of NCUA in its corporate capacity and NCUA as conservator and liquidating agent of CapCorp.

• NCUA owed a duty of care to CapCorp and to Plaintiffs, as shareholders, to exercise reasonable care in the management of CapCorp's affairs and liquidation of its portfolio after NCUA appointed itself as conservator of CapCorp.

• NCUA staffers breached their duty of care to CapCorp and Plaintiffs by negligently, grossly negligently, arbitrarily, and in a manner unsupported by facts available to them, managing CapCorp's affairs and liquidating CapCorp's portfolio at huge losses.

• NCUA staffers failed to exercise reasonable or ordinary business judgment in managing CapCorp.

• NCUA staffers never seriously considered options that would not have required the liquidation of CapCorp's portfolio at a substantial loss.

• NCUA staffers disregarded advice from investment firms CapCorp hired to analyze CapCorp's portfolio as well as advice from NCUA's own general counsel, Robert M. Fenner, that liquidating CapCorp's portfolio was "potentially devastating."

• NCUA staffers serving on CapCorp's Conservatorship Board breached their duties of care, fiduciary duties, and duties of loyalty to CapCorp's PCS holders by preferring the interests of uninsured depositors over the interests of the PCS holders, by first promising to repay any losses to uninsured depositors out of the NCUA Share Insurance Fund ("NCUSIF"), and then liquidating CapCorp's assets for a stated purpose of preventing losses to the NCUSIF.

• NCUA staffers failed to comply with NCUA Board's directive "to explore all reasonable alternatives to outright liquidation." NCUA staffers negligently liquidated substantially all of CapCorp's portfolio within three weeks after January 31, 1995, without consulting with the NCUA Board in violation of the Board's directives and NCUA's management practices, without following NCUA's regulations, and without following the statutory requirements for the involuntary liquidation of a credit union.

Pls' Compl. at 23-29 ¶¶ 24-29, 33-35, 38-41.

Defendant now moves to dismiss Plaintiffs' suit pursuant to Federal Rules of Civil Procedure 12(b)(1) and (6). Defendant sets forth the following arguments in support of its Motion to Dismiss:

• Res judicata bars this suit in its entirety because the claims in this case either have been litigated, or could have been presented, in Lafayette I;

• Collateral estoppel prevents relitigation of the issues in this case which have already been determined by a valid and final judgment;

Plaintiffs lack standing to bring this action directly because they allege injuries to CapCorp;

Plaintiffs may not bring a derivative action on CapCorp's behalf, because the Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")6 grants NCUA all rights of CapCorp and its members;

Plaintiffs' claims is properly a claim under FIRREA and not under the Federal Tort Claims Act ("FTCA");7

• Even if FTCA applied to this case, the discretionary function exception to FTCA would bar this action; and

Plaintiffs failed to state an actionable tort duty.


It is well established that "[t]he burden of proving subject matter jurisdiction on a [Fed.R.Civ.P. 12(b)(1)] motion to dismiss is on the plaintiff, the party asserting jurisdiction." Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982).

Moreover, the Court must deny a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Thus, motions to dismiss "should be granted only in very limited circumstances." Rogers v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir.1989); 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, Civil 2d § 1349, at 192-93 (1990) (motions to dismiss for failure to state a claim are "granted sparingly and with caution in order to make certain that plaintiff is not improperly denied a right to have his claim adjudicated on the merits").

In resolving a motion to dismiss, "[t]he question is whether in the light most favorable to the Plaintiff, and with every doubt resolved in his behalf, the Complaint states any valid claim for relief." 5A Charles A. Wright & Arthur R. Miller, Civil 2d § 1357, at 336. The Court must consider well-pled allegations in a complaint as true and must construe those allegations in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct....

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  • Ministry v. United States
    • United States
    • U.S. District Court — Northern District of Ohio
    • May 29, 2014
    ...regulations in place which also afford discretion to the NCUA in post-conservatorship actions. Accord Lafayette Fed.Credit Union v. United States, 76 F. Supp. 2d 645, 653 (D. Md. 1999) ("[A] reasonable reading of the statute amply supports the view that [the FCUA] grants NCUA and its staff ......
  • Strand v. United States
    • United States
    • U.S. District Court — District of Maryland
    • February 7, 2017
    ...were at best vague, a strong suggestion that the discretionary function exception should apply. C.f. Lafayette Federal Credit Union v. United States , 76 F.Supp.2d 645, 653 (D. Md. 1999). There remained a range of choices that the Camp could make in exercising reasonable care under the circ......
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    • U.S. District Court — District of Columbia
    • March 27, 2013
  • Sheppard v. U.S., Civil Action No. AW-07-923.
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    • U.S. District Court — District of Maryland
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    ...that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Lafayette Fed. Credit Union v. United States, 76 F.Supp.2d 645, 649 (D.Md.1999). The plaintiff bears the burden of proving that subject matter jurisdiction properly exists in the federal......
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