O'melveny & Myers v. Fed. Deposit Ins. Corp.

Decision Date13 June 1994
Docket Number93489
Citation114 S.Ct. 2048,129 L.Ed.2d 67,512 U.S. 79
PartiesO'MELVENY & MYERS, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for American Diversified Savings Bank et al
CourtU.S. Supreme Court
Syllabus *

Respondent Federal Deposit Insurance Corporation, receiver for an insolvent California savings and loan (S & L), caused the § & L to make refunds to investors in certain fraudulent real estate syndications in which the § & L had been represented by petitioner law firm. The FDIC filed suit against petitioner in the Federal District Court and alleged state causes of action for professional negligence and breach of fiduciary duty. Petitioner moved for summary judgment, alleging, inter alia, that knowledge of the fraudulent conduct of the § & L's officers must be imputed to the § & L, and hence to the FDIC, which, as receiver, stood in the § & L's shoes; and thus the FDIC was estopped from pursuing its tort claims. The court granted the motion, but the Court of Appeals reversed, indicating that a federal common-law rule of decision controlled.

Held: The California rule of decision, rather than a federal rule, governs petitioner's tort liability. Pp. ____.

(a) State law governs the imputation of corporate officers' knowledge to a corporation that is asserting causes of action created by state law. There is no federal general common law, Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188, and the remote possibility that corporations may go into federal receivership is no conceivable basis for adopting a special federal common-law rule divesting States of authority over the entire law of imputation. Pp. ____.

(b) California law also governs the narrower question whether corporate officers' knowledge can be imputed to the FDIC suing as receiver. This Court will not adopt a judge-made federal rule to supplement comprehensive and detailed federal statutory regulation; matters left unaddressed in such a scheme are presumably left to state law. Title 12 U.S.C. § 1821(d)(2)(A)(i) which states that "the [FDIC] shall . . . by operation of law, succeed to—all rights, titles, powers, and privileges of the insured depository institution"—places the FDIC in the insolvent § & L's shoes to pursue its claims under state law, except where some provision in the extensive framework of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) specifically creates a special federal rule of decision. Pp. ____.

(c) Judicial creation of a special federal rule would not be justified even if FIRREA is inapplicable to the instant receivership, which began in 1986. Instances where a special federal rule is warranted are few and restricted, limited to situations where there is a significant conflict between some federal policy or interest and the use of state law. The FDIC has identified no significant conflict here, not even one implicating the most lightly invoked federal interest: uniformity. Pp. ____.

969 F.2d 744 (CA 9 1992), reversed and remanded.

SCALIA, J., delivered the opinion for a unanimous Court. STEVENS, J., filed a concurring opinion, in which BLACKMUN, O'CONNOR, and SOUTER, JJ., joined.

Rex Lee, for petitioner.

Paul Bender, for respondents.

Justice SCALIA delivered the opinion of the Court.

The issue in this case is whether, in a suit by the Federal Deposit Insurance Corporation as receiver of a federally insured bank, it is a federal-law or rather a state-law rule of decision that governs the tort liability of attorneys who provided services to the bank.

I

American Diversified Savings Bank (ADSB or § & L) is a California-chartered and federally insured savings and loan. The following facts have been stipulated to, or are uncontroverted, by the parties to the case, and we assume them to be true for purposes of our decision. ADSB was acquired in 1983 by Ranbir Sahni and Lester Day, who respectively obtained 96% and 4% of its stock, and who respectively served as its chairman/CEO and president. Under their leadership, ADSB engaged in many risky real estate transactions, principally through limited partnerships sponsored by ADSB and its subsidiaries. Together, Sahni and Day also fraudulently overvalued ADSB's assets, engaged in sham sales of assets to create inflated "profits," and generally "cooked the books" to disguise the § & L's dwindling (and eventually negative) net worth.

In September 1985, petitioner O'Melveny & Myers, a Los Angeles-based law firm, represented ADSB in connection with two real estate syndications. At that time, ADSB was under investigation by state and federal regulators, but that fact had not been made public. In completing its work for the § & L, petitioner did not contact the accounting firms that had previously done work for ADSB, nor state and federal regulatory authorities, to inquire about ADSB's financial status. The two real estate offerings on which petitioner worked closed on December 31, 1985. On February 14, 1986, federal regulators concluded that ADSB was insolvent and that it had incurred substantial losses because of violations of law and unsound business practices. Respondent stepped in as receiver for ADSB,1 and on February 19, 1986, filed suit against Messrs. Sahni and Day in Federal District Court, alleging breach of fiduciary duty and, as to Sahni, RICO violations. Soon after taking over as receiver, respondent began receiving demands for refunds from investors who claimed that they had been deceived in connection with the two real estate syndications. Respondent caused ADSB to rescind the syndications and to return all of the investors' money plus interest.

On May 12, 1989, respondent sued petitioner in the United States District Court for the Central District of California, alleging professional negligence and breach of fiduciary duty. The parties stipulated to certain facts and petitioner moved for summary judgment, arguing that (1) it owed no duty to ADSB or its affiliates to uncover the § & L's own fraud; (2) that knowledge of the conduct of ADSB's controlling officers must be imputed to the § & L, and hence to respondent, which, as receiver, stood in the shoes of the § & L; and (3) that respondent was estopped from pursuing its tort claims against petitioner because of the imputed knowledge. On May 15, 1990, the District Court granted summary judgment, explaining only that petitioner was "entitled to judgment in its favor . . . as a matter of law." The Court of Appeals for the Ninth Circuit reversed, on grounds that we shall discuss below. 969 F.2d 744 (1992). Petitioner filed a petition for writ of certiorari, which we granted. 510 U.S. ----, 114 S.Ct. 543, 126 L.Ed.2d 445 (1993).

II

It is common ground that the FDIC was asserting in this case causes of action created by California law. Respondent contends that in the adjudication of those causes of action (1) a federal common-law rule and not California law determines whether the knowledge of corporate officers acting against the corporation's interest will be imputed to the corporation; and (2) even if California law determines the former question, federal common law determines the more narrow question whether knowledge by officers so acting will be imputed to the FDIC when it sues as receiver of the corporation.2

The first of these contentions need not detain us long, as it is so plainly wrong. "There is no federal general common law," Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), and (to anticipate somewhat a point we will elaborate more fully in connection with respondent's second contention) the remote possibility that corporations may go into federal receivership is no conceivable basis for adopting a special federal common-law rule divesting States of authority over the entire law of imputation. See Bank of America Nat. Trust & Savings Assn. v. Parnell, 352 U.S. 29, 33-34, 77 S.Ct. 119, 121-122, 1 L.Ed.2d 93 (1956). The Ninth Circuit believed that its conclusion on this point was in harmony with Schacht v. Brown, 711 F.2d 1343 (CA7 1983), Cenco Inc. v. Seidman & Seidman, 686 F.2d 449 (CA7 1982), and In re Investors Funding Corp. of N.Y. Securities Litigation, 523 F.Supp. 533 (SDNY 1980), 969 F.2d, at 750, but even a cursory examination of those cases shows the contrary. In Cenco, where the cause of action similarly arose under state common law, the Seventh Circuit's analysis of the "circumstances under which the knowledge of fraud on the part of the plaintiff's directors [would] be imputed to the plaintiff corporation [was] merely an attempt to divine how Illinois courts would decide that issue." Schacht, 711 F.2d, at 1347 (citing Cenco, 686 F.2d, at 455). Likewise, in Investors Funding, the District Court analyzed the potential affirmative defenses to the state-law claims by applying "[t]he controlling legal principles [of] New York law." 523 F.Supp., at 540. In Schacht, the Seventh Circuit expressly noted that "the cause of action [at issue] arises under RICO, a federal statute; we therefore write on a clean slate and may bring to bear federal policies in deciding the estoppel question." 711 F.2d, at 1347.

In seeking to defend the Ninth Circuit's holding, respondent contends (to quote the caption of its argument) that "The Wrongdoing Of ADSB's Insiders Would Not Be Imputed To ADSB Under Generally Accepted Common Law Principles," Brief for Respondent 12 in support of which it attempts to show that nonattribution to the corporation of dishonest officers' knowledge is the rule applied in the vast bulk of decisions from 43 jurisdictions, ranging from Rhode Island to Wyoming. See, e.g., id., at 21-22, n. 9 (distinguishing, inter alia, Cook v. American Tubing & Webbing Co., 28 R.I. 41, 65 A. 641 (1905), and American Nat. Bank of Powell v. Foodbasket, 497 P.2d 546 (Wyo.1972)). The supposed relevance of this is set forth in a footnote: "It is our...

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