Resolution Trust Corp. v. Fiala

• Decision Date: 12 October 1994
• Docket Number: No. 4:93CV2613 JCH.,4:93CV2613 JCH.
• Citation: 870 F. Supp. 962
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. Kenneth R. FIALA, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

870 F. Supp. 962

RESOLUTION TRUST CORPORATION, Plaintiff, v. Kenneth R. FIALA, et al., Defendants.

No. 4:93CV2613 JCH.

United States District Court, E.D. Missouri, Eastern Division.

October 12, 1994.

COPYRIGHT MATERIAL OMITTED

Dorothy L. White-Coleman, Peoples and Hale, St. Louis, MO, LaVern A. Pritchard, Hill Lewis, Minneapolis, MN, Richard C. Sanders, Elizabeth Jolliffe Basten, Hill Lewis, Detroit, MI, for plaintiff Resolution Trust Corp.

Barry A. Short, John E. Hall, Lewis and Rice, St. Louis, MO, for defendants Kenneth R. Fiala, Ralph Hunsch, J.W. Peterson, Merita M. Rocklage, Personal Rep. of Estate of Walter F. Rocklage, Harold M. Smith, George W. Trafton.

Burton H. Shostak, Moline and Shostak, St. Louis, MO, for defendants John R. Aselage, Theodore J. Hurtgen, Jr.

Louis S. Czech, Herbert K. Hoffman, Clayton, MO, for defendant Marian Hall Brewster, Ex'r of Estate of Charles G. Brewster.

Jack B. Spooner, Wittner and Poger, St. Louis, MO, for defendant Harold L. Dielman.

Barry A. Short, Lewis and Rice, St. Louis, MO, for defendant Lee W. Geiser.

Jeffery T. Demerath, Greensfelder and Hemker, St. Louis, MO, for defendant Robert A. Ortmann.

Marvin E. Wright, Knight and Ford, Columbia, MO, for defendant Jackson A. Wright.

Henry D. Menghini, Sr., Kurt E. Wolfgram, Evans and Dixon, St. Louis, MO, Burton H. Shostak, Moline and Shostak, St. Louis, MO, for defendant Lution B. Hill.

MEMORANDUM AND ORDER

HAMILTON, District Judge.

This matter is before the Court pursuant to five separate Motions to Dismiss, the Motion of Defendant Wright to Strike and/or for More Definite Statement, the Motion of Defendant Dielman to Strike Count III of Plaintiff's Complaint, and the Motions of Plaintiff for Defendants Ad Litem.

I. BACKGROUND

Plaintiff, the Resolution Trust Corporation (hereinafter "RTC") brings this cause of action in its corporate capacity. Defendants are former officers and directors of Community Federal Savings and Loan Association, St. Louis, Missouri (hereinafter "Community"). Prior to December of 1990, Community was a federally chartered mutual savings and loan association. On or about December 13, 1990, the Office of Thrift Supervision (OTS), determined that Community was unfit to transact business and that Community's Board had consented to the appointment of a receiver. OTS appointed RTC receiver of Community for purposes of liquidating Community pursuant to Section 5(d)(2) of the Home Owners' Loan Act of 1933 and Section 11(c)(6)(B) of the Federal Deposit Insurance Act. On December 14, 1990, RTC took possession of Community and, as receiver, succeeded to all of the assets, rights, titles, powers, and privileges of Community as well as the rights of its shareholders, members, account holders, depositors, directors, and officers.¹

On that same day, RTC, as receiver, entered into a purchase and assumption agreement with Boatmen's Interim Savings Bank (Boatmen's) whereby Boatmen's acquired certain assets and liabilities of Community, however, RTC retained other assets, including the instant causes of action. Then, by a contract of sale dated December 14, 1990 between RTC as receiver of Community and RTC in its corporate capacity, RTC as receiver assigned the instant causes of action to RTC in its corporate capacity. Therefore, the real party in interest with respect to the instant causes of action is RTC in its corporate capacity.

In the instant action, Plaintiff alleges that Defendants engaged in high-risk real estate venture development projects, investments, and related loans resulting in losses to Community of more than $100 million. In summary, Plaintiff makes the following factual allegations: (1) Defendants engaged in speculation with depositor funds; (2) Defendants failed to heed safe and sound banking principles requiring careful underwriting and scrutiny of proposed projects; (3) Defendants failed to secure and sufficiently analyze information and documentation prudent directors and officers should have required to assure depositors' funds would not be placed at high risk of being squandered; and (4) Defendants failed to conduct the affairs of Community and the wholly-owned subsidiaries of Community they utilized to pursue these projects as prudent fiduciaries. On the basis of these allegations, Plaintiff seeks damages for breach of fiduciary duty, negligence and gross negligence.

II. MOTIONS TO DISMISS

Defendants have filed five separate motions to dismiss: (1) the Motion to Dismiss filed by Defendants Aselage and Hurtgen on January 10, 1994; (2) the Motion to Dismiss filed by Defendant Wright on February 11, 1994; (3) the Motion to Dismiss filed by Defendants Geiser, Trafton, Fiala, Smith, Peterson, Hunsch, and Rocklage (hereinafter "Geiser, et al.") on February 14, 1994; (4) the Motion to Dismiss filed by Defendant Dielman on February 14, 1994; and (5) the Motion to Dismiss filed by Defendant Hill on February 16, 1994. Defendant Brewster adopted the Motions to Dismiss filed by Defendants Dielman, Geiser, et al., and Wright on February 23, 1994. Because all of the pending motions to dismiss raise similar issues, the Court will address the motions collectively.

A cause of action should not be dismissed for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) unless, from the face of the complaint, it appears beyond a reasonable 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, 101-02, 2 L.Ed.2d 80 (1957); Jackson Sawmill Co. v. United States, 580 F.2d 302, 306 (8th Cir.1978), cert. denied, 439 U.S. 1070, 99 S.Ct. 839, 59 L.Ed.2d 35 (1979). In ruling on a motion to dismiss the Court views the allegations in the complaint in the light most favorable to the non-moving party. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

A. Preemption: State Law and Federal Common Law

Defendants contend that § 212(k) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (1989), 12 U.S.C. § 1821(k), creates a uniform national standard of director and officer liability which preempts all causes of action based on state law and federal common law. Section 212(k) provides:

(k) Liability of directors and officers.

A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by, on behalf of, or at the request or direction of the Corporation, which action is prosecuted wholly or partially for the benefit of the Corporation—

(1) acting as conservator or receiver of such institution, ...

for gross negligence, including any similar conduct or conduct that demonstrates a greater disregard of a duty of care (than gross negligence) including intentional tortious conduct, as such terms are defined and determined under applicable State law. Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law.

12 U.S.C. § 1821(k) (emphasis added).²

Defendants maintain that this section establishes a national standard of director and officer liability and thereby preempts Plaintiff's claims based on federal common law and state law. Plaintiff counters that § 1821(k) only preempts state law to the extent that state law purports to insulate directors and officers from liability for gross negligence and other more culpable conduct. Under Plaintiff's construction of the statute, its final phrase ensures that the RTC retains all rights under any other applicable law, including state law and federal common law that establishes director and officer liability for mere negligence or breach of fiduciary duty.

To date, the Eighth Circuit Court of Appeals has not had occasion to interpret § 1821(k). However, the Fifth, Seventh, Ninth, and Tenth circuits have addressed the issue of whether § 1821(k) preempts state law and federal common law claims.³See RTC v. Miramon, 22 F.3d 1357 (5th Cir. 1994); RTC v. Gallagher, 10 F.3d 416 (7th Cir.1993); FDIC v. McSweeney, 976 F.2d 532 (9th Cir.1992) cert. denied, ___ U.S. ___, 113 S.Ct. 2440, 124 L.Ed.2d 658 (1993); FDIC v. Canfield, 967 F.2d 443 (10th Cir.1992) cert. dismissed ___ U.S. ___, 113 S.Ct. 516, 121 L.Ed.2d 527 (1992). The Ninth and Tenth circuits held that § 1821(k) does not preempt all state law causes of action. However, the Fifth and Seventh Circuits held that § 1821(k) preempts federal common law and establishes a gross negligence standard of liability for officers and directors of failed federally chartered financial institutions. Miramon, 22 F.3d at 1364; Gallagher, 10 F.3d at 424. The Court finds the analysis of Gallagher flawed in several respects which are pointed out later in this Order, therefore, the Court declines to follow the Seventh Circuit's holding and that of the Fifth Circuit which relied on Gallagher. Moreover, recently in RTC v. Chapman, 29 F.3d 1120 (7th Cir.1994), after articulating the difficulties that courts have in interpreting § 1821(k), Judge Posner expressed a willingness to reconsider his earlier decision in Gallagher. After consideration of the arguments of counsel, the relevant case law and the legislative history of § 1821(k), the Court holds that § 1821(k) does not preempt Plaintiff's state law or federal common law claims for breach of fiduciary duty, negligence, and gross negligence. This holding is consistent with this Court's earlier decision in RTC v. Gershman, 829 F.Supp. 1095 (E.D.Mo.1993).

In interpreting § 1821(k), the Court must first look to the plain language of the statute itself. Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, 835, 110 S.Ct. 1570, 1575-76, 108 L.Ed.2d 842 (1990). In considering the plain language of a statute, the Court must keep in mind its historical context and the policies that the statute was intended to implement. Chapman v. Houston Welfare Rights...