Resolution Trust Corp. v. Fleischer

Decision Date17 March 1995
Docket NumberNo. 72429,72429
PartiesRESOLUTION TRUST CORPORATION, Plaintiff, v. Ernest M. FLEISCHER, et al., Defendants.
CourtKansas Supreme Court

Syllabus by the Court

1. The United States District Court for the District of Kansas certified the following two questions under the Uniform Certification of Questions of Law Act, K.S.A. 60-3201 et seq.:

"(1) Under Kansas law, does the holder of accrued tort actions for negligence and breach of fiduciary duty, which have not yet been reduced to judgment, have a vested property right in those causes of action?

"(2) Is S.B. 762 [K.S.A.1994 Supp. 9-1133 and K.S.A.1994 Supp. 9-1134], which makes K.S.A. [1994 Supp.] 17-5831 retroactive, unconstitutional under the constitution of the State of Kansas when applied to claims which accrued prior to its enactment?"

We hold under the facts submitted that the answers to these questions are:

(1) "Yes."

(2) "Yes."

R. Kent Sellers of Gage & Tucker L.C., Kansas City, MO, argued the cause, and Bernard J. Rhodes and H. David Barr, of the same firm, Overland Park, and Robert H. Plotkin, of Resolution Trust Corp., Washington, DC, were with him on the brief, for plaintiff.

Brant M. Laue of Rouse, Hendricks, German, May & Shank, P.C., Kansas City, MO, argued the cause, and Charles W. German, of the same firm, and James Borthwick and Michael Thompson of Blackwell Sanders Matheny Weary & Lombardi, Kansas City, MO, were with him on the brief, for defendants.

Charles N. Henson of Wright, Henson, Somers, Sebelius, Clark & Baker, LLP, Topeka, was on the brief for amicus curiae Kansas Bankers Ass'n.

SIX, Judge:

The case concerns the constitutionality of retroactive legislation which affects accrued tort actions. The Resolution Trust Corporation (RTC) has asserted state law claims of negligence and breach of fiduciary duty against former officers and directors of Franklin Savings Association (Franklin) of Ottawa, Kansas. The case is proceeding in federal district court. The Hon. John W. Lungstrum of the United States District Court for the District of Kansas certifies the following questions:

"(1) Under Kansas law, does the holder of accrued tort actions for negligence and breach of fiduciary duty, which have not yet been reduced to judgment, have a vested property right in those causes of action?

"(2) Is S.B. 762 [K.S.A.1994 Supp. 9-1133 and K.S.A.1994 Supp. 9-1134], which makes K.S.A. [1994 Supp.] 17-5831 retroactive, unconstitutional under the constitution of the State of Kansas when applied to claims which accrued prior to its enactment?"

Our jurisdiction is under K.S.A. 60-3201, the Uniform Certification of Questions of Law Act. We answer both questions in the affirmative, limiting our answers to the facts presented.

FACTS

The RTC and Franklin have been opposing litigants for five years. On February 15, 1990, the RTC was appointed conservator. The conservatorship was vigorously contested, initially denied, but eventually approved in Franklin Sav. v. Office of Thrift Supervision, 742 F.Supp. 1089 (D.Kan.1990), rev'd 934 F.2d 1127 (10th Cir.1991), cert. denied 503 U.S. 937, 112 S.Ct. 1475, 117 L.Ed.2d 619 (1992). The conservatorship was later converted to a receivership. See Franklin Sav. Ass'n v. OTS, 821 F.Supp. 1414 (D.Kan.1993), aff'd 35 F.3d 1466 (10th Cir.1994).

On February 12, 1993, the RTC filed the instant civil action against a number of former Franklin directors. The district court has published three opinions in connection The district court provides the following facts:

with the case. See Resolution Trust Corp. v. Fleischer, 848 F.Supp. 917 (D.Kan.1994) (motion for partial summary judgment); Resolution Trust Corp. v. Fleischer, 835 F.Supp. 1318 (D.Kan.1993) (motion to strike affirmative defenses); Resolution Trust Corp. v. Fleischer, 826 F.Supp. 1273 (D.Kan.1993) (motion to dismiss all claims).

"This case involves a suit brought by plaintiff RTC alleging various causes of action against former directors and officers of [Franklin]. The claims asserted by the RTC against the defendants are various state law causes of action arising out of a series of transactions involving tax-exempt revenue bonds known as credit-enhancement projects and alleged losses sustained through various broker-dealer subsidiaries of [Franklin]. All of the RTC's state law claims are based on theories of simple negligence or negligent breach of fiduciary duty. The RTC does not allege any breach of the duty of loyalty, any willful or wanton or grossly negligent breach of the duty of care, any criminal violation of the Kansas savings and loan code, or any improper personal benefit from any transaction. All of the RTC's claims arise from actions taken by defendants prior to the time the RTC was appointed conservator on February 15, 1990." (Emphasis added.)

During its 1993 session, the Kansas Legislature passed a law limiting potential personal liability for certain officers and directors of savings and loan associations. Now codified at K.S.A.1994 Supp. 17-5831, the law, which took effect May 20, 1993, provides:

"Except for persons who are executive officers, an officer or director of a savings and loan association, federal savings association or federal savings bank shall have no personal liability to the savings and loan association, federal savings association or federal savings bank or its members or stockholders for monetary damages for breach of duty as an officer or director, except that such liability shall not be eliminated for: (a) Any breach of the officer's or director's duty of loyalty to the association or bank, its members or stockholders; (b) acts or omissions which constitute willful or gross and wanton negligent breach of the officer's or director's duty of care; (c) acts in violation of K.S.A. 17-5412, 17-5811 and 17-5812 and amendments thereto; or (d) any transaction from which the officer or director derived an improper personal benefit. For purposes of this section, 'executive officer' means the chairperson of the board, the president, each vice president, the cashier, the secretary and the treasurer of a savings and loan association, federal savings association or federal savings bank, unless such officer is excluded by resolution of the board of directors or by the bylaws of the savings and loan association, federal savings association or federal savings bank from participation in the policymaking functions of the savings and loan association, federal savings association or federal savings bank, and the officer does not actually participate in the policymaking functions of the savings and loan association, federal savings association or federal savings bank."

From reading the definition of "executive officer" in 17-5831, it appears that the legislature's aim was to provide greater protection from personal liability to individuals commonly referred to as "outside" directors or officers. In 17-5831, the legislature essentially overruled the existing common law in Kansas under which "outside" directors of savings and loan associations could be held liable for negligence and breach of fiduciary duty. See Wichita Fed'l Savings & Loan Ass'n v. Black, 245 Kan. 523, 530, 781 P.2d 707 (1989); Federal Savings & Loan Ins. Corp. v. Huff, 237 Kan. 873, 704 P.2d 372 (1985).

In 1994, largely in response to several RTC civil actions filed against former officers and directors, including the present one, which were pending when 17-5831 took effect, the legislature was encouraged to make 17-5831 retroactive. Judiciary Committee members heard testimony from former savings and loan directors suffering financial and personal hardships resulting from defending the RTC actions. An attorney for several Franklin defendants, in fact, urged the legislature to "put a stop" to the RTC's pending negligence suits against outside directors by making 17-5831 retroactive.

The legislature responded by passing S.B. 762, which made 17-5831 applicable to any S.B. 762, now codified at K.S.A.1994 Supp. 9-1133 and K.S.A.1994 Supp. 9-1134, states in pertinent part:

action that had not been finally adjudicated when 17-5831 took effect on May 20, 1993.

"Section 1. The provisions of ... 17-5831 and amendments thereto apply to an action brought against a director or officer of an insured depository institution, regardless of whether the action was filed before, on, or after May 20, 1993, unless the action was finally adjudicated before May 20, 1993. The provisions of this section shall not apply to executive officers as defined in ... 17-5831 and amendments thereto."

The district court has noted that if S.B. 762 survives constitutional challenge, it eliminates most of the RTC's claims in the federal case.

Several Franklin defendants moved for summary judgment in reliance on S.B. 762. The RTC countered by claiming it has a vested property right under Kansas law in its accrued tort causes of action. Applying 17-5831 retroactively would amount to a taking of property without due process in violation of the United States Constitution. Reviewing Kansas law, the district court found "no clear pronouncements" on whether an accrued tort cause of action is considered a vested property right. Sampling other jurisdictions, the district court observed a split of authority; consequently, question one was certified to this court.

The RTC further contended that a retroactive application of 17-5381 would violate the Kansas Constitution, particularly § 18 of the Bill of Rights. The district court also found the § 18 cases in Kansas to be unclear, and certified question two.

DISCUSSION

Question One:

Under Kansas law, does the holder of accrued tort actions

for negligence and breach of fiduciary duty, which have not

yet been reduced to judgment, have a vested property right

in those causes of action?

We have stated: "The right to a cause of action has long been held to be a protected property interest." Harrison v. Long, 241 Kan. 174, 179, ...

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