Resolution Trust Corp. v. Rahn

• Decision Date: 06 June 1994
• Docket Number: No. 1:92:CV:174.,1:92:CV:174.
• Citation: Resolution Trust Corp. v. Rahn, 854 F.Supp. 480 (W.D. Mich. 1994)
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. Frederick H. RAHN; William K. Rahn; Franklin H. Smith; Thomas W. Smith; Richard S. Hennes; Robert H. Durren; and Paul G. Freudenberg, All Jointly and Severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

854 F. Supp. 480

RESOLUTION TRUST CORPORATION, Plaintiff, v. Frederick H. RAHN; William K. Rahn; Franklin H. Smith; Thomas W. Smith; Richard S. Hennes; Robert H. Durren; and Paul G. Freudenberg, All Jointly and Severally, Defendants.

No. 1:92:CV:174.

United States District Court, W.D. Michigan.

June 6, 1994.

Richard C. Sanders, Peter A. Metters, Hill Lewis, Detroit, MI, Terry S. Arbit, Resolution Trust Corp., PLS Div., Washington, DC, for plaintiff.

Alfred M. Butzbaugh, Butzbaugh & Dewane, St. Joseph, MI, Paul A. Taglia, Taglia, Fette, Dumke, Passaro & Kahne, St. Joseph, MI, for defendants.

OPINION

ENSLEN, District Judge.

This matter is before the Court on defendants' motion for dismissal or summary judgment, pursuant to Rules 12(b)(6) and 56 of the Federal Rules of Civil Procedure.

Plaintiff, Resolution Trust Corporation (RTC), brought suit against seven former directors of Peoples Savings Association of St. Joseph, Michigan (PSA). Two of the defendants have since been dismissed. The suit alleges negligence, gross negligence, breach of fiduciary duty, and breach of contract concerning PSA's investments in various properties in Florida in the 1980s. Plaintiff's standing and rights against the former directors of PSA are derived from the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), particularly 12 U.S.C. §§ 1821(k) and 1821(d)(2)(A).

FACTS¹

Resolution Trust Corporation (RTC) was created in 1989, pursuant to 12 U.S.C. § 1441a(b). In March 1989, the Federal Home Loan Bank Board (FHLBB) placed Peoples Savings Association (PSA) in conservatorship. On about February 2, 1990, the Office of Thrift Supervision appointed RTC as receiver for PSA. Therefore, RTC succeeded to all the assets, rights, titles, powers and privileges of PSA, pursuant to 12 U.S.C. §§ 1441a(b)(4) and 1821(d)(2)(A). RTC, in its corporate capacity, then purchased the right to pursue claims against PSA's former officers and directors to recover damages for injuries sustained by PSA.

PSA was originally a Michigan-chartered mutual savings institution. On December 18, 1985, PSA became a federally-chartered savings institution.

According to defendants, PSA had endured four years of substantial losses beginning in 1981, as had many other savings and loans due, in part, to increases in interest rates that had occurred since 1979. Changes in federal banking laws between 1978 and 1982 permitted savings and loan institutions such as PSA to invest more in land development, construction, and education, removed geographic restrictions on acquisition, development and construction (ADC) projects, and allowed a higher percentage of assets in such ADC projects.

In 1984, according to defendants, a Business Plan was formally adopted by PSA which included a commitment of 30% of PSA's assets to construction loans, including loans in Florida. In 1983 and 1984, PSA's directors authorized five ADC loans on condominium projects in Florida. The Florida loans had the same basic pattern: PSA formed a subsidiary service corporation for each of the loans which entered into a joint venture partnership with either a real estate developer or an affiliate of the developer. The PSA subsidiary obtained loans from PSA for initial land acquisition and for the development of condominium projects. The developers put up little or no money.

RTC claims that the defendants, who controlled the Board of Directors of PSA and voted for each of the five Florida loan projects that are the basis of this suit, breached the various duties they owed PSA.

Standard for Summary Judgment

If matters outside the pleadings are presented to and considered by the Court in the context of a motion to dismiss pursuant to Rule 12(b)(6), "the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Fed.R.Civ.P. 12(b). Here, various exhibits have been submitted by the parties and reviewed by the Court. Therefore, the motion will be treated as requesting summary judgment, as was alternatively sought in the motion.

In reviewing a motion for summary judgment pursuant to Rule 56, this Court should only consider the narrow questions of whether there are "genuine issues as to any material fact and whether the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). On a Rule 56 motion, the Court cannot resolve issues of fact, but is empowered to determine only whether there are issues in dispute to be decided in a trial on the merits. Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir.1987); In re Atlas Concrete Pipe, Inc., 668 F.2d 905, 908 (6th Cir. 1982).

The crux of the motion is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986); Booker v. Brown & Williamson Tobacco Co., Inc., 879 F.2d 1304, 1310 (6th Cir.1989).

A motion for summary judgment requires this Court to view "`inferences to be drawn from the underlying facts ... in the light most favorable to the party opposing the motion.'" Matsushita Electric Ind. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 993, 8 L.Ed.2d 176 (1962)), quoted in Historic Preservation Guild v. Burnley, 896 F.2d 985, 993 (6th Cir.1989). On the other hand, the opponent has the burden to show that a "rational trier of fact could find for the non-moving party or that there is a `genuine issue for trial.'" Historic Preservation, 896 F.2d at 993 (quoting Matsushita, 475 U.S. at 587, 106 S.Ct. at 1356).

As the Sixth Circuit has recognized and consistently emphasized, recent Supreme Court decisions encourage the granting of summary judgments where there are no material facts in dispute. Historic Preservation, 896 F.2d at 993 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

The courts have noted that the summary judgment motion may be an "appropriate avenue for the `just, speedy and inexpensive determination' of a matter." Cloverdale Equipment Co. v. Simon Aerials, Inc., 869 F.2d 934, 937 (6th Cir.1989) (quoting Celotex, 477 U.S. at 327, 106 S.Ct. at 2555). Consistent with the concern for judicial economy, "the mere existence of a scintilla of evidence in support of the non-moving party's positions will be insufficient." Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. "Mere allegations do not suffice." Cloverdale, 869 F.2d at 937. "The party with the burden of proof at trial is obligated to provide concrete evidence supporting its claims and establishing the existence of a genuine issue of fact." Id.

DISCUSSION

Defendants base their motion on three primary grounds: Counts 1, 3, and 4 are based on a claim of simple negligence and such a standard is preempted by federal law; Count 2, which alleges gross negligence, has not been supported by evidence or even allegations sufficient to establish this claim, as defined under Michigan law; and the Business Judgment Rule, under Michigan law, insulates defendants' business decisions concerning Peoples Savings Association (PSA) in a manner that precludes the claims made by plaintiff Resolution Trust Corporation (RTC).

Counts 1, 3, and 4: Applicability of Negligence Standard

Count 1 alleges that the defendants were negligent in their approval of the Florida loans and in their administration of those loans. Count 3 alleges that the defendants breached their fiduciary duty to PSA. Similarly, Count 4 alleges that defendants failed to use due care in performing their duties as outside directors of PSA, which is alleged to constitute breach of contract. I agree with defendants that all three of these claims relate to a claim of negligence.²

Defendants contend that section 1821(k) establishes a national standard that requires the RTC to show gross negligence or worse conduct on the part of the directors in order to hold them liable. RTC claims, as it has in many cases, that while section 1821(k) permits the RTC to sue on the basis of gross negligence or worse conduct, it expressly does not limit the RTC's rights if other laws, including state common law, permit liability to be imposed against former directors on the basis of simple negligence.

Whether section 1821(k) preempts liability to the Federal Deposit Insurance Corporation (FDIC) or RTC for breaching a higher level of care, such as simple negligence, has been disputed in many cases during the past four years, including the Seventh, Ninth, and Tenth Circuits. The Sixth Circuit, in dicta, also has made a statement on the issue.³

While some courts have held that the RTC or FDIC is limited to the gross negligence standard and cannot also seek liability under state law or under other federal law against directors and officers. Others have held that the language, purpose, and legislative history of FIRREA, including section 1821(k), does not limit the rights of the FDIC that it may have under "other applicable law," including state laws permitting liability to be based on simple negligence.⁴ Although it is likely that the Supreme Court will ultimately resolve this question, certiorari has not yet been granted in any cases.

Section 1821(k) provides as follows:

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 FDIC, which action is prosecuted wholly or partially for the benefit of the Corporation—

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(2) acting based upon a suit, claim, or cause of action purchased from, assigned by, or otherwise conveyed by such receiver or conservator, ...

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for gross negligence, including any similar

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