Resolution Trust Corp. v. Vanderweele

• Decision Date: 16 June 1993
• Docket Number: No. S92-423M.,S92-423M.
• Citation: 833 F. Supp. 1383
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. Bruce VANDERWEELE; Fred Koppenhofer; Dr. George B. Plain; Samuel R. Dunnuck, Jr.; James W. Johnson; Lester Read; Harold Gantz; Jerald Fahr; John C. Wagner; and Roscoe W. Anderson, Defendants.
• Court: U.S. District Court — Northern District of Indiana

833 F. Supp. 1383

RESOLUTION TRUST CORPORATION, Plaintiff, v. Bruce VANDERWEELE; Fred Koppenhofer; Dr. George B. Plain; Samuel R. Dunnuck, Jr.; James W. Johnson; Lester Read; Harold Gantz; Jerald Fahr; John C. Wagner; and Roscoe W. Anderson, Defendants.

No. S92-423M.

United States District Court, N.D. Indiana, South Bend Division.

May 17, 1993.

As Modified on Reconsideration June 16, 1993.

Richard C. Sanders, Peter A. Metters, Detroit, MI, for plaintiff.

Timothy J. Abeska, Jeanine M. Gozdecki, South Bend, IN, Timothy G. Nickels, Kimberly J. Kannensohn, Thomas E. Patterson, Chicago, IL, for Vanderweele, Plain, Dunnick, Read and Gantz.

David P. Taylor, South Bend, IN, for Koppenhofer.

Richard D. Wagner, Indianapolis, IN, for Johnson.

Joseph T. Helling, Granger, IN, for Wagner.

Fred R. Hains, South Bend, IN, for Anderson.

Jerald Fahr, pro se.

MEMORANDUM AND ORDER

MILLER, District Judge.

Plaintiff Resolution Trust Corp ("RTC") brings this suit against the former directors of the Pioneer Savings and Loan Association ("Pioneer"). The RTC alleges claims for negligence (Count I), gross negligence (Count II), breach of fiduciary duty (Count III), and breach of an implied contract (Count IV). Several motions related to the pleadings pend. The defendants have moved to dismiss the plaintiff's complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim,¹ and RTC has moved to strike defendant James Johnson's asserted affirmative defenses pursuant to Fed.R.Civ.P. 12(f). For the following reasons, the court grants the defendants' motion in part as to Counts I, III, and IV of the plaintiff's complaint, and grants the plaintiff's motion in part and orders stricken the entirety of Mr. Johnson's seventh defense and portions of his sixth and ninth defenses.

I. Motion to Dismiss

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of complaints that state no actionable claim. The complaint's factual allegations will be taken as true and viewed in the light most favorable to the plaintiff when challenged by a motion to dismiss. Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Dismissal is appropriate only if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claim which would entitle it to relief. Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).

In Counts I, II, and III, the RTC seeks damages against the defendants for negligence, gross negligence, and breach of fiduciary duty. Resolution of the defendants' motion as to the first three counts of the RTC's complaint turns on the preemptive effect of 12 U.S.C. § 1821(k) of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). Section 1821(k) provides in relevant part:

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 ... 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).²

The defendants initially contend that the RTC's claims for negligence, gross negligence, and breach of fiduciary duty should be dismissed because IND.CODE 23-1-35-1(e) protects directors of corporations that transact business in Indiana from liability for either negligence or gross negligence. The gross negligence standard established by § 1821(k) preempts state laws, such as IND. CODE 23-1-35-1(e) which require willful or wanton conduct for liability to attach to corporate directors. See FDIC v. McSweeney, 976 F.2d 532, 538 (9th Cir.1992); FDIC v. Canfield, 967 F.2d 443, 445 (10th Cir.1992); Resolution Trust v. Gallagher, 800 F.Supp. 595 (N.D.Ill.1992). Accordingly, IND.CODE 23-1-35-1(e) affords the defendants no protection in this case.

The defendants next argue that if § 1821(k) applies to this case, the RTC's negligence and breach of fiduciary duty claims nevertheless must be dismissed because § 1821(k) only authorizes suits for gross negligence (or more culpable conduct), and does not preserve any state or federal common law cause of action for negligence or breach of fiduciary duty. The RTC counters that the statute preempts only those state laws that require a higher degree of culpability than gross negligence, but that the last sentence of the statute acts as a "savings clause" that preserves any preexisting state and federal common law imposing liability for conduct less culpable than gross negligence.

Because Indiana law does not afford the RTC the right to proceed with a negligence action, the precise issue in this case is whether § 1821(k) precludes the RTC from proceeding under federal common law predating FIRREA, under which courts held financial institution directors to the classic formulation of a negligence standard of care: that degree of care "which ordinarily prudent and diligent men would exercise under similar circumstances." Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662 (1891); see also FDIC v. Stanley, 770 F.Supp. 1281, 1310 (N.D.Ind.1991).

Courts have disagreed as to whether § 1821(k) precludes director liability for conduct less culpable than gross negligence. Some courts have held that § 1821(k) preempts neither state nor federal common law claims for negligence. See, e.g., FDIC v. McSweeney, 976 F.2d at 538; FDIC v. Nihiser, 799 F.Supp. 904 (C.D.Ill.1992) (collecting cases). Some courts, including two district courts in this circuit, have taken a middle ground, finding that § 1821(k) precluded federal common law causes of action but not state law causes of action. See RTC v. Gallagher, 800 F.Supp. 595 (N.D.Ill.1992); FDIC v. Miller, 781 F.Supp. 1271 (N.D.Ill. 1991). Finally, at least one court has held that § 1821(k) establishes a federal standard of liability precluding suits against directors for less egregious conduct than gross negligence under either state or federal law. FDIC v. Swager, 773 F.Supp. 1244 (D.Minn. 1991).

This court agrees with those courts that have taken the middle ground: § 1821(k) does not preclude state law actions based on negligence or other conduct less culpable than gross negligence, but establishes a minimum level of culpability necessary to impose liability under federal law. See RTC v. Gallagher, 800 F.Supp. at 601, and FDIC v. Miller, 781 F.Supp. 1271.

In determining a statute's effect on previously existing federal common law, the court starts "with the assumption that it is for Congress, not federal courts, to articulate the appropriate standards to be applied as a matter of federal law." City of Milwaukee v. Illinois and Michigan, 451 U.S. 304, 101 S.Ct. 1784, 68 L.Ed.2d 114 (1981). Congress now has expressly defined the magnitude of negligence that would give rise to a federal cause of action against officers and directors of federally insured financial institutions and thus has eliminated the need for judicial law-making. FDIC v. Miller, 781 F.Supp. at 1275. Interpretation of the last sentence of § 1821(k) to preserve a federal common law cause of action for simple negligence would render meaningless the main body of the provision requiring "gross negligence", since a federal negligence standard would already exist. FDIC v. Miller, 781 F.Supp. at 1276.³

Because § 1821(k) expressly allows the RTC to bring suit against directors for gross negligence, the RTC may proceed with its gross negligence claim. On the other hand, because neither Indiana law nor federal law as embodied in § 1821(k) allows actions for simple negligence against S & L directors, the RTC may not maintain its simple negligence claim.

As presently formulated, the RTC's breach of fiduciary duty claim also fails to state a claim under either state or federal law because the claim amounts to nothing more than a reformulation of the negligence claim. The RTC alleges in its complaint that the defendants breached their fiduciary duty of care, without specifying a level of culpability. Both Indiana and federal common law recognize that a director has a fiduciary duty to act with the care an ordinarily prudent person in a like position would exercise under similar circumstances — the classic formulation of a negligence standard of care. See IND.CODE 23-1-35-1(a)(2); FDIC v. Stanley, 770 F.Supp. at 1310 (citing Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662 (1891)). An allegation that the defendants breached a fiduciary duty of care defined by a negligence standard is not sufficient to state a claim because neither state nor federal law recognizes a cause of action for mere negligence.⁴ Accordingly, the RTC's simple negligence and breach of fiduciary duty claims (Counts I and III) should be dismissed.

The RTC alleges in Count IV of the complaint that the defendants have breached an implied contract to discharge their duties as directors faithfully, properly, and with due care. The court agrees with other courts that have held that such a claim merely restates the RTC's breach of fiduciary duty claims, and does not state a claim sounding in contract. See RTC v. Gallagher, 800 F.Supp. at 603; FDIC v. Greenwood, 739 F.Supp. 450, 452-53 (C.D.Ill.1989); FDIC v. Haddad, 778 F.Supp. 1559 (S.D.Fla.1991); FDIC v. McAtee, No. 87-2459-0, 1988 WL 248044 (D.Kan. Oct. 5, 1988). The defendants' oath to act honestly, diligently, and with a reasonable degree of skill creates no contractual obligation. Accordingly, Count IV of the complaint should be dismissed.

II. Motion to Strike

The RTC moves to...