Resolution Trust Corp. v. Gallagher, 92-4023

CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)
Citation10 F.3d 416
Docket NumberNo. 92-4023,92-4023
PartiesRESOLUTION TRUST CORPORATION, Plaintiff-Appellant, v. Francis X. GALLAGHER, Vincent J. Gavin, John J. Gill, John W. Gilluly, Gordon A. Groebe, Joseph M. Heidecker, Lawrence Klingler, Louis J. Kole, Gary K. Kummer, Matthew J. Lamb, H. Richard Landis, Edward A. Long, and Milton Meyers, Defendants-Appellees.
Decision Date08 December 1993

Page 416

10 F.3d 416
62 USLW 2311
Francis X. GALLAGHER, Vincent J. Gavin, John J. Gill, John
W. Gilluly, Gordon A. Groebe, Joseph M. Heidecker, Lawrence
Klingler, Louis J. Kole, Gary K. Kummer, Matthew J. Lamb, H.
Richard Landis, Edward A. Long, and Milton Meyers,
No. 92-4023.
United States Court of Appeals,
Seventh Circuit.
Argued June 3, 1993.
Decided Nov. 9, 1993.
Rehearing and Rehearing En Banc Denied Dec. 8, 1993.

Page 417

Stephen Novack (argued), Timothy J. Miller, Novack & Macey, Alan F. Curley, Fay Clayton, Steven A. Ramirez, Robinson, Curley & Clayton, Chicago, IL, for Resolution Trust Corp.

Raymond H. Groble, III, Sean M. Sullivan, Ross & Hardies, Chicago, IL, for Francis X. Gallagher.

Gordon B. Nash, Jr., Gardner, Carton & Douglas, Chicago, IL, for Vincent J. Gavin.

Edmund P. Burke, Thomas M. Lake, Burke & Burke, Ltd., Chicago, IL, for John J. Gill.

George W. Groble, Donald G. Groble, Daniel F. Marren, Kimberly M. Kash, Groble & Groble, Chicago, IL, for John W. Gilluly.

Michael D. Walsh, Lawrence Schindler, Gierach, Schussler & Walsh, Ltd., Oak Lawn, IL, for Gordon A. Groebe.

Royal B. Martin, Jr., Daniel T. Hartnett, Martin, Brown, Sullivan & Bowman, Locke E. Bowman, III, University of Chicago Law School, Chicago, IL, for Joseph M. Heidecker.

Susan Bogart, Sulzer & Shopiro, Chicago, IL, for Lawrence Klinger.

Edward P. Freud, Dean J. McElroy, William B. Weidenaar, Ruff, Weidenaar & Reidy, Chicago, IL, for Louis J. Kole.

Donald L. Mrozek, Peter D. Sullivan, John J. Foran, Hinshaw & Culbertson, Chicago, IL, Daniel M. Purdom, Hinshaw & Culbertson, Lisle, IL, for Gary K. Kummer.

Michael J. O'Rourke, Bruce R. Braun (argued), Robert W. Tarun, Winston & Strawn, Chicago, IL, for Matthew J. Lamb and H. Richard Landis.

George P. Lynch, Downers Grove, IL, for Edward A. Long and Milton Meyers.

Stuart J. Baskin, Joseph F. Haggerty, William F. Ranieri, James R. Warnot, Jr., Shearman & Sterling, New York City, for amicus curiae, American Bankers Ass'n, Ass'n of Bank Holding Companies, and Independent Bankers Ass'n of America.

Before BAUER, CUDAHY, and KANNE, Circuit Judges.

Page 418

KANNE, Circuit Judge.

In 1990, the Resolution Trust Corporation ("RTC") 1 placed the Concordia Federal Bank for Savings ("Concordia"), a federally chartered and federally insured thrift into receivership. On February 14, 1991, the RTC filed this action against the former directors and officers of Concordia. The complaint sought to recover losses for the defendants' alleged negligence, breach of fiduciary duty, gross negligence, and breach of contract. The RTC alleged that the defendants' conduct caused Concordia to incur substantial losses which resulted in Concordia's failure.

The defendants filed motions to dismiss for failure to state a claim upon which relief may be granted under Fed.R.Civ.P. 12(b)(6). The defendants argued, inter alia, that the RTC may only assert claims against the defendants based on gross negligence or other similar conduct because 12 U.S.C. Sec. 1821(k) establishes a national gross negligence standard of liability for officers and directors of federally insured financial institutions. The RTC claimed that Sec. 1821(k)'s gross negligence standard does not pre-empt state law or federal common law actions based on a simple negligence standard of liability.

The district court found that Sec. 1821(k) "pre-empted all previously existing federal common law, and created a federal cause of action solely for gross negligence." However, the district court found that Sec. 1821(k) did not pre-empt either state statutory or common law. Even so, the district court held that no state law claims could be successfully prosecuted against the defendants because Concordia was a federally chartered, federally regulated, and federally insured thrift organized under federal law. Accordingly, the district court dismissed the negligence, breach of fiduciary duty, and breach of contract claims, "since the conduct they allege falls below the minimum level of culpability established by Congress in Sec. 1821(k)." 800 F.Supp. 595.

Following dismissal of the RTC's claims, the district court granted the RTC's petition, pursuant to 28 U.S.C. Sec. 1292(b), to certify for interlocutory review the issue of whether Sec. 1821(k) "pre-empted federal common law and created a cause of action solely for gross negligence." On November 30, 1992, this court granted the RTC permission to take this interlocutory appeal.

Standard of Review

In cases of statutory construction, like this one, we review the findings of the district court de novo. Oviawe v. INS, 853 F.2d 1428, 1431 (7th Cir.1988).


The only issue raised in this appeal is whether Sec. 1821(k) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") 2 pre-empts federal common law and establishes a gross negligence standard of liability for officers and directors of failed federally chartered financial institutions. Section 1821(k) provides in pertinent 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 ... 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.

This is a case of first impression in this circuit. No other circuit courts have directly addressed this issue either. 3 However, the

Page 419

majority of district courts have agreed with the appellees that Sec. 1821(k) pre-empts federal common law. See FDIC v. Miller, 781 F.Supp. 1271 (N.D.Ill.1991); FDIC v. Barham, 794 F.Supp. 187 (W.D.La.1991); FDIC v. Brown, 812 F.Supp. 722 (S.D.Tex.1992); RTC v. Miramon, 1992 WL 373635, 1992 U.S. Dist. LEXIS 18813 (E.D.La.1992); RTC v. Chapman, No. 92-3188, slip op. (C.D.Ill. Oct. 16, 1992); FDIC v. Mintz, 816 F.Supp. 1541 (S.D.Fla.1993); RTC v. Farmer, 823 F.Supp. 302 (E.D.Pa.1993); FDIC v. Gonzalez-Gorrondona, 833 F.Supp. 1545 (S.D.Fla.1993); RTC v. Hecht, 818 F.Supp. 894 (D.Md.1992); FDIC v. G. Del Bates, 838 F.Supp. 1216 (N.D.Ohio 1993). Contra RTC v. Hess, 820 F.Supp. 1359 (D.Utah 1993); RTC v. Kidd, No. 93-CV-0059-J, slip op. (D.Wyo. April 16, 1993).

Initially, it is important to note the limited role federal common law plays in areas where Congress has legislated. Federal common law is a creature of the federal judiciary and applies only in those "few and restricted" situations, Wheeldin v. Wheeler, 373 U.S. 647, 651, 83 S.Ct. 1441, 1445, 10 L.Ed.2d 605 (1963), "[w]hen Congress has not spoken to a particular issue" and "there exists 'a significant conflict between some federal policy or interest and the use of state law.' " Milwaukee v. Illinois, 451 U.S. 304, 313, 101 S.Ct. 1784, 1790, 68 L.Ed.2d 114 (1981) (Milwaukee II ) (quoting Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68, 86 S.Ct. 1301, 1304, 16 L.Ed.2d 369 (1966)). The federal courts have "always recognized that the federal common law is 'subject to the paramount authority of Congress.' " Id. (quoting New Jersey v. New York, 283 U.S. 336, 348, 51 S.Ct. 478, 481, 75 L.Ed. 1104 (1931)), and is resorted to only "in absence of an applicable Act of Congress." Id. (quoting Clearfield Trust Co. v. United States, 318 U.S. 363, 367, 63 S.Ct. 573, 575, 87 L.Ed. 838 (1943)). "Federal common law is a 'necessary expedient' and when Congress addresses a question previously governed by a decision rested on federal common law the need for such an unusual exercise by federal courts disappear." Id. (quoting Committee for Consideration of Jones Falls Sewage Sys. v. Train, 539 F.2d 1006, 1008 (4th Cir.1976) (en banc)).

In determining whether Congressional legislation preempts federal common law, " 'we start 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.' " Id. 451 U.S. at 317, 101 S.Ct. at 1792. The relevant question is whether Congress "spoke directly to a question," "not whether Congress ha[s] affirmatively proscribed the use of federal common law." Id. at 315, 101 S.Ct. at 1791. However, there is a "longstanding ... principle that statutes which invade the common law are to be read with a presumption favoring the retention of long-established and familiar principles, except when a statutory purpose to the contrary is evident. In such cases, Congress does not write upon a clean slate. In order to abrogate a common law principle, the statute must 'speak directly' to the question addressed by the common law." United States v. Texas, --- U.S. ----, ----, 113 S.Ct. 1631, 1634, 123 L.Ed.2d 245 (1993) (citations omitted). This "longstanding principle" applies with equal force to well established federal common law practices. Id.

Accordingly, we must decide whether Congress "spoke directly" to the issue of what standard of liability governs suits brought by the RTC against officers and directors of failed federally chartered financial institutions. We find that it did.

Plain Language of Sec. 1821(k)

"The starting point for the interpretation of a statute 'is the language of the statute itself. Absent a clearly expressed legislative

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intention to the contrary, that language must ordinarily be regarded as conclusive.' " Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990) (quoting Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980)). The plain language of Sec. 1821(k) "speaks directly" to the issue presented in this case and establishes...

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