Resolution Trust Corp. v. Fleischer

• Decision Date: 15 August 1994
• Docket Number: No. 93-2062-JWL.,93-2062-JWL.
• Citation: 862 F. Supp. 309
• Parties: RESOLUTION TRUST CORPORATION, Plaintiff, v. Ernest M. FLEISCHER, et al., Defendants.
• Court: U.S. District Court — District of Kansas

862 F. Supp. 309

RESOLUTION TRUST CORPORATION, Plaintiff, v. Ernest M. FLEISCHER, et al., Defendants.

No. 93-2062-JWL.

United States District Court, D. Kansas.

August 15, 1994.

H. David Barr, Charles J. Williams, Gage & Tucker, Overland Park, KS, William L. Turner, Bernard J. Rhodes, R. Kent Sellers, Jeffrey M. Pfaff, Mike L. Racy, Jean Paul Bradshaw, II, Gage & Tucker, Kansas City, MO, Mira N. Marshall, Resolution Trust Corp., Legal Div.-Prof. Liability Section, Robert H. Plotkin, Resolution Trust Corp., Professional Liability Section, Washington, DC, and Andrea J. Goetze, N.L.R.B., New Orleans, LA, for plaintiff.

James Borthwick, Michael Thompson, Brian C. Fries, Christopher A. Koster, Blackwell, Sanders, Matheny, Weary & Lombardi, and Charles W. German, Brant M. Laue, Robert M. Thompson, Rouse, Hendricks, German, May & Shank, Renana B. Abrams, Robert P. Wray, Thomas H. Stahl, Jennifer P. Kyner, Armstrong, Teasdale, Schlafly & Davis, Kathleen A. Hardee, Hoskins, King, McGannon & Hahn, Kansas City, MO, John R. Toland, Toland & Thompson, Iola, KS, Delton M. Gilliland, Coffman, Jones & Gilliland, Lyndon, KS, Richmond M. Enochs, Francis R. Peterson, Wallace, Saunders, Austin, Brown & Enochs, Chartered, Overland Park, KS, Thomas E. Gleason Jr., Thomas E. Gleason, Chartered, Ottawa, KS, and Greer S. Lang, and Leonard B. Rose, Rose, Brouillette & Shapiro, P.C., Kansas City, MO, for defendants.

Thomas R. Weigand, pro se.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

I. Introduction

This case involves a suit brought by plaintiff Resolution Trust Corporation ("RTC") alleging multiple causes of action against former directors and officers of Franklin Savings Association ("FSA"). The claims asserted by the RTC against the defendants include state law tort claims under negligence and breach of fiduciary duty theories.¹ 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 under the Kansas Savings and Loan Code, or any improper personal benefit from any transaction.

In its 1993 session, the Kansas Legislature enacted into law a statutory provision regarding the personal liability of officers and directors of savings and loans. See K.S.A. § 17-5831. In its 1994 session, the Kansas Legislature considered and passed Senate Bill 762, which specified that K.S.A. § 17-5831 was to be retroactively applied to all actions not finally adjudicated prior to its 1993 enactment.

If this court were to apply the provisions of K.S.A. § 17-5831 retroactively to this action, it would have the effect of eliminating the RTC's accrued actions for negligence and breach of fiduciary duty against nearly every defendant. This raises the question of whether the RTC had a vested property right under Kansas law in their accrued tort causes of action, such that the retroactive application of K.S.A. § 17-5831 would constitute an unconstitutional taking of property under the United States Constitution, and raises the further question of whether the retroactive application would be violative of the Kansas Constitution. Because the answers may be determinative of the cause now pending in this court, and this court finds no controlling precedent exists in decisions of the Kansas Supreme Court or Kansas Court of Appeals, we certify the following questions to the Kansas Supreme Court as authorized by 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 Senate Bill 762, which makes K.S.A. § 17-5831 retroactive, unconstitutional under the constitution of the State of Kansas when applied to claims which accrued prior to its enactment?

II. Background

This case involves a suit brought by plaintiff RTC alleging various causes of action against former directors and officers of FSA. 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 FSA. 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.

In its 1993 session, the Kansas Legislature enacted into law a statutory provision regarding the personal liability of officers and directors of savings and loan associations. The statute, K.S.A. § 17-5831, provides as follows:

Personal liability of officers and directors, exceptions. 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, and the officer does not actually participate in the policymaking functions of the savings and loan association, federal savings association or federal savings bank.

In its 1994 session, the Kansas Legislature considered and passed Senate Bill 762, which specified that K.S.A. § 17-5831 was applicable to all actions not finally adjudicated prior to its 1993 enactment. Senate Bill 762, which was signed by the governor on May 11, 1994, and became effective upon its publication in the Kansas Register on May 19, 1994, provides as follows:

Section 1. The provisions of K.S.A.1993 Supp. 9-1132, 17-2268 and 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 K.S.A.1993 Supp. 9-1132, 17-2268 and 17-5831 and amendments thereto.

Section 2. If any provision of section 1 or K.S.A.1993 Supp. 9-1132, 17-2268 and 17-5831 and amendments thereto or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of such statutes which can be given effect without the invalid provision or application, and to this end the provisions of such statutes are declared to be severable.

Section 3. This act shall take effect and be in force from and after its publication in the Kansas register.

III. Discussion

There is no question that at the time the RTC brought its present cause of action against defendants in this case, Kansas law provided valid causes of action against the defendants based upon the RTC's theories of negligence and negligent breach of fiduciary duty. In Federal Deposit Ins. Corp. v. Canfield, 967 F.2d 443 (10th Cir.1992), the Tenth Circuit held that in states where an officer or director is liable for simple negligence, the FDIC may rely on state law to enable its action. Kansas law, prior to the enactment of K.S.A. § 17-5831, clearly established duties of care for directors and officers of savings and loans and allowed actions against such persons in simple negligence for breach of such duty. See Federal Sav. & Loan Ins. Corp. v. Huff, 237 Kan. 873, 704 P.2d 372 (1985).

With the passage of K.S.A. § 17-5831, the Kansas Legislature moved to eliminate claims against savings and loan directors and officers, other than "executive officers" as defined in the statute, for simple negligence or negligent breach of fiduciary duty. With the passage of Senate Bill 762, the legislature enacted this statute retroactively. If retroactive enactment of this statute is upheld, it would have the effect of eliminating the RTC's accrued negligence and negligent breach of fiduciary duty claims in this litigation. The RTC argues that such a retroactive application of K.S.A. § 17-5831 would be violative of its due process rights under the United States Constitution and would also violate Section 18 of the Bill of Rights of the Kansas Constitution.

A. Are accrued tort actions for negligence and negligent breach of fiduciary duty, that have not been reduced to judgment, "vested property rights" under Kansas law?

The RTC contends that retroactive application of K.S.A. § 17-5831 would violate the Due Process Clause of the Fifth Amendment by stripping it of "vested property rights" it held in the accrued causes of action. When a court confronts general retroactive legislation, it generally begins by making a threshold determination of...