Resolution Trust Corp. v. Dean, CIV 91-2026 PHX EHC.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Arizona
Citation854 F. Supp. 626
Docket NumberNo. CIV 91-2026 PHX EHC.,CIV 91-2026 PHX EHC.
PartiesRESOLUTION TRUST CORPORATION, Plaintiff, v. Clayton J. DEAN, et al., Defendants.
Decision Date11 February 1994

854 F. Supp. 626

Clayton J. DEAN, et al., Defendants.

No. CIV 91-2026 PHX EHC.

United States District Court, D. Arizona.

February 11, 1994.

854 F. Supp. 627
854 F. Supp. 628
854 F. Supp. 629
Charles E. Patterson (argued), Bruce A. Ericson, Pillsbury Madison & Sutro, San Francisco, CA, and Richard C. Sanders, David A. Ingrassia, Hill Lewis Marce, Phoenix, AZ, for plaintiff Resolution Trust Corp

Lat J. Celmins, Margrave, Celmins & Verburg, P.C., Scottsdale, AZ, for defendant Lewis.

854 F. Supp. 630

Joseph A. Schenk, Hebert, Schenk & Johnsen, Phoenix, AZ, for defendant Reese.

Gary L. Stuart (argued), Jennings, Strouss and Salmon, Phoenix, AZ, for defendant Symington.

John D. Gordan, III, Lord Day & Lord, Barrett Smith, New York City and Dale A. Danneman (argued), Leslie Keith Beauchamp, Lewis and Roca, Phoenix, AZ, for defendants Dean, Fannin, Griffith, Hess, Kerr, Needham and Newell.

Merwin D. Grant, Law Offices of Merwin Grant, Phoenix, AZ, for defendant Mirabella.

David M. Heller, Tryon, Heller & Rayes, P.C., Phoenix, AZ, for defendant Snow.

Michael D. Hawkins (argued), Daughton Hawkins Brockelman Guinan & Patterson, Phoenix, AZ, for defendants Ludwig and Nat. Bulk Carriers, Inc.


CARROLL, District Judge.

This lawsuit arises out of the failure of Southwest Savings and Loan Association ("Southwest"), a federally insured Savings and Loan incorporated under Arizona law. On February 17, 1989, the Federal Savings and Loan Insurance Corporation ("FSLIC") took possession of Southwest as conservator, and the Resolution Trust Corporation ("RTC") succeeded the FSLIC in that role.1 RTC filed its original complaint on December 16, 1991, and its first amended complaint ("complaint") on February 14, 1992. The eight-count complaint asserts claims against the former directors and officers of Southwest ("the Southwest defendants") for negligence, negligence per se, gross negligence, breach of fiduciary duty and breach of duty of loyalty.2 With the exception of Matthew Shevlin and Edward McDermott, the complaint names as defendants every person, other than deceased individuals, who served on Southwest's board of directors from 1984 until conservatorship. The complaint also asserts a claim against the Southwest defendants' Arizona spouses for spousal liability, and a claim against Daniel Ludwig and National Bulk Carriers for the return of unlawful dividends. RTC seeks to hold the defendants liable for over $210 million in damages.

Defendants have filed 20 motions under Rules 12(b)(6) and 12(e), Fed.R.Civ.P. and the RTC has filed a consolidated opposition to the various motions.

I. Background/Complaint

The complaint is divided into seven sections. The first section sets forth the jurisdictional allegations. The second section identifies the parties and their respective relationship to Southwest. Part B of this section describes each of the defendant directors' and officers' role and tenure at Southwest. Complaint at ¶¶ 12-25. The complaint asserts that the RTC seeks to impose joint liability on each of the officers and directors,

only with respect to his acts or omissions during the period or periods he served as a director or officer of Southwest, or of any subsidiary of Southwest, or during times when said defendants otherwise owed duties to Southwest, its shareholders and its insurer of accounts as hereinafter described, and the consequences of such acts or omissions then and thereafter.

Id. at ¶ 25.

The third section of the complaint sets forth general allegations regarding the Southwest defendants' duties and the breaches of these duties. Id. at ¶¶ 30-35. In this section, the complaint asserts that the Southwest defendants owed Southwest, its depositors and the FSLIC, as insurer, fiduciary and other duties requiring them to act prudently in their lending and investment practices and to safeguard the depositors' insured funds and the FSLIC insurance fund. Id. at ¶ 31.

854 F. Supp. 631
The complaint also asserts that the Southwest defendants owed a duty to carry out their responsibilities at Southwest by exercising the degree of care, skill and diligence that ordinarily prudent persons in like positions would use under similar circumstances. Id. at ¶ 32

The fourth section of the complaint sets forth fourteen loans or investments as "specific examples of the Southwest defendants' breach of fiduciary duties and gross negligence." Id. at ¶¶ 36-78. The complaint recites factual allegations concerning seven of these loans. Id. at ¶¶ 36-77. Another seven loans, accounting for more than $55 million of the total damages sought, are summarized in paragraph 78, entitled "Other Imprudent Loans." The complaint states the defendants' breaches of duty are not limited to these 14 transactions:

These transactions illustrate the manner in which the Southwest Defendants breached their duties, and together they demonstrate the extent to which the Southwest Defendants willingly used insured deposits to finance speculative real estate acquisition and development projects. Some of these transactions were carried on Southwest's books as loans, although in economic substance they were investments; others (notably Camelback Esplanade) were carried on Southwest's books as investments; and some were denominated loans but accounted for as investments.

Id. at ¶ 36.

The fifth section of the complaint alleges improper accounting and auditing practices and improper bonuses and dividend distribution. Id. at ¶¶ 79-102. Part A of this section asserts that the Southwest defendants failed to follow generally accepted accounting principles (GAAP) by, inter alia, failing to establish adequate loan reserves, not recognizing losses, obscuring losses that had occurred, describing as loans what were in reality investments, and improperly recognizing contingent interest income. Id. at ¶¶ 79-94. Part B asserts that the Southwest defendants, by inaccurately reporting net income for 1986 and by manipulating a Short Term Management Incentive Plan, caused special bonuses to be paid to various Southwest officers. These bonuses are alleged to have violated 12 C.F.R. § 563.17(b) (1972). Id. at ¶¶ 91-95. Finally, part C alleges that the Southwest defendants paid and defendants Ludwig and National Bulk received imprudent and unlawful dividends on preferred stock. Id. at ¶¶ 96-102.

The sixth section of the complaint sets forth Southwest's losses that allegedly resulted as a direct and proximate cause of the Southwest defendants' claimed breaches of duty. Id. at ¶¶ 103-5. Defendants Ludwig and Bulk National are alleged to have received at least $13.4 million in unlawful and imprudent dividends on preferred stock. Id. at ¶¶ 104(a). Defendants Dean, Fannin, Griffith, Kerr, Lewis and Newell are alleged to have authorized at least $1.08 million in unlawful and imprudent bonuses, out of which defendants Lewis, Mirabella, Reese and Snow allegedly received $331,792. Id. at ¶ 104(b). The complaint also alleges that the Southwest defendants' inaccurate financial statements were designed to, and in fact did, attract new depositors so as to enable Southwest to make more high-risk loans and investments and the RTC, as successor to Southwest's insurer of accounts, became responsible for repaying those depositors upon Southwest's failure. Id. at ¶ 105.

Finally, the seventh section of the complaint asserts that any statute of limitations with regard to the claims set forth was tolled from the date that such claims otherwise would have accrued to at least until February 17, 1989, when the FSLIC took possession of Southwest. Id. at ¶¶ 106-07.

II. Motions to Dismiss — Legal Standard

In considering defendants' motions to dismiss, the Court must presume that the plaintiff's allegations are true, and grant the motion only if it appears "beyond doubt" that the plaintiff can prove no set of facts entitling it to relief. Sun Savings & Loan Assoc. v. Dierdorff, 825 F.2d 187, 191 (9th Cir. 1987); Federal Sav. & Loan Ins. Corp. v. Musacchio, 695 F.Supp. 1053, 1058 (N.D.Cal. 1988). The issue is not whether the plaintiff ultimately will prevail, but whether the plaintiff is entitled to offer evidence to support its

854 F. Supp. 632
claim. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). Under this liberal standard, motions to dismiss are viewed with disfavor. Intake Water Co. v. Yellowstone River Compact Comm., 590 F.Supp. 293 (D.C.Mont.1983) aff'd, 769 F.2d 568 (9th Cir.), cert. denied, 476 U.S. 1163, 106 S.Ct. 2288, 90 L.Ed.2d 729 (1985)

III. FIRREA does not bar claims for negligence, negligence per se and breach of duty of care. (Counts I, II and IV)

In the various motions to dismiss, defendants argue that the claims for negligence, negligence per se and breach of duty of care are barred by 12 U.S.C. § 1821(k), as added by section 212 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101-73, 103 Stat. 183, 243.

Section 212(k) of FIRREA provides:

A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by the RTC ... 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 RTC under other applicable law.

12 U.S.C. § 1821(k) (Supp. II 1990) (emphasis added). Movants contend that the RTC's claims not rising to the level of gross negligence are preempted by section 1821(k), which sets a single national standard of liability.


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