Resolution Trust Corp. v. Gershman

• Decision Date: 12 July 1993
• Docket Number: No. 4:92CV1687.,4:92CV1687.
• Parties: RESOLUTION TRUST CORPORATION, as receiver of Missouri Savings Association, F.A., Plaintiff, v. Solon GERSHMAN, et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

829 F. Supp. 1095

RESOLUTION TRUST CORPORATION, as receiver of Missouri Savings Association, F.A., Plaintiff, v. Solon GERSHMAN, et al., Defendants.

No. 4:92CV1687.

United States District Court, E.D. Missouri, E.D.

July 12, 1993.

COPYRIGHT MATERIAL OMITTED

Dorothy L. White-Coleman, Susie M. McFarlind, Peoples and Hale, St. Louis, MO, Charles A. Getto, Lawrence D. Greenbaum, Douglas M. Greenwald, McAnany and Van Cleave, Kansas City, KS, Carolyn A. Arthur, Professional Liability Section, Overland Park, KS, for plaintiff.

Alan E. Popkin, Husch and Eppenberger, St. Louis, MO, for Solon R. Gershman, Edward Balk and Thomas A. Stern.

Reinhold W. Borgmann, Jr., pro se.

Richard E. Greenberg, Merle L. Silverstein, Rosenblum and Goldenhersh, St. Louis, MO, for Arline Brilliant.

Alan C. Kohn, Lisa A. Pake, Kohn and Shands, St. Louis, MO, for Gerald J. Heitman.

David Wells, Thompson and Mitchell, St. Louis, MO, for Sherman J. LeMaster.

Norman W. Pressman, Jonathan E. Scharff, Greensfelder and Hemker, St. Louis, MO, for Marvin Polinsky.

Gerald P. Greiman, Managing Partner, Martin M. Green, Partner, Green and Hoffmann, St. Louis, MO, for Mahlon Rubin.

Gideon H. Schiller, pro se.

MEMORANDUM AND ORDER

HAMILTON, District Judge.

This matter is before the Court pursuant to Motions to Dismiss filed by Defendants Gershman, Balk and Stern; Heitman; Rubin; LeMaster and Brilliant; Schiller; and Borgmann and Motions for More Definite Statement filed by Defendants LeMaster and Brilliant; and Defendant Schiller.

I. BACKGROUND

Plaintiff the Resolution Trust Company (RTC) brings this action as receiver of Missouri Savings Association, F.A. Defendants are former officers and directors of Missouri Savings Association.¹ (Missouri Savings) Prior to June 28, 1989, Missouri Savings was a state chartered mutual savings and loan association. On or about June 28, 1989, the Federal Home Loan Bank Board (FHLBB) determined that Missouri Savings was insolvent and appointed the Federal Savings and Loan Insurance Corporation (FSLIC) as receiver. On the same day, the FSLIC established a new entity, Missouri Savings, F.A., which entered into a purchase and assumption transaction with FSLIC by which Missouri Savings, F.A. acquired substantially all of the assets and liabilities of Missouri Savings, including the instant causes of action. Plaintiff became the conservator and then the receiver of Missouri Savings, F.A.

In the instant action, Plaintiff alleges that Defendants originated and approved large, poorly underwritten commercial real estate loans resulting in losses to Missouri Savings of more than $39 million. Plaintiff makes the following specific factual allegations: (1) Defendants failed to inform themselves of Missouri Savings' loan portfolio; (2) Defendants failed to establish adequate policies governing the conditions under which loans could be made; (3) Defendants failed to establish adequate internal controls and audit procedures; (4) Defendants failed to establish or adhere to policies responsive to the warnings and criticisms of Missouri Savings by savings and loan regulatory authorities; (5) Defendants caused or permitted Missouri Savings to be in violation of relevant statutes, rules, regulations and/or directives; (6) Defendants made loans to persons already delinquent in other obligations to Missouri Savings; (7) Defendants approved and disbursed loans without adequate underlying information in violation of Missouri Savings' own policies and despite repeated admonitions from federal savings and loan regulatory authorities; (8) Defendants approved and disbursed loans on an unsecured or inadequately secured basis; (9) Defendants disbursed loans in excess of the prudent lending limits established for the approving officer; (10) Defendants disbursed loans to borrowers who were inexperienced in the businesses to be funded without investigating the probable success of such businesses; (11) Defendants disbursed loans used to finance business or real estate purchases where the loan proceeds were 100% or more of the value of the property or purchase price; (12) Defendants failed to establish and enforce realistic repayment programs; (13) Defendants failed to establish or supervise effective collection policies and procedures; and (14) Defendants failed to supervise properly Missouri Savings' wholly-owned subsidiaries. On the basis of these allegations, Plaintiff seeks damages for breach of fiduciary duty, negligence and gross negligence. In addition, Plaintiff seeks an accounting of Defendants' financial circumstances for the past five years.

II. MOTIONS TO DISMISS

Defendants have filed six separate motions to dismiss. The motion of Defendants Gershman, Stern and Balk was filed on September 16, 1992. The remaining Defendants all incorporate the Memorandum of Law filed in support of Defendants Gershman, Stern and Balk's Motion to Dismiss. Because all pending motions to dismiss raise similar issues, the Court will address the motions collectively.

A cause of action should not be dismissed for failure to state a claim unless, from the face of the complaint, it appears beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957); Jackson Sawmill Co. v. United States, 580 F.2d 302, 306 (8th Cir.1978), cert. denied, 439 U.S. 1070, 99 S.Ct. 839, 59 L.Ed.2d 35 (1979). In ruling on a motion to dismiss the Court views the allegations in the complaint in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

A. Preemption

Defendants maintain that § 212(k) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.-1. No. 101-73, 103 Stat. 183 (1989), 12 U.S.C. § 1821(k), establishes a uniform national standard of director and officer liability which preempts all state law causes of action. Section 212(k) provides:

A director or officer of an insured depository institution may be held personally liable for money 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 —

(1) acting as conservator or receiver of such institution, ...

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) (emphasis added).²

Defendants maintain that this statute establishes a national standard of director and officer liability and thereby preempts Plaintiff's negligence and breach of fiduciary duty claims. Plaintiff counters that the statute only preempts state law to the extent that state law exempts directors and officers from liability for gross negligence and other more culpable conduct. Under Plaintiff's construction, the final phrase of the statute ensures that the RTC retains all rights under any other applicable law, including state law that establishes director and officer liability for mere negligence or breach of fiduciary duty.

The Court of Appeals for the Eighth Circuit has not yet had occasion to construe § 1821(k). However, the only two courts of appeals that have squarely addressed this issue have held that § 1821(k) does not preempt all state law causes of action.³ See Federal Deposit Insurance Corp. v. McSweeney, 976 F.2d 532 (9th Cir.1992) cert. denied ___ U.S. ___, 113 S.Ct. 2440, 124 L.Ed.2d 658 (1993); Federal Deposit Insurance Corp. v. Canfield, 967 F.2d 443 (10th Cir.) cert. dismissed ___ U.S. ___, 113 S.Ct. 516, 121 L.Ed.2d 527 (1992). After consideration of the arguments of counsel, the relevant caselaw and the legislative history of § 1821(k), the Court holds that § 1821(k) does not preempt Plaintiff's claims for breach of fiduciary duty and negligence.

The Court's construction of § 1821(k) must begin with the plain language of the statute itself. Kaiser Aluminum & Chemical Corp. v. Bonjorno, 494 U.S. 827, 835, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990). The plain language of the statute is conclusive absent a clearly expressed legislative intention to the contrary. Id. Furthermore, federal law will not be construed to preempt state law unless preemption was the clear intent of Congress. Wisconsin Public Intervenor v. Mortier, ___ U.S. ___, ___, 111 S.Ct. 2476, 2482, 115 L.Ed.2d 532 (1991); Norfolk Redevelopment & Housing Authority v. Chesapeake & Potomac Telephone Company, 464 U.S. 30, 35, 104 S.Ct. 304, 307, 78 L.Ed.2d 29 (1983).

The first sentence of § 1821(k) provides that directors and officers may be sued for gross negligence. As the Court notes in McSweeney, "may" is not the equivalent of "may only." McSweeney, 976 F.2d at 537 (citing Rose v. Rose, 481 U.S. 619, 626-27, 107 S.Ct. 2029, 2034, 95 L.Ed.2d 599 (1987), for the proposition that the use of the word "may" does not imply exclusivity or preemption of state law). See also Canfield, 967 F.2d at 446 (same). The Court concurs with the RTC's contention that nothing in the first sentence of § 1821(k) limits the liability of directors and officers of failed financial institutions.

Of course, the statute must be construed in its entirety. The second and final sentence of § 1821(k) states that the section is not intended to "impair or affect any right of the Corporation under other applicable law." Because Congress did not restrict the term "other applicable law," the Court finds that the term encompasses both state and federal law. See McSweeney, 976 F.2d at 538; Canfield, 967 F.2d at 446-47. Defendants maintain that the phrase "other applicable law" must be juxtaposed with the...