Schock v. F.D.I.C.

• Decision Date: 31 October 2000
• Docket Number: No. CIV. A. 97-530-L.,CIV. A. 97-530-L.
• Citation: 118 F.Supp.2d 165
• Parties: Eleanor C. SCHOCK, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of Old Stone Bank FSB, Defendant.
• Court: U.S. District Court — District of Rhode Island

118 F.Supp.2d 165

Eleanor C. SCHOCK, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of Old Stone Bank FSB, Defendant.

No. CIV. A. 97-530-L.

United States District Court, D. Rhode Island.

October 31, 2000.

John D. Deacon, Medeiros & Sanford, Providence, RI, for Eleanor C. Schock.

Robin E. Feder, U.S. Attorney's Office, Providence, RI, for U.S.

David J. Lawson, Joseph F. Shea, Nutter, McClennen & Fish, Boston, MA, Z. Scott Birdwell, Federal Deposit Insurance Corp., Washington, DC, for F.D.I.C.

DECISION AND ORDER

LAGUEUX, District Judge.

Plaintiff Eleanor C. Schock ("plaintiff") sued the Federal Deposit Insurance Corporation, acting in its capacity as Receiver of Old Stone Bank FSB ("FDIC-Receiver") for breach of contract. Plaintiff prevailed and now seeks to recover attorneys' fees and costs pursuant to the Equal Access to Justice Act ("EAJA"). 28 U.S.C. § 2412 (1994).

The EAJA provides that attorneys' fees may be awarded to a party that prevails against a federal agency in a civil action where the agency cannot show that its position was substantially justified. The issue presented in this case is whether the FDIC qualifies as a federal agency when it is acting in its capacity as a receiver of a failed federal bank. Because this Court concludes that the FDIC does not qualify as a federal agency in these circumstances, plaintiff's motion for attorneys' fees is denied. Plaintiff is only entitled to the costs that are customarily awarded to the prevailing party in any civil action.

I. Travel of the Case

Plaintiff is the daughter of Ragnar Miller, who died on May 6, 1993, and is the assignee of all claims of the Estate of Ragnar Miller (the "Estate"). During his lifetime, Miller granted a broad power of attorney to Attorney Pat Nero, giving Nero the authority to withdraw funds from Miller's bank accounts. Under the guise of that power of attorney, after Miller's death, Nero withdrew $23,331.72 from Miller's savings account at Old Stone Federal Savings Bank ("Old Stone") on August 27, 1993, deposited the funds into his own account, and then squandered them.

At the time of this transaction, the Resolution Trust Corporation ("RTC") was acting as conservator of Old Stone.¹ The FDIC later succeeded the RTC pursuant to 12 U.S.C. § 1441a(m)(1) (1994).

After discovering Nero's transgression, plaintiff filed suit against the United States, the FDIC-Receiver, and the FDIC acting in its corporate capacity ("FDIC-Corporate"). Essentially, plaintiff alleged that defendants were liable for the actions of the bank employees who allowed Nero to illegally withdraw money from Miller's account.

Plaintiff's first amended complaint stated three claims: Count I against the United States under the Federal Tort Claims Act, 28 U.S.C. § 2674 (1994) (the "FTCA"); Count II against the FDIC-Receiver as conservator of Old Stone; and Count III against FDIC-Corporate as the insurer of all deposits at Old Stone.

The parties first appeared before the Court on April 24, 1998, for a hearing on various motions. The United States moved to dismiss Count I; FDIC-Corporate moved to dismiss Count III; and plaintiff moved for summary judgment against FDIC-Receiver on Count II. Plaintiff also moved to amend her complaint to add a negligence claim against the United States under the FTCA. The Court denied the United States' motion to dismiss Count I, but granted FDIC-Corporate's motion to dismiss Count III. The Court also denied plaintiff's motion for summary judgment on Count II, but granted her motion to amend the complaint. See Schock v. United States, 21 F.Supp.2d 115, 125 (D.R.I.1998) (hereinafter Schock I).

In granting FDIC-Corporate's motion to dismiss, the Court noted that FDIC-Corporate only insures funds on deposit at the time the bank fails. Because Nero wiped out Miller's savings account on August 27, 1993, there were no funds on deposit for FDIC-Corporate to insure when Old Stone was closed and liquidated on July 8, 1994. In addition, the FDIC is entitled to rely solely on the records of the failed institution in determining whether or not there are funds on deposit. See Villafane-Neriz v. FDIC, 75 F.3d 727, 731 (1st Cir.1996). Thus, there was no basis on which to find FDIC-Corporate liable for plaintiff's loss.

The parties appeared before the Court again on July 29, 1998, for a hearing on cross-motions for summary judgment. The United States moved for summary judgment on Count I and the new Count IV, and plaintiff renewed her motion for summary judgment on Count II against the FDIC-Receiver. While the Court discussed several points of law that would support the United States' motion for summary judgment, only two are of consequence to the determination of the instant motion for attorneys' fees.

First, the Court noted that although Count I and Count II were based on identical allegations and originally asserted by the plaintiff as claims for conversion, plaintiff later saved Count II from dismissal by arguing that it was actually a claim for breach of contract. See Schock v. United States, 56 F.Supp.2d 185, 192 (D.R.I.1999) (hereinafter Schock II). Although the same set of facts can give rise to two claims, one sounding in tort and the other in contract, a plaintiff is prohibited from making conflicting representations to a court under the doctrine of judicial estoppel. Accordingly, the Court determined that the claim in Count I was based on Old Stone's obligation as a debtor on the deposit account, which sounds in contract. See id. at 192-93. Because contract claims are not cognizable under the FTCA, the Court dismissed Count I. See id. at 193.

Second, the United States argued that neither claim could be sustained under the FTCA unless plaintiff could show that the bank employees who processed Nero's withdrawal ("the tellers") were federal employees under the FTCA. The Court withheld judgment on whether the tellers qualified as government employees under the FTCA, but noted that the United States could prevail at trial by showing that the tellers were not government employees. See id. at 188.

Plaintiff's remaining claims against the United States and the FDIC-Receiver were ultimately resolved during a bench trial that was held on November 3-8, 1999. At the close of plaintiff's evidence, the United States and the FDIC-Receiver made motions for judgment in their favor pursuant to Rule 52(c) of the Federal Rules of Civil Procedure.²

The Court granted the United States' motion, concluding that plaintiff could not sustain her claim for negligence under the FTCA against the United States. The Court based its decision on the following three reasons: the two tellers who allowed Nero to withdraw the funds from Miller's savings account were employees of Old Stone, and were not federal employees; plaintiff failed to prove the elements of negligence, particularly the element of proximate cause; and the claim was for breach of contract, which is not cognizable under the FTCA. See Trial Transcript, November 5, 1999, p. 106-09.

The Court found as a fact and concluded as a matter of law that the teller and head teller who allowed Nero to "clean out" Miller's bank account "were not federal employees, pure and simple." Id. at 106. In support of this ruling, the Court found that the branch manager and all the employees working under her worked for Old Stone, and that the employment status and W-2 forms of the employees at Old Stone showed that they were "clearly not federal employees." Id. at 107. In addition, although some RTC employees generally oversaw Old Stone's operations, the Court found that they did not exercise the degree of day-to-day control required to bring the bank employees within the definition of federal employees. See id.

The Court then addressed the FDIC-Receiver's motion for judgment under Rule 52(c). The FDIC-Receiver argued that Old Stone was entitled to presume Nero was authorized to withdraw the funds under the Uniform Fiduciaries Act ("UFA"), which protects third parties who transfer funds to a fiduciary in good faith. See R.I. Gen. Laws § 18-4-16 (1996). The UFA only applies, however, where the funds are transferred to a person who is a fiduciary in fact. Because Nero's power of attorney terminated at Miller's death, Nero could only be considered a fiduciary under the UFA if he had apparent authority.

Finding that publication of Miller's obituary provided notice of Miller's death to Old Stone, the Court concluded that Nero did not have apparent authority. See Trial Transcript, November 8, 1999, p. 18. In so holding, the Court established a new rule on the issue of notice. Stating that "[a]ny other rule would reward ignorance," the Court held that:

"notice [to the bank] is the publication of the obituary in a newspaper in the area and, therefore, the bank has a duty to put a procedure in place whereby it notes which of its customers have died, and makes that information available within the bank to tellers, or anybody else who would deal with someone who claims to be a fiduciary." Id. at 31.

Since Nero was not a fiduciary at the time he withdrew the funds, the UFA did not protect Old Stone. See id. at 17. As a result, the Court denied the FDIC-Receiver's motion for judgment. See id. at 19.

The Court then held that payment of the money in Miller's account to Nero resulted in a breach of contract.³ See id. Although Old Stone was liable for this breach, the RTC inherited that liability when it became the conservator of the bank, and the FDIC-Receiver likewise inherited that liability when it became the statutory successor to the RTC. Therefore, judgment in the amount of $23,331.72 plus interest was entered against the FDIC-Receiver. See id. at 32.

Thereafter, plaintiff moved for attorneys' fees and costs pursuant to the EAJA. This Court heard arguments on the motion and took it under advisement. The matter is now in order for decision.

II. Discussion

Bringing suit against...