Sung v. Mission Valley Renewable Energy, LLC, CV–11–5163–RMP.

• Court: United States District Courts. 9th Circuit. Eastern District of Washington
• Citation: 930 F.Supp.2d 1234
• Decision Date: 11 March 2013
• Docket Number: No. CV–11–5163–RMP.,CV–11–5163–RMP.
• Parties: Charles C. SUNG, MD, a married man, Plaintiff, v. MISSION VALLEY RENEWABLE ENERGY, LLC, a Delaware limited liability company doing business in the State of Washington; Federal Deposit Insurance Corporation as Receiver for Bank of Whitman; William McKay and Cynthia McKay, individually and the marital community, Defendants.

930 F.Supp.2d 1234

Charles C. SUNG, MD, a married man, Plaintiff,
v.
MISSION VALLEY RENEWABLE ENERGY, LLC, a Delaware limited liability company doing business in the State of Washington; Federal Deposit Insurance Corporation as Receiver for Bank of Whitman; William McKay and Cynthia McKay, individually and the marital community, Defendants.

No. CV–11–5163–RMP.

United States District Court,
E.D. Washington.

March 11, 2013.

[930 F.Supp.2d 1235]

Maris Baltins, Baltins & Murock, Spokane, WA, for Plaintiff.

Don Paul Badgley, Mark K. Davis, Badgley Mullins Law Group, Seattle, WA, for Defendants.

ORDER DENYING DEFENDANT FDIC'S MOTION TO DISMISS
ROSANNA MALOUF PETERSON, Chief Judge.

This matter comes before the Court on a motion to dismiss brought by Defendant Federal Deposit Insurance Corporation (“FDIC”) as Receiver for the Bank of Whitman. ECF No. 40. The Court heard oral argument on the motion. Maris Baltins appeared for the plaintiff, Dr. Charles C. Sung. David Gardner appeared on behalf of the FDIC. The Court has considered the motions and the file, and is fully informed.

BACKGROUND

Dr. Sung filed a complaint in Benton County Superior Court on October 27, 2010, alleging state law claims arising from a series of investments he had made in a company named Mission Valley Renewable Energy, LLC (“MVRE”). Dr. Sung alleged that William McKay, a loan officer for the Bank of Whitman, made numerous material misrepresentations and omissions concerning MVRE in the process of soliciting Dr. Sung's investments. Allegedly relying on Mr. McKay's advice and representations, Dr. Sung made two investments in MVRE of $100,000 each in the form of convertible promissory notes. When the investments failed Dr. Sung brought suit against MVRE, the Bank of Whitman, and Mr. McKay.

Dr. Sung's complaint stated various causes of action against the Bank of Whitman under the Washington State Securities Act, RCW 21.20.005 et seq., and under tort theories of respondeat superior, failure to supervise, negligent misrepresentation, breach of fiduciary duty, and negligence. ECF No. 2, at 21–26. Dr. Sung generally sought to hold the Bank of Whitman liable for the alleged actions of its loan officer, Mr. McKay. As part of his claim, Dr. Sung requested judgment for interest, attorney's fees, and costs pursuant to the Washington State Securities Act, RCW 21.20.430(1). ECF No. 2, at 26.

On August 5, 2011, the Washington State Department of Financial Institutions closed the Bank of Whitman and appointed the FDIC as Receiver. The FDIC substituted for the Bank of Whitman as the real party in interest in the Benton County action. Thereafter the FDIC removed the action to federal court pursuant to 12 U.S.C. § 1819 and 28 U.S.C. § 1331.

The FDIC then brought the instant motion to dismiss, contending that Dr. Sung's suit is barred by federal law relating to the FDIC's status as receiver for the Bank of Whitman.

ANALYSIS

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a claim upon which relief can be granted.” Dismissal is appropriate under this rule when the plaintiff's claims are not legally cognizable. E.g., Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). When evaluating a motion to dismiss, the court must accept all material allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Id. The

[930 F.Supp.2d 1236]

FDIC asserts that Dr. Sung's claims are barred by 12 U.S.C. § 1823(e) and that Dr. Sung may not seek recovery of fees, costs, and interests in accordance with 12 U.S.C. § 1825(b)(3). These arguments are examined in turn.

A. Dismissal of Dr. Sung's Claims Pursuant to 12 U.S.C. § 1823(e)

The Federal Deposit Insurance Act of 1950, § 2(13)(e) (codified as amended at 12 U.S.C. § 1823(e)(1)) provides:

No agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution shall be valid against the [FDIC] unless such agreement—

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,

(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

12 U.S.C. § 1821(d)(9)(A) makes explicit that an agreement which does not meet these may not form the basis of a claim against the FDIC.

The Supreme Court recognized two purposes behind Section 1823(e) in Langley v. FDIC, 484 U.S. 86, 91–92, 108 S.Ct. 396, 98 L.Ed.2d 340 (1987). The first is to allow regulatory examiners to rely on a bank's records in evaluating its assets. Id. at 91, 108 S.Ct. 396. “Such evaluations are necessary when a bank is examined for fiscal soundness by state or federal authorities and when the FDIC is deciding whether to liquidate a failed bank or to provide financing for purchase of its assets (and assumption of its liabilities) by another bank.” Id. (internal citations and quotations omitted). The second purpose of 1823(e) is to prevent fraudulent insertion of new terms in loan transactions when a bank appears headed for failure. Id. at 92, 108 S.Ct. 396.

Courts generally agree that Section 1823(e) represents a partial codification of the doctrine announced in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). E.g., John v. Resolution Trust Corp., 39 F.3d 773, 775 (7th Cir.1994). In D'Oench, the Supreme Court held that an alleged “secret agreement” between the maker of a note and a failed bank could not operate as a defense to suit by the FDIC because such agreements would tend to deceive banking authorities. 315 U.S. at 460–61, 62 S.Ct. 676. The Court recognized “a federal policy to protect [the FDIC] and the public funds which it administers against misrepresentations as to the securities or other assets in the portfolios of the banks which [the FDIC] insures or to which it makes loans.” Id. at 457, 62 S.Ct. 676.

Although Section 1823(e) represents a partial codification of D'Oench, the Ninth Circuit has recognized that Section 1823(e) and the common law D'Oench doctrine are not coextensive. See, e.g., Brookside Assocs. v. Rifkin, 49 F.3d 490, 495–96 (9th Cir.1995); see also E.I. du Pont de Nemours & Co. v. FDIC, 32 F.3d 592, 596–97 (1994) (explaining that Section 1823(e) is “both broader and narrower than the D'Oench doctrine”). One key difference between the two is that Section 1823(e) by its terms applies only where the FDIC has acquired an “asset,” whereas the D'Oench doctrine applies even when the FDIC no

[930 F.Supp.2d 1237]

longer holds a specific asset. See Brooksid...