Sung v. Mission Valley Renewable Energy, LLC, CV–11–5163–RMP.
| Citation | 930 F.Supp.2d 1234 |
| Decision Date | 11 March 2013 |
| Docket Number | No. CV–11–5163–RMP.,CV–11–5163–RMP. |
| Court | U.S. District Court — Eastern District of Washington |
| 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. |
OPINION TEXT STARTS HERE
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
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.
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.
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 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.
The Federal Deposit Insurance Act of 1950, § 2(13)(e) () provides:
(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) (). 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 longer holds a specific asset. See Brookside, 49 F.3d at 495–96.
The FDIC contends that Dr. Sung's claims are barred by Section 1823(e) because the MVRE notes that form the basis of his suit were not in writing, were not executed contemporaneously with the acquisition of an asset, were not approved by the board of directors or reflected in its minutes, and have not been an official record continuously since the time of their execution. Dr. Sung does not contend that the MVRE notes meet the requirements of Section 1823(e). Rather, Dr. Sung contends that Section 1823(e) and the D'Oench doctrine do not apply in this case.
The Court need not evaluate Dr. Sung's argument that the D'Oench doctrine does not apply. The FDIC only argued for dismissal under Section 1823(e) and not under D'Oench. ECF No. 40. In addition, the Ninth Circuit has held that the D'Oench doctrine does not apply where the FDIC acts as receiver for a failed bank because no federal interest exists to justify the application of federal common law. Ledo Fin. Corp. v. Summers, 122 F.3d 825, 828–30 (9th Cir.1997) (discussing Atherton v. FDIC, 519 U.S. 213, 117 S.Ct. 666, 136 L.Ed.2d 656 (1997); O'Melveny & Myers v. FDIC, 512 U.S. 79, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994)). Therefore the Court only will evaluate the FDIC's motion under Section 1823(e).
Dr. Sung contends that Section 1823(e) does not apply to this case because the FDIC has not acquired an asset in connection with Dr. Sung's claims. See Murphy v. FDIC, 38 F.3d 1490, 1500 (9th Cir.1994) (en banc) ().
Dr. Sung does not allege that the Bank of Whitman was a party to the sale of the MVRE notes or that the Bank of Whitman had any direct involvement with MVRE. Dr. Sung's claims against the bank are based only on the alleged actions of its loan officer, co-defendant William McKay. Dr. Sung relies on various theories of vicarious liability to hold the Bank responsible for misrepresentations and omissions that Mr. McKay allegedly made in the sale of the MVRE notes. According to the allegations in the complaint, the Bank did not have any interest in MVRE and, thus, the FDIC could not have acquired a specific asset relating to the sale of the MVRE notes.
The FDIC recognizes that it did not acquire a specific asset relating to Dr. Sung's claims, but contends that a general depletion of the receivership's assets is adequate to trigger Section 1823(e)'s statutory bar. Put another way, the FDIC contends that while Dr. Sung's claims do not impact a particular asset held by the FDIC, a finding of liability on Dr. Sung's claims and subsequent payout would diminish the overall value of the assets that the FDIC acquired in its receivership of the Bank of Whitman.
It is an open question in the Ninth Circuit whether a party's claim must implicate a specific asset acquired by the FDIC before Section 1823(e)'s statutory bar may apply. Brookside, 49 F.3d at...
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