Vinton v. Trustbank Sav., FSB

• Decision Date: 07 July 1992
• Docket Number: Civ. A. No. 90-317 MMS.
• Citation: 798 F. Supp. 1055
• Parties: Benjamin VINTON, Jr., Plaintiff, v. TRUSTBANK SAVINGS, F.S.B., Defendant.
• Court: U.S. District Court — District of Delaware

798 F. Supp. 1055

Benjamin VINTON, Jr., Plaintiff, v. TRUSTBANK SAVINGS, F.S.B., Defendant.

Civ. A. No. 90-317 MMS.

United States District Court, D. Delaware.

July 7, 1992.

COPYRIGHT MATERIAL OMITTED

Stephen W. Spence of Phillips, Goldman, Spence & Nolte, Wilmington, Del., for plaintiff; William D. Johnston, (former counsel) (argued), of Young, Conaway, Stargatt & Taylor, Wilmington, Del.

Peter J. Walsh and Charlene D. Davis of Bayard, Handelman & Murdoch, P.A., Wilmington, Del. (William L. Stauffer, Jr., R. Grant Decker, (argued), and Joni L. Gamble, of Stauffer & Abraham, Falls Church, Va., of counsel), for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

This case stems from an action brought against a savings and loan association which failed while the case was pending. Defendant has moved to substitute parties and to dismiss for lack of subject matter jurisdiction. This Court has jurisdiction pursuant to 28 U.S.C. § 1331. For reasons which follow, the motion to substitute parties will be granted and the motion to dismiss will be denied upon condition that plaintiff timely advise the Court as to which of two jurisdictions his action should be transferred.

I. THE FACTS

This case arises out of eight loans made by defendant Trustbank Savings, FSB ("Trustbank Savings"), a federally chartered savings bank, whose principal place of business was Tyson's Corner, Virginia. Trustbank Savings extended the loans to companies or partnerships in which Vinton was involved with his partner, Peter Issel ("Issel"). The loans were made over a period from 1985 to 1989 and most were secured by real property located in Maryland. The total amount of these loans is approximately $14,000,000. Each of the loans issued by Trustbank Savings were guaranteed by plaintiff Benjamin Vinton, Jr. ("Vinton").

Vinton filed a Complaint against Trustbank Savings on June 8, 1990.¹ Six counts of the seven-count Complaint seek monetary damages arising out of fraudulent inducement, negligent misrepresentation, breach of covenant of faith, and breach of fiduciary duty. The underlying gravamen of the six counts are that Trustbank Savings allegedly did not inform Vinton that his partner, Issel, was a convicted felon and was financially irresponsible and that had Trustbank Savings informed Vinton about Issel, Vinton would not have participated with Issel in the loan ventures. The seventh count seeks declaratory relief. In Count VII Vinton requests that the Trustbank Savings' loans be deemed unenforceable against Vinton because Trustbank Savings did not inform Vinton about Issel and because it did not properly administer the loans.

After Vinton filed his Complaint, the Director of the Office of Thrift Supervision ("OTS") appointed the Resolution Trust Corporation ("RTC" or "Corporation") as Receiver of Trustbank Savings. Upon its appointment on January 25, 1991, RTC took possession of all of the assets of Trustbank Savings and subsequently entered into a Purchase and Assumption Agreement with Trustbank Federal Savings Bank ("Trustbank Federal"), a newly chartered savings association, whereby Trustbank Federal purchased substantially all of the assets and assumed certain liabilities of Trustbank Savings. The potential liabilities arising from plaintiff's claims for damages, however, were not assumed by Trustbank Federal. The Director of the OTS took possession of Trustbank Federal and appointed RTC as Conservator of the new institution.

On November 27, 1991, RTC as Receiver for Trustbank Savings moved to dismiss Counts I-VI of the Complaint for lack of subject matter jurisdiction and moved to substitute for Trustbank Savings RTC as Receiver for Trustbank Savings (as to Counts I-VI) and RTC as Conservator for Trustbank Federal (as to Count VII). Subsequently, on March 20, 1992, the Director of the OTS appointed RTC as Receiver of Trustbank Federal, to replace RTC Conservator for Trustbank Federal. Consequently, the pending motion to substitute as to Count VII that was filed initially by RTC as Conservator is now brought by RTC as Receiver of Trustbank Federal. Also, because RTC has now been appointed as Receiver of Trustbank Federal instead of Conservator, RTC as Receiver of Trustbank Federal joins in the motion to dismiss Count VII.

II. MOTION TO SUBSTITUTE

RTC, in its capacity as Receiver of Trustbank Savings and in its capacity as Receiver of Trustbank Federal, pursuant to Fed.R.Civ.P. 25(c), seeks to substitute: (1) RTC as Receiver for Trustbank Savings in place of defendant Trustbank Savings with respect to plaintiff's damage claims (Counts I through VI); and (2) RTC as Receiver for Trustbank Federal in place of defendant Trustbank Savings with respect to plaintiff's declaratory relief claim (Count VII).

The gist of plaintiff's argument against permitting substitution is that until it can be determined that sufficient assets are held for the payment of Vinton's claims, any change in the parties should at most comprise adding RTC in its two receiver capacities rather than substituting RTC for Trustbank Savings.

Plaintiff contends that the principle underlying the former ratable distribution requirement of the National Bank Act, 12 U.S.C. § 94 ("NBA"), which formerly applied to the Federal Deposit Insurance Corporation ("FDIC") should govern this case. If the ratable distribution requirement were applicable, the Purchase and Assumption Agreement entered into by RTC would have to reserve sufficient assets in the receivership to allow distribution to unassumed creditors.² However, this statute — which was construed to require that creditors of a failed institution be treated alike — was eliminated by the recently enacted Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"). The cases cited by plaintiff have been effectively overruled by FIRREA on the very point relied upon by plaintiff.

With the enactment of § 1821(i)(2), Congress repealed former § 2(11)(d) of the FDIA, which subjected the FDIC to the ratable distribution requirements of the NBA, and thereby effectively overruled prior inconsistent judicial decisions. As amended by FIRREA, § 1821(i)(2) limits the FDIC's maximum liability to any person having a claim against the receiver or the failed institution for which the FDIC is acting as receiver to the amount the person would have received in a straight liquidation.

Senior Unsecured Creditor's Committee v. FDIC, 749 F.Supp. 758, 773 (N.D.Tex. 1990) (citations omitted). See also MCorp v. Clarke, 755 F.Supp. 1402, 1418 (N.D.Tex. 1991) (the passage of FIRREA Section 1821(i) effectively overruled the "ratable distribution" requirement of the NBA).

Plaintiff urges that FIRREA only has the effect of limiting RTC's maximum liability to the amount Vinton would have received in liquidation. Senior Unsecured Creditor's Committee, supra, at 773. Therefore, according to plaintiff, RTC was empowered to transfer Trustbank's assets in an amount reduced to take into account Vinton's damage claims. Plaintiff urges that because RTC has not assured plaintiff that it has done so, the motion to substitute should be denied.

Plaintiff, however, cites no case in which any court has denied a motion by RTC, or FDIC, to substitute as Receiver regarding claims against a failed financial institution. On the contrary, there are many cases granting such substitution as a matter of course. Resolution Trust Corp. v. Mustang Partners, 946 F.2d 103 (10th Cir.1991) (RTC-Receiver substituted as counter-claim defendant); Resolution Trust Corp. v. Murray, 935 F.2d 89, 91-93 (5th Cir.1991) (RTC-Receiver substituted as party defendant-in-reconvention); Payne v. Sec. Sav. & Loan Ass'n, F.A., 924 F.2d 109 (7th Cir. 1991) (RTC-Receiver substituted for failed savings and loan association); Pernie Bailey Drilling Co. v. FDIC, 905 F.2d 78 (5th Cir.1990) (FDIC proper party to defend under liability claims by borrower's even though borrower's notes assigned to other entity); Everett N. Dobson & Sons v. Dictar Associates, 764 F.Supp. 1 (D.Me.1991) (FDIC's motion to substitute for failed bank as real party in interest granted).

Plaintiff's argument is based on the novel theory that the authority of RTC to transfer the assets and liabilities of an insolvent institution is limited by a requirement that RTC reserve sufficient assets in RTC Receiver to pay plaintiff the amount of his alleged damage claim. However, no such restriction exists. Rather, FIRREA grants RTC very broad authority to transfer assets and liabilities, in the process of facilitating the efficient administration of the failed institution. In particular FIRREA provides that:

(i) In General. The Corporation may, as conservator or receiver — ... (II) subject to clause (ii), transfer any asset or liability of the institution in default (including assets and liabilities associated with any trust business) without any approval, assignment or consent with respect to such transfer.

(ii) Approval by appropriate Federal banking agency. No transfer described in clause (i)(II) may be made to another depository institution (other than a new bank or a bridge bank established pursuant to subsection (m) or (n) of this section) without the approval of the appropriate Federal banking agency for such institution.

12 U.S.C. § 1821(d)(2)(G) (1988). This legislative directive belies plaintiff's suggestion that a trust must be imposed upon the assets held by RTC.

In addition, while the maximum liability language of Section 1821(i)(2) of FIRREA³ limits the amount the RTC or FDIC may pay to a creditor, it does not guarantee payment of a creditor's alleged claims. The statute merely provides that a plaintiff may receive no more than a pro rata share of the liquidation value of the failed financial institution.

Finally, the case law does not support plaintiff's position. In Payne, supra, the Court of Appeals for the Seventh Circuit ruled, under similar circumstances, that RTC could be...