W Holding Co. v. Chartis Insur. Co.

• Decision Date: 23 October 2012
• Docket Number: Civil No. 11–2271 (GAG).
• Citation: 904 F.Supp.2d 169
• Parties: W HOLDING CO., INC., et al, Plaintiffs, v. CHARTIS INSUR. CO.-PUERTO RICO, et al, Defendants.
• Court: U.S. District Court — District of Puerto Rico

904 F.Supp.2d 169

W HOLDING CO., INC., et al, Plaintiffs,

v.CHARTIS INSUR. CO.-PUERTO RICO, et al, Defendants.

Civil No. 11–2271 (GAG).

United States District Court, D. Puerto Rico.

Oct. 23, 2012.

Carlos A. Lazaro–Castro, San Juan, PR, PHV Andres Rivero, Maria Paula Aguila, Rivero Mestre, Coral Gables, FL, Alan H. Rolnick, Andres Rivero, Charles E. Whorton, Rivero Mestre LLP, Miami, FL, for Plaintiffs.

Raul Gonzalez–Toro, San Juan, PR, for Plaintiffs/Defendants.

Fernando Sabater–Clavell, Luis N. Saldana–Roman, Saldana, Carvajal & Velez–Rive, PSC., Anjali C. Das, James K. Thurston, Wilson Elser Moskowitz Edelman & Dicker LLP., Chicago, IL, PHV Andres Rivero, Rivero Mestre, Coral Gables, FL, Ruben T. Nigaglioni, Nigaglioni Law Offices PSC, Roberto Buso–Aboy, Buso Aboy Law Office, Enrique Peral–Soler, Enrique Peral Law Offices, P.S.C., Gary H. Montilla–Brogan, San Juan, PR, Jane W. Moscowitz, Norman A. Moscowitz, Moscowitz & Moscowitz, P.A., Miami, FL, Robert R. Long, Alston & Bird LLP, Atlanta, GA, Antonio J. Amadeo–Murga, A.J. Amadeo Murga Law Office, San Juan, PR, for Defendants.

OPINION AND ORDER

GUSTAVO A. GELPÍ, District Judge.

This case stands in a long line of claims brought by the Federal Deposit Insurance Corporation (“FDIC”) against directors and officers of banks throughout the United States. To date, the FDIC has filed thirty-three such suits in its capacity as a receiver. In sum, the FDIC became Westernbank's receiver on April 30, 2010. W Holding Company (“W Holding”) owned all outstanding shares of Westernbank's corporate stock when the FDIC assumed receivership. (Docket No. 182, ¶ 1.) The FDIC alleges Westernbank's directors and officers (“D & O's”) irresponsibly governed Westernbank's loan approvals, thereby violating several Puerto Rico and federal laws.

The D & O's purchased liability insurance from Chartis Insurance Company of Puerto Rico (“Chartis”). When the FDIC took over as receiver, the D & O's sought coverage under their Chartis policy, and Chartis denied the D & Os' requests. W Holding and the D & O's brought suit to enforce the agreement. ( See Docket No. 26–1.) The FDIC intervened, levying various claims against several D & O's, their conjugal partnerships, and trustees for negligence, breach of fiduciary duties, fraudulent conveyances, and adverse domination, as well as against Chartis and other insurers who provided excess policies to the D & O's for enforcement of such policies.

I. Background

The FDIC intervened in a suit brought in the Puerto Rico Commonwealth Court by W Holding and the D & O's against Chartis for declarations of coverage under liability policies, pursuant to the Puerto Rico Direct Action Statute. ( Id., ¶ ¶ 10, 28.) The FDIC, as Westernbank's receiver, seeks recovery of $176.02 million in damages from former Westernbank D & O's and their conjugal partnerships ¹ for twenty-one allegedly grossly negligent commercial real estate, construction, and asset-based loans and transactions approved and administered from January 28, 2004, through November 19, 2009. (Docket No. 182, ¶¶ 2–3.) The FDIC also requests the court to enforce contracts for liability coverage between the D & O's and Chartis, as well as excess liability policies with XL Speciality Insurance Company (“XL”), Liberty Mutual Insurance Company (“Liberty”), and Ace Insurance Company (“Ace”). ( Id., ¶¶ 53–55.) Lastly, the FDIC names Luis Bartoleme Rivera–Cuebas, Carlos Gonzalez–Alonso, and Jane Doe in their capacities as trustees of the Socio Cultural Conservation Trust, the Dominguez Sotomayor Family Trust, and the CT Family Trust, respectively, for administering funds procured through allegedly fraudulent transfers. ( Id., ¶¶ 55(A)–55(C).)

The FDIC's complaint alleges several acts of purported gross negligence, such as Westernbank's violations of loan-to-value ratio limits, lack of required borrower equity, inadequate real estate appraisals, insufficient analyses of collateral or inadequate collateral, and insufficient borrower repayment information and repayment sources. ( Id., ¶ 5.) The FDIC also asserts that the D & O's increased, extended, and renewed expired and deteriorating loans to enable continued funding of interest reserves, thereby delaying losses and defaults and increasing the losses on the loans. ( Id.)

The FDIC claims Westernbank's officers violated major loan terms by “administering and funding the construction and asset-based loans.” Specifically, the FDIC states that the officers “continued funding asset-based loans despite receipt of reports showing dilution,” violated “borrower covenants and loan agreements,” approved ineligible collateral, engaged in unilateral and unauthorized waiver of key borrower financial covenants relating to working capital, disregarded net adjusted equity value and cash flow ratios, manipulated loan monitoring systems, funded loans despite borrower defaults, and extended expired loans. ( Id. at 6.) The FDIC also alleges that the directors “failed to heed and act upon examiner and auditor warnings of deficiencies in commercial lending and administration.” ( Id. at 8; see also ¶ 58 (exceeding ratio limits); ¶ 59 (loan approval despite internal admonishment of “severe deficiencies”); ¶¶ 60–63 (detailing alleged disregard of regulator warnings); ¶ 64 (D & O acknowledgment of malfeasance); ¶¶ 69–76 (levying specific allegations against the D & O's), and; ¶ 84 (summarizing alleged gross negligence).)

The FDIC discusses in detail several loans that allegedly led to the $176.02 million in losses issued to Museum Towers, LP (“Museum Towers”), Yasscar Development Corporation (“Yasscar Development”), Yasscar Caguas Development Corporation (“Yasscar Caguas”), Sabana Del Palmar, Inc. (“Sabana”), Plaza CCD Development Corporation (“Plaza CCD”), Inyx, Inc. (“Inyx”), and Intercoffee, Inc. (“Intercoffee”). The complaint details why and how the loan approvals violated various internal policies, which D & O approved the loan and at what stage the D & O granted approval or administered the financing, and the accountable percentage of the aggregate $176.02 million loss. ( Id., ¶¶ 77–80.)

The FDIC asserts seven claims in its complaint: (1) gross negligence; (2) breach of fiduciary duty against Tamboer; (3) adverse domination; (4)-(6) fraudulent transfers against Stipes, Tamboer, and Dominguez, and; (7) direct action claims against the insurance carriers. (Docket No. 182, ¶¶ 83–100.) Presently before the court are seven motions to dismiss the FDIC's complaint filed by the D & O's and their conjugal partnerships. (Docket Nos. 196, 198, 199, 200, 202, 205, & 291.) For the reasons stated herein, after reviewing the parties' memoranda of law, submissions, and attachments thereto, the court DENIES all motions to dismiss.

II. Motion to Dismiss Standard

“The general rules of pleading require a short and plain statement of the claim showing that the pleader is entitled to relief.” Gargano v. Liberty Intern. Underwriters, Inc., 572 F.3d 45, 48 (1st Cir.2009) (citations omitted) (internal quotation marks omitted). “This short and plain statement need only ‘give the defendant fair notice of what the ... claim is and the grounds upon which it rests.’ ” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Under Rule 12(b)(6), a defendant may move to dismiss an action against him for failure to state a claim upon which relief can be granted. SeeFed.R.Civ.P. 12(b)(6). To survive a Rule 12(b)(6) motion, a complaint must contain sufficient factual matter “to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. The court must decide whether the complaint alleges enough facts to “raise a right to relief above the speculative level.” Id. at 555, 127 S.Ct. 1955. In so doing, the court accepts as true all well-pleaded facts and draws all reasonable inferences in the plaintiff's favor.Parker v. Hurley, 514 F.3d 87, 90 (1st Cir.2008). However, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678–79, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show [n]’—‘that the pleader is entitled to relief.’ ” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (quoting Fed.R.Civ.P. 8(a)(2)).

III. Discussion1. Counts 1–3: Gross Negligence, Fiduciary Duty, Delayed Discovery & Adverse Domination

The D & Os' motions to dismiss the FDIC's claims for negligence are DENIED. (Docket Nos. 196, 198, 199, 200, 202, 205, & 291.) The FDIC must demonstrate the D & O's were grossly negligent, as directors and officers are shielded from ordinary negligence claims under Puerto Rico's Business Judgment Rule.²See W Holding, Inc. v. Chartis Insur. Co., P.R., 845 F.Supp.2d 422, 429 (D.P.R.2012). To reiterate, the FDIC states sufficient facts to allege a plausible claim for gross negligence, thereby satisfying Twombly and Iqbal. Therefore, any claim arising under ordinary negligence is dismissed. The court considers the allegations and corresponding motions to dismiss in turn.

A. The FDIC's Complaint Sufficiently Alleges Gross Negligence

The Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) imposes personal liability on directors or officers of insured depository institutions for gross negligence. Section 1821(k) of FIRREA provides that the definition of gross negligence should be grounded in state law. Puerto Rico models its corporate statutes after Delaware corporate law. See Wyilie v. Stipes, 797 F.Supp.2d 193, 196 (D.P.R.2012) (citing Marquis Theatre Corp. v. Condado...