W Holding Co. v. Aig Insur. Co., Civil No. 11-2271 (GAG)

• Decision Date: 24 July 2014
• Docket Number: Civil No. 11-2271 (GAG)
• Parties: W HOLDING CO., INC. et al., Plaintiffs, v. AIG INSUR. CO., et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

W HOLDING CO., INC. et al., Plaintiffs, v. AIG INSUR. CO., et al., Defendants.

Civil No. 11-2271 (GAG)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

Dated: July 24, 2014

OPINION AND ORDER

The FDIC became Westernbank's receiver on April 30, 2010. (Docket No. 182 ¶ 1.) W Holding Company ("W Holding") owned all outstanding shares of Westernbank's corporate stock when the FDIC assumed receivership. (Id.) The FDIC alleges Westernbank's and W Holding's directors and officers ("D&Os")¹ irresponsibly governed Westernbank's loan approvals and administration, thereby violating several Puerto Rico and federal laws. (See generally Docket No. 182.) The D&Os assert the FDIC's claims are time-barred and move forsummary judgment, attaching memoranda of law. (See Docket Nos. 893, 894, 913, & 914.) For the following reasons, the court DENIES the motions for summary judgment at Docket Nos. 893 and 913.

I. Factual and Procedural Background

The D&Os argue that the FDIC's claims for gross negligence are time-barred because the Puerto Rico statute of limitations for claims against D&Os elapsed before the FDIC took over as Westernbank's receiver. (See Docket Nos. 893 & 913.) The court addressed this issue without discussing the facts and found the claims were not time-barred under 12 U.S.C. § 1821(d)(14). (See Docket No. 683 at 2-4.)

The relevant portion of the opinion at Docket No. 683 states:

The FDIC timely filed these claims pursuant to [the Financial Institutions Recovery, Reform, and Enforcement Act ("FIRREA"),] 12 U.S.C. § 1821(d)(14)(A)-(B). Subsection (A) states: "[T]he applicable statute of limitations with regard to any action brought by the Corporation as conservator or receiver shall be - in the case of any tort claim, the longer of - the three-year period beginning on the date the claim accrues; or the period applicable under state law." 12 U.S.C. § 1821(d)(14)(A)(ii). The officers argue that the period applicable under state law is one year. But this argument neglects to consider "the three-year period beginning on the date the claim accrues" in subsection (A)(ii)(I). The officers argue that the various claims against them accrued throughout prior litigation and FDIC examinations from 2005 to 2008. This may be true as a matter of fact, but not as a matter of law.

Subsection (B) is titled: "Determination of the date on which the claim accrues." The subsection states: "For the purposes of subparagraph (A), the date on which the statute of limitation begins to run on any claim described in such subparagraph shall be the later of - (i) the date of the appointment of the Corporation as conservator or receiver; or (ii) the date on which the cause of action accrues." 12 U.S.C. § 1821(d)(14)(B)(i)-(ii). The officers claim that the FDIC knew or reasonably should have known of the allegedly grossly negligent behavior through its variousexaminations and prior litigation from 2005 to 2008. This may be so. However, the statute provides that claims accrue as a matter of law on the later date of when: (1) they factually accrue, or; (2) the FDIC is appointed as receiver. Here, the later date was when the FDIC was appointed as receiver on April 30, 2010, which is thus the date upon which the claims accrued.

Based on the above, the FDIC had a three-year period beginning on April 30, 2010 and ending in April 2013 to file its claims. The FDIC filed the initial Complaint in 2011 and the Second Amended Complaint in 2012. Therefore, the FDIC's claims were timely filed and the motion is thus DENIED.

The court, in making the instant ruling, distinguishes this case from RTC v. Seale, 13 F.3d 850, 853 (5th Cir. 1994). In said case, the Fifth Circuit noted that "this approach would permit the [FDIC] to resurrect claims stale from [many years ago, and that t]he evidence that Congress intended such a sweeping recovery right is not persuasive." Id. (citing cases). The timing of the Fifth Circuit's opinion, however, is important. It decided Seale in 1994 on the heels of FIRREA's 1989 codification, concerned with whether to apply FIRREA's FDIC-tilted limitation period retroactively. The opinion is narrowly tailored in that regard: "The FIRREA limitations period applies to claims that were alive on August 9, 1989, when FIRREA took effect, but not to claims that had expired before then." Id. The timeframe here, however, falls well after FIRREA's effective date. The allegedly grossly negligent loans were made and administered in the 2000's. The critical holding in Seale is that the "FIRREA limitations period applies to claims that were alive on August 9, 1989, when FIRREA took effect . . . ." Id. The claims in the case at bar were indeed alive after FIRREA's effective date.

Other courts have implied that all claims rendered stale under state limitations periods cannot be resuscitated through receivership, even those post-dating FIRREA's effective date. SeeFDIC v. Regier Carr & Monroe, 996 F.2d 222, 225-26 (10th Cir. 1993). The court disagrees. The plain meaning of subsections (A) and (B) indicates that the FDIC must be afforded at least three years from the date it assumes receivership to bring tort claims, regardless of the state limitations period.

(Docket No. 683 at 2-4.)

The D&Os thoroughly briefed the court at Docket Nos. 894 and 914 in an attempt to convince the court it erred in its previous opinion and denial of a subsequent motion for summary judgment on the matter at Docket No. 893. (See Docket No. 971.) In light of further research and discovery, the court agreed it had erred and vacated these holdings pursuant to Fed. R. Civ. P. 60(b)(6) at Docket No 974. The court elaborates.

II. Discussion

"The federal limitations period [in section 1821(d)(14)] does not . . . operate to extend claims that have already lapsed under the state limitations period before the FDIC has acquired them." FDIC v. Torrefaccion Café Cialitos, 62 F.3d 439, 442 (1st Cir. 1995) (citing FDIC v. Barrera, 595 F. Supp. 894, 898 (D.P.R. 1984)). Any stale claim that reaches the FDIC thus cannot be resuscitated by the generous federal limitations period. This squarely resolves the matter for a district court in the First Circuit. The court follows this directive, addresses some concerns, and turns to the implications of this rule.

The origin of Torrefaccion's logic is interesting. Torrefaccion relied on Barrera, a Puerto Rico District Court case, to support the proposition that FIRREA does not revive stale state law claims. Torrefaccion, 62 F.3d at 442. Barrera interpreted 28 U.S.C. § 2415(b), not section 1821(d)(14).² Barrera, 595 F. Supp. at 898. The Barrera court stated: "The mere fact ofthe acquisition of the claims asserted in this action by the FDIC would not revive any claim which was already time-barred by a Puerto Rican statute of limitations." Id.

To support this holding, the Barrera court relied on another opinion from the District of Puerto Rico, FDIC v. Bird. Id. Bird's identical holding also concerned 28 U.S.C. § 2415. 516 F. Supp. 647, 650 (D.P.R. 1981). The Bird court stated: "[T]he mere fact of the acquisition of the claims asserted in this action by the FDIC would not revive any claim which was already time barred by a Puerto Rican statute of limitations." Id.³ The Bird court relied on three opinions in reaching this conclusion: one Supreme Court case and two district court cases. Id. The district court cases looked to the Supreme Court case to conclude the same thing the Bird court concluded. Id. The case is Guaranty Trust Co. v. United States, 304 U.S. 126, 141-42 (1938). According to the Supreme Court's reading of Guaranty Trust,

[T]he United States was proceeding as the assignee of the Soviet Government and sought to collect under state law. The petitioner argued that the statute of limitations had run, and the United States asserted, among other defenses, that it was not bound by state statutes of limitations. We found that the circumstances of the case admit[ted] of no appeal to such a policy.

United States v. California, 507 U.S. 746, 757 (1993) (quoting Guaranty Trust, 304 U.S. at 141) (quote marks omitted). The Court held: "Even if the United States had a right to be free from the statute of limitations, it was deprived of no right on those facts," and, "[t]he United States never acquired a right free of a pre-existing infirmity, the running of limitations against its assignor, which public policy does not forbid." Id. (quoting Guaranty Trust, 304 U.S. at 142) (quotemarks omitted). Courts such as Bird have taken this to mean that claims which are stale under state limitations periods cannot be revived when the government takes over as receiver. See, e.g., Bird, 516 F. Supp. at 650. This is the origin of Torrefaccion's holding.

The California Court, however, brought to light Supreme Court cases deciphering the different instances in which the federal government would and would not be subjected to state limitations periods, 507 U.S. at 757, cases which Torrefaccion and Cardona did not expressly consider.

The traditional rules of subrogation . . . do not necessarily apply to the Government. But cf.United States v. Standard Oil Co. of Cal., 332 U.S. 301 (1947) (suggesting that state law controls "where the Government has simply substituted itself for others as successor to rights governed by state law"). The Government argues strenuously that, at the very least, state statutes of limitations do not bind it. It cites three cases to support this position. SeeUnited States v. Summerlin, 310 U.S. 414, 416 (1940); Bd. of Comm'rs of Jackson Cnty. v. United States, 308 U.S. 343, 351 (1939); United States v. John Hancock Mut. Life Ins. Co., 364 U.S. 301, 308 (1960). In the cases the Government cites, however, either the right at issue was obtained by the Government through, or created by, a federal statute, seeSummerlin, supra, at 416 (United States suing under claim received by assignment pursuant to Act of June 27, 1934, 48 Stat. 1246); Bd. of Comm'rs,

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