Daly v. Federal Deposit Insurance Corporation, as Receiver for First Republic Bank

1

2

3

4 UNITED STATES DISTRICT COURT

5 NORTHERN DISTRICT OF CALIFORNIA

6

7 ROBERT A. DALY, Case No. 24-cv-00242-EMC

8 Plaintiff,

ORDER GRANTING IN PART AND

9 v. DENYING IN PART DEFENDANT’S

MOTION TO DISMISS

10 FEDERAL DEPOSIT INSURANCE

CORPORATION,

11 Docket No. 36

Defendant.

12

13

14 Plaintiff Robert A. Daly, Jr. has filed suit against the Federal Deposit Insurance

15 Corporation (“FDIC”), as receiver for First Republic Bank (“Bank”). Mr. Daly previously worked

16 for the Bank.1 According to Mr. Daly, the Bank fraudulently induced him to accept employment

17 “mere weeks before [it] failed.” Compl. ¶ 1. Now pending before the Court is the FDIC’s motion

18 to dismiss. Having considered the parties’ briefs as well as the oral argument of counsel, the

19 Court hereby GRANTS in part and DENIES in part the motion to dismiss.

20 I. FACTUAL & PROCEDURAL BACKGROUND

21 In his complaint, Mr. Daly alleges as follows.

22 Mr. Daly is a financial adviser. See Compl. ¶ 11. In late 2022, the Bank began to recruit

23 him.2 See Compl. ¶ 12.

24

1 In his complaint, Mr. Daly suggests he was an employee of the Bank. See Compl. ¶ 1.

25

However, the FDIC asserts that he was an independent contractor. See Mot. at 15; Barter Decl.,

Ex. A (Promoter Agreement entered into between First Republic Investment Management, Inc. (a

26

Bank affiliate) and Mr. Daly) (referring to Mr. Daly as a consultant and independent contractor).

27

2 The FDIC, as noted above, asserts that Mr. Daly was not an employee of the Bank but rather

1 Through its senior executives, the Bank made misrepresentations to Mr. Daly to induce

2 him to accept employment. Implicitly, these misrepresentations were made during the recruitment

3 process given that they were made to induce Mr. Daley to accept employment. For example, they

4 (a) repeatedly tout[ed] the Bank’s safe business model, assuring

investors and prospective employees that it was strongly-positioned

5 to weather a variety of economic conditions; (b) contend[ed] that the

Bank had a robust lending platform, referral network, and an

6 attractive payout for cash balances; and (c) contend[ed] that the

Bank had competitive home mortgage rates and it would be

7 aggressive in winning any mortgage business.

8 Compl. ¶ 27.

9 These representations were false.

10 • For instance, when Mr. Daly presented the Bank with a customer who was

11 interested in a $95 million loan, the Bank said it was not funding large loans any

12 longer. See Compl. ¶ 17; see also Opp’n at 9 (asserting that, “during recruitment

13 Mr. Daly discussed a customer interested in a $95 million loan” and “[t]he Bank

14

Agreement describes the relationship between the Bank affiliate and Mr. Daly as follows:

15

1. Solicitation of Clients. As a consultant and independent

16

contractor, and not as an employee of Adviser [the Bank affiliate],

Promoter [Mr. Daly] will use its best efforts, in accordance with

17

this Agreement, to solicit and refer as clients to Adviser those

individuals or entities that it believes are suitable and appropriate

18

for the investment advisory services provided by Adviser and/or

insurance services provided by Adviser’s affiliate.

19

2. Client Relationships. Promoter’s primary role under this

20

Agreement is to introduce and assist each Solicited Client in

establishing a relationship with Adviser, which will include

21

introducing prospective clients and providing information about

Adviser.

22

Barter Decl., Ex. A (Promoter Agreement ¶¶ 1-2).

23

Mr. Daly would be compensated “for each Solicited Client that enters into and maintains

24

an investment management agreement with Adviser,” specifically, “20% of the gross earned and

collected investment advisory fees actually received by Adviser for each Solicited Client.” Barter

25

Decl., Ex. A (Promoter Agreement ¶ 6). In addition, “[f]or each Solicited Client that enters into

and purchases an insurance contract with Adviser’s insurance affiliate,” Mr. Daly would be

26

“entitled to receive from the applicable insurance carrier, as the solely responsible payor, a 10%

gross-dollar commission earned and vested on each insurance contract that Adviser’s affiliate and

27

Promoter mutually agree will be written for Solicited Clients.” Barter Decl., Ex. A (Promoter

1 had represented to Mr. Daly that [it] was interested in funding the customer’s loan,

2 and would be ultra-competitive in winning the business”).

3 • Also, when Mr. Daly brought a potential $18 million mortgage to the Bank, the

4 Bank effectively ensured that the business would not be won by “quot[ing] the

5 client a mortgage rate 300 bps higher than the market rate.” Compl. ¶ 18.

6 • Finally, less than two weeks after Mr. Daly accepted employment, the S&P Global

7 Ratings “downgraded the Bank’s long-term issuer credit rating and preferred stock

8 issue rating due to risks of deposit outflows leading to increased funding costs.”

9 Compl. ¶ 19. Fitch Ratings also downgraded the Bank’s credit rating on the same

10 day, “observing that ‘[the Bank’s] funding and liquidity profile has changed and

11 represents a “weakest link.”’” Compl. ¶ 19. The market responded to the

12 downgrades, with the Bank’s common stock dropping from $39.63 per share on

13 March 14, 2023, to $31.16 per share on March 15, 2023. See Compl. ¶ 20. The

14 stock continued to decline thereafter. See Compl. ¶ 20.

15 To induce Mr. Daly to accept employment, the Bank also concealed information, including

16 “the risks that rising interest rates posed to the Bank’s net interest income and net interest margin

17 and the value of the Bank’s mortgage loan portfolio.” Compl. ¶ 36. The Bank also downplayed

18 these risks publicly. See Compl. ¶ 9; see also Compl. ¶ 10 (alleging that, “in SEC filings and

19 multiple public statements, the Bank misrepresented the strength of its balance sheet, liquidity and

20 position in the market”). “[T]he Bank understated and concealed the magnitude of the risks facing

21 its business model that would result from any decision by the Federal Reserve System raising the

22 federal funds rate, thereby undermining the value of the Bank’s loan and securities portfolios and

23 liquidity.” Compl. ¶ 10.

24 As a result of (1) the misrepresentations and (2) the omission of material facts, Mr. Daly

25 joined the Bank on March 3, 2023. See Compl. ¶ 16. But, as noted above, less than two weeks

26 after Mr. Daly joined, the S&P Global Ratings and Fitch Ratings downgraded, inter alia, the

27 Bank’s credit rating which led to a decline in the value of the Bank’s stock.

1 with the FDIC. The Bank’s common stock dropped again, this time from $6.19 per share on April

2 27, 2023, to $3.51 per share on April 28, 2023. See Compl. ¶ 22.

3 On May 1, 2023, the FDIC became the receiver for the Bank, and JPMorgan Chase took

4 over the Bank.3 See Compl. ¶¶ 2, 23.

5 On May 2, 2023, the NYSE announced that it was suspending trading in the Bank’s shares

6 and started proceedings to delist the shares. See Compl. ¶ 23. Mr. Daly resigned from the Bank

7 that day. See Compl. ¶ 24.

8 “From the time Mr. Daly joined the Bank on March 3, 2023, until the Bank was seized by

9 the FDIC on May 1, 2023, the Bank continued to falsely represent to Mr. Daly that the Bank was

10 not going to go into receivership and that Mr. Daly would be foolish to leave.” Compl. ¶ 25.

11 After the FDIC became the receiver, Mr. Daly filed a proof of claim with the agency

12 “pursuant to the procedures provided in the Financial Institutions Reform and Recovery and

13 Enforcement Act (‘FIRREA’).” Compl. ¶ 7. On November 16, 2023, the FDIC disallowed the

14 claim. See Compl. ¶ 7. Mr. Daly then initiated this lawsuit on January 12, 2024.

15 Based on, inter alia, the above allegations, Mr. Daly has asserted the following causes of

16 action:

17 (1) Intentional misrepresentation.

18 (2) Fraudulent concealment.

19 (3) Negligent misrepresentation.

20 (4) Promissory fraud.

21 (5) Intentional interference with prospective economic advantage.

22 (6) Negligent interference with prospective economic advantage.

23

24

3 In its motion, the FDIC represents that it was the California Commissioner of Financial

Protection and Innovation that closed the Bank, which then led to the FDIC being appointed as

25

receiver. See Mot. at 1; Purcell Decl. ¶ 2 & Ex. A (California Department of Financial Protection

and Innovation order of liquidation, order taking possession of property and business, and

26

appointment and tender of appointment as receiver).

27

The FDIC also represents that JPMorgan assumed the deposits and substantially all of the

1 (7) Unfair, illegal, and fraudulent acts in violation of California Business &

2 Professions Code § 17200.

3 The claims essentially fall into two categories: (1) fraud claims and (2) interference claims. The §

4 17200 claim is a derivative claim.

5 II. DISCUSSION4

6 A. Legal Standard

7 Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include “a short and plain

8 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A

9 complaint that fails to meet this standard may be dismissed pursuant to Federal Rule of Civil

10 Procedure 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a Rule 12(b)(6) motion to dismiss

11 after the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic

12 Corp. v. Twombly, 550 U.S. 544 (2007), a plaintiff’s “factual allegations [in the complaint] ‘must .

13 . . suggest that the claim has at least a plausible chance of success.’” Levitt v. Yelp! Inc., 765 F.3d

14 1123, 1135 (9th Cir. 2014). The court “accept[s] factual allegations in the complaint as true and

15 construe[s] the pleadings in the light most favorable to the nonmoving party.” Manzarek v. St.

16 Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But “allegations in a

17 complaint . . . may not simply recite the elements of a cause of action [and] must contain sufficient

18 allegations of underlying facts to give fair notice and to enable the opposing party to defend itself

19 effectively.” Levitt, 765 F.3d at 1135 (internal quotation marks omitted). “A claim has facial

20 plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable

21 inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The

22 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer

23 possibility that a defendant has acted unlawfully.” Id. (internal quotation marks omitted).

24

25

4 In its reply brief, the FDIC argues that the Court should disregard Mr. Daly’s opposition because

26

it is “technically defective.” Reply at 9. This argument lacks merit. According to the FDIC, Mr.

Daly was permitted to file a 20-page brief only. But the Civil Local Rules allow for a 25-page

27

opposition. See Civ. L.R. 7-3(a). The authority that the FDIC cites is a rule that applies to circuit

1 B. D’Oench and §§ 1823(e) and 1821(d)(9)(A)

2 The FDIC argues first that all of Mr. Daly’s tort claims are barred by a Supreme Court case

3 and two related statutes. The Supreme Court case is D’Oench, Duhme & Co., Inc. v. FDIC, 315

4 U.S. 447 (1942). The related statutes are 12 U.S.C. §§ 1823(e) and 1821(d)(9)(A). The two

5 statutes are essentially based on D’Oench.

6 1. D’Oench

7 Because the statutes are essentially predicated on D’Oench, the Court begins with a review

8 of that case. In D’Oench,

9 the Supreme Court created a federal common law doctrine of

estoppel to protect the FDIC from defenses raised by debtors based

10 on "secret agreements" with failed banks. D'Oench involved a

securities dealer who sold a bank some bonds which later became

11 worthless. To prevent the past due bonds from appearing among the

assets of the bank, the dealer executed a demand note with the bank

12 and entered into a separate agreement with the bank that the note

would not be called for payment. The FDIC later acquired the note

13 in a purchase and assumption transaction. When the FDIC

demanded payment on the note, the maker defended on the basis of

14 the side agreement with the bank, in which the bank promised not to

call the note for payment. The lower courts applied Illinois state law

15 and held that the FDIC was entitled to recover on the note as a

"holder in due course."

16

The Supreme Court rejected the lower courts' use of state law and

17 instead created a federal common law rule by drawing an analogy to

provisions of the Federal Reserve Act, which "revealed a federal

18 policy to protect [the FDIC] and the public funds which it

administers against misrepresentations as to the securities or other

19 assets in the portfolios of the banks which [the FDIC] insures or to

which it makes loans." The Court held that a "secret agreement"

20 outside the documents contained in the bank's records would not

operate as a defense against a suit by the FDIC on the note. . . .

21 [T]he Court added that the maker of the note did not have to intend

to deceive anyone; it was sufficient "that the maker lent himself to a

22 scheme or arrangement whereby the banking authority . . . was

likely to be misled."

23

24 Motorcity of Jacksonville v. Southeast Bank, N.A., 83 F.3d 1317, 1324 (11th Cir. 1996) (emphasis

25 added), vacated and remanded for further consideration, 519 U.S. 1087 (1997), and then

26 reinstated, 120 F.3d 1140 (11th Cir. 1997); see also FDIC v. Craft, 157 F.3d 697, 705 (9th Cir.

27 1998) (stating that the D’Oench doctrine “protects the FDIC from unwritten agreements that

1 2. Section 1823(e)

2 Eight years after D'Oench, Congress passed The Federal Deposit

Insurance Act of 1950, which broadened D'Oench's protection of the

3 FDIC. Section 1823(e) imposes various requirements on "any

agreement which tends to diminish or defeat the interest" of the

4 FDIC in any asset acquired from an insolvent bank. An agreement –

that "tends to diminish or defeat" the FDIC's interest in an asset – is

5 only valid against the FDIC if it, inter alia, is in writing, is

continuously an official record of the failed bank, is executed by the

6 bank itself, and satisfies other approval and filing requirements in §

1823(e).

7

8 Landcastle Acquisition Corp. v. Renasant Bank, 57 F.4th 1203, 1213 (11th Cir. 2023).

9 The relevant text of § 1823(e) is provided below:

10 No agreement which tends to diminish or defeat the interest of the

Corporation [i.e., the FDIC] in any asset acquired by it under this

11 section or section 11 [12 U.S.C. § 1821], either as security for a loan

or by purchase or as receiver of any insured depository institution,

12 shall be valid against the Corporation unless such agreement –

13 (A) is in writing,

(B) was executed by the depository institution and any person

14 claiming an adverse interest thereunder, including the

obligor, contemporaneously with the acquisition of the asset

15 by the depository institution,

(C) was approved by the board of directors of the depository

16 institution or its loan committee, which approval shall be

reflected in the minutes of said board or committee, and

17 (D) has been, continuously, from the time of its execution, an

official record of the depository institution.

18

19 Id. § 1823(e)(1) (emphasis added).

20 The Supreme Court has underscored that one of § 1823(e)’s purposes

21 is to allow federal and state bank examiners to rely on a bank's

records in evaluating the worth of the bank's assets. Such

22 evaluations are necessary when a bank is examined for fiscal

soundness by state or federal authorities and when the FDIC is

23 deciding whether to liquidate a failed bank or to provide financing

for purchase of its assets (and assumption of its liabilities) by

24 another bank. The last kind of evaluation, in particular, must be

made "with great speed, usually overnight, in order to preserve the

25 going concern value of the failed bank and avoid an interruption in

banking services." Neither the FDIC nor state banking authorities

26 would be able to make reliable evaluations if bank records

contained seemingly unqualified notes that are in fact subject to

27 undisclosed conditions.

1 3. Section 1821(d)(9)(A)

2 Subsequently, Congress enacted the Financial Institution Reform, Recovery and

3 Enforcement Act (“FIRREA”) of 1989. With the enactment of FIRREA, Congress “extend[ed] §

4 1823(e)(1)’s protections to affirmative claims against the FDIC.” Commercial Law Corp., P.C. v.

5 FDIC, 777 F.3d 324, 329 (6th Cir. 2015) (emphasis added). In particular, § 1821(d)(9)(A)

6 provides in relevant part as follows: “any agreement which does not meet the requirements set

7 forth in section 13(e) [§ 1823(e)] shall not form the basis of, or substantially comprise, a claim

8 against the receiver or the Corporation [FDIC].” 12 U.S.C. § 1821(d)(9)(A); see also Commercial

9 Law, 777 F.3d at 326 (noting that § 1823(e) and § 1821(d)(9)(A) “impose documentation

10 requirements for bank agreements” and “derive from the common-law D'Oench doctrine, an

11 estoppel rule akin to a statute of frauds that shields the FDIC from claims and defenses based on

12 unwritten agreements that reduce bank assets”).

13 4. “Agreement”

14 Although D’Oench and the two statutes above all refer to an “agreement” made with a

15 bank, courts have interpreted the term “agreement” somewhat loosely as demonstrated by the

16 Supreme Court’s decision in Langley.

17 There, the Langleys borrowed money from a bank that was insured by the FDIC in order to

18 buy certain real property. In consideration for the loan, the Langleys executed a promissory note.

19 After they failed to make a payment, the bank filed suit against them. The Langleys removed the

20 case to federal court where it was consolidated with a case that they had brought against the Bank.

21 The Langleys alleged as one of the grounds of complaint in their

own suit, and as a defense against [the bank’s] claim [against them],

22 that the 1980 land purchase and the notes had been procured by

misrepresentations. In particular, they alleged that the notes had

23 been procured by the bank's misrepresentations that the property

conveyed in the land purchase consisted of 1,628.4 acres, when in

24 fact it consisted of only 1,522, that the property included 400

mineral acres, when in fact it contained only 75, and that there were

25 no outstanding mineral leases on the property, when in fact there

were. No reference to these representations appears in the

26 documents executed by the Langleys, in the bank's records, or in the

minutes of the bank's board of directors or loan committee.

27

1 The FDIC was substituted in for the bank with respect to the claim that the bank had

2 brought against the Langleys. The issue for the Supreme Court was whether, “in an action

3 brought by the FDIC in its corporate capacity for payment of a note, § 1823(e) bars the defense

4 that the note was procured by fraud in the inducement even when the fraud did not take the form

5 of an express promise.” Id. at 90 (emphasis added).

6 The Supreme Court rejected the Langleys’ contention that the term “agreement” as used in

7 § 1823(e) “encompasses only an express promise to perform an act in the future.” Id. It reasoned

8 as follows.

9 First,

10 [a]s a matter of contractual analysis, the essence of petitioners'

defense against the note is that the bank made certain warranties

11 regarding the land, the truthfulness of which was a condition to

performance of their obligation to repay the loan. As used in

12 commercial and contract law, the term "agreement" often has "a

wider meaning than . . . promise," and embraces such a condition

13 upon performance.

14 Id. at 90-91.

15 Second, a definition of “agreement” along these more expansive lines was warranted in

16 order for the “intended purposes” of § 1823(e) to be fulfilled. See id. at 91-92 (noting, e.g., that

17 “[n]either the FDIC nor state banking authorities would be able to make reliable evaluations if

18 bank records containing seemingly unqualified notes that are in fact subject to undisclosed

19 conditions”).

20 Third, the D’Oench case confirmed that an “agreement” for purposes of § 1823(e) “covers

21 more than promises to perform acts in the future.” Id. at 92.

22 The [D’Oench] Court held that [a] "secret agreement" could not be a

defense to suit by the FDIC because it would tend to deceive the

23 banking authorities. The Court stated that when the maker "lent

himself to a scheme or arrangement whereby the banking authority

24 . . . was likely to be misled," that scheme or arrangement could not

be the basis for a defense against the FDIC. We can safely assume

25 that Congress did not mean "agreement" in § 1823(e) to be

interpreted so much more narrowly than its permissible meaning as

26 to disserve the principle of the leading case applying that term to

FDIC-acquired notes. Certainly, one who signs a facially

27 unqualified note subject to an unwritten and unrecorded condition

consists of performance of a counterpromise (as in D'Oench,

1 Duhme) or of the truthfulness of a warranted fact.

2 Id. at 92-93 (emphasis in original).

3 Accordingly, under Langley, a defense that a bank fraudulently induced the debtor to take

4 out a promissory note, now held by the FDIC, is barred. See Brookside Associates v. Rifkin, 49

5 F.3d 490, 494 (9th Cir. 1995) (stating that, under Langley, “unrecorded conditions on a note that

6 consisted of the truthfulness of a warranted fact (the bank's representations as to the size and other

7 conditions of the property) were an arrangement likely to mislead the banking authorities, and

8 thus could not be asserted against the FDIC”); Federal Deposit Ins. Corp. v. Kratz, 898 F.2d 669,

9 671 (8th Cir. 1990) (stating that “12 U.S.C. § 1823(e) precludes the defense of fraud in the

10 inducement unless the representation was in writing, contemporaneously made with the guaranty,

11 approved by the bank's board of directors, and made part of the bank's records continuously since

12 the guaranty was made”).

13 Although Langley addressed the situation where a defense of fraudulent inducement is

14 raised by a debtor, there is no reason to think that the same reasoning would not also apply where

15 an affirmative claim of fraudulent inducement is asserted by a debtor – particularly in light of §

16 1821(d)(9)(A) which covers affirmative claims made against the FDIC.

17 5. Fraudulent Inducement of Employment Contract

18 The FDIC argues first that both Mr. Daly’s fraud claims and his interference claims are

19 barred pursuant to the D’Oench doctrine and statutes discussed above – i.e., his claims are

20 affirmative claims against the FDIC for fraudulent inducement. The problem for the FDIC is that

21 it has not established that the D’Oench doctrine and statutes discussed above apply in the

22 employment context specifically. As indicated above, both D’Oench and § 1823(e) (as informed

23 by the Supreme Court’s decision in Langley) are predicated on the expectation that banking

24 transactions are typically expected to be reflected in the bank’s records – i.e., to insure there are no

25 secret agreements which would impair the accuracy of those bank records as might be determined

26 by bank examiners. The FDIC does not explain why that expectation should be imported beyond

27 the context of bank assets (such as promissory notes) into the employment context.

1 at issue outside of the context of normal banking transactions. For example, the Eleventh Circuit

2 has stated that D’Oench does not bar all tort claims against the FDIC:

3 Rather, the key inquiry is one of relatedness. This requirement

demands that a tort be sufficiently intertwined with regular banking

4 transactions, such that exclusion of the alleged ‘secret agreement’

accords with the underlying policies of D’Oench.

5

One obvious indicia of relatedness would be whether the oral

6 representations were of matters that would generally be reflected in

the records of ordinary banking transactions. This reflects the

7 central purpose of D’Oench: bank examiners should be permitted to

rely upon the institution’s records of regular banking transactions.

8 For example, in Langley, the Supreme Court applied section 1823(e)

to bar a claim based upon an oral misrepresentation, notwithstanding

9 the fact that the claim sounded in tort. The alleged fraudulent

misrepresentations in Langley occurred during negotiation of a loan.

10

11 Geri Zahn, Inc. v. Govaert, 25 F.3d 1539, 1543-44 (11th Cir. 1994). Bank examiners looking at

12 bank records would typically not look at every employment contract entered into by the bank.

13 As another example, a district court in Florida expressly noted that:

14 [w]e have found no case applying section 1823(e) to an employment

contract; indeed, the very language of 1823(e)(3) contemplates a

15 financial transaction of some sort, requiring that a loan committee

or the board of directors approve the obligation sought to be

16 enforced against the entity, and that the approval be reflected in the

corporate minutes. See Vernon, 907 F.2d at 1107 ("In every

17 D'Oench doctrine case save one, the FDIC, the FSLIC or some

successor in interest asserted or defended the validity and

18 enforceability of a particular debt or monetary obligation owed to a

failed bank . . ."); North Arkansas Medical Center, 962 F.2d 780

19 (8th Cir. 1992) (noting that few cases have extended D'Oench and §

1823(e) beyond creditor-debtor transactions).

20

21 Bender v. CenTrust Mortgage Corp., 833 F. Supp. 1525, 1531-32 (S.D. Fla. 1992) (emphasis

22 added); see also Fleischer v. Resolution Trust Corp., 882 F. Supp. 999, 1009 (D. Kan. 1995)

23 (stating that “the court is aware of no case in which § 1823(e) has been used to defeat an

24 employee's claim to recover pursuant to an association's written employment policy”).

25 These cases are persuasive, and the FDIC has cited no cases to the contrary. The Court

26 therefore rejects the FDIC’s position that D’Oench and the above statutes are a bar to Mr. Daly’s

27

1 employment-related claims.5

2 C. Failure to State a Claim for Relief

3 The FDIC argues that, even if D’Oench and the above statutes do not bar Mr. Daly’s

4 claims, his claims still lack merit based on failure to state a claim for relief.

5 1. Director and Officer Misconduct

6 The FDIC’s first argument on failure to state a claim for relief is confusing. The agency

7 contends that:

8 • Mr. Daly’s claims are based on director and officer (“D&O”) misconduct at the

9 Bank;

10 • the FDIC, as receiver, is the successor to any D&O claims when a bank fails; and

11 • “[b]ecause [the FDIC] succeeds to D&O claims, [Mr.] Daly is prohibited from

12 attempting to make such allegations.”

13 Mot. at 7 (citing 12 U.S.C. §§ 1821(k), 1821(d)(2)(A)).

14 But this argument does not make sense because Mr. Daly is not seeking to hold any officer

15 or director of the Bank personally liable. See 12 U.S.C. § 1821(k) (providing that “[a] director or

16 officer of an insured depository institution may be held personally liable for monetary damages in

17 any civil action by, on behalf of, or at the request or direction of the [FDIC], which action is

18 prosecuted wholly or partially for the benefit of the [FDIC] [e.g.] acting as conservator or receiver

19 of such institution . . . for gross negligence, including any similar conduct or conduct that

20 demonstrates a greater disregard of a duty of care . . . including intentional tortious conduct”).

21 Section 1821(d)(2)(A), the other statute cited by the FDIC, is not on point either. See id. §

22 1821(d)(2)(A) (providing that the FDIC “shall, as conservator or receiver, and by operation of law,

23 succeed to [e.g.] all rights, titles, powers, and privileges of the insured depository institution, and

24

25

5 Given the Court’s ruling above, it need not address additional arguments raised by Mr. Daly in

his papers – e.g., that D’Oench, § 1823(e), and § 1821(d)(9)(A) apply only where there is a

26

specific asset acquired by the FDIC and that they do not apply simply because payment of a claim

by the FDIC will reduce the general assets of the failed bank. See Opp’n at 24, 26-28 (citing, inter

27

alia, Ledo Fin. Corp. v. Summers, 122 F.3d 825, 830 (9th Cir. 1997) (noting that Ҥ 1823(e)

1 of any stockholder, member, accountholder, depositor, officer, or director of such institution with

2 respect to the institution and the assets of the institution”).

3 2. Fraud and Related Claims

4 As noted above, Mr. Daly’s fraud and related claims are as follows:

5 • Intentional misrepresentation.

6 • Fraudulent concealment.

7 • Negligent misrepresentation.

8 • Promissory fraud.

9 • Derivative violation of § 17200.

10 For practical purposes, the Court can focus on the first two claims – i.e., intentional

11 misrepresentation and fraudulent concealment. “The elements of fraud . . . are (a)

12 misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity

13 (or scienter); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting

14 damage.” Tenet Healthsys. Desert, Inc. v. Blue Cross of Cal., 245 Cal. App. 4th 821, 837 (2016)

15 (internal quotation marks omitted).

16 In the case at bar, Mr. Daly charges with the Bank with both misrepresentations and

17 omissions. For example, as alleged, the Bank’s “senior executives”

18 (a) repeatedly tout[ed] the Bank’s safe business model, assuring

investors and prospective employees that it was strongly-positioned

19 to weather a variety of economic conditions; (b) contend[ed] that the

Bank had a robust lending platform, referral network, and an

20 attractive payout for cash balances; and (c) contend[ed] that the

Bank had competitive home mortgage rates and it would be

21 aggressive in winning any mortgage business.

22 Compl. ¶ 27; see also Compl. ¶¶ 15, 17-18. Also, the Bank’s “senior executives” concealed

23 information such as “the risks that rising interest rates posed to the Bank’s net interest income and

24 net interest margin and the value of the Bank’s mortgage loan portfolio.” Compl. ¶ 36. The senior

25 executives are identified in the complaint as: “Mr. Robert Thornton, Head of Private Wealth

26 Management; Mr. Thomas Glamuzina, Vice President, Wealth Management

27 Recruiting; and Mr. Mohammad Fahmi, Head of Lending, West Coast.” Compl. ¶ 13.

1 has not alleged how the Bank knew or should have known that, at the time that it recruited Mr.

2 Daly, it was about to fail. In short, there is no scienter. That argument lacks merit. The gist of

3 Mr. Daly’s claims is that the Bank was in a precarious financial situation at the time it began to

4 recruit him in late 2022; that senior executives – given their position – would likely be in a

5 position to have knowledge of such; and that it can reasonably be inferred that the Bank was in a

6 precarious financial situation during the relevant time because, within two weeks after Mr. Daly

7 was hired in March 2023, the Bank’s credit ratings were downgraded and then, within two

8 months, it was reported that the Bank would be put into a receivership.6 In other words, the timing

9 lends supports Mr. Daly’s contention that the Bank knew it was in a risky position during the

10 process of recruitment during which misrepresentations were made. In the context of the instant

11 motion to dismiss, all reasonable inferences must be drawn in the plaintiff’s favor.

12 At the hearing, the FDIC argued that there is a problem with timing, at least as described in

13 Mr. Daly’s complaint. There is an allegation in the complaint that the Bank made representations

14 about its safe business model, ability to weather a variety of economic conditions, and so forth as

15 far back as January 2021. See FAC ¶ 9 (“Between January 2021 and May 1, 2023, the Bank and

16 its executives repeatedly touted the Bank’s safe business model, assuring investors and

17 prospective employees that it was strongly-positioned to weather a variety of economic conditions.

18 The Bank downplayed the risks that rising interest rates posed to the Bank’s net interest income

19

6 The FDIC has raised a similar argument that is targeted at the promissory fraud claim

20

specifically. In that claim, Mr. Daly alleges, in relevant part, as follows:

21

52. To induce Plaintiff to accept employment at the Bank, the

Bank promised Plaintiff, among other things, (a) that the

22

Bank had a robust lending platform, referral network, and an

attractive payout for cash balances; and (b) that the Bank had

23

competitive home mortgage rates and it would be aggressive

in winning any mortgage business.

24

53. The Bank did not intend to perform these promises when

25

made.

26

Compl. ¶¶ 52-53. The FDIC contends that the statement made in ¶ 53 is too conclusory – i.e.,

there are no facts to support the conclusion that the Bank did not intend to perform the promises

27

when made. But this argument is not that compelling given that, as noted above, the gist of Mr.

1 and net interest margin and the value of the Bank’s mortgage loan portfolio.”). The FDIC

2 contends that, back in January 2021 – some two years before Mr. Daly was hired – the Bank may

3 well have, in good faith, believed such representations. The problem for the FDIC is that Mr.

4 Daly is not contending that he relied on any representations made in January 2021; rather, his

5 focus is on representations made during or near the time of his recruitment and thereafter, at least

6 that is the inference that reasonably may be drawn. See, e.g., Compl. ¶ 12 (“The Bank began

7 recruiting Mr. Daly in late 2022. During the recruitment process, in addition to the public

8 representations about the Bank’s health, the Bank made misrepresentations, and omitted important

9 facts, regarding the Bank’s stability and financial health to induce Mr. Daly to enter into

10 agreements.”); Compl. ¶ 27 (“To induce Plaintiff to accept employment at the Bank, and to

11 continue employment with the Bank, the Bank . . . made certain representations to Plaintiffs,

12 including, among other things, (a) repeatedly touting the Bank’s safe business model, [etc.].”).

13 Thus, contrary to what the FDIC contends, the timing does not preclude scienter, at least for

14 purposes of the instant motion. This is, of course, without prejudice to examining the Bank’s

15 knowledge and scienter with respect to the alleged misrepresentations at a later juncture, such as at

16 summary judgment or trial where the issue may be tested against a developed factual record.

17 The FDIC’s next contention is that it had a duty not to share its financial condition with

18 outsiders: “[s]haring insider information could have subjected the [Bank] to significant insider

19 trader issues and extensive breaches of confidentiality matters.” Mot. at 10. But this ignores Mr.

20 Daly’s point that one cannot speak in half-truths – i.e., if the senior executives chose to make

21 affirmative representations about how safe the Bank’s business model was, then they could not

22 omit material information that would qualify those representations. See, e.g., Vega v. Jones, Day,

23 Reavis & Pogue, 121 Cal. App. 4th 282, 292 (2004) (“[The defendant] specifically undertook to

24 disclose the transaction and, having done so, is not at liberty to conceal a material term. Even

25 where no duty to disclose would otherwise exist, ‘where one does speak he must speak the whole

26 truth to the end that he does not conceal any facts which materially qualify those stated. One who

27 is asked for or volunteers information must be truthful, and the telling of a half-truth calculated to

1 known exclusively by one party, a fact which can provide a basis for a fraud claim even in the

2 absence of a general duty to disclose to the public. See Torres v. Adventist Health Sys./W., 77 Cal.

3 App. 5th 500, 509 (2022) (noting that there is a duty to disclose where, e.g., “‘the defendant has

4 exclusive knowledge of material facts not known or reasonably accessible to the plaintiff’”).

5 Finally, the FDIC suggests that the fraud claims are not viable because, if the senior

6 executives at the Bank should have known that the Bank was about to fail, then so should have

7 Mr. Daly who “claims to be a sophisticated, well-connected member” in the industry. Mot. at 8.

8 The FDIC adds that the Bank’s failure should “hardly [have been] a surprise given the multiple

9 failures of . . . other regional banks that caused huge financial turmoil in Silicon Valley.” Mot. at

10 8 & n.2 (citing Wall Street Journal article). While these defenses could be asserted on the merits

11 at a later juncture, that is not a reason to dismiss at 12(b)(6); the FDIC has simply raised a

12 question of fact that cannot be resolved at this early juncture in the proceedings if reasonable

13 inferences are drawn in Mr. Daly’s favor. This is especially true given that no matter what

14 information was publicly available, presumably, senior executives as insiders may well have had

15 more non-public information at their disposal about what was going on at the Bank.

16 Accordingly, the Court rejects the FDIC’s arguments in favor of dismissal of the fraud and

17 related claims.

18 3. Interference Claims

19 In addition to the fraud claims, Mr. Daly brings interference claims – specifically, claims

20 for intentional interference with prospective economic advantage, negligent interference with the

21 same, and violation of § 17200 based on the same.

22 The elements of a claim for intentional interference are as follows:

23 (1) an economic relationship between the plaintiff and some third

party, with the probability of future economic benefit to the plaintiff;

24 (2) the defendant’s knowledge of the relationship; (3) intentional

acts on the part of the defendant designed to disrupt the

25 relationship[;] . . . .

26 . . . (4) actual disruption of the relationship; and (5) economic harm

to the plaintiff proximately caused by the acts of the defendant.

27

1 (internal quotation marks omitted).

2 As for the elements of a claim for negligent interference, they are:

3 (1) an economic relationship existed between the plaintiff and a

third party which contained a reasonably probable future economic

4 benefit or advantage to plaintiff; (2) the defendant knew of the

existence of the relationship and was aware or should have been

5 aware that if it did not act with due care its actions would interfere

with this relationship and cause plaintiff to lose in whole or in part

6 the probable future economic benefit or advantage of the

relationship; (3) the defendant was negligent; and (4) such

7 negligence caused damage to plaintiff in that the relationship was

actually interfered with or disrupted and plaintiff lost in whole or in

8 part the economic benefits or advantage reasonably expected from

the relationship.

9

10 Venhaus v. Shultz, 155 Cal. App. 4th 1072, 1078 (2007) (internal quotation marks omitted).

11 a. Intentional Interference

12 In the instant case, the basic factual predicate for Mr. Daly’s interference claims is that the

13 Bank knew Mr. Daly had relationships with his customers that “likely would have led to future

14 economic benefits to [him],” and that “[t]he Bank knew or should have known that [the]

15 relationship[s] would be disrupted if the Bank failed, and/or if the Bank failed to perform other

16 promises made to [him] in connection with [his] employment at the Bank.” Compl. ¶ 60.

17 The claim for intentional interference is problematic in that a viable claim requires

18 “intentional acts on the part of the defendant designed to disrupt the relationship[s].” Golden

19 Eagle, 19 Cal. App. 5th at 429 (internal quotation marks omitted; emphasis added); see also

20 Crown Imports, LLC v. Superior Ct., 223 Cal. App. 4th 1395, 1404 n.10 (2014) (stating that “[t]he

21 difference between intentional interference and negligent interference . . . relates to the

22 defendant’s intent”); accord Alston v. Aetna Life Ins. Co., No. C-93-20291-RMW (EAI), 1994

23 U.S. Dist. LEXIS 6739, at *23 (N.D. Cal. Feb. 14, 1994) (stating that “[t]he difference is that to be

24 liable for negligent interference the defendant need not have intentionally disrupted an economic

25 relationship, but the disruption must have been reasonably foreseeable”); Santa Fe Props. v.

26 Source Bioscience, No. CV 20-10727-JFW(PVCx), 2021 U.S. Dist. LEXIS 245976, at *6 (C.D.

27 Cal. Feb. 10, 2021) (stating that “[a] claim for negligent interference with prospective economic

1 intentional act, the third element requires that the defendant had knowledge that the relationship

2 would be disrupted if the defendant failed to act with reasonable care and that the defendant failed

3 to act with reasonable care”). Here, there are no concrete facts suggesting that the Bank intended

4 to disrupt the relationships that Mr. Daly had with his customers, and that its action was so

5 designed. Based on the allegations, no reasonable inference of such a purpose can be drawn.

6 b. Negligent Interference

7 As for the claim for negligent interference, the FDIC suggests that Mr. Daly has failed to

8 sufficiently identify a prospective economic advantage. In his complaint, Mr. Daly identifies two

9 prospective economic advantages:

10 17. For example, Mr. Daly presented the Bank with a customer

who was interested in a $95 million loan. During his

11 recruitment, the Bank had represented to Mr. Daly that the

Bank was interested in funding the loan and would be ultra-

12 competitive in winning the business, when it knew it would

not be competitive. Once Mr. Daly joined, the Bank said

13 that it was no longer funding “large loans.”

14 18. Similarly, the Bank represented that it had competitive home

mortgage rates and it would be aggressive in winning any

15 mortgage business he could bring. Once Mr. Daly joined, he

brought a potential $18 million mortgage to the Bank. The

16 Bank was not interested and quoted the client a mortgage

rate 300 bps higher than the market rate.

17

18 Compl. ¶¶ 17-18. The prospective economic advantage in ¶ 17 is adequately identified; moreover,

19 there is a clear allegation that the Bank knew about the prospective economic advantage, i.e.,

20 based on communications during the time it recruited him. See Venhaus, 155 Cal. App. 4th at

21 1078 (stating that one element of a claim for negligent interference is that “the defendant knew of

22 the existence of the relationship and was aware or should have been aware that if it did not act

23 with due care its actions would interfere with this relationship and cause plaintiff to lose in whole

24 or in part the probable future economic benefit or advantage of the relationship”). The prospective

25 economic advantage in ¶ 18 is also adequately identified. However, here, it is not clear whether

26 the Bank knew about the possible $18 million mortgage in advance. Thus, without more, no

27 reasonable inference of knowledge can be drawn based on the bare allegations of the complaint.

1 c. Summary

2 Accordingly, the Court dismisses the claim for intentional interference, but with leave to

3 amend. The Court dismisses in part the claim for negligent interference (i.e., to the extent the

4 claim is predicated on the prospective economic advantage identified in ¶ 18 of the complaint).

5 Mr. Daly has leave to amend here as well.

6 4. Punitive Damages

7 The FDIC argues that, to the extent any tort claims survive, Mr. Daly cannot seek punitive

8 damages against it. In support, the agency cites 12 U.S.C. § 1825(b)(3), which provides in

9 relevant part that, “[w]hen acting as a receiver, the following provisions shall apply with respect to

10 the [FDIC]: . . . the Corporation shall not be liable for any amounts in the nature of penalties or

11 fines.” 12 U.S.C. § 1825(b)(3). The FDIC also cites to Monrad v. FDIC, 62 F.3d 1169 (9th Cir.

12 1995). There, the Ninth Circuit rejected a district court’s award of late payment penalties, based

13 on state law, against the FDIC; the court took note of § 1825(b)(3) and then added that “relevant

14 case law suggests that claims that are punitive in nature under state law cannot be asserted against

15 the FDIC, because the deterrent effect is minimal and other innocent creditors would be punished

16 by diminishing available assets.” Id. at 1175; see also Poku v. FDIC, No. RDB-08-1198, 2011

17 U.S. Dist. LEXIS 45679, at *9-10 (D. Md. Apr. 27, 2011) (holding that, because punitive damages

18 “represent penalties, the plain language of Section 1825(b) precludes the imposition of punitive

19 damages on the FDIC”; furthermore, “a punitive damage award will achieve little in the way of

20 deterring the failed WAMU Bank from violating its obligations to its customers” and “a large

21 punitive damage award might substantially diminish the assets available to distribute among

22 creditors of the bank”); King v. Long Beach Mortg. Co., 672 F. Supp. 2d 238, 246 (D. Mass. 2009)

23 (stating that, “[e]ven if this Court were inclined to impose punitive damages or fines, the [Federal

24 Deposit Insurance Act] provides the FDIC with a complete defense” which is “found in 12 U.S.C.

25 § 1825(b)(3)”); Cassese v. Wash. Mut., Inc., 711 F. Supp. 2d 261, 272 (E.D.N.Y. 2010) (stating

26 that “[§] 1825(b) may permit claims against the FDIC for punitive damages that were assessed

27 against a bank prior to its failure” – but not for penalties “assessed after the receivership

1 In response, Mr. Daly “concedes that the authorities in this jurisdiction have held that [the

2 FDIC] is not subject to punitive damages [but] other jurisdictions disagree.” Opp’n at 22; see also

3 Bradford v. Am. Fed. Bank, F.S.B., 783 F. Supp. 283, 285-86 (N.D. Tex. 1991) (rejecting FDIC’s

4 argument that it is immune to state law claims for, e.g., punitive damages; “[w]hen acting in

5 receivership capacity, state law governs, and defenses that the FDIC could use in their corporate

6 capacity are unavailable to them”). The Texas court, however, did not address § 1825(b)(3), nor

7 the Ninth Circuit’s reasoning in Monrad.

8 Accordingly, the Court grants the FDIC’s request to dismiss/strike punitive damages. The

9 Court acknowledges Mr. Daly’s statement that he has simply “pleaded punitive damages to

10 preserve the issue for appeal even if this Court is inclined to strike the request.” Opp’n at 23. No

11 leave to amend is given.

12 D. New Argument Raised in Reply

13 As a final note, the Court recognizes that the FDIC has raised a new argument in its reply

14 brief. Specifically, the FDIC refers to the statute 12 U.S.C. § 1821(j). Section 1821(j) provides as

15 follows: “Except as provided in this section, no court may take any action, except at the request of

16 the Board of Directors by regulation or order, to restrain or affect the exercise of powers or

17 functions of the [FDIC] as a conservator or a receiver.” 12 U.S.C. § 1821(j). Because this

18 argument was not raised until the reply, the Court does not consider it at this time.

19 III. CONCLUSION

20 For the foregoing reasons, the FDIC’s motion to dismiss is granted in part and denied in

21 part. The motion is granted only as to (1) the claim for intentional interference; (2) the claim for

22 negligent interference predicated on the prospective economic advantage identified in ¶ 18 of the

23 complaint; and (3) the claim for punitive damages. Mr. Daly has leave to amend on (1) and (2).

24 / / /

25 / / /

26 / / /

27 / / /

1 The amended complaint shall be filed by October 15, 2024. The FDIC shall then have

2 until November 12, 2024, to file a response.

3 This order disposes of Docket No. 36.

4

5 IT IS SO ORDERED.

6

7 Dated: September 17, 2024

8

9

EDW. CHEN

10 United States District Judge

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