Petition for Writ of Certiorari — Lee v. Federal Deposit Insurance Corp.
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In the Supreme C
of the United States
OCTOBER TERM, 1989
FRANK LEE, et al
Petitioners.
VS.
FEDERAL DEPOSIT INSURANCE
CORPORATION
Respondent.
ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
THOMAS H. TONGUE
Dunn, Carney, Allen, Higgins
& Tongue
851 S.W. Sixth Avenue
Portland, Oregon 97204
(503) 224-6440
Counsel for Petitioner
John Rowell
EDWARD F. LOHMAN
5505 River Street
West Linn, Oregon 97068
Counsel for Petitioner
Larry A. Schoenborn
JAMES M. FINN
Schwabe, Williamson & Wyatt
1211 S.W. Fifth Avenue
Portland, Oregon 97204
(503) 222-9981
Counsel for Petitioner
John Molendyk
BARRIE J. HERBOLD
Counsel of Record
Markowitz, Herbold, Stafford
& Glade, P.C.
One S.W. Columbia
Portland, Oregon 97258
(503) 295-3085
Counsel for Petitioner
Frank Lee
THOMAS W. BROWN
Counsel of Record
Cosgrave, Vergeer & Kester
121 8S.W. Morrison Street
Portland, Oregon 97204
(503) 323-9000
Counsel for Petitioners
Thomas Wolf and Irving
Potter
ROGER TILBURY
Counsel of Record
1123 S.W. Yamhill Street
Portland, Oregon 97205
(503) 224-8503
Counsel for Petitioner
Larry A. Schoenborn
(er tte
STEVENS-NESS LAW PUBLISHING CO., PORTLAND, 2 97204
ee
903
—————
SRR eaereeenremnessecnnerescren meee emma
QUESTIONS PRESENTED FOR REVIEW
1. When the Federal Deposit Insurance Corporation
as assignee of a failed state bank sues the former di-
rectors of the bank, does the statute of limitations
prescribed by Section 2415 of the Judicial Code “ac-
crue” as that term is used in the statute when the
right of action comes into existence or when it is as-
signed?
2. In such an action, should the law of the state in
which the claim arose or “federal common law” pro-
vide the rule of decision regarding the characteriza-
tion of the claim as a “tort” or a “contract” for pur-
poses of determining the applicable limitations period?
NOTE: Petitioners reserve the right to argue
Question 3 in the event certiorari is granted on
one or both of the above questions, but do not in-
clude Question 3 among the reasons for the grant
of certiorari.
3. If federal law should provide the rule of decision,
should such claims be characterized as tort or contract
claims under federal common law?
PARTIES
Petitioners are Frank Lee, Larry A. Sechoenborn,
John Molendyk, Irving W. Potter, John Rowell, and
Thomas Wolf.
Respondent is the Federal Deposit Insurance
Corporation.
Other parties in the court from which this appeal
is taken who are not parties to this petition are
Daniel R. Adams, W. Todd Coffelt, Steven Hunger-
ford, Charles A. Dale, Gene A. Rickert, P. Dean
Nichols, Joyce Evans, K. Peter Norrie, Gary L. Den-
nison, Lewis Johnson, George Hammond, C. Dale
Brookens, Joseph Cejka, and Lester Hardy.
ill
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED pore i
PARTIES . | rm . li
OPINIONS BELOW 1
JURISDICTION 2
APPLICABLE FEDERAL LAWS oe
STATEMENT OF THE CASE... 3
I. Nature of the Controversy 3
Il. Proceedings Below sacs
REASONS FOR GRANTING PETITION .. 6
Introduction 6
I. This Court should grant review to resolve
the conflict among the circuits and correct
the Ninth Circuit’s misinterpretation of
the term “accrued” in Section 2415 of the
Judicial Code nits a
A. The conflict among the circuits 7
B. The Ninth Circuit’s misinterpretation
of Section 2415 ; 8
1. The Ninth Circuit’s salen. ae
2. Section 2415 is not ambiguous __ 9
3. Section 2416(c) of the Judicial
Code does not render Section 2415
ambiguous in the context of this
case a _ 10
4. The legislative pera of leiden
2415 and 2416(c) supports peti-
tioners’ interpretation of the statute 12
5. Summation ae
iv
TABLE OF CONTENTS (Cont.)
Page
Il. This court should grant review to resolve
the conflict among the circuits by clarify-
ing whether state or federal substantive
law should provide the rule of decision gov-
erning claims assigned to FDIC
A. The conflict among the circuits
1. The Ninth Circuit’s analysis
2. The nature of the conflict
15
15
15
16
B. Choice of law in characterizing the claims 19
1. This court’s decision in D’Oench
does not require the displacement
of state law when FDIC is suing as
the assignee of state law claims
2. The Ninth Circuit erred in looking
to federal rather than state Jaw for
the federal rule of decision in charac-
terizing the claims
8. The legislative history of Section
2415 supports the application of
state law as the rule of decision on
substantive issues in governmental
claims
4. Under Oregon law, these breach of
fiduciary duty claims would be
characterized as torts
5. Summation
Ill. The Ninth Circuit erred in its characteri-
zation of the breach of fiduciary duty
claims as contract claims under federal
common law |
A. The Ninth Circuit’s anaylsis
B. ™ Ninth Circuit abdicated its judicial
role
C. Under federal common law, claims for
breach of fiduciary duty should sound
in tort rather than in contract
CONCLUSION .
19
20
Vv
TABLE OF AUTHORITIES
PAGE
Blusal Meats, Inc. v. United States, 688 F. Supp
(S.D.N.Y. 1986), afd, 817 F.2d 1007 — Cir.
1967) ___... 24
Burlington No. R. Co. v. Olisdiae Tas pony
481 U.S. 454 (1987) a 9
C. E. Jacobs v. FDIC, 688 F. Supp. 214 1 (EL D.
ek tee) eee 26
Carter Equipment v. Poa pane hihi oe
ment, 681 F.2d 386, (5th Cir. 1982) sam 25
D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447
(1942) ee . bh,
Davis v. Michigan Dep’t of Treasury, 1 109 dS, Ct.
1500 (1989) 10
FDIC v. Abraham, 501 F. Supp. 221 (. ta
1980) 18
FDIC v. Bank of San Francisco, 817 Bod 1395
(9th Cir. 1987) 1 ae
FDIC vy. Bird, 516 F. Supp. 647 (D. PR. 1981) 11
FDIC v. Blue Rock Shopping Center, 766 F.2d 744
(3rd Cir. 1985) . aime ee ae
FDIC vy. Braemoor Associates, 686 F.2d 550
(7th Cir. 1982), cert. denied, 461 U.S. 927 (1983)
17, 18, 20, 21, 23
FDIC v. Buttram, 590 F. Supp. 251 “— Ala.
1984) 8
FDIC vy. Cardona, 723 F.2d 132, 134 (ist Cir,
1983) 8
FDIC v. Carlson, 698 F. sib 178 (D. Minn.
1988) _ 8,11
FDIC vy. Citizens Bank & Trust Co. 592 F. od | 364
(7th Cir.) cert. denied, 444 U.S. 829 (1979). 25, 26
TABLE OF AUTHORITIES (Cont.)
Page
FDIC v. First Interstate Bank of Des Moines, 885
F.2d 423 (8th Cir. 1989) 8, 10
FDIC vy. Galloway, 856 F.2d 112 (10th Cir. 1988) 8
FDIC v. Greenwood, 701 F. Supp. 691, (C.D. Ti.
1988) 8
FDIC v. Hinkson, 848 F.2d 432, 435 (8rd Cir.
1988) cesta 8
FDIC v. Hudson, 673 F. Supp. 1039 (D. Kan.
1987) a
FDIC vy. Palermo, 815 F.2d 1329 (10th Cir. 1987)
18, 19
FDIC v. Petersen, 770 F.2d 141 (10th Cir. 1985) 7
FSLIC vy. Burdette, 696 F. Supp. 1196 (E.D.
Tenn. 1988)
Guaranty Trust Co. v. United States, 304 U.S.
126 (1938) 11
Gunter v. Hutcheson, 674 F.2d 862 (11th Cir.
1982), cert. denied, 459 U.S. 826 (1982), over-
ruled on other grounds, Langley v. FDIC, 484
U.S. 86 (1987) 6
Hughes v. Reed, 46 F.2d 435 (10th Cir. 1931) ae 5:
Mack v. American Fletcher Nat'l Bank, 510
N.E.2d 725 (Ind. App. 1987) 26
Mclver v. Ragan, 2 Wheat 25, 15 U.S. 24 (1817) 9
Nixon v. Fitzgerald, 457 U.S. 731 (1982) 16
Payne v. Ostrus, 50 F.2d 1039 (8th Cir. 1931) 17
Reading Co. v. Koons, 271 U.S. 58 (1926) 11,12
Sabre Farms, Inc. v. Jordan, 78 Or. App. 323, 717
P.2d 156 (1986) 23
Santoni v. FDIC, 677 F.2d 174 (1st Cir. 1982) 17, 18
vil
TABLE OF AUTHORITIES (Cont. )
Page
Securities-Intermountain v. Sunset Fuel, 289 Or.
243, 611 P.2d 1158 (1980) y 22, 23, 26
Sugerman v. Sugarman, 797 F.2d 3 (1st Cir.
1986)
Union Bank of Switzerland v. HS Equities, Inc.,
423 F. Supp. 927 (S.D.N.Y.1976) 26
United States v. Buford, 28 U.S. (3 Pet.) 7 (1830)
Secandeerenarnn sae
United States v. Cardinal, 452 F. Supp. 542 (D.
Vt. 1978)
United States v. Kimbell Foods, Inc., 440 U.S. 715
(1979) Lede _.. 18, 19, 20
United States v. Lindsay, 346 U.S. 568 (1954) 9,10
United States v. Neidorf, 522 F.2d 916 (9th Cir.
1975), cert. denied, 423 U.S. 1087 (1976) 15
vill
STATUTES
PAGE
12 U.S.C. Section 1819 b- 17
28 U.S.C. Section 1254(1) | 2
28 U.S.C. Section 2415
i, 2, 6, 9, 10, 11, 12, 14, 15, 21, 24
28 U.S.C. Section 2416(c) 9, 10, 12, 14, 15
Financial Institutions Reform, Recovery, and En-
forcement Act of 1989, Pub. L. No. 101-73, 108
Stat. 183
ARTICLES AND TREATISES
G. Bogert, Trusts and Trustees Section 481 (rev.
2d ed. 1978)
Consolidated Bancorp Subsidiaries Closed Bring-
ing Texas Bank Failure Total to 122, [July-
Dec.] Banking Rep. (BNA) No. 17, at 633 (Oct.
30, 1989)
Comment, FDIC and FSLIC Pursuit of Claims
Against Officers, Directors, and Others Involved
with Failed Lenders, 58 Miss. L.J. 89, 104
(1988) )
Restatement (Second) of Torts Section 874
(1977)
LEGISLATIVE MATERIAL
Improvement of Procedures in Claims Settlement
and Government Litigation, Hearing on H.R.
13651, H.R. 13652, H.R. 14182 Before Sub-
comm. No. 2 of the House Committee on the
Judiciary, 89th Cong. 2d Sess.
S. Rep. No. 1238, 89th Cong., 2d Sess., reprinted
in 1966 U.S. Code Cong. & Admin. News
6, 7
25
No.
In the Supreme Court
of the United States
OCTOBER TERM, 1989
FRANK LEE, et al
Petitioners,
VS.
FEDERAL DEPOSIT INSURANCE
CORPORATION
Respondent.
ON WRIT OF CERTIORARI TO THE
UNITED STATES CouRT OF APPEALS
FOR THE NINTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
The petitioners Frank Lee, Larry A. Schoenborn,
John Molendyk, Irving W. Potter, John Rowell, and
Thomas Wolf respectfully pray that a writ of certio-
rari issue to review the judgment and opinion of the
United States Court of Appeals for the Ninth Circuit,
entered in the above-entitled proceeding on Septem-
ber 13, 1989.
OPINIONS BELOW
The opinion of the United States Court of Appeals
for the Ninth Circuit (App. 2-23) is reported at 884
2
F.2d 1304. The opinion of the United States District
Court for the District of Oregon (App. 24-51) is re-
ported at 705 F.Supp. 13804.
JURISDICTION
The decision of the United States Court of Appeals
for the Ninth Circuit was filed and entered on Sep-
tember 18, 1989. A timely petition for rehearing,
filed on September 26, 1989, was denied on December
22, 1989. This Court has jurisdiction pursuant to 28
U.S.C. Section 1254(1).
APPLICABLE FEDERAL LAWS
28 U.S.C. Section 2415:
(a) Subject to the provisions of Section 2416 of
this title, and except as otherwise provided by
Congress, every action for money damages brought
by the United States or an officer or agency
thereof which is founded upon any contract ex-
press or implied in law or fact, shall be barred
unless the complaint is filed within six years
after the right of action accrues or within one
year after final decisions have been rendered in
applicable administrative proceedings required by
contract or by law, whichever is later: * * *
(b) Subject to the provisions of Section 2416 of
this title, and except as otherwise provided by
Congress, every action for money damages brought
by the United States or an officer or agency
thereof which is founded upon a tort shall be
barred unless the complaint is filed within three
years after the right of action first accrues: * * *
3
28 U.S.C. Section 2416(c):
For the purpose of computing the limitations
periods established in Section 2415, there shall be
excluded all periods during which — * * *
(c) facts material to the right of action are
not known and reasonably could not be known by
an official of the United States charged with the
responsibility to act in the circumstances: * * *
STATEMENT OF THE CASE
|. Nature of the Controversy.
This case arises out of the failure of United Bank
of Oregon (‘‘UBO”’), which was formed on January 38,
1983, by the merger of Metropolitan Bank (‘‘Metro-
politan”), Willamette Falls State Bank (“Willamette
Falls”), and Independent Bank of Sandy (“IBS”).
(App. 75.) Before the merger, the predecessor banks
had each been experiencing financial difficulty. As a
result, the Federal Deposit Insurance Corporation
(“FDIC”) had been monitoring their respective activi-
ties and acting in an advisory capacity to their boards
since 1980. '
In August, 1981, the Metropolitan board had hired
Craig Robinson as chief executive officer and a direc-
tor at the urging of Oregon’s Superintendent of Bank-
ing. (App. 189-141.) Robinson promptly instituted
1In its First Amended Complaint, FDIC alleges that it had
been issuing unfavorable audit reports to each of the banks
since 1980, and that it had issued a cease and desist order to
Willamette Falls in 1982. (App. 79-82, 88-93, 96-98, 100-107,
109-115, 117-120.)
4
reforms, dismissing unsatisfactory employees, tighten-
ing collection efforts, and restructuring operations.
(App. 142-144.) By the end of 1981, several Metro-
politan board members had resigned because of per-
ceived conflicts of interest. (App. 145.) In the same
period, Robinson served as a consultant to IBS and
Willamette Falls. He was instrumental in planning
the merger. (App. 145-146, 148-149.) With the mer-
ger, Robinson and James Chester became respectively
UBO’s chief executive officer and chief operating
officer; both became directors. (App. 146.) The re-
maining positions on UBO’s board were filled by for-
mer directors of the predecessor banks. (App. 30-31)
On March 2, 1984, state regulators declared UBO
insolvent and FDIC was appointed receiver. (App. 78-
79.) As receiver, FDIC assigned to FDIC in its corp-
orate capacity all claims and causes of action of UBO,
including “those the banks and their shareholders had
against the defendant officers and directors.” (App.
74-75.)
ll. Proceedings Below.
On February 27, 1987, FDIC filed a complaint in
Oregon federal district court against twenty former
officers and directors of the predecessor banks. (App.
68.) Federal jurisdiction was based on 12 U.S.C. Sec-
tion 1819. (App. 73.) Alleging breach of fiduciary
duty, negligence, statutory violations and indemnity,
FDIC sought damages purportedly resulting from im-
provident and uncollectible loans made by the pre-
5
decessor banks between 1979 and January, 1983.
(App. 36, 70-71, 77.) Eight defendants moved for
summary judgment on statute of limitations grounds.
(App. 30.) The district court dismissed the indemnity
claims, reasoning that FDIC could not recover on that
theory. 7 (App. 36-38) It granted the motions against
the remaining claims for negligence, breach of fiduci-
ary duty and federal and state statutory violations,
reasoning that these were torts, and that the 3-year
statute of limitations prescribed by 28 U.S.C. Section
2415(b) therefore applied. (App. 38-43) The district
court further held that the statute began to run no
later than January 3, 1983, when the banks merged,
rejecting FDIC’s arguments that the claims did not
accrue until the assignment and that the statute was
tolled due to the alleged domination of the UBO board
by defendants. (App. 43-47)
On September 13, 1989, the Ninth Circuit reversed
as to the limitations period for the breach of fiduciary
duty claims, * holding that the claims “accrued” for
purposes of Section 2415 when they were assigned,
not when they actually arose, and applying principles
of federal common law to hold that the breach of fi-
duciary duty claims sounded in contract and were,
2 FDIC did not appeal this ruling.
3The court noted that although the district court de-
termined the applicable statutes of limitations for three of
appellant’s claims, “FDIC contests on appeal only the limita-
tions period for its breach of fiduciary duty claims. Accord-
ingly, we express no opinion as to the proper limitations
periods for appellant’s other claims.” (App. 9-10, n.1)
6
therefore, subject to the six-year period of limitations
prescribed by 28 U.S.C. Section 2415(a). (App. 18,
22-23.) Thus, the Ninth Cirenit allowed FDIC to pur-
sue an action commenced in 1987 for loans which it
alleged were improvidently made beginning in 1979,
eight years earlier. A petition for rehearing was
denied on December 22, 1989.
REASONS FOR GRANTING THE PETITION
INTRODUCTION
The statute of limitations issues presented by this
petition are unquestionably of national importance.
FDIC plays a central role in the liquidation of most
failed banks, which is becoming increasingly com-
mon. 4 It regularly sues directors in such cireum-
stances. © The range of depository institutions over
which FDIC has regulatory control has recently been
greatly expanded. See Financial Institutions Reform,
Recovery, and Enforcement Act of 1989, Pub. L. No.
4 Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir. 1982),
cert. denied, 459 U.S. 826 (1982), overruled on other grounds,
Langley v. FDIC, 484 U.S. 86 (1987). Nationally, there were
179 commercial bank failures between January 1, and October
26, 1989. Consolidated Bancorp Subsidiaries Closed Bringing
Texas Bank Failure Total to 122, [July-Dec.] Banking Rep.
(BNA) No. 17, at 633 (October 30, 1989).
5 Comment, FDIC and FSLIC Pursuit of Claims Against
Officers, Directors, and Others Involved with Failed Lenders,
58 Miss. L.J. 89, 104 (1988). (“FDIC spokesmen readily admit
that the agency always sues officers and directors whenever a
bank fails’’).
7
101-73, 103 Stat. 183. The number of similar cases
will undoubtedly continue to grow with the number
of bank failures.
The statute of limitations issues presented by this
case are likely to occur in any action brought by FDIC
upon an assigned state law claim. This Court should
address these issues to provide additional guidance as
to how they should be resolved in accordance with the
language of the statute, existing precedent from this
Court and Congressional intent.
|. This Court should grant review to resolve the conflict
among the circuits and correct the Ninth Circuit’s mis-
interpretation of the term “accrues” in Section 2415
of the Judicial Code.
A. The conflict among the circuits.
Section 2416 © of the Judicial Code prescribes the
general statute of limitations for actions by the gov-
ernment. It gives the government six years to sue on
a contract and three years to sue for a tort. In either
case, the limitation period starts to run when the
“right of action accrues.” The Ninth Circuit inter-
preted Section 2415 to mean that the government’s
right of action on an assigned claim does not accrue
until the assignment date. (App. 22-23.)
Before the Ninth Circuit issued its opinion in this
case, the Tenth Circuit had held in FDIC v. Petersen,
770 F.2d 141 (10th Cir. 1985), that the statute of
limitations on an assigned claim begins to run when
6 The statute is set out at p. 2, supra.
8
the claim accrues in the hands of the assignor, not
when it is later assigned to FDIC. Jd. at 142-43.
Accord FDIC v. Galloway, 856 F.2d 112 (10th Cir.
1988). More recently, without any analysis or elabora-
tion, the Eighth Circuit held that the government’s
claim does not accrue until the date of assignment.
FDIC v. First Interstate Bank of Des Moines, 885
F.2d 423 (8th Cir. 1989). See also FDIC v. Hinkson,
848 F.2d 432, 485 (3rd Cir. 1988) (dicta) ; FDIC v.
Cardona, 723 F.2d 132, 184 (1st Cir. 1983) (dicta).
Thus, there is an acute division among the circuit
courts on this issue. ”
B. The Ninth Circuit's misinterpretation of Section 2415.
1. The Ninth Circuit's analysis.
Although the Ninth Circuit recognized the im-
portance of “statutory language, principles of statu-
tory construction, and policy” in its interpretation of
Section 2415 (App. 17), it never actually analyzed the
7 The same division exists among the district courts. Com-
pare, FDIC v. Greenwood, 701 F. Supp. 691, 694 (C.D. IIl.
1988) (FDIC’s cause of action accrued when the defendants
first committed their allegedly negligent acts, not when the
FDIC acquired the assets of the failed band) ; United States
v. Cardinal, 452 F. Supp. 542, 544 (D. Vt. 1978) (statute of
limitations begins to run when the claim can first be sued on,
even if the government has not yet acquired claim) with
FDIC v. Carlson, 698 F. Supp. 178, 180 (D. Minn. 1988) (ac-
crual when claim in assigned to government) ; FSLIC v.
Burdette, 696 F. Supp. 1196, 1200 (E.D. Tenn. 1988) (same) ;
FDIC v. Hudson, 673 F. Supp. 1039, 1041 (D. Kan. 1987)
(same) ; FDIC v. Buttram, 590 F. Supp. 251, 254 (N.D. Ala.
194) (same).
9
language or purpose of the statute. Instead, it ap-
parently concluded that Section 2415 is ambiguous,
citing Section 2416(c) of the Judicial Code, which
tolls the limitation periods under Section 2415 when
the material facts “are not known and reasonably
could not be known” by a responsible government
official. (App. 17-21.) It then resolved the ambiguity
in favor of the government. (App. 21.)
2. Section 2415 is not ambiguous.
Section 2415 allows the government to sue three
or six years after the right of action “accrues” on an
assigned claim, not after it first acquires a claim that
has previously accrued. The statute neither expressly
nor impliedly creates an exception for cases in which
an existing right of action is later acquired by the
government. ® Thus, the Ninth Circuit’s interpreta-
tion is inconsistent with the plain meaning of the
Statute.
The Ninth Circuit’s interpretation is also directly
contrary to this Court’s previous interpretation of the
word “accrues” in a similar statute. In United States
v. Lindsay, 346 U.S. 568, 569 (1954), the Commodity
Credit Corporation (“CCC”) sued for a breach of
contract which had occurred in 1945. In 1948, a
® Courts have no power to create an exception to a statute
of limitations that the statute itself does not contain. McIver
v. Ragan, 15 U.S. (2 Wheat) 25, 29 (1817). Federal statutes
must be interpreted and applied as written, unless there is a
salient ambiguity. Burlington No. R. Co. v. Oklahoma Tax
Comm., 481 U.S. 454, 461 (1987).
10
statute of limitations was enacted for suits by the
CCC which allowed six years from the date the claim
“accrues” to file suit. The government argued that
the limitations period did not start to run until the
statute took effect. Noting that “[i]n common par-
lance a right accrues when it comes into existence,”
346 U.S. at 569, and relying upon a presumption that
Congress used the word “‘accrued” in accordance with
its ‘ordinary meaning,” this Court held that the gov-
ernment’s claim was barred because its cause of action
accrued in 1945. 346 U.S. at 571. 9
3. Section 2416(c) of the Judicial Code does not ren-
der Section 2415 ambiguous in the context of this
case.
The Ninth Circuit apparently concluded that Sec-
tion 2415 was ambiguous at least in part because of
the tolling provision articulated in Section 2416(c),
implicitly accepting FDIC’s argument that it “had
no authority to enforce the bank’s claims” until it was
appointed receiver for UBO. (App. 19.) Nothing in
the text of Section 2416(c) supports such a result.
It is not clear from the text that the statute was in-
tended to apply to assigned claims, and only one court
other than the Ninth Circuit has so applied it, in a
ease involving fraud. FDIC vy. First interstate Bank
of Des Moines, 885 F.2d at 423. Even if it was, how-
9 Because Congress enacted Section 2415 after Lindsay
was decided, it must be presumed that Congress intended to
adopt the pre-existing judicial definition of the word ‘‘accrue.”’
Davis v. Michigan Dep’t of Treasury, 109 S. Ct. 1500 (1989).
11
ever, it is evident from the text that Congress did not
intend Section 2416(c) to change the accrual date of
a claim that existed before the government acquired
it. At best, Section 2416(c) would simply toll the
limitations period after acquisition of the claim in
appropriate factual circumstances. If Congress had
intended to change the accrual date of a pre-existing
assigned claim, it was fully capable of articulating
that purpose.
Interpreted as it was by the Ninth Circuit, Section
2416(c) would create the odd result that the state
statute of limitations on a claim in the hands of a
private party could be substantially lengthened by the
simple fortuity of assignment to the government,
since arguably no government official has the “re-
sponsibility to act” on any claim until the claim be-
longs to the government. '°
This result is inconsistent with basic statute of
limitations principles enunciated by this Court. Ever
since United States v. Buford, 28 U.S. (3 Pet.) 12,
30 (1830), the Court has recognized that “the trans-
fer of any claim to the United States cannot give to
it any greater validity than it possessed in the hands
of the assignor.” This rule was followed in an
analogous context in Reading Co. v. Koons, 271 U.S.
10It is settled law, which seems contrary to the Ninth
Circuit’s construction, that a state law claim which has ex-
pired before assignment is not revived by assignment to the
federal government. Guaranty Trust Co. v. United States, 304
U.S. 126, 141-42 (1938); FDIC v. Carlson, 698 F. Supp. at
180; FDIC vy. Bird, 516 F. Supp. 647, 650 (D.P.R. 1981).
12
58 (1926). There, this Court held that a claim for
wrongful death under the Federal Employers’ Liability
Act acerued on the date of injury and not when a
personal representative was later appointed to pursue
the claim. The Court refused to believe that Congress
“intended to allow an indefinite period within which
application may be made for the appointment of an
administrator as the prerequisite to an action for
wrongful death.” 271 U.S. at 638. The Ninth Circuit’s
ruling simply cannot be reconciled with this Court’s
decisions in Buford and Koons. "'
4. The legislative history of Sections 2415 and
2416(c} supports petitioners’ interpretation of the
statute.
Given the Ninth Circuit’s holding that Section
2415 is ambiguous, this Court should consider the
legislative history of the statutes in question. It square-
ly supports petitioners’ interpretation.
The essential purpose of Sections 2415 and 2416(c)
was to place the government and private litigants on
an equal footing and to insure timely action by the
11In addition, the Ninth Circuit’s holding cannot be re-
conciled with the factual circumstances of this case. Here
FDIC never asserted in the trial court that the statute should
be tolled during some period in which responsible officials
were ignorant of material facts, and never produced any evi-
dence that such circumstances ever existed. Since FDIC was
continuously and intimately involved with the banks both
before and after the merger, it is difficult to see how FDIC
could not have known, all along, of the material facts support-
ing these claims.
13
government. According to the House Commiitee on
the Judiciary, the “equality of treatment’ provided
by the bill was “required by modern standards of fair-
ness and equity.” '* The committee summarized the
impact of Section 2415 as follows:
In recommending this legislation, the committee
feels that it will provide a greater fairness as
regards private individuals who deal with the
Government while adequately providing for the
interests of the Government. The Government
will be barred from asserting old and stale claims
in the courts and the necessity for the early as-
sertion of claims will require increased efficiency
in Government claims proceedings. '%
The Senate Report noted:
{m]Jany of the contract and tort claims asserted
by the Government are almost indistinguishable
from claims made by private individuals against
the Government. Therefore it is only right that
the law should provide a period of time within
which the Government must bring suit on claims
just as it now does as to claims of private in-
dividuals. '4
12S. Rep. No. 1328, 89th Cong., 2d Sess., reprinted in
1966 U.S. Code Cong. & Admin. News 2503 (emphasis added).
13 Jd. at 2509. See also Id. at 2502, 2508 (“fairness ... is
a very important consideration and the principal basis for the
bill’).
14 7d. at 2509.
14
In considering Section 2416(c), the Senate Judici-
ary Committee stated in its report:
This provision is required because of the diffi-
culties of Government operations due to the size
and complexity of the Government.
* * *
The committee understands the principal applica-
tion of this exclusion will probably be in con-
nection with the fraud situations. An example
would be where the affirmative act of a wrong-
doer has served to conceal the fraudulent act.
This type of exclusion is to be found in the law
of many States both fraud and tort limitations.
The material facts that are not known must go
to the very essence of the right of action. sna
The legislative history of Sections 2410 and
2416(c) establishes that it was Congress’ intent to
place the government and private litigants on an
equal footing in litigation, and that litigation be pur-
sued expeditiously. The Ninth Circuit’s conclusion
that the claims did not accrue until assignment to the
government clearly gives the government an ad-
vantage which has never been accorded to private
litigants, and permits considerable delay in bringing
a claim.
Similarly, the tolling period provided in Section
2416(c) was intended to foster fairness and equity
by accounting for the “size and complexity” of the
government and guarding against possible fraudulent
15 Jd. at 2502, 2507-08.
15
concealment of claims. It simply placed the govern-
ment on an equal footing with private litigants by
providing a tolling period similar to those found in
state law. It was not intended to afford the govern-
ment a significantly longer period to sue than a pri-
vate person would have.
5. Summation.
This Court should grant review to resolve the
conflict between the circuits, to correct significant
error in the Ninth Circuit’s opinion, and to articulate
an interpretation of the language of Section 2415 and
2416(c) which better effectuates Congress’ intent to
place the government on an equal footing with private
litigants.
ll. This Court should grant review to resolve the conflict
among the circuits by clarifying whether state or fed-
eral substantive law should provide the rule of de-
cision governing claims assigned to FDIC.
A. The conflict among the circuits.
1. The Ninth Circuit's analysis.
To determine the appropriate statute of limita-
tions to apply in the present case, the assigned breach
of fiduciary duty claims must be characterized as
being “founded upon a tort” or “founded upon any
contract” for purposes of Section 2415. United States
v. Neidorf, 522 F.2d 916, 919 (9th Cir. 1975), cert.
denied, 423 U.S. 1087 (1976). Central to this process
16
is choosing the body of substantive law to apply in
making the determination. '°
The district court, citing federal case law, held
that breach of fiduciary duty claims generally sound
in tort. (App. 42) The Ninth Circuit also relied on
federal case law to characterize the claims. In so do-
ing it wuplicitly misconstrued or ignored significant
authority from this Court, and is in decided conflict
with decisions of other courts of appeals. This Court
should accept review in order to clarify the law in this
area in several significant respects. '7
2. The nature of the conflict.
In D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447,
458-59, 461-62 (1942), this Court held that when
FDIC is a party to a case that turns on clear and
16 As is clear from the discussion in Section I, supra.,
petitioners do not dispute that determination of the date a
claim “accrues” as that term is used in Section 2415 is a
procedural matter which should be governed by a uniform
body of federal law. However, the characterization of claims
assigned to FDIC by a state bank as either “contract” or
“tort” is a substantive issue which should be determined by
reference to state law, as the following discussion demonstrates.
17 Although petitioners argued in the Ninth Circuit that
the rule applied by the Oregon courts to characterize breach
of fiduciary duty claims as torts merited adoption in this case
(Answering Br. of Appellees Lee, et al, pp. 44-45) they never
directly raised the choice of law issue in the Ninth Circuit. In
the event that this Court determines the issue was not suf-
ficiently preserved below, petitioners urge this Court to exer-
cise its discretion to decide this purely legal question. Nizon
v. Fitzgerald, 457 U.S. 731, 743 n.23 (1982).
ee
emphatic federal policies, the substantive issues are
federal questions to be decided under federal law. In
a concurring opinion expressing his views alone,
Justice Jackson went much further, stating that under
the predecessor of 12 U.S.C. Section 1819(b) (2),
federal substantive law applies in all cases to which
FDIC is a party. 315 U.S. at 468.
Based on Justice Jackson’s concurrence, numerous
courts of appeals have broadly interpreted the statute
to mandate the application of federal law whenever
FDIC is a party regardless of whether federal] policy
concerns are implicated in the case. The First Circuit
has held, for example, that federal common law must
provide the rule of decision in cases where the FDIC
is a party, even if the FDIC is successor in interest to
a state law cause of action. Santoni v. FDIC, 677 F.2d
174, 177-78 (1st Cir. 1982); see also FDIC v. Blue
Rock Shopping Center, 766 F.2d 744, 747 (1985) ;
FDIC vy. Bank of San Francisco, 817 F.2d 1395, 1398
(9th Cir. 1987). Although the Ninth Circuit’s decision |
in the present case contains no choice-of-law analysis,
it is clear that the court believed that it ought to apply
federal common law. '®
This result carries D’Oench too far, and is in
marked contract to the well-reasoned opinion of J udge
Posner in FDIC vy. Braemoor Associates, 686 F.2d
'S The Ninth Circuit’s decision makes no reference to the
Oregon cases that are directly on point and relies primarily
on two pre-E’rie cases applying federal common law. Hughes
v. Reed, 46 F.2d 435, 440-41 (10th Cir. 1931), and Payne v.
Ostrus, 50 F.2d 1039, 1042 (8th Cir. 1931).
18
550, 554 (7th Cir. 1982), cert. denied 461 U.S. 927
(1983), which distinguishes D’Oench and holds that
state law governs substantive issues when FDIC sues
as the assignee of a state-law claim. Applying the
analysis articulated by this Court in United States v.
Kimbell Foods, Inc., 440 U.S. 715 (1979), Judge Pos-
ner describes a rebuttable presumption that state law
should supply the rule of decision when FDIC is suing
as the successor in interest to a defunct state bank’s
cause of action against alleged wrongdoers:
“(T]he absence of any ready-made federal com-
mon law in most areas of law in which it might
be applied, and a general reluctance to displace
state law without explicit statutory or constitu-
tional direction to do so, support a presumption
that state law is adequate and should be adopted
by the federal court as the rule of decision.”
686 F.2d at 554. Accord FDIC v. Abraham, 501 F.
Supp. 221, 223 (E.D. La. 1980).
Just as Braemoor Associates reveals a conflict
with other circuits as to the scope of D’Oench, it dem-
onstrates a difference with respect to the application
of Kimball Foods. Other courts of appeals disagree
as to the applicability of the Kimball Foods analysis
to a claim by the FDIC. The Third Circuit has
questioned whether that analysis should be applied
at all. FDIC v. Blue Rock Shopping Center, 766 F.2d
at 747-48. The First Circuit in Santoni v. FDIC, 677
F.2d at 177-78, applied federal substantive law with-
out mentioning Kimball Foods. The Tenth Circuit, in
19
contrast, held that state substantive law regarding the
elements of fraud should supply the rule of decision
in FDIC vy. Palermo, 815 F.2d 1329, 1334 (10th Cir.
1987). It based this conclusion on Kimball’s tripartite
test. Here, the Ninth Circuit made no mention of the
precedent at all.
B. Choice of law in characterizing the claims.
1. This Court's decision in D’Oench does not require
the displacement of state law when FDIC is suing
as the assignee of state law claims.
In D’Oench, FDIC sued to recover on a note that
had been issued to an insured bank on condition that
it would not be called for payment. In response to the
maker’s defense of lack of consideration, FDIC main-
tained that the note had been given with the intention
of falsely overstating the bank’s assets. 315 U.S. at
456. Because the Federal Reserve Act expressed a
strong federal policy against intentional over-valua-
tion of bank assets, this Court held that the maker’s
defense was barred as a matter of federal law. Jd. at
at 461-62.
The majority decision in D’Oench did not hold that
FDIC’s action on the note was a matter of federal
common law, nor did the majority opinion ever con-
sider whether the earlier version of 12 U.S.C. Section
1819(b) (2) (A) mandated the application of federal
law. D’Oench simply holds that federal law applies
when federal substantive law is invoked by the FDIC.
That is not the case here; FDIC’s breach of fiduciary
duty claims are grounded in state law. No federal
20
substantive issues exist and no federal policies are
impicated. Like Braemoor Associates, this is a case
governed exclusively by state substantive law.
2. The Ninth Circuit erred in looking to federal rather
than state law for the federal rule of decision in
characterizing the claims.
Even assuming that federal law governs all cases
and all claims involving FDIC, it is neither necessary
nor proper to devise a uniform federal common law
rule for each of the myriad substantive issues in-
volved in such cases. The federal common law may
dictate application of state law as the rule of decision.
Whether to adopt state law or to fashion a nation-
wide federal rule is a matter of considerations
always relevant to the nature of the specific
governmental interests and to the effects upon
them of applying state law.
United States v. Kimball Foods, Inc., 440 U.S. at 727-
28 (quotation and citation omitted).
In Kimball Foods, this Court stated that in de-
termining whether an issue controlled by federal law
should be adjudicated pursuant to state law princi-
ples, courts should consider the necessity for a nation-
ally uniform body of law regarding the federal pro-
gram, the possibility that specific objectives of the
program would be frustrated if such a body of law
were not created, and the disruption of commercial
relationships predicated on state law which would
result from application of a federal rule. Kimbell
Foods, 440 U.S. at 728-29.
21
In this case, the Ninth Circuit erred when it chose
to apply federal common law in characterizing the
claim. First, there is no need for a uniform national
law regarding the characterization of a state law
breach of fiduciary duty claim brought by FDIC as
successor in interest. Undeniably, FDIC brings an
action which if brought by the bank would be a state
action governed by state statutory and common law.
The fact that FDIC pursues the claim by assignment
should not alter the character of the claim or the sub-
stantive law upon which the claim is based. FDIC v.
Braemoor Associates, 686 F.2d at 554. Second, to use
established state law to define a claim for statute of
limitations purposes would not frustrate specific fed-
eral objectives. There is no federal statute or body of
federal case law defining peculiarly federal fiduciary
duties of a state bank director. Finally, commercial
relationships governed by state law would be adversely
affected by a federal rule governing the characteri-
zation of the claims in this case, because it would
bring inconsistency to actions arising out of the de-
mise of a state bank in that FDIC will have a signifi-
cantly longer time than potential local plaintiffs to
bring such claims.
3. The legislative history of Section 2415 supports the
application of state law as the rule of decision on
substantive issues in governmental claims.
Choice of law was addressed by the Justice De-
partment during in the enactment of Section 2415:
A final problem is the choice of law govern-
22
ing such issues as when a claim accrues. Although
it is true that these issues often present novel
questions of fact, the general practice concerning
these matters is settled and is not generally re-
garded as in need of change. Substantive issues
arising in tort cases involving the Government
will usually be governed by the law of the State
where the accident occurred. This bill preserves
this principle.
Procedural issues in such cases will be
governed by the law of the forum. Government
contract cases will follow the Federal law that
has evolved in these types of cases. There seems
to be no good reason for disturbing these arrange-
ments. '9
Thus, Section 2415 was not intended to alter choice of
law principles governing cases involving the federal
government.
4. Under Oregon law, these breach of fiduciary duty
claims would be characterized as torts.
The Oregon Supreme Court has clearly enunciated
the principle to be applied in determining whether a
claim sounds in contract or tort for statute of limita-
tions purposes. In Secwrities-Intermountain v. Sunset
Fuel, 289 Or. 243, 259, 611 P.2d 1158, 1167 (1980),
the court held:
If the alleged contract merely incorporates by
reference or by implication a general standard of
19 Improvement of Procedures in Claims Settlement and
Government Litigation, Hearing on H.R. 13651, H.R. 13652,
H.R. 14182 Before Subcomm. No. 2 of the House Committee
on the Judiciary, 89th Cong. 2d Sess. 9.
23
skill and care to which the defendant would be
bound independent of the contract, and the alleged
breach would also be a breach of this noneontrac-
tual duty, then [the tort statute of limitations]
applies.
This standard was applied to characterize breach
of fiduciary duty claims against corporate officers
and directors as tort claims in Sabre Farms, Ime. v.
Jordan, 78 Or. App. 328, 327-28, 717 P.2d 156, 159
(1986), based upon the court’s determination that
the duties of the officers and directors “are binding
by reason of the relationships between the parties,
independently of contract.”
5. Summation.
As Judge Posner observed in Braemoor Associates,
it is “difficult to see why assignment to FDIC should
alter or enlarge” the claims alleged in this case. 686
F.2d at 554. Prior to the assignment, the bank’s po-
tential claims were cognizable as tort claims subject
to Oregon’s two-year statute of limitations. By virtue
of the Ninth Circuit’s decision, those tort claims have
been transformed into contract claims subject to what
amounts to a twelve-year statute of limitations. This
transformation finds no support in federal law, fed-
eral policies, or the decisions of this court.
ll. The Ninth Circuit erred in its characterization of the
breach of fiduciary duty claims as contract claims
under federal common law. s
A. The Ninth Circuit's analysis.
Although the Ninth Circuit recognized the neces-
24
sity for judicial characterization of a claim as tort
or contract in order to properly apply the legislative
mandate contained in Section 2415, it refused to un-
dertake that task. Citing Ninth Circuit authority for
the proposition that if there is a “substantial ques-
tion” as to which of two conflicting statutes of limita-
tions applies, the court should apply the longer, (App.
11) it determined that there was a substantial ques-
tion as to whether FDIC’s claims sounded in tort or
in contract because some courts had determined that
similar claims sound in contract and some that they
sound in tort. (App. 12-13.)
B. The Ninth Circuit abdicated its judicial role.
It is the role of a court to determine whether a
claim sounds in tort or contract for purposes of the
statute of limitations:
Where a statute distinguishes between tort and
contract theories and substantial consequences
flow from characterization of a case as one or
the other, the courts have no right to treat the
terms interchangeably.
Blusal Meats, Inc. v. United States, 638 F. Supp. 824,
831 (S.D.N.Y. 1986), aff'd, 817 F.2d 1007 (2nd Cir.
1987). The Ninth Circuit, however, did not conduct
any independent analysis of the nature of FDIC’s
claims. It simply determined that other courts had
held that similar claims were or might be contractual.
This determination was not based on the court’s view
of the law; it merely accepted other courts’ views as
reasonable, without considering whether they might
25
be wrong. In so doing, it ignored Congress’ intent in
adopting a six-year limitations period for contract
claims and a three-year limitations period for torts.
Congress expected the courts to decide which claims
fit into each of the two categories. The Ninth Circuit
failed to fulfill the role given it by Congress.
C. Under federal common law, claims for breach of
fiduciary duty should sound in tort rather than in
contract.
If the Ninth Circuit had independently examined
FDIC’s claims, it would have held that they were in
the nature of tort rather than contract. A corporate
fiduciary is bound to act honestly and in good faith
based upon principles of equity, not because of an im-
plicit agreement between the fiduciary and beneficiary.
See G. Bogert, Trusts and Trustees Section 481 (rev.
2d ed. 1978) ; Carter Equipment y. John Deere Indus.
Equipment, 681 F.2d 386, 390-91 (5th Cir. 1982). The
Restatement (Second) of Torts Section 874 (1977)
provides for tort liability of all fiduciaries. Comment
b emphasizes that regardless of the type of fiduciary
involved, “the liability is not dependent solely upon a
agreement or contractual relation between the fiduci-
ary and the beneficiary but results from the relation.”
It is the prevailing view that in an action for
breach of duty where an alleged contract imposes no
separate duty other than that imposed by common
law, the action is properly characterized as one in
tort. See, e.g., Sugarman v. Sugarman, 797 F.2d 3.
14 (1st Cir. 1986); FDIC vy. Citizens Bank & Trust
26
Co., 592 F.2d 364, 369 (7th Cir.), cert. denied 444
U.S. 829 (1979); C. E. Jacobs v. FDIC, 688 F. Supp.
214, 215 (E. D. Tenn. 1986) ; Union Bank of Switzer-
land v. HS Equities, Inc., 423 F. Supp. 927, 929
(S.D.N.Y. 1976) ; Securities-Intermountain v. Sunset
Fuel, 289 Or. at 259, 611 P.2d at 1167; Mack v.
American Fletcher Nat’l Bank, 510 N.E.2d 725, 738-
39 (Ind. App. 1987) (noting “the trend . . . to declare
that a breach of fiduciary duty is a tort’) and au-
thority cited therein.
The substance of FDIC’s claim here is that peti-
tioners owed the banks “a duty of reasonable pru-
dence, care and oversight in the discharge of their
responsibilities” which is “implicit in the office of
bank director.” (App. 121-22) Regardless of whether
they took an oath or otherwise pledged in writing or
orally that they would fulfill their duties to the banks
faithfully, the better rule is that they should be liable,
if at all, only in tort for their alleged breach of duty.
CONCLUSION
There are a substantial number of cases now pend-
ing in which the lower courts may well be called upon
to decide the exact issues presented by this case. Those
courts urgently need the guidance of this Court, given
the pronounced split in the decisions of the circuit
and district courts. This Court should grant this peti-
tion to resolve the conflict among the circuit courts,
to enforce the expressed intentions of Congress, and
to clarify choice of law principles in litigation in-
volving the FDIC.
27
Respectfully submitted,
THOMAS H. TONGUE
Dunn, Carney, Allen, Higgins
& Tongue
851 S.W. Sixth Avenue
Portland, Oregon 97204
(503) 224-6440
Counsel for Petitioner
John Rowell
EDWARD F. LOHMAN
5505 River Street
West Linn, Oregon 97068
Counsel for Petitioner
Larry A. Schoenborn
JAMES M. FINN
Schwabe, Williamson & Wyatt
1211 S.W. Fifth Avenue
Portland, Oregon 97204
(503) 222-9981
Counsel for Petitioner
John Molendyk
BARRIE J. HERBOLD
Counsel of Record
Markowitz, Herbold, Stafford
& Glade, P.C.
300 Benj. Franklin Plaza
One S.W. Columbia
Portland, Oregon 97258
(503) 295-3085
Counsel for Petitioner
Frank Lee
THOMAS W. BROWN
Counsel of Record
Cosgrave, Vergeer & Kester
1300 One Financial Center
121 S.W. Morrison Street
Portiand, Oregon 97204
(503) 323-9000
Counsel for Petitioners
Thomas Wolf and Irving
Potter
ROGER TILBURY
Counsel of Record
1123 S.W. Yamhill Street
Portland, Oregon 97205
(503) 224-8503
Counsel for Petitioner
Larry A. Schoenborn
App. 1
APPENDIX
Page
Opinion of Ninth Circuit
(September 13, 1989)....ccceccs App.-2
Order of Ninth Circuit
(December 22, 1989).....cccccee App.-23a
Memorandum Opinion and
Order of District Court
Ro ey Fee | 2 en ee App.-24
Memorandum Opinion and
Order of District Court
(Movember 26, - 2987) vibes 6 oede es App.-52
First Amended Complaint......... App. -68
Affidavit of Craig
ee EE TET rr App.-138
App. 2
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL DEPOSIT INSURANCE
CORPORATION,
Plaintiff-Appellant,
Vv.
FORMER OFFICERS AND
DIRECTORS OF METROPOLITAN
BANK, DANIEL R. ADAMS,
W. TODD COFFELT, STEVEN
HUNGERFORD, FRANK LEE AND
CHARLES A. DALE; FORMER
OFFICERS AND DIRECTORS OF
WILLAMETTE FALLS STATE
BANK, GENE A. RICKERT,
LARRY A. SCHOENBORN,
P. DEAN NICHOLS, JOHN
MOLENDYK, JOYCE EVANS,
K. PETER NORRIE, GARY L.
DENNISON, LEWIS JOHNSON
and IRVING W. POTTER;
FORMER OFFICERS AND
DIRECTORS OF INDEPENDENT
BANK OF SANDY, C. DALE
BROOKENS, LESTER HARDY,
JOHN ROWELL and THOMAS
WOLF,
Defendants-Appellees.
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CV-87-206-PA
OPINION
App. 3
Appeal from the United States
District Court
for the District of Oregon
Owen M. Panner, Chief
District Judge, Presiding
Argued and Submitted
June 27, 1989--Portland, Oregon
Filed September 13, 1989
Before: Arthur L. Alarcon, Melvin
Brunetti and Diarmuid F.
O'Scannlain, Circuit Judges.
Opinion by Judge O'Scannlain
COUNSEL
C. Stephen Howard, Tuttle & Taylor, Los
Angeles, California, for the plaintiff-
appellant.
Barrie J. Herbold, Markowitz, Herbold,
Stafford & Glade, Portland, Oregon, for
defendant-appellee Lee.
Jeffrey M. Batchelor, Spears, Lubersky,
Bledsoe, Anderson, Young & Hilliard,
Portland, Oregon, for defendants-
appellees Norrie and Johnson.
App. 4
OPINION
O'SCANNLAIN, Circuit Judge:
The Federal Deposit Insurance
Corporation ("FDIC") appeals the district
court's grant of summary judgment in
favor of the former officers and
directors of the United Bank of Oregon, a
failed bank consisting of the merged
assets of three predecessor banks. The
district court granted summary judgment
for defendants, ruling that claims of
breach of fiduciary and statutory duties
were barred by the statute of
limitations. We reverse.
A.
In January 1983, three ailing Oregon
banks, Metropolitan Bank ("Metropol-
itan"), Willamette Falls State Bank
("Willamette Falls"), and Independent
Bank of Sandy ("IBS") merged to form the
App. 5
United Bank of Oregon ("UBO"). The new
fourteen-member UBO board of directors
was composed of directors from the three
constituent banks: eight from
Metropolitan, three from Willamette
Falls, and three from IBS. On March 2,
1984, UBO was declared insolvent, and the
Federal Deposit Insurance Corporation was
appointed receiver of the bank. The FDIC
in its capacity as receiver assigned
certain assets of UBO to the FDIC in its
corporate capacity, including the claims
of the constituent banks against their
former officers and directors and all
Claims of UBO against its former officers
and directors.
On February 27, 1987, FDIC filed a
complaint in federal district court,
alleging that twenty former officers ana
App. 6
directors of the constituent banks had
also been directors of UBO. FDIC claims
against these officers and directors
included breach of fiduciary duty,
negligence, and statutory violations and
claims for indemnity. These claims were
based on the alleged mismanagement of the
loan portfolios of the constituent
banks.
Eight of the defendants moved for
summary judgment, contending that all
claims were barred by the statute of
limitations. The district court granted
summary judgment, holding (1) FDIC's
claims sounded in tort, rather than
contract, so that the relevant statute of
limitations was the three-year period
applicable to torts; (2) the right of
action accrued when the loans were made,
regardless of whether the government
App. 7
possessed the claims at that time; and
(3) the statute of limitations was not
tolled due to control or domination of
the banks by the defendants. The
district court concluded that the
applicable statute of limitations, 28
U.S.C. § 2415(b), barred the action.
FDIC filed a motion for
reconsideration, apparently based on Fed.
R. Civ. P. 60(b)(6). In this motion FDIC
argued that the district court erred in
applying federal law to its claims; that
a six-year statute of limitations should
have been used; and that discovery should
have been permitted. All three arguments
were rejected by the district court. The
district court also granted = summary
judgment for two more defendants. To
expedite the appeal, FDIC moved for, and
the district court granted, judgment in
App. 8
favor of all defendants in this action.
FDIC timely appealed and argues that the
district court erred (1) in its
characterization of FDIC's claims as
sounding in tort rather than in contract;
(2) in holding that the statute of
limitation began to run before FDIC
acquired its claims; and (3) in granting
summary judgment on the issue of adverse
domination by the defendants.
B.
The applicable statutes of
limitations are found in 28 U.S.C.
§ 2415. Subsection (a) provides for a
six-year time limitation within which any
action for money damages may be brought
by an agency of the United States "which
is founded upon any contract express or
implied in law or fact. . . ." 28 U.S.C.
§ 2415(a). Subsection (b) provides a
App. 9
three-year time limit within which any
action for money damages may be brought
by an agency of the United States "which
is founded upon a tort." 28 U.S.C.
§ 2415(b). These statutes of limitations
apply to FDIC as an agency of the United
States. See FDIC v. Roldan Fonseca, 795
F.2d 1102, 1108 (lst Cir. 1986); FDIc v.
Petersen, 770 F.2d 141, 143 (10th Cir.
1985).
{1} On this appeal, FDIC contends
that its claims for breach of fiduciary
duties to the banks outlined in its
complaint sound in contract for the
purposes of determining the relevant
App. 10
statute of limitations.?+
FDIC argues
that its claims are founded both on
express contract, based on the statutory
oath required of defendants, and on
implied contract from each defendant
undertaking to serve as officer or
director of a federally insured bank.
This characterization of FDIC's claims
would allow it to benefit from the six-
year statute applicable to contracts
Congress, in establishing a statute
of limitations for government claims,
assigned time periods according to the
common law division of actions. United
7 The district court determined the applicable
statutes of limitations periods for three of
appellant's claims. FDIC contests on appeal only
the limitations period for its breach ol
fiduciary duty claims. Accordingly, we express
no opinion as to the proper limitations period
for appellant's other claims
App. 11
States v. Limbs, 524 F.2d 799, 801 (9th
Cir. 1975). To determine the relevant
statute of limitations under
section 2415, therefore, a court
generally must characterize the action.
United States v. Neidorf, 522 F.2d 916,
919 (9th Cir. 1975), cert. denied, 423
U.S. 1087 (1976).
[2] This circuit has held, however,
that when there is a "substantial
question" which of two conflicting
statutes of limitations to apply, the
court should apply the longer. Guam
Scottish Rite Bodies v. Flores, 486 F.2d
748, 750 (9th Cir. 1931) ("if substantial
doubt exists [as to how to characterize
an action], the longer, rather than the
shorter period of limitations is to be
preferred"); Hughes v. Reed, 46 F.2d 435,
440 (10th Cir. 1931) ("Where doubt exists
N
|
App.
rt
rt
App. 13
SIS F.2G i264, 128-29 (4th Cir. 1988)
(analyzing a breach of fiduciary d¢éuty
Claim for statute of limitations purposes
as both a tort and a contract claim).
Since there is a substantial question
whether FDIC's claims for breach of
fiduciary duty are properly characterized
as sounding in tort or in contract, we
conclude that the six-year statute of
limitations governs.
Appellees assert that several
irguments made by FDIC before this court
were not raised in the district court and
thus may not be raised on _ appeal.
Appellees claim (1) that FDIC failed to
assert before the district court that its
>laims for breach of fiduciary duty
sounded in contract; (2) that FDIC failed
to claim that the oaths of office
sonstituted an express contract; and
App. 14
(3) that FDIC failed to characterize its
claims for breach of fiduciary duty as
"contracts implied in law" and is thus
foreclosed from making this argument on
appeal.
We reject these claims. The
district court explicitly ruled on the
issue whether the claims for breach of
fiduciary duty could be characterized as
contractual. Although the district court
opinion does not discuss the point,
FDIC's complaint specifically refers to
the oath of office taken by the officers
and directors in connection with the
fiduciary duties of the officers and
directors. Finally, even though FDIC
failed to use the technically correct
legal term to characterize its implied
contract claim, the context of the
district court opinion makes it clear
App. 15
that FDIC's claim involved a contract
implied in law, rather than one implied
in fact.
Cc.
When did the causes of action
accrue? Because, as an analytical
matter, the claims could be deemed to
accrue either when the faulty lending
practices occurred or when the FDIC
acquired the claims by assignment.,? it
can be argued that some of the claims
accrued outside the six-year statute of
limitations that we have found applicable
to the breach of fiduciary duty claims.
ppelle ilso argues tnat trie ialm |
i t de i € 1B aa oe r j i i
February 1/7 1984 However a reading of the
uments allegedly assigning the claims as f
such date shows that it was merely a request for
rinanclal ISSistance which was denied by the
CT Tc x . tho th a 7} > re . * b ej crt sA _
rUl rurctner, tne arpument must e rejected 11!
light of ur conclusion that the six-year
mf
-ontract statute of limitations applies
App. 16
[4] Courts are divided on the issue
of when the statute of limitations begins
to run on claims acquired by the FDIC.
Compare FDIC v. Hinkson, 848 F.2d 432,
435 (3d Cir. 1988) (dicta) (accrual
begins when government acquires claim);
FDIC v. Cardona, 723 F.2d 132, 134 (ist
Cir. 1983) (same) (dicta) ; FOIC -¥.
Carlson, 698 F. Supp. 178, 180 (D. Minn.
1988) (same); FSLIC v. Burdette, 696 F.
Supp. 1196, 1200 (E.D. Tenn. 1988)
(same); FDIC v. Hudson, 673 F. Supp.
1039, 1041 (D. Kan. 1987) (same); FDIC v.
Buttram, 590 F. Supp. 251, 254 (N.D. Ala.
1984 (same) with FDIC v. Petersen, 770
F.2d 141, 143 (10th Cir. 1985) (stating
that the FDIC's cause of action to
enforce a guaranty accrues and _ the
statute of limitations begins to run on
the date the underlying note matures in
App. 17
the hands of the private assignor); FDIC
Vv. Greenwood, 701 F. Supp. 691, 694 (C.D.
eas 1988) (FDIC's cause of action
accrued when the defendants first
committed their allegedly negligent acts,
not when the FDIC acquired the assets of
the failed bank): United States v.
Cardinal, 452 F. Supp. 542, 544 (D. vt.
1978) (statute of limitations begins to
run when the claim can first be sued on,
even if the government has not yet
acquired claim).
Given this split of authority and
lack of Ninth Circuit case law, we will
examine statutory language, principles of
statutory construction, and policy to
interpret the relevant statutes. FDIC
notes that section 2415 expressly
subjects the statutes of limitations to
i 17
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App. 19
Section 2416(c) provides that in
determining whether an action is barred
by section 2415, periods during which
material facts were not known and could
not reasonably have been known "by an
official of the United States charged
with the responsibility to act in the
Circumstance" must be excluded. FDIC
argues that until it waS appointed
receiver for UBO it had no authority to
enforce the bank's’ claims, and that
therefore the statute of limitations
cannot begin to run until it acquired the
claims upon its appointment as
receiver.
Appellees urge, however, that FDIC
failed to argue before the district court
that section 2416 limited section 2415,
and therefore this court should refuse to
consider this argument on appeal. We
App. 20
find that no express citation to section
27416 was necessary where 2415 explicitly
incorporates the provisions of 2416. In
addition, where, as here, the question
not raised during summary judgment
proceedings is a purely legal one, this
court has discretion to consider the
issue and thus may take section 2416 into
account in interpreting section 2415.
Telco Leasing, Inc. v. Transwestern Title
Co., 630 F.2d 691, 693 (9th Cir. 1980).
The policy arguments are fairly
evenly balanced and do not weigh strongly
in favor of either side in this case.
Interpreting the statute of limitations
as beginning to run when FDIC acquires
the claims promotes uniformity in the
sense that it would give FDIC a uniform
time to bring suit on all claims.
However, determining that the statute of
App. 21
limitations begins to run when the
underlying wrongdoing occurs also
promotes uniformity, as all potential
defendants would then be subject to a
uniform statute of limitations that would
not be lengthened if FDIC later acquired
the claims. Other countervailing
interests also exist. On appellant's
side is the interest in allowing the FDIC
sufficient time to investigate claims.
On appellees' side are the interests in
allowing potential defendants predictable
repose and in encouraging FDIC to bring
claims promptly.
(5] To the extent that a statute is
ambiguous in assigning a limitations
period for a claim, we will interpret it
in a light most favorable to the
government. The Supreme Court has stated
that "[s]tatutes of limitation sought to
<
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government upon FDIC's appointment as
receiver."
REVERSED and REMANDED.
rs ee +7 jn ~} > L T ~7 Ime
vs} vweELiCo€s 2is ai Fut Lid i A > Cialilms
y + T ; T ) 27 - > b -
igainst defendants Lee and Dale were ime barred
: : — —-- os Tt ene . ? ; oh
inder rerpon iaw whe! rui w~a5> aSSipnedad tnem, so
+} > >
er. a \ hey were not revived when the assignment
ied law that state
imitations statutes are relevant in de termining
-laim’ ili time the federal
igency acquires the laim If the state statute
f iimitations has expired before the government
icquire i ciaim, that claim is not revived by
ransfer t i federal agency See Guaranty Trust
tates 304 U.S 126 142 (1938)
[ihe pr I aé nstrates that tl
the United States
existing
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App.-23a
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FEDERAL DEPOSIT INSURANCE
CORPORATION,
No. 88-3638
DC No.
Plaintiff-Appellant, CV-87-206-PA
Vv.
)
)
)
)
)
)
)
FORMER OFFICERS AND )
DIRECTORS OF METORPOLITAN )
BANK, Daniel R. Abrams, W.)
Todd Coffelt, Steven )
Hungerford, Frank Lee and )
Charles A. Dale; FORMER )
OFFICERS AND DIRECTORS OF )
WILLAMETTE FALLS STATE ) ORDER
BANK, Gene A. Rickert, )
Larry A. Schoenborn, P. )
Dean Nichols, John )
Molendyk, Joyce Evans, )
K. Peter Norrie, Gary L. )
Dennison, Lewis Johnson )
and Irving W. Potter; )
FORMER OFFICERS AND )
DIRECTORS OF INDEPENDENT _)
BANK OF SANDY, C. Dale )
Brookens, Lester Hardy, )
John Rowell and Thomas )
Wolf, )
)
)
)
Defendants-Appellees.
Before: ALARCON, BRUNETTI, and
O'SCANNLAIN, Circuit Judges
App.-23b
The panel has voted to deny the
petition for rehearing and to reject the
suggestion for rehearing en banc.
The full court has been advised of
the en banc suggestion, and no judge of
the court has requested a vote on it.
The petition for rehearing is DENIED
and the suggestion for rehearing en banc
1s REJECTED.
App. 24
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
FEDERAL DEPOSIT INSURANCE
CORP.,
Plaintiff,
V.
FORMER OFFICERS AND
DIRECTORS OF METROPOLITAN
BANK: DANIEL &. ADAMS,
W. TODD COFFELT, STEVEN
HUNGERFORD, FRANK LEE,
and CHARLES A. DALE,
FORMER OFFICERS AND
DIRECTORS OF WILLAMETTE
FALLS STATE BANK: GENE A.
RICKERT, LARRY A.
SCHOENBORN, P. DEAN
NICHOLS, JOHN MOLENDYK,
JOYCE EVANS, K. PETER
NORRIE, GARY L. DENNISON,
LEWIS JOHNSON, IRVING W.
POTTER, GEORGE HAMMOND,
FORMER OFFICERS AND
DIRECTORS OF INDEPENDENT
BANK OF SANDY: C. DALE
BROOKENS, JOSEPH CEJKA,
LESTER HARDY, JOHN
ROWELL, and THOMAS WOLF
as a director and as
)
)
)
)
)
)
)
)
)
)
)
— <<
— —_
ee
ee eee eee ee
Civil No.
87-206-PA
OPINION
App. 25
counsel for Independent
Bank of Sandy,
Defendants.
~~" ee eee ee
Michael F. Ruggio
Bruce J. Pederson
Federal Deposit Insurance Corporation
Legal Division
550 17th Street, N.wW.
Washington, D.C. 20429
Carol A. Hewitt
Thomas A. Balmer
Linda M. Seluzicki
Lindsay, Hart, Neil & Weigler
Suite 1800, 222 S.W. Columbia
Portland, Oregon 97201
Attorneys for Plaintiff
Carlton D. Warren
Warren, Allen & Brookshire
850 N.E. 122nd Avenue
Portland, Oregon 97230
Attorneys for Defendant Daniel R.
Adams
W. Todd Coffelt
11760 S.W. Gaared
Tigard, Oregon 97223
Defendant
App. 126
S. Ward Greene
Greene & Markley
The 1515 Building, Suite 840
1515 S.W. Fifth Avenue
Portland, Oregon 97201
Attorneys for Defendant Steven
Hungerford
David B. Markowitz
Peter B. Glade
Markowitz & Herbold, P.C.
300 Benj. Franklin Plaza
One. S.W. Columbla
Portland, Oregon 97258
Attorneys for Defendant Frank Lee
Mark M. LeCog
James M. Finn
Schwabe, Williamson, Wyatt, Moore
Roberts
1600-1800 PacWest Center
1211 S.W. Fifth Avenue
Portland, Oregon 97204
a)
Attorneys for Defendants Charles A.
Dale and Gary L. Dennison
Gene A. Rickert
c/o Thomas O. Branford, Esquire
1107 S.W. Coast Highway
Newport, Oregon 97365
App. 2/7
Gene A. Rickert
c/o Thomas 0. Branford, Esquire
1646 North Coast Highway
Post Office Box 1070
Newport, Oregon 97365
Defendant
Robert Lohman
Lohman, Lohman & Lohman, P.C.
103 Sunnyside Square
15800 S.E. Plazza Avenue
Clackamas, Oregon 97015
Attorneys for Defendant Larry A.
Schoenborn
P. Dean Nichols
Post Office Box 992
Oregon City, Oregon 97045
Defendant
Michael W. Mosman
Miller, Nash, Wiener, Hager & Carlson
111 S.W. Fifth Avenue, Suite 3500
Portland, Oregon 97204
Attorneys for Defendants John
Molendyk and Joyce Evans
Wayne Hilliard
Jeffrey M. Batchelor
Donald R. Pyle
Spears, Lubersky, Campbell, Bledsoe,
Anderson & Young
800 Pacific Building
520 S.W. Yamhill Street
Portland, Oregon 97204
Attorneys for Defendants K. Peter
Norrie and Lewis Johnson
Austin W. Crowe, Jr.
Thomas W. Brown
Cosgrave, Kester, Crowe, Gidley & Lageson
Suite 901, The 1515 Building
1515 S.W. Fifth Avenue
Portland, Oregon 97201
Attorneys for Defendants Irving W.
Potter and Thomas Wolf
George Hammond
17916 S.E. Webster Road
Gladstone, Oregon 9702/7
Defendant
C. Dale Brookens and Lester Hardy
c/o Mark M. McCulloch
Powers, McCulloch & Bennett
2408 First Interstate Tower
1300 S.W. Fifth Avenue
Portland, Oregon 97201
Defendants
App. 29
Robert E. Lowe
Attorney at Law
123 E. Powell Boulevard
Suite 210
Gresham, Oregon 97030
Attorney for Defendant Joseph Cejka
Thomas H. Tongue
John C. Cahalan
Dunn, Carney, Allen, Higgins & Tongue
851 S.W. Sixth Avenue, Suite 1500
Portland, Oregon 97204
Attorneys for Defendant John Rowell
App. 30
PANNER, J.
The Federal Deposit Insurance
Corporation (FDIC) brings this action
against twenty former officers and
directors of three banks which merged
into one bank. The merged bank was
declared insolvent. FDIC paid on i1ts
obligations as insurer of the depositors,
and waS appointed receiver of the failed
bank. Eight of the defendants have moved
for summary judgment on the grounds that
the complaint is barred by the statute o!
limitations. I grant the motions.
BACKGROUND OF THE CASE
In January 1983, three aliing Danks,
Metropolitan Bank (Metropolitan),
Willamette Falls State Bank (Willametté
Falls) and Independent Bank > f Sand
IBS) merged to become the nited Bank f
App. 31
board of directors was made up entirely
of directors of the three banks: eight
from Metropolitan, three from IBS, and
three from Willamette Falls. UBO was
declared insolvent by the Oregon
Superintendent of Banks on March 2,
1984. FDIC was the insurer of the
depositors. FDIC was also appointed
receiver of the bank as provided for by
ORS 711.465(1) ana i2 U.&.C. § 1821.
These two roles are separate and
distinct. Federal Deposit Ins. Corp. v.
Hatmaker, 756 F.2d 34, 36 n.2 (6th Cir.
1985). As insurer, FDIC paid out some
$11 million to the depositors. FDIC
asserts its claims in the dual capacity
aS assignee of the receiver and subrogee
of the insurer. On February 27, 1987,
FDIC filed a 172-page complaint. None of
the defendants have answered, but rather
App. 32
several have filed these motions for
summary judgment. No discovery has yet
occurred. The facts are essentially
identical for all defendants except for
the length of their involvement with one
or more of the banks. Some resigned as
early as August 1981, well before the
merger took place. Several resigned on
December rp 1982, when the three
predecessor banks closed immediately
prior to the merger. Others resigned at
various times up to the closing of UBO in
March 1984. Each of them contends that
the statute of limitation bars this
suit. They resist discovery and point
out that the records of the banks have
been within the sole control of FDIC
Since at least March 1984 and yet FDIC
fails to respond to their summary
App. 33
judgment motions with facts negating
their position.
STANDARDS
The court may grant summary judgment
under Fed. R. Civ. P. 56(c) if it finds
no genuine issue as to any material fact,
and that the moving party is entitled to
judgment as a matter cf law. The moving
party must show the absence of a genuine
issue of material fact. Celotex Corp. v.
Catrett, U.S. 106 S. ct. 2548,
——— f
2553 (1986). All reasonable doubts as to
the existence of a genuine issue of
material fact should be resolved against
the moving party. Hector v. Weins, 533
P.2d 429, $32 (9th cir. 1976). The
inferences drawn from the facts must be
viewed in a light most favorable to the
nonmoving party. United States _ v.
Diebold, 369 U.S. 654, 655 (1962).
App. 34
"(Sjummary judgment will not lie if the
dispute about a material fact is
'genuine,' that is, if the evidence is
such that a reasonable jury could return
a verdict for the nonmoving party."
Anderson v. Liberty Lobby, Inc.,
5 ee Se a. P 106 . oy 2505, 25]
(1986). If the moving party satisfies
the initial burden, then the burden
shifts to the opponent to come forward
with specific facts showing that
jenuine material fact remains L! the
Sase. Neely v. St. Paul Fire & Marines
Insurance Co., 584 F.2d 341, 44 (9tt
Cir. 19783; If the adverse party does
not respond, summary judgment, 1 f
appropriate, shall be entered against
him Fed. R. Civ. P. 56(e).
Summary judgment may be appropriate
where the basis is a statute of
limitations defense, even though there
has been no discovery. Willmar Poultry
Co. Vv. Morton-Norwich Products, Inc., 520
F.2d 289 (8th Cir. 1975).
DISCUSSION
In general, federal law, not state
law, controls the rights of the FDIC.
D'oench D. & Co. v. Federal Deposit Ins.
Corp., 315 U.S. 447, 456 (1942). This is
true unless the claims expired under
State law before their assignment to the
Fpic.1+ Federal Deposit Ins. Corp. v.
Cardona, 723 F.2d 432, 143 (ist Cir.
1983). The relevant statute of
limitations is 28 U.S.C. § 2415, which
Detendant Lee contends that the cause
iction accrued prior to February 17, 1982 , and
therefore ORS 12.110(1) ran before the assignment
to FDIC on February 17. 1984. Because I find
that the limitation period expired under federa]
law, I need not reach this issue.
a]
~,
vr~
i.
al
pas
+
ail
App. 37
that FDIC, as insurer, has discharged a
legal obligation for which the defendants
were also liable and that the defendants
Should pay. Inherent in this argument is
the assumption that the depositors of the
banks have a direct claim against the
former officers or directors of the
banks, and that FDIC acquired those
rights by Subrogation. However,
depositors do not have a direct cause of
action against former officers and
jlrectors unless they suffered a wrong
jistinct to them and not common to all,
or unless the receiver declines to sue.
Adato v. Kagan, 599 F.2d 1111, 1117 (2d
Car. 1979). Claims against former
jirectors are an asset of the _ bank.
-ontrary to plaintiff's assertion, ORS
711.470 and 12 U.S.C. § 1821(g) provide
Subrogation rights to FDIC as insurer
Sal
Pb b «
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App. 39
ln part: "The liability for the loan
>ontinues until the loan, with interest,
is paid in full without loss to the
institution.” Plaintiff contends that no
statute of limitations applies to
IRS 708.47
As noted, only federal law controls
the rights of the FDIC. D'oench, D. §&
V. Federal Deposit Ins. Corp., 315
-S. at 456. In addition, the limitation
period under section 2415 is not altered
because the ict also violates a statute
yr regulation. United States v. Limbs,
524 F.2d at 80l. I must determine
whether the underlying cause of action
sounds in common law tort, contract or
quasi-contract.
: os PS : - ;
This case is unlike nited State
Niedorf, 522 F.2d 916 (9th Cir. 1975), ir
7 nar 4 4 ] 1-2 . t . rr ¥ - } ¥ + .
éIdalls 1reli iu.ci o A | . > I 1. ii A ‘
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me ana > “+ - _+> 1° ; as
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} + + a,c - +
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App. 41
find that the underlying claim of the
FDIC iS properly characterized as a
mmon law tort rather than contract or
yuasi-contract. The applicable limita-
tion period is three years. 28 U.S.C.
reach f Fiduciary Duty.
Plaintiff asserts that the
iefendants breached their fiduciary duty
toward the bank, which requires’ that
their acts benefit the bank and “not
themselves. They contend that under some
ct
uations, the fiduciary duty is
-onsidered a contract implied at law,
requiring the S1x year limitation
cael
~
|
i
©
me
In Hughes v. Reed 46 F.2d 435
,
(10th Cir. 1931), the receiver of a bank
sued its former directors to recover
»9sses alleged to have been incurred by
the bank in violation of their duties as
App. 42
directors. The court stated that
directors assume the duty to direct the
affairs of the bank honestly and
diligently. In Hughes this relationshlf
was "fortified" by a statutorily
prescribed oath of office. The court
applied the contract statute f
limitations. Id. at 441. In this ise,
however, there 1s no oath of office, Nn
writing indicating mutual consent of the
parties, and no special relationship a
in United States v. Douglas, 626 F. pp.
62] (B.D. Va. L983), where the rt
found that governmen employees we
fiduciary duty to the government whic!
arises out of a contract implied at
law. In this case the fiduciary duty f
the former
limitation
officers and directo
law Cort.
period
-o
i. —
ryYr
>
= 2
ir
s
App. 43
U.S.C. § 2415(b).
4. Negligence.
If defendants breached their duty of
Ordinary diligence or failed to exercise
reasonable control over the making of
loans, the applicable limitation is three
years "after the right of action first
accrues" as provided in 28 U.S.C. §
2415(b). Plaintiff contends that the
right of action accrued when it took
receivership of the UBO in March 1984.
The cases are divided on whether the
right of action accrues when FDIC first
took receivership or when the claim first
became actionable regardless of when the
government acquired the clain. In
Federal Deposit Ins. Corp. v. Buttran,
590 F. Supp. 251, 254 (N.D. Ala. 1984),
the court held that the statute of
limitations could not have begun running
App. 44
prior to the time FDIC was appointed
receiver. In that case, however, the
directors were still in control of the
business and the court stated that even
if FDIC was aware of wrongdoing by the
officers of the bank, it had no legal
authority to bring suit on behalf of the
bank prior to its appointment as receiver
against directors who still were in
control. Federal Savings
Corp. Vv. Williams, 599 F. Supp. 1184,
1193 €aP Md. 1984), hela similarly,
without discussion. Federal Deposit Ins.
‘orp. v. Cardona, 7923 F.2d 132, 134 (ist
Cir. 1983), also held that the cause of
action accrued with the FDIC's
appointment as receiver, but apparently
because the Puerto Rico statute of
limitations would have allowed an action
beyond the federal statute, and the court
App. 45
stated that the government should not
have fewer rights under federal law than
under state law. The most thorough
discussion of this issue occurred in
United States v. Cardinal, 452 F. Supp.
542 (D. Vt. 1978), in which the court
examined legislative history and
analogous statutes. Cardinal concludes
that the cause of action accrues when the
claim first could be sued upon,
regardless of whether the government
possessed the claim at that time. This
conclusion eliminates uncertainty about
how long defendants may be subject to
Suit and makes the government more nearly
equal to private litigants. I follow the
better rule as held in Cardinal.
App. 46
Under federal law the action accrued
when the money was loaned. Corsicana
National Bank v. Johnson, 251 U.S. 68, 8
O
~~
Even though the amount
damage may not be known, the damage as
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App. 47
or with nondefendant officers or
directors to keep it secret. The bank
and its officers and directors must be
charged with knowledge of what appears on
its books. Curtis v. Connly, 257 U.S.
260, 262-63 (1921). All of the alleged
wrongdoing in this case occurred prior to
the merger of the three. banks into the
UBO. Consequently, plaintiff's cause of
action accrued at least by December 31,
1983, when the three predecessor banks
merged.
Plaintiff seeks to avoid this
consequence by contending that the
statute of limitations is tolled for the
length of time that the defendants
controlled or dominated the banks,
because the directors could hardly be
expected to sue themselves. Federal
Deposit Ins. Corp. v. Bird, 516 F. Supp.
647, 651 (D. P.R. 1981). The leading
Ninth Circuit case states:
A plaintiff who seeks to toll
the statute because the
corporation was dominated must
show "furi, complete and
exclusive control in the
directors or officers charged."
International Railways _of
Central America v. United Fruit
Co., 373 F.2d 408, 414 (2d Cir.
1967). The test is that "once
the facts giving rise to
possible liability are known,
the plaintiff must effectively
negate the possibility that an
informed stockholder or director
could have induced the
corporation to sue." Id.
Mosesian v. Peat, Marwick, Mitchell §&
Co., 727 F.2d at 879 (Solomon, J.). In
International Railways, the circuit
recognized that the odds were against a
reconstituted board of directors
authorizing suit. Nevertheless, the
circuit affirmed ‘the district court's
grant of summary judgment because the
plaintiff had not borne its burden of
App. 49
showing that the board would not have
authorized suit. International Railways
of Central America v. United Pruit Co.,
373 P.2d at 414.
The fourteen-member UBO board was
made up entirely of directors of the
three banks: eight from Metropolitan,
three from IBS, and three from Willamette
Falls. Eight of the original fourteen
UBO directors are defendants. Plaintiff
contends that "it simply ignores human
nature to expect these directors to sue"
former directors, since suit of former
directors would implicate many of the
directors who were still on the board of
UBO when FDIC took receivership.
This argument falls far short of a
showing that either the defendants
dominated the board or that the culpable
defendants concealed relevant facts from
the time of the merger, the directors
ry
<
were familiar with critical reports made
by FDIC in its insurer oversight
ipacity. They also present evidence of
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material fac and defendants are entitled
to judgment as a matter of law.
DATED this 31 day of July, 198
T
Owen M. Panner
Inited States Dist
App. 52
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
FEDERAL DEPOSIT INSURANCE
CORP.,
Plaintiff, Civil No.
87-206-PA
Vv. OPINION
FORMER OFFICERS AND
DIRECTORS OF METROPOLITAN
BANK: DANIEL R. ADAMS,
W. TODD COFFELT, STEVEN
HUNGERFORD, FRANK LEE,
and CHARLES A. DALE,
ll dd dd de a ee
FORMER OFFICERS AND )
DIRECTORS OF WILLAMETTE )
FALLS STATE BANK: GENE A. )
RICKERT, LARRY A.
SCHOENBORN, P. DEAN
NICHOLS, JOHN MOLENDYK,
JOYCE EVANS,
K. PETER NORRIE, GARY L.
DENNISON, LEWIS JOHNSON,
IRVING W. POTTER, GEORGE )
HAMMOND,
FORMER OFFICERS
AND DIRECTORS OF
INDEPENDENT BANK OF
SANDY: C. DALE BROOKENS,
JOSEPH CEJKA,
LESTER HARDY, JOHN
ROWELL, and THOMAS WOLF
iS a director and as
App. 54
S. Ward Greene
Greene & Markley
The 1515 Building, Suite 8
1515 S.W. Fifth Avenue
Portland, Oregon 97201
LS
Attorneys for Defendant Steve
Hungerford
David B. Markowitz
Peter B. Glade
Markowitz & Herbold, |!
300 Ben). Franklin Plaza
: . 7 . , — ®
ne. Dee Columbia
Portland, yreqon 9
App.
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ewport, Oregon 97365
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App. 56
Wayne Hilliard
Jeffrey M. Batchelor
Donald R. Pyle
Spears, Lubersky, Campbell, Bledsoe,
Anderson & Young
800 Pacific Building
520 S.W. Yamhill Street
Portland, Oregon 97204
Attorneys for Defendants K. Peter
Norrie and Lewis Johnson
Austin W. Crowe, Jr.
Thomas W. Brown
Cosgrave, Kester, Crowe, Gidley & Lageson
One Financial Center
121 S.W. Morrison, Suite 1300
Portland, Oregon 972014
Attorneys for Defendants Irving W.
Potter and Thomas Wolf
George Hammond
17916 S.E. Webster Road
Gladstone, Oregon 97027
Defendant
C. Dale Brookens and Lester Hardy
c/o Mark M. McCulloch
Powers, McCulloch & Bennett
2408 First Interstate Tower
1300 S.W. Fifth Avenue
Portland, Oregon 97201
Defendants
App. 57
Robert E. Lowe
Attorney at Law
123 E. Powell Boulevard
Suite 210
Gresham, Oregon 97030
Attorney for Defendant Joseph Cejka
Thomas H. Tongue |
John C. Cahalan
Dunn, Carney, Allen, Higgins & Tongue
851 S.W. Sixth Avenue, Suite 1500
Portland, Oregon 97204
Attorneys for Defendant John Rowell
App. 58
PANNER, J.
On July po 1987, I granted
defendants! motions for summary judgment
and held that the applicable statutes of
limitation barred this action by
plaintiff Federal Deposit Insurance
Corp. (FDIC). Subsequently FDIC moved
for reconsideration of that decision. I
deny the motion.
BACKGROUND
The facts of this case are more
fully set forth in the July 31 opinion.
A brief rendition follows. FDIC brought
this action against twenty former
officers and directors of three banks
which merged into one bank. The merged
bank was declared insolvent. FDIC paid
on its obligations as insurer of the
depositors, and was appointed receiver of
the failed bank. FDIC asserts its claims
App. 59
in the dual capacity as assignee of the
receiver and subrogee of the insurer. It
asserted that defendants were liable
under four theories: indemnity,
statutory and regulatory violations,
breach of fiduciary duty, and
negligence. Eight of the defendants
moved for summary judgment. I held that
FDIC does not have a claim in indemnity,
that the underlying claim sounded in
tort, that the applicable limitation
period was three years under 28 U.S.C. §
2415(b), that the cause of action accrued
when the claim first could be sued upon
regardless of whether the government
possessed the claim at that time, United
States v. Cardinal, 452 F. Supp. 542 (D.
Te. 1978), and that the limitations
period was not tolled because defendants
did not dominate the boards of directors
App. 60
of the banks. Mosesian v. Peat, Marwick,
Mitchell & Co., 727 P.2d 873 (9th Cir.),
cert. denied, 469 U.S. 932 (1984). I
also denied discovery. FDIC now argues
that I erred in applying federal law to
its claims; that I erred in failing to
apply a six-year statute of limitations,
and that I should have allowed discovery.
STANDARD
Plaintiff's motion for reconsider-
ation appears to be based on Fed. R. Civ.
P. 60(b) (6), which provides relief from a
judgment or order for "any .. . reason
justifying relief."
While the language of
either [Rule 60(b)(5) or
(6) ] is broad, neither
presents the court with a
"standardless residual
discretionary power to set
aside judgments ... ."
Instead it is settled that
such relief is extra-
ordinary and may be granted
only upon a= showing of
App. 61
"exceptional circumstan-
ces." Thus a party seeking
such relief must bear a
heavy burden of showing
circumstances so- changed
that "dangers, once
substantial, have become
attenuated to ae shadow,"
and that, absent such
relief an "extreme" and
"unexpected" hardship will
result. We think a healthy
respect for the finality of
judgments demands no
less.
Mayberry v. Maroney, 558 F.2d 1159, 1163
(3d Cir. 1977) (citations omitted).
A motion for reconsideration should
not be the occasion to tender new legal
theories for the first time, but rather
should serve to correct manifest errors
of law or fact or to present newly
discovered evidence. Keene Corp. v.
International Fidelity Ins. Co., 561 F.
Supp. 656, 666 (N.D. Ill. 1982), aff'd,
735 ¥.2@ i367, 736 F.28 388 (7th Cir.
1984). It is within the court's
App. 62
discretion whether to consider new
arguments. Schanen v. United States
Dep't of Justice, 762 F.2d 805 (9th Cir.
1985), reaffirmed as modified, 798 F.2d
348 (9th Cir. 1986).
DISCUSSION
In my July 31 opinion, I held that
federal law applies to the case, citing
D'Oench, Duhme & Co. v. Federal Deposit
Ins. _Corp., 315 U.S. 447 (1942).
Congress has provided that FDIC has the
power:
To sue and be sued,
complain and defend, in any
court of law or equity,
State or Federal. All
suits of a civil nature at
common law or in equity to
which the Corporation shall
be a party shall be deemed
to arise under the laws of
the United States .
except that any such suit
to which the Corporation is
a party in its capacity as
receiver of a State bank
and which involves only the
App. 63
rights or obligations of
depositors, creditors,
stockholders and such State
bank under State law shall
not be deemed to arise
under the laws of the
United States.
12 U.S.C. § 1819 Fourth. FDIC argues
that state law should apply, citing
Federal Deposit Ins. Corp. v. Braemoor
Assocs., 686 F.2d 550 (7th Cir. 1982),
cert. denied, 461 U.S. 927 (1983). The
Braemoor court noted that state law may
be adopted as the rule of decision in
"the absence of any ready-made federal
common law." Id. at 554. Unless giving
content to the federal law to be applied
offers difficulty, which is not true for
this case, federal law applies. Federal
Deposit Ins. Corp. v. Bird, 516 F. Supp.
647 (D.P.R. 1981). Here, FDIC as
receiver assigned its claim to FDIC as
corporation. Federal statutes of
App. 64
limitation are applicable when’ FDIC
acquired its claim by assignment. Id.
at 650. FDIC'S capacity as corporate
purchaser does not change merely because
it is also a receiver. Federal Deposit
Ins. Corp. v. Ashley, 585 F.2d 157, 160
(6th Cir. 1978).
FDIC also contends that it is
subrogee of the bank's depositors, and
that state law should be applied. 12
U.S.C. § 1821(g). However, it is not
entitled to indemnity because depositors
do not have a direct cause of action
against former officers and directors
unless they suffered a wrong distinct to
them and not common to all. Adato v.
Kagan, 599 F.2d See 1117 (2d Cis.
1979).
FDIC also contends that state law
should determine the time for accrual of
App. 65
claims because it disagrees with the rule
of United States v. Cardinal, 452 F.
Supp. at 542. In the July 31 opinion I
carefully considered all the applicable
law, including legislative history and
public policy, and concluded that
Cardinal stated the better rule.
FDIC argues that it should be
allowed discovery, but of. 5 no new
evidence or reasons. As noted in the
opinion, summary judgment may be
appropriate even when there has been no
discovery, especially in a case such as
this where FDIC has had sole control of
the banks' records since at least March
1984.
FDIC also contends that a six-year
contract limitation period must apply
when federal statutes or regulations are
violated, citing United States v. Dae Rim
App. 66
Fishery Co., 794 F.2d 1392 (9th Cir.
1986). In that case the Ninth Circuit
held that the statute imposed a quasi-
contractual duty to reimburse the
government for an oil spill cleanup. The
underlying facts of each case must be
characterized as common law Core.
contract or quasi-contract for purposes
of the statute of limitations. United
States v. Limbs, 524 F.2d 799 (1975).
The duty of the directors towards bank
Shareholders and depositors sounds in
common law tort. It is not automatically
transformed into a contractual
relationship by a statute. For the same
reasons, the claim for breach of
fiduciary duty sounds in tort even if the
directors were required to take an oath
of office under state law. This is
Simply not a case where ae writing
App. 67
indicates mutual consent of the parties,
nor does a special relationship exist
which takes this case out of the realm of
common law tort.
CONCLUSION
FDIC merely reiterates its. prior
arguments. It offers no new evidence or
any good reason in law or fact to alter
my July 31 #£4opinion. The motion for
reconsideration is denied.
DATED this 24 day of November,
1987.
Ls/
Owen M. Panner
United States District Judge
App. 68
Michael F. Ruggio
Bruce J. Pederson
FEDERAL DEPOSIT INSURANCE CORPORATION
Legal Division
550 - 17th Street, N.W.
Washington, D.C. 20429
Carol A. Hewitt
Thomas A. Balmer
Linda M. Seluzicki
LINDSAY, HART, NEIL & WEIGLER
222 S.W. Columbia, Suite 1800
Portland, Oregon 97201
Attorneys for Plaintiff
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ORKEGON
FEDERAL DEPOSIT INSURANCE
CORP.,
Civil No.
87-206 PA
Plaintiff,
Vv.
DIRECTORS OF
METROPOLITAN BANK:
DANIEL R. ADAMS, W. TODD
COFFELT, STEVEN
HUNGERFORD, FRANF LEE,
)
)
)
)
)
FORMER OFFICERS AND )
)
)
)
}
and CHARLES A. DALE, )
)
App. 69
FORMER OFFICERS AND
DIRECTORS OF
WILLAMETTE FALLS STATE
BANK: GENE A. RICKERT,
LARRY A. SCHOENBORN,
P. DEAN NICHOLS, JOHN
MOLENDYK, JOYCE EVANS,
K. PETER NORRIE, GARY L.
DENNISON, LEWIS JOHNSON,
IRVING W. POTTER,
FORMER OFFICERS AND
DIRECTORS OF INDEPENDENT
BANK OF SANDY: C. DALE
BROOKENS, LESTER HARDY,
JOHN ROWELL and THOMAS
WOLF as a director and
as counsel for Independent
Bank of Sandy,
Defendants.
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
FIRST
AMENDED
COMPLAINT
(Negligence,
Breach of
Fiduciary
Duty,
Violation
of Banking
Laws, Legal
Malpractice,
Indemnity)
App. 70
TABLE OF CONTENTS
Page
Jurisdiction and Venue.......... 1
eS 6). ee ee ee ea 1
Preliminary Statement........... 2
Accrual of Plaintiff's Claims... 3
MOCTOMOLECON BONE icc cic aseewseewe 4
Independent Bank of Sandy....... 48
Willamette Falls State Bank..... 73
United Bank of Oregon........... 102
Claims for Relief
Breach of fiduciary Duty
(Common BLIGGRTIGUE) < . & 0's. 00 6'ves's 105
First Claim for Relief
(Breach of Fiduciary Duty--
os ea Pere ere eee eee 107
Second Claim for Relief
(Negligence--Metropolitan).... 110
Third Claim for Relief
(Breach of Fiduciary Duty:
Independent Bank of Sandy).... 110
App. 71
Fourth Claim for Relief
(Independent Bank of Sandy:
Negligence) ...ccccccccccscseces 113
Fifth Claim for Relief
(Willamette Falls Bank:
Breach of Fiduciary Duty)..... 113
Sixth Claim for Relief
(Willamette Falls:
MOGLIGSNOE) occ cccecevcsecceseas 116
Seventh Claim for Relief
(Statutory Violations:
Federal Law)......cccccccccces 116
Eighth Claim for Relief
(Statutory Liability:
ORS 706.470) cccccccceccceseeese 116
Ninth Claim for Relief
(TRGOMMREY) « «ccc cceseveesevveus 117
App. 72
TABLE OF CONTENTS
Tenth Claim for Relief
Legal Malpractice--Attorney
WORE co cce se voscecesesdesveceeesees
Eleventh Claim for Relief
(Breach of Fiduciary Duty--Self-
Dealing: Defendant Wolf).......
Twelfth Claim for Relief
(Breach of Fiduciary Duty--
Self-Dealing: Defendant
MAPA) «ccc cece eee sess er reves eves
Thirteenth Claim for Relief
(Breach of Fiduciary Duty--
Self~Dealing: Defendant
POGUE) cece ccseseecvrccenceevecen
App. 73
JURISDICTION AND VENUE
I.
All suits of a civil nature at
common law or in equity to which the
Federal Deposit Insurance Corp. ("FDIC")
shall be a party shall be deemed to arise
under the laws of the United States, and
the United States District Courts shall
have original jurisdiction thereof
without regard to the amount in
controversy, pursuant to 12 U.S.C. §
1819.
II.
Venue under 12 U.S.C. § 1819
properly is laid in this District because
all the banks involved in this action are
or were corporations organized under the
laws of the State of Oregon and
authorized to conduct banking business
under the Oregon Bank Act, ORS Chapters
App. 74
706 to 716.
PLA NTIFF
iil.
Plaintiff FDIC is a federal agency
created and extant pursuant to 12 U.S.C.
§ 1811. The FDIC is authorized to sue
and be sued, complain and defend, in any
court of law or equity, state or federal,
pursuant to 12 U.S.C. § 1819 (Fourth).
IV.
Plaintiff FDIC brings this action in
its corporate capacity as subrogee to all
rights of the owners of deposits in the
closed and terminated insured banks, to
the extent of payments made by the FDIC
on behalf of the depositors. Plaintiff
in it corporate capacity also brings this
action as assignee of the receiver of
UBO. The claims of the receiver are
those the banks and their shareholders
App. 75
had against the defendant officers and
directors.
PRELIMINARY STATEMENT
V.
The United Bank of Oregon ("UBO")
came into operational existence on
January 3, 1983. UBO resulted from the
merger of three Oregon banks:
Metropolitan Bank, Oak Grove,
("Metropolitan"); Independent Bank of
Sandy, Sandy ("IBS"); and Willamette
Falls State Bank, Oregon City
("Willamette Falls"), all of which were
chartered in 1978.
By 1983, Metropolitan, IBS and
Willamette falls were crippled by
inadequate, incompetent and in some cases
dishonest managing officers and
directors. The mismanagement resulted in
each of the banks suffering severe credit
App. 76
problems which the banks were unable to
absorb.
The original incorporators of the
banks were leaders of the banks who hoped
to have the banks work in cooperation
with one another. Prior to the merger,
this was done primarily through
participation agreements with respect to
loans. This "affiliation" ultimately
gave rise to the proposal to merge the
subject banks into one in the hope that
the resulting larger merged bank would be
able to cope with the precarious credit
and related problems of each merging
bank.
The poor credit quality of each
bank's loan portfolio led to substantial
losses prior to the merger. It also
adversely affected the earnings of each
bank prior to the merger and continued to
App. 77
depress the earnings of the UBO after the
merger.
In addition to increasing '- loan
losses and nonperforming loans, each bank
had excessive overhead costs, which were
nearly double the norm for banks of equal
size in Oregon. Overhead costs were
excessive in areas of salary, occupancy
and other operating expenses.
Officers and directors of each bank
failed to take adequate steps to check
loan losses, and the quality of each loan
portfolio continued to deteriorate.
These factors and high overhead expenses
contributed to the ultimate demise of the
UBO. The primary cause for failure of
UBO was the~ severe, pervasive and
crippling loan losses in the loan
portfolios acquired from Metropolitan,
IBS, and Willamette Falls.
App. 78
ACCRUAL OF PLAINTIFF'S CLAIMS
VI.
UBO succeeded to all the property,
rights, powers and duties of each of the
merged banks. All property, all debts,
all choses in action and every other
interest of each bank were transferred to
and vested in UBO automatically pursuant
to ORS 711.040(2), including all of the
Claims for Relief below.
Vil.
UBO has standing to prosecute all
existing claims by or against each of the
three banks, as if the merger had not
taken place, in accordance with ORS
711.040(3).
VIII.
Plaintiff's right to sue did not
accrue until UBO was declared insolvent
by the State of Oregon, Superintendent of
App. 79
Banks, and was closed on March 2, 1984,
and the FDIC was appointed receiver. The
rights of UBO, Metropolitan, IBS, and
Willamette Falls to sue the defendants in
this case did not accrue while _ the
culpable directors remained in control of
UBO, Metropolitan, IBS, and Willamette
Falls.
METROPOLITAN BANK
IX.
Metropolitan was incorporated on
March 7, 1978, and began doing business
as a bank on January 8, 1979.
Metropolitan was incorporated by Nick I.
Goyak, Frank Reynolds, Joseph T. Hagen
and Norman L. Lee.
18.
From time to time between March 26,
1979, and December 31, 1982, the FDIC and
App. 80
the Superintendent of Banks for the State
of Oregon issued reports of examination
to Metropolitan. Brief summaries of
those reports follow:
(a) On March 26, 1979, the
State Banking Division issued a report.
Metropolitan had assets of $4,445,000.
The bank was advised to develop a more
comprehensive loan policy.
(b) On September 6, 1979, the
State Banking Division issued a report on
the condition of Metropolitan as of
August 17, 1979. It had assets of
$8,197,000. Metropolitan had a
loan-to-deposit ratio of 97.9%, and was
advised to reduce this ratio to 80%
within 120 days. The bank's loan policy
stated that the loan-to-deposit ratio
should not exceed 75%; should the ratio
exceed 75%, the bank was to maintain a
App. 81
restrictive loan posture. Metropolitan
also concentrated an excessive 80% of its
commercial loans in real estate, and had
contradicted its loan policies in making
a number of these real estate loans.
(c) On April 4, 1980, the FDIC
issued a report on the condition of the
bank as of January 15, 1980.
Metropolitan had assets of $9,949,000.
It had not reduced its loan-to-deposit
ratio to 80%, although 132 days had
passed since the directive contained in
the September report. It had a loan-to-
deposit ratio of 97.2%, which exceeded
industry standards. The problem was
exacerbated by the fact that a _ large
percentage of total deposits was
controlled by a few large depositors.
Metropolitan was advised to adopt an
investment policy which addressed
App. 82
liquidity problems and placed limits on
loan volume.
Metropolitan was advised that the
attendance records of a number of
directors was unsatisfactory. It was
also advised that its operating expenses
were excessive, and that it lacked a
policy of periodic review of expenses.
The bank was further advised that a
$100,000 loan granted on May 31, 1979,
with a due date of May 21, 1980, to the
law firm of director Nick Goyak and
secretary Thomas Hagen was made _ in
violation of FDIC policies which
prohibited loans to shareholders for the
purchase of stock in the corporation.
(d) On June 30, 1980, the State
Banking Division issued a report on the
condition of the bank as of June 13,
1980. Metropolitan was advised that the
App. 83
condition of the bank was "fair" under
interagency rating standards, and that
high loan-to-deposit ratio (107%),
quality of loans, and deposit
concentration were problematic.
Loan-to-deposit ratios had exceeded
100% for each month in 1980, even though
the Metropolitan Executive Committee had
imposed a loan moratorium in January,
1980.
The bank made five loans totaling
$322,500 to five borrowers during the
first half of 1980, with proceeds paid to
assume loans from other banks.
$1,468,600 of the loans in the portfolio
were past due (16.2%) and $1,878,358 were
renewals of short-term commercial loans
(20.6%). Metropolitan was advised that
these past due loans and renewals
required immediate attention.
App. 84
There were classified loans’ of
$672,878, representing 7.4% of the loan
portfolio and 35.7% of capital and
reserves. Metropolitan was advised that
these tigures were excessive, that the
loan-to-deposit ratio was extremely
critical, and that a loan portfolio of
questionable quality was emerging.
Although loans to directors were
within statutory limits, they represented
a concentration of credit. Seven
directors had aggregate loans in excess
of $824,000, or 46.7% of Metropolitan
capital, and 9.1% of all loans. These
loans were considered excessive. The
$100,000 loan to the law firm of director
Goyak, which had been criticized in the
report of April 4, 1980, was still on the
books.
App. 85
As a result of this examination, the
bank was fined for incorrect reserve
calculations resulting in a-— reserve
deficiency for the period of March 26-30
of 1980. This was due to calculation of
certain assets as reserves when, in fact,
they had been previously pledged, in
violation of ORS 708.100. Attendance by
directors at monthly board meetings was
not satisfactory. Two directors, Adams
and Miller had attended only 50% of the
meetings. Minutes of directors' meetings
were not properly approved.
Deposits were concentrated in a
small number of depositors, including
time deposits of $1,264,942 (14.9% of
total deposits) by Portiand Memorial and
Skyline Memorial. Two time certificates
of deposit in the amount of $100,000
each, made at the rate of 17% for one
App. 86
year, were obtained by two bank customers
in order to provide funds to make loans
to the same two customers. Metropolitan
was advised that such practices were
questionable.
(e) On January 9, 1981, the
State Banking Division issued a report.
Metropolitan was advised that the
condition of the bank was "fair." This
low rating was attributed to a large
volume of doubtful loans and excessively
high loan delinquencies. Metropolitan
was advised that many of its problems
could have been avoided if the directors
and executive management had more closely
supervised lending practices.
The bank was advised that adversely
classified loans exceeded $864,000; the
ratio of adversely classified loans to
capital was an inordinately high 43%.
App. 87
Twenty-four percent (24%) of the
criticized loans were classified as
"doubtful." Metropolitan was advised that
a large volume of loans lacked
satisfactory credit information or
represented high credit risks, and that
the directors must become fully cognizant
of these problems. The ratio of
delinquent loans to gross loans was an
excessive 18% and represented an increase
in both percentage and dollar amounts
from the last report. The bank was
further advised to more closely
scrutinize applications, to impose
stricter standards on renewals, and to
intensify collection efforts.
The loan-to-deposit ratio remained
excessive at 95% and Metropolitan was
criticized because it did not have a
broader deposit base.
App. 88
(f£) On May 8, 1981, the FDIC
issued a report. The report criticized
Metropolitan and stated that the
directors' failure to supervise loan
officers and administer loan policies had
resulted in a poor and rapidly
deteriorating asset quality and a
precarious liquidity Situation.
Specifically, the report stated:
(i) the directors and officers
failed to reduce the excessive loan-to-
deposit ratio, which was 104%, even after
repeated admonitions to do so;
(ii) the directors failed to
Supervise liquidity, to obtain liquidity
reports from management, and to enforce
liquidity policies;
FeR2) the directors failed to
Supervise lending to obtain adequate
reports on loans;
App. 89
(iv) the directors over-relied
on the CEO, J. Knox Corbett, and did not
supervise or monitor his performance;
(v) the directors failed to
Supervise or review expenses.
Metropolitan was advised that
adversely classified assets exceeded
$2,480,000, or 120% of its book capital
and reserves. It was also advised that
many of its adversely classified loans
were made in violation of lean policies
(i.e. unsecured loans were not to exceed
a term of 90 - days; loans to new
enterprises were deemed not desirable if
repayment was dependent upon profitable
operation). The directors approved loans
only after the loans had been made and
granted approvals based upon inadequate
information, especially with respect to
large loans. The directors were lax in
App. 90
defining and enforcing credit
standards. Vigorous enforcement of these
standards was advised as urgently
needed.
Loan delinquencies represented 13.2%
of the loan portfolio, and were still
excessive even though loan extensions and
renewals were liberally granted. The
directors failed to periodically review
classified loans, and collection efforts
were minimal.
Documentation for loans was
deficient, and the directors failed to
Supervise such documentation. Loans were
secured by "brokered deposits." In a
brokered deposit, the borrower pays a
portion of the loan proceeds to a money
broker, and in return funds of a third
party are placed on deposit at the
bank. Later, if the deposit is
App. 91
withdrawn, the bank can be left with a
loan of unacceptable quality. The
brokered money is not a compensating
balance because the bank has no right to
offset the unpaid balance of the loan
against the brokered deposit. Such loans
were made without prior authorization by
the Board. The directors reviewed only
loan-to-deposit ratios, and did not
consider any other factors which affected
liquidity. No liquidity policy had been
adopted by the bank, in spite of past
reports by bank examiners which addressed
the liquidity issue.
Metropolitan had experienced a
reduction of adjusted capital and
reserves of 23% since its inception two
years earlier. This reduction was caused
by loan losses of $238,000, excessive
pre-opening expenses, and high occupancy
App. 92
and operating expenses, including
President Corbett's expense account,
legal and auditing expenses, and
advertising expenses.
Metropolitan was advised that a
number of loans had been made to officers
and directors in violation of Regulation
O or in violation of loan policies of the
bank, or were otherwise unjustifiable
under the circumstances. It was also
advised that its operating expenses were
excessive and in particular, payments to
director Steven Hungerford for
advertising and supplies and to director
Goyak for attorney fees were
unjustifiably high. The bank ~ was
criticized for continuing to carry on its
books a loan to director Goyak for
purchase of bank stock, a loan which had
been criticized in earlier reports.
App. 93
Metropolitan was advised that the
loan loss reserve was’~ insufficient.
Loans classified as "loss" and 50% of
those classified as "doubtful" exceeded
the loan loss reserve by $124,900. A
Memorandum of Understanding was entered
between the Bank, the FDIC, and the
Superintendent of Banks on September 18,
1981.
(g) On January 8, 1982, the State
Banking Division issued a report. The
condition of’ the bank was listed as
"marginal" due to the failure of the
directors and officers to supervise the
banks affairs. There was an excessive
number of classified assets; excessive
delinquent obligations; an excessive
loan-to-deposit ratio (103.5%); severe
earnings’ losses; severe declines in
Capital, assets, and deposits; and
App. 94
Significant liquidity problems, all of
which had been addressed in previous
reperts, and none of which had _ been
corrected.
The loan losses were caused by the
directors' inadequate supervision = and
failure to adhere to adequate loan
policies. 28.7% of the loans in the loan
portfolio were delinquent. Of these
nearly $2,200,000 were "substandard"
(19%), over $644,700 were "doubtful"
(5.6%), and over $468,400 were "loss"
(4%). Over $900,000 of the loans had
interest of six months or more _ past
due.
The bank was advised that its
lending practices with regard to _ SBA
guaranteed loans might result in the
denial of liability by the SBA with
respect to such loans. SBA loans totaled
App. 95
more than $2,370,000.
Metropolitan was also advised that
numerous loans had been rewritten in
order to avoid having them placed on the
delinquent list. Many of the rewritten
loans included additional monies’~ to
"Capitalize" the past-due interest. At
least $38,400 had been capitalized by
Metropolitan since the report of May 8,
1981, and the bank had paid $65,200 to
the SBA because borrowers had been unable
to pay interest on SBA loans.
Metropolitan's adjusted capital and
reserves had been reduced by $1,391,711
Since the bank's inception, a reduction
of 59%. This erosion was attributable to
loan losses and high occupancy’ and
operating expenses. The bank's liquidity
position was precarious, caused by
excessive lending, the failure to
App. 96
supervise lending practices, inadequate
monitoring of liquidity, and unacceptable
practices, including the use of brokered
deposits.
Director Ernest Miller was
criticized for having attended only 8 of
15 (55%) of the board meetings since the
last report.
(h) On March 26, 1982, the FDIC
issued a- report. Metropolitan was
advised that the volume of classified
loans had increased and remained
excessive. Loans classified as loss
totaled $432,100; substandard loans
totaled $2,769,300. Adversely classified
assets which were predominantly loans,
represented 251% of the bank's’ total
capital and reserves.
The amount of delinquency was
$2,547,300, which represented 26.9% of
App. 97
the loan portfolio. In spite of the fact
that the bank charged off $650,000 in
loans in 1981, loan classifications
remained excessive. The loan-to-deposit
ratio was 106%, and the bank relied on
large deposits. 31% of total deposits
were controlled by six large
depositors.
Metropolitan was advised that the
loan loss reserves which had_ been
provided in the first two years of
operation had proven to be inadequate.
Even after this adverse experience new
reserves remained inadequate. In spite
of this, the bank made no provisions for
loan losses in the first quarter of 1982.
19.
Plaintiff has sustained losses on
the loans made by Metropolitan and more
specifically described in subparagraphs
App. 98
(a)-(p) below, in an amount which totaled
$2,446,456.03 as of March 31, 1987.
From time to time from July 30,
1979, until July 2, 1982, the FDIC and
the Superintendent of 3anks issued
reports of examinations to _ IB: Brief
summaries of those reports follow:
2 an July 30, 1979, the state
inking lvision issued a report Tne
report indicated that the loan file
jeneraliy were atistfactory, 1T advised
that t wa not properly 5 ring
; pur int ¢t t 1form mmercia
i ind wa t proper] j menting
mortgage
b) On January 4 1980, the FDI
l ied a report I waS advised that
xper ind particularly Lega re¢
App. 99
were unjustifiably high and_— greatly
exceeded the projected expenses which
were disclosed in IBS' application to the
FDIC for insurance. Such fees were paid
to the law firm of director and defendant
Wolf.
The bank was advised that loans to
insiders were inordinately high and that
such insider loans totaled $739,700,
which represented 22% of the total loans
and 82% of total capital of IBS.
Included within this number was an
$86,000 auto loan to legal counsel and
secretary Thomas Wolf and a $283,000 loan
to director Hardy, which was made in
violation of bank lending policies
relating to unsecured realty development
loans. The report stated that IBS had
made numerous loans to unsecured real
estate developers and to out-of-area
App. 100
borrowers, in violation of bank loan
policies. Loan files were disorganized
and loan documentation was not
appropriate. IBS was advised to
establish a loan loss reserve account and
the directors were criticized for the
lack of candor in board minutes.
Specifically, the minutes of a Board
meeting immediately following a
visitation by the FDIC examiner in
November, 1979, stated that "most areas
were reviewed without criticism." In
fact, the examiner had criticized the
$739,000 insider loan volume and the lack
of documentation of three loans totaling
$158,000.
(c) On February 2, 1981, the FDIC
issued a report. IBS was criticized for
making loans on the basis of brokered
deposits proscribed by FDIC policy rather
App. 101
than on the basis of the quality of the
credit risk. Adversely classified loans
exceeded $746,000 and represented 10.5%
of the total loans of IBS and 73.2% of
capital and reserves.
IBS was advised that its practice of
rewriting loans at maturity on more
liberal terms was not a sound banking
practice, nor was the large volume of
loans to out-of-area borrowers. The
ratio of overdue loans to total loans was
high, at 13% of the total loan portfolio,
and the bank was advised to improve its
collection policies.
IBS had not established sufficient
loan loss reserves in spite of the
examiner's recommendation in July,
1980. IBS had provided $5,000 in the
loan loss account; IBS' CPA had
recommended $50,000 and the recommended
App. 102
amount of such reserves for banks of
comparable size was 1% of the total loan
portfolio ($71,000).
IBS was advised that bonuses given
to management in 1980, which totaled 80%
of the annual salaries of senior
management and were the maximum
obtainable under IBS' bonus plan, were
excessive and _ unjustified. IBS was
advised that the calculation of the
bonuses was based upon favorable and
inaccurate reporting of the earnings of
the bank. Those in management’ who
received the bonuses were not, in fact,
entitled to them. Also, those bonuses
were not properly entered into bank
records resulting in an overstated
financial position for the bank the year
following the bonuses.
a eee nee ere -
App. 103
(d) On July 1, 1981, the State
Banking Division issued a report. IBS
was advised that its financial condition
had deteriorated and was "fair". The
directors were advised that the condition
waS a result of their failure _ to
Supervise loan officers, of liberal
extensions of credit, and of insider
transactions. IBS was advised that since
the last report six violations of laws
and regulations relating to lending
practices had occurred. IBS had failed
to reduce its classified loans. Assets
subject to classification equaled 116.5%
of the capital accounts and 14.9% of
gross loans. The ratio of overdue loans
to gross loans, 14.5%, was excessive.
App. 104
IBS was advised that loan
documentation was not satisfactory. Many
loans were made without adequate credit
analysis and loan files did not indicate
definite loan purposes or repayment
schedules. IBS had not established an
adequate loan loss reserve.
(e) On January 15, 1982, the FDIC
issued a report. IBS was advised that
its financial condition had worsened and
was a result of failure of management to
supervise loan officers and loan
practices, and to heed the previous
advise of regulatory agencies. The
directors were advised of the following
supervisory problems: employment of
liberal credit policies, resulting in
excessive loan losses and classifi-
cations; lax collection procedures and
abnormally high loan delinquencies;
App. 105
failure to provide adequate reserves for
loan losses; inaccurate monitoring of
accounting systems, resulting in
inaccurate reports of financial
condition; and permitting legal
violations with respect to lending,
including excessive insider loans.
IBS was advised that loan
classifications had doubled since the
FDIC report of February, 1981, and
exceeded $1,642,000 or 174.6% of capital
accounts and 24.4% of the total loan
portfolio. This ratio was excessively
high. Over $500,000 of this amount
represented new advances since the
critical examination report of February
2, 1981. These figures indicated severe
problems for the bank.
IBS was advised that such
Classifications and loan losses were the
App. 106
result of failure to analyze borrowers,
failure to obtain credit checks, failure
to investigate collateral for repayment
priority, extending credit based upon the
success of unestablished businesses, and
of making loans to borrowers whose
applications had been rejected by other
lenders. The directors were criticized
for their continued superficial review of
these lending policies and for being
uninformed.
IBS also was advised that it did not
obtain adequate security for loans. 28%,
or $1,818,000 of the loan portfolio was
overdue and collection practices had not
improved. IBS' capital had been
seriousiy eroded by poor earnings and
loan losses. Earnings had dropped
sharply in one year primarily because of
the provision for loan losses and also
App. 107
because the bank's net interest margin
fell from 8.12% in 1980 to 7.01% in
1981. Staffing costs remained
unjustifiably high; occupancy and
equipment expenses were nearly double
that of peer group banks. IBS was
advised that its financial condition also
was worsened by the withdrawal of
$1,500,000 in brokered deposits during
the examination period. Two additional
legal violations had occurred since the
report of July, 1981, including an
insider loan (Regulation O) violation.
(f) On July 2, 1982, the State
Banking Division issued a report. IBS
waS advised that its condition had
declined to unsatisfactory. The
directors were criticized as suffering
from an extreme lack of common, sound
banking knowledge. Classified loans
App. 108
exceeded $1,677,000 and represented
444.2% of capital accounts. This was a
Significant increase over the excessive
116.5% ratio of one year earlier.
Overdue loans totaled $2,241,398, or
42.5% of the loan portfolio. IBS was
advised to seek counsel with respect to
nonpayment of $325,000 by director
Hardy. The Hardy loan previously had
been criticized and was a Regulation O
violation.
JI3-
IBS has sustained losses on the
loans more specifically described in
Subparagraphs (a) - (g) below in an
amount which totals $1,399,330.30 as of
’
March 31, 1987.
App. 109
43.
From time to time from August 24,
1979, until March 26, 1982, the FDIC and
the Superintendent of Banks issued
reports of examination to Willamette
Falls. Brief summaries of those reports
follow:
(a) On October 24, 1979, the State
Banking Division issued a report.
Willamette Falls was advised that its
condition was satisfactory but was
criticized because of lack of
documentation in loan files, particularly
with respect to the bank's”~ security
interest, the purpose of loans, and
repayment programs.
(b) On March 25, 1980, the State
Banking Division issued a report.
Willamette Falls was advised that its
loan-to-deposit ratio of 89.4% was
App. 110
excessive, and that a ratio of 2.8% of
past due loans to gross loans was high.
(c) On September 5, 1980, the FDIC
issued a report. Willamette Falls was
advised that loan documentation was
inadequate, especially relative to loan
security. It was also advised that its
loan loss reserve account was inadequate
and that loan losses far exceeded
reserves. Willamette Falls was
criticized because its loan-to-deposit
ratio exceeded the bank's policy limits
of 70-75%.
(d) On February 6, 1981, the State
Banking Division issued a report.
Willamette Falls was advised that its
condition was fair. The loan-to-deposit
ratio of 102.2% was excessive and was
cited as contrary to -bank policy. The
bank was criticized because loans were
App. 111
not properly documented. The loan loss
reserve of only $3,000 was insufficient
and well below the recommended 1% of
gross’7~ loans. Willamette Falls was
advised that Board minutes were
inadequate and that such minutes must
comply with ORS 707.675. It also was
advised that directors' attendance and
participation was problematic and that
Peter Norrie had not’ fulfilied his
obligations as a director.
(e) On June 16, 1981, the FDIC
issued a report. The directors were
criticized for collectively sanctioning a
pattern of hazardous and self-serving
activities by the bank. Harmful trends
of the past were exacerbated by the
Board's unresponsiveness. The Board was
advised to not rely on hopes of merger,
but to address the pbank's7~ problems
App. 112
directly. The Board was further advised
to shed its generally passive attitude
and begin active support.
Willamette Falls was advised that
the loan-to-deposit ratio of 108.8% was
excessive; the ratio of classified assets
to capital and reserves of 151.3% was
unacceptable; and the classified loans
represented 31.1% of the loan
portfolio. Willamette Falls had
sustained loan losses of $448,200 and had
loans of doubtful collection of $45,5
ct
and loans of substandard quality totaling
$1,487,600. It also had a loan
delinquency ratio of 18.4% which showed a
4.8% increase from the last FDIC
examination. These figures indicated a
lack of supervision and poor judgment
when loans were made. Willamette Falls
was advised that its asset condition was
App. 113
poor. It had net liquid assets of only
$900,000 and of this amount’ $700,000
represented deposits made to the bank by
directors under emergency conditions.
The bank was told that its liquidity
problems were the result of the failure
to adopt and implement appropriate
liquidity policies. It was advised that
its reserves for loan losses were
inadequate and that its overhead expenses
were too high. The report specifically
criticized excessive legal fees to
director Potter's law firm, a bloated
staff, and an unduly large volume of
items being processed without adequate
fees.
Willamette Falls had failed to
charge off losses in 1980, thus
permitting the bank to report modest
profits rather than loss. The bank was
a
App. 114
warned that such loss deferral, which
results in inaccurate portrayal of the
bank's performance, was unacceptable; the
Board was aware of such distortion and
manipulation. It was advised that
capital had been eroded by $665,000, or
44%, since the bank's incorporation only
22 months previously.
Insider loans, excluding amounts in
which other banks participated, had risen
to $954,000 or 17.5% of the loan
portfolio. This represented a 171.3%
increase since the previous FDIC
examination. The bank was advised that a
number of these loans were classified as
substandard and were made in violation of
Regulation oO. Willamette Falls was
warned specifically about two of these
violations: a loan to Apex Towing,
guaranteed by director Nichols, and a
ee —————— tt
App. 115
loan to Evans Farms, an interest of
director Evans, used to cover an
overdraft.
Willamette Falls was advised that
the lack of participation in the bank's
affairs by members of the Board was not
acceptable, that there had keen three
regulatory violations, including lending
limit and Regulation O violations, and
that the bank's handling of correspondent
bank accounts was not appropriate. The
directors' supervision of the bank was
considered poor and unresponsive’ to
regulatory criticisms.
(f) On January 8, 1982, the State
Banking Division issued a report.
Willamette Falls was advised that the
condition of the bank was unsatisfactory
and that the bank had not followed sound
lending policies. Even though the Board
App. 116
acknowledged at the previous examination
that a more sound lending policy was
needed, the examiner criticized the Board
for its failure to implement such a
policy. Overdue and classified loan
totals had increased since the previous
examination in spite of charge-offs.
Operating losses of $480,000 and a
current loss of $1 million reduced the
bank's capital to $895,000, a substantial
reduction from the $1,500,00 capital
position when the bank was opened. The
ratio of classified loans to gross loans
was 33.7% and the ratio of classified
loans to capital and reserves was 181.9%,
both excessively high. There was an
insufficient reserve for loan losses,
which equaled only 0.4% of the loan
portfolio, well below the 1% recommended
for banks of similar size. The bank was
App. 117
advised that immediate action was
necessary in order to resolve these
problems. In view of the high
delinquency in classifications of loans,
and the erosion of capital through
operating and loan losses, the examiner
recommended that bonds pledged to the
Pool Manager for issuance of certificates
to public fund deposits be increased from
25% to 110%.
(g) On March 26, 1982, the FDIC
issued a_ report. A Cease and Desist
Order was issued to Willamette Falls on
January 25, 1982, effective February 4,
1982. The order was issued because of
the unsafe and unsound practices of bank
management. These included: hazardous
lending and collection practices,
operating with an excessive volume of
poor quality loans, operating without
ae
App. 118
sufficient reserves, making loans without
sufficient documentation and credit
information, operating without adequate
provision for liquidity, and extending
credit to insiders imprudently and in
violation of law.
Willamette Falls was advised of five
additional legal violations involving
loans, including three to insiders since
the FDIC examination of June, 1981.
Classified loans totaled $1,803,200,
representing 212.1% of capital and
reserves and an increase from the already
excessive 151.3% ratio of June, 1981.
Loan classifications reduced the bank's
capital and reserves to $590,200, or 39%
of the bank's initial capitalization
($1,500,000). The ratio of delinquent
loans to total loans rose from 18.4% in
June, 1981, to 19.9%. This ratio was
———————————————
App. 119
understated because the bank followed the
practice of renewing loans without
collection of interest. This practice
included at least 12 loans with a value
of $620,768, or 13% of the loan
portfolio. The directors were criticized
for their failure to discuss individual
loans at Board meetings.
Although the bank had reduced
insider loans from $954,000 to $481,200
since June, 1981, two insider loans
totaling $265,300 were adversely
classified and -a loan in the amount of
$94,200 to director Molendyk became two
payments delinquent during the
examination period. Willamette Falls was
advised that three Regulation O
violations had occurred and that since
1981 the bank had made loans totaling
$690,600 to director Nichols or his
i
App. 120
interests. A number of these loans were
made when the bank was’ experiencing
severe liquidity problems in January,
1982.
Operating expenses were criticized
as being higher than that of peer group
banks. Especially notable were legal
fees of nearly $33,000 to director
Potter's law firm for collection efforts
which were considered not cost-
effective. Also noted by FDIC was
$19,428 charged to officer expense
accounts and $51,873 charged to sundry
losses consisting of mainly charged-off
overdrafts.
44.
Willamette Falls has sustained
losses on the loans more specifically
described in paragraphs (a) through (g)
below in an amount in excess of
App. 121
$842,905.26 as of March 31, 1987.
* * *
CLAIMS FOR RELIEF
(Breach of Fiduciary Duty)
Common Allegations
61.
The directors and officers of each
of the banks owed a duty of reasonable
prudence, care and oversight in the
discharge of their responsibilities to
the bank and its depositors to preserve
the bank's assets so that the depositors
would have their money available to them.
62.
The duty of reasonable care included
the specific duty of oversight of the
staff of the bank. This duty existed
even if the directors and officers
believed their subordinates to be
trustworthy. These duties also
LE
App. 122
specifically included compliance, and
supervision of compliance by
subordinates, with the bank's’ lending
policies, applicable statutes and
regulations, and reasonable, prudent
lending practices.
63.
All these duties owed by the
directors were implicit in the office of
bank director, and had to be exercised
without prompting. These directors,
through their oaths of office, were made
aware of the seriousness of these
duties. Also, the directors and officers
were advised of their duties through
instruction from legal counsel of the
parameters of the duty of bank
directors. Finally, the directors and
officers were advised of the need to take
affirmative action to discharge their
App. 123
duties when regulatory agencies
instructed the directors that the bank
needed a more comprehensive’ lending
policy. After these initial warnings,
the directors were repeatedly made aware
by regulatory agencies that there were
problems with the bank's supervision and
lending’ practices. These warnings
constituted inquiry notice.
64.
The directors and officers had full
control over their subordinates'
decisionmaking.
65.
Had the defendants exercised their
due care responsibilities, the loan
losses would not have taken place. The
harm to the depositors from such
improvident loans would have been evident
upon the barest of inquiries, and the
App. 124
defendants would not have approved of
such actions if acting prudently. Thus,
defendants' failure to exercise due care
was the proximate and substantial cause
in fact of plaintiff's injuries.
FIRST CLAIM FOR RELIEF
Breach of Fiduciary Duty:
Metropolitan
66.
Plaintiff realleges paragraphs 1
through 26 and 54 through 65 and
incorporates them by reference.
67.
The defendant former directors and
officers of Metropolitan State Bank
breached their duties of care _ and
Supervision by failing to monitor the
performance of their loan officers and by
their affirmative actions in approving
loans, including insider loans. The
leer
App. 125
officers and directors did not follow the
bank's lending policies, did not follow
the guidelines of reasonably prudent
lending, and the officers were not
required to do so by the directors.
Specifically, the directors and officers
breached their duties in one or more of
the following ways:
* * *
SECOND CLAIM FOR RELIEF
Negligence: Metropolitan
70.
Plaintiff realleges paragraphs 1
through 26, 54 through 65, and 67-68 and
incorporates them here by this
reference.
V1.
The injuries sustained by depositors
and paid for by plaintiff were a
Sea
App. 126
foreseeable result of defendants'
negligence.
72.
As a result of defendants'
negligence, plaintiff has sustained
damages more particularly described in
paragraphs 19-26 and 60 above.
THIRD CLAIM FOR RELIEF
Breach of Fiduciary Duty:
Independent Bank of Sandy
Fae
Plaintiff realleges paragraphs 1-8,
27-38 and 54-65 and incorporates them
here by reference.
74.
The directors and officers of
Independent Bank of Sandy breached their
duties of care and supervision by failing
to monitor the performance of their loan
officers and by their affirmative actions
App. 127
in approving loans, including insider
loans. The officers and directors did
not follow the bank's lending policy, did
not follow the guidelines of reasonably
prudent lending, and the officers were
not required to do so by the directors.
Specifically, the directors and officers
breached their duties in one or more of
the following ways:
* * *
FOURTH CLAIM FOR RELIEF
Independent Bank of Sandy: Negligence
78.
Plaintiff realleges paragraphs 1
through 8, 27-38, and 74-76 and
incorporates them here by this reference.
79.
The injuries sustained by depositors
and paid for by plaintiff were a
App. 128
foreseeable result of defendants'
negligence.
80.
As a result of that negligence,
plaintiff has sustained damages more
particularly described in paragraphs 33-
38 and 60 above.
FIFTH CLAIM FOR RELIEF
Willamette Falls Bank: Breach
of Fiduciary Duty
Sl.
Plaintiff realleges paragraphs 1-8
ind 39-65 and incorporates them by
reference.
The directors and officers of
llamette Falls State Bank breached
thelr duties of due care and supervision
failing to monitor the performance of
their loan officers and by their
App. 129
affirmative actions in approving loans,
including insider loans. The officers
and directors did not follow the bank's
lending policies, did not follow the
guidelines of reasonably prudent lending,
ind subordinates were not required to do
SO by the directors and officers.
Specifically, the directors and officers
breached their duties in one or more of
the following ways:
* * *
SIXTH CLAIM FOR RELIEF
Willamette Falls: Negligence
86.
Plaintiff realleges paragraphs l
‘o)
2)
through 8, 39-65 and 82-84 and
incorporates them here by this reference.
Si.
The injuries sustained by depositors
and paid for by plaintiff were 4
App. 130
foreseeable result of defendants'
negligence.
88.
As a result of defendants'
negligence, plaintiff has sustained
damages more particularly described in
paragraphs 44-53 and 60 above.
SEVENTH CLAIM FOR RELIEF
Statutory Violations: Federal Law
89.
Plaintiff realleges paragraphs 1
through 88 above.
90.
Defendants made and allowed loans to
directors in violation of 12 USC §
375(b), 12 USC § 1828(3)(2) and 12 CFR
§215.4(a) and (b).
EIGHTH CLAIM FOR RELIEF
Statutory Liability: ORS 708.470
App. 131
91.
Plaintiff realleges paragraphs 1
through 90 above.
92.
Defendants knowingly or negligently
made or allowed loans to be made in an
unlawful or dishonest manner. Plaintiff
has sustained damages, more particularly
described in paragraphs 19-26, 33-38 and
44-53 above, as a result of those
loans. Pursuant to ORS 708.470,
defendants are liable to plaintiff for
those damages.
NINTH CLAIM FOR RELIEF
Indemnity
93.
Plaintiff realleges paragraphs 1
through 92 above.
App. 132
94.
Defendants are liable to the bank's
depositors for the losses caused by
defendants' breach of fiduciary duty,
negligence and breach of statutory
obligations.
95.
Plaintiff acted in its corporate
capacity as insurer of deposits of UBO
transferred there from Metropolitan Bank,
IBS, and Willamette Falls. Plaintiff
provided the money necessary to meet
those deposits. This was done by giving
money to FDIC as receiver so that it in
turn could pay a third party bank for
assuming UBO's deposit liabilities for
which there were no assets. This asset
shortfall, which was the injury to the
depositors, was paid for by plaintiff but
caused by defendants. Thus defendants
App. 133
received a benefit by avoiding payment
for the damage caused by their breach of
duty. Defendants must indemnify
plaintiff for bestowing that benefit, in
an amount to be determined at trial.
TENTH CLAIM FOR RELIEF
Legal Malpractice: Attorney Wolf
+. * *
ELEVENTH CLAIM FOR RELIEF
Breach of Fiduciary Duty - Self-
Dealing: Defendant Wolf
7 * *
TWELFTH CLAIM FOR RELIEF
Breach of Fiduciary Duty -
Self-Dealing: Defendant Hardy
106.
Plaintiff realleges paragraphs 33(c)
and 36(c) and incorporates them by
reference.
App. 134
107.
Director Hardy owed a duty of
fidelity, fair dealing and candor when he
transacted business with the bank.
108.
Director Hardy breached his
fiduciary duty by arranging a loan for
which the rights and responsibilities
were assigned to him. The money was
interest-free for several months, then
accrued interest at substantially less
than market rates. The transaction was
unfair and overreaching and therefore,
could not have been justifiably ratified
by the board of Independent Bank.
109.
As a result of defendant Hardy's
self-dealing, plaintiff sustained losses
on interest in an amount as yet
undetermined, but to be determined as
App. 135
trial comparing the market value of the
loan made to Hardy and the value of the
loan actually made.
THIRTEENTH CLAIM FOR RELIEF
Breach of Fiduciary Duty -
Self-Dealing: Defendant Potter
110.
Plaintiff reasserts paragraphs 39-43
and incorporates them here by
reference.
111.
Director Potter owed a duty of
fidelity, fair dealing and candor when he
transacted business with the bank.
112.
Director Potter breached his
fiduciary duty by failing to disclose the
extent of his financial interest in the
law partnership that acted as_ legal
counsel for the bank during incorporation
SE
App. 136
and operations. Thus the board of
directors was never given the opportunity
to knowingly or intelligently ratify the
transaction with this insider. The self-
dealing transaction was so advantageous
to director Potter and injurious to the
corporation that it amounted to
overreaching.
Lid-«
As a result of defendant Potter's
self-dealing, plaintiff sustained losses
of legal fees in an amount as yet
undetermined, but to be determined at
trial considering the amount paid by the
bank in excess of the fair value of legal
services rendered.
114.
The actions of defendant Potter
proximately and directly caused in fact
the injury sustained by plaintiff.
App. 137
WHEREFORE, plaintiff respectfully
requests:
l. Damages in an amount to be
determined at trial;
2. The costs of this action;
r Such further relief as the court
jeems appropriate.
DATED this ] day of July,
LINDSAY, HART, NEIL & WEIGLER
Carol A. Hewitt
Thomas A. Balmer
Linda M. Seluzicki
Of Attorneys for Plaintiff
App. 138
AFFIDAVIT OF CRAIG ROBINSON
STATE OF WASHINGTON )
) ss.
Clark County )
I, Craig Robinson, having first been
duly sworn, do depose and say:
1. I was chief executive officer
and a member of the board of directors of
Metropolitan Bank from August, 1981,
until it merged with the Independent Bank
of Sandy and Willamette Falls State Bank
in January, 1983. I make the following
affidavit based on my own personal
knowledge of the events described.
During my tenure as_ chief executive
officer and member of the board of
directors of Metropolitan Bank, I gained
extensive personal knowledge of bank
operations and became familiar with all
App. 139
the actions of the board of directors and
bank committees.
2. Prior to being hired as chief
executive officer of Metropolitan Bank, I
had extensive familiarity with banking,
having worked in the banking business
generally for over 25 years. Before
August, 1981, I had also developed an
expertise in consulting with banks in
serious financial trouble. In connection
with this area of expertise, I had worked
in close coordination with officers of
the FDIC and the Oregon State Banking
Commissioner's office. A copy of my
current resume is attached as Exhibit
WAM
3. Before commencing my term with
Metropolitan Bank, I had served as chief
executive officer of High Lakes Community
Bank in La Pine, Oregon, and Deschutes
App. 141
Metropolitan Bank, the bank had received
an unfavorable report from the _ FDIC
containing criticisms of bank operations
and management, its loan policies, and
its loan losses. A copy of the May,
1981, FDIC examination report is attached
as Exhibit "B." The State Banking
Commissioner was strongly urging
Metropolitan Bank to fire its current
president and further urged the bank to
hire me as chief executive officer in
order to attempt to cure the problems
that were at the source of the criticisms
leveled by the FDIC and State Bank
Examiners.
5. I was hired as chief executive
officer of Metropolitan Bank in order to
find prompt solutions to those problems
identified by the FDIC examinations. I
was also made a member of the board of
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i
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the responsibility for
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App. 143
examination and prior state and FDIC
examinations of the bank including the
criticisms of bank operations contained
in them. In particular, I was aware of
all the criticisms leveled by the FDIC
examiners regarding management
deficiencies of the _ bank, inadequate
Supervision by the bank's’7~ board of
directors, loans to directors and other
criticisms. (Ex. B, pp. 1-8).
7. My efforts during my term as
shief executive officer of Metropolitan
Bank were devoted to restructuring and
collecting loans, attempting to maintain
solvency, and minimizing losses to the
bank and the _ FDIC. I wrote a loan
policy, a copy of which is attached
hereto as Exhibit "D," which was approved
by the FDIC and established a loan
committee to underwrite extensions,
App. 144
modifications and new credits. Problem
credits identified by the FDIC exams were
assigned to a new workout loan
division. I had access to any
information I required for this
undertaking. There was no withholding of
any information by any member of the
Board of Directors.
8. After August, 1981, I controlled
the banking operations. I dismissed a
number of employees whose performance was
less than adequate. I hired new
specialists to aid in the collection
efforts of delinquent loans. i. <<, Ds
15). I restructured the manner in which
banking operations were reported and
analyzed by the board of directors. (Ex.
, Bee Ve, 30, Ab,. 32). I had total
cooperation from the board of directors
of Metropolitan Bank.
App. 145
9. During the latter half of 1981,
in part at my request, several board
members whose presence on the board had
created the potential appearance of
impropriety resigned. These board
members included some of the defendants
in this action including Mr. Hungerford
and Mr. Coffelt. (Ex. Cc, p. 6).
Resigning board members also _ included
Mr. Goyak, who was the bank's counsel.
(Ex. C, p. 6). Additionally, at the time
I was hired, the board demanded and
received the resignation of Knox Corbett,
the former chief executive officer and
board member. (Ex. C, p. 2).
10. During late 1981 and 1982, I was
instrumental in assisting the board of
directors of Metropolitan Bank in
planning the merger with Willamette Falls
State Bank and Independent Bank of
App. 146
Sandy. Attached hereto as Exhibit "E" is
a copy of the minutes of a joint meeting
of these three banks. At this meeting I
was appointed as consultant to
Independent Bank of Sandy, Willamette
Falls State Bank, and Chief Executive
Officer of the United Bank Holding
Company. I was also instrumental in
hiring Jim Chester as7~ president of
Metropolitan Bank and proposed president
of the merged banks. He was made a
member of the board of directors. I
resigned as chief executive officer and
chairman of the board of directors of the
United Bank of Oregon after the merger
was concluded in January of 1983.
11. During the entire period of my
tenure as chief executive officer and
member of the board of directors of the
Metropolitan Bank and United Bank of
App. 147
Oregon there was never an attempt by any
of the directors of Metropolitan Bank to
unduly influence, coerce or intimidate me
into taking or not taking any action.
There was no attempt by the board members
to hide information. The board uniformly
followed my recommendations and was
committed to whatever action I deemed
appropriate to aid the attempt’ to
stabilize bank operations.
12. During my period of employment
at Metropolitan Bank and United Bank of
Oregon, I thoroughly examined all
potential claims the bank may have had
and was familiar with all FDIC criticisms
of bank management and the board of
directors. I considered the possibility
of suing directors and former directors
of the bank as well as former officers.
In fact, on one occasion, I did cause the
a
App. 148
institution of an action against a former
director of the Independent Bank of Sandy
(IBS), based on an improper loan that was
in violation of FDIC regulations.
13. Had I concluded that it would
have been in the best interest of the
bank to pursue a legal action against any
present or former director deemed liable
for any losses suffered, I would have
recommended dismissal of that director
and institution of an action against
him. At no time did I conclude that such
action was appropriate, with the
exception of action instituted against
former IBS director, Lester Hardy.
14. In August, 1982, prior to the
completion of the merger between
Independent Bank of Sandy, Metropolitan
Bank, and Willamette Falls State Bank, I
was directing the operations of all three
App. 149
banks under the terms of my employment as
consultant (See Ex. E). I became aware
of a transaction of Independent Bank of
Sandy completed in 1981 which benefited
board member, Lester Hardy. I instructed
the attorneys representing the
Independent Bank of Sandy to file an
action against Mr. Hardy for breach of
fiduciary duty as a member of the board
of directors. A copy of the complaint
filed against Mr. Hardy is attached as
Exhibit "F." Immediately prior to the
filing of the lawsuit, Mr. Hardy was
strongly urged to resign as a director
due to the transaction. I would have
taken similar action against any other
directors of Metropolitan Bank,
Willamette Falls State Bank or
Independent Bank of Sandy, had I
concluded that such an action would be in
OV ———————
App. 150
the best interest of the banks. I
considered filing suit against the banks'
former president, J. Knox Corbett, but
concluded that such an action would be
uneconomical.
15. During my tenure at Metropolitan
Bank and the United Bank of Oregon, I
worked in close cooperation with the FDIC
and State bank examiners. At no time was
any recommendation made by those
examiners to pursue claims against
directors, former directors or former
officers. Because of the bank's
financial condition, we kept the FDIC
fully informed of all of the bank's
efforts, including the merger, and
attempted to coordinate all efforts
through the FDIC. In addition, the FDIC
conducted extremely thorough examinations
of Metropolitan Bank, Independent Bank of
App. 151
Sandy, and Willamette Falls State Bank,
prior to the merger of those institutions
into United Bank of Oregon. At no time
during the examination by the FDIC was
any claim against directors, former
directors or officers suggested to be
appropriate.
16. I believe that the board of
directors of Metropolitan Bank acted
prudently and responsibly in attempting
to correct all deficiencies in bank
operations that were subject to criticism
by the FDIC and State bank examiners.
Once the fundamental problems present at
Metropolitan Bank were brought to the
attention to the board of directors in
August, 1981, they took all actions that
App. 152
were appropriate to correct those
problems and displayed complete
commitment to taking any action necessary
for benefit of the bank.
ideirtnteelbialaee eimai a
Craig Robinson
SUBSCRIBED AND SWORN to before me
this 12th day of June, 1987.
S/
NOTARY PUBLIC FOR WASHINGTON
My Commission Expires: 12-1-88
App. 153
AFFIDAVIT OF JAMES A. CHESTER
STATE OF WASHINGTON )
) ss.
County of King )
I, James A. Chester, having first
been duly sworn, do depose and say:
re was the president of
Metropolitan Bank from January, 1982
through December, 1982 and president of
United Bank of Oregon from January, 1983
through its closure in March, 1984. I
was a member of the board of directors of
those banks during the same time
periods. The following affidavit is
based on my personal knowledge of events
during the period of my employment at
Metropolitan Bank and United Bank of
Oregon.
2. During the time I was president
ind board member of Metropolitan Bank and
App. 154
United Bank of Oregon, I was completely
familiar with all the criticisms the FDIC
and State examiners set forth in their
examinations of the banks and I was
completely familiar with all banking
operations as well as all actions of the
board of directors.
3. The board of directors of
Metropolitan Bank and United Bank of
Oregon did not attempt to coerce or
influente me. There was never an attempt
to intimidate me to take an action that
waS improper or into failing to take a
course of action that I thought was
appropriate. The board of directors of
Metropolitan Bank and United Bank of
Oregon operated in a straight forward,
honest and responsible fashion at all
times.
App. 155
4. During 1982, the merger of
Metropolitan Bank, Willamette Falls State
Bank and the Independent Bank of Sandy
was being planned. Lester Hardy, one of
the directors of the Independent Bank of
Sandy, was supposed to become a board
member of the United Bank of Oregon.
Because this board member had benefited
by improper loans made by the bank upon
whose board he served, I and Craig
Robinson insisted that he resign from the
Independent Bank of Sandy. We then
directed the bank's attorneys to file
suit against him for breach of fiduciary
duty.
5. If I had become aware of any
misconduct on the part of other
directors, I would have also insisted on
resignation by that director, and I would
have considered filing suit against him
CCE LEE EE EE
App. 156
if such action would have been in the
best interest of the bank. Likewise, I
would have been attentive and responsive
to any shareholder demands for action
against any director I determined to be
culpable for any wrongdoing.
6. I was familiar with the FDIC's
criticisms concerning the administration
and management of Metropolitan Bank. I
waS aware that the FDIC was critical of
the Board of Directors, but I did not
believe suit against the directors would
be appropriate. If I had concluded such
an action was appropriate, I would have
“Ze
App. 157
caused suit to be filed against the
culpable director or directors.
James A. Chester
SUBSCRIBED AND SWORN to before me
this day of June, 1987.
NOTARY PUBLIC FOR OREGON
My Commission Expires:
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.