# Petition for Writ of Certiorari — Lee v. Federal Deposit Insurance Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1319%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 496 U.S. 936 ## Text 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. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) 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 ‘ z 4 4 .; > 4 — ° ~+ o- > + i . rr . 4 “ [ ‘ - c i 4 ’ ; 4 : eS 4 . z 4 } e i + l > . > . ra 4 . 4 . : 4 4 + + ‘ . e hi 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 < “< bau wt Rr w a4 a mda 4 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 : ; ~ a0 ; + ; + tlmitations against it . ry + rr > + y NAM Iinge + imi + A »& A y c A A r yA S , Y y + + y } y ine nr + f rrhi + ” 29D AE “~ A > A A > et y s cS rf AU T+ - ~4 » ; —" L ~} -_ > 7 , \s ‘ at A i Lo s> ¥iitc © i . Acai 1 > -} r »* y ; + y 4 ~ * ¥ + i >t > i A 4ia sac ic saa > weic s 7 4 y y y 7 —_ | 1} > ~} a at sm i ti Ce iw “we } A ait i i [ > . oO ~ > P| > > we I ne > i + b AGE ‘ an 2 te te 8 one = >} OT T 7 A 4 i | s | i Pe | a y nr t > > ¢} : . =< @ > ‘ »>\A > 4 ©ciy A ‘ c is £ a 4 4 a > ; , + + > - | 4 + + ©. Sayyid 2 £ a s | ‘ a 4 > j } + > > . . Q reé ed . i lL é€ I aa: i TY} 7‘) ¥ ,r a . - y - © At Ziad ia a AOALILIE wi A ‘ — Pe , ] . . . P f A A a A s weit a eS | . 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 « * > >> 4 " , ns > ‘ ¥ + > aA4aa4 c i A h 2 ms j aaa ~ ’ . > - > former ljirector Plaintift! loes |! } . ~ m4 = -} . >} ru aat ive | Laid 4 sci bhis Lit iy { i } ¥ +‘ + ‘ +} y . , ; ‘ Dé Si a L l€ L > yYedal! Wel J A ,™ a? y A A | A . ~a+ + . Ar ‘ Lb? ¢ ‘ ,+ ¥ a A » F i | ‘ 4\4 4 s y 4 3 4 ae 4 ~~ ¢ > + ‘ > > ‘ > ¥ tan? r rt a a A a ae 4* | at i > ; + ; y _+ + + . ] y ‘ + , . | A A ¢ AC Lad 2 A t | A i ¢ eae A } } — } } + " + + ¢ oY, ’ « l Wl Plhidd l iliS aa } | ; y + y y +} Lay — ry 7 . +} ALtré I Atl i € ble y ii¢ iUié N J Bas ? y m~Y »* ‘ > , t Ss i A ae & © WilL@evdaiidi, | A ad ‘ > + ~ y * y > ) QO YT ‘ : 4 . f 7 4 , L ¢ 4\4 a4 , »y\F » + ~ » . , ¥ | ~~ F > ~ > » b ¥ J | Ait i il A wu hi A m+ y + ; y + ' rar? r 7 A ei s< A i al y > al A Lb | i [ . r+ + ¢ mror ) >> _* he 4 ’ . > ) + + >} . - + n ( + > x yt : ; oa > ,? > > ., | A | "? + + ‘ P ? | . riadi a | | ‘ ; , 7 4 > , r ’ ™ | . Ww " ‘ 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 ‘ y . . - + i» >» ae a > ~hom cer «> i ¢ v* y L ALDWLLI AWA A iio . Oa —s' Wild , 4 = 4 ; > > > . rr _> ~ 4 ’ smaeml «tan? iG =: at . A rie } ra 4 i | > iv©&iil . me ana > “+ - _+> 1° ; as iSere le lr naracterizea € } + + a,c - + aa > THe ¥ aT -fTeree ’ | a So & OD Se Se | ‘ h i A i A , » _ a. a . ¥ ' ¥ . sy ‘ ~ - »F > A ~WUUULe! vt yal . | A . A As > a y ‘ > , . ¥ , an ‘¢ > > > ‘ 4 o . > . P 4 ’ ‘ " - “+> » > > s, j ’ > } + h | A 44 A ¢ | | , > ,rvr ‘ . rT rMé w J ¢ , > ,? > > ~ > _+ , vw a: , ma “+ vw J a y 4 ‘ A A > A i A > + ‘ 4 - * = ‘ 4 ? i . 7 . > > . » + > | > ~ i . , . | ; y 7 » ‘ » . > > _¥ ; Fry > ¥ A » , > * > ‘ } > L + + » >} + > > , > > - y ; ; +k ¢ , vy y } ) _+ ‘ e+ > + y > ‘ ~ > -— + —~ + > + ~~» > ‘ ‘ ‘ ‘ ; ; > _+ . ‘ ~ + _+ y y 3 _¥ ; + ‘ ’ + > + . } > | , " * + : lw ‘ ‘ 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 = - } ial oY t ct? ae) be ra c ry i, - Ji c ¢ r i. rx mY - +> - moO ve ~~ + +}, oe Levuse ana A oe became tne AUL opi eel t ’ I ft rc no | ro ae Ta a cTfT OY > 5-5 icers —aMna 11rectors oe restvoOtls = et. ~ a , + -~ bh r na "a aa n mat] a y ney ‘ the bank, when they knew r | r “tyr c - ¥ Yr "en Wa 7 A A i € x Sw L . c w 4\A A 4 ~ z Mw .Y pat Marw WV + v | L ~ > - Pr , > ) A x , A AS » + s “? —>- » + + + y . + > + + +; Ad i A pes -.%) L i iefendant ncealed the 1lleged yY y 7 ¥ ¥ s a) 7 > Fr ao” “ 4A A 4 i ¢ A | 4 ‘ a 4 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 rx _ ~ 5 2 on OF DF ry - - ' ct my 0 + T’r 2 rT To c r + ft ] > b > ond Yr Lii¢ Statlu € io PIU COLLIE | ey il i P 7 “ y , e int iftf t } =ve. _— CT Cc r Ay liv . rials a 4 RiLLG This ACTION i ~ “a7 1Q¢ T+ + , loan - ,_nK - 4 + b r ¥ 2 . f Y ‘ rewl 7 if y < , 4s ; . A. a —A1U¢€ A \ Riba A | , +> : aan y +h +r tat =" vs a mm ? r 4 - AA Wi Abia i Sei: hlree¢ Yedl > A 1 s i . - | £ . . Pe e4c | ~/¢ 4 , A A “ . owe | < oS «a » . . " _T YT _7 " ‘ | a ' i¥ T TYan?Tt The mort ve + — - mma? | 4i ail i | A ll A i . A ai y q mont + 7. ry q + na nr< i an a 1qaq ©eiirv a ae WY 1~g~Tenaants iv i _& « i , ry —atal= nr LJ rey yy + r . “Fr onr YY Jiillio il, Pius ISOCLivi :# rs WE ask zg . ii iid f , Mer — alt , T — A 4 -_ y \ P i iciiUy , va , Lee , i] A AUa | Si. a4 ; J ~ 7 ’ } 4 ~ + mac + + y . + viewed l i 11qNn C TavoraDié , y am, + ¢ a a . (ac nan a oy mm 7 > < - Didailil ee = ere | &- ii 4atiiud € | >> Ut i ct 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. . ~ Th mas f Rran f rd For} Y A 4A\7 11 — . 7+ sia WMA , a. a oe oe } 4 KI -+} _ - . fF < OY ) Cn + LJ Whur 16460 Nortn ~-UaADSL Llqnway P DA ak ae el QAw 11 ? rVUo Ul AiLVUE if LA 4 xT * P = : 77 c ewport, Oregon 97365 9 ; . nHAan+ i/¢ erdaddl * hort T ¢ nHman I J h A AJ\/ idl ail : T nw rm T ahr - c T Woe rs ’ 1 Mi] n, LOMNMaAN & LONMan, ; : 7 ? Ys -~Praircm + * ws ro | J ‘ A ply Od ie IM = 4 : , ~~? _ & 2 : < 77 ‘ nr > , “Qe FIadcgzZa AVENUE . . ~ . a < 7 ia | | 2 | i , =. 4 j j | A+ + — ‘ . r na + Y . A rney IO! erenaant a. He i 4 r Onr yr Lh A 7 » b . £ A i | - + ff *¢ x 19 y 1 , + y 1 _ ac 4 A Y » a ¢ 4 i 7 ? ofor jan? us > h 2e J vy. M nal vi > , > t _ ty = 2 ¢ ‘ r b4 Y Y : r =e & « YaS!il, WAGIICLE ,; iaQge! x as a > >- > - A+ ~ + | oW. we ® | AV ¢ sc , Ad —- y ‘ Y 7 , ‘ A | A } = 4 ; F ? * > > _ * ‘ . > ¥ ‘ - a ¥ _ ,Y > ¥ vw ‘ , T ’ é , ‘ > 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_1319%3A1. Public record. Not legal advice.