Federal Deposit Insurance Corporation v. Bayer et al

Filing 78

OPINION AND ORDER denying 16 Defendant Ronald R. Rucker's Motion to Dismiss; granting in part 18 Defendants Joel Bayer, Irwin Blitt, and Jack Fingersh's Motion to Dismiss Plaintiff's Joint and Several Liability Claims. The last full sentence of paragraph 74, and all of paragraph 91 are stricken from the Complaint. The motion is otherwise denied. See Opinion and Order for details. Signed by Judge John E. Steele on 6/27/2014. (MAB)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
Hillcrest Bank Florida,
Plaintiff,
v.

Case No: 2:13-cv-752-FtM-29DNF

JOEL S. BAYER, IRWIN J.
BLITT, JACK N. FINGERSH, and
RONALD R. RUCKER,
Defendants.

OPINION AND ORDER
This matter comes before the Court on review of Defendant
Ronald R. Rucker's Motion to Dismiss (Doc. #16) filed on January
3,

2014,

Fingersh’s

and

Defendants

Motion

to

Joel

Dismiss

Bayer,

Irwin

Plaintiff’s

Blitt,

Joint

and

Liability Claims (Doc. #18) filed on January 6, 2014.

and

Jack

Several
Plaintiff

filed an Opposition to Defendant Ronald R. Rucker's Motion to
Dismiss (Doc. #29) and an Opposition to Defendants Joel Bayer,
Irwin Blitt, and Jack Fingersh’s Motion to Dismiss Plaintiff’s
Joint and Several Liability Claims (Doc. #30) on February 7, 2014.
Defendants Joel Bayer, Irwin Blitt, and Jack Fingersh filed a Reply
in Support of their Motion to Dismiss (Doc. #39) on March 11, 2014,

and Defendant Ronald R. Rucker filed a Reply (Doc. #52) on March
27, 2014.
I.
This action arises out of the failure of Hillcrest Bank
Florida, Naples, Florida (Hillcrest), which was closed by the
Florida Office of Financial Regulations (FOFR) on October 23, 2009.
The FOFR appointed the Federal Deposit Insurance Corporation (FDIC
or plaintiff) as the receiver for Hillcrest.

As the receiver, the

FDIC succeeded to all rights, titles, and privileges of the bank
and its depositors, account holders, and stockholders, including
the right pursue claims against the bank’s former directors and
officers.
Bayer

During the applicable time period, defendants Joel L.

(Bayer),

Irwin

J.

Blitt

(Blitt),

and

Jack

N.

Fingersh

(Fingersh) were directors and defendant Ronald L. Rucker (Rucker)
was

President,

Chief

Executive

Officer,

and

a

director

for

Hillcrest.
The FDIC filed a two-count complaint against defendants on
October 22, 2013, seeking compensatory and consequential damages
caused by defendants’ negligence and gross negligence in approving
nine loan transactions.

In Count I, the FDIC asserts a claim for

negligence under Florida law against Rucker only.

Count II sets

forth a claim against all defendants for gross negligence under
the Financial Institutions Reform, Recovery, and Enforcement Act
(FIRREA), 12 U.S.C. § 1821(k).

2

Plaintiff’s claims are premised on defendants’ failure to
adhere to safe banking practices in approving nine speculative and
high risk commercial real estate transactions.

The transactions

were approved by defendants from August 17, 2006, through June 11,
2008.

The FDIC has identified the nine loans, including the

borrower, the loan amount, the approval date, the estimated amount
of damages, the alleged deficiencies with each transaction, and
the identity of the board members who approved the transaction, in
a chart attached to the Complaint.

(Doc. #1-1.)

The FDIC alleges that defendants acted in conscious disregard
of the best interest of Hillcrest, and in a manner in which a
reasonably prudent person would have known, or should have known,
that an injury was likely to occur.

The alleged underwriting and

approval deficiencies with respect to the nine transactions which
adversely affected Hillcrest include, but are not limited to:
(1) failure to obtain, analyze, and evaluate historical
borrower and guarantor financial information required to
assess the creditworthiness of the borrower and
guarantor as well as their respective ability to service
debt and complete the projects; (2) engaging in
transactions with borrowers and/or guarantors who had
not demonstrated sufficient liquidity to service debt;
(3) failure to evaluate collateral and other sources of
repayment; (4) failure to adhere to the Bank's loan to
value ratio limits; (5) turning a blind eye to glaring
deficiencies in transaction presentation information;
(6) failure to evaluate properly the underlying real
estate, to consider issues raised in appraisals, or to
obtain adequate appraisals; (7) engaging in transactions
outside of the Bank's geographic business territory; (8)
imprudently relying on interest reserves, speculative
profits from undeveloped real estate projects, and real

3

estate collateral in a declining real estate market; and
(9) approval of transactions without obtaining the
requite votes.
(Doc. #1, ¶ 5.)
Rucker moves for dismissal of Count I on the grounds that he
is entitled to the statutory protections of Fla. Stat. § 607.0381
because the allegations are based on actions he took in his
capacity as a director, not an officer. Bayer, Blitt, and Fingersh
assert that they should be dismissed from Count I to the extent
that plaintiff attempts therein to hold them jointly and severally
liable for the alleged negligence of Rucker, and all defendants
request that the Court strike the allegations of joint and several
liability in Count II because the doctrine has been abolished in
Florida.
II.
Under Federal Rule of Civil Procedure 8(a)(2), a Complaint
must contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.”

Fed. R. Civ. P. 8(a)(2).

This obligation “requires more than labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not
do.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)

(citation omitted).

To survive dismissal, the factual allegations

must be “plausible” and “must be enough to raise a right to relief
above the speculative level.”

Id. at 555.

See also Edwards v.

Prime Inc., 602 F.3d 1276, 1291 (11th Cir. 2010).

4

This requires

“more

than

an

accusation.”

unadorned,

Ashcroft

v.

the-defendant-unlawfully-harmed-me
Iqbal,

556

U.S.

662,

678

(2009)

(citations omitted).
In deciding a Rule 12(b)(6) motion to dismiss, the Court must
accept all factual allegations in a complaint as true and take
them in the light most favorable to plaintiff, Erickson v. Pardus,
551 U.S. 89 (2007), but “[l]egal conclusions without adequate
factual support are entitled to no assumption of truth,”
v.

Berzain,

omitted).

654

F.3d

1148,

1153

(11th

Cir.

2011)

Mamani

(citations

“Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.”
Iqbal, 556 U.S. at 678.
consistent

with

a

facially plausible.”

“Factual allegations that are merely

defendant’s

liability

fall

short

of

being

Chaparro v. Carnival Corp., 693 F.3d 1333,

1337 (11th Cir. 2012) (internal quotation marks and citations
omitted).

Thus, the Court engages in a two-step approach: “When

there are well-pleaded factual allegations, a court should assume
their veracity and then determine whether they plausibly give rise
to an entitlement to relief.”

Iqbal, 556 U.S. at 679.
III.

In Count I of the Complaint, plaintiff alleges that Rucker,
“as an officer of the bank,” owed duties which he breached by
failing to inform himself about the risks of the transactions;
failing

to

engage

in

meaningful

5

deliberation

and

exercise

independent judgment in connection with his review and approval of
the transactions; approving transactions with terms that were
contrary to and/or inconsistent with Hillcrest’s internal credit
policy and prudent lending standards; failing to ensure that the
transactions he approved were underwritten in a safe and sound
manner; failing to ensure that the transactions were secured by
collateral of sufficient value; and failing to ensure that the
transactions

did

not

violate

regulations.

applicable

banking

rules

and

(Doc. #1, ¶ 72.)

Rucker argues that Count I should be dismissed because he is
protected from liability for ordinary negligence under Florida’s
business judgment rule, Fla. Stat. § 607.0381.

Florida’s business

judgment rule provides that a director is not personally liable
for monetary damages to the corporation for any action or inaction
taken during the execution of his or her duties as a director
unless the director violates one of the five provisions set forth
in Fla. Stat. § 607.0831(1)(b).

The provision relevant to this

matter provides that a director will be liable to the corporation
if the breach of, or failure to perform, his or her duties as a
director constitutes a “conscious disregard for the best interest
of

the

corporation,

or

wilful

misconduct.”

Fla.

Stat.

§

607.0831(1)(b)(4). Such conduct would clearly rise above the level
of ordinary negligence alleged in Count I.

6

Plaintiff alleges that the bank’s Executive Loan Committee
(ELC) was required to approve each of the nine transactions at
issue in this case because the transactions exceeded $250,000 in
value.

Rucker

asserts

that

loan

committees

are

composed

of

directors, not officers 1; thus, the claim regarding his role in
the approval of the nine transactions arise from his position as
a director, not an officer.

As such, Rucker asserts that he cannot

be held liable for ordinary negligence pursuant to Fla. Stat. §
607.0831.
The Court agrees that Rucker is entitled to the protection of
Fla. Stat. § 607.0831 for actions taken in his capacity as a
director; however, plaintiff alleges that Rucker was negligent in
the execution of his duties as an officer of the bank.

Contrary

to Rucker’s assertion (Doc. #16, p. 5), paragraphs 33 and 34 of
the Complaint do not allege that the ELC was a director committee
composed of only directors.

Because the Court is required to

accept the factual allegations in the complaint as true, the Court
is unable to determine the capacity in which Rucker was acting
when he approved the loan transactions in a motion to dismiss.
See FDIC v. Florescue, No. 8:12-cv-2547-T-30TBM, 2013 WL 2477246,

1Rucker

cites to the instructions the Office of the
Comptroller of the Currency (OCC) requires banks to follow in
drafting bylaws. Rucker, however, concedes that Hillcrest was not
bound by the OCC bylaws because the bank was state-chartered.
Rucker has not identified the bylaws used by Hillcrest.

7

at *5-6 (M.D. Fla. June 10, 2013) (holding that defendant was “not
entitled to the protection of § 607.0831 as far as the claim for
ordinary

negligence

arises

in

his

officer

capacity”).

Accordingly, Rucker’s motion to dismiss Count I is denied. 2
IV.
The FIRREA provides that a director or officer of an insured
depository institution may be held personally liable for monetary
damages in a civil action brought by the FDIC, if acting as a
conservator

or

receiver

negligence,

including

any

for

the

similar

institution,
conduct

or

“for

gross

conduct

that

demonstrates a greater disregard of a duty of care (than gross
negligence) including intentional tortious conduct, as such terms
are defined and determined under applicable State law.”

12 U.S.C.

§ 1821(k).
Defendants assert that the allegations of joint and several
liability should be stricken from the Complaint because the FIRREA

2Bayer,

Blitt, and Fingersh assert that they should be
dismissed from Count I to the extent that plaintiff is attempting
to hold them jointly and severally liable for the alleged
negligence of Rucker because they were acting as directors. In
response, plaintiff states that it is not attempting to hold them
liable for the transactions Rucker approved in a negligent manner.
Count I, however, states that “each Defendant is jointly and
severally liable for all compensatory and other damages in
connection with the Transactions he approved.” (Doc. #1, ¶ 74.)
Due to the confusion caused by the reference to joint and several
liability in Count I, the Court will strike the last full sentence
of paragraph 74 from the Complaint.

8

does not impose joint and several liability and the doctrine has
been abolished in Florida.

The FIRREA contains no direction as to

whether the FDIC may impose joint and several liability against
persons responsible for a bank’s loss.

See FDIC v. Clark, 978

F.2d 1541, 1551 (10th Cir. 1992); FDIC v. Benjes, 815 F. Supp.
1415, 1419 (D. Kan. 1993).

The Court must therefore turn to the

applicable state law to determine if joint and several liability
is available.
In Florida, the apportionment of damages is governed by Fla.
Stat. § 768.81. Section 768.81(3) provides that “[i]n a negligence
action, the court shall enter judgment against each party liable
on the basis of such party’s percentage of fault and not on the
basis of joint and several liability.”

Fla. Stat. § 768.81(3).

Joint and several liability for economic damages was abolished by
the Florida Legislature in 2006.

See Wal-Mart Stores, Inc. v.

Strachan, 82 So. 3d 1052, 1053 (Fla. 4th DCA 2011) (the 2006
amendments to § 768.81 abolished joint and several liability for
economic damages in Florida). Plaintiff argues that joint and
several liability still exists where the defendants act in concert.
Plaintiff’s argument, however, is without merit because the cases
it relies on predate the 2006 amendments to § 768.81.

Because

joint and several liability was abolished by the 2006 amendments
to Fla. Stat. § 768.81(3), paragraph 91 of the Complaint will be
stricken.

9

Accordingly, it is now
ORDERED:
1.

Defendants Joel Bayer, Irwin Blitt, and Jack Fingersh’s

Motion to Dismiss Plaintiff’s Joint and Several Liability Claims
(Doc. #18) is GRANTED in part.

The last full sentence of paragraph

74, and all of paragraph 91 are stricken from the Complaint.

The

motion is otherwise denied.
2.

Defendant Ronald R. Rucker's Motion to Dismiss (Doc.

#16) is DENIED.
DONE AND ORDERED at Fort Myers, Florida, this
June, 2014.

Copies:
Counsel of record

10

27th

day of