OneBeacon Midwest Insurance Company et al
Filing
50
ORDER granting 33 Motion to Dismiss for Failure to State a Claim, and Plaintiffs Motion for Oral Argument 44 is DENIED. The Clerk shall close the case. Signed by Judge Richard W. Story on 3/28/2013. (vld)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
GAINESVILLE DIVISION
ONEBEACON MIDWEST
INSURANCE COMPANY,
Plaintiff,
v.
FEDERAL DEPOSIT
INSURANCE CORPORATION,
as Receiver for HABERSHAM
BANK, et. al,
Defendants.
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CIVIL ACTION NO.
2:12-CV-0106-RWS
ORDER
This case is before the Court on Director and Officer (“D&O”)
Defendants’ Motion to Dismiss [33] and Plaintiff’s Motion for Oral Argument
on the Motion to Dismiss [44]. After reviewing the record, the Court enters the
following Order.
Background1
OneBeacon Midwest Insurance Company (“Plaintiff”) issued
Management and Professional Liability Policy No. 474000332 (“Policy”) to
1
Unless otherwise noted, the factual background is taken from the Complaint
[1]. At the motion to dismiss phase, the Court accepts all well-pleaded facts in the
Complaint as true.
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Habersham Bancorp (“Habersham”). The Policy was issued for the claimsmade Policy Period from August 31, 2007 until August 31, 2010, when the
Policy was non-renewed. At that time, Habersham purchased an Extended
Reporting Period, which was in effect from 12:01 a.m. on August 31, 2010 to
12:01 a.m. on August 31, 2011. The Policy only provides coverage for claims
“first made” during the Policy Period or the Extended Reporting Period. A
“claim” under the Policy is “a written or oral demand for monetary damages or
non-monetary relief” against an Insured for a Wrongful Act.
The Insured Persons Liability Coverage Insurance Agreement (“D&O
Coverage”) provides:
The Insurer will pay on behalf of the Insured Persons,
Loss for which the Insured Persons are not
indemnified by the Financial Institution and for which
the Insured Persons are legally obligated to pay by
reason of Claims first made during the Policy Period
or the Extended Reporting Period, if elected, against
the Insured Persons for Wrongful Acts.
“Insured Persons” includes “any past, present or future director . . . [or] . . .
officer . . . of the Financial Institution.” The D&O Coverage has a $5 million
Limit of Liability for all loss on account of all claims made against the Insureds
during the same Policy Year. The Limit of Liability for the Policy’s Extended
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Reporting Period is part of, and not in addition to, the $5 million Limit of
Liability for D&O Coverage for all claims made during the immediately
preceding Policy Year.
The Policy is not a “duty-to-defend” policy. Rather, it provides that “[i]t
shall be the duty of the Insured and not the duty of the Insurer to defend
Claims.” The Policy further provides that: “Insurer, if requested by the Insured,
shall advance covered Defense Costs on a current basis, except when
advancement of Defense Costs is prohibited by law or regulation. The Insured
shall repay any advanced Defense Costs to the Insurer in the event it is
established that the Insurer has no liability under this Policy for such Defense
Costs.” Finally, under the Policy, “Defense Costs [are] part of, and not in
addition to, the applicable Limit of Liability . . . , and Defense Costs shall
reduce and may exhaust such Limit[] of Liability.”
On August 25, 2011, the FDIC, as receiver for the failed Habersham, sent
a claim addressed to each of the D&O Defendants (“FDIC Claim”). The FDIC
Claim seeks payment of civil damages from the D&O Defendants for their
alleged breach of duties owed to Habersham prior to the bank’s closure. The
alleged errors and omissions include actions taken in connection with certain
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loan transactions entered into by Habersham and the D&O Defendants’
purported failure to properly manage Habersham’s affairs. The FDIC estimates
total losses to Habersham of at least $38,656,992 suffered as a result of D&O
Defendants’ alleged errors and omissions related to loans and dividends
summarized in the FDIC Claim, and demands payment of that amount from
D&O Defendants.
The FDIC Claim lists nineteen specific loans to borrowers and estimates
losses of $34,556,992 on those loans. The FDIC Claim asserts $4,100,000 in
losses based on allegedly improper dividends. The FDIC alleges that D&O
Defendants violated their “duties of loyalty and due care in connection with the
declaration and distribution of dividends to Habersham Bankcorp.” The FDIC
asserts that $4,100,000 in dividends was approved “for the purpose of enabling
[Habersham] to repurchase 150,000 shares of its stock and to declare a special
dividend, redounding to the personal benefit to [sic] those [Habersham]
directors who held stock in [Habersham].” The FDIC further alleges that “the
board diverted these resources from the Bank for personal benefit,”
notwithstanding the deteriorating conditions of Habersham. Plaintiff did not
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receive notice of the FDIC Claim from an Insured prior to 12:01 a.m. on August
31, 2011, the end of the Extended Reporting Period.
Plaintiff seeks a declaratory judgment that: the “Insured v. Insured”
exclusion under the Policy bars coverage for the FDIC Claim (Count I); that the
“Loan Loss Carve-Out” bars coverage under the Policy for the alleged loan
losses (Count II); lack of timely notice bars coverage under the Policy for the
FDIC Claim (Count III); the “Restitution Carve-Out” bars coverage under the
Policy for the alleged dividend losses (Count IV); the Policy requires an
allocation should the Court determine that the FDIC Claim consists of both
covered and uncovered matters (Count V); and Plaintiff has reserved all rights
under the Policy (Count VI). D&O Defendants argue that Plaintiff’s Complaint
should be dismissed under Federal Rules of Civil Procedure (“Rules”) 12(b)(1)
and 12(b)(6) because this Court lacks subject matter jurisdiction and because
Plaintiff has failed to state a claim upon which relief may be granted. The
Court first addresses Defendants’ jurisdictional argument.
Discussion
I.
Legal Standard
As with any motion to dismiss, when a party asserts lack of subject
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matter jurisdiction under Rule 12(b)(1) as grounds for dismissal, the court must
accept well-pleaded facts in the Complaint as true. However, “[w]hen the
determination of subject matter jurisdiction requires the Court to look at matters
beyond the face of the complaint, the Court applies an analysis similar to the
summary judgment standard.” U.S. v. Walker, 438 Fed. App’x 885, 887 (11th
Cir. 2011) (citing Lawrence v. Dunbar, 919 F.2d 1526, 1530 (11th Cir. 1990)
(finding courts should apply “a Rule 56 summary judgment standard when
ruling on a motion to dismiss which asserts a factual attack on subject matter
jurisdiction)).
II.
D&O Defendants’ 12(b)(1) Motion
D&O Defendants assert that Plaintiff’s claim is precluded by Section
1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (“FIRREA”). (Def.s’ MTD, Dkt. [33] at 7.) Under § 1821(j), “no court
may take any action, except at the request of the Board of Directors by
regulation or order, to restrain or affect the exercise of powers or functions of
the [FDIC] as a conservator or a receiver.” At issue here is the FDIC’s power to
“collect all obligations and money due the institution” that has been placed into
receivership. See 12 U.S.C. § 1821(d)(2)(B)(ii). The so-called “anti-injunction
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provision” (§ 1821(j)) was “intended to permit the FDIC to perform its duties as
conservator and receiver promptly and effectively without judicial
interference.” Hindes v. FDIC, 137 F.3d 148, 160 (3d Cir. 1998).
The Eleventh Circuit has adopted a narrow, two-step inquiry under §
1821(j). See Bank of Am. Nat’l Ass’n v. Colonial Bank, 604 F.3d 1239, 1243
(11th Cir. 2010). First, the Court must evaluate whether the action implicates
the exercise of an FDIC receivership power or function. Id. “If so, the FDIC is
protected from all court action that would ‘restrain or affect’ the exercise of
those powers or functions.” Id. The second step is to determine whether action
by the Court would “in fact restrain or affect the FDIC as receiver.” Id.
Defendants rely on FDIC, as Receiver for Wheatland Bank v. OneBeacon
Midwest Insurance Co., 883 F. Supp. 2d 754 (N.D. Ill. 2010) (“Wheatland I”),
to support their claim that this action is barred by § 1821(j). In that case, the
FDIC, as receiver for a failed bank, brought a breach of contract action against
OneBeacon, alleging wrongful denial of coverage under a Financial Institution
Bond and seeking indemnification for bank executives’ alleged fraud.
OneBeacon asserted several counterclaims, including a claim for declaratory
judgment with respect to a separate D&O policy in which the FDIC (as
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receiver) claimed an interest. In Wheatland I, as here, OneBeacon was seeking
a preemptive determination of rights with respect to the D&O policy. 883 F.
Supp. 2d at 762. The Wheatland I court concluded that such a preemptive
determination would “affect the FDIC’s authority to ‘collect all obligations and
money due the [failed bank].’” Id. (quoting 12 U.S.C. § 1821(d)(2)(B)(ii)).
Therefore, the court found, OneBeacon’s counterclaim seeking a declaration of
coverage under the D&O policy was jurisdictionally barred by § 1821(j). Id. at
763-64.2
2
Plaintiff filed a Notice of Supplemental Authority [49] to highlight the
Wheatland I court’s recent reconsideration of its Order. See FDIC v. OneBeacon
Midwest Ins. Co., No. 11 C 3972, 2013 WL 951107 (N.D. Ill. Mar. 12, 2013)
(“Wheatland II”). In Wheatland II, OneBeacon moved to amend its counterclaims and
asked the court to reconsider its earlier ruling “insofar as it applie[d] to the proposed
amendment.” 2013 WL 951107, at *1. OneBeacon’s amended claim removed the
FDIC as a defendant and did not seek a declaration that OneBeacon was not obligated
to indemnify an eventual judgement or settlement against the directors and officers
under the D&O policy. Id. at *2. Instead, the only remaining issue after amendment
was whether OneBeacon was obligated to pay the directors’ and officers’ defense
costs in a lawsuit brought against them by the FDIC for alleged negligence. Id. The
Wheatland II court concluded, “OneBeacon’s amended claims do not ‘restrain or
affect’ the FDIC’s interests in the D&O Policy, and therefore they are not barred by §
1821(j).” Id. at *3.
The facts of Wheatland II do not apply here. The FDIC, as receiver for
Habersham, is a named defendant in this suit and Plaintiff is seeking “a judicial
declaration of the rights and obligations of OneBeacon and the D&O Defendants
under the Policy with respect to the FDIC Claim.” (See Complaint, Dkt. [1] at 18, ¶
G.) Therefore, the Court finds Wheatland I, not Wheatland II, persuasive here.
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In reaching its decision, the Wheatland I court relied on Radian Ins. Inc.
v. Deutsche Bank Nat’l Trust Co., No. 08-2993, 2009 WL 3163557 (E.D. Pa.
Oct. 1, 2009), another declaratory judgment action brought by an insurer
against the FDIC as receiver. In Radian, the court found that § 1821(j) barred
the claim for declaratory relief because “such a declaration may impact the
FDIC’s ability to assert certain claims against [the insurer] in the future, thereby
potentially reducing the assets of the depository institutions, contrary to the
express goals of FIRREA.” 2009 WL 3163557, at *13. Furthermore, the court
found, “the impact of the declaratory judgment on the FDIC is not diminished
merely because the FDIC has not yet indicated its intent to pursue any claims
against [the insurer] . . . . The fact that the FDIC might exercise its powers to
assert claims against [the insurer] in the future is sufficient to invoke the §
1821(j) bar.” Id. at 14. Defendants argue that, like Wheatland I and Radian, a
judgment on Plaintiff’s claims here will impact the FDIC’s interest in the D&O
Policy and its ability to collect money and obligations due to Habersham, and
therefore, the claims are barred by § 1821(j).
Plaintiff responds that Wheatland I is an outlier and since FIRREA’s
enactment, countless declaratory judgment actions have been brought by
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insurers and directors and officers to determine coverage for tort claims asserted
by failed bank receivers without anyone suggesting that § 1821(j) precluded
those actions.3 (Pl.’s Opp. Br., Dkt. [43] at 15.) Plaintiff attempts to distinguish
Wheatland I from the case at bar on grounds that Wheatland I involved a firstparty bond policy and a counterclaim for rescission, which are not present here.
(Pl.’s Opp. Br., Dkt. [42] at 15-16.) However, in Wheatland I, the court’s
analysis of OneBeacon’s declaratory judgment counterclaim with respect to the
D&O policy did not turn on the presence of those other claims and
counterclaims. Therefore, the Court finds these distinctions irrelevant.
Plaintiff also attempts to distinguish Wheatland I from the case at bar on
grounds that Georgia tort law, not Illinois law, applies here. It argues that the
declaratory judgment sought here cannot and will not affect the FDIC’s ability
to “collect all obligations and money due the institution” because the D&O
Coverage under Insuring Agreement A is not money currently “due” to
Habersham. (Pl.’s Opp. Br., Dkt. [43] at 16-17.) At best, Plaintiff contends, the
FDIC has only a future interest in the D&O Coverage that is wholly contingent
3
Plaintiff tacitly concedes and Defendants emphasize in their reply brief that
the cases cited by Plaintiff do not involve motions to dismiss based on § 1821(j). (See
Def.s’ Reply, Dkt. [46] at 4, 4 n.8.)
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on the future existence of an unsatisfied judgment against the D&Os, which
may never occur. (Id.) Plaintiff points to a difference between Georgia and
Illinois law on this point. In Georgia, a tort claimant generally does not have
rights under a policy, absent a judgment against the insured. See, e.g., Capitol
Indem. Corp. v. Fraley, 597 S.E.2d 601, 602-03 (Ga. Ct. App. 2004) (“As a
general rule, an injured party has no standing to file a direct suit against the
insurer of the party alleged to have caused the injury absent an unsatisfied
judgment against the insured.”). In Illinois, on the other hand, a tort claimant
may bring an action to determine coverage before the claimant obtains a
judgment against the insured. See, e.g., Reagor v. Travelers Ins. Co., 415
N.E.2d 512, 513-15 (Ill. App. Ct. 1980).
The court finds this state-law distinction inapposite and finds that
Wheatland I, although not binding on this Court, is persuasive. Plaintiff admits
that even under Georgia law, the FDIC has a future interest in the D&O
Coverage. The FDIC Claim seeks to recover sums owed to the bank because of
the D&Os’ alleged wrongful conduct; if the FDIC succeeds, the D&O Coverage
would help satisfy any judgment for the bank. Section 1821(j)’s language is
broad: “no court may take any action . . . to restrain or affect the exercise of
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powers or functions of the [FDIC].” (emphasis added). According to the
Eleventh Circuit, “[t]he exceptions to § 1821(j)’s jurisdictional bar are
extremely limited.” RPM Inv.s, Inc. v. Resolution Trust Corp., 75 F.3d 618,
620 n.2 (11th Cir. 1996). The Court finds that issuing a declaratory judgment
on Plaintiff’s claims would affect the FDIC’s ability to collect money due to
Habersham.4 Consequently, the claim is barred by § 1821(j).
Furthermore, application of § 1821(j)’s jurisdictional bar does not leave
Plaintiff without a remedy. Plaintiff’s claims can be pursued through
FIRREA’s administrative process. See 12 U.S.C. § 1821(d); see also Bank of
Am. Nat’l Ass’n, 604 F.3d at 1246 (noting that “all manner of claims are
appropriate for resolution through the administrative claims process”). If
Plaintiff’s claims are not adequately addressed through the administrative
4
D&O Defendants argue that because OneBeacon’s claims may not proceed
against the FDIC, they may not proceed against the D&Os. (Def.s’ MTD, Dkt. [33] at
11.) They assert that a finding regarding coverage vis-a-vis the D&Os would affect
the FDIC’s interest in the policy if and when the FDIC attempts to assert its rights to
the policy. (Def.s’ MTD, Dkt. [33] at 11). The Court agrees. “A court order which
operates against a third party is precluded by section 1821(j) if the order would have
the same effect from the FDIC’s perspective as a direct action against it precluded by
section 1821(j).” Hindes, 137 F.3d at 160; see also Wheatland I, 137 F.3d at 160
(finding that OneBeacon’s claims could not proceed against the non-FDIC defendants
alone because a declaration regarding officers’ and directors’ coverage would impact
the FDIC’s interest as tort-claimant in the related lawsuit). Plaintiff has pointed to no
authority requiring that the FDIC, rather than individual Defendants, challenge subject
matter jurisdiction under § 1821(j).
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process, it is entitled to de novo review in federal district court. See 12 U.S.C.
§§ 1821(d)(6), (d)(7)(A). Accordingly, D&O Defendants’ motion to dismiss
for lack of subject matter jurisdiction is GRANTED.
I.
Plaintiff’s Motion for Oral Argument
Plaintiff has requested oral argument on the issue of subject matter
jurisdiction. The Court finds that the issues have been fully briefed by the
Parties such that oral argument is not required. Therefore, Plaintiff’s Motion
[44] is DENIED.
Conclusion
Based on the foregoing, D&O Defendants’ Motion to Dismiss [33] is
GRANTED, and Plaintiff’s Motion for Oral Argument [44] is DENIED. The
Clerk shall close the case.
SO ORDERED, this 28th day of March, 2013.
_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE
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