FEDERAL DEPOSIT INSURANCE CORPORATION v. KIME et al
Filing
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ENTRY on Motion to Dismiss - Defendants' Motion to Dismiss (Dkt. 25 ) is DENIED. Signed by Judge Tanya Walton Pratt on 3/28/2014. (TRG)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
Irwin Union Bank and Trust Company,
as Receiver for Irwin Union Bank, FSB,
)
)
)
)
)
Plaintiff,
)
)
v.
)
)
BRADLEY J. KIME, DUNCAN BURDETTE, )
KIM ROERIG, and MICHAEL WATERS,
)
)
Defendants. )
Case No. 1:13-cv-782-TWP-DML
ENTRY ON MOTION TO DISMISS
This matter is before the Court on the Motion to Dismiss under Federal Rule of Civil
Procedure 12(b)(6) for failure to state a claim upon which relief may be granted (Dkt. 25) filed
by Defendants Bradley J. Kime, Duncan Burdette, Kim Roerig, and Michael Waters
(collectively, “Defendants”).
For the reasons set forth below, the Defendants’ Motion is
DENIED.
I.
BACKGROUND
The Federal Deposit Insurance Corporation (“FDIC”) initiated this action as Receiver for
two banks—Irwin Union Bank and Trust Company and Irwin Union Bank, FSB (collectively,
“the Banks”). The Defendants are identified as four officers serving the Banks between 2003
and 2009. (Dkt. 1 at ¶¶ 9–12.) The FDIC accuses the Defendants of approving 19 loans between
2005 and 2009 that cost the Banks more than $42 million in losses. (Id. at 1.)
Although the facts alleged are extensive, they can fairly be summarized as follows: the
Defendants violated the Banks’ lending policies, disregarded deficiencies in underwriting, failed
to thoroughly evaluate borrowers’ credit-worthiness, and failed to heed bold warning signs of
risk en route to approving loans that never were likely to be repaid. The errors alleged include,
for example:
•
approving loans without demanding (id. at ¶ 42) or appraising (id. at ¶ 75)
collateral;
•
failing to valuate borrowers’ sources of income (id. at ¶ 57);
•
lending to borrowers with speculative repayment sources (id. at ¶ 64);
•
declining to enforce the Banks’ capitalization standards (id. at ¶ 66);
•
failing to obtain (id. ¶ 67) or properly review (id. at ¶ 93) borrowers’ financial
records;
•
relying on incomplete credit memos from loan officers (id. at ¶ 82);
•
advancing additional funds despite knowing that the borrowers’ original loan
was under-collateralized and would not be repaid (id. at ¶ 134); and
•
lending without requiring sufficient guarantees (id. at ¶ 150).
The Banks failed on September 18, 2009. (Id. at ¶ 17.) The same day, the Indiana
Department of Financial Institutions and the Office of Thrift Supervision appointed the FDIC
Receiver for the Banks under the Financial Institutions Reform, Recovery, and Enforcement Act
(“FIRREA”). (Id. at ¶ 8.) On September 17, 2012, the parties executed an agreement to toll any
applicable statutes of limitations until further notice. (See Dkt. 21-1.) According to the FDIC,
Defendant Waters terminated the Tolling Agreement on April 22, 2013. (Dkt. 35 at 17.) On
May 13, 2013, the FDIC filed its complaint seeking to recover the Banks’ losses under FIRREA
and Indiana law on grounds of negligence, gross negligence, and breach of fiduciary duties.
(Dkt. 1.)
II.
LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must take the facts
2
alleged in the complaint as true and draw all reasonable inferences in favor of the plaintiff.
Mosley v. Kinclair, 947 F.2d 1338, 1339 (7th Cir. 1991). The complaint must contain only “a
short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ.
P. 8(a)(2), and there is no need for detailed factual allegations. Pisciotta v. Old Nat’l Bancorp,
499 F.3d 629, 633 (7th Cir. 2007) (citation omitted). Nevertheless, the statement must “give the
defendant fair notice of what the claim is and the grounds upon which it rests,” and the “[f]actual
allegations must be enough to raise a right to relief above the speculative level.” Id. (citations
and quotations omitted). “Although this does ‘not require heightened fact pleading of specifics,’
it does require the complaint to contain ‘enough facts to state a claim to relief that is plausible on
its face.’” Killingsworth v. HSBC Bank. Nev., N.A., 507 F.3d 614, 618 (7th Cir. 2007) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
III.
DISCUSSION
The Defendants raise three challenges to the Complaint. First, it argues that all the
FDIC’s claims are barred by pertinent statutes of limitation. Second, it argues that Count II must
be dismissed because it fails to state a plausible claim for gross negligence. Third, it argues that
Count III must be dismissed because it fails to state a plausible claim for breach of fiduciary
duties, or, in the alternative, because it is duplicative of Count I. The Court addresses each
argument in turn.
A.
The Court cannot dismiss any of the FDIC’s claims for failure to satisfy a statute of
limitation.
When the FDIC is appointed receiver of a financial institution, FIRREA and state law
combine to determine the time within which the FDIC must initiate any litigation on the
institution’s behalf. “Notwithstanding any provision of any contract, the applicable statute of
limitations” for a tort claim is the longer of three years from the date the claim accrued or the
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period that would apply under state law. 12 U.S.C. § 1821(d)(14)(A)(ii). For purposes of
FIRREA, the institution’s cause of action accrues on the later of: (1) the date the FDIC is
appointed as receiver, or (2) the date on which the institution’s cause of action accrues under
state law. 12 U.S.C. § 1821(d)(14)(B). This provision commonly is referred to as FIRREA’s
“Extender Statute.” The parties agree that the Banks’ claims would be subject to two-year
statutes of limitations under Indiana law, so the most generous filing deadline would be three
years from the FDIC’s appointment as allowed by the Extender Statute.
The Defendants offer alternative arguments why the statute of limitations precludes relief
for the FDIC. First, the Defendants argue that all of the FDIC’s claims are defeated because it
failed to file its Complaint within three years of its appointment as receiver, which is the longest
the statute of limitations could possibly run in this matter. Second, the Defendants argue that,
even if the FDIC filed its Complaint within the three-year FIRREA extension, several of its
claims are barred because the Indiana statute of limitations expired before the FDIC’s
appointment.
1.
Whether FIRREA’s three-year statute of limitations has been tolled by
agreement is a fact-sensitive question.
According to the Complaint, the FDIC was appointed receiver for the Banks on
September 18, 2009. (Dkt. 1 at ¶ 8.) The FDIC filed its Complaint on May 13, 2013 – nearly
three years and eight months after its appointment. (Dkt. 1.) The Defendants argue that the
FDIC failed to initiate its claims within FIRREA’s limitations period and that the Court therefore
must dismiss all the FDIC’s claims. (Dkt. 26 at 12.)
The FDIC argues that it filed its claims timely because of an agreement by the parties.
The parties agree that the FDIC and all four Defendants entered into a “Tolling Agreement” on
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September 17, 2012 – one day before the third anniversary of the FDIC’s appointment.1 (See
Dkt. 21-1.) By its text, any party could terminate the Tolling Agreement at will, and the parties
contracted to extend the expiration or lapse of “[a]ny and all statutes of limitations and/or
repose” until 30 days after one party notified the others of termination. (Dkt. 26-1.) According
to the FDIC, Defendant Waters issued notice of termination on April 22, 2013. (Dkt. 35 at 17.)
By filing its Complaint on May 13, 2013, the FDIC initiated its suit within the 30-day window
established by the Tolling Agreement and, in its view, satisfied FIRREA’s statute of limitations.
(Id.)
The Defendants argue that FIRREA’s language, “Notwithstanding any provision of any
contract, the applicable statute of limitations . . . shall be . . .” invalidates tolling agreements and
therefore renders the FDIC’s claims untimely.
(Dkt. 26 at 12–14 (quoting 12 U.S.C. §
1821(d)(14)(A).) The FDIC, of course, disagrees. (Dkt. 35 at 18–23.) It also argues, however,
that the Defendants induced the FDIC to delay its claims by entering the Tolling Agreement, and
that the doctrine of equitable estoppel therefore bars the Defendants from challenging the
Agreement’s validity under FIRREA. (Dkt. 35 at 24–27.)
Generally, considering a statute of limitations on a motion to dismiss is inappropriate. A
statute of limitations represents an affirmative defense. Because a plaintiff need not anticipate or
allege facts that would defeat affirmative defenses, a court typically cannot dismiss a complaint
for failure to satisfy a statute of limitations until summary judgment. Barry Aviation, Inc. v.
Land O’Lakes Mun. Airport Comm’n, 377 F.3d 682, 688 (7th Cir. 2004). However, a court may
properly rule on an affirmative defense where the complaint includes all the information
1
The Court acknowledges the Defendants’ implications that the Tolling Agreement is not an enforceable contract
(see Dkt. 26 at 12 n.2; Dkt. 40 at 10 n.5.) and does not find here that the Defendants are bound by it. The
enforceability of the Tolling Agreement raises a factual inquiry whose resolution is inappropriate on a motion to
dismiss.
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necessary to do so. Id. Therefore, where “the relevant dates are set forth unambiguously in the
complaint,” a court may reach a statute of limitations argument on a motion to dismiss. Brooks
v. Ross, 578 F.3d 574, 579 (7th Cir. 2009).
The FDIC’s Complaint includes the two operative dates for addressing the statute of
limitations: the date the Complaint was filed (May 13, 2013) and the date the FDIC was
appointed receiver (September 18, 2009). Whether FIRREA allows parties to toll the statute of
limitations by agreement is a pure question of law. If it does not, the FDIC has pled facts that
would show that it its claims are untimely. If it does, the FDIC has pled facts that would allow it
to avoid dismissal by the FIRREA statute of limitations at least until the Tolling Agreement’s
enforceability can be established at summary judgment. The Court could answer this question
based on the information before it.
But the FDIC’s assertion of equitable estoppel precludes the Court from resolving the
statute of limitations question at this time. The federal doctrine of equitable estoppel applies to
federal statutes of limitation. Cada v. Baxter Healthcare Corp., 920 F.2d 446, 451 (7th Cir.
1990). Broadly, the doctrine bars a litigant from benefitting by his own wrongdoing. See Cange
v. Stotler & Co., Inc., 826 F.2d 581, 585 (7th Cir. 1987). In one application, it allows a plaintiff
to estop a defendant from asserting the statute of limitations after taking affirmative action, for
example, promising not to plead the statute of limitations, that cause the plaintiff to delay his
complaint. Cada, 920 F.2d at 450–51. Equitable estoppel necessarily raises questions of fact.
The Defendants argue that the FDIC may not escape dismissal by virtue of equitable
estoppel.
The Seventh Circuit has held that, where federal statutes of limitations can be
equitably estopped, statutes of repose cannot. Id. at 451. Whereas the former bars litigation after
a certain period of time elapses following accrual of a claim, the latter bars litigation after a
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definite period following a specified event. McCann v. Hy-Vee, Inc., 663 F.3d 926, 930 (7th Cir.
2011). According to the Defendants, the clause “Notwithstanding any provision of any contract”
indicates that Congress designed FIRREA’s Extender Statute as a statute of repose prohibiting
litigation more than three years after the FDIC is appointed receiver. (Dkt. 40 at 8, 10–11.)
The Court finds that two factors support treating FIRREA’s Extender Statute as a statute
of limitations against which equitable estoppel may be asserted. First, its plain language creates
a statute of limitations: “Notwithstanding any provision of any contract, the applicable statute of
limitations . . . shall be . . . the 3-year period beginning on the date the claim accrues.” 12 U.S.C.
§ 1821(d)(14)(A) (emphasis added). The Court declines to find that Congress consciously
distinguished between statutes of limitations and repose, intended to implement a statute of
repose in FIRREA, and still dubbed the three-year extension period a “statute of limitations.”
Second, so far as the Court is aware, no court ever has referred to FIRREA’s Extender
Statute as a statute of repose. The FDIC has collected numerous cases in which the Extender
Statute is characterized as a statute of limitations. (See Dkt. 35 at 22 n.6.) By contrast, the
Defendants cite no case referring to the Extender Statute as a statute of repose and rely on
precedents from the Tenth Circuit finding that a substantially identical extender statute created a
statute of repose. (Dkt. 26 at 13–14 (applying Nat’l Credit Union Admin. Bd. v. Credit Suisse
Secs. (USA) LLC, 939 F. Supp. 2d 1113, 1125–26 (D. Kan. 2013)); Dkt. No. 40 at 8 (applying
Nat’l Credit Union Admin. Bd. v. Nomura Home Equity, Inc., 727 F.3d 1246, 1256 (10th Cir.
2013).) With respect to those decisions, the Court finds the majority approach most persuasive.
Here, the FDIC raised neither the Tolling Agreement nor equitable estoppel in its
Complaint. Therefore, none of the facts that would illuminate a claim of equitable estoppel – the
details of the circumstances under which the parties executed the Agreement – are alleged in the
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Complaint.
Because the FDIC was not required to overcome affirmative defenses in its
Complaint, and because the details of its equitable-estoppel response to the Defendants’ statute
of limitations defense are not before the Court, the Court cannot dismiss the Complaint based on
the FIRREA statute of limitations even if it barred tolling agreements. In other words, the
Complaint must survive because either the Tolling Agreement is valid or, if it is not, the Court
cannot fairly evaluate the FDIC’s equitable estoppel response at this stage. Therefore, the Court
DENIES the Defendants’ Motion insofar as it seeks dismissal of all the FDIC’s claims on the
basis of the FIRREA statute of limitations.
The Court cautions that it takes no position as to the enforceability of tolling agreements
under the Extender Statute. To the extent the Court disagrees with the Tenth Circuit precedents
advanced by the Defendants, it disagrees only to the extent that it declines to construe FIRREA’s
Extender Statute as a statute of repose. Whether the “Notwithstanding” Clause nevertheless bars
tolling agreements presents a distinct legal question that the Court need not address until
presented with a motion for summary judgment.
2.
Whether any claims expired under Indiana law before the FDIC was
appointed Receiver also is a factual question.
The Defendants next argue that, the FIRREA Extender Statute aside, Indiana’s statute of
limitations terminated the FDIC’s claims as to 15 of the 19 loans before the FDIC was appointed
Receiver. The Defendants argue (and the FDIC does not dispute) that, subject to exceptions not
raised here, FIRREA creates no relief for the FDIC on a cause of action that expired under state
law before the FDIC’s appointment. (See Dkt. 26 at 15 (applying 12 U.S.C. § 1821(d)(14)(C)).)
In Indiana, a cause of action for negligence or breach of fiduciary duty expires two years from
the date it accrues. See Ind. Code § 34-11-2-4(a). And, a cause of action in tort accrues when
the plaintiff discovers, or in the exercise of ordinary diligence, could discover, that she has
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sustained an injury caused by another person’s tortious act. Wehling v. Citizens Nat’l Bank, 586
N.E.2d 840, 843 (Ind. 1992).
The parties dispute when a cause of action for negligent lending accrues. The Defendants
argue that any financial loss is incurred when the loans are approved. (Dkt. 26 at 16–18.) On
this basis, the Defendants argue that the Banks’ causes of action accrued on the dates the loans
were approved and that the FDIC is ineligible for relief for the 15 loans approved before
September 18, 2007 (two years before the FDIC’s appointment). (Id.) The FDIC argues that no
injury is discoverable until the loan fails or the lender declares a loss. (Dkt. 35 at 28.)
The Defendants correctly note that several courts have held that a cause of action for
negligent lending accrues when the loan is approved. (See Dkt. 26 at 16–17 (collecting cases).)
But none of these cases is from an Indiana court, and none applies Indiana law or a discovery
rule similar to Indiana’s. As the FDIC soundly notes (see Dkt. 35 at 29–30), these cases rest on
the premise that a bank is injured when it parts with money through a negligently approved loan.
E.g., Fed. Deposit Ins. Corp. v. Jackson, 133 F.3d 694, 696–97 (9th Cir. 1998) (applying
Arizona law). Even if true, that premise does not command the conclusion that a bank should
discover its financial loss the moment its officers approve a loan.
Correctly noting that no Indiana court has ruled on the accrual date of a cause of action
for negligent lending (Dkt. 26 at 16), the Defendants seek support from the closely related field
of legal malpractice (Dkt. 40 at 13–14). 2 The Defendants direct the Court to Shideler v. Dwyer,
in which the Indiana Supreme Court held that a cause of action for negligently drafting a will
accrued when the testator died, not when the probate court found the challenged provision
invalid. 417 N.E.2d 281, 285–86 (Ind. 1981). The Shideler court reasoned that the attorney’s
negligent act “became irremediable,” and the plaintiff’s injury therefore became final, at the
2
Like the FDIC’s claims here, legal malpractice entails principles of negligence and fiduciary duty.
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testator’s death. Id. at 285. The probate court’s finding of invalidity, on the other hand, was
merely “a fact that figured in the extent of Plaintiff’s damages.” Id. at 286 (emphasis added).
The Court questions Shideler’s application to this case. First, the Defendants’ approval
of the loans does not clearly analogize to the testator’s death in Shideler. The Defendants’
approval of the loans represents their allegedly tortious act, which parallels the attorney’s
drafting of the will in Shideler. Whether injury to the Banks was certain at the moment of
approval is not clear under Indiana law and, in any event, strikes the Court as a fact-sensitive
question not appropriately answered on a motion to dismiss.
Second, subsequent decisions cast doubt upon Shideler’s extension to these facts. In
Wehling, a mortgagor sued a bank for negligently recording the deed to the property. 586 N.E.2d
at 841. When it attempted to sell the home, the mortgagor discovered that the property already
had been sold at a tax sale after all tax notices failed to reach the mortgagor. Id. The Indiana
Supreme Court refused summary judgment, accepting the mortgagor’s argument that it could not
have been aware of the bank’s negligence until attempting to sell the home and learning of the
tax sale. Id. at 843. In so holding, the court emphasized venerable Indiana precedents holding
that a cause of action does not accrue until the plaintiff has suffered an injury and damages
“susceptible of ascertainment.” Id. at 842 (quoting Montgomery v. Crum, 161 N.E. 251, 259
(Ind. 1928)). It also emphasized its then-recent decision in Burks v. Rushmore, 534 N.E.2d 1101,
1104 (Ind. 1989), in which it found that a cause of action for defamation accrued when the
“resultant damage was ascertained or ascertainable by due diligence,” not necessarily on the date
of publication. Wehling, 586 N.E.2d at 842–43 (quoting Burks, 534 N.E.2d at 1104). Shideler’s
point of irremediable injury approach would have yielded different results, setting accrual at the
date of the tax sale in Wehling and the date the plaintiff’s reputation was injured in Burks.
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Similarly, the Indiana Supreme Court explicitly declined to apply Shideler in Madlem v.
Arko, 592 N.E.2d 686, 686–87 (Ind. 1992), another malpractice case. Madlem sued his attorney
for negligently notarizing a promissory note with a forged signature.
Id. at 686.
“Since
Shideler,” the court began, “this Court has revisited this situation.” Id. Quoting Wehling, the
court characterized the plaintiff’s discovery as the critical incident triggering accrual:
In the case at bar, Madlem had no way to know of a possibly improper
notarization of Mrs. Buck’s signature until he tried to foreclose on the mortgage
and the defense of forgery was presented. Thus, we hold that the statute of
limitations did not start to run until that time.
Id. at 687.
The Court is persuaded that an Indiana tribunal confronted with this inquiry likely would
find that the Banks would not necessarily have been expected to discover (or even suffer) an
ascertainable injury simultaneous to the Defendants’ approval of each loan and that the accrual
date therefore is a question of fact not ripe for resolution at this stage. The Complaint does not
specify when the banks incurred their injury, but the FDIC was not obligated to plead allegations
that would defeat a statute of limitations defense. Barry Aviation, 377 F.3d at 688. Therefore,
the Court must leave for summary judgment the question of when the Banks became (or should
have become) aware of their injuries. Accordingly, the Court DENIES the Defendants’ motion
to the extent it asks the Court to dismiss any of the FDIC’s claims as time-barred.
B.
Count II of the Complaint states a plausible claim for relief under Indiana’s gross
negligence standard.
The Defendants argue that Count II of the FDIC’s Complaint, which accuses each
Defendant of gross negligence, fails to state a plausible claim for relief. (See Dkt. 26 at 17–21.)
The parties agree that, under FIRREA, Indiana’s definition of gross negligence controls. See 12
U.S.C. § 1821(k). The parties further agree that the U.S. District Court for the Northern District
of Indiana properly applied Indiana’s standard for gross negligence in Resolution Trust Corp. v.
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O’Bear, Overholser, Smith & Huffer, 840 F. Supp. 1270 (N.D. Ind. 1993). To state a claim for
gross negligence, the plaintiff must allege that the defendant, “in the face of a manifest duty,
acted with reckless disregard for the consequences.” Id. at 1279. “To the extent Indiana law
requires ‘intent,’” a court may “infer the requisite intent upon [the plaintiff’s] showing that the
defendants’ actions were ‘plainly negligent.’”
Id. (quoting A.B.C. Home & Real Estate
Inspection, Inc. v. Plummer, 500 N.E.2d 1257, 1263 (Ind. Ct. App. 1986)). The Court finds this
application consistent with subsequent precedent from the Indiana Supreme Court. See N. Ind.
Pub. Serv. Co. v. Sharp, 790 N.E.2d 462, 465 (Ind. 2003) (defining gross negligence as “‘[a]
conscious voluntary act or omission in reckless disregard of . . . the consequences to another
party’” (quoting Black’s Law Dictionary 1057 (7th ed. 1999)).
Under that standard, the FDIC has articulated a plausible claim for relief in Count II. The
Complaint clearly defines the duty the FDIC accuses the Defendants of recklessly disregarding:
A. To inform themselves about proposed loans and the risks the loans pose to the
Banks before they approved them;
B. To approve loans that conformed with the Banks’ Loan Policy;
C. To ensure that any loans they approved were underwritten in a safe and sound
manner;
D. To ensure that any loans they approved were secured by sufficiently valuable
collateral to prevent or minimize the risk of loss to the Banks; and
E. To ensure that any loans they approved did not violate applicable banking
regulations and/or create unsafe and unsound concentrations of credit.
(See Dkt. 1 at ¶ 182.)
The Complaint also describes how the Defendants breached that duty, generally in its
articulation of Count II (see id. at ¶¶ 183–85) and specifically in its explication of the
Defendants’ conduct as to each loan (see id. at ¶¶ 41–170). These descriptions set forth a
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plausible claim that the Defendants acted with reckless disregard for that duty. For example, the
FDIC has accused the Defendants of approving loans without demanding collateral (id. at ¶ 42),
valuating borrowers’ sources of income (e.g., id. at ¶ 57), or properly reviewing borrowers’
financial records (e.g., id. at ¶¶ 93).3 These allegations by no means prove a conscious and
reckless breach of the duty the FDIC raises, but they convince the Court that the FDIC could
plausibly prove gross negligence at trial.
The Court must reject the Defendants’ argument that the Complaint fails to “provide each
defendant with adequate notice of his alleged conduct giving rise to the claim.” (Dkt. 26 at 19–
20.) The FDIC might have presented its claims defendant-by-defendant or loan-by-loan, but the
superiority of one of those methods is a question of individual preference and would not justify
dismissing the Complaint. The Complaint clearly identifies which Defendants are accused of
participating in the approval of which loans. (See Dkt. 1 at ¶ 38.) It also explains with
specificity what tortious conduct is alleged as to each individual loan. (See id. at ¶¶ 41–170.)
The Complaint does not set forth every fact that ultimately will be presented to the trier of fact,
but it need not do so. The Complaint presents each Defendant with pictures of the allegations
against him and his potential liability sufficient to allow him to prepare a defense. It also
articulates, with respect to each loan, a plausible claim for gross negligence.
The Court also must reject the Defendants’ argument that Count II should be dismissed
because the FDIC’s allegations “are based on a fundamental misunderstanding of acceptable real
estate lending practices and hold each of the Defendants liable as an ‘insurer’ for each Loan
transaction.” (See Dkt. 26 at 20–21.) First, the Defendants directly challenge only one of the
many forms of malfeasance (securing loans with undeveloped real estate) raised by the FDIC.
3
The Defendants have not identified any specific deficiency in the FDIC’s allegations. Lacking specific guidance,
the Court finds the FDIC’s allegations sufficient to state a plausible claim for recovery.
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(See id. at 21.) Second, what constitutes an “acceptable real estate lending practice” strikes the
Court as (at least in part) a fact-sensitive question requiring further development and not
amenable to resolution based on one paragraph in the Defendants’ brief on this motion.4 Finally,
whether a bank may hold its officers liable as insurers of their loans is immaterial to resolving
this motion. The FDIC has not raised any argument to that effect in the Complaint or in its brief
on this motion. Instead, the FDIC has accused the Defendants of consciously and recklessly
disregarding the Banks’ policies, principles of due diligence, and red flags suggesting inability to
repay the loans they approved. The FDIC has proffered allegations that plausibly entitle it to
relief on that theory, so the Court DENIES the Defendants’ motion to the extent it asks the Court
to dismiss Count II of the Complaint.
C.
Count III of the Complaint states a plausible claim for breach of fiduciary duties.
The Defendants next contest Count III of the Complaint, which alleges breach of
fiduciary duty, on two grounds. First, the Defendants argue that the FDIC has failed to plead all
the elements of a cause of action for breach of fiduciary duty. Second, the Defendants argue
that, even if it is properly pled, Count III must be dismissed because it is duplicative of Count II.
1.
The Complaint covers all the elements of breach of fiduciary duty.
The parties agree that, to articulate a claim for breach of a fiduciary duty, a plaintiff must
allege “three elements: (1) the existence of a fiduciary relationship; (2) a breach of the duty
owed by the fiduciary to the beneficiary; and (3) harm to the beneficiary.” York v. Fredrick, 947
N.E.2d 969, 978 (Ind. App. 2011). The Defendants also argue that a plaintiff must go further
and accuse the defendant of improperly influencing the beneficiary “so as to obtain an
unconscionable advantage.” Grace Vill. Health Care Facilities, Inc. v. Lancaster & Pollard Co.,
4
This is especially true considering the FDIC has accused the Defendants of lending in violation of the Banks’ own
standards—standards the Banks were required to implement by the very federal regulations upon which the
Defendants rest here. (See Dkt. 36 at 21 (citing 12 C.F.R. § 365, App. A).)
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896 F. Supp. 2d 757, 768 (N.D. Ind. 2012). The Defendants ask the Court to dismiss Count III
for failure to satisfy the “unconscious advantage” rule. (Dkt. 26 at 25–26.)
The Court finds that the “unconscionable advantage” rule advanced by the Defendants
does not apply to this case. Here, the FDIC accuses bank officers of breaching their fiduciary
duties to the bank. The cases the Defendants cite, including Grace Village and all the cases upon
which it relies, address a question not relevant here: under what circumstances a bank owes
fiduciary duties to its customers. See Grace Village, 896 F. Supp. 2d at 760 (applying Wilson v.
Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1047 (Ind. Ct. App. 2003); Kreighbaum v. First Nat’l
Bank & Trust, 776 N.E.2d 413, 419 (Ind. Ct. App. 2002); Huntington Mortgage Co. v. DeBrota,
703 N.E.2d 160, 168 (Ind. Ct. App. 1998)). The Court is not aware of, and the Defendants have
not offered, any authority applying the “unconscionable advantage” rule in any other context.
Officers and employees owe fiduciary duties to their employers. E.g., Marwil v. Grubbs,
No. 1:03-cv-1165-DFH-VS, 2004 WL 2278751 at *7 (S.D. Ind. Sept. 30, 2004); Kopka, Landau
& Pinkus v. Hansen, 874 N.E.2d 1065, 1070 (Ind Ct. App. 2007). The Complaint identifies the
Defendants as officers of the Banks (Dkt. 1 at ¶¶ 1, 2, 9–11), and describes with particularity the
duties the Defendants owed the Banks (id. at ¶ 188), how the Defendants breached those duties
(id. at ¶¶ 41–170, 189), and what harm the Banks suffered as a result (id. at ¶¶ 50, 60, 70, 78, 87,
96, 106, 116, 136, 144, 155, 163, 170, 191). In short, the Complaint addresses each of the three
elements the parties agree constitute a claim for breach of fiduciary duty, and the Court finds no
basis on which to dismiss Count III for failure to satisfy the “unconscionable advantage” rule.
2.
The Court construes the Complaint as pleading three alternative causes of
action.
The Defendants finally urge the Court to dismiss Count III as duplicative of Count I.
According to the Defendants, Counts I and III describe the same set of facts as producing the
15
same injury. (Dkt. 26 at 24–25.) Under Indiana law, a party cannot recover for the same injury
under two causes of action. INS Investigations Bureau, Inc. v. Large, 784 N.E.2d 566, 577 (Ind.
Ct. App. 2003). And, although the Defendants acknowledge that a litigant may plead alternative
causes of action, the Defendants maintain that the Complaint does not adequately announce an
alternative pleading. (Dkt. 26 at 23–25.) Therefore, the Defendants move the Court to dismiss
Count III either for failing to state a claim upon which relief may be granted (under Federal Rule
of Civil Procedure 12(b)(6)) or for redundancy (under Rule 12(f)).5
Although a plaintiff “must use a formulation from which [her intent] can reasonably be
inferred,” she “need not use particular words to plead in the alternative.” Holman v. Indiana,
211 F.3d 399, 407 (7th Cir. 2000). The FDIC seeks the same damages through each of Counts I,
II, and III, and in total. (See Dkt. I at ¶¶ 179, 186, 191, and “Request for Relief” at p. 57.)
Although the FDIC did not use the word “alternative” in its Complaint, this structure suggests an
intent to plead in the alternative, especially in light of the rule against double recovery.
Moreover, the FDIC has clarified in its brief on this motion that it has alleged three alternative
theories of liability. (Dkt. 35 at 44 n. 16.) Therefore, the Court construes the Complaint as
pleading Counts I, II, and III in the alternative and DENIES the Defendants’ motion to the extent
it asks the Court to dismiss Count III.
IV.
CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss (Dkt. 25) is DENIED.
SO ORDERED.
________________________
Hon. Tanya Walton Pratt, Judge
United States District Court
Southern District of Indiana
03/28/2014
Date: ____________________
5
Although the Defendants’ motion invokes only Rule 12(b)(6) (see Dkt. 25), the operative portion of its brief raises
Rule 12(f) (see Dkt. 26 at 24–26). Although it has not clearly done so in its filings, the Court infers that the
Defendants seek to have Count III dismissed under Rule 12(b)(6) or, in the alternative, stricken under Rule 12(f).
16
DISTRIBUTION:
Bryon E. Leet
WYATT TARRANT & COMBS LLP
bleet@wyattfirm.com
Steven E. Runyan
KROGER GARDIS & REGAS, LLP
ser@kgrlaw.com
Robert E. Craddock, Jr.
WYATT TARRANT & COMBS LLP
rcraddock@wyattfirm.com
Linda C. McFee
McDOWELL RICE SMITH &
BUCHANAN
lmcfee@mcdowellrice.com
Sara Veeneman
WYATT TARRANT & COMBS LLP
sveeneman@wyattfirm.com
R. Pete Smith
McDOWELL RICE SMITH &
BUCHANAN
petesmith@mcdowellrice.com
John W. Woodard, Jr.
WYATT TARRANT & COMBS LLP
jwoodard@wyattfirm.com
Jennifer M. McHugh
COZEN O’CONNOR
jmchugh@cozen.com
James A. Knauer
KROGER GARDIS & REGAS, LLP
jak@kgrlaw.com
Kevin R. Stolworthy
ARMSTRONG TEASDALE, LLP
kstolworthy@armstrongteasdale.com
Kevin D. Koons
KROGER GARDIS & REGAS, LLP
kdk@kgrlaw.com
Tracy A. DiFillipo
ARMSTRONG TEASDALE, LLP
tdifillippo@armstrongteasdale.com
17
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