Federal Deposit Insurance Corporation v. McCaffree et al

Filing 26

MEMORANDUM AND ORDER granting in part and denying in part 9 Motion to Stay Proceedings. The motion is DENIED IN PART as to the request to stay these proceedings, and GRANTED IN PART as to the request for an extension of time for filing their Answer.IT IS FURTHER ORDERED BY THE COURT that Defendants are granted an extension of 14 days from the date of this Memorandum and Order to file an Answer to the Complaint in this case. Signed by District Judge Julie A. Robinson on 12/15/2011. (pp)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
)
FEDERAL DEPOSIT INSURANCE
)
CORPORATION as Receiver of the
)
Columbian Bank and Trust Company,
)
)
Plaintiff,
)
)
vs.
)
)
CARL L. McCAFFREE,
)
JIMMY D. HELVEY,
)
SAM McCAFFREE,
)
RANDOLPH G. AUSTIN, and
)
RICHARD L. ROACH,
)
)
Defendants.
)
____________________________________)

Case No. 11-2447-JAR

MEMORANDUM AND ORDER
Plaintiff, the Federal Deposit Insurance Corporation as Receiver of The Columbian Bank
and Trust Company (“FDIC-R”), filed this action against the former directors and/or executive
officers of The Columbian Bank and Trust Company (“Bank”) to recover losses of at least $52
million allegedly suffered by the Bank due to the Defendants’ negligence and breach of their
fiduciary duties. This matter is before the Court on Defendants Carl McCaffree and Sam
McCaffree’s Motion to Stay the Proceedings Pending Determination of the Legality of the
FDIC’s Appointment as Receiver and to Extend the Time for Filing an Answer (Doc. 9). The
other Defendants have joined in the McCaffrees’ motion.1
Defendants argue that if the Bank was not insolvent as that term is defined under Kansas
law, the FDIC-R’s appointment as receiver is illegal and void, and such a finding would deprive

1

Docs. 18, 19, 20.

the FDIC-R of standing to maintain this action against the directors and/or officers of the Bank.
Defendants ask this Court to stay this action until there is a final determination in the pending
administrative review proceeding as to whether the Bank was insolvent on August 22, 2008, and
to extend the time for them to answer or otherwise plead to the Complaint.
1.

State Administrative Review Proceeding
The Kansas State Bank Commissioner issued a Declaration of Insolvency and Tender of

Receivership with regard to the Bank on August 22, 2008.2 The Bank and Columbian Financial
Corporation (its sole shareholder) filed an appeal on September 22, 2008, with the District Court
of Shawnee County, Kansas, challenging the factual and legal basis of the Commissioner’s
August 22, 2008 determination that the Bank was insolvent, his order that the Bank be closed,
and his appointment of the FDIC-R as receiver. The district court issued its Memorandum
Opinion and Entry of Judgment on March 29, 2010, denying relief to the appellants except to the
extent of remanding the matter back to the State Banking Commissioner and the State Banking
Board for further proceedings.3 On remand, the Discovery Order in the administrative review
proceeding provides that discovery in that case shall be completed by January 31, 2012;
dispositive motions are to be filed by February 29, 2012; and the formal hearing in that matter
will be held from April 17–20, 2012.4 The FDIC-R filed this case on August 9, 2011, seeking to
recover losses from the Bank’s former directors and/or executive officers under 12 U.S.C.
§ 1821.

2

Doc. 10-1.

3

Doc. 10-2.

4

Doc. 25-1.

2

2.

Primary Jurisdiction, Abstention and Inherent Stay Power
Defendants argue that this case should be stayed indefinitely based on the doctrine of

primary jurisdiction, the principles of abstention, or based on this Court’s inherent stay power.
Defendants argue that this Court has discretion to refer an issue in the case before it to an
administrative agency, citing TON Services, Inc. v. Qwest Corp.,5 and that staying a case
pursuant to the doctrine of primary jurisdiction is appropriate when issues of fact in the case “(1)
are not within the conventional experience of judges; (2) require the exercise of administrative
discretion; or (3) require uniformity and consistency in the regulation of the business entrusted to
the particular agency.”6 In support of their argument, Defendants assert that federal courts have
little to no expertise in determining in the first instance whether a bank is properly placed into
the hands of a receiver, citing Franklin Savings Ass’n v. Office of Thrift Supervision.7 In
Franklin, the Tenth Circuit addressed the proper standard of review and found that a de novo
standard was improper and that the Director’s appointment decision should be set aside only if
the decision was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with
the law.8
Defendants also argue that the Court should abstain under the doctrine outlined in
Burford v. Sun Oil Co..9 They argue that the Burford doctrine is concerned with protecting

5

493 F.3d 1225 (10th Cir. 2007).

6

Id. at 1239.

7

934 F.2d 1127 (10th Cir. 1991) (holding that a district court cannot engage in a de novo review of the
propriety of the Director of the Office of Thrift Supervision’s decision to place a federally-chartered thrift institution
into receivership).
8

Id. at 1142.

9

319 U.S. 315 (1943).

3

complex state administrative processes from undue federal influence. The Supreme Court in
Burford states that:
Although a federal equity court does have jurisdiction of a
particular proceeding, it may, in its sound discretion, whether its
jurisdiction is invoked on the ground of diversity of citizenship or
otherwise, ‘refuse to enforce or protect legal rights, the exercise of
which may be prejudicial to the public interest’; for it ‘is in the
public interest that federal courts of equity should exercise their
discretionary power with proper regard for the rightful
independence of state governments in carrying out their domestic
policy.10
Finally, Defendants cite United Steelworkers of America v. Oregon Steel Mills, Inc., for
the proposition that courts have inherent power to stay proceedings and, in assessing the
propriety of a stay, a district court should consider: (1) whether the movants are likely to prevail
in the related proceedings; (2) whether, absent a stay, the movants will suffer irreparable harm;
(3) whether the issuance of the stay will cause substantial harm to the other parties to the
proceeding; and (4) the public interest at stake.11
3.

Discussion
The Court declines to stay this proceeding under any of the theories advanced by the

Defendants. The majority of Defendants’ arguments are based on the assumption that this Court
is deciding the same issue that is being decided in the state administrative proceeding, or that this
Court’s decision will somehow influence that decision.
This Court is not deciding the same issue that is being reviewed in the state
administrative proceeding. This Court is not reviewing the decision to declare the Bank

10

Id. at 317–18 (citation omitted).

11

See 322 F.3d 1222, 1227 (10th Cir. 2003).

4

insolvent or the decision to appoint a receiver. This distinction is pointed out in one of the cases
cited by Defendants. The court in United Steelworkers noted that the plaintiff was not seeking
reconsideration, or “review” of an EPA ruling, but rather it was bringing a separate enforcement
action, not to challenge, but to implement that ruling.12 The court in United Steelworkers noted
that the plaintiff was not seeking to interfere with direct appellate review of the EPA’s
substantive decision and that such review was in fact already in progress.13 In recognizing the
possibility that their “colleagues conducting the substantive review of the EPA’s . . . decision
may set it aside,” the court found that “enforcement actions should proceed against a polluter
despite the fact that a decision regarding the underlying regulations is under review.”14 The
court found that although the polluter was presumably within its rights in seeking judicial
review, such litigation should be carried out on the polluter’s time, not the public’s, “for during
its pendency the original regulations remain in effect.”15
Furthermore, this case should not influence the state administrative proceeding because
that proceeding was filed in 2008 and is situated at a more advanced stage of litigation than the
current case. Defendants have not filed their answers yet in this case. Based on the discovery
deadline and hearing date in the state proceeding, discovery will be completed and the detailed
findings that were ordered on remand should be available before this case is set for trial.
A stay pending final resolution of the issue of the declaration of insolvency and

12

Id. at 1225.

13

Id. at 1226.

14

Id.

15

Id. (citations omitted).

5

appointment of a receiver could be unreasonably long and futile. The state court suggests that
the pending litigation in that court will not provide relief and that the court is ordering detailed
findings so that judicial review for purposes of exhaustion of administrative remedies is possible
and that relief may be afforded in some subsequent action. The court states:
The point here is that any judgment this Court might make in
regard to the propriety of the Commissioner’s August 22, 2008,
order is narrow and could afford little, if any, direct relief by way
of this proceeding alone. In other words, it could be an order
without a meaningful remedy enforceable by this Court nor would
it be binding on the FDIC. An order without means to its
enforcement would not constitute a proper judicial order, but rather
would be an illusory and advisory one with its only efficacy being,
perhaps, to satisfy any exhaustion of administrative remedies
requirement as a precedent to another lawsuit. . . . . In order to be
honored as a binding judgment, any such judgment would also
require that the underlying state procedural path to challenge the
receivership was constitutionally sound. . . . While the Court feels
the above considerations are somewhat dispositive of this case, the
nature of the record presented is a further deterrent to a meaningful
judicial review in this case.16
Defendants’ arguments are also premised on the proposition that if the FDIC was
improperly appointed receiver under Kansas law, then it has no authority to maintain this
lawsuit. Defendants fail to cite any authority for this proposition. Furthermore, the state court
decision acknowledges that the decision in that forum will not affect the FDIC-R. The state
court held that:
All considered then, the only effacious (sic) remedy that could be
provided Petitioners, even were they to prevail in overturning the
Commissioner’s finding of insolvency, would have to be a return
of any remaining assets in the custody of the receiver or a
monetary one, which would be without the aegis of the present
form of proceeding. Absent voluntary surrender by the FDIC

16

Doc. 10-2, p. 29-30.

6

receiver of what once were the Columbian Bank and Trust
Company’s assets, were the order appointing the FDIC receiver
dissolved, no order to the FDIC, it being a non-party to this present
judicial proceeding, could be enforced in this proceeding. Further,
while the FDIC, by its acceptance of an appointment as a receiver
of an FDIC insured bank, may have assented to state court
jurisdiction (K.S.A. 9-1906), federal law, as noted, would not bind
it to judgments entered subsequent to its acceptance of
receivership. (12 U.S.C. § 1821 (d)(13)(A).) Even were this Court
to dissolve the order appointing the FDIC as receiver, the FDIC
could act on its own accord to effect the same end by appointing
itself as receiver, effectively ratifying the closure and liquidation
of the Columbian State Bank and Trust Company. (12 U.S.C. §
(c)(4)). Finally, probably ending the inquiry, is the fact that
federal law prohibits any court order that would purport to
interfere with the FDIC’s operation as a receiver. 12 U.S.C. §
1821(j).17
This case involves an area of enforcement that carries with it a strong congressional
policy in favor of prompt enforcement. The state court’s reference to 12 U.S.C. § 1821(j) as
“probably ending the inquiry,” acknowledges the prohibition on interference with the FDIC-R’s
fulfillment of its statutory duties. Section 1821(j) provides that “[e]xcept as provided in this
section, 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 Corporation as
a conservator or a receiver.” In United Steelworkers, the court noted the strong congressional
policy in favor of prompt enforcement of the Act involved in that case and found that therefore
enforcement should not be delayed while review of the agency’s action is under way.18
This case was filed by the FDIC-R pursuant to its statutory authority as receiver.
Defendants assert that § 1821(j) restricts judicial power only over the actions of a properly

17

Doc. 10-2, p. 27–28.

18
See United Steelworkers of Am. v. Oregon Steel Mills, Inc., 322 F.3d 1222, 1227 (10th Cir. 2003) (citing
Ohio Envtl. Council v. United States Dist. Court, S. Dist. Of Ohio, E. Div., et al., 565 F.2d 393, 397 (6th Cir. 1977)).

7

appointed FDIC, citing James Madison Limited by Hecht v. Ludwig.19 However, there is also
authority suggesting that as long as the FDIC-R is pursuing its duties as set forth in the statute, it
is protected by the anti-injunction statute.20 In Bank of America National Ass’n v. Colonial
Bank, the court noted that § 1821(j) “has been interpreted broadly to bar judicial intervention
whenever the FDIC is acting in its capacity as a receiver or conservator, even if it violates its
own procedures or behaves unlawfully in doing so.”21 Thus, the court held that its jurisdictional
inquiry was quite narrow. “First, we evaluate whether the FDIC’s challenged actions constitute
the exercise of a receivership power or function. . . . If so, the FDIC is protected from all court
action that would ‘restrain or affect’ the exercise of those powers or functions.”22 The FDIC-R
accepted appointment as the Bank’s receiver pursuant to 12 U.S.C. § 1821(c). Pursuant to its
acceptance of appointment as receiver of the Bank, the FDIC-R has standing to bring a civil
action in federal district court to hold former directors and/or officers of the Bank personally
liable.23 The FDIC-R’s filing of this director and officer liability action is in keeping with its
statutory duty to maximize recoveries for the receivership.
Defendants allege that if the petitioners are successful in the state proceeding, that action

19

82 F.3d 1085, 1093 (D.C. Cir. 1996).

20

See, e.g.,RPM Invs., Inc. v. RTC, 75 F.3d 618, 621 (11th Cir. 1996) (refusing to enjoin alleged breach of
contract because “[e]ven claims seeking to enjoin the RTC from taking allegedly unlawful actions are subject to the
jurisdictional bar of § 1821(j)”); Volges v. RTC., 32 F.3d 50, 52 (2d Cir. 1994) (concluding that the fact that the
RTC’s actions might violate some other provision of law does not render the anti-injunction provision inapplicable);
Nat’l Trust for Historic Preservation v. FDIC, 21 F.3d 469 (D.C. Cir. 1994) (refusing to enjoin sale of property in
alleged violation of National Historic Preservation Act); Ward v. RTC, 996 F.2d 99 (5th Cir. 1993) (per curiam)
(finding sale of real estate belonging to failed bank within the scope of RTC’s function, even if done illegally).
21

604 F.3d 1239, 1243 (11th Cir. 2010).

22

Id. (citation omitted).

23
See 12 U.S.C. § 1821(k) and (l); see also 12 U.S.C. § 1821(d)(E)(13)(I) (duty of FDIC-R to maximize
recoveries from a failed bank’s assets).

8

could impact whether the FDIC-R’s injury in this case is fairly traceable to the challenged action
of the Defendants. Nothing in this decision prevents the Defendants from making that argument
in this case or from using discovery or findings from the state administrative proceeding. The
FDIC-R also points out that Defendant Carl McCaffree has been litigating insurance coverage in
this court for claims or potential claims, including those of the FDIC-R, arising out of the failure
of the Bank without suggesting that coverage litigation should be stayed until the
seizure/appointment of receivership matter is resolved by way of the petition for judicial review
pending in the state administrative proceeding.24
The Court finds that it would be unreasonable to stay the current action, filed by the
FDIC-R under its statutory authority, for an indefinite period of time to determine the possible
effect of an action that may be filed in the future. The Court’s decision to withhold its discretion
to stay this case is also in keeping with congressional intent to allow the FDIC-R to fulfill its
statutory duties without judicial restraint.
IT IS THEREFORE ORDERED BY THE COURT that Defendants Carl McCaffree
and Sam McCaffree’s Motion to Stay the Proceedings Pending Determination of the Legality of
the FDIC’s Appointment as Receiver and to Extend the Time for Filing an Answer (Doc. 9) is
DENIED IN PART as to the request to stay these proceedings, and GRANTED IN PART as to
the request for an extension of time for filing their Answer.
IT IS FURTHER ORDERED BY THE COURT that Defendants are granted an
extension of 14 days from the date of this Memorandum and Order to file an Answer to the
Complaint in this case.
24
See Columbian Fin. Corp., et al., v. Bancinsure, Inc., Case No. 08-CV-2642-CM, United States District
Court for the District of Kansas.

9

IT IS SO ORDERED.

Dated: December 15, 2011
S/ Julie A. Robinson
JULIE A. ROBINSON
UNITED STATES DISTRICT JUDGE

10