Lange v. Hoskins et al

Filing 65

ORDER granting 39 Motion to Intervene. The FDIC shall file its proposed claim for declaratory relief on or before December 3, 2012.The FDICs response to the Motion to Compel Arbitration and Dismiss Plaintiffs First Amended Complaint 42 is due on or before December 10, 2012. Any reply shall be filed by December 20, 2012. Ordered by Magistrate Judge Cheryl R. Zwart. (BHC)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
RICK D. LANGE, as Chapter 7 Trustee of
the Bankruptcy Estate of TierOne
Corporation;

4:12CV3148

Plaintiff,
MEMORANDUM AND ORDER
vs.
CHARLES W. HOSKINS, CAMPBELL R.
MCCONNELL, GILBERT G.
LUNDSTROM, EUGENE B.
WITKOWICZ, JAMES A. LAPHEN,
KPMG LLP,
Defendants.
This matter is before the court on The Federal Deposit Insurance Corporation’s ("FDIC")
Motion to Intervene. (Filing No. 39). For the reasons set forth below, the motion is granted.

BACKGROUND
This case involves the bankruptcies of TierOne Bank (the “TierOne Bank”) and its
holding company TierOne Corporation (the “TierOne Holding Company”)(collectively TierOne
Bank and TierOne Holding Company are referred to as “TierOne” throughout this opinion).
During the times applicable to this action TierOne Bank was a wholly owned subsidiary of
TierOne Holding Company.

The parties allege that sometime in 2004, TierOne began

implementing aggressive growth strategies focused on high-risk commercial real estate (“CRE”)
loans, including acquisition, development and construction (“ADC”) loans.

In addition,

TierOne expanded its operations and opened or acquired nine loan production offices including
an operation in Las Vegas which accounted for almost 30% of TierOne Bank’s loan portfolio by
2006.

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TierOne Bank subsequently experienced “significant and material loan losses” primarily
in its loan portfolio. Plaintiff alleges the losses “significantly diminished earnings and eroded
capital” of TierOne. TierOne Bank subsequently became insolvent and filed for bankruptcy.
Likewise, because the only asset held by the TierOne Holding Company was TierOne Bank
stock, the Holding Company became insolvent and declared bankruptcy. Rick Lange was
appointed as Trustee of the Holding Company.

The FDIC was appointed as Receiver of

TierOne Bank.
Lange, acting as trustee (the “Trustee”) for the TierOne Holding Company, filed this
action against defendants Charles W. Hoskins, Campbell R. McConnell, Gilbert G. Lundstrom,
Eugene B. Witkowicz, James A. Laphen, (collectively “the TierOne Defendants”) and KPMG
LLP. Lange alleges each of the TierOne Defendants served as directors and/or officers of
TierOne Holding Company and committed various acts of mismanagement which led to the
failure of TierOne Bank and TierOne Holding Company. Although the Amended Complaint
does not specifically address the defendants’ respective roles with TierOne Bank, each of the
named defendants also served as an officer and/or director of TierOne Bank during the relevant
time period. Compare Filing No. 63-1 with Filing No. 64-1.

Specifically, the First Amended Complaint alleges the following acts of malfeasance
against the TierOne Defendants:

TierOne Defendants violated their fiduciary duty by devising and implementing an
unreasonable and high risk expansion strategy. (Filing No. 23, ¶ 27 at CM/ECF p. 10).
TierOne Defendants “continued and compounded their breach of fiduciary duty by their .
. . failure to adequately oversee the expansion and to account for the debilitating loan
losses that were the direct result of the flawed and poorly monitored loan production
offices.” Id.

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TierOne Defendants caused the “unreasonable concentration of construction and land
development loans.” (Filing No. 23, ¶28 at CM/ECF pp. 10-11).

As a direct result of the actions and inaction of the TierOne Defendants, TierOne
experienced “significant and material loan losses resulting principally from losses of
TierOne Bank in the loan portfolio” (Filing No. 23, ¶30 at CM/ECF p. 11).
TierOne Defendants “failed to create and maintain reasonable internal controls, risk
management, underwriting, and credit administration procedures . . . .” (Filing No. 23,
¶29 at CM/ECF p. 11).
TierOne Defendants “caused TierOne to file materially misstated reports and documents
with the Securities and Exchange Commission.” (Filing No. 23, ¶32 at CM/ECF p. 12).

Based on these allegations Plaintiff is suing the TierOne Defendants for breaching their
fiduciary duty to the TierOne Holding Company and for wasting its corporate assets. (Filing
No. 23, ¶¶52-65 at CM/ECF pp. 22-5).

LEGAL ANALYSIS

A.

Intervention as a Matter of Right

The FDIC has filed a motion to intervene as a matter of right or, in the alternative, at the
court’s discretion. The FDIC asserts the plaintiff’s claims against the TierOne Defendants are,
in substance, claims against the individual defendants for their actions and inactions while
operating TierOne Bank. And, because TierOne Holding Company is the sole shareholder of
TierOne Bank, the plaintiff's claims are derivative in nature and belong solely to the FDIC as the
receiver of TierOne Bank.
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Pursuant to Rule 24(a) of the Federal Rules of Civil Procedure, upon the filing of a
timely motion, the court must permit anyone to intervene who:
(1)

is given an unconditional right to intervene by a federal statute; or

(2)

claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action
may as a practical matter impair or impede the movant’s ability to
protect its interest, unless existing parties adequately represent that
interest.

Thus, Rule 24 provides that the proposed intervenor must establish that the motion is
timely, that it has a recognized interest in the litigation, that the interest may be impaired by the
resolution of the case, and that no other party can adequately protect its interest. South Dakota
ex rel Barnett v. U.S. Dept. of Interior, 317 F.3d 992, 785 (8th Cir. 2003). “Rule 24 should be
liberally construed with all doubts resolved in favor of the proposed intervenor.” Id. (citing
Turn Key Gaming, Inc. v. Oglala Sioux Tribe, 164 F.3d 1080, 1081 (8th Cir. 1999)).

1.

Timeliness

First, the court must decide whether the proposed intervenor’s motion is timely. When
making this determination the court should consider:

(1) the extent the litigation has progressed at the time of the motion to intervene;
(2) the prospective intervenor's knowledge of the litigation; (3) the reason for the
delay in seeking intervention; and (4) whether the delay in seeking intervention
may prejudice the existing parties.
American Civil Liberties Union of Minnesota v. Tarek ibn Ziyad Academy, 643 F.3d 1088,
1093 (8th Cir. 2011).

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The plaintiff's initial complaint was filed on June 22, 2012 and was removed to this court
on July 23, 2012. (Filing No. 1).

Just over a month later, the FDIC filed its motion to

intervene. (Filing No. 31). This one-month delay is insubstantial, particularly since the parties
had not commenced discovery at the time the FDIC filed its motion. The court finds the current
parties were not prejudiced by the timing of the FDIC’s motion to intervene, and neither party
has argued to the contrary. The FDIC’s motion is timely.

2.

FDIC’s Interest in the Litigation

Second, the court must determine whether the FDIC has “a recognized interest in the
subject matter of the litigation.” United States v. Union Elec. Co., 64 F.3d 1152, 1160 (8th Cir.
1995).
An interest is cognizable under Rule 24(a)(2) only where it is “direct, substantial,
and legally protectable.” United States v. Union Elec. Co., 64 F.3d 1152, 1161
(8th Cir.1995). An economic interest in the outcome of the litigation is not itself
sufficient to warrant mandatory intervention. Curry v. Regents of the Univ., 167
F.3d 420, 422-23 (8th Cir. 1999). An interest that is “contingent upon the
occurrence of a sequence of events before it becomes colorable” is also not
sufficient to satisfy Rule 24(a)(2). Standard Heating & Air Conditioning Co. v.
City of Minneapolis, 137 F.3d 567, 571 (8th Cir.1998), quoting Washington Elec.
v. Mass. Mun. Wholesale Elec., 922 F.2d 92, 97 (2d Cir.1990).
Medical Liability Mut. Ins. Co. v. Alan Curtis LLC, 485 F.3d 1006, 1008 (8th Cir. 2007).

Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(“FIRREA”), the FDIC succeeds to “all rights, titles, powers and privileges of the insured
depository institution and of any stockholder . . . of such institution with respect to the
institution and the assets of the institution.” 12 U.S.C.§ 1821(d)(2)(A)(i). Thus, as receiver for
the TierOne Bank, the FDIC unquestionably has a right to intervene in actions where a bank or
other depository institution files for bankruptcy and shareholders attempt to bring an action

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against the bank’s officers and directors. However, the question presented in this case is more
complicated. That is – what are the FDIC’s rights, if any, when a bank’s holding company is
involved in litigation asserting claims directly related to the management of the bank and the
diminution of the bank’s assets against individuals serving as officers and directors of both the
holding company and the wholly owned bank?

In arguing it has an interest in this litigation, the FDIC alleges that the claims presented
by the Trustee are best characterized as claims brought by the TierOne Holding Company in its
capacity as the sole shareholder of the TierOne Bank because the claims relate directly to the
management and failure of the TierOne Bank. Therefore, its claims are really derivative claims
against the management of the TierOne Bank and may only be brought by the FDIC. For its
part, the Trustee argues the claims on the face of the amended complaint are only made against
the TierOne Defendants in their capacities as officers and/or directors of the TierOne Holding
Company and are independent of any claims that may be brought against the defendants in their
capacities as officers and/or directors of the TierOne Bank. Further, the Trustee argues that
even if the claims could somehow be characterized as shareholder claims, they are not derivative
under Nebraska law. Therefore, the Trustee argues, the FDIC has no interest in this litigation.
These arguments are addressed below.

a.

The characterization of the plaintiff’s claims.

In In re Southeast Banking Corp., 827 F.Supp. 742 (S.D. Fla. 1993), overruled on other
grounds by, 69 F.3d 1539 (11th Cir. 1995), the court addressed many of the issues presented in
the case now before this court. In re Southeast Banking Corp. involved a suit by the trustee of a
bankrupt holding company against individual defendants who served as officers and directors of

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both the holding company and its wholly owned subsidiary bank. 1 The FDIC argued that all of
the claims were actually derivative actions.

The trustee countered that the claims in the

complaint were claims by the holding company against the defendants in their capacities as
officers and directors of the holding company for duties owed to the holding company and not to
the bank. 827 F.Supp. at 750.
First noting that “[w]hether a claim is considered direct or derivative is a matter of state
law, and is determined from the body of the complaint rather from the label employed by the
parties,” (In re Southeast Banking Corp., 827 F.Supp. at 745), the court analyzed the substance
of the claims in the complaint. The court concluded that the complaint was “substantially
dominated by derivative allegations, rather than pleading distinct harm to [the holding
company].” Id. at 746. In discussing any distinction between harms to the holding company
and harms to the wholly owned bank, the court opined “[t]here is no meaningful distinction
between injury suffered by the holding company and the derivative claims of mismanagement,
especially where [the holding company’s] solvency and success were ‘crucially dependent’ on
the [b]ank.”

Id. at 746.

The court allowed only those claims deemed non-derivative to

continue; that is, claims involving the acquisition of two thrift institutions that occurred at the
holding company level without regard to the management of or financial impact on the wholly
owned subsidiary bank. Id.

A Florida bankruptcy court further addressed the issue of when claims brought ostensibly
against the individual officers and directors of a holding company are actually derivative claims
against the officers and directors in their capacities as fiduciaries of the wholly owned bank.
See In re Bank United Financial Corp., 442 B.R. 49 (Bankr. S.D. Fla. 2010). In Bank United, a

1

The court did not address the propriety of intervention in In re Southeast Banking Corp.
However, the court addressed the arguments similar to those presented by Plaintiff in this case – that is,
the claims were brought solely against the defendants in their capacity as fiduciaries of the holding
company and that none of the claims were derivative in nature against the fiduciaries in their capacities
as officers or directors of the failed bank.

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bank and its parent holding company both failed.

The holding company was the sole

shareholder of the bank, the officers and directors of the bank and the holding company were
identical, and each officer and director was a named beneficiary under a single Directors’ and
Officers’ liability policy. The Holding Company sought to bring causes of action against the
individual officers and directors in their capacities as fiduciaries of the holding company. The
FDIC resisted, arguing any claims against the officers and directors were derivative claims that
belonged to the FDIC.

Bank United noted that the individuals owed separate fiduciary duties to the holding
company and to the bank. However, the court commented that “[t]he waters get muddied” when
trying to determine in what capacity the individuals are being sued and whether their alleged
improper conduct breached a duty to the bank, the holding company, or both.

In re Bank

United Financial Corp., 442 B.R. at 54. In attempting to determine how to separate such claims,
the court relied upon the following factors:

First, does the complaint state a cause of action for breach of fiduciary duty by the
holding company officer or director to the holding company. Second, if the act or
failure to act could also be viewed as a breach of duty to the subsidiary by the
same person in his or her capacity as a director or officer of the subsidiary, is the
injury alleged to have been caused by the breach one that could only occur at the
parent level or is it a harm shared with, or occurring solely at, the subsidiary level.
If the answer to either of these questions is “no,” then the claim being pursued is a
derivative claim. However, if the answer to both of these questions is “yes,” then
the claim is direct.
In re Bank United Fin. Corp., 442 B.R. 49, 58-59 (Bankr. S.D. Fla. 2010).

Based on the enunciated test, the court reviewed each of the claims proposed by the
holding company against the directors and found claims that related directly to the failure of the
bank were derivative and were owned by the FDIC. Id. at 60.

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The plaintiff argues that FIRREA does not apply to this case because the litigation
involves claims being brought by the Trustee of the TierOne Holding Company against some of
its former officers and directors. The FDIC counters that the claims all ultimately involve
disputes over the management and use of the assets of TierOne Bank, thus providing the FDIC
with the necessary interest to intervene. The issue is further complicated by the fact that each
of the individual defendants served a dual capacity – they were each officers and/or directors of
both the TierOne Holding Company and the TierOne Bank.

While the court need not specifically adopt the test put forth in In re United Financial
Corp., the court finds the reasoning of the Bankruptcy Court to be sound and persuasive.
Where, as is the case here, the same individuals serve as directors of both the failed bank and the
holding company and where the only business the holding company conducts is running the
subsidiary bank, the court may look beyond the form of the pleadings to determine the true
nature of the alleged causes of action against the officers and directors of the bank and holding
company to determine if the FDIC has an interest in the action. Thus, Plaintiff’s argument that
the FDIC cannot have an interest in the litigation because the Complaint does not specifically
mention any claims against the individual defendants in their capacity as directors of TierOne
Bank is unavailing.

Although the First Amended Complaint is artfully drafted to avoid mentioning that the
named defendants served as officers and directors of the TierOne Holding Company and
TierOne Bank, the pleading is littered with factual allegations and causes of action that rely
almost solely on claims of mismanagement of the Bank. For instance, the following claims all
pertain directly to the operations of TierOne Bank:

TierOne Defendants approved the opening and operation of a Las Vegas loan production
office in December 2005. By the end of 2006, the Las Vegas loan production office

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accounted for almost 30% of the nearly $3.7 billion loan portfolio of TierOne Bank.
(Filing No. 23, ¶ 26 at CM/ECF p. 10).

The TierOne Defendants violated their fiduciary duty to TierOne [Holding Company] by
devising and implementing an unreasonable and high risk strategy which “threatened the
existence of the primary corporate asset of TierOne [Holding Company] – TierOne Bank.
(Id., ¶ 27 at CM/ECF p. 10).
The TierOne Bank’s loan portfolio became unreasonably concentrated in construction
and land loans as a direct result of directives and policies promulgated by the TierOne
Holding Company’s officers and directors. (Id., ¶ 28 at CM/ECF p. 11).

As a direct result of the actions and inaction of the TierOne Defendants, TierOne
[Holding Company] began to experience significant and material loan losses resulting
principally from losses of TierOne Bank in the loan portfolio. These losses, in turn,
significantly diminished earnings and eroded capital of TierOne [Holding Company].
(Id., ¶ 30 at CM/ECF p. 11).

Plaintiff attempts to characterize each of these actions or inactions as failures of the
defendants in their role as officers and directors of the TierOne Holding Company. However, it
is clear the resulting “harm [was] shared with, or occur[ed] solely at, the subsidiary level.” In re
Bank United Fin. Corp., 442 B.R. 49, 58-59 (Bankr. S.D. Fla. 2010). That is, but for the harm
that occurred causing the TierOne Bank to fail, the TierOne Holding Company would not have
suffered any injury. According to the first amended complaint, the failure of the TierOne Bank,
and subsequently the TierOne Holding Company, was a direct result of the loan programs
enacted by TierOne Bank and existing in the TierOne Bank loan portfolio.

Accordingly, at

least a portion of the claims appear to be derivative in nature. See Vieria v. Anderson, case no.
2:11cv0055, 2011 WL 3794234, at *5 (D.S.C. Aug. 25, 2011) (finding claims against the dual

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officers and directors of a holding company and wholly owned bank were derivative in nature
and belonged to the FDIC where the harm done to the holding company was inseparable from
the harm done to the bank); see also Levin v. Miller, case no. 1:11cv1264, 2012 WL 1982287, at
*3 (S.D. Ind. June 1, 2012)(allowing the FDIC to intervene where certain claims raised by the
holding company against dual officers of the holding company and bank did not allege harm
distinct from the harm the bank experienced). The plaintiff's claims are better characterized as
claims the TierOne Holding Company is trying to bring in its capacity as a shareholder against
the individual defendants in their respective roles as officers and directors of TierOne Bank –
not the TierOne Holding Company.

Without ultimately determining which of the alleged

claims belong to the FDIC, it is apparent many of the allegations relate specifically to the failure
of the TierOne Bank and are not direct actions the TierOne Holding Company can bring against
its officers and directors.

Plaintiff cites to an unpublished decision from the United States District Court Northern
District of Georgia, (Patel et al. v. Patel et al., no. 1:09cv3684 (N.D. Ga., December 29, 2010)),
in support of its contention that its claims implicate only the TierOne Holding Company.

In

Patel, the FDIC was not permitted to intervene in an action by shareholders of a holding
company against certain officers and directors of that holding company. The holding company
operated several banks and sold shares in the holding company as a way to raise capital for the
bank. The shareholders sued the officers and directors alleging the shares were marketed
through fraudulent and misleading Private Placement Memoranda.

The court denied the

FDIC’s attempt to intervene holding that the FDIC had no interest in the claims of the holding
company’s shareholders against the holding company.

However, the basis for the court’s

decision related specifically to the nature of the claims brought by the shareholders – claims
against the officers and directors for the marketing and selling of the holding company’s stock
and not for the operation of the banks under the control of the holding company.

That is, the

allegedly misleading statements in the PPM were not directly attributable to the failure of the
wholly owned banks. Accordingly, Patel is distinguishable from the instant case; specifically,

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the vast majority of the harm Plaintiff alleges occurred as a direct result of the mismanagement
and failure of the TierOne Bank.

Plaintiff also relies upon a case from the United States Bankruptcy Court Eastern District
of New York, (In re First Central Financial Corp., 269 B.R. 502 (Bankr. E.D.N.Y. 2001)). This
case stands for the basic proposition that claims against a holding company and claims against
the holding company’s wholly owned subsidiary are distinct. But In re First Central Financial
Corp. did not involve the FDIC, applied New York state law, and noted that several of the
claims were specific to the holding company. That is, the claims were independent of how the
holding company operated its wholly owned subsidiary.

In re First Central Financial Corp.,

269 B.R. at 518. Thus, like Patel, the holding company shareholders had an independent cause
of action against its officers and directors that was not entirely related to the operation of the
Bank.

Finally, citing Lubin v. Skow, 382 Fed. Appx. 866, 870 (11th Cir. 2010), the plaintiff
claims the FDIC has no interest in this litigation because the complaint specifically names the
defendants in only their respective capacities as fiduciaries of the TierOne Holding Company.
Lubin involved an attempt by the FDIC to intervene in a suit by the bankruptcy trustee for a
holding company against its failed subsidiary bank and individual defendants in their capacities
as officers and directors of the holding company.

The holding company raised funds to

capitalize the bank through various equity offerings. Due to its concentration of commercial
real estate loans, the bank and the holding company both filed for bankruptcy. The trustee for
the holding company brought suit against the defendants claiming their lending strategy put the
equity interests of the holding company’s stockholders at risk. The trustee further asserted the
holding company and its stock holders “had and have direct equitable, if not legal, interests in
the business practices, proper management, and profits of the Bank.” Id. at 879. The FDIC
intervened in the action and moved to dismiss the plaintiff’s claims for lack of standing and

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failure to state a claim. The FDIC argued that all of the claims asserted against the officers and
directors belonged to it and not the bankruptcy trustee for the holding company.
Noting that FIRREA does not apply where the “Trustee is suing to vindicate the rights of
the [h]olding [c]ompany against its own officers” to support its arguments, (Id. at 872, n. 9), the
court expressly dismissed claims brought by the holding company against its officers “[b]ecause
the Complaint fails to plead sufficient facts connecting any act or omission by the defendants
with a harm to the [h]olding [c]ompany that is distinct from the harm the [h]olding [c]ompany
suffered when its investment in the [b]ank soured . . . .” Id. at 873. Lubin does not support the
Trustee's argument that the FDIC has no protectable interest at issue in this case..

Upon review of the facts and the authorities cited by the parties and herein, the court
finds that the Amended Complaint alleges numerous claims which are directly linked or
dependent on the failure of the TierOne Bank, the FDIC clearly has a direct, legal and
substantial interest in this case for the purposes of Fed. R. Civ. P. 24.

b.

The derivative nature of the plaintiff’s claims.

The plaintiff argues that even if its claims are characterized as shareholder claims, they
are not derivative but are direct claims belonging to the TierOne Holding Company against the
named defendants. Whether a claim is direct or derivative is a matter of state law. Under
Nebraska law “a shareholder may not bring an action in his or her own name to recover for
wrongs done to the corporation or its property.” Freedom Financial Group v. Woolley, 280
Neb. 825, 832, 792 N.W.2d 134, 140 (2010). A shareholder may pursue a direct claim in his or
her individual capacity if the shareholder can establish an individual cause of action. Id.

In order to establish an individual harm, the shareholder must allege a separate and
distinct injury or a special duty owed by the party to the individual shareholder.
Even if a shareholder establishes that there was a special duty, he or she may only
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recover for damages suffered in his or her individual capacity, and not injuries
common to all the shareholders.
Id.
In this case Plaintiff cannot establish either a “special duty” owed to it by the named
defendants or any damages it suffered that would not have been common to any other
shareholders. Simply put, Plaintiff is alleging damages it experienced due to the diminution in
value of its investment in the TierOne Bank. A diminution in value is a claim that belongs to
the corporation and not the individual shareholder. Myerson v. Coopers & Lybrand, 233 Neb.
758, 763-64, 448 N.W.2d 129, 134 (1989). “Even though all shares of stock of a corporation
may be owned by a small number of shareholders or by one shareholder alone, a shareholder
cannot sue individually concerning rights which belong to the corporation.” Myerson, 233 Neb.
at 765, 448 N.W.2d at 135.
Plaintiff argues the individual defendants owed the TierOne Holding Company a “special
duty.” But what the Trustee describes as a “special duty” is simply the ordinary fiduciary duty
owed to the TierOne Holding Company by the defendants as the TierOne Holding Company’s
officers and/or directors.

To assert the type of “special duty” necessary to overcome the

derivative claims asserted in this action, the Trustee must prove that the named defendants, as
officers and/or directors of the TierOne Bank, owed the TierOne Holding Company, as the sole
shareholder of the TierOne Bank, a “separate and distinct” duty from a duty it would have owed
any other shareholders. See Freedom Financial Group, 280 Neb. at 8333-34, 792 N.W.2d at
141. The claims of mismanagement of the TierOne Bank do not implicate any “special duty” as
defined by Nebraska law, accordingly any claims attributable to the TierOne Holding Company
based on its status as a shareholder of the TierOne Bank are derivative in nature.

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3.

FDIC’s interest may be impaired.

The next prong of the mandatory intervention analysis concerns whether the FDIC has
the ability to protect its interest if it is not allowed to intervene in this litigation. The FDIC, as
the trustee of TierOne Bank’s bankruptcy estate, has an obligation to maximize TierOne Bank’s
assets for the receivership estate. TierOne Holding Company and TierOne Bank apparently
share a Directors and Officers liability insurance policy. The limit on the policy is purported to
be $15 million. The FDIC obviously has an interest in recovering as much of the policy as it
can. Moreover, the FDIC is asserting that several of the claims brought by the Trustee are
actually claims that belong to the FDIC as receiver for TierOne Bank. Thus, any rulings
regarding the individual defendants’ alleged breach of fiduciary duties in managing TierOne
Bank and its loan portfolio may also affect the FDIC’s interest. If it is not allowed to intervene
in the matter, its interests in these claims may be impaired. See, e.g., Kansas Public Employees
Retirement System v. Reimer & Koger Associates, Inc., 60 F.3d 1304, 1307 (8th Cir. 1995)
(requiring only a showing that the proposed intervenor’s interest may be impaired, not that it
undoubtedly would be impaired).

4.

FDIC’s interest is not adequately protected.

“[P]ersons seeking intervention need only carry a ‘minimal’ burden of showing that their
interests are inadequately represented by the existing parties.” Union Elec. Co., 64 F.3d at 1168.
In this case there is little question that Plaintiff will not adequately represent the FDIC’s interest
in this litigation. The FDIC seeks to establish that many of the claims brought by Plaintiff
belong, in fact, to the FDIC. In this respect, not only will the plaintiff not adequately represent
the FDIC’s claims – it is opposed to the FDIC’s interests. In addition, the parties are also
competing for the $15 million of liability insurance coverage shared by TierOne Bank and
TierOne Holding Company. The FDIC has an interest in recovering any award granted due to
the malfeasance of TierOne Bank’s officers and directors for the benefit of TierOne’s creditors.

15

The TierOne Holding Company, and obviously the defendants, will not adequately represent this
interest.

B.

Permissive Intervention

Even if a party cannot meet its burden of proof regarding mandatory intervention, the
court has discretion to allow intervention nonetheless. Under Rule 24(b) of the Federal Rules, a
court may allow permissive intervention when the proposed intervenor “has a claim or defense
that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1)(B).
However, the court must consider whether allowing permissive intervention “will unduly delay
or prejudice the adjudication of the original parties’ rights.” Fed. R. Civ. P. 24(b)(3).

The Trustee asserts allowing the FDIC to intervene would be futile and would unduly
prejudice and delay the proceedings. The Trustee argues “[t]he sole reason for which the FDICR has sought to intervene . . . is to file a declaratory judgment complaint seeking a determination
that the causes of action asserted by the Trustee against the TierOne Defendants belong
exclusively to the FDIC-R.” (Filing No. 51 at CM/ECF p. 25). The Trustee asserts such a claim
would not survive a motion to dismiss and thus would be futile. The court disagrees. For all the
reasons set forth in Section A(2)(a) of this opinion, the court cannot agree that any declaratory
action filed by the FDIC would necessarily be dismissed on the pleadings.

Moreover, there are undoubtedly common questions of law or fact with regard to how the
individual defendants exercised their respective duties in managing TierOne Bank. The FDIC
should have the opportunity to assert its rights over the claims it believes belong to it under
FIERRA. While further action by the FDIC may delay the proceedings, the delay would not
prejudice the parties, particularly if the FDIC seeks a ruling to clarify which party can assert
certain claims against the defendants. Accordingly, the FDIC should be allowed to intervene as
a matter of discretion.

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IT IS ORDERED:

1)

The FDIC’s motion to intervene is granted. The FDIC shall file its proposed claim for

declaratory relief, (Filing No. 39-1), on or before December 3, 2012.

2)

The FDIC’s response to the Motion to Compel Arbitration and Dismiss Plaintiff’s First

Amended Complaint (Filing No. 42) is due on or before December 10, 2012. Any reply shall be
filed by December 20, 2012.

Dated this 20th day of November, 2012.
BY THE COURT:
s/ Cheryl R. Zwart
United States Magistrate Judge

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