Federal Deposit Insurance Corporation, et al v. Baldini, et al
Filing
120
MEMORANDUM OPINION AND ORDER: by Judgment Order dated 9/30/2013, the court DENIED defendants' 21 , 24 and 26 MOTIONS to Dismiss. The reasons for that decision are given in this order. Signed by Judge David A. Faber on 11/14/2013. (cc: counsel of record) (mjp)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT BLUEFIELD
FEDERAL DEPOSIT INSURANCE
CORPORATION, AS RECEIVER FOR
AMERIBANK, INC.
Plaintiff,
v.
CIVIL ACTION NO. 1:12-7050
JACK A. BALDINI, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
By Judgment Order dated September 30, 2013, the court DENIED
defendants’ motions to dismiss.
(Doc. Nos. 21, 24, and 26).
The
reasons for that decision follow.
I.
Background
Ameribank, Inc. ("Ameribank" or "the Bank") was a federally
chartered savings bank with headquarters in West Virginia.
Complaint ¶ 8. On September 19, 2008, the Office of Thrift
Supervision closed Ameribank and appointed the FDIC as Receiver.
Id. at ¶ 9.
Pursuant to 12 U.S.C. § 1821(d)(2)(A)(I), the FDIC,
as receiver, succeeded to all the rights, titles, and privileges
of Ameribank and its stockholders, account holders, and
depositors.
Id.
According to the complaint, the allegations of which are
taken as true for purposes of this motion, the closure of
Ameribank was the result of a failure on the part of the Bank's
officers to properly supervise and manage the Bank's relationship
with Bristol Home Mortgage Lending, LLC, d.b.a. LendingOne
("Bristol").
See Complaint generally.
mortgage broker and loan originator.
Bristol was a third-party
Complaint ¶ 1.
The complaint alleges that Ameribank entered into an
agreement with Bristol in May of 2004 as part of an effort to
expand the bank’s market and loan profile.
Id. at ¶¶ 31-32.
Specifically, the parties entered into a Mortgage Loan Sale and
Servicing Agreement (“MLSS Agreement”) under which Ameribank was
required to fund all construction and rehabilitation account
(“CRA”) loans presented to it by Bristol.
Id. at ¶ 33.
According to the terms of the agreement, loans would be approved
as long as they conformed to Bristol’s policies and underwriting
standards.
Id.
However, in many situations, Ameribank funded
loans without getting certification from Bristol that the loan
met Bristol’s underwriting standards.
Id. at ¶ 37.
Ameribank
“allowed Bristol to exercise unfettered and unsupervised control
over the underwriting . . . and the Bank supplied the funds
without further analysis by Defendants as required by safe and
sound lending practices.”
Id. at ¶ 2.
Its role in funding
Bristol-originated loans was limited to signing and returning
Bristol’s Request for Preliminary Approval of Purchase of Loan
form.
Id. at ¶ 56.
The complaint further alleges that Ameribank
frequently funded the loans without signing this document and
2
that none of the named defendants required the document to be
signed before providing the requested loan funds.
Id. at ¶ 57.
The gist of the complaint is that, given the high-risk
nature of the loans involved and the amount of control given to
Bristol, defendants had a duty to exercise due diligence and
implement internal controls and ongoing monitoring to ensure the
security of the Bristol-originated loans.
See id. at ¶ 35.
According to the FDIC, defendants could not in good faith
delegate entirely the duty to ensure the safety of these loans to
Bristol.
Id. at ¶ 3.
As a result of the defendants’ alleged
negligent oversight, the FDIC charges that the Defendants allowed
the Bank to fund Bristol-originated loans in violation of:
(1)
the MLSS agreement between Bristol and Ameribank, (2) Bristol’s
loan policies, (3) Ameribank’s loan policies, (4) applicable
underwriting requirements, and (5) prudent lending practices.
Id.
Defendants were former officers and, in some cases
directors, with Ameribank.
capacity as officers.
They are sued, however, only in their
Defendant James Sutton was Acting
President of the Bank from December 21, 2006, until January 18,
2007.
Id. at ¶ 16.
The complaint further alleges that Sutton
"functioned as the Bank's primary executive officer" from January
18, 2007, until October 9, 2007.
Id. at ¶ 18.
Defendant Jack A.
Baldini was interim President of Ameribank from January 18, 2007,
3
through October 9, 2007.
Id. at ¶ 19.
According to the
complaint, "[u]nder Baldini's and Sutton's joint leadership, the
number of Bristol-originated loans funded by Ameribank
dramatically increased. . . ."
Id. at ¶ 20.
Louis J. Dunham was the President and CEO of the Bank from
January 27, 2005, to on or about December 15, 2006.
Id. at ¶ 22.
Dunham also served as the Bank's Florida Branch President from
May 2003 to January 27, 2005.
Id.
David G. Cogswell was
Ameribank's Executive Vice President ("EVP") and Chief Risk
Officer ("CRO") from May 2003 until his resignation on January
18, 2007.
Id. at ¶ 25.
The complaint further alleges that
Cogswell performed the duties of the Chief Financial Officer
("CFO") during that same time period.
Michael O’Brien was
Id.
the Senior Vice President ("SVP") and Collections Manager ("CM")
for the Bank from May 2003 until January 18, 2007.
Id. at
¶
27.
In this case, the FDIC claims that defendants’ conduct as
alleged in the complaint rose to the level of negligence, gross
negligence, and a breach of fiduciary duty.
The FDIC, therefore,
seeks to recover compensatory and other damages suffered by it as
the result of the Bank funding Bristol-originated loans without
proper supervision or independent review.
Id. at ¶ 4.
Pending before the court are individual motions to dismiss
by defendants Baldini and Sutton and a joint motion to dismiss by
4
defendants Dunham, Cogswell, and O’Brien (hereinafter referred to
as “Dunham defendants” or “Dunham motion”).
The FDIC filed a
consolidated memorandum in opposition to the motions to dismiss
and all defendants have filed reply briefs.
II.
Standard of Review
"[A] motion to dismiss for failure to state a claim for
relief should not be granted unless it appears to a certainty
that the plaintiff would be entitled to no relief under any state
of facts which could be proved in support of his claim."
Rogers
v. Jefferson-Pilot Life Ins. Co., 883 F.2d 324, 325 (4th Cir.
1989) (citation omitted) (quoting Conley v. Gibson, 355 U.S. 41,
48 (1957), and Johnson v. Mueller, 415 F.2d 354, 355 (4th Cir.
1969)).
"In considering a motion to dismiss, the court should
accept as true all well-pleaded allegations and should view the
complaint in a light most favorable to the plaintiff."
Mylan
Laboratories, Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993);
see also Ibarra v. United States, 120 F.3d 474, 474 (4th Cir.
1997).
In evaluating the sufficiency of a pleading, the cases of
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v.
Iqbal, 556 U.S. 662 (2009), provide guidance.
When reviewing a
motion to dismiss, under Federal Rule of Civil Procedure
12(b)(6), for failure to state a claim upon which relief may be
granted, a court must determine whether the factual allegations
5
contained in the complaint “give the defendant fair notice of
what the . . . claim is and the grounds upon which it rests,”
and, when accepted as true, “raise a right to relief above the
speculative level.”
Twombly, 550 U.S. at 555 (quoting Conley v.
Gibson, 355 U.S. 41, 47 (1957); 5 Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1216 (3d ed. 2004)).
“[O]nce a claim has been stated adequately, it may be supported
by showing any set of facts consistent with the allegations in
the complaint.”
Twombly, 127 S. Ct. at 1969.
As the Fourth
Circuit has explained, “to withstand a motion to dismiss, a
complaint must allege ‘enough facts to state a claim to relief
that is plausible on its face.’” Painter’s Mill Grille, LLC v.
Brown, 716 F.3d 342, 350 (4th Cir. 2013) (quoting Twombly, 550
U.S. at 570).
According to Iqbal and the interpretation given it by our
appeals court,
[L]egal conclusions, elements of a cause of
action, and bare assertions devoid of further
factual enhancement fail to constitute
well-pled facts for Rule 12(b)(6) purposes.
See Iqbal, 129 S.Ct. at 1949. We also decline
to consider “unwarranted inferences,
unreasonable conclusions, or arguments.”
Wahi v. Charleston Area Med. Ctr., Inc., 562
F.3d 599, 615 n. 26 (4th Cir. 2009); see also
Iqbal, 129 S. Ct. at 1951-52.
Ultimately, a complaint must contain
“sufficient factual matter, accepted as true,
to ‘state a claim to relief that is plausible
on its face.’” Iqbal, 129 S.Ct. at 1949
(quoting Bell Atl. Corp. v. Twombly, 550 U.S.
6
544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929
(2007)). Facial plausibility is established
once the factual content of a complaint
“allows the court to draw the reasonable
inference that the defendant is liable for
the misconduct alleged.” Id. In other
words, the complaint's factual allegations
must produce an inference of liability strong
enough to nudge the plaintiff's claims
“‘across the line from conceivable to
plausible.’” Id. at 1952 (quoting Twombly,
550 U.S. at 570, 127 S.Ct. 1955).
Satisfying this “context-specific” test does
not require “detailed factual allegations.”
Id. at 1949-50 (quotations omitted). The
complaint must, however, plead sufficient
facts to allow a court, drawing on “judicial
experience and common sense,” to infer “more
than the mere possibility of misconduct.”
Id. at 1950. Without such “heft,” id. at
1947, the plaintiff's claims cannot establish
a valid entitlement to relief, as facts that
are “merely consistent with a defendant's
liability,” id. at 1949, fail to nudge claims
“across the line from conceivable to
plausible.” Id. at 1951.
Nemet Chevrolet, LTD v. Consumeraffairs.com, Inc., 591 F.3d 250,
255-56 (4th Cir. 2009).
III.
A.
Analysis
Choice of Law
While all the other parties have argued for the application
of West Virginia law to this case, the Dunham defendants contend
that this court should apply Florida law.
Both the FDIC and the
Dunham defendants do agree, however, that the internal affairs
doctrine should guide the court’s decision in this regard.
7
The internal affairs doctrine is “a conflict of laws
principle which recognizes that only one State should have the
authority to regulate a corporation's internal affairs - matters peculiar to the relationships among or between the
corporation and its current officers, directors, and shareholders
- — because otherwise a corporation could be faced with
conflicting demands.”
Edgar v. MITE Corp., 457 U.S. 624, 645
(1982) (citing Restatement (Second) of Conflict of Laws § 302,
Comment b, pp. 307–08 (1971)).
The internal affairs doctrine
states that “[t]he local law of the state of incorporation will
be applied to determine such issues, except in the unusual case
where, with respect to the particular issue, some other state has
a more significant relationship to the occurrence and the
parties, in which event the local law of the other state will be
applied.”
Restatement (Second) of Conflict of Laws § 302(2).
In
Atherton v. FDIC, 519 U.S. 213 (1997), the Supreme Court “tacitly
approved the application of the internal affairs doctrine in
suits by the FDIC as receiver for a federally chartered bank
against former officers and directors for negligence and breach
of fiduciary duty.”
FDIC v. Van Dellen, No. CV 10-4915 DSF
(Shx), 2012 WL 4815159, *3 (C.D. Cal. Oct. 5, 2012).
According
to the Atherton court,
In the absence of a governing federal common law,
courts applying the internal affairs doctrine could
find . . . that the State closest analogically to the
State of incorporation of an ordinary business is the
8
State in which the federally chartered bank has its
main office or maintains its principal place of
business.
Atherton, 519 U.S. at 224 (citations omitted).
“Few, if any, claims are more central to a corporation's
internal affairs than those relating to alleged breaches of
fiduciary duties by a corporation's directors and officers.”
In
re Fedders North America, Inc., 405 B.R. 527, 539 (Bankr. D. Del.
2009); see also Fry v. Trump, 681 F.Supp. 252, 255–56 (D.N.J.
1988) (“Claims involving the ‘internal affairs' of corporations,
such as breach of fiduciary duty and the like, are subject to the
laws of the state of incorporation.”).
Accordingly, unless some
other state - - in this case, Florida - - has a more significant
relationship to the events underlying the FDIC’s claims and the
parties, this court should apply West Virginia law.
Section 6 of the Restatement (Second) of Conflict of Laws
offers for consideration a number of factors in identifying the
state with the most significant relationship, including:
(a)
the needs of the interstate and international
systems,
(b)
the relevant policies of the forum,
(c)
the relevant policies of other interested states
and the relative interests of those states in the
determination of the particular issue,
(d)
the protection of justified expectations,
(e)
the basic policies underlying the particular field
of law,
9
(f)
certainty, predictability and uniformity of
result, and
(g)
ease in the determination and application of the
law to be applied.
Section 145 of the Restatement also counsels that, when applying
Section 6, the following contacts are to be considered by the
Court:
(a)
the place where the injury occurred,
(b)
the place where the conduct causing the injury
occurred,
(c)
the domicile, residence, nationality, place of
incorporation and place of business of the parties, and
(d)
the place where the relationship, if any between the
parties is centered.
Restatement (Second) of Conflict of Laws § 145(2).
As one court has noted, “[u]nlike more conventional torts, a
breach of fiduciary duty by an officer or director based on
actions causing the corporation to incur additional debt is not
manifested through identifiable physical conduct or harm.
As
such, the corporation sustains an injury in the state of
incorporation and wherever it has offices.”
In re Innovation
Fuels, Inc., Case No. 11-1291 (DHS), 2013 WL 3835827, *6 (Bankr.
D.N.J. July 23, 2013).
Furthermore, an officer’s alleged breach
of fiduciary duty to a corporation is “a matter peculiar to the
relationships among and between the corporation and its . . .
officers” and, accordingly, favors application of the law of the
state of incorporation.
Storetrax.com, Inc. v. Gurland, 168 Md.
10
App. 50, 895 A.2d 355, 372-73 (2006) (finding that lower court
erred in concluding that internal affairs doctrine presumption
was rebutted in breach of fiduciary claim against corporate
director).
According to the Dunham defendants, the court should not
apply West Virginia law because
although Ameribank is a West Virginia bank, the
relationship involving Bristol was unquestionably
centered in Florida. Bristol was headquartered in
Florida and the relationship with Bristol was managed
in Florida; the MLSS agreement was formed in Florida;
and the purpose of the MLSS Agreement was to stimulate
asset growth in the Florida market through increased
lending.
Dunham Brief at p. 13.
This court disagrees because,
notwithstanding Florida’s connection to the Bristol relationship,
the facts and circumstances here are not so unusual that Florida
law should govern defendants’ duties and liabilities as officers
of Ameribank.
At the outset, it is important to underscore that the
internal affairs doctrine applies except in the “unusual case”
where another state has a more significant relationship to the
parties and the occurrence.
For this reason, the presumption
that the internal affairs doctrine will apply is not easily
overcome.
See Restatement § 309(c) (“[T]he local law of the
state of incorporation has usually been applied even in a
situation where it might be thought that some other state had a
greater interest than the state of incorporation in the issue to
11
be determined.
The local law rule of a state other than the
state of incorporation is most likely to be applied in a
situation where this rule embodies an important policy of the
other state and where the corporation has little contact with the
state of its incorporation.”); see also Vantagepoint Venture
Partners 1996 v.
Examen, Inc., 871 A.2d 1108, 1113 (Del. 2005)
(“[T]he conflicts practice of both state and federal courts has
consistently been to apply the law of the state of incorporation
to the entire gamut of internal corporate affairs.”) (internal
citations and quotations omitted).
First, as the FDIC notes, application of Florida law herein
would “disserve” the policy underlying the internal affairs
doctrine: “shielding directors and officers from conflicting
legal obligations.”
Resolution Trust Corp. v. Everhart, 37 F.3d
151, 154 (4th Cir. 1994) (quoting Resolution Trust Corp. v.
Chapman, 29 F.3d 1120, 1127 (7th Cir. 1994) (Posner, J.,
dissenting)).
Second, there is nothing to indicate the parties
expected or were justified in expecting that Florida law would
apply to a dispute like this.
Rather, it stands to reason that
the Bank’s shareholders and officers would have expected that
their duties and liabilities as officers of a West Virginia bank
would be governed by West Virginia law and that application of
Florida law herein would defeat those expectations.
12
Furthermore, the Dunham defendants have “not shown that
Florida has the type of overriding interest in applying its laws
to this dispute so as to rebut the presumption that the laws of
the state of incorporation apply to claims for breach of
fiduciary duty by officers. . . .”
App’x 890, 897 (11th Cir. 2010).
Mukamal v. Bakes, 378 F.
Finally, there is nothing to
indicate that Ameribank Bank had “little contact with the state
of its incorporation” such that application of Florida law might
be justified.
Rather, it is clear that the Bank was
headquartered in West Virginia, had offices there, and several of
the defendants named herein were based in West Virginia.
The Dunham defendants have failed to persuade the court that
Florida has a more significant relationship to the parties or the
transaction at issue here.
Accordingly, the court will follow
the general rule and apply the law of the state of incorporation,
i.e., West Virginia.
B.
Business Judgment Rule
Defendants move for dismissal based on the business judgment
rule, which they argue “operates as a substantive rule of law
that immunizes directors and officers from liability for alleged
misconduct consisting of ordinary negligence.”
7.
Baldini Memo. at
Defendants seek to have the negligence count dismissed
because, according to them, the business judgment rule acts as a
complete shield for alleged misconduct consisting of nothing more
13
than ordinary negligence.
They also argue that because the law
does not recognize a claim for negligence by corporate officers
and directors, any claim brought against such a corporate officer
based only on negligence can be dismissed without any further
factual inquiry.
Generally speaking, the business judgment rule is “a
presumption that in making a business decision the directors of a
corporation acted on an informed basis, in good faith and in the
honest belief that the action taken was in the best interests of
the company.”
Aronson v. Lewis, 473 A.2d 805, 812 (Del. 1984),
overruled in part on other grounds, Brehm v. Eisner, 746 A.2d 244
(Del. 2000).
As defined by the drafters of the Model Business
Corporation Act, the business judgment rule is a presumption,
rebuttable by the challenging party, that corporate directors act
“in good faith, on an informed basis, and in the honest belief
that the action taken is in the best interests of the
corporation.”
MBCA Ann., Cmt. to § 8.31; see also Aronson v
Lewis, 473 A.2d 805, 812 (Del. 1983).
Since it operates as a
presumption, a plaintiff will have a chance to rebut that
presumption by demonstrating specific instances of conduct that
demonstrate the agent was acting in a culpable manner
inconsistent with the presumption afforded him by the business
judgment rule.
See id.
14
The business judgment rule does not protect all actions
taken by corporate officers and directors.
For example, the
business judgment rule does not apply where the business decision
in question is tainted by a conflict of interest, is so egregious
as to amount to a no-win decision, or, as is alleged in this
case, results from prolonged failure to exercise oversight and
supervision.
See, e.g., FDIC v. Spangler, 836 F. Supp.2d 778,
792 (N.D. Ill. 2011) (“It is a prerequisite to the application of
the business judgment rule that the directors exercise due care
in carrying out their corporate duties.
If directors fail to
exercise due care, then they may not use the business judgment
rule as a shield to their conduct.”) (internal citations and
quotations omitted); FDIC v. Stahl, 840 F. Supp. 124, 128 (S.D.
Fla. 1993) (same) (citing Joy v. North, 692 F.2d 880 (2nd Cir.
1982)); Stamp v. Touche Ross & Co., 636 N.E.2d 616, 621 (Ill.
1993) (The business judgment rule does not shield “directors who
fail to exercise due care in their management of the
corporation.”).
It has been said that the rule has “no role
where directors have either abdicated their function, or absent a
conscious decision, failed to act.”
Silver v. Allard, 169 F.
Supp.2d 966, 970 (N.D. Ill. 1998) (internal quotation marks and
citation omitted); see also Aronson v Lewis, 473 A.2d 805, 813
(Del. 1983) (“[The business judgment rule] has no role where
15
directors have either abdicated their functions, or absent a
conscious decision, failed to act.”).
The contours of the business judgment rule in West Virginia
is the subject of much dispute between the parties.
Defendants
argue that the rule is well-established at common law to protect
both directors and officers from liability for “mere errors of
judgment or want of prudence.”
Baldini Memo at 9-10 (quoting
Young v. Columbia Oil Co. of West Virginia, 158 S.E. 678, 682 (W.
Va. 1931)).1
The FDIC counters that the business judgment rule
does not shield defendants from liability because:
(1) the
common law business judgment rule protects the actions of
corporate directors, not officers; (2) even if the common law
rule could be read to protect officers as well as directors, that
rule has been subsumed by the West Virginia Business Corporation
Act (“WVBCA”); and (3) the statutory business judgment rule
embodied in the WVBCA plainly does not protect corporate officers
in the same way it protects corporate directors.
FDIC Memorandum
at 11-16.
1
According to the Young court, “[i]n the transaction of
corporate business, reasonable intelligence and good faith are
all that is required of the directors. They cannot be held
responsible for mere errors of judgment or want of prudence.
These directors could have forfeited the rights of the
corporation and shareholders to third persons, if acting in good
faith.” Young v. Columbia Oil Co. of West Virginia, 158 S.E.
678, 682 (W. Va. 1931).
16
The FDIC argues that the West Virginia Supreme Court of
Appeals has never applied the business judgment rule to protect
corporate officers for acts done solely in their capacity as
officers.
All the cases cited by defendants include allegations
of wrongdoing done in the defendant’s capacity as a corporate
director.
See Masinter v. Webco Co., 261 S.E.2d 433, 438 (W. Va.
1980) (noting that officers and directors are accorded broad
latitude in conducting corporate affairs, but applying such
latitude in a suit against actions taken both as officer and
director); Meadows v. Bradshaw-Diehl Co., 81 S.E.2d 63, 68 (W.
Va. 1954) (directors generally free, absent bad faith or fraud,
to exercise discretion free from judicial interference); Young v.
Columbia Oil, 158 S.E. 678, 682 (W. Va. 1931) (“In the
transaction of corporate business, reasonable intelligence and
good faith are all that is required of the directors”); Elliott
v. Farmer’s Bank of Philippi, 57 S.E. 242 (W. Va. 1907) (in a
suit only against directors, stating that both officers and
directors are liable for frauds or losses resulting from gross
negligence, but not addressing whether they would also be liable
for less).
There is persuasive authority for the FDIC’s argument that
the business judgment rule does not and should not shield the
conduct of corporate officers.
See, e.g., FDIC v. Van Dellen,
No. CV 10-4915 DSF (Shx), 2012 WL 4815159, *6 (C.D. Cal. Oct. 5,
17
2012) (“Defendants argue that the Court should extend the
California common law business judgment rule by finding that
officers, in addition to directors and officer-directors, are
entitled to its protections.
California courts have not extended
the rule to officers, and this Court declines to do so.”).
As
one commentator pointed out, “although many decisions state that
the rule applies to officers, several of these cases involved
officers who also served as directors.
Consequently, it is
unclear whether the rule would be extended to an officer qua
officer.”
Lyman P.Q. Johnson, Corporate Officers and the
Business Judgment Rule, 60 Bus. Law. 439, 440-41 (2005).2
On the other hand, defendants’ position that the business
judgment rule should apply to officers on the same terms as it
does corporate directors has considerable support.
441-43.
See id. at
The American Law Institute’s (ALI’s) Principles of
Corporate Governance state:
Sound public policy points in the direction of holding
officers to the same duty of care and business judgment
2
Johnson notes that “[a] close review of decisions also
reveals that, almost without exception, courts fail to state why,
on policy grounds, the rule is (or should be) applied to officers
in the same expansive way it is said to apply to directors.”
Johnson at 441 (emphasis in original).
In support of his position that the protections of the
business judgment rule should not extend to officers, Johnson
contends that applying the business judgment rule to the conduct
of corporate officers “is to jettison the well established
standard of ordinary care required of officers in their capacity
as agents.” Id. at 449.
18
standards as directors, as does the little case
authority that exists on the applicability of the
business judgment standard to officers, and the views
of most commentators support this position.
Johnson at 441-42 (quoting 1 Principles of Corporate Governance:
Analysis and Recommendations § 4.01( c) (American Law Institute
1994)); Lawrence A. Hammermesh and A. Gilchrist Sparks, III,
Corporate Officers and the Business Judgment Rule: A Reply to
Professor Johnson, 60 Bus. Law. 865,
(2005)(“[P]olicy rationales
underlying the development and application of the business
judgment rule to corporate directors similarly justify
application of the rule to non-director officers, at least with
respect to their exercise of discretionary delegated
authority.”).
The FDIC also contends that § 31D-8-842 of the WVBCA has
codified the business judgment rule as it applies to the conduct
of officers.
Defendant Sutton, on the other hand, contends that
W. Va. Code § 31D-8-842 is irrelevant to a court’s consideration
of the common law business judgment rule.
See Sutton Reply Memo.
at 4 n.4 (“Sutton is not asking the Court to interpret [West
Virginia § 31D-8-842]; he is asking the Court to apply the common
law business judgment rule. . . .”).
There is some authority for both positions.
Some courts
have suggested that legislative enactment of standards of conduct
for directors and officers amounts to a codification of the
business judgment rule.
See, e.g., Winkler v. Price, No.
19
8:13CV52, 2013 WL 3776541, *4 (D. Neb. Jul. 17, 2013) (noting
that “Nebraska has codified the business judgment rule as it
applies to directors and officers of a corporation” by adoption
of standards of conduct).
Others have noted that legislatively
enacted standards of conduct have little to do with the common
law business judgment rule.3
3
The answer likely lies somewhere in between the two
positions of the parties. It is difficult for this court to
accept that the West Virginia legislature enacted a statute that
sets out the standards of conduct applicable to a corporation’s
officers but that those standards are wholly irrelevant to
whether an officer’s conduct is shielded from liability by
operation of the business judgment rule. The business judgment
rule is merely a presumption of regularity that allegedly
attaches to the decisions of a corporate officer, a presumption
that may be overcome. See, e.g., CDX Liquidating Trust v.
Venrock Assoc., 640 F.3d 209, 215 (7th Cir. 2011) (“When a
director is sued for breach of his duty of loyalty or care to the
shareholders, his first line of defense is the business-judgment
rule, which creates a presumption that a business decision . . .
was made in good faith and with due care. . . . But the
presumption can be overcome. . . .”); In re Tower Air, Inc., 416
F.3d 229, 238 (3d Cir. 2005) (noting the high bar a plaintiff
faces in overcoming Delaware’s business judgment rule but stating
“that it may be accomplished by showing either irrationality or
inattention”).
In West Virginia, perhaps that presumption can be overcome
by a showing that the officer’s conduct fell short of the
statutory duties set forth in § 31D-8-842. Cf. Seafirst Corp. v.
Jenkins, 644 F. Supp. 1152, 1159 (W.D. Wash. 1986) (determining
that business judgment rule was not satisfied under Washington
law by proof of good faith alone because statutory standard of
care governed determination whether officers and directors
exercised due care in fulfillment of their responsibilities).
Or, perhaps compliance with the standards of conduct should be
viewed as a precondition to application of the business judgment
rule. See, e.g., Resolution Trust Corp. v. Gladstone, 895 F.
Supp. 356, 369 (D. Mass. 1994) (“The Business Judgment Rule
shields directors and officers from liability for corporate
decisions made in good faith and after due care. In effect, it
20
Fred W. Triem, Judicial Schizophrenia in Corporate Law: Confusing
the Standard of Care with the Business Judgment Rule, 24 Alaska
L. Rev. 23 (2007) (“Courts are confusing the Business Judgment
Rule with the standard of care that governs the conduct of
corporate directors and officers.”)
However, for the reasons that follow, the court need not
decide these legal issues at this juncture because even if West
Virginia has adopted a business judgment rule, and even if that
business judgment rule protects corporate officers as well as
directors, and even if it is unaffected by W. Va Code § 31D-8842,4 it is too early in the litigation to determine if
defendants are entitled to its protection.
Determining under
what circumstances the business judgment rule applies and what
kinds of professional conduct violate its protections generally
requires investigation into specific facts that do not appear on
the face of the average pleading.
allows corporate managers to do their job – take
of return on investment. Nevertheless, the Rule
limits, limits framed by the concepts “due care”
faith.”). However, for reasons discussed below,
left to another day.
4
risks in search
is not without
and “good
that decision is
Furthermore, in the event that defendants’ conduct is to
be judged against the standards of conduct laid out in West
Virginia Code § 31D-8-842, there is authority that these
standards set forth an ordinary negligence standard. See, e.g.,
FDIC v. Christensen, No. 3:13-cv-00109-PK, 2013 WL 3305242, *2
(D. Or. Jun. 28, 2013) (holding that Oregon’s statutory standards
of conduct for officers, which are substantially similar to the
West Virginia standards of conduct, “plainly set forth an
ordinary negligence standard”).
21
Whether or not it is considered an affirmative defense,5
there is overwhelming authority to support the FDIC’s position
that the business judgment rule is highly fact dependent and,
therefore, inappropriate for consideration on a motion to
dismiss.
See, e.g., In re Tower Air, 416 F.3d 229, 238 (3d Cir.
2005) (“Generally speaking, we will not rely on an affirmative
defense such as the business judgment rule to trigger dismissal
of a complaint under 12(b)(6).”); FDIC v. Hawker, No. CV F 120127 LJO DLB, 2012 WL 2068773, *9 (E.D. Cal. June 7, 2012)
(holding that the business judgment rule is a fact-based
affirmative defense and that “the absence of allegations of
fraud, bad faith or gross overreaching does not render irrelevant
factual issues as to application of the business judgment rule”);
Court Appointed Receiver of Lancer Offshore, Inc. v. Citco Group
Ltd., No. 05–60080, 2008 WL 926509, at *5 (S.D. Fla. Mar. 31,
2008) (“[T]he Court considers it unwise to evaluate conduct and
determine whether or not it is protected by the business judgment
rule at the motion to dismiss stage.”); In re Luxottica Group
S.P.A. Securities Litig., 293 F. Supp.2d 244, 238 (E.D.N.Y.
5
See In re LandAmerica Fin. Group, Inc., 470 B.R. 759, 790
(Bankr. E.D. Va. 2012)(finding that Virginia’s business judgment
rule must be asserted as an affirmative defense); Ad Hoc Comm. Of
Equity Holders of Tectonic Network, Inc. v. Wolford, 554 F. Supp.
2d 538, 556 (D. Del. 2008) (treating business judgment rule as
affirmative defense); Resolution Trust Corp. v. Heiserman, 839 F.
Supp. 1457, 1464 (D. Co. 1993)(“The business judgment rule,
however, is an affirmative defense”).
22
2003)(finding that exercise of business judgment by a director is
a question of fact not to be considered on a dismissal motion);
FDIC v. Stahl, 840 F. Supp. 124, 128 (S.D. Fla. 1993) (“The
application of the business judgment rule for purposes of a
motion to dismiss is questionable.”); Resolution Trust Corp. v.
Heiserman, 839 F. Supp. 1457, 1464-65 (D. Colo. 1993) (“[T]he
business judgment rule is a fact bound affirmative defense which
provides no basis for dismissal under Rule 12(b)(6).”); Federal
Sav. And Loan Ins. Co. v. Musacchio, 695 F. Supp. 1053, 1064
(N.D. Cal. 1988) (“[A] ruling on the applicability of the
business judgment rule is peculiarly a question of fact, wholly
inappropriate for consideration on a motion to dismiss.”);
Gilbert v. Bagley, 492 F. Supp. 714, 738 (M.D.N.C. 1980)
(“Application of the business judgment rule defense necessarily
depends upon facts as developed at trial and is thus an
inappropriate ground for dismissal.”).6
6
Defendants are not without authority for their argument
that a court may apply the business judgment rule on a Rule
12(b)(6) motion. For this proposition, Baldini relies on three
recent cases decided in the Northern District of Georgia. In
those cases, the court noted that the business judgment rule in
Georgia is very well-settled. “Allegations amounting to mere
negligence, carelessness, or lackadaisical performance are
insufficient as a matter of law [to rebut the business judgment
rule].” Federal Deposit Ins. Corp. v. Blackwell, No. 1:11-cv03423, 2012 WL 3230490, *4 (N.D. Ga. Aug.3, 2012)(quoting Brock
Built, LLC v. Blake, 686 S.E.2d 425,430 (Ga. Ct. App. 2009)
(emphasis added); see also FDIC v. Briscoe, Civil Action No.
1:11-CV-02303, *2 (N.D. Ga. Aug. 14, 2012) (“[T]he Court finds
that consideration of the business judgment rule in the context
of said rule being a presumption and/or affirmative defense is
23
The court agrees with the foregoing authorities that
application of the business judgment rule requires a factintensive analysis that is inappropriate for resolution on a
12(b)(6) motion.
Even assuming defendants are entitled to the
benefit of the business judgment rule’s presumption, it remains
to be seen if the FDIC can rebut that presumption.
The court finds that defendants cannot shield
themselves from liability based on the business
judgment rule at this early stage. Even if the
business judgment rule could be addressed, the
plaintiff has adequately pled conduct that arguably
would not be excused by the defense. The plaintiff’s
allegations, taken as true, are sufficient at this
stage to rebut any presumption in favor of [officer]approved transactions that would be created by the
business judgment rule.
Winkler v. Price, No. 8:13CV52, 2013 WL 3776541, *6 (D. Neb. Jul.
17, 2013).
Accordingly, defendants’ motions to dismiss to the
extent they rely on the business judgment rule are DENIED.
C.
Twombly and Iqbal
proper at this early context (i.e., only as to the ordinary
negligence claims), where the issue of the BJR appears on the
face of the Complaint and is limited by the law of Georgia, not
dependent upon additional evidentiary facts.”) (emphasis in
original); FDIC v. Skow, No. 1:11-cv-0111, slip op. (N.D. Ga.
Feb. 27, 2012) (dismissing FDIC’s claims for ordinary negligence
and breach of fiduciary duty based on ordinary negligence
because, under Georgia law, business judgment rule bars claims
for ordinary negligence). Significantly, all three courts
refused to dismiss the FDIC’s claims for gross negligence.
However, the court finds that these cases represent the
minority view. In any event, the FDIC’s allegations in this case
survive invocation of the rule at this stage of the proceedings.
24
Defendants also argue that they are entitled to dismissal of
all three counts because the complaint fails to allege sufficient
plausible claims tying their specific conduct to any injuries
suffered by the FDIC as receiver for Ameribank.
A motion to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(6) is designed to test only the sufficiency of
the plaintiff’s allegations.
As such, it “does not resolve
contests surrounding facts, the merits of a claim, or the
applicability of defenses.”
Tobey v. Jones, 706 F.3d 379, 387
(4th Cir. 2013) (quoting Republican Party of North Carolina v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992)).
Rule 8(a)(2) of the
Federal Rules of Civil Procedure, which defines a complaint,
requires only “a short and plain statement of the claim showing
that the pleader is entitled to relief.”
Fed. R. Civ. P.
8(a)(2); see also Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009).
Modern cases have made clear, however, that while the
official standard in federal courts is still the lenient one of
accepting all well-pled facts as true and construing them in the
light most favorable to the plaintiff, not all allegations are to
be considered “well-pled.”
Nemet Chevrolet, Ltd. V.
Consumeraffairs.com, 591 F.3d 250, 255 (4th Cir. 2009).
Specifically, the Supreme Court has drawn the line between
factual allegations and legal conclusions: “the tenet that a
court must accept as true all of the allegations contained in a
25
complaint is inapplicable to legal conclusions”. Iqbal, 556 U.S.
at 678. As such, in order to survive a 12(b)(6) motion, a
complaint must allege sufficient factual material, above and
beyond mere legal conclusions which are not entitled to truth,
“to state a claim to relief that is plausible on its face.” Id.
at 676 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)). A claim has facial plausibility when it alleges
sufficient factual content to allow the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged. Id.
The primary purpose of the complaint, however, remains as a
notice-giving device. As such, neither the Federal Rules nor any
binding court opinion has required detailed factual allegations
at the pleading stage. All that is required is that the complaint
“give the defendant fair notice of what the … claim is and the
grounds upon which it rests.” Tobey, 706 F.3d at 387 (quoting
Twombly, 550 U.S. at 555); see also Coleman v. Maryland Court of
Appeals, 626 F.3d 187, 190 (4th Cir. 2010). The complaint need
not make out a prima facie case or even demonstrate probable
liability; it must only nudge the allegations “across the line
from conceivable to plausible.” Iqbal, 556 U.S. at 680.
Defendants seek to hold the FDIC to a higher standard than
that required by the federal rules.
When bringing a negligence
claim, a plaintiff need not prove the four elements of a tort
26
case in their pleading.
The decisions in Twombly and Iqbal do
not change the generally liberal standard of notice pleading.
Those decisions suggest that a court can disregard legal
conclusions that amount to formulaic recitations of a cause of
action but they do not empower a district court judge to weigh
the credibility of genuine factual allegations.
In the present case, the complaint alleges sufficient
factual content.
For example, it specifically accuses all named
defendants of “wrongfully allow[ing] Bristol to exercise
unfettered and unsupervised control over the underwriting of a
large number of loans funded by Ameribank.”
Complaint at ¶ 2.
It also alleges that this lending structure, with Bristol in
complete control, amounted to a failure on the part of all
defendants to provide meaningful oversight or control of
Bristol’s underwriting practices.
Id. at ¶ 3.
Taken as true,
these allegations certainly give rise to a plausible claim that
the defendants were negligent in their supervisory capacity as
officers of Ameribank.
The complaint does not stop there, however.
It goes on to
allege that the defendants’ failure to properly oversee Bristol’s
underwriting practices caused them to fund seriously deficient
loans in specific violation of “(1) the contract between Bristol
and Ameribank, (2) Bristol’s loan policies, (3) Ameribank’s loan
policies, (4) applicable underwriting requirements, and (5)
27
prudent lending practices.”
Id.
As a concrete example of the
harm wrought by the defendants’ alleged negligence, the FDIC
provided detailed descriptions of 32 allegedly deficient loans,
21 of which it alleges Ameribank did not even go through the
formality of signing off on.
Id. at ¶¶ 92-124.
To the detriment
of Ameribank, the complaint alleges that “Defendants negligently
failed to supervise the Bristol relationship, failed to adhere to
applicable loan policies and prudent lending practices, and
allowed the Bank to fund the Deficient Loans.”
Id. at ¶ 130.
The causal link is clear: negligent oversight led to the funding
of deficient loans, the existence of which directly damaged
Ameribank.
If all of the above is taken as true, the FDIC has made out
a plausible case of not only negligence, but gross negligence
against defendants. The complaint has alleged that the defendants
essentially abdicated oversight completely in the context of the
Bristol arrangement. Whether or not the defendants were
specifically aware of the dangers associated with CRA loans, and
the complaint has alleged that they were, allegations of complete
nonfeasance with respect to what was happening to the money they
had been entrusted to manage makes out a plausible claim for
gross negligence above and beyond a simple lack of due care.7
7
Defendant Baldini’s assertion to the contrary, the
complaint does contain specific allegations against him. It
specifically alleges that he controlled the Bank’s
28
Defendants may doubt the credibility of these allegations or
the likelihood that they can be proven at trial.
But such
considerations are not appropriate for 12(b)(6) consideration.
Taken as true, the well-pleaded allegations in the FDIC’s
complaint give rise to a plausible claim that defendants were
negligent in their capacity as officers of Ameribank, with the
result being the funding of damaging loans that failed to meet
the underwriting standards of either Bristol or Ameribank.
Viewed in the light most favorable to the FDIC, the court finds
that the claims against all defendants satisfy Twombly and Iqbal
and the motions to dismiss on that ground are DENIED.
D.
The FDIC Has Sufficiently Pled a Claim of Gross Negligence
Defendants have moved to dismiss the claim for gross
negligence, arguing that the “FDIC has not plausibly alleged –
and cannot plausibly allege – that defendants acted with utter
disregard for prudence, the standard for a gross negligence
claim.”
Sutton’s Memo at 2.
operations—along with Sutton—from January 18, 2007, until October
9, 2007. Id. at ¶ 77. During this time period, the relationship
with Bristol was in full effect. In fact, the complaint alleges
that the Bristol CRA program “significantly expanded” under the
period of Baldini’s oversight to the point that it violated
internal policy limitations. Id. at 47, 71.
To that extent that Baldini and the other defendants have
moved for dismissal based upon the time periods for which they
were not officers of the Bank, those issues are more properly
addressed via a motion for partial summary judgment wherein the
court has the benefit of a complete factual record.
29
West Virginia law “recognizes a distinction between
negligence, including gross negligence and wilful
[sic], wanton, and reckless misconduct.” Mandolidis v.
Elkins Indus., 161 W. Va. 695, 246 S.E. 2d 907, 913
(1978). While the West Virginia Supreme Court of
Appeals has never provided its own definition of gross
negligence, it has interpreted Virginia law to define
gross negligence as the “degree of negligence which
shows an utter disregard of prudence amounting to
complete neglect of the safety of another.” Dodrill v.
Young, 143 W. Va. 429, 102 S.E. 2d 724, 730 (1958).
Virginia courts have further defined gross negligence
as “an utter disregard of prudence, amounting to
complete neglect of the safety of another, such as to
be shocking to reasonable men,” Finney v. Finney, 203
Va. 530, 125 S.E.2d 191, 193 (1962), and the “absence
of slight diligence, or the want of even scant care.”
Colby v. Boyden, 241 Va. 125, 400 S.E. 2d 184, 189
(1991) (internal quotation omitted).
Rutecki v. CSX Hotels, Inc., 290 F. App’x 537, 542-43, 2008 WL
3992346 (4th Cir. 2008); C line v. 7-Eleven, Inc., Civil Action
No. 3:11-CV-102, 2012 WL 5471761, *3 (N.D.W. Va. Nov. 9, 2012)
(same).
The court finds that the FDIC’s factual allegations state a
plausible claim for gross negligence under West Virginia law.
According to the complaint:
!
Defendants wrongfully allowed Bristol to exercise
unfettered and unsupervised control over the
underwriting of a large number of loans funded by
Ameribank. Bristol performed all originating,
underwriting, processing, and servicing functions
for the loans, and the Bank supplied the funds
without further analysis by Defendants as required
by safe and sound lending practices.
!
This lending structure was inherently risky for
the Bank because it outsourced to Bristol nearly
all lending functions for a large number of loans
that would not have met the Bank’s internal
underwriting standards if originated in-house.
30
Defendants could not delegate to Bristol the duty
to ensure the safety and soundness of the Bank’s
loan portfolio. Defendants remained responsible
for managing the risks of the Bank’s lending
operations, including those conducted through
Bristol. Significant monitoring and internal
control systems were warranted to ensure the Bank
was funding quality loans and following sound
lending practices. However, Defendants failed to
provide meaningful oversight or control of
Bristol’s underwriting of the loans, and
Defendants permitted the Bank to fund Bristoloriginated loans despite serious deficiencies.
Specifically, Defendants allowed the Bank to fund
Bristol-originated loans in violation of: (1) the
contract between Bristol and Ameribank, (2)
Bristol’s loan policies, (3) Ameribank’s loan
policies, (4) applicable underwriting
requirements, and (5) prudent lending practices.
!
Under the MLSS Agreement, Ameribank was required
to fund all CRA loans presented to it by Bristol
provided only that the loans conformed to
Bristol’s policies and underwriting standards.
!
Moreover, the MLSS Agreement put Bristol in
control of all aspects of the lending process by
granting Bristol authority to conduct credit
evaluations, process, underwrite, document,
originate, and service the loans it funded with
Ameribank’s assets. Ameribank’s role was limited
to supplying the loan funds.
!
The MLSS Agreement required Bristol to certify
that each CRA loan presented to Ameribank for
funding complied with Bristol’s underwriting
standards. In many instances, however, Bristol
failed to sign this certification, but Ameribank
funded the loans anyway.
!
Defendants did not review the borrower’s credit
information or the loan documents before allowing
Bristol to use Bank assets to fund Bristoloriginated loans.
!
Despite problems with the Bristol relationship
that placed the Bank at increasing risk, Dunham
and Sutton allowed the terms of the MLSS Agreement
31
to become increasingly and unreasonably favorable
to Bristol. For example, during the course of the
Bristol relationship, the Bank’s yield spread on
Bristol-originated loans was reduced from prime
plus 2.5 percent to prime plus 0.25 percent.
!
Defendants disregarded warnings from the OTS about
the high level of risk associated with its
Bristol-related exposure, and they continued to
expand the Bank’s relationship with Bristol even
after problems with the Bristol relationship were,
or should have been, apparent.
!
In 2006, Dunham and Sutton assured examiners that
they would provide on-site visitations to
Bristol’s office to monitor and limit the Bank’s
risk. However, they did not conduct such on-site
visitations as promised.
!
Cogswell and O’Brien, acting under and reporting
to Dunham, neglected their duties as officers by
failing to take even minimally adequate steps to
evaluate the loans Bristol offered to the Bank or
to report deficiencies in the loan portfolio.
!
After Dunham, Cogswell, and O’Brien resigned in
December 2006 and January 2007, respectively,
Sutton and Baldini significantly expanded the CRA
loan program operated by Bristol without regard to
the then obvious deterioration of Ameribank’s CRA
loan portfolio.
!
Instead of replacing the Dunham team with capable
management, Sutton and Baldini simply increased
their day-to-day involvement with the Bank’s
affairs, but both were unqualified to oversee,
manage, and control the Bank’s relationship with
Bristol and Bristol’s underwriting of CRA loans.
!
In the first quarter of 2007, Sutton and Baldini
violated the Bank’s internal limits on CRA loan
concentrations.
!
Bristol’s abbreviated loan approval policy was not
in conformity with Ameribank’s loan policy (which
Defendants considered inapplicable under the MLSS
Agreement) and appears to have been adopted by the
32
MLSS Agreement simply to increase Ameribank’s loan
volume.
!
Under the MLSS Agreement, Ameribank could only
reject CRA loans offered to it by Bristol if the
loans failed to meet Bristol’s underwriting
standards.
!
Despite regulators’ repeated warnings, Defendants
unreasonably relied on Bristol at every stage of
the lending process, notwithstanding that Bristol
engaged in seriously deficient loan underwriting,
administration, and approval practices, including:
(a) extending loans evaluated or approved by
financially interested personnel or third-party
contractors and otherwise extending loans without
independent review or analysis; (b) approving
loans involving speculative ventures or repayment
sources to borrowers who were not creditworthy and
for projects that provided inadequate collateral;
(c) failing to document loan approvals,
underwriting, and administration, and failing to
ensure that loan proceeds were used in accordance
with loan terms, the MLSS Agreement, and loan
policies; (d) financing multiple projects
controlled by the same borrower; (e) extending
loans on the basis of improperly performed
appraisals or on the basis of faulty estimates of
rehabilitation costs; and (f) relying on
borrowers’ and guarantors’ stated financial
statements, which were often inadequate or
inaccurate, with no verification.
!
Although Defendants treated the Bristol CRA loan
program as if it were exempt from Ameribank’s loan
policy, no exemption was reflected in the Bank’s
policy or was ever approved by Ameribank’s Board
of Directors. All of the deficient loans fell
below the standards set forth in the Bank’s loan
policy.
!
Further, two of the deficient loans originated by
Bristol were funded in September 2007 after the
OTS ordered Ameribank to stop accepting loans from
Bristol altogether.
!
The OTS recommended that the Bank adopt internal
limits on assets related to the Bristol
33
relationship. In accordance with this
recommendation, Dunham, Cogswell, and O’Brien
adopted limits on the Bristol loan concentration,
but those policy limits were not in accordance
with the OTS’s recommendations and they were
subsequently raised. Moreover, Sutton and Baldini
later violated these limits after they assumed
direct oversight responsibility for the Bristol
relationship in the first quarter of 2007.
!
The examiners also expressed concern that the Bank
had achieved its rapid loan growth without having
hired an additional loan officer as originally
planned. Although Dunham assured the OTS that the
Bank intended to hire another loan officer, the
Bank never did.
!
In the RoE delivered on September 21, 2005, the
OTS criticized the Bank’s failure to increase
staff to support its rapid loan growth as
previously recommended. Dunham and Sutton again
assured the OTS that the Bank would hire
additional staff.
Complaint ¶¶ 2, 3, 33, 34, 37, 38, 43-47, 51, 52, 54, 55, 58, 60,
61, and 81-83.
These allegations state a plausible claim for gross
negligence as they arguably demonstrate “an utter disregard of
prudence.”
See, e.g., FDIC v. Florescue, No. 8:12-cv-2547-T-
30TBM, 2013 WL 2477246, *6 (M.D. Fla. June 10, 2013) (denying
motion to dismiss gross negligence claim against bank’s directors
and officers where FDIC alleged they “deliberately pursued a
speculative, high-risk growth strategy, the risks of which were
compounded by a failure to implement sound credit procedures and
practices, even though they had been warned by regulators to curb
overconcentration” and “approved transactions in violation of the
34
Bank’s own concentration limits”); W Holding Co., Inc. v. Chartis
Insur. Co.-Puerto Rico, 904 F. Supp.2d 169, 177 (D. Puerto Rico
2012) (allegations of funding loans despite “failure to obtain
appraisals . . . in violation of bank policy,” and “failure to
heed and act upon escalating examiner and auditor warnings of
deficiencies in commercial lending and admininstration” satisfy
Iqbal and Twombly in pleading gross negligence on part of bank’s
officers and directors); FDIC v. Willetts, 882 F. Supp.2d 859,
865-66 (E.D.N.C. 2012) (denying 12(b)(6) motion of bank’s
officers and directors on FDIC’s claim of gross negligence where
complaint alleged “that directors were repeatedly warned about
regulatory violations and were advised that loans were being made
in violation of the loan policy but took no action;” that many
loans were approved after an inappropriate level of review; and
where “multiple deficiencies with regard to each at issue [were
indentified], including improper structuring, insufficient
repayment sources, inadequate or wrongly valued securities, loan
policy violations, lack of feasibility studies, overstatement of
value, insufficient underwriting, and insufficient appraisal
bases.”); FDIC v. Spangler, 836 F. Supp.2d 778, 786-89 (N.D. Ill.
2011)(finding that FDIC properly alleged gross negligence against
bank’s officers and directors at motion to dismiss stage where it
alleged that defendants failed to follow the bank’s written
lending policies and ensure prudent underwriting in approving
35
loans; approved loans without current or complete financial
information; and failed to address repeated regulatory warnings
about the state of the bank).
Based on the foregoing, defendants’ motions to dismiss are
denied to the extent that they contend that the FDIC has failed
to properly plead a claim of gross negligence.
IV.
Conclusion
For the reasons discussed above, the motions to dismiss were
DENIED.
The Clerk is requested to send a copy of this Memorandum
Opinion and Order to counsel of record.
IT IS SO ORDERED this 14th day of November, 2013.
ENTER:
David A. Faber
Senior United States District Judge
36
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?