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Federal Deposit Insurance Corporation v. Johnson

United States District Court, D. Nevada

August 5, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER OF SILVER STATE BANK, Plaintiff,
v.
COREY L. JOHNSON, et al., Defendants,

Page 1287

For Federal Deposit Insurance Corporation, as Receiver, on behalf of Silver State Bank, Plaintiff: Anthony W Kirkwood, David Mullin, LEAD ATTORNEYS, PRO HAC VICE, John G Turner , III, PRO HAC VICE, Mullin Hoard & Brown, LLP, Amarillo, TX; Stanley W Parry, LEAD ATTORNEY, Ballard Spahr LLP, Las Vegas, NV.

For Corey L. Johnson, Defendant: Jessica K Peterson, John R. McMillan, LEAD ATTORNEYS, Gus W Flangas, Flangas McMillan Law Group, Las Vegas, NV.

For Douglas E French, Defendant: Brett A. Axelrod, LEAD ATTORNEY, FOX ROTHSCHILD LLP, Las Vegas, NV; Eric E Reed, LEAD ATTORNEY, Patrick J Egan, LEAD ATTORNEY, PRO HAC VICE, Fox Rothschild LLP, Philadelphia, PA.

For Gary A Gardner, Defendant: Allen D. Emmel, LEAD ATTORNEY, Emmel & Klegerman PC, Las Vegas, NV; Paras B Barnett, LEAD ATTORNEY, Law Offices of Paras B. Barnett, PLLC, Las Vegas, NV.

Page 1288

ORDER

Kent J. Dawson, United States District Judge.

Before the Court is the Motion for Partial Summary Judgment (#153) of Federal Deposit Insurance Corporation, as Receiver of Silver State Bank, (" FDIC-R" ). Defendant Douglas E. French (" French" ) filed a response in opposition (#173), to which Defendant Gary A. Gardner (" Gardner" ) joined (#177). Gardner filed a response in opposition (#176), to which French and Defendant Corey L. Johnson (" Johnson" ) (#188, #192) joined. Johnson filed a response in opposition (#180), to which French and Gardner (#189, #190) joined. The FDIC-R filed a reply (#205).

The FDIC-R raises four issues in its motion for partial summary judgment (#153). One issue is whether the FDIC-R has standing to recover losses to the Deposit Insurance Fund. This issue was addressed by a previous court order (#215) granting Defendants' motion for partial summary judgment. Two additional issues are whether the FDIC-R's claims are barred under the Extender Statute and whether the economy is an intervening or superseding cause. The Court will not address these two issues in this order; they will be addressed in future orders. The issue the Court will address in this order is what affirmative defenses, if any, Defendants may assert against the FDIC-R. Thus, the FDIC-R's supplemental authority (#211, #212) are irrelevant to the instant order.

I. Background

Silver State Bank (" SSB" ) was a financial institution with offices in several states (#121). In 2008, SSB was closed and the FDIC-R was appointed receiver (#121). Afterwards, the FDIC-R filed a Complaint (#1) and an Amended Complaint (#121). The Amended Complaint alleges that Defendants, as SSB's former officers, are personally liable for the damages caused by their gross negligence and breach of fiduciary duties (#121). Johnson (#148), French (#125), and Gardner (#126) (collectively, " Defendants" ) answered the FDIC-R's Amended Complaint and asserted various affirmative defenses.

Page 1289

The FDIC-R filed its Motion for Partial Summary Judgment (#153) seeking judgment as to Johnson's seventh, eighth, ninth, thirteenth, sixteenth, and eighteenth affirmative defenses; French's seventh, eighth, and tenth affirmative defenses; and Gardner's second, thirteenth, seventeenth, eighteenth, and nineteenth affirmative defenses.

II. Legal Standards

A. Summary Judgment

The purpose of summary judgment is to " pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment may be granted if the pleadings, depositions, affidavits, and other materials of the record show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Uncorroborated and self-serving testimony, without more, will not create a genuine issue of material fact. See Villiarimo v. Aloha Island Air Inc., 281 F.3d 1054, 1061 (9th Cir. 2002). Conclusory or speculative testimony is also insufficient to raise a genuine issue of fact. Anheuser Busch, Inc. v. Natural Beverage Distribs., 69 F.3d 337, 345 (9th Cir. 1995).

The moving party bears the initial burden of showing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. Once that burden is met, the nonmoving party then has the burden of setting forth specific facts demonstrating that a genuine issue exists. See Matsushita, 475 U.S. at 587; Fed.R.Civ.P. 56(e). If the nonmoving party fails to make a sufficient showing of an essential element for which it bears the burden of proof, the moving party is entitled to summary judgment. See Celotex, 477 U.S. at 322-23.

B. Affirmative Defenses and the FDIC

The FDIC was created to promote stability and confidence in the nation's banking system. Bullion Services, Inc. v. Valley State Bank, 50 F.3d 705, 708 (9th Cir. 1995). To achieve these goals, Congress created the FDIC-Corporate (" FDIC-C" ) and the FDIC-R. Id. Courts have been careful to keep the responsibilities, rights, and liabilities of these two entities legally separate. Id. at 709. The FDIC-C's primary responsibilities are to insure bank deposits and administer the Deposit Insurance Fund (" DIF" ). Id. at 708. The DIF is a pool of assets used to guarantee the safety of federally insured deposits. Id. The FDIC-R's primary responsibility, on the other hand, is to act as a receiver for an insolvent financial institution. Id.

Initially, many courts determined that the FDIC-R's rights and defenses were governed by federal law. See e.g. Fed. Deposit Ins. Corp. v. Mmahat, 907 F.2d 546, 550 (5th Cir. 1990) (holding that federal law governs the rights of the FDIC); FDIC v. Gulf Life Ins. Co., 737 F.2d 1513, 1517 (11th Cir.1984) (holding that federal rule governs the defenses against the FDIC). This led to the judicial creation of federal rules. See Gulf Life, 737 F.2d at 1517-20 (adopting a federal rule that defeats certain affirmative defenses). However, the U.S. Supreme Court later held that (1) state law, rather than federal law, governs the elements of the FDIC-R's

Page 1290

cause of action; (2) " any defense good against the original party is good against the receiver" ; and (3) the judicial creation of a special federal rule is not justified absent a significant conflict between federal policy and the use of state law. O'Melveny & Myers v. F.D.I.C., 512 U.S. 79, 83-87, 114 S.Ct. 2048, 129 L.Ed.2d 67 (1994).

On its face, O'Melveny's broad language suggests that a defendant may raise any affirmative defense against the FDIC-R that it could have raised had the failed financial institution been the party pursuing litigation. However, O'Melveny does not detail how effective certain affirmative defenses may be against the FDIC-R. Many courts recognize this and have drawn different conclusions as to how O'Melveny impacts a defendant's affirmative defenses. See, e.g., Grant Thornton, LLP v. F.D.I.C., 535 F.Supp.2d 676, 724 (S.D.W.Va. 2007) (stating that O'Melveny did not address the issue of pre-receivership conduct by regulators); Resolution Trust Corp. v. Heiserman, 856 F.Supp. 578, 1994 WL 907409 (D. Colo. 1994) (stating that the sole affirmative defense addressed in O'Melveny was the defense of imputed knowledge).

A substantial number of courts have barred defendants from asserting certain affirmative defenses. See Grant, 535 F.Supp.2d at 722. These courts are reluctant to allow a defendant to assert affirmative defenses that rely on the discretionary actions of the FDIC or the pre-receivership actions of regulators. See, e.g., F.D.I.C. v. Oldenburg, 38 F.3d 1119, 1122 (10th Cir. 1994) (holding that former officers of a financial institution may not assert affirmative defenses of contributory negligence and mitigation of damages against the FDIC-R); Grant, 535 F.Supp.2d at 722 (holding that regulators' failure to do anything in their regulatory capacity cannot defeat the FDIC's claim). The reasoning of these courts, however, is quite varied. See, e.g., F.D.I.C. v. Collins, 920 F.Supp. 30, 35 (D. Conn. 1996) (stating that courts should focus on the alleged wrongdoers' actions, not the actions taken by the FDIC or other regulatory agencies); Fed. Deposit Ins. Corp. v. Ornstein, 73 F.Supp.2d 277, 281 (E.D.N.Y. 1999) (stating that the FDIC must be able to perform its duties without fear of judicial second-guessing); FDIC v. Raffa, 935 F.Supp. 119, 124 (D.Conn.1995) (stating that the FDIC owes no duty to the former officers of a financial institution).

Although these courts give different explanations for why certain affirmative defenses are barred against the FDIC, their central underlying concern is best articulated by a Maryland district court:

[N]othing could be more paradoxical or contrary to sound policy than to hold that it is the public which must bear the risk of errors of judgment made by its officials in attempting to save a failing institution--a risk which would never have been created but for defendants' wrongdoing in the first instance.

Fed. Sav. and Loan Ins. Corp. v. Roy, 1988 WL 96570 (D. Md. 1988). The Roy court has been quoted many times,[1] even after O'Melveny,[2] to provide a foundation for barring ...


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