MARSHA J. PECHMAN, Chief District Judge.
THIS MATTER comes before the Court on Plaintiff's Motion for Judgment on the Pleadings (Dkt. No. 116) and Defendants' Motion to Seal (Dkt. No. 123). Having considered the Parties' briefing and all related papers, the Court GRANTS in part and DENIES in part both motions.
Plaintiff Federal Deposit Insurance Corporation as Receiver for Frontier Bank ("FDIC-R") brings suit against twelve former officers and directors of Frontier Bank, a failed bank, for damages in excess of forty-six million dollars stemming from their alleged negligence, gross negligence, and breaches of fiduciary duties in approving eleven particular loans made by the Bank. (Dkt. No. 60.)
In their Answer to the Amended Complaint, Defendants raised twenty affirmative defenses. (Dkt. No. 62.) Plaintiff now seeks to eliminate eleven of those affirmative defenses because they fail as a matter of law and Plaintiff would be unfairly prejudiced if it is forced to spend significant time and resources engaging in discovery, motion practice, and trial on the issues raised by these defenses. (Dkt. No. 116.)
Plaintiff challenges affirmative defenses one through seven and ten through thirteen, principally on three grounds. (
Arguing that the motion is an improper attempt to undermine their ability to offer important evidence to defend themselves, Defendants oppose the motion in its entirety. (Dkt. No. 125.)
After the pleadings are closed, a party may move for judgment on the pleadings. Fed. R. Civ. P. 12(c). A judgment on the pleadings is properly granted when, taking all the allegations in the pleadings as true, the moving party is entitled to judgment as a matter of law.
Federal Rule of Civil Procedure 8(c) requires that "[i]n responding to a pleading, a party must affirmatively state any avoidance or affirmative defenses," including nineteen enumerated defenses. "Affirmative defenses plead matters extraneous to the plaintiff's prima facie case, which deny plaintiff's right to recover, even if the allegations of the complaint are true."
The heightened pleading standard set out in
To obtain judgment on the pleadings as to affirmative defenses, the moving party must establish that "there are no questions of fact, that any questions of law are clear and not in dispute, and that under no set of circumstances could the defense succeed."
Plaintiff correctly observes that Defendants' first affirmative defense, failure to state a claim upon which relief can be granted, is not an affirmative defense. Rather than pleading matters extraneous to Plaintiff's prima facie case, as an affirmative defense does, the allegation that a plaintiff has failed to state a claim attacks the prima facie case on its own terms.
Affirmative defenses two through six assert the affirmative defense of intervening or superseding cause, alleging that other actors or forces are at fault for the monetary losses, including: the 2008 financial crisis (defense two), regulators' alleged interference with Frontier Bank's ability to raise capital (defense three), regulators' alleged authorization and approval of Frontier Bank's policies and practices (defense four), the FDIC's post-receivership conduct (defense five), and the conduct of third parties, including the borrowers and other professionals involved with the loans (defense six). (Dkt. No. 62 at 35.) Plaintiff first argues that these defenses attack causation, an element of Plaintiff's prima facie case, and thus are not affirmative defenses. (Dkt. No. 116 at 13.) Plaintiff also argues that Defendants are unable to establish the elements of intervening or superseding cause as a matter of law. (
A superseding cause is "a new independent cause that breaks the chain of proximate causation between a defendant's negligence and an injury," becoming "the sole proximate cause of the injury" and preventing the defendant from being found "liable for harm to another which his antecedent negligence is a substantial factor in bringing about." Wash. Pattern Jury Intr. § 15.05;
The Court DENIES the motion as to defenses two, three, five and six. Proximate cause is a fact-sensitive determination not suitable for a decision on the pleadings alone. Furthermore, the facts underlying each of these defenses will remain relevant to Plaintiff's case in chief regardless of whether the affirmative defenses survive, and thus granting the motion would not reduce the burden of discovery or trial as Plaintiff suggests it would. Judgment on the pleadings as to defenses two, three, five, and six is DENIED.
Plaintiff argues that affirmative defenses two through five (superseding cause), seven (failure to mitigate damages), and ten (contributory fault) fail because the FDIC owes no duty to Defendants under the so-called no duty rule, because Defendants cannot "second-guess" the FDIC's actions under the discretionary function exception to the Federal Tort Claims Act, and because the defenses are barred by Washington's public duty doctrine. (Dkt. No. 116 at 8, 18-20, 24-27, 129 at 10-11.)
The Court DENIES the motion on these grounds. Plaintiff has already raised, and the Court has already rejected, Plaintiff's no duty rule and public duty doctrine arguments in the context of a motion to compel. (Dkt. No. 79.) In rejecting these arguments, this Court adopted the reasoning of the Court in
Plaintiff argues that affirmative defenses four (superseding cause, regulators' alleged authorization and approval of Frontier Bank's policies and practices during time when loans were made), and eleven through thirteen (assumption of the risk, equitable estoppel as a result of regulators' approval and authorization of loans at issue, equitable estoppel as a result of regulators' interference with Frontier Bank's ability to raise capital prior to closing the bank) fail because the conduct of the FDIC in its regulatory capacity, when acting as a bank examiner or in connection with the closure of a bank, may not be imputed to the FDIC in its capacity as receiver. (Dkt. No. 116 at 23.)
"[U]nder federal law, the FDIC is empowered to act in two entirely separate and distinct capacities in proceedings involving an insured state bank."
Defendants argue that the FDIC-R should be accountable for the FDIC's regulatory oversight of the failed bank, and point out that any damages recovered would accrue to the benefit of the depositary insurance funds, but cite to no authority that supports their position. (Dkt. No. 125 at 25.)
The Court GRANTS the motion as to defenses four and eleven through thirteen because the FDIC's conduct in its regulatory capacity cannot be imputed to the failed bank or to the FDIC-R, which stands in the shoes of the failed bank and is legally separate from FDIC-Corporate. However, as Defendants point out and this Court has already ruled, the FDIC's conduct as regulator and examiner remains relevant to whether Defendants breached their duties of care, and Defendants are still entitled to raise the FDIC's approval and authorization of specific loans to attack Plaintiff's case in chief.
Defendants move to seal their Response and certain exhibits in support of their Response because they contain sensitive information about borrowers' identities or because the FDIC has classified the documents as confidential. (Dkt. No. 123.)
The Court GRANTS in part and DENIES in part the motion. The exhibits supporting Defendants' Response shall be sealed because they contain sensitive and identifying information about borrowers, including some borrowers in the loans at issue in this case. Defendants' Response itself, however, shall not be sealed. This is a dispositive motion, and the Reponse only makes reference to the borrowers and loans through the same pseudonyms used in the Complaint, which is not sealed. The pseudonyms are sufficient to protect the borrowers' privacy.
The Court GRANTS in part and DENIES in part the motions. Judgment on the pleadings as to defenses four, eleven, twelve, and thirteen is GRANTED with prejudice. Judgment on the pleadings as to all other defenses raised in this motion is DENIED. Defendants' Motion to Seal is GRANTED in part and DENIED in part. The clerk is ORDERED to unseal Dkt. No. 125, and to maintain Dkt. No. 126 under seal.
The clerk is ordered to provide copies of this order to all counsel.