Filed: Jun. 23, 1995
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 1995 Decisions States Court of Appeals for the Third Circuit 6-23-1995 RTC v Cityfed & Schuster Precedential or Non-Precedential: Docket 94-5307 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995 Recommended Citation "RTC v Cityfed & Schuster" (1995). 1995 Decisions. Paper 172. http://digitalcommons.law.villanova.edu/thirdcircuit_1995/172 This decision is brought to you for free and open access by the Opinions of the United State
Summary: Opinions of the United 1995 Decisions States Court of Appeals for the Third Circuit 6-23-1995 RTC v Cityfed & Schuster Precedential or Non-Precedential: Docket 94-5307 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995 Recommended Citation "RTC v Cityfed & Schuster" (1995). 1995 Decisions. Paper 172. http://digitalcommons.law.villanova.edu/thirdcircuit_1995/172 This decision is brought to you for free and open access by the Opinions of the United States..
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Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
6-23-1995
RTC v Cityfed & Schuster
Precedential or Non-Precedential:
Docket 94-5307
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1995
Recommended Citation
"RTC v Cityfed & Schuster" (1995). 1995 Decisions. Paper 172.
http://digitalcommons.law.villanova.edu/thirdcircuit_1995/172
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
NO. 94-5307
_______________
RESOLUTION TRUST CORPORATION, in its capacity as
receiver for CITY SAVINGS, F.S.B., and the
RESOLUTION TRUST CORPORATION, in its corporate capacity
v.
CITYFED FINANCIAL CORP.; RICHARD E. SIMMONS;
K. MICHAEL DEFREYTAS; JOHN W. ATHERTON, JR.;
GORDON E. ALLEN; ALFRED J. HEDDEN;
PETER R. KELLOGG; JOHN KEAN, JR.;
GILBERT G. ROESSNER; GEORGE E. MIKULA;
JAMES P. MCTERNAN; VICTOR A. PELSON;
MARSHALL M. CRISER
(Trenton New Jersey District Civil No. 92-cv-05261)
RESOLUTION TRUST CORPORATION, in its capacity as
receiver for CITY SAVINGS, F.S.B.
v.
JOHN W. ATHERTON, JR.; GORDON E. ALLEN;
ALFRED J. HEDDEN; PETER R. KELLOGG;
JOHN KEAN, JR.; GILBERT G. ROESSNER;
JAMES P. MCTERNAN
(Trenton New Jersey District Civil No. 93-cv-01811)
Resolution Trust Corporation, in its capacity
as Receiver for City Savings, F.S.B.,
Appellant in No. 94-5307
________________
NO. 94-5308
________________
RESOLUTION TRUST CORPORATION
v.
ALFRED J. SCHUSTER; THOMAS J. LYNAM; MARTIN R. SIEGEL;
RICHARD P. PEARLMAN; JOAN C. MOONAN,
individually and as Executrix of the Estate of Robert J. Moonan;
EUGENE J. ELIAS; GEORGE HURLEY; WILLIAM B. BRICK;
JAMES W. DWYER; HARRY H. JAEGER; JOHN R. HIPPLE;
JOHN C. LAURICELLA; LOUIS A. IATAROLA
(New Jersey District Civ. No. 93-cv-02560)
Martin R. Siegel, and Joan C. Moonan, as
Executrix of the Estate of Robert J. Moonan
and individually,
Appellants in No. 94-5308
_______________________________
On Appeal From the United States District Court
For the District of New Jersey
D.C. Civ. Nos. 92-cv-05261, 93-cv-01811, 93-cv-02569
_______________________________
Argued: November 8, 1994
Before: BECKER, MANSMANN, and ALITO,
Circuit Judges.
(Filed June 23, 1995)
DAVID M. FITZGERALD, ESQUIRE (ARGUED)
APRIL A. BRESLAW, ESQUIRE
Resolution Trust Corporation
Litigation Division
801 17th Street, NW
H-10th Floor
Washington, DC 20434
GERALD A. LILOIA, ESQUIRE
GLENN D. CURVING, ESQUIRE
Riker, Danzig, Scherer, Hyland
& Perretti
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07962
Attorneys for Resolution
Trust Corporation, Appellant in No. 94-5307
RONALD W. STEVENS, ESQUIRE
(ARGUED)
Kirkpatrick & Lockhart
1800 M Street, N.W.
South Lobby, Suite 900
Washington, DC 20036
Attorney for John W. Atherton,
Jr., Alfred J. Hedden and Gilbert G.
Roessner, Appellees in No. 94-5307
DOUGLAS M. KRAUS, ESQUIRE
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, NY 10022
BRUCE I. GOLDSTEIN, ESQUIRE
Saiber, Schlesinger, Satz
& Goldstein
One Gateway Center, 13th Floor
Newark, NJ 07102
Attorneys for Gordon E.
Allen,
Marshall M. Criser, Peter R.
Kellogg, and Victor A. Pelson,
Appellees in No. 94-5307
JOHN F. COONEY, ESQUIRE
RONALD R. GLANCZ, ESQUIRE
WILLIAM D. COSTON, ESQUIRE
MELISSA LANDAU STEINMAN, ESQUIRE
Venable, Baetjer, Howard,
& Civiletti
201 New York Avenue, NW, Suite 1000
Washington, DC 20005
LAURA V. STUDWELL, ESQUIRE
Orloff, Lowenbach, Stifelman,
& Siegel
101 Eisenhower Parkway
Roseland, NJ 07068
Attorneys for John Kean, Jr.
Appellee in No. 94-5307
EDWARD J. DAUBER, ESQUIRE (ARGUED)
JEFFREY S. BERKOWITZ, ESQUIRE
Greenberg, Dauber & Epstein
A Professional Corporation
One Gateway Center, Suite 600
Newark, NJ -7102-5311
Attorneys for Martin R. Siegel,
Appellant in No. 94-5308
J. SHANE CREAMER, ESQUIRE (ARGUED)
MAJORIE OBOD, ESQUIRE
Dilworth, Paxson, Kalish & Kauffman
3200 The Mellon Bank Center
Philadelphia, PA 19103
Attorneys for Joan C. Moonan,
individually and as Executrix of
the Estate of Robert J. Moonan,
Appellant in No. 94-5308
DANIEL KINBURN, ESQUIRE (ARGUED)
SUSAN L. HALL, ESQUIRE
Williams, Caliri, Miller & Otley
A Professional Corporation
1428 Route 23
Wayne, NJ 07474-0995
LLOYD S. MARKIND, ESQUIRE
MARGRET E. ANDERSON, ESQUIRE
Arnelle & Hastie
Woodland Falls Corporate Park
210 Lake Drive East, Suite 307
Cherry Hill, NJ 08002
Attorneys for Resolution Trust
Corporation, Appellee in No.
94-5308
FREDERIC J. SCHRAGGER, ESQUIRE
Law Offices of Frederic J. Schragger
3131 Princeton Pike, Building 1B
Lawrenceville, NJ 08648
Attorney for Alfred J. Schuster,
Richard P. Pearlman, Eugene J. Elias,
Harry H. Jaeger, Appellees in
No. 94-5308
RUDOLPH A. SOCEY, JR., ESQUIRE
Lenox, Socey, Wilgus, Formidoni, &
Casey
3131 Princeton Pike
Trenton, NJ 08648
Attorney for Thomas J.
Lynam,
Appellee in No. 94-5308
DANIEL J. GRAZIANO, ESQUIRE
Brotman & Graziano
3685 Quakerbridge Road
P.O. Box 3333
Trenton, NJ 08619
Attorney for James W. Dwyer,
Appellee in No. 94-5308
STEPHEN W. ARMSTRONG, ESQUIRE
Montgomery, McCracken, Walker &
Rhoads
Three Parkway, 20th Floor
Philadelphia, PA 19102
Attorney for John C. Lauricella,
Appellee in No. 94-5308
___________________________
OPINION OF THE COURT
___________________________
BECKER, Circuit Judge.
In 1989, Congress enacted § 212(k) of the Financial
Institutions, Reform, Recovery, and Enforcement Act of 1989
("FIRREA") (codified at 12 U.S.C.A. § 1821(k) (1989)), which
provides:
Liability of directors and officers. -- A
director or officer of an insured depository
institution may be held personally liable for
monetary damages in any civil action by, on
behalf of, or at the request or direction of
the Corporation . . . acting as conservator
or receiver of such institution . . . for
gross negligence, including any similar
conduct or conduct that demonstrates a
greater disregard of a duty of care (than
gross negligence) including intentional
tortious conduct, as such terms are defined
and determined under applicable State law.
Nothing in this paragraph shall impair or
affect any right of the Corporation under
other applicable law.
12 U.S.C.A. § 1821(k) (emphases added). These interlocutory
appeals, brought pursuant to 28 U.S.C.A. § 1292(b) (1993),
require us to address, with regard to this provision, two
important questions of first impression in this circuit --
whether Congress, by its enactment of § 1821(k), (1) preempted
state law, and/or (2) displaced federal common law actions that
impose liability against directors and officers of insolvent
federally insured depository institutions for conduct less
culpable than gross negligence (e.g. for ordinary negligence).
Section 1821(k) was passed by Congress in response to
the enactment by various states, during the middle and late
1980s, of lenient director liability statutes that generally
provided directors with protection from gross negligence claims
by limiting the grounds for liability to instances of reckless,
willful and wanton boardroom misconduct. This section of FIRREA
permits the Resolution Trust Corporation ("RTC") to seek recovery
for such directors’ and officers’ gross negligence, while
preserving the RTC’s rights under "other applicable law." The
particular questions raised by these appeals relate to whether
Congress intended its reference to "other applicable law" to
include state law and federal common law.
The appeals arise from cases brought by the RTC in the
district court for the District of New Jersey on behalf of two
insolvent depository institutions -- United Savings and Loan of
Trenton, New Jersey ("United Savings") and City Federal Savings
Bank ("City Federal") in Bedminster, New Jersey -- against
certain former directors, officers and employees of these
institutions ("the defendants"). The RTC brought claims under
New Jersey law against former directors and officers of United
Savings, a state chartered institution, (the "United Savings
defendants") and federal common law claims against former
directors and officers of City Federal, a federally chartered
institution, (the "City Federal defendants").
In the United Savings action, the district court denied
the defendants’ motion for dismissal and summary judgment as to
the RTC's state law claims, concluding that § 1821(k) did not
preempt any available actions for negligence and breach of
fiduciary duty under New Jersey law. In the City Federal action,
the district court granted the defendants’ motion to dismiss the
RTC's federal common law claims, concluding that the enactment of
§ 1821(k) supplanted any available federal common law actions for
negligence and breach of fiduciary duty.1
Courts of appeals that have considered these issues
have concluded that § 1821(k) does not preempt state law,2 but
that it does displace federal common law.3 We agree that this
provision does not preempt any available state law negligence or
fiduciary duty claims; however, we disagree with the conclusion
that Congress intended by enactment of this statute to supplant
the RTC’s ability to bring such actions under federal common law.
Accordingly, we will affirm the district court's order in the
United Savings action and reverse the court's order in the City
Federal action.
I. FACTS AND PROCEDURAL HISTORY
1 In referring to the supplanting or displacement of federal
common law by federal statutory enactments, we refrain from the
use of the term "preemption" so as to avoid any confusion with
the alternative question of state law preemption and its various
incidents, which is also addressed in this opinion. See
Milwaukee v. Illinois, 451 U.S. 304, 317 n.9
101 S. Ct. 1784,
1792 n.9 (1981) (illustrating the confusion which can result when
the term "preemption" is used to refer to the displacement of
federal common law by federal statutory enactments).
2
See FDIC v. McSweeney, 976 F.2d 532 (9th Cir. 1992), cert.
denied,
113 S. Ct. 2440 (1993); FDIC v. Canfield,
967 F.2d 443
(10th Cir.) (en banc), cert. dismissed,
113 S. Ct. 516 (1992).
3
See RTC v. Frates, 52 F.3d 295 (10th Cir. 1995); FDIC v.
Bates,
42 F.3d 369 (6th Cir. 1994); RTC v. Miramon,
22 F.3d 1357
(5th Cir. 1994); RTC v. Gallagher,
10 F.3d 416 (7th Cir. 1993).
The RTC, which has been appointed receiver of both
United Savings and City Federal,4 brought these actions on behalf
of both insolvent institutions pursuant to 12 U.S.C.A.
§ 1821(d)(2)(A)(i) (1989), which provides that the RTC succeeds,
upon its appointment as receiver, to all rights, titles, powers
and privileges of such institutions, including claims arising out
of the conduct of the institutions' directors and officers. See
O'Melveny & Myers v. FDIC, ___ U.S. ___, 114 S. Ct. 2048, 2054
(1994) (recognizing that upon its appointment as receiver, the
RTC "obtain[ed] the rights ‘of the insured depository
institution’ that existed prior to receivership" (quoting 12
U.S.C.A. § 1821(d)(2)(A)(i))).
A. United Savings
In the United Savings action, the RTC alleges that the
defendants failed to discharge their duties and obligations
properly as directors, officers and members of United Bank's
lending committees in connection with their consideration,
approval and subsequent oversight of at least ten large
acquisition, development and construction loans made to various
borrowers between 1984 and 1990. The RTC's complaint alleges
breach of fiduciary duty and ordinary negligence under New Jersey
law, as well as gross negligence under both New Jersey law and
4
The Director of the Office of Thrift Supervision of the
U.S. Treasury Department ("OTS") appointed the RTC as Receiver of
both institutions, declaring City Federal insolvent on December
7, 1989 and United Savings insolvent on June 15, 1990.
§ 1821(k) in the approval of these loans, which allegedly
resulted in a loss to United Savings of approximately $12.7
million.
In particular, the RTC alleges that the defendants
violated their duty of care by: (1) not hiring experienced
lending underwriters or managers; (2) failing to reduce
underwriting guidelines to a written form; (3) approving large
loans after closing had already taken place; (4) maintaining
inadequate appraisal procedures (often relying on appraisals
provided by the borrower); (5) failing to maintain adequate
internal controls; (6) not returning funds during the
construction phase of commercial properties pending issuance of
final occupancy permits; and (7) generally operating United
Savings in an unsafe and unsound manner. According to the RTC,
the defendants continued these practices despite warnings by
regulators, outside directors and accountants. The RTC does not
allege, however, any self-dealing, conflict of interest, bad-
faith or fraud on the part of the defendants.
In response to the RTC's complaint, the defendants
moved to dismiss, or in the alternative for summary judgment, as
to all New Jersey law claims based on ordinary negligence or
breach of fiduciary duty, arguing that § 1821(k) preempts the
RTC's right to bring such claims. The district court entered an
order denying defendants' motion and then granted the defendants'
request to certify the court’s order for interlocutory appeal
pursuant to 28 U.S.C.A. § 1292(b) (1993).5 We granted the
petition for leave to appeal.6
5
While the question of federal common law preemption was
also certified by the district court in the United Savings
action, the RTC now concedes that, absent the application of
§ 1821(k), only state law governs cases involving the liability
of directors and officers of state-chartered institutions such as
United Savings, while federal law exclusively governs such cases
when the institution is federally chartered, like City Federal.
This concession flows from the RTC’s recognition that the
applicable law governing the liability of officers and directors
for their stewardship of the corporation is the law of the
jurisdiction of incorporation. See RTC v. Chapman, 29 F.3d 1120,
1122 (7th Cir. 1994) (reaching this conclusion under the
"venerable choice-of-law principle known as the internal affairs
doctrine")
6
In denying the United Savings defendants' motion to
dismiss all negligence and breach of fiduciary duty claims under
New Jersey law, the district court also rejected the defendants'
argument that the business judgment rule as applied by New Jersey
courts precludes any claims against independent, disinterested
directors in the absence of an allegation of self-dealing,
conflict of interest, bad faith or fraud. While we certified
this interesting and important issue for interlocutory appeal, we
now conclude that it is not ripe for decision. See Michota v.
Anheuser-Busch, Inc., 755 F.2d 330, 336 (3d Cir. 1985) (declining
to decide an issue certified as part of an interlocutory appeal
pursuant to § 1292(b) and "remand[ing] it for resolution in the
proper course of the remaining litigation"). Resolving this
question at this stage of the litigation would require us to
prescribe the scope of the protection provided by the business
judgment rule to directors and officers under New Jersey case law
without the benefit of greater factual development in this case.
As the new Restatement of Corporate Governance recognizes, "[t]he
application of duty of care standards is . . . [a] heavily fact
oriented" analysis. PRINCIPLES OF CORPORATE GOVERNANCE § 4.01 cmt. h
(1994) (emphasis added) ("The application of duty of care
standards is . . . shaped by evidence of what can reasonably be
expected of directors and officers in the context of the
functioning of the modern corporation."). Given the fact-
intensive nature of the law in this area, we conclude that the
preferable course is to permit the district court's order denying
the United Savings defendants' motion for summary judgment to
stand so that greater factual development can occur. This course
B. City Federal
In the City Federal action, the RTC alleged that the
defendants failed to discharge their duties and obligations
properly as directors and officers of City Federal in connection
with their consideration, approval and subsequent oversight of
several large acquisition, development and construction loans
made to various borrowers during 1985 through 1989. The RTC's
complaint alleges breach of fiduciary duty, negligence under
federal common law, and gross negligence under both federal
common law and § 1821(k) in the approval of these loans, which
allegedly resulted in damages to City Federal of approximately
$100 million. In particular, the RTC alleges that the defendants
violated their duty of care by: (1) failing to obtain and verify
necessary financial information from borrowers; (2) maintaining
inadequate appraisal procedures; (3) consistently loaning funds
based on excessively high loan-to-value ratios that violated
mandatory limits placed on such ratios; (4) making repeated
imprudent long-range commitments to future lending or funding;
(5) failing to monitor loan disbursements and the ongoing status
of projects and loans; (6) improperly waiving risk limitations
and other conditions contained in loan commitments to certain
borrowers; (7) failing to require and verify that necessary
will allow the district court better to predict the scope of
protection that the New Jersey Supreme Court would accord the
defendants under the business judgment rule by providing the
court with the opportunity to evaluate the defendants' conduct
vis-à-vis New Jersey case law.
permits and approvals were obtained before funding the loans; (8)
improperly assessing the value of guarantees given as security
for the loans; and (9) not requiring adherence to the Bank’s
lending policies and procedures. In this action, the RTC does
not allege any self-dealing, conflict of interest, bad-faith or
fraud on the part of the defendants.
The City Federal defendants responded to the RTC's
complaint by moving to dismiss all claims, other than gross
negligence, arguing that § 1821(k) established an exclusive
federal gross negligence standard of care for directors and
officers of failed federally chartered financial institutions
which supplanted any simple negligence claims available under
federal common law. The district court agreed with the
defendants' argument and accordingly granted their motion to
dismiss the RTC's complaint to the extent that it alleged claims
other than gross negligence. The district court granted the
RTC’s request to certify the court’s order pursuant to 28 U.S.C.
§ 1292(b), and we granted the petition for leave to appeal.
II. FINANCIAL INSTITUTIONS, REFORM, RECOVERY,
AND ENFORCEMENT ACT OF 1989
All parties agree that in enacting § 1821(k) Congress
intended to preempt state laws which limit the liability of
directors and officers to instances of conduct more culpable than
gross negligence (i.e. intentional misconduct). At issue in
these appeals is whether Congress, by its enactment of § 1821(k),
also preempted state law or displaced federal common law actions
that impose liability for conduct less culpable than gross
negligence (e.g. ordinary negligence). As we have stated, the
question of the interpretation of § 1821(k) is one of first
impression in this circuit. Our review of the construction of
federal statutes is plenary. See Doherty v. Teamsters Pension
Trust Fund, 16 F.3d 1386, 1389 (3d Cir. 1994).
A. The Plain Meaning of the Statute
"The starting point for interpretation of a statute is
the language of the statute itself. Absent a clearly expressed
legislative intention to the contrary, that language must
ordinarily be regarded as conclusive." Kaiser Aluminum & Chem.
Corp. v. Bonjorno, 494 U.S. 827, 835,
110 S. Ct. 1570, 1575
(1990) (internal quotation marks omitted).
The disposition of these appeals turns on the breadth
of § 1821(k)'s last sentence, which has become known as the
"savings clause." Congress provided that "[n]othing in this
paragraph shall impair or affect any right of the Corporation
under other applicable law." 12 U.S.C.A. § 1821(k) (emphases
supplied). The RTC contends that this sentence manifests
congressional intent to preserve the RTC's ability to seek
recovery from directors and officers under all "other applicable
laws," including the less forgiving negligence and fiduciary duty
standards of care under state law and federal common law. We
agree.7
The defendants contend that, when Congress referred to
"other applicable law" in § 1821(k), it intended to refer only to
the RTC’s ability to pursue regulatory actions under other
sections of FIRREA, such as the RTC’s rights under 12 U.S.C.A.
7
We note that, in addition to focusing on the statute’s
saving clause, courts concluding that § 1821(k) did not preempt
state laws which held directors and officers liable for conduct
less culpable than gross negligence, have also gleaned the
limited preemptive intent of Congress from its use of the word
"may" as opposed to "may only" in the first sentence of the
provision: "[a] director or officer . . . may be held personally
liable for monetary damages . . . for gross negligence." In
Canfield, for example, the court read "may" as a "permissive
term" that "does not imply a limitation on the standards of
officer and director liability," refusing "to construe the first
sentence of the section as saying that an officer or director may
only be held personally liable for gross negligence." Canfield,
967 F.2d at 446 (citing Rose v. Rose,
481 U.S. 619, 626-27,
107
S. Ct. 2029, 2034 (1987), where the Court refused to read "may"
as establishing anything but discretionary power). The Ninth
Circuit in McSweeney agreed.
McSweeney, 976 F.2d at 537 ("Had
Congress intended this authorizing provision to limit the FDIC .
. . it would have inserted the word `only' in the sentence.").
But see Bates, 42 F.3d at 371 (rejecting this reading as placing
"undue emphasis on the word `may,' which does not modify the
substance of the provision");
Miramon, 22 F.3d at 1361 (same);
Gallagher, 10 F.3d at 420 (same).
We decline to rest our reading of the text of § 1821(k)
primarily on the belief that Congress intended to demonstrate its
limited preemptive intent through the use of the word "may" in
the statute's first sentence. We do acknowledge, however, that
such a construction is consistent with what we believe to be
otherwise obvious from the statute's language and legislative
history -- Congress intended to permit the RTC to continue to
seek recovery under laws that hold directors and officers to a
more stringent standard of care.
§ 1818(b)-(g) (West Supp. 1995) to seek removal of negligent
directors and officers and to issue "cease and desist" orders in
cases of simple negligence. But Congress could not have intended
to restrict the RTC to such a limited and specific set of legal
claims by a general reference in this provision to "other
applicable law." When Congress limited its reference to the law
of a particular jurisdiction in other sections of FIRREA, it did
so with specific language. See, e.g., 12 U.S.C.A.
§ 1821(c)(3)(B) (1993) ("powers imposed by State law" (emphasis
added)); 12 U.S.C.A. § 1821(c)(4) (1993) ("notwithstanding any
other provision of Federal law, the law of any State, or the
constitution of any State" (emphasis added)). In particular,
when Congress limited its reference to other portions of FIRREA
itself, it also did so specifically. See, e.g., 12 U.S.C.A.
§ 1821(e)(3)(C)(ii) (West Supp. 1995) ("except as otherwise
specifically provided in this section" (emphasis added)). Given
the specific nature of these references in other portions of
FIRREA, we think that § 1821(k)’s reference to other applicable
law plainly demonstrates an intent to refer to all other
applicable law.
Such a reading of the statutory language is consistent
with the Supreme Court’s decision in Patterson v. Shumate, 504
U.S. 753,
112 S. Ct. 2242 (1992), where the Court read a
reference to "applicable nonbankruptcy law" in 11 U.S.C.A.
§ 541(c)(2) to encompass "any relevant nonbankruptcy law,
including federal law such as ERISA." See also Reich v. Webb,
336 F.2d 153, 158 (9th Cir. 1964) (reading the language "any
other law" of 12 U.S.C. § 1464(d)(1) as authorizing federal
regulators to enforce "common law fiduciary responsibilities
. . . through appropriate court action"), cert. denied
380 U.S.
915 (1965).
Moreover, reading the savings clause to provide for a
broad retention of existing rights is supported by its placement
at the conclusion of the statutory provision. In Abbott Lab. v.
Gardner, 387 U.S. 136, 145,
87 S. Ct. 1507, 1513-14 (1967), the
Court affirmed that "it is difficult to think of a more
appropriate place to put a general saving clause than where
Congress placed it -- at the conclusion of the section setting
out a special procedure for use in certain specified instances."
Id. (emphases added).
B. The Legislative History
Our reading of § 1821(k)'s language is supported by
clear legislative history, which, in our view, manifests an
effort to place a floor, not a ceiling, on the liability of
directors and officers. See Chapman, 29 F.3d at 1126 (Posner,
C.J., dissenting) ("The purpose of section 1821(k), as the timing
of the statute's enactment and other features of its history make
clear, was to place a floor under the liability of directors of
savings and loan associations, which were falling like
ninepins."). We necessarily begin our examination of § 1821(k)’s
legislative history with an inspection of "the provisions of the
whole law, and . . . its object and policy." Dole v. United
Steelworkers, 494 U.S. 26, 35,
110 S. Ct. 929, 934 (1990).
Section 1821(k) was enacted as part of FIRREA, a
massive 371-page legislative package that had among its primary
purposes, as evident in the opening provision of the statute,
"strengthen[ing] the enforcement powers of Federal regulators of
depository institutions" and "strengthen[ing] the civil sanctions
and criminal penalties for defrauding or otherwise damaging the
depository institutions and their depositors." Pub. L. No. 101-
73, § 101(9)-(10), 103 Stat. 183, 187 (1989) (emphasis added)
(reprinted in 12 U.S.C.A. § 1811 note (West Supp. II 1990)). An
overriding purpose in enacting this legislation was to facilitate
an effort to "seek out and punish those that have committed
wrongdoing in the management of the failed institutions,"8 not to
protect such directors and officers from claims of ordinary
negligence.
Section 1821(k), in particular, was, as we have already
noted, a reaction to the enactment by various states, during the
middle and late 1980s, of lenient director liability statutes
which protected directors from gross negligence claims by
limiting their liability to instances of reckless, willful and
8
President’s News Conference on Savings Crisis and
Nominees, N.Y. TIMES, Feb. 7, 1989, at D8, col. 1 (statement of
President Bush).
wanton boardroom misconduct.9 States enacted these laws out of a
policy concern that too stringent a standard of care would impede
the ability of a corporation to attract and retain the most
qualified individuals as corporate directors. This "race to the
bottom"10 among certain states was a reaction to the Delaware
Supreme Court's decision in Smith v. Van Gorkom, 488 A.2d 858
(Del. 1985), which held the directors of Trans Union Corporation
liable for their ostensible gross negligence in approving a cash-
out merger notwithstanding the absence of any allegations of
fraud, bad-faith or self-dealing. The various states enacting
these statutes rejected the result in Van Gorkom and sought to
ensure that their domestic corporations could attract and retain
9
See, e.g., IND. CODE ANN. § 23-1-35-1(e)(2) (Burns 1994)
(declaring that directors are not liable unless their conduct
constitutes at least "willful misconduct or recklessness"); FLA.
STAT. ANN. § 607.0831 (West 1994) ("recklessness or an act or
omission which was committed in bad faith or with malicious
purpose"); OHIO REV. CODE ANN. § 1701.59(D) (Anderson 1994)
("deliberate intent to cause injury to the corporation or
undertaken with reckless disregard for the best interest of the
corporation"); see also 8 DEL. CODE ANN. § 102(b)(7) (West 1994)
(permitting a company's stockholders to adopt provisions that
would limit a director's liability to actions that are illegal,
that constitute a breach of the separate duty of loyalty or that
constitute intentional transgressions); ARIZ. REV. STAT. ANN. § 10-
054(A)(9) (West 1994) (same); CAL. CORP. CODE § 204(a)(10) (West
1995) (same).
10
William L. Cary, Federalism and Corporate Law:
Reflections upon Delaware, 83 YALE L.J. 663 (1974) (describing
the process whereby states follow each other in enacting changes
in their corporate law that provide greater protection to
officers and directors as a "race to the bottom")
qualified directors and officers by protecting them from claims
of gross negligence.11
At the same time that states were extending protection
from liability to corporate directors, the regulators of
federally insured depository institutions were embarking on a
concerted litigation campaign to recoup from allegedly corrupt
and incompetent directors a portion of the billions of federal
dollars lost in the bankruptcy of federally insured thrifts. The
enactment of § 1821(k) represents an attempt to facilitate this
litigation in the wake of the impediments posed by state statutes
insulating directors and officers from liability for gross
negligence. The debates over § 1821(k) in the Senate demonstrate
this intent to facilitate the recovery effort.12
The original Senate provision, § 214(n) of the Act,
would have allowed the RTC to sue directors and officers under
11
See generally Daniel R. Fischel, The Business Judgment
Rule and the Trans Union Case, 40 BUS. LAW. 1437 (1985); Harvey
Gelb, Director Due Care Liability: An Assessment of the New
Statutes, 61 TEMP. L. REV. 13 (1988).
12
Section 1821(k) originated in the Senate; and, other than
a technical change in the wording of the savings clause, no
substantive debate or amendments to this provision occurred in
the House or at Conference. The House replaced the Senate
version of the Savings clause, which had referred to "any right,
if any, of the [RTC] that may have existed immediately prior to
the enactment of the FIRREA act," with the current version. The
defendants in these actions, however, correctly do not attribute
any substantive change in Congressional intent to the adoption of
this amendment. See McSweeney, 976 F.2d at 541 n.9 ("We see
nothing in this change to indicate an intent to expand the
preemptive effect of this provision.").
"any cause of action available at common law, including, but not
limited to, negligence . . . [and] breach of fiduciary duty." S.
774, 101st Cong., 1st Sess. § 214(n) (1989). During the Senate
debate, this proposal was modified so as to scale back the extent
of state law preemption by raising the floor on the liability of
directors from "negligence" to "gross negligence."
The amendment resulted, in large part, from a concern
expressed by Senator Sanford that the sweep of the original
provision was too broad given the valid policy interest,
expressed by states enacting legislation in response to the Van
Gorkom decision, of attracting the best qualified individuals as
directors. 135 CONG. REC. 7150-51 (Apr. 19, 1989). Senator
Sanford expressed the case for the amendment as follows:
The bill as drafted would have preempted
numerous state laws which provided limited
indemnification for directors and officers.
These state laws were enacted largely in
response to problems faced by corporations in
attracting good officers and directors. . . .
The amendment which the managers have
accepted modifies the bill to preempt state
law only in a very limited capacity. . . .
[Section 1821(k)] is not a wholesale
preemption of longstanding principles of
corporate governance, nor does it represent a
major step in the direction of establishing
Federal tort standards or Federal standards
of care of corporate officers and directors.
Id. Senator Riegle, the bill's floor manager, evinced agreement
with these concerns, see
id. at S4265, and introduced an
amendment reducing the amount of preemption.
During its introduction, Senator Riegle again explained
the purpose of the amendment:
In recent years, many States have enacted
legislation that protects directors or
officers of companies from damage suits.
These "insulating" statutes provide for
various amounts of immunity to directors and
officers. For example, in Indiana, a director
or officer is liable for damages only if his
conduct constitutes "willful misconduct or
recklessness."
The reported bill totally preempted
state law in this area, with respect to suits
brought by the FDIC against bank directors
and officers. However, in light of the state
law implications raised by this provision,
the manager's amendment scales back the scope
of this preemption.
Under the managers' amendment, State law
would be overruled only to the extent that it
forbids the FDIC to bring suit based on
"gross negligence" or an "intentional tort."
Id. at 7152-53 (Apr. 19, 1989) (emphases added). Senators Roth
and Garn also expressed similar sentiments: the intent of this
amendment was to limit, not expand, the preemptive scope of the
provision. See
id. at 7155.
The defendants, however, like the Seventh Circuit in
Gallagher, 10 F.3d at 422-23, interpret the concerns motivating
this amendment to demonstrate Congressional intent to adopt a
national standard of gross negligence for actions brought by the
RTC in the service of a federal policy of attracting qualified
officers and directors to federally insured financial
institutions.13 We reject this "revisionism," since, as we have
demonstrated, the evolution of § 1821(k) in the Senate does not
represent the adoption of a national standard of gross negligence
over one of ordinary negligence, but rather reflects an effort to
decrease the amount of state law preemption by raising the floor
on the liability of directors and officers.
The limited sweep of § 1821(k) is also explicitly
demonstrated in a final section-by-section report prepared by the
Senate Banking Committee. This report is consistent with other
contemporaneous legislative history, and it makes clear that
§ 1821(k) did not disturb any claims, available as a matter of
state or federal law, that would hold directors and officers
liable for conduct less culpable than gross negligence:
This subsection does not prevent the FDIC
from pursuing claims under State law or other
applicable Federal law, if such law permits
the officers or directors of a financial
institution to be sued (1) for violating a
lower standard of care, such as simple
negligence.
13
To support their position the defendants also incorrectly
point to a statement made by Senator Heflin: "I think the
language should be reviewed and, in my judgment, changed to
ensure that financial institutions are able to attract strong and
capable individuals as directors and officers." 135 CONG. REC. at
7137. As recognized by the Tenth Circuit in Canfield, 967 F.2d
at 790, Senator Heflin’s comments do not relate to § 1821(k), but
rather involved a proposed change to 12 U.S.C.A. § 1818(i)(2)
(Supp. 1995), which made it more difficult for the RTC to obtain
civil penalties against directors and officers. See 135 CONG.
REC. at 7138 ("I am merely recommending that due process and
fairness dictate that clear standards should be included in
assessment of civil penalties." (statement of Senator Heflin)).
135 CONG. REC. S6912 (daily ed. June 19, 1989) (emphases
supplied).
The defendants would have us discount this report as
post-enactment legislative history, even though it was available
six weeks before both the Senate and the House enacted the final
version of FIRREA into law. The defendants base their argument
on the fact that the Senate Banking Committee did not publish
this report until two months after the Senate passed an initial
version of FIRREA, since the period of time between introduction
and passage of the Senate’s initial bill was so short. In
support of this position, the defendants rely on Clarke v.
Securities Industry Ass'n, 479 U.S. 388, 407,
107 S. Ct. 750, 761
(1987), where the Court refused to "attach substantial weight" to
a statement placed in the congressional record by a sponsor of an
act ten days after the law was passed. See
Gallagher, 10 F.3d at
421-22. The Supreme Court’s opinion in Clarke is
distinguishable, however, given that the legislative history in
Clarke involved a statement "placed in the Congressional Record
10 days after the passage of the . . . Act."
Clarke, 479 U.S. at
407, 107 S. Ct. at 761. In discounting the value of the
statement at issue, the Court recognized that "Congress did not
have [the statement] before it in passing the . . . Act."
Id.
In contrast, Congress (both Houses), in enacting § 1821(k), did
have this report "before it" in passing the final version of
FIRREA. Moreover, the legislative history in Clarke did not
involve a report prepared by the congressional committee that
originally considered the provision in question but rather
involved a statement by a single congressman whom the Court
considered not to be an "impartial interpreter of the bill."
Id.
To support their reading of § 1821(k)’s legislative
history, the defendants rely on a portion of FIRREA's Conference
Report, which provides:
Title II preempts State law with respect to
claims brought by the FDIC in any capacity
against officers and directors of an insured
depository institution. The preemption
allows the FDIC to pursue claims for gross
negligence or any conduct that demonstrates a
greater disregard of a duty of care,
including intentional tortious conduct.
H.R. REP. NO. 222, 101st Cong., 1st Sess., reprinted in 1989
U.S.C.C.A.N. 432, 437 (emphases supplied). We do not believe
that the Conference Report supports the defendants' position.
While the report does acknowledge that § 1821(k) preempts State
law, such an acknowledgement is entirely consistent with the
statute's limited preemptive intent. Moreover, the second
sentence of this portion of the Conference Report acknowledges
that which is evident throughout the legislative history:
§ 1821(k) "allows" the RTC to pursue claims for gross negligence
in states not permitting such claims, but does not "limit" it
from pursuing claims for ordinary negligence, when available
under applicable law. See Canfield, 967 F.2d at 448 n.6;
McSweeney, 976 F.2d at 539.
We are also unpersuaded by the defendants' reliance on
congressional attempts to preserve more explicitly the RTC's
right to bring a claim for negligence under other applicable
state or federal law by seeking to amend § 1821(k) in years
following its enactment.14 It is settled law that post-enactment
legislative history should be afforded little or no weight,
especially in the face of contradictory contemporaneous
legislative history. See U.S. v. Texas, ___ U.S. ___, ___ n.4,
113 S. Ct. 1631, 1635 n.4 (1993) ("[S]ubsequent legislative
history is a hazardous basis for inferring the intent of an
earlier Congress." (internal quotation marks omitted)); U.S. v.
Knox, 32 F.3d 733, 749 n.14 (3d Cir. 1994) ("[P]ost-enactment
legislative history . . . should be given little, if any, weight
because [it] do[es] not necessarily reflect the intent of the
members of Congress who originally enacted the statutory
language."), cert. denied 115 S. Ct. 897 (1995). As this court
has stated, adopting the language of Justice Scalia,
14
For example, Congressman Richard Baker of Louisiana
proposed an amendment in October 1991, which provided:
Paragraph (1) shall not be construed as impairing
or affecting any right of the . . . [RTC]
under any provision of applicable State or
other federal law, including any provision of
common law or any law establishing the
personal liability of any director or officer
of any insured depository institution under
any standard pursuant to such law.
H.R. 3435, 102d Cong., 1st Sess. § 228 (Comm. Markup Oct. 18,
1991).
"Subsequent legislative history" -- which
presumably means the post-enactment history
of a statute’s consideration and enactment --
is a contradiction in terms. . . . Arguments
based on subsequent legislative history, like
arguments based on antecedent futurity,
should not be taken seriously, not even in a
footnote.
Id. (quoting Sullivan v. Finkelstein,
496 U.S. 617, 631-32,
110
S. Ct. 2658, 2667 (1990) (Scalia, J., concurring in part)).
In particular, courts should be hesitant to examine
congressional attempts to amend ambiguous legislative provisions
in an effort to determine the intent of a previous Congress in
originally enacting the law. The fact that Congress subsequently
sought to clarify the limited preemptive intent of § 1821(k) in
the face of conflicting judicial interpretations15 is not
surprising. Courts finding "retrospective" legislative intent in
such proposed enactments could improperly draw inferences from
unsuccessful Congressional attempts to clarify ambiguities which
Congress did not perceive at the time of enactment. Such
attempts simply do not shed light on the intent of the Congress
that originally enacted the provision.
15
The dispute in the Courts of Appeals about the intended
preemptive effect of § 1821(k) was preceded by similar
disagreement among district courts considering these issues at
the time Congress proposed the clarifying amendment. Compare
FDIC v. Canfield, 763 F. Supp. 533 (D. Utah 1991) (concluding
that § 1821(k) preempts state law), rev’d,
967 F.2d 443 (10th
Cir. 1992) (en banc); FDIC v. Miller,
781 F. Supp. 1271 (N.D.
Ill. 1991) (concluding that § 1821(k) displaces federal common
law) with FDIC v. Isham,
777 F. Supp. 828 (D. Colo. 1991)
(concluding that § 1821(k) does not preempt state law), and FDIC
v. Haddad,
778 F. Supp. 1559 (S.D. Fla. 1991) (same).
In sum, we conclude that the legislative history
associated with FIRREA, and particularly § 1821(k), does not
manifest Congressional intent to adopt a uniform gross negligence
standard of care for directors and officers of bankrupt federally
insured depository institutions. Rather, the legislative history
reflects an effort to ensure that directors and officers of
state-chartered institutions (whom Congress viewed as responsible
for a portion of the significant amount of federal money lost in
the insolvency of such institutions) not escape liability to the
RTC under the shield of certain state laws that had effectively
insulated them even from claims based on their grossly negligent
or reckless conduct. The intent of Congress was to strengthen,
not weaken, the RTC’s hand in pursuit of directors and officers.
Mindful of this intent, and of our reading of the statute’s
language, we now directly address, in turn, the particular
questions whether Congress preempted state law, or supplanted
federal common law claims brought by the RTC for negligence and
breach of fiduciary duty.
III. State Law Preemption
Pursuant to the Supremacy Clause, U.S. Const. Art. VI,
cl. 2, "state laws that ‘interfere with, or are contrary to the
laws of congress, made in pursuance of the constitution’ are
invalid." Wisconsin Public Intervenor v. Mortier, 501 U.S. 597,
604,
111 S. Ct. 2476, 2481 (1991) (quoting Gibbons v. Ogden, 9
Wheat 1, 211 (1824)). Federal law preempts existing state law in
either of two ways: (1) through evidence of congressional intent
to supplant state authority in a particular area, as expressed
either through the language of the statute, see Jones v. Rath
Packing Co.,
430 U.S. 519, 525,
97 S. Ct. 1305, 1309-10 (1977),
or implicitly through the enactment of a federal regulatory
scheme "so pervasive as to make reasonable the inference that
Congress left no room for the States to supplement it," Rice v.
Santa Fe Elevator Corp.,
331 U.S. 218, 230,
67 S. Ct. 1146, 1152
(1947); or (2) when federal law and state law actually conflict,
such as when "compliance with both federal and state regulations
is a physical impossibility," Florida Lime & Avocado Growers,
Inc. v. Paul,
373 U.S. 132, 142-43,
83 S. Ct. 1210, 1217 (1963),
or when a state law "stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress,"
Hines v. Davidowitz,
312 U.S. 52, 67,
61 S. Ct. 399, 404 (1941).
As we have stated, both a plain reading of § 1821(k)
and an interpretation of its legislative history reflect a
congressional effort to expand, not constrain, the RTC’s ability
to recover against directors and officers by enabling it to seek
recovery in those states that had adopted laws insulating
officers and directors from liability. Given this interpretation
of the statute and its legislative history, we conclude that
Congress intended to leave room for state law to supplement
§ 1821(k) by permitting recovery in instances of ordinary
negligence. Moreover, we do not believe that state laws
subjecting directors of federally insured depository institutions
to a more stringent standard of care by permitting recovery in
instances of negligence conflict in any way with the
congressional enactment of § 1821(k). In fact, such state laws
are consistent with the expressed congressional purpose in
enacting FIRREA of "strengthen[ing] the enforcement powers of
Federal regulators of depository institutions" and
"strengthen[ing] the civil sanctions . . . for . . . damaging the
depository institutions and their depositors." Pub. L. No. 101-
73, § 101(9)-(10), 103 Stat. 183, 187 (1989) (emphases added)
(reprinted in 12 U.S.C.A. § 1811 note (West Supp. II 1990)).
The two Courts of Appeals that have directly confronted
this question also have reached this conclusion. In Canfield,
967 F.2d at 443, the Tenth Circuit sitting en banc concluded that
§ 1821(k) did not preempt available state law claims that permit
the RTC to recover in instances of conduct less culpable than
gross negligence, and the Ninth Circuit in
McSweeney, 976 F.2d at
532, relying on Canfield, reached an identical result. In
addition to interpreting § 1821(k)'s language and legislative
history in a manner similar to that
expressed supra, these courts
set forth several additional reasons in support of their
conclusion, which we also find persuasive.
First, they rejected the contention that Congress was
motivated in enacting § 1821(k) by a need for a national
liability standard in view of the fact that the statute clearly
calls for the application of various applicable state law
definitions of gross negligence. 12 U.S.C.A. § 1821(k) ("as such
terms are defined and determined under applicable State law");
McSweeney, 976 F.2d at 539;
Canfield, 967 F.2d at 447. The
Canfield court noted that, given the vast differences in the
standards of gross negligence in the various states,
id.
("`[T]here is . . . no generally accepted meaning [of gross
negligence]'" (quoting W. PAGE KEETON, ET AL., PROSSER & KEETON ON THE
LAW OF TORTS § 34 at 212 (5th ed. 1984)), "the statute cannot
possibly, even without the last sentence, create a national
standard of liability."
Canfield, 967 F.2d at 447. We agree
that the congressional use of state law formulations of gross
negligence further illustrates the limited preemptive intent of
Congress in enacting § 1821(k). If Congress had been motivated
by a need for uniformity in the law it would not have invoked the
application of alternative state definitions of gross negligence,
but rather would have called for the application of a uniform
federal standard.
In addition, the Canfield and McSweeney courts also
based their result on a persuasive policy concern:
[U]nder defendants' interpretation, consider
the position of an officer or director of a
troubled federally insured institution in a
state allowing actions for negligence. Prior
to failure, liability would attach for simple
negligence. After failure, liability would
only attach if the officer or director could
be proven grossly negligent under the
applicable state definition. As the
institution struggles, therefore, section
1821(k) would create an incentive for the
officers and directors to allow the bank to
fail. It simply cannot be that FIRREA would
indirectly encourage such behavior when it
was designed in part, according to its stated
purposes, "to curtail . . . activities of
savings associations that pose unacceptable
risks to the Federal deposit insurance
funds." FIRREA, Pub. L. No. 101-73, § 101(3),
103 Stat. 183, 187 (1989).
Canfield, 967 F.2d at 449; see also
McSweeney, 976 F.2d at 540-
41.
In response to this argument, the defendants correctly
point out that if a director or officer purposely engages in
conduct leading an institution into receivership, such actions
would themselves constitute intentional conduct and indisputably
result in liability under § 1821(k). See also Canfield, 967 F.2d
at 450 n.5 (Brorby, J., dissenting). On balance, however, we
find this rejoinder to the RTC's policy argument unpersuasive.
Directors and officers of financial institutions are well advised
of their potential liability under the law. (Indeed, the
argument that too stringent a standard of care will discourage
capable people from becoming or remaining as directors itself
presumes a sophisticated level of knowledge on the part of such
individuals.) For instance, they would undoubtedly be aware that
federal receivership would insulate them from claims of
negligence. Armed with this knowledge, directors and officers of
institutions chartered in states permitting such claims would
have more of an incentive to engage in conduct, which the RTC
could not necessarily prove rises to the level of intentional
conduct or gross negligence, but which nonetheless placed the
institution at greater risk of receivership.
In sum, we conclude that Congress did not intend to
hinder the RTC by denying it an opportunity to recover for
instances of director and officer negligence when shareholders of
these institutions would have had a right under state law before
receivership, to bring such an action on behalf of the
corporation. Accordingly, we conclude § 1821(k) does not preempt
the RTC’s right to pursue a claim for conduct less culpable than
gross negligence, if any are available under New Jersey law,
against the United Savings defendants.
IV. Displacement of Federal Common Law
We next address whether, by its enactment of § 1821(k),
Congress foreclosed the RTC’s ability to bring a claim against
officers or directors of federally chartered depository
institutions under federal common law for conduct less culpable
than gross negligence. The answer to the question of federal
common law displacement turns on an interpretation of
congressional intent. While it is unnecessary to find that
Congress "had affirmatively proscribed the use of federal common
law," in order to conclude that federal common law has been
supplanted, Milwaukee v. Illinois, 451 U.S. 304, 315,
101 S. Ct.
1784, 1791 (1981) (internal quotation mark omitted), "any terms
of the statute explicitly preserving or preempting judge-made law
are of course controlling, as is clear evidence of Congressional
intent to achieve such results." In re Complaint of Oswego Barge
Corp.,
664 F.2d 327, 339 (2d Cir. 1981) ("In the absence of
clearly expressed legislative intent, legislative history may
provide useful guidance.").
Lacking statutory language or clear evidence of
congressional intent, we must glean the intent of Congress by
examining whether "the legislative scheme spoke directly" to the
question previously addressed by federal common law, Milwaukee v.
Illinois, 451 U.S. at 315, 101 S. Ct. at 1791 (internal quotation
mark omitted), and assessing the "scope of the legislation."
Id.
at 314-15 n.8, 101 S. Ct. at 1791-92 n.8 (examining whether "‘the
field has been made the subject of comprehensive legislation or
authorized administrative standards.’" (quoting Texas v. Pankey,
441 F.2d 236, 241 (10th Cir. 1971)). In whole, our inquiry must
discern the intent of Congress so as to resolve the question
whether applying federal common law would constitute "filling a
gap left by Congress’ silence," which is proper, or involve
"rewriting rules that Congress has affirmatively and specifically
enacted," which is improper. Mobil Oil Corp. v. Higginbotham,
436 U.S. 618, 625,
98 S. Ct. 2010, 2015 (1978).
We must begin our inquiry, as we have stated, by
determining whether "any terms of the statute explicitly
preserv[e] or preempt[] judge-made law." Oswego Barge, 664 F.2d
at 339. In drafting § 1821(k), Congress provided such language,
stating "[n]othing in this paragraph shall impair or affect any
right of the Corporation under other applicable law." 12
U.S.C.A. § 1821(k) (emphases supplied). We read the plain
meaning of this savings clause as preserving the RTC’s right to
proceed against directors and officers of federally-chartered
institutions under federal common law. The defendants concede
that before receivership City Federal ("the Corporation") had a
right to bring an action against them under federal common law.
Furthermore, they concede that upon receivership the RTC
"obtain[ed] the rights of [City Federal,] the insured depository
institution that existed prior to receivership." O’Melveny &
Myers, 114 S. Ct. at 2054. Accordingly, we conclude the plain
meaning of this provision -- which, stated again, preserves "any
right of the Corporation under other applicable law" -- secures
the RTC’s ability to proceed against the defendants pursuant to
City Federal’s pre-existing rights under federal common law. In
so doing, we reject the City Federal defendants’ reading of this
provision’s reference to "other applicable law" as one intended
to invoke only the RTC’s rights under other sections of FIRREA or
State law. As we have demonstrated, when Congress intended to
limit its reference to the law of a particular jurisdiction or to
other portions of FIRREA itself, it did so with the use of
specific language. See supra pages 14-15.
Notwithstanding the plain meaning of § 1821(k)’s
savings clause, the defendants contend that we must declare any
available federal common law claims supplanted if Congress "spoke
directly" to the question of the liability of directors and
officers of insolvent depository institutions or "‘occupied the
field through the establishment of a comprehensive regulatory
program supervised by an expert administrative agency,’"
Gallagher, 10 F.3d at 424 (quoting
Milwaukee, 451 U.S. at 317,
101 S. Ct. at 1792). We think that is not enough since, as we
have stated, the answer to the question of federal common law
displacement, like state law preemption, must turn, in the first
instance, on an interpretation of congressional intent, looking
to the text of the statute and then to its legislative history.
In support of their position, the defendants rely on
the Supreme Court’s decision in Milwaukee v. Illinois, supra,
which concluded that the enactment of the 1972 Amendments to the
Federal Water Pollution Control Act supplanted the federal common
law claim for abatement of a nuisance caused by interstate water
pollution. The Court did so after examining the scope of the
legislation and whether it spoke directly to the question
previously addressed by federal common law. We do not believe
the Supreme Court’s opinion in Milwaukee is inconsistent with our
approach.
The Court in Milwaukee did not reach its conclusion
that federal common law was supplanted until after first
examining in detail the question whether "congressional intent to
preserve the federal common-law remedy . . . is evident in . . .
the statute." See Milwaukee, 451 U.S. at 327-31, 101 S. Ct. at
1797-1800. The Court concluded that no such congressional intent
was present.
Id. In contrast, the intent of Congress
surrounding the adoption of § 1821(k), as evident by both the
provision’s plain meaning and its legislative history, explicitly
preserves any federal remedy for conduct violating a lower
standard of care, such as simple negligence. The relevant Senate
Report clearly states that "this subsection does not prevent the
FDIC from pursuing claims under . . . other Federal law, if such
law permits the officers or directors of a financial institution
to be sued (1) for violating a lower standard of care, such as
simple negligence." 135 CONG. REC. S6912 (daily ed. June 19,
1989).
Moreover, we do not believe (1) that § 1821(k) "spoke
directly" to the standard of care applicable to directors and
officers of federally-chartered depository institutions or (2)
that the scope of this legislation occupied the field. The
defendants contend that in enacting § 1821(k) Congress "spoke
directly" to the standard of care for directors and officers of
federally chartered institutions previously governed by federal
common law. We disagree. As we have demonstrated, in enacting
§ 1821(k) Congress sought to address the question of what
standard should apply in cases where the RTC was confronted with
an applicable state insulating statute, so as to ensure that the
RTC could recover when the applicable state law insulated
directors and officers from actions for gross negligence. While
portions of FIRREA were enacted to govern both state and
federally chartered institutions, see 12 U.S.C.A. § 1813(a)-(c)
(1989), § 1821(k) was simply not enacted to define the standard
of care applicable to federally chartered institutions governed
by federal common law.
Section 1821(k) calls for the application of the
"applicable State law" formulation of gross negligence. To read
this sub-section as supplanting federal common law would be to
create an additional (and serious) problem, because it is unclear
which formulation of gross negligence the City Federal defendants
would have us apply. See KEETON, supra, at 212 (there is "no
generally accepted meaning" of gross negligence). In a case
involving the liability of directors and officers of a federally
chartered institution, such as City Federal, no state law
standard is "applicable," since federal law governs the liability
of such individuals. See
Chapman, 29 F.3d at 1122. If Congress
had intended to speak directly to the question of what standard
should apply when the depository institution is federally
chartered, it would, in our view, have addressed the question of
which formulation of gross negligence should apply in such
instances. The absence of such direction and the provision’s
reference to "applicable State law" reinforces our conclusion
that Congress did not intend to address the liability standards
applicable to directors and officers of federally chartered
institutions in enacting § 1821(k), but rather enacted the
provision for the purpose of preempting state insulating
statutes.
In addition, we find it inconceivable that Congress
intended to displace existing federal common law which already
provided an action for conduct less culpable than gross
negligence only in instances when an institution enters
receivership. If Congress had intended to codify a federal
standard of liability for directors and officers of federally
chartered institutions, it would not have limited its application
to circumstances where the institution entered receivership.
Such an approach would, if the federal common law standard is one
of ordinary negligence, create the anomalous situation of
providing greater protection from liability to directors and
officers when their institutions go insolvent, since before
receivership directors and officers would be subject to
derivative claims for ordinary negligence by the "Corporation,"
while after receivership such claims would be limited to gross
negligence.
This scenario would create a perverse incentive for the
directors and officers who manage our nation’s federally
chartered institutions to decrease their risk of liability by
leading their institutions into receivership. See supra at 29-
31. Congress could not have intended to create such an incentive
in enacting a statute intended to "strengthen the enforcement
powers of Federal regulators." Pub. L. No. 101-73, § 101(10),
103 Stat. 183, 187 (1989). Even assuming that the proper
characterization of preexisting federal common law standard (as
one of negligence or gross negligence) is unclear, it seems quite
unlikely that Congress would have intended to reformulate the
post-receivership standard as gross-negligence, while leaving the
pre-receivership standard in a state of ambiguity.16
16
Given our conclusion that § 1821(k) does not address the
liability of directors and officers of federally chartered
institutions, we need not discern whether the federal common law
standard is one of ordinary or gross negligence. The district
court should simply permit the RTC to proceed against the City
Federal defendants under existing federal common law. We note
that the Supreme Court first articulated a common law standard of
care for directors and officers of federally chartered depository
institutions over 100 years ago in Briggs v. Spaulding, 141 U.S.
132,
11 S. Ct. 924 (1891):
The degree of care required depends upon the
subject to which it is to be applied, and
each case has to be determined in view of all
the circumstances. . . . [T]he duties imposed
are presumed to call for nothing more than
ordinary care and attention. . . . If
nothing has come to their knowledge, to
awaken suspicion of the fidelity of the
president and cashier, ordinary attention to
the affairs of the institution is sufficient.
If they become acquainted with any fact
calculated to put prudent men on their guard,
a degree of care commensurate with the evil
to be avoided is required, and a want of that
care certainly makes them responsible. . . .
In any view the degree of care to which these
defendants were bound is that which
ordinarily prudent and diligent men would
exercise under similar circumstances . . . .
We also reject the defendants’ contention that the
federal common law was supplanted because of the scope of FIRREA.
Relying on the opinion in Milwaukee, the defendants seek to
capitalize on the fact that FIRREA created several agencies, such
as the RTC, to deal with the thrift crisis, and conferred upon
these institutions expanded federal regulatory powers over the
activities of the officers and directors of insured financial
institutions. However, Milwaukee does not help the defendants’
position. In examining the scope of the legislation there in
question, the Milwaukee Court relied in significant part on a
number of statements in the Act’s legislative history which
demonstrated "the establishment of . . . a self-consciously
Id. at 148, 11 S. Ct. at 929.
We recognize that Briggs arose before Erie R.R. v. Tompkins,
304 U.S. 64 (1938), and hence, while addressing the liability of
directors and officers of a nationally chartered bank, it did not
label the articulated standard as one of federal common law.
Moreover, in light of the dramatic changes to have occurred to
the legal and economic environment confronted by federally-
chartered depository institutions, the Supreme Court might choose
to reexamine and/or refine the Briggs articulation of the common
law standard of liability for directors and officers of such
institutions.
Nevertheless, over a century later, the Briggs articulation
of the standard of care apparently continues to apply as a matter
of federal common law. For instance, in FDIC v. Appling, 992
F.2d 1109, 1113-14 (10th Cir. 1993), the Tenth Circuit described
the standard of care for directors and officers of a federally
chartered bank "as requiring such care and diligence as an
ordinarily prudent man would exercise with reference to the
administration and management of such a moneyed institution."
See also FDIC v. Bierman,
2 F.3d 1424, 1432 (7th Cir. 1993)
("Ordinary care, in this matter as in other departments of the
law, means that degree of care which ordinarily prudent and
diligent men would exercise under similar circumstances.").
comprehensive program by Congress." Milwaukee, 451 U.S. at 319,
101 S. Ct. at 1793 ("The ‘major purpose’ of the Amendments was
‘to establish a comprehensive long-range policy for the
elimination of water pollution.’" (quoting S. REP. NO. 92-414 at
95)). The defendants in this action can point to nothing in the
plain language of the statute or its legislative history to
suggest that Congress, in enacting FIRREA, intended to establish
a comprehensive legislative program to address the liability of
directors and officers. Rather, as we have demonstrated, the
congressional purpose in enacting FIRREA, and § 1821(k) in
particular, was exactly the opposite.
As Senator Sanford recognized, this provision does not
represent "a wholesale preemption of longstanding principles of
corporate governance, nor does it represent a major step in the
direction of establishing Federal tort standards or Federal
standards of care of corporate officers and directors." 135
CONG. REC. at 7151. Rather than intending exhaustively to
enumerate the powers available to federal regulators, Congress
sought only to strengthen the RTC’s ability to recover against
malfeasant directors and officers of our nation’s thrifts by
supplementing the laws that already regulated the activity of
directors and officers, such as the federal common law standard
of care. We cannot conclude solely from the enactment of
provisions meant to enhance the powers of federal regulators that
Congress intended to occupy the field and supplant existing
powers already available as a matter of federal common law.
Rather, Congress explicitly preserved "any right" available
"under other applicable law."
In sum, the intent of Congress in enacting § 1821(k)
was not to insulate directors and officers of bankrupt federally
insured depository institutions from federal common law liability
for conduct less culpable than gross negligence. Rather,
§ 1821(k) reflects, as we have demonstrated, an effort to ensure
that directors and officers could not escape liability to the RTC
under the shield of certain state laws that had effectively
insulated them from claims based on their grossly negligent or
reckless conduct. To read any more into the enactment of
§ 1821(k) would, as Chief Judge Posner has recognized, "make
traps of its words" and perniciously turn the statute on its
head, since Congress intended this provision to strengthen, not
weaken, the RTC’s ability to recover for director and officer
misconduct. See Chapman, 29 F.3d at 1126-27 (Posner, C.J.,
dissenting) ("What would otherwise be a more stringent standard,
that of simple negligence, is diluted by interpretation of a
statute intended to make the liability of such directors more
stringent.").
We recognize that the two Courts of Appeals to have
addressed both state law preemption and the displacement of
federal common law by § 1821(k) would permit the RTC to pursue an
action for negligence under state law, but not under federal
common law. See Frates, 52 F.3d at 295 and
Canfield, 967 F.2d at
443 (10th Cir.);
Chapman, 29 F.3d at 1122 and
Gallagher, 10 F.3d
at 416 (7th Cir.). These courts have justified such a
distinction by the need for greater congressional intent to
preempt state law as opposed to that necessary to displace
federal common law, given the federalism concerns present when
state law is preempted.
Gallagher, 10 F.3d at 424 ("‘Such
concerns are not implicated in the same fashion when the question
is whether federal statutory or federal common law governs, and
accordingly the same sort of evidence of clear and manifest
purpose is not required.’" (quoting Milwaukee, 451 U.S. at 316,
101 S. Ct. at 1792); see also
Milwaukee, 451 U.S. at 317, 101 S.
Ct. at 1792 ("[T]he assumption [is] that it is for Congress, not
federal courts, to articulate the appropriate standards to be
applied as a matter of federal law." (internal quotation mark
omitted)).
We agree that this generalized reasoning can result, in
certain instances, in a conclusion that a particular statutory
enactment did not preempt state law, yet did displace federal
common law. However, in our view, the distinction is not
determinative here since the plain meaning of § 1821(k) and the
clear legislative history surrounding its enactment, which
demonstrates that this provision was not intended to apply to
federally chartered institutions, sufficiently overcome the
presumption favoring the displacement of federal common law.
In reaching the contrary conclusion that § 1821(k)
displaced federal common law, the courts of appeals to have
considered the question have relied, in significant part, on the
argument that permitting the RTC to seek recovery for a
director’s negligence would render § 1821(k) meaningless. The
Seventh Circuit in Gallagher stated that "[r]eading the ‘savings
clause’ as preserving a federal common law standard of liability
for less culpable conduct than gross negligence would render the
substantive portion of § 1821(k) surplusage." Gallagher, 10 F.3d
at 420 ("It is illogical that Congress intended in one sentence
to establish a gross negligence standard of liability and in the
next sentence to eviscerate that standard by allowing actions
under federal common law for simple negligence."); see also
Bates, 42 F.3d at 372 ("If the court reads the savings clause to
preserve simple negligence claims, then the gross negligence
standard explicitly articulated . . . is redundant, meaningless
surplusage."); Miramon, 22 F.3d at 1361. Moreover, in
articulating this "surplusage" argument, the Fifth Circuit in
Miramon rhetorically inquired -- "Why would the RTC ever bring an
action under section 1821(k), where it would have to prove gross
negligence, when it could bring an action under the federal
common law and only be required to prove simple negligence?"
Id.
We are unpersuaded by this argument. Given the RTC’s
concession that it can only bring federal common law claims
against directors and officers of federally chartered
institutions and not against their state-chartered counterparts,
the answer to the Miramon court’s question is clear. Concluding
that § 1821(k) does not displace federal common law does not
render this provision "redundant, meaningless surplusage" because
the RTC still needs § 1821(k) to bring actions for gross
negligence against directors and officers of institutions
chartered in states with statutes insulating them from such
liability. More particularly, the RTC could not bring a federal
common law claim of negligence against directors and officers of
depository institutions chartered in states with statutes
insulating them from liability claims of gross negligence (or
worse), since, as the RTC concedes, state law governs the
liability of these individuals in the instances where § 1821(k)
does not apply. See
Chapman, 29 F.3d at 1122 (holding that the
applicable law governing the liability of officers and directors
for their stewardship of the corporation is the law of the
jurisdiction where the institution was incorporated or
chartered). Accordingly, § 1821(k) is needed to ensure that the
RTC is not constrained from seeking recovery for gross negligence
in instances where a state insulating statute would apply.
As we have stated, allowing the RTC to bring such
actions was precisely the purpose underlying the enactment of
§ 1821(k). When the defendants are directors of federally
chartered institutions, such as City Federal, this purpose is not
present and the statute simply has no relevance. Permitting the
RTC to pursue an action under federal common law when the
depository institution is federally chartered in no way renders
the statute inoperative; rather such a conclusion merely
appropriately limits § 1821(k) to its intended realm.
V. CONCLUSION
We hold that Congress did not preempt existing state
law or supplant federal common law holding directors and officers
liable for conduct less culpable than gross negligence.17
Accordingly, we will affirm the district court's order in the
United Savings action, permitting the RTC to pursue negligence
and fiduciary duty claims, if any, under New Jersey law. In the
City Federal action, we will reverse the district court's order
and direct the court to permit the RTC to pursue any claims for
negligence or breach of fiduciary duty available as a matter of
federal common law.
RTC v. Cityfed Financial Corp, et al., No. 94-5307
RTC v. Schuster, et al., No. 94-5308
MANSMANN, Circuit Judge, concurring in part and dissenting in
part.
17
As we have noted, in addition to bringing a claim under
federal common law in the City Federal action, the RTC has also
brought a claim of gross negligence under § 1821(k). Given our
conclusion that Congress did not intend § 1821(k) to apply to
federally-chartered depository institutions, the RTC cannot
proceed under § 1821(k) in the City Federal action.
I concur in the majority's holding that section 1821(k)
of the Financial Institutions, Reform, Recovery and Enforcement
Act of 1989 ("FIRREA"), 12 U.S.C. § 1821(k), does not preempt
claims for simple negligence or breach of fiduciary duty that may
be available to the RTC under state law. I respectfully dissent,
however, from Part IV of the opinion, where the majority holds
that section 1821(k) does not supplant the RTC's ability to bring
such actions under federal common law. I find the majority's
conclusion contrary to the statute's language and legislative
history. I believe that section 1821(k) establishes a gross
negligence standard of liability in suits brought by the RTC
against the directors and officers of federally-chartered insured
depository institutions, and accordingly would hold, as our
sister courts of appeals in the Fifth, Sixth, Seventh and Tenth
Circuits have held18, that the federal common law standard of
simple negligence19 must yield to section 1821(k)'s higher
standard in such cases.
18
RTC v. Frates, ___ F.3d ___ (10th Cir. 1995) [1995 U.S.
App. LEXIS 7990]; RTC v. Bates, 42 F.3d 369 (6th Cir. 1994); RTC
v. Miramon,
22 F.3d 1357 (5th Cir. 1994); RTC v. Gallagher,
10
F.3d 416 (7th Cir. 1993).
19
The majority does not decide what standard of liability
controls under the federal common law. Nevertheless, it strongly
suggests in footnote 16 that it is one of ordinary (or simple)
negligence and discusses the question before us as if the federal
common law would permit the RTC to sue the directors and officers
of failed federally chartered insured depository institutions for
simple negligence.
My analysis is guided throughout by the vastly
different tests the Supreme Court has instructed us to use when
deciding whether a federal statute supplants federal common law
on the one hand, or preempts state law on the other. When
considering state law preemption, "`we start with the assumption
that the historic police powers of the States are not to be
superseded by the Federal Act unless that was the clear and
manifest purpose of Congress'". Milwaukee v. Illinois, 451 U.S.
304, 316 (1981) (citations omitted). By contrast, when the
question is whether federal statutory or federal common law
governs, "`we start with the assumption' that it is for Congress,
not federal courts, to articulate the appropriate standards to be
applied as a matter of law."
Id. at 317 (footnote omitted).
Federal common law is a "`necessary expedient'", resorted to in
the absence of a federal statute and is "`subject to the
paramount authority of Congress.'"
Id. at 313-14 (citations
omitted). Although a statute will not invade well established
principles of common law unless a statutory purpose to the
contrary is present, United States v. Texas, ___ U.S. ___, 113 S.
Ct. 1631, 1634 (1993), when Congress "speak[s] directly" to the
question addressed by the common law, federal common law is
supplanted. Id.; Milwaukee v.
Illinois, 451 U.S. at 315.
Moreover, it is not necessary for Congress to "affirmatively
proscribe" the federal common law rule in order to abrogate its
application.
Id.
I.
All questions of statutory interpretation start with
the language of the statute itself, and "[a]bsent a clearly
expressed legislative intent to the contrary, `that language must
ordinarily be regarded as conclusive.'" Kaiser Aluminum &
Chemical Corp. v. Bonjorno,
494 U.S. 827, 835 (1990), quoting
Consumer Product Safety Comm'n v. GTE Sylvania, Inc.,
447 U.S.
102, 108 (1980).
Section 1821(k) has two parts: a substantive provision
and a savings clause. In the first sentence, section 1821(k)
provides that "[a] director or officer of an insured depository
institution may be held personally liable in any civil action
by[] . . . the [RTC] . . . for gross negligence, including any
similar conduct or conduct that demonstrates a greater disregard
of a duty of care . . . as such terms are defined and determined
under applicable State law[]"; and in the second sentence, saves
"any right of the [RTC] under other applicable law".20 Under
20
Section 1821(k) provides in pertinent part:
(k) Liability of directors and officers
A director or officer of an insured
depository institution may be held personally
liable for monetary damages in any civil
action by, on behalf of, or at the request or
direction of the Corporation, which action is
prosecuted wholly or partially for the
benefit of the Corporation . . . for gross
negligence, including any similar conduct or
FIRREA, "the term `insured depository institution' means any bank
or savings association the deposits of which are insured by the
[Federal Deposit Insurance] Corporation pursuant to this
chapter." 12 U.S.C. § 1813(c)(2) (emphasis added). Thus, that
Congress has spoken directly in section 1821(k)'s substantive
provision to the standard of liability for the directors and
officers of all failed federally-insured depository institutions,
including those with a federal charter is, I believe, not open to
question.
I also do not share the majority's confidence in the
clarity of the savings clause.21 Beginning its analysis by
inquiring whether any terms of section 1821(k) "`explicitly
preserv[e] or preempt[] judge-made law[]'", the majority "read[s]
the plain meaning of th[e] savings clause as preserving the RTC's
conduct that demonstrates a greater disregard
of a duty of care (than gross negligence)
including intentional tortious conduct, as
such terms are defined and determined under
applicable State law. Nothing in this
paragraph shall impair or affect any right of
the Corporation under other applicable law.
12 U.S.C. § 1821(k).
21
I could not discern the meaning of the savings clause
without reference to section 1821(k)'s legislative history. In
my view, the savings clause ensures that even though state
insulating statutes are preempted, state law which imposes a
higher standard than section 1821(k)'s gross negligence liability
standard, holding directors and officers liable for simple
negligence, remains available to the RTC. See supra pp. 9-10.
right to proceed against directors and officers of federally-
chartered institutions under federal common law." Majority Op.
at 32-33. This interpretation of the savings clause, however,
has been rejected by our sister courts as contrary to elementary
canons of statutory construction. They have concluded that if
the savings clause were construed to preserve federal common law
actions for simple negligence, then the language of the
substantive sentence of section 1821(k) which specifically
enunciates a cause of action for gross negligence would be
meaningless surplusage and rendered a nullity. I agree. RTC v.
Bates, 42 F.3d 369, 372 (6th Cir. 1994); RTC v. Miramon,
22 F.3d
1357, 1361-62 (5th Cir. 1994); RTC v. Gallagher,
10 F.3d 416, 420
(7th Cir. 1993). See RTC v.Frates, ___ F.3d ___ (10th Cir. 1995)
[
1995 U.S. App. LEXIS 7990 at 4]. ("[W]e believe Ga[l]agher,
Miramon, and Bates have correctly resolved the [federal common
law displacement] issue . . . and we see no reason to depart from
or add to the analysis . . . .").
To avoid this dilemma, the majority informs us that
section 1821(k) does not address the liability of directors and
officers of federally-chartered depository institutions in RTC
actions and was enacted only to preempt state insulating
statutes. I have difficulty comprehending how section 1821(k)
can preserve the RTC's right to sue the directors and officers of
federal financial institutions for simple negligence under
federal common law, and at the same time, not address the
liability of these individuals in RTC actions. The majority
cannot have it both ways; either section 1821(k) addresses the
issue or it does not.22
The majority's position that section 1821(k)'s
"intended realm" is limited to state chartered depository
institutions, Majority Op. at 44, flies in the face of FIRREA's
applicable definitional provisions. As noted, section 1821(k)
covers directors and officers of "insured depository
institution[s]", an all-inclusive term as defined in 21 U.S.C. §
1813(c)(2). Subsections 1813(c)(4) and (5), on the other hand,
distinguish between and define respectively "Federal depository
institution[s]" and "State depository institution[s]".23 If
22
I would also disagree with the view that the
substantive sentence of section 1821(k) speaks only to RTC
actions against the directors and officers of state institutions
and the savings clause speaks to RTC actions against the
directors and officers of both state and federal institutions.
Neither the statute's language nor its legislative history
indicates that Congress restricted the subject matter of section
1821(k)'s first sentence to state institutions, then expanded it
to include state and federal institutions in the second.
Further, if section 1821(k)'s substantive provision only concerns
state insulating statutes, federal common law need not be
"preserved". Finally, "other applicable law" in the savings
clause cannot refer to federal common law if the substantive
provision relates only to actions involving state institutions,
because federal common law does not have a place in such actions.
23
Subsections 1813(c)(4) and (5) provide:
(4) Federal depository institution
The term "Federal depository institution"
means any national bank, any Federal savings
association, and any Federal branch.
section 1821(k) was intended to apply only to state institutions,
Congress would have referred in the statute to insured "State
depository institution[s]". Indeed, when Congress sought to
restrict the application of section 1821's subsections to state
institutions, it did so explicitly by using the appropriate term.
E.g., 12 U.S.C. § 1821(c)(3)(A) ("Whenever the authority having
supervision of any insured State depository institution . . .
appoints a conservator . . . the Corporation may accept such
appointment.")(emphasis added).
Moreover, the majority's position that section
1821(k)'s scope is limited to state institutions is premised on
what I believe to be an erroneous interpretation of the statute.
The majority states that since "gross negligence" does not have a
"generally accepted meaning", Majority Op. at 36, had Congress
intended to speak directly to the standard of liability for
directors and officers of federally chartered institutions it
would have clarified which formulation of gross negligence
applies in such cases.24 In addition, the majority concludes
(5) State depository institution
The term "State depository institution" means
any State bank, any State savings
association, and any insured branch which is
not a Federal branch.
21 U.S.C. § 1813(c)(4),(5).
24
In making this point, the majority cites FDIC v.
McSweeny, 976 F.2d 532, 539 (9th Cir. 1992), cert. denied, ___
U.S. ___,
113 S. Ct. 2440 (1993), and FDIC v. Canfield,
967 F.2d
433, 447 (10th Cir. 1992). In these cases, the courts concluded
that a federal statutory gross negligence standard and section
1821(k)'s reference in the first sentence to "applicable State
law" cannot co-exist. I do not find them mutually exclusive, and
read the statute as directing the courts to define "gross
negligence" in cases involving failed federal depository
institutions by the state law that has the closest connection to
the institution at issue. Congress has, at various times and in
various contexts, enacted statutes which rely upon state laws of
decision in an overall federal statutory scheme. In re TMI
Litigation Cases Consol. II,
940 F.2d 832, 855 (3d Cir. 1991),
cert. denied,
503 U.S. 906 (1992).25 Concepts of negligence fall
that section 1821(k) does not preempt state law claims for simple
negligence, viewing the statute's reliance on state law for the
definition of gross negligence as directly refuting the
proposition that FIRREA establishes a uniform, national standard
of gross negligence liability.
Id.
Since its decision in Canfield, the Court of Appeals for the
Tenth Circuit has held that section 1821(k) supplants federal
common law. RTC v. Frates, ___ F.3d ___ (10th Cir. 1995) [
1995
U.S. App. LEXIS 7990]
25
Examples of federal statutes that explicitly authorize
the use of state law include: the Price-Anderson Amendments Act
of 1988, 42 U.S.C. § 2014(hh) (the "substantive rules for
decision" in public liability actions "shall be derived from" the
law of the state in which the nuclear incident occurs); the
Federal Tort Claims Act, 28 U.S.C. § 1346(b)(the law of the place
where the act or omission occurred determines the liability of
the United States); 16 U.S.C. § 457 (claims for death or personal
injury within a federal enclave are governed by laws of the
state); the Outer Continental Shelf Lands Act, 43 U.S.C. §
1333(2)(A) (the civil and criminal laws of each adjacent state
are the law of the United States regarding the Outer Continental
Shelf's subsoil and seabed). At times, the use of state law in a
federal scheme is a matter of congressional intent. See, e.g.,
Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204
squarely within the province of the state courts and the conduct
that rises to the level of gross negligence may vary from place
to place. Thus, a direction from Congress to look for guidance
to the law of the locality in which a federally chartered
depository institution is based represents a sensible and
reasonable way to determine the parameters of the gross
negligence liability standard in any given case.
I therefore read the plain meaning of section 1821(k)
as "speaking directly" to the standard of liability applicable in
suits brought by the RTC against the directors and officers of
federally chartered insured depository institutions, and setting
it at gross negligence.
II.
When I look for legislative history that contradicts
section 1821(k)'s plain meaning as I see it, I find none; and in
fact, I find legislative history showing that Congress had before
it several competing concerns when enacting section 1821(k) which
it resolved in favor of a gross negligence liability standard.
Congress was aware that a number of states had enacted
legislation that shields directors and officers from liability
except for reckless or willful breaches of duty in order to
(1946) (Congress intended that state law define "real property"
for tax purposes under the Reconstruction Finance Corporation
Act.).
persuade capable individuals to accept corporate directorships.
Finding an intentional tort standard of liability unacceptably
high, Congress enacted section 1821(k) with at least the purpose
in mind to preempt state insulating statutes. RTC v. Miramon, 22
F.3d 1357, 1363 n.9 (5th Cir. 1994). At the same time, however,
Congress was not prepared to displace all state law. Thus, the
evolution of section 1821(k) from preliminary to final form was
toward less preemption, FDIC v. McSweeny,
976 F.2d 532, 540 (9th
Cir. 1992), cert. denied, ___ U.S. ___,
113 S. Ct. 2440 (1993),
with Congress ultimately leaving it, through the savings clause,
to each state to decide whether a simple negligence standard is
appropriate within its own borders.26
While Congress sought to set a standard of liability in
section 1821(k) that provided federal regulators with adequate
enforcement power, Pub.L. No. 101-73, § 101(9)-(10), 103 Stat.
183, 187 (1989), it also understood the importance of attracting
qualified persons to serve as officers and directors of financial
institutions.27 RTC v. Gallagher, 10 F.3d 416, 422 (7th Cir.
26
During the floor debate in the Senate on the managers'
amendment to the Senate's original bill, Senator Riegle, the
bill's sponsor, explained that the amended bill sought to limit
the preemptive scope of section 1821(k) to state insulating
statutes. See Majority Op. at 20.
27
The remarks of Senator Sanford during the floor debate
on the managers' amendment indicate that Congress was concerned
that financial institutions be able to attract competent
management:
Mr. President, I would like to thank the
distinguished managers of the bill, Senator
1993). Accordingly, the standard of liability to be included in
the statute -- simple or gross negligence -- was a matter of
debate. While the Senate's initial bill would have allowed the
RTC to bring claims "for any cause of action available at common
law, including but not limited to, negligence, gross negligence,
willful misconduct, breach of fiduciary duty . . . .", S.774, §
RIEGLE and Senator GARN, for including in the
managers' amendment modifications to the bill
regarding directors and officers liability
insurance contracts, surety bond, and
financial institution bond contracts, and
provisions relating to State laws affecting
the liability of officers and directors of
financial institutions.
I believe that these changes are essential if
we are to attract qualified officers and
directors to serve in our financial
institutions.
135 Cong.Rec. S4276-77 (daily ed. April 19, 1989).
During this same debate, Senator Heflin noted the need for
changes in the Senate bill to "ensure that financial institutions
are able to attract strong and capable individuals as directors
and officers[]", and Senator Riegle agreed. Id. at S4264-65.
Although Senator Heflin's comments were made in connection with
modifications to FIRREA's "standard for imposition of civil
penalties" provision, now codified at 21 U.S.C. § 1818(i)(2), I,
unlike the majority, believe that the Senator's statements
further our understanding of section 1821(k). The Supreme Court
has counseled that "`[t]he true meaning of a single section of a
statute . . ., however precise its language, cannot be
ascertained if it be considered apart from related sections. . .
.'" Commissioner v. Engle,
464 U.S. 206, 223 (1984), quoting
Helvering v. Morgan's, Inc.,
293 U.S. 121, 126 (1934). See also
Richards v. United States,
369 U.S. 1, 11 (1962) ("We believe it
fundamental that a section of a statute should not be read in
isolation from the context of the whole Act . . . .").
214(n), 101st Cong., 1st Sess. at 105-106 (calendar N. 45, April
13, 1989), its amended version removed, inter alia, all
references to a simple negligence standard:
[A director or officer of an insured
financial institution may be held personally
liable] for gross negligence, or intentional
conduct, as those terms are defined and
determined under applicable State law.
Nothing in this paragraph shall impair or
affect any right, if any, of the [FDIC] that
may have existed immediately prior to the
enactment of the [FIRREA] Act.
135 Cong.Rec. S4452 (daily ed. April 19, 1989).28
28
The majority relies exclusively on the following Senate
Report as demonstrative of Congress' intent to "explicitly
preserve[] any federal remedy for conduct violating a lower
standard of care, such as simple negligence[]", Majority Op. at
34-35:
[Section 1821(k)] enables the FDIC to pursue
claims against directors or officers of
insured financial institutions for gross
negligence (or negligent conduct that
demonstrates a greater disregard of a duty of
care than gross negligence) or for
intentional tortious conduct. This right
supersedes State law limitations that, if
applicable, would bar or impede such claims.
This subsection[] does not prevent the FDIC
from pursuing claims under State law or under
other applicable Federal Law, if such law
permits the officers or directors of a
financial institution to be sued (1) for
violating a lower standard of care, such as
simple negligence, or (2) on an alternative
theory such as breach of contract or breach
of fiduciary duty . . . .
S.Rep. No. 19, 101st Cong., 1st Sess., 135 Cong.Rec. 6912 (daily
ed. June 19, 1989).
Commenting in favor of the amended bill, Senator
Sanford unmistakenly articulated Congress' intent to establish a
standard of liability of gross negligence in section 1821(k) and
clarified that the standard Congress enacted for actions brought
under the statute was not intended for other cases:
While I fundamentally believe that
issues of corporate governance and the
standard of care to which corporate officers
and directors should be held are matters of
State law, not Fed[e]ral law, the preemption
of State law permitted by this bill is
limited solely to those institutions that
have Federal deposit insurance and to those
cases in which the directors of officers have
committed intentional torts or acts of gross
negligence. As such, the establishment of a
federal standard of care is based on the
overriding Federal interest in protecting the
soundness of the Federal Deposit Insurance
Corporation fund and is very limited in
scope. It is not a wholesale preemption of
longstanding principles of corporate
governance, nor does it represent a major
step in the direction of establishing Federal
tort standards or Federal standards of care
of corporate officers and directors.
If this were the only item of legislative history before us,
I would find the majority's position more persuasive. When I
consider the Report in context, however, I do not believe it
supports the majority's position. The Report was prepared by the
Senate Banking Committee that drafted the Senate's original bill.
Due to the press of time, it was not placed in the Congressional
Record until two months after the Senate voted on and passed the
amended bill. Id. at S6934. As noted, the original bill was
modified substantially to delete references to simple negligence.
I therefore question the Report's value. RTC v. Miramon,
22 F.3d
1357, 1362 (5th Cir. 1994) ("[E]xamination of all of the
legislative history, and scrutiny of the sequence of events
leading up to the bill's passage, calls into question the
conclusion of th[e] report.").
Id. at S4264-65.29
The House version of section 1821(k), passed after the
Senate version, H.R. 1278, 101st Cong., 1st Sess., 135 Cong.Rec.
H2602 (daily ed. June 15, 1989), and the version that was
ultimately voted into law, preserved the Senate's removal of the
simple negligence standard. See Pub.L. No. 101-73, 103 Stat. 183
(Aug. 9, 1989), reprinted in 1989 U.S.C.C.A.N. 86. The House-
Senate Conference Report which represents the final statement of
terms agreed upon by both Houses of Congress confirms that
Congress decided upon a gross negligence standard for section
1821(k):
Title II preempts State law with respect to
claims brought by the FDIC in any capacity
against officers or directors of an insured
depository institution. The preemption
allows the FDIC to pursue claims for gross
negligence or any conduct that demonstrates a
29
The majority also points to Senator Sanford's comments
for support. While the Senator's comments certainly demonstrate
that section 1821(k) was not intended to set a universal standard
of director and officer liability, I do not believe they support
the view that Congress did not address the standard of liability
to be used in this RTC action.
Further, I believe the Senator's comments cast doubt on the
majority's statement that "[e]ven assuming that the proper
characterization of preexisting federal common law standard (as
one of negligence or gross negligence) is unclear, it seems quite
unlikely that Congress would have intended to reformulate the
post-receivership standard as gross negligence, while leaving the
pre-receivership standard in a state of ambiguity." Majority Op.
at 37. It appears that when enacting section 1821(k), Congress
did not focus on the duty of care that directors and officers of
financial institutions may owe their shareholders or third
parties in pre-receivership situations or on duties of care in
other areas.
greater disregard of a duty of care,
including intentional tortious conduct.
H.R.Conf.Rep. No. 222, 101st Cong. 1st Sess. 393, 398 (1989),
reprinted in 1989 U.S.C.C.A.N. 432, 437.
Events which occurred after the statute's enactment
also confirm that Congress established a standard of liability
greater than simple negligence in section 1821(k). I recognize
that post-enactment legislative history is not as weighty as
legislative history that is contemporaneous with a statute's
passage, but as the Supreme Court has instructed, I would "be
remiss" to ignore it. Cannon v. University of Chicago, 441 U.S.
677, 687 n. 7 (1979). There were two unsuccessful efforts to
amend section 1821(k) to include a simple negligence standard of
liability, one by the FDIC,30 and the other by Congressman Baker
of Louisiana.31
Gallagher, 10 F.3d at 423. Only the presence of
30
The FDIC amendment provided:
Nothing in this subsection shall impair or affect
any right of the [RTC] under other applicable
State or Federal law, including a right to
hold such director or officer personally
liable for negligence.
Miramon, 27 F.3d at 1363 n.10.
31
The Baker amendment provided:
Paragraph (1) shall not be construed as impairing
or affecting any right of the . . . [RTC]
under any provision of applicable State or
other Federal law, including any provision of
common law or any law establishing the
personal liability of any director or officer
a gross negligence standard in section 1821(k) would have
precipitated these attempts to reintroduce simple negligence as a
standard in the statute. Further, had Congress preserved the
federal common law standard in section 1821(k), as the majority
contends, these amendments would not have been necessary.
Finally, the public policy consideration the majority
raises regarding the "perverse incentive" that would be created
if the pre-receivership liability standard is simple negligence
and the post-receivership standard is higher, Majority Op. at 37,
may be more imagined than real. I have no reason to believe that
the directors and officers of federal depository institutions
will allow their institutions to fail in order to take advantage
of section 1821(k)'s gross negligence standard. If, however, the
statute has this result, it flows from the statute as written,
which is for Congress to correct. FMC Corp. v. U.S. Dep't of
Commerce, 29 F.3d 833, 846 (3d Cir. 1994) (declining to amend
CERCLA by "judicial fiat").
III.
In my judgment, the only reading of section 1821(k)
consistent with its plain meaning and its legislative history is
of an insured depository institution under
any standard pursuant to such law.
H.R. 3435, 102nd Cong., 1st Sess. § 228 (Comm. Markup Oct. 18,
1991).
that the statute "speaks directly" to the standard of liability
applicable to the directors and officers of state and federal
federally-insured depository institutions in RTC actions. I
must, therefore, conclude that the federal common law in this
area is supplanted. Milwaukee v. Illinois, 451 U.S. 304, 313-16
(1984).
