Barnes v. Harris
783 F.3d 1185
10th Cir.2015Background
- Barnes Banking Company (the Bank) engaged in risky lending and failed; FDIC was appointed receiver in 2010. Barnes Bancorporation (Holding Company) was the Bank’s parent and allegedly had the Bank as its primary or sole asset.
- Three Holding Company shareholders filed a derivative suit against the Holding Company and its officers/directors alleging breaches of fiduciary duty tied mainly to mismanagement of the Bank; plaintiffs attached a demand letter and later amended complaints.
- The FDIC intervened in state court, removed the case to federal court, and asserted under FIRREA that it owned the claims derivative of bank injuries; district court dismissed most claims as belonging to the FDIC and dismissed remaining claims for failure to state a claim.
- Plaintiffs sought to recharacterize injuries as direct Holding Company harms (e.g., improper dividends, unrecovered portion of a $9 million tax refund, and alleged misuse of $265,000), and sought leave to amend; the district court denied further amendment as futile.
- On appeal the Tenth Circuit affirmed: it held the FDIC was properly a party by intervention (so federal jurisdiction under FIRREA removal statute existed) and that nearly all claims were derivative and therefore belong to the FDIC; the limited claim about $265,000 failed for inadequate pleading.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FDIC’s intervention (without a pleading) converted the case into a federal action under FIRREA removal jurisdiction | FDIC is not a real party because it did not file a pleading; removal was improper | FDIC had intervened in state court and its motion and filings made it a party; FIRREA removal statute applies | FDIC’s intervention made it a party for purposes of removal; federal jurisdiction under 12 U.S.C. §1819(b)(2)(A) proper (affirmed) |
| Whether claims against officers/directors of the Holding Company are direct (Holding Co.) or derivative (Bank) under Utah law, so whether FDIC owns them under FIRREA | Plaintiffs argued defendants owed duties to the Holding Company and alleged distinct Holding Co. harms (direct claims) | Defendants/FDIC argued alleged harms are derivative of injuries to the Bank and thus belong to FDIC under FIRREA | Most claims are derivative of bank injuries and belong to the FDIC; dismissal appropriate |
| Ownership of purported $9 million tax refund — Holding Co. or Bank/FDIC? | Plaintiffs alleged some portion belonged to Holding Co. and defendants had duty to recover it | FDIC argued refund belonged to Bank (and thus to FDIC as receiver) absent facts showing a different allocation or agreement | Dismissed: plaintiffs failed to allege facts plausibly showing Holding Co.’s ownership; claim belongs to FDIC or not sufficiently pled |
| Whether alleged misuse of $265,000 (Holding Co. funds) stated a claim and whether plaintiffs should get relaxed pleading standard | Plaintiffs sought relaxed pleading because facts within defendants’ control; alleged misuse included D&O premiums and legal fees | FDIC/defendants argued plaintiffs had statutory inspection rights and failed to plead facts meeting Iqbal/Twombly (and possibly Rule 9(b)) standards | Dismissed: claim inadequately pled under ordinary pleading standards; no relaxed standard applied; leave to amend denied as futile |
Key Cases Cited
- United States v. Winstar Corp., 518 U.S. 839 (U.S. 1996) (context on banking crisis prompting FIRREA)
- Alvarado v. J.C. Penney Co., 997 F.2d 803 (10th Cir. 1993) (intervenor treated as a full party even without separate pleading)
- Pareto v. FDIC, 139 F.3d 696 (9th Cir. 1998) (FIRREA transfers shareholders’ derivative rights in failed banks to the FDIC)
- In re Beach First Nat’l Bancshares, Inc. (Vieira v. Anderson), 702 F.3d 772 (4th Cir. 2012) (holding most holding-company claims derivative where harms originate at bank level)
- Levin v. Miller, 763 F.3d 667 (7th Cir. 2014) (similar holding that FDIC owns claims derivative of bank injuries; condemns ‘‘veneer’’ pleadings claiming direct harm)
- Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc., 970 P.2d 1273 (Utah 1998) (Utah test for derivative vs. direct shareholder claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading must contain more than conclusory allegations)