904 F. Supp. 2d 169
D.P.R.2012Background
- FDIC sued as Westernbank’s receiver for $176.02 million in losses from alleged gross negligence by Westernbank D&O’s and related parties.
- W Holding owned all Westernbank stock; FDIC intervened in a Chartis insurance coverage dispute; seven motions to dismiss are briefed.
- FDIC seeks to enforce D&O liability policies with Chartis and other insurers (XL, Liberty, Ace) and asserts seven claims.
- D&O’s allegedly funded defective asset-based and construction loans, ignored warnings, violated loan covenants, and failed to follow policies.
- Case posture: denial of all seven D&O motions to dismiss; court addresses statutory, common-law, and contract-based theories.
- FDIC’s complaint includes fraudulent transfer claims and direct-action insurance claims against carriers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FDIC’s gross negligence claim survives Rule 12(b)(6). | FDIC alleges plausible gross negligence under FIRREA and PR law. | D&O’s claim only ordinary negligence; not gross negligence. | Denied; gross negligence pleaded plausibly; ordinary negligence dismissed. |
| Adverse domination tolls the limitations period. | FDIC argues tolling applies due to control by culpable D&O’s and discovery delays. | D&O’s contend no tolling or timing issues. | Adverse domination and delayed discovery toll the limitations period for gross negligence. |
| Fraudulent conveyance claims against Stipes and Dominguez. | FDIC may plead fraudulent conveyance if debtor/institution-affiliated party; intent shown by badges of fraud. | Need stricter depiction of debtor status and intent. | Denied; plausibly pled under §1821(d)(17); discovery needed to clarify facts. |
| Insurers’ motions to dismiss under insured vs. insured exclusion. | FDIC stands in Westernbank’s shoes but acts as regulator; exclusion does not bar claim. | Exclusion should preclude FDIC claims against insured parties. | Denied; exclusion does not preclude FDIC claims when FDIC acts to protect depositors and fund. |
Key Cases Cited
- Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53 (Del. 1989) (gross negligence standard; Delaware approach cited for recklessness test)
- In re Walt Disney Co. Deriv. Litig., 906 A.2d 27 (Del. Ch. 2005) (devil-may-care attitude; intentional dereliction higher than gross negligence)
- O’Melveny & Myers v. FDIC, 512 U.S. 79 (U.S. 1994) (rejects federal common-law rulemaking for director duties; state law governs)
- Atherton v. FDIC, 519 U.S. 213 (U.S. 1997) (federal tolling/statutory framework; FIRREA context)
- Willetts v. FDIC, 882 F. Supp. 2d 859 (E.D.N.C. 2012) (adverse domination and regulatory warnings; 12(b)(6) denial)
- Int’l Inv. Trust v. Cornfeld, 619 F.2d 909 (2d Cir. 1980) ( tolling principles cited for discovery-based timetables)
- Villarini-Garcia v. Hosp. Del Maestro, 8 F.3d 81 (1st Cir. 1993) (tolling does not begin until information permitting suit is available)
- Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d 1248 (1st Cir. 1991) (fraudulent conveyance analysis; badges of fraud)