Rоbert V. JONES, derivatively on behalf of all similarly situated shareholders of Barnes Bancorporation v. J. Canute BARNES; W. King Barnes; Curtis H. HARRIS; Ned H. Giles; David N. Barnes; Robert L. Thurgood; Jerry W. Stevenson; Michael D. Pavich; Gary M. Wright; Douglas Stanger; Barnes Bancorporation, a nominal defendant
No. 14-4002
United States Court of Appeals, Tenth Circuit
April 21, 2015
782 F.3d 1185
LUCERO, MURPHY, and McHUGH, Circuit Judges.
Federal Deposit Insurance Corporation, as Receiver for Barnes Banking Corporation, Intervenor-Appellee.
Jonathan A. Dibble (Scott H. Clark, Kelly J. Applegate, and Adam K. Richards, with him on the briefs), Ray Quinney & Nebeker P.C., Salt Lake City, UT, for the Defendants-Appellees.
Minodora D. Vancea (Colleen J. Boles and Kathryn R. Norcross with her on the briefs), Federal Deposit Insurance Corporation, Arlington, VA, for the Intervenor-Appellee.
Before LUCERO, MURPHY, and McHUGH, Circuit Judges.
LUCERO, Circuit Judge.
We agree with the district court. Because almost all of the plaintiffs’ claims assert injury to the Holding Company that is derivative of harm to the Bank, those claims belong to the FDIC. Further, the one theory of recovery advanced by plaintiffs that identifies claims not owned by the FDIC under FIRREA, which involves the alleged misappropriation of $265,000, was pled in too conclusory a fashion.
Exercising jurisdiction under
I
Inconsistent with its long history of conservative, community-based lending, the Bank began engaging in risky lending practices in the early 2000s.1 As a result of mismanagement by the Bank‘s officers and directors, it experienced numerous economic setbacks. The Bank ultimately closed in January 2010, and the FDIC was appointed as receiver.
In January 2012, J. Canute Barnes filed a derivative shareholder complaint against the Holding Company, as a nominal defendant, and its officers and directors in Utah state court, alleging a breach of fiduciary duty. Attached to the complaint was a demand letter, a prerequisite to suit under
Following removal, the district court granted a motion to amend the complaint to add two shareholder plaintiffs, W. King Barnes and Robert Jones. Plaintiffs then filed a motion to remand to state court, arguing that the FDIC was not a party to the case because it had not filed a pleading. That motion was rejected. Plaintiffs then moved to dismiss the FDIC from the litigation for failure to state a claim. When the FDIC responded with its own motion to dismiss, the defendants moved for judgment on the pleadings. The district court denied plaintiffs’ motion, but granted in part the motions filed by defendants and the FDIC. It dismissed most of the plaintiffs’ claims with prejudice but allowed some to be re-pled.
In their second amended complaint, plaintiffs attempt to refocus their allegations from Bank-level harm to mismanagement at the Holding Company level. They allege that the Bank was the “primary asset” of the Holding Company. However, the complaint continues to reference the previously attached demand letter, which indicates the Bank is the “sole asset.” And the gravamen of the harm alleged remains the Bank‘s failure. Plaintiffs claim that the defendants should have removed and replaced the Bank‘s management; that the Holding Company breached a letter agreement with the Federal Reserve Bank to “change the Bank‘s practices“; and that the Holding Company improperly issued dividends. The second amended complaint also alleges that the Holding Company and the Bank were issued a $9 million tax refund on a joint return, none of which was recovered by the Holding Company. It further alleges that the Holding Company misused $265,000 by paying Directors and Officers insurance policy premiums and retaining counsel for the defendants.
Both the FDIC and the defendants moved to dismiss the second amended complaint. The district court granted the motions, dismissed plaintiffs’ claims, and denied further leave to amend. Plaintiffs timely appealed.
II
We, of course, first consider whether the district court has jurisdiction. The existence of subject-mаtter jurisdiction “is a question of law which we review de novo.” Plaza Speedway Inc. v. United States, 311 F.3d 1262, 1266 (10th Cir.2002). Subject-matter jurisdiction may be raised at any time and cannot be waived. Huffman v. Saul Holdings Ltd. P‘ship, 194 F.3d 1072, 1076–77 (10th Cir.1999).
During the 1980s, the United States banking system faced a crisis due to inadequate and ineffective regulations. See United States v. Winstar Corp., 518 U.S. 839, 856 (1996). In order to protect the FDIC, which is responsible for insuring depositors’ funds against loss, and to stabilize the banking system, Congress enacted FIRREA. See id.; see also Rundgren v. Wash. Mut. Bank, FA, 760 F.3d 1056, 1060 (9th Cir.2014); Cavallari v. Office of the Comptroller of the Currency, 57 F.3d 137, 145 (2d Cir.1995). As part of its effort to ensure the expeditious disposition of suits involving the FDIC, FIRREA provides that “all suits of a civil nature at common law or in equity to which the [FDIC], in any cаpacity, is a party shall be deemed to
Plaintiffs contend that the FDIC is not a party, and thus the district court lacked jurisdiction, because the FDIC never filed a pleading.2 They refer us to a treatise for the general proposition “that jurisdiction may not be created by intervention unless the intervening party brings separate claims over which the district court has an independent basis to exercise jurisdiction.” 16 Moore‘s Federal Practice—Civil § 107.15[7][a] (emphasis added). That statement comes from a discussion of Village of Oakwood v. State Bank & Trust Co., 481 F.3d 364 (6th Cir.2007). In Village of Oakwood, the FDIC removed a case from state court before it had been granted leave to intervene. Id. at 366. The federal district court permitted FDIC intervention only after the case was in federal court. Id. The Sixth Circuit concluded that this procedure could not crеate jurisdiction: “In the absence of jurisdiction over the existing suit, a district court simply has no power to decide a motion to intervene; its only option is to dismiss.” Id. at 367. Further, the court held that the suit did not fit within “a narrow exception” to this rule that applies when “the intervening party brings separate claims, and the district court has an independent basis to exercise jurisdiction over those claims.” Id. In that scenario, “the district court [should] dismiss the original claims in the action for lack of subject matter jurisdiction while retaining jurisdiction over the intervenor‘s claims only.” Id.
As the Sixth Circuit acknowledged in Village of Oakwood, the circuits are split on the question of whether the FDIC may create removal jurisdiction by filing a motiоn to intervene in federal court. Id. at 368. In Heaton v. Monogram Credit Card Bank, 297 F.3d 416 (5th Cir.2002), the Fifth Circuit concluded that a district court possessed “subject matter jurisdiction ... under
In Alvarado v. J.C. Penney Co., 997 F.2d 803 (10th Cir.1993), we considered the status of a company that had been granted leave to intervene after the claims against it were voluntarily dismissed. Id. at 804. Prior to the voluntary dismissal, the company had filed a motion to dismiss and a motion for summary judgment, but had not filed a pleading. Id. After being permitted to intervene, the company re-
The FDIC is in the same position as the intervenor in Alvarado. It was permitted to intervene and, through its motion, insisted that it had exclusive grounds to sue under FIRREA. Under Alvarado, we are obliged to treat the FDIC “as if it were an original party.” Id. (quotation omitted); see also Coal. of Ariz./N.M. Counties for Stable Econ. Growth v. Dep‘t of the Interior, 100 F.3d 837, 844 (10th Cir.1996) (“If a party has the right to intervene under Rule 24(a)(2), the intervenor becomеs no less a party than others and has the right to file legitimate motions....“).
Treating an intervening entity as a party even if that entity has not filed a pleading is consonant with the Federal Rules. Under
Further, allowing the FDIC to intervene and remove the case is consistent with Congress’ purpose in enacting FIRREA: providing the FDIC a federal forum. See, e.g., Mizuna, Ltd. v. Crossland Fed. Sav. Bank, 90 F.3d 650, 657 (2d Cir.1996) (observing that Congress “deliberately sought to channel the cases in which the FDIC would have or may wield [its] powers away from the state courts and into federal courts” (quotation omitted)); FDIC v. Meyerland Co. (In re Meyerland Co.), 960 F.2d 512, 515 (5th Cir.1992) (en banc) (“‘Access’ to federal courts in all actions to which it is a party allows the FDIC to develop and rely on a national and uniform body of law, consistent with eliminating the problems identified by Congress in having less rigorous state standards cоexisting with federal ones.“); Kirkbride v. Cont‘l Cas. Co., 933 F.2d 729, 731-32 (9th Cir.1991) (“[T]he grant of subject matter jurisdiction contained in FDIC‘s removal statute evidences Congress’ desire that cases involving FDIC should generally be heard and decided by the federal courts.” (quotation omitted)).
Because the FDIC was a party to the state court action by virtue of its intervention, we conclude that the district court properly exercised jurisdiction over the removed action pursuant to
III
Having assured ourselves that the district court possessed jurisdiction, we proceed to review its merits decision. Dismissal for failure to state a claim is reviewed de novo, accepting all well-plеd facts as true and viewing them in the light
A
Once the FDIC is appointed as a receiver, FIRREA grants it “all rights, titles, powers, and privileges of the [bank], and of any stockholder ... of such [bank] with respect to the [bank] and the assets of the [bank].”
Whether FIRREA applies to cases like this, in which a suit for breach of fiduciary duty is brought against a bank holding company‘s officers after a subsidiary bank has gone into FDIC receivership, presents a question of first impression in our circuit. However, cases from other circuits provide instructive guidance.
In Vieira v. Anderson (In re Beach First National Bancshares, Inc.), 702 F.3d 772 (4th Cir.2012), the Fourth Circuit considered claims quite similar to those at issue in this case. The trustee of a bank holding company brought claims against its former officers and directors—who were also officers and directors of the bank held by that company—after the subsidiary bank was placed into FDIC receivership. Id. at 775. Although the court acknowledged that the defendants owed fiduciary duties to the holding company independent of those owed to the bank, it held that all but one of plaintiffs’ claims belonged to the FDIC under FIRREA because the complaint alleged “causes of action for liability derivative of the alleged failures at the [b]ank level.” Id. at 777. “The Trustee repeatedly pled that the [defendants] allowed mismanagement of the [b]ank, but such conduct caused injury first to the [b]ank and then only indirectly to [the holding company] as the [b]ank‘s sole shareholder.” Id. at 778. One of the claims at issue, a holding company‘s interest in an LLC rather than the failed bank itself, asserted “direct harm to [the hоlding company] unrelated to any defalcation at the [b]ank level” and was allowed to proceed. Id. at 780.
The Seventh Circuit, in Levin v. Miller, 763 F.3d 667 (7th Cir.2014), addressed similar claims brought by the trustee of a holding company against its officers and directors after the FDIC took over the company‘s subsidiary banks. Id. at 669. FIRREA, the court explained, “allocate[s] to the FDIC not only the closed banks’ rights but also any claims that investors might assert derivatively on behalf of the closed banks.” Id. Applying Indiana law, which “treats a stockholder‘s claim as derivative if the corporation itself is the loser and the investor is worse off because the value of the firm‘s stock declines,” id. at 670, the court concluded that mоst of the claims at issue belonged to the FDIC, id. at 672. In Miller, plaintiffs attempted to artfully plead that the defendants (who served as management of both the holding company and the banks) breached a duty “to [the holding company] to protect it from their own behavior at the [b]anks.” Id. at 670. The Seventh Circuit concluded that this was “a veneer over a derivative claim based on the harm the [defendants‘] choices caused to the [b]anks and transmitted to [the holding company] through a decline in the value of the shares it held.”
In an unpublished per curiam opinion, Lubin v. Skow, 382 Fed.Appx. 866 (11th Cir.2010) (unpublished) (per curiam), the Eleventh Circuit also considered claims brought by the trustee of a holding company against the officers and directors of the holding company and its subsidiary, a bank in FDIC receivership. Id. at 869. That circuit concluded that “FIRREA grants the FDIC ownership over all shareholder derivative claims against the Bank‘s officers,” and that state law controlled the question of whether a claim is derivative. Id. at 870 & n. 6. Applying Georgia law, the court held that plaintiffs’ claims against the bank‘s officers belonged to the FDIC because “[t]he alleged harm to the [h]olding [c]ompany stems from the [b]ank officers’ managemеnt of [b]ank assets” and that “harm is inseparable from the harm done to the [b]ank.” Id. at 871-72. “That the [b]ank officers’ poor business choices reduced the value of the [h]olding [c]ompany‘s investment does not alter the fact that the harm is decidedly a derivative one.” Id. at 872. As to the plaintiffs’ claims against defendants as officers of the holding company, the court stated without analysis that FIRREA does not apply. Id.
The facts of this case and the claims advanced by plaintiffs parallel those in Beach First, Miller, and Lubin. On our independent analysis, we are largely in agreement with the approach of those cases. If the Holding Company‘s claims are based on harm derivаtive of injuries to the Bank, then they qualify as claims of a shareholder “with respect to the [bank] and the assets of the [bank]” and belong to the FDIC.
Under Utah law, “[d]erivative suits are those which seek to enforce any right which belongs to the corporation.” Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc., 970 P.2d 1273, 1280 (Utah 1998) (quotation omitted). Utah courts look to the nature of the injury in determining whether a claim is derivative or direct: “[I]n a direct action, the plaintiff can prevail without showing an injury to the corporation—the shareholder need show only an injury to him- or herself that is distinct from that suffered by the corporation.” Id. “[T]he shareholder must examine his injury in relation to the corporation and demonstrate that the injury was visited upon him and not the corporation.” Dansie v. City of Herriman, 134 P.3d 1139, 1144 (Utah 2006). If the “[p]laintiffs were injured because the [c]ompany was injured,” the claim is derivative. Id.
Other than their claims regarding the $265,000 allegedly misused by the defendants, plaintiffs do not allege any harm to the Holding Company that is distinct and separate from the harm to the Bank.4
Plaintiffs allege that mismanagement by the defendants harmed the Bank and in turn the Holding Company. They have attempted to carefully plead their claims, alleging that the defendants breached their duties to the Holding Company by failing to protect the Holding Company from mismanagement—by these same defendants—at the Bank level. But plaintiffs nonetheless seek redress for injuries that first befell the Bank, and reached the Holding Company only derivatively as a result of its ownership interest in the Bank. Under Utah law, such claims are decidedly derivative in nature. See Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc., 970 P.2d at 1280.5 Importantly, none of these claims allege that the Holding Company held any interest in non-Bank assets. Cf. Beach First, 702 F.3d at 780 (determining that the FDIC did not own a claim that was unconnected to the bank in receivership).
Plaintiffs attempt to support their argument that the bulk of their claims are direct rather than derivative by citing to a New York case, General Rubber Co. v. Benedict, 215 N.Y. 18, 109 N.E. 96 (1915), and lower court decisions following it. In General Rubber, the court held that a parent corporation may sue a director for failing to prevent mismanagement of a subsidiary, and that such a claim is direct rather than derivative. Id. at 96-97. However, General Rubber is contrary to Utah corporate law. See Stone Flood & Fire Restoration, Inc. v. Safeсo Ins. Co. of Am., 268 P.3d 170, 177-78 (Utah 2011)
Our decision is consistent with the requirement that shareholders not circumvent the interests of creditors and the FDIC. As Judge Hamilton of the Seventh Circuit noted in his concurrence in Miller:
At the core of the financial crisis of 2008 were policies that allowed bankers and other financiers to privatize profits but socialize losses. There are of course powerful reasons for the FDIC аnd its counterparts ... to play their vital roles in socializing losses to protect depositors and stabilize the economy. Any student of the Great Depression who remembers the runs on banks can appreciate those roles.... The holding company structure and the direct/derivative dichotomy are being used in ways that could allow those who ran the banks into the ground to take for themselves some of the modest sums available to reimburse the FDIC for a portion of the socialized losses they inflicted.
Miller, 763 F.3d at 674 (Hamilton, J., concurring) (quotation and citation omitted).
Ultimately, even though plaintiffs in this case may not have been to blame for the losses incurred, they did fail to prevent the officers аnd directors from incurring the losses at issue. After the Bank had run aground, these plaintiffs then brought suit to recover their losses. However, the Bank‘s failure imposed losses not only on sophisticated parties like plaintiffs, who had the ability to inspect the Bank‘s records, but also on ordinary depositors, whom the FDIC is obliged to make whole. See id. at 673-74 (noting that the FDIC incurred “losses ... to protect depositors from the folly of the banks and their parent company“).6
At bottom, most of plaintiffs’ claims rest on injuries to the Holding Company that are derivative of injuries to the Bank. We affirm the district court‘s conclusion that those claims belong to the FDIC.
B
Plaintiffs allege that a $9 million tax refund was due based on a joint tax return filed by the Holding Company and the Bank. The operative complaint states that “some or all” of that refund belongs to the Holding Company and that defendants had a duty to recover “that portion of the refund that was due to the Holding Company.” The district court concluded that this claim was unavailing because under the facts alleged, the right to a refund, if any, belongs to the FDIC. That reasoning is correct.
As the district court explained, a tax refund due from a joint return generally belongs to the company responsible for the losses that form the basis of the refund. See W. Dealer Mgmt., Inc. v. England (In re Bob Richards Chrysler-Plymouth Corp.), 473 F.2d 262, 265 (9th Cir.1973). Plaintiffs did not allege that the Holding Company possessed any business
Plaintiffs counter that companies may agree to alter the default allocation rule by agreement. See Bob Richards, 473 F.2d at 265. They state that the FDIC‘s entitlement to the refund may depend on whether certain notice requirements have been met. Yet plaintiffs have not alleged the existence of any agreement to allocate the refund, nor have they pled that the FDIC failed to comply with the regulations they assert are relevant. In complaining that the district court improperly resolved the issue of ownership of the tax refund, plaintiffs forget that they bear “the burden of alleging sufficient facts on which a recognized legal claim could be based.” Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.1991). Plaintiffs must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). By simply asserting that some portion of a tax refund might be due to the Holding Company without alleging any factual basis for such ownership (and in light of other information strongly suggesting the Holding Company lacks an ownership interest in the refund), plaintiffs “have not nudged their claims across the line from conceivable to plausible,” and dismissal of their tax refund claim was therefore apрropriate. Twombly, 550 U.S. at 570.
C
Plaintiffs allege that the defendants wasted $265,000 in company funds. The FDIC asserts no claim to these funds, which were apparently Holding Company property rather than bank assets, and thus the claim is not barred by FIRREA. This claim was dismissed for inadequacy of pleading.
On appeal, plaintiffs argue that we should adopt a more relaxed pleading standard because information regarding the $265,000 is in the defendants’ sole possession. They support their argument by referencing two cases from the Second Circuit. See Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir.2010); Boykin v. KeyCorp, 521 F.3d 202, 215 (2d Cir.2008). The FDIC and the defendants respond that plaintiffs are required to meet the heightened pleading standard of
We must reject plaintiffs’ request. “[W]e have noted that the nature and specificity of the allegations required to state a plausible claim will vary based on context.” Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir.2012) (quotation and alteration omitted). But the cases holding that plaintiffs may receive a more relaxed pleading standard when relevant information is entirely outside their control are inapplicable here. Unlike Boykin and Arista Records, the facts in question were
We need not reach the question: Does plaintiffs’ claim meet the higher Rule 9(b) pleading standard? That claim fails even under the ordinary Twombly/Iqbal criteria. Plaintiffs allege that the Holding Company used $265,000 for “potential [Company] business opportunities.” They further allege that some of these funds were used to pay for Directors and Officers insurance, and to pay legal fees. But they do not explain how these common expenditures would constitute an actionable wrong. See
IV
Finally, plaintiffs contend that the district court should have permitted them another opportunity to amend their complaint. The district court concluded that further amendment would have been futile. “A proposed amendment is futile if the complaint, as amended, would be subject to dismissal.” Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1018 (10th Cir.2013) (quotation omitted). “Although we generally review for abuse of discretion a district court‘s denial of leave to amend a complaint, when this denial is based on a determination that amendment would be futile, our review for abuse of discretion includes de novo review of the legal basis for the finding of futility.” Cohen v. Longshore, 621 F.3d 1311, 1314 (10th Cir.2010) (quotation omitted).
Even under the proffered third amended complaint, plaintiffs’ claims for all but the $265,000 would remain under the ownership and control of the FDIC, as our prior analysis explains. Plaintiffs’ proposed amendments, which would add a claim for waste against the officers and directors and seek equitable relief, do nоt disturb that legal conclusion.
With respect to the $265,000, plaintiffs offer additional allegations suggesting that the funds belonged to the Holding Company rather than the Bank. But the proffered third amended complaint fails to provide any additional support for their conclusory allegations that those funds were misappropriated. Because plaintiffs’ complaint as amended fails to state a claim for relief, we affirm the district court‘s denial of the motion to amend.
V
We are not unmoved by the frustration that plaintiffs express as they describe the collapse of the Barnes Banking Company. And our decision should not be read as evincing approbation of the conduct allegedly engaged in by its officers and directors, much less the larger pattern of misconduct exemplified by those alleged actions. The allegations demonstrate a pattern which, when repeated in many instances, inflicted severe injury on our financial system and on the many families whose livelihoods were dependent on that system. See, e.g., Dodge v. Comptroller of the Currency, 744 F.3d 148, 159 (D.C.Cir.2014) (describing misrepresentation and
AFFIRMED.
LUCERO
CIRCUIT JUDGE