Delta Savings Bank v. United StatesDelta Savings Bank v. United States
Timothy J. Gorry, Gorry & Mеyer, Los Angeles, California, for the plaintiffs-appellants.
Sushma Soni, United States Department of Justice Civil Division; Mary Hampton Mason, Civil Division; Richard Montague, Esq., Civil Division; Mark B. Sterns, Civil Division, Washington, D.C., for the defendants-appellees.
Appeal from the United States District Court for the Central District of California William Matthew Byrne, Jr., District Court Judge, Presiding. D.C. No. CV-94-06621-WMB
Before: Betty B. Fletcher, Sidney R. Thomas, and Kim McLane Wardlaw, Circuit Judges.
B. Fletcher, Circuit Judge
1 Plaintiffs-appellants Delta Savings Bank (“Delta“) and Young Il Kim (“Kim“) appeal two of the district court‘s orders granting a motion for partial summary judgment and а motion for summary judgment in favor of the defendant-appellee United States. These rulings dispose of all issues and all parties. We affirm in part and reverse in part. Because we affirm the district court on grounds that dispose entirely of the case, we need not remand for further proceedings.
I.
2 This case is about a state licensed savings bank, Delta, that fell under the scrutiny and eventually the control of various agencies of the United States. On September 15, 1989, several individuals of Asian ancestry invested approximately $2.6 Million in Delta and took over management of the institution. Kim invested nearly $500,000 and assumed the presidency of the bank. At the time he did so, the bank was already failing and under investigation by the Office of Thrift Supervision (“OTS“). According to plaintiffs, the bank‘s condition improved almost immediately, but the bank nonetheless came under increased scrutiny by the federal regulators. Plaintiffs allege that the increased scrutiny was due to a conspiracy among two OTS employees, defendants Henry and Jones, and a Delta employee, Miller, who once worked for OTS. Suрposedly, these three were motivated by their racial bias against the Asian ancestry of Delta‘s management. This is the central theory behind plaintiffs’ causes of action. Delta requested that both the Western Regional Director of the Office of the Inspector General and the California Department of Savings and Loan investigate the OTS. Both agencies began investigations into the claims of discrimination.
3 On May 29, 1991, Delta‘s board of directors authorized “any and all action necessary to file Civil Litigation against any and all parties including the OTS, . . . J. Jones, A. Miller and D. Henry.” On November 8, 1991, the OTS served Delta with notice that the Resolution Trust Corporation (“RTC“) had been appointed conservator and Kim was removed as president. Despite an administrative review of this action favorable to Kim, the OTS issued a Prohibition Order which forever banned Kim from working in the American banking industry. This action was appealed to this court, and the prohibition order was vacated. Kim v. Office of Thrift Supervision, 40 F.3d 1050, 1055 (9th Cir. 1994).
4 Kim, Yun Suk Seo, and Michael Kim filed suit in the United States District Court for the Central District of California against the Acting Director of the OTS. The case was assigned to District Judge David V. Kenyon. The suit sought removal of Delta‘s conservator on the basis that its appointment stemmed from the racial conspiracy among Jones, Henry and Miller.
5 On April 9, 1993, the district court granted plaintiffs leave to file a Second Amended Complaint and specifically found that the Delta directors had standing to bring suit. Subsequently, all parties stipulated to dismiss the suit to allow Delta to perfect its claim under the Federal Tort Claims Act (“FTCA“) and, if necessary, re-file the action.
6 On September 30, 1994, Delta and Kim, in his individual capacity and as a stockholder derivatively, re-filed the complaint against the United States and the OTS employees. The complaint alleged causes of action for violations of
7 Judge Kenyon retired from the bench and the action was transferred to Judge William Matthew Byrne, Jr. On October 30, 1997, Judge Byrne granted the defendant‘s Motion for Partial Summary Judgment, holding that only the Federal Deposit Insurance Corporation (“FDIC“), as successor to the RTC, had standing to pursue the claims against the OTS on behalf of Delta. This ruling dismissed all of Delta‘s claims brought by Kim, in his capacity as a stockholder, officer, or director of Delta. The parties that remained were one plaintiff, Kim, in his individual capacity, and one defendant, the United States.
8 The remaining cause of action was a tort claim under the FTCA.
9 Judge Byrne granted defendant‘s Motion for Summary Judgment, holding that the district court did not have subject matter jurisdiction over the remaining claim because the United States had not waived its sovereign immunity. The district court subsequently denied Kim‘s motion to “amend the judgment” and this appeal was filed on September 29, 1998.
II.
10 A grant of summary judgment is reviewed de novo. Botosan v. Paul McNally Realty, 216 F.3d 827, 830 (9th Cir. 2000); Weiner v. San Diego County, 210 F.3d 1025, 1028 (9th Cir. 2000). The grant of “partial” summary judgment is also reviewed de novo. Adair v. City of Kirkland, 185 F.3d 1055, 1059 (9th Cir. 1999).
11 The appellate court‘s review is governed by the same standard used by the trial court under
A. Kim‘s Statutory Standing to Sue on Behalf of Delta Under FIRREA
13 On October 30, 1997, District Court Judge Byrne granted the defendant‘s Motion for Partial Summary Judgment, dismissing all claims brought by Delta and those brought by Kim, in his capacity as a stockholder, officer, or director of Delta. Kim‘s claims brought in his individual capacity remained.
14 The RTC had been named the conservator and then the receiver of Delta. The district court reasoned that the clear language of the Financial Institution Reform, Recovery and Enforcement Act of 1989 (“FIRREA“),
15 Under FIRREA, FDIC-appointed conservators and receivers “shall . . . by operation of law, succeed to -(i) all rights, titles, powers, and privileges of the insured depository institution.”
16 Despite such unequivocal language, plaintiffs make a simple plea to logic: the FDIC should not have the final say on whether it is in Delta‘s best interests to sue the OTS. The OTS and the FDIC are interrelated agencies with overlapping personnel, structures, and responsibilities, and thus, according to plaintiffs, the FDIC faces a conflict of interests when it contemplates a suit against the OTS. Even though the FDIC, as receiver, is supposed to represent the best interest of Delta, the FDIC may be unwilling to bring a lawsuit against the OTS becаuse of the close ties that bind the two agencies. We agree.
17 In First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279 (Fed. Cir. 1999), the Federal Circuit adopted a “conflict of interests” exception to the FIRREA which is similar to the exception urged by plaintiffs in this case. A large shareholder of a bank, which had been seized and placed under the receivership of the FDIC, brought suit against the United States alleging that the FDIC had breached contracts and committed unlawful takings in handling the troubled bank. Id. at 1284. The lower court -the Court of Federal Claims -had held that the shareholder lacked standing because only the FDIC, as receiver, had the authority to sue on the bank‘s behalf. Id. at 1294 (citing 42 Fed. Cl. 599, 612-16 (1998)). The Court of Federal Claims based its ruling, in part, on our court‘s holding in Pareto. 194 F.3d at 1294.
18 The Federal Circuit agreed that, “as a general proposition, the FDIC‘s statutory receivership authority includes the right to control the prosecution of legal claims on behalf of the insured depository institution now in its receivership.” First Hartford, 194 F.3d at 1295. In ruling, however, that the lower court had erred, the Federal Circuit made an analogy between the lawsuit brought by the plaintiff and corporate derivative lawsuits. The pоint of a derivative lawsuit is to “place in the hands of the individual shareholder a means to protect the interests of the corporation from the misfeasance and malfeasance of faithless directors and managers.” Id. (quoting Kamen v. Kemper Fin. Serv., 500 U.S. 90, 95 (1991)).
19 Continuing the analogy to derivative lawsuits, the court focused on conflicts of interest. “[T]he FDIC was asked to decide on behalf of the depository institution in receivership whether it should sue the federal government based upon a breach of contract, which, if proven, was caused by the FDIC itself.” Id. The court implied that, just as directors can fall prey to “misfeasance” and “conflict[s] of interest,” so too might the FDIC suffer from a conflict of interest. Id. Without inferring “any bad faith or improper motive on the part of the FDIC” the court held that because of the “manifest conflict of interest” presented, plaintiff had standing to sue derivatively. Id.
20 We note that the Federal Circuit expressly limited its holding in First Hartford. “[O]ur holding is limited to the situation here in which a government contractor with a putative claim of breach by a federal agency is being operаted by that very same federal agency, as is the case in the receivership context.” Id. (emphasis added) (further saying that the holding was applicable only “in a very narrow range of circumstances“).
21 In the instant case, charges were brought against the OTS while the bank was in receivership under the RTC (which was succeeded by the FDIC). We hold that the fact that this case involves separate federal agencies does not distinguish it from First Hartford and we adopt the First Hartford exception. Based on the inter-relatedness of these agencies, a “manifest conflict of interest” has arisen. These are interdependent entities with managerial and operational overlap and thus this lawsuit raises the same kind of conflict that was at issue in First Hartford.
22 The government responds that the FDIC is independent from the OTS and cites statutes and cases that supposedly attest to their independence from one another. We disagree. These are not two disengaged bodies on the opposite ends of an organizational chart; these are closely related entities. The Director of the OTS is, by statute, a member of the Board of Directors of the FDIC.
23 Furthermore, the two agencies play complementary roles in the process of bailing out failing thrifts. The OTS examines and supervises thrift institutions and can declare a bank insolvent or place it under the control of a conservator or receiver to ensure compliance with federal laws and regulations.
24 None of the cases cited by the defendant contradict the rule in First Hartford. O‘Melveny, cited supra, stands for the proposition thаt the FDIC “steps into the shoes” and obtains the “rights” of the institution. 512 U.S. at 86. The Court specifically held that because California state law imputes the knowledge of corporate officers to their corporation, the FDIC is treated no differently when it “steps into the shoes” of a failing bank; the knowledge possessed by the former bank directors is imputed to the FDIC. Id. The strongest proposition that can be drawn from this holding is that the FDIC cannot escape the limitations that a state imposes on other corporations just because the language of FIRREA is expansive. In fact, in O‘Melveny, the Court explicitly noted that there might be exceptions to the absolute rule it put forth, “where some provision in the extensive framework of FIRREA provides otherwise.” Id. at 87.
25 The defendant also points to Pareto. In Pareto, we spoke with clarity, holding that, “Congress has transferred everything it could to the FDIC [through FIRREA], and that includes a stockholder‘s right, power, or privilege to demand corporate action or to sue directors or others when action is not forthcoming.” 139 F.3d at 700. In the very next sentence, however, we noted that exceptions to this absolute rule were justified if the result would otherwise “be absurd or impracticable.” Id. In Pareto, the result was not “absurd or impracticable” because the FDIC was qualified to decide, on behalf of the former stockholders, whether the bank should sue the directors for breaching the duty of loyalty and for misrepresenting information. Id. In the instant case, strict adherence to an absolute rule would be at least impracticable, and arguably absurd. The FDIC was asked to demand a lawsuit, refuse this demand, and proceed derivatively with the lawsuit against one of its closely-related, sister agencies. This was one hat too many to be placed atop the head of the FDIC.
26 We hold, following First Hartford and consistent with O‘Melveny and Pareto, that a common-sense, conflict of interest exception to the commands of FIRREA warrants granting standing to Kim as a representative of Delta in this case. However, because we hold in Part II(B) that Delta has no cause of action against the United States under the FTCA, although we reverse the Court‘s finding of insufficient standing, we need not remand.
B. The Federal Tort Claims Act
27 The Federal Tort Claims Act (FTCA) acts as a waiver of the United States’ traditional soverеign immunity for certain torts committed by its employees.
28 In their complaint, the plaintiffs’ FTCA claim is based on the OTS’ alleged violation of a federal civil rights statute,
29 Plaintiffs suggest, without support, that an FTCA claim can be brought for violations of federal statutes that provide private federal causes of action, even if there is no analogous state law. This is not so. The Supreme Court has addressed a similar issue in regards to a “constitutional tort” claim brought against the government for alleged due process violations. FDIC v. Meyer, 510 U.S. 471, 475-79 (1994). The Court held that “the United States simply has not rendered itself liable under [the FTCA] for constitutional tort claims,” reasoning that they “have consistently held that[the FTCA‘s] reference to the `law of the place’ means law of the State--the source of substantive liability under the FTCA. By definition, federal law, not state law, provides the source of liability for a claim alleging the deprivation of a federal constitutional right.” Id. at 478 (citations omitted). Similarly, liability under
30 Because the FTCA action cannot be premised on a violation of
31 Plaintiffs argue generally that California civil rights laws forbid private parties from violating the civil rights of other parties, and that they specifically incorporate
32 Nor are we persuaded by the argument that
33 Plaintiffs also argue that the local law requirement of the FTCA is met through the state tort of negligence per se. California has codified its version of this rule.
34 We agree with the district court. To bring suit under the FTCA based on negligence per se, a duty must be identified, and this duty cannot spring from a federal law. The duty must arise from state statutory or decisional law, and must impose on the defendants a duty to refrain from committing the sort of wrong alleged herе. See Art Metal-U.S.A., Inc. v. United States, 753 F.2d 1151, 1158 (D.C. Cir. 1985) (“The pertinent inquiry is whether the duties set forth in the federal law are analogous to those imposed under local tort law.“) (citing Indian Towing Co. v. United States, 350 U.S. 61 (1955)).
35 Plaintiffs argue that a state law negligence per se action can be premised on the duty arising from the federal statute,
36 Accordingly, we affirm the district court‘s order granting defendants’ motion for summary judgment.
III. Law of the Case
37 Judge Kenyon was originally assigned to a case involving this controversy, albeit between somewhat different parties, that was a predecessor to the instant case. On April 9, 1993, in granting plaintiffs’ leave to file a second amended complaint in the earlier case, Judge Kenyon specifically ruled that, dеspite FIRREA, Delta‘s directors had standing to bring suit. After that lawsuit was voluntarily dismissed and refiled in its current form, Judge Kenyon, on May 15, 1995, specifically ruled that Delta and Kim had stated a valid claim for relief under the FTCA, basing his ruling on plaintiffs’ negligence per se theory.
38 Judge Kenyon retired and the case was transferred to Judge Byrne. Upon two separate motions by the United States, Judge Byrne essentially overruled both of Judge Kenyon‘s prior rulings. Both times, plaintiffs argued to Judge Byrne that he was bound to leave unmodified Judge Kenyon‘s rulings as the law of the case. Plaintiffs now argue thаt Judge Byrne abused his discretion by ignoring the law of the case in issuing his rulings.
39 “We review for abuse of discretion a district judge‘s decision to reconsider an interlocutory order by another judge of the same court.” Amarel v. Connell, 102 F.3d 1494, 1515 (9th Cir. 1997).
We have held that:
40 While courts have some discretion not to apply the doctrine of law of the case, that discretion is limited. The prior decision should be followed unless: (1) the decision is clearly erroneous and its enforcement would work a manifest injustice, (2) intervening controlling authority makes reconsideration appropriate, or (3) substаntially different evidence was adduced at a subsequent trial.
41 Jeffries v. Wood, 114 F.3d 1484, 1489 (9th Cir. 1997) (citations, footnotes, and internal quotation marks omitted).
42 Judge Byrne held that controlling authority had intervened that was unavailable to Judge Kenyon, and that would have altered the result Judge Kenyon had reached. Specifically, Judge Byrne cited O‘Melveny & Meyers v. FDIC, 512 U.S. at 86, and Love v. United States, 60 F.3d 642 (9th Cir. 1995) 43 Additionally, Judge Kenyon‘s FIRREA ruling came in an earlier case with different parties which was voluntarily dismissed without prejudice. Judge Byrne noted that this court has held that such a dismissal “leaves the parties as though no action had been brought.” Concha v. London, 62 F.3d 1493, 1506 (9th Cir. 1995). Plaintiffs rеspond that this dismissal should not affect the law of the case because the transactions and occurrences were identical in the two actions, and because the parties were only “technically” different. We disagree. See Harbor Ins. Co. v. Essman, 918 F.2d 734, 738 (8th Cir. 1990) (original case was dismissed by stipulation and refiled but “[b]ecause the instant case is not the same case as the [prior action], the law of the case doctrine does not apply.“); Soc‘y of Separationists, Inc. v. Herman, 939 F.2d 1207, 1214 (5th Cir. 1991) (the prior case “and the case before us are altogether separate рroceedings, so law of the case is inapplicable.“). 44 Additionally, whether or not a district court judge abuses his discretion by reversing an earlier judge‘s ruling, the Court of Appeals should review the merits of the ruling. Levald, Inc. v. City of Palm Desert, 998 F.2d 680, 687 (9th Cir. 1993) (“Levald‘s argument regarding the law of the case is also without merit. Regardless whether it was appropriate or prudent for Judge Waters to revisit the statute of limitations question when Judge Letts had already ruled on it, there is nothing that insulates either judge‘s conclusion from appellate review.“) 45 Accordingly, we hold that Judge Byrne did not abuse his disсretion in reaching a different conclusion than that in Judge Kenyon‘s earlier rulings. 46 AFFIRMED in part and REVERSED in part.