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. 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. 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.
Nos. 94-5307, 94-5308
United States Court of Appeals, Third Circuit
Decided June 23, 1995
57 F.3d 1231
Ronald W. Stevens (argued), Kirkpatrick & Lockhart, Washington, DC, for John W. Atherton, Jr., Alfred J. Hedden and Gilbert G. Roessner, appellees in No. 94-5307.
Douglas M. Kraus, Skadden, Arps, Slate, Meagher & Flom, New York City, Bruce I. Goldstein, Saiber, Schlesinger, Satz & Goldstein, Newark, NJ, for Gordon E. Allen, Marshall M. Criser, Peter R. Kellogg, and Victor A. Pelson, appellees in No. 94-5307.
John F. Cooney, Ronald R. Glancz, William D. Coston, Melissa Landau Steinman, Venable, Baetjer, Howard, & Civiletti, Washington, DC, Laura V. Studwell, Orloff, Lowenbach, Stifelman, & Siegel, Roseland, NJ, for John Kean, Jr., appellee in No. 94-5307.
Edward J. Dauber (argued), Jeffrey S. Berkowitz, Greenberg, Dauber & Epstein, P.C., Newark, NJ, for Martin R. Siegel, appellant in No. 94-5308.
J. Shane Creamer (argued), Majorie Obod, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, PA, for Joan C. Moonan, individually and as Executrix of the Estate of Robert J. Moonan, appellant in No. 94-5308.
Daniel Kinburn (argued), Susan L. Hall, Williams, Caliri, Miller & Otley, P.C., Wayne, NJ, Lloyd S. Markind, Margret E. Anderson, Arnelle & Hastie, Cherry Hill, NJ, for Resolution Trust Corp., appellee in No. 94-5308.
Frederic J. Schragger, Law Offices of Frederic J. Schragger, Lawrenceville, NJ, for Alfred J. Schuster, Richard P. Pearlman, Eugene J. Elias, Harry H. Jaeger, appellees in No. 94-5308.
Rudolph A. Socey, Jr., Lenox, Socey, Wilgus, Formidoni, & Casey, Trenton, NJ, for Thomas J. Lynam, in No. 94-5308.
Daniel J. Graziano, Brotman & Graziano, Trenton, NJ, for James W. Dwyer, appellee in No. 94-5308.
Stephen W. Armstrong, Montgomery, McCracken, Walker & Rhoads, Philadelphia, PA, for John C. Lauricella, appellee in No. 94-5308.
Before: BECKER, MANSMANN, and ALITO, Circuit Judges.
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
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.
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 pro-
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
Courts of appeals that have considered these issues have concluded that
I. FACTS AND PROCEDURAL HISTORY
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
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 Savings 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
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
B. City Federal
In the City Federal action, the RTC alleged that the defendants failed to discharge
The City Federal defendants responded to the RTC‘s complaint by moving to dismiss all claims, other than gross negligence, arguing that
II. FINANCIAL INSTITUTIONS, REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989
All parties agree that in enacting
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, 108 L.Ed.2d 842 (1990) (internal quotation marks omitted).
The disposition of these appeals turns on the breadth of
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, 119 L.Ed.2d 519 (1992), where the Court read a reference to “applicable non-bankruptcy law” in
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 Laboratories v. Gardner, 387 U.S. 136, 145, 87 S.Ct. 1507, 1513-14, 18 L.Ed.2d 681 (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
We necessarily begin our examination of
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.”
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 that protected directors from gross negligence claims by limiting their liability to instances of reckless, willful and 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 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
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,”
The limited sweep of
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.
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, 93 L.Ed.2d 757 (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
To support their reading of
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
We are also unpersuaded by the defendants’ reliance on congressional attempts to preserve more explicitly the RTC‘s right to
“Subsequent legislative history“—which presumably means the post-enactment history of a statutes 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.
Sullivan v. Finkelstein, 496 U.S. 617, 631-32, 110 S.Ct. 2658, 2667, 110 L.Ed.2d 563 (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
In sum, we conclude that the legislative history associated with FIRREA, and particularly
III. STATE LAW PREEMPTION
Pursuant to the Supremacy Clause,
As we have stated, both a plain reading of
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
First, they rejected the contention that Congress was motivated in enacting
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
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 that
IV. DISPLACEMENT OF FEDERAL COMMON LAW
We next address whether, by its enactment of
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, 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,
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
Notwithstanding the plain meaning of
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
Moreover, we do not believe (1) that
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
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 1243-1245. Congress could not have intended to create such an incentive in enacting a statute intended to “strengthen the enforcement powers of Federal regulators.”
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 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 (1971))). 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
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
In sum, the intent of Congress in enacting
We recognize that the two Courts of Appeals to have addressed both state law preemption and the displacement of federal common law by
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
In reaching the contrary conclusion that
As we have stated, allowing the RTC to bring such actions was precisely the purpose underlying the enactment of
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.
MANSMANN, Circuit Judge, concurring in part and dissenting in part.
I concur in the majority‘s holding that section 1821(k) of the Financial Institutions, Reform, Recovery and Enforcement Act of 1989 (“FIRREA“),
My analysis is guided throughout by the vastly different tests the Supreme Court has
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, 110 S.Ct. 1570, 1575, 108 L.Ed.2d 842 (1990), quoting, Consumer Product Safety Comm‘n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (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“.3 Under 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.”
I also do not share the majority‘s confidence in the clarity of the savings clause.4 Beginning its analysis by inquiring whether
(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 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.
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.5
The majority‘s position that section 1821(k)‘s “intended realm” is limited to state chartered depository institutions, Majority Op. at 1249, 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
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 1246, 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
(4) Federal depository institution
The term “Federal depository institution” means any national bank, any Federal savings association, and any Federal branch.
(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.
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 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. McSweeney, 976 F.2d 532, 540 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 2440, 124 L.Ed.2d 658 (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.9
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, 52 F.3d 295 (10th Cir.1995).
[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).11
Commenting in favor of the amended bill, Senator Sanford unmistakenly articulated Congress’ intent to establish a standard of
Mr. President, I would like to thank the distinguished managers of the bill, Senator RIEGLE and Senator GARN, for including in the managers’ amendment modifications to the bill regarding directors and officers liability insurance contracts, surety bonds, 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
[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).
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) (“Examination 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.“).
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.
Id. at S4264-65.12
The House version of section 1821(k), passed after the Senate version,
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 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, 99 S.Ct. 1946, 1952 n. 7, 60 L.Ed.2d 560 (1979). There were two unsuccessful efforts to amend section 1821(k) to include a simple negligence standard of liability, one by the FDIC,13 and the other by Congressman Baker of Louisiana.14 Gallagher, 10 F.3d at 423.
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 1246. 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.
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, 22 F.3d at 1363 n. 10.
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 an insured depository institution under any standard pursuant to such law.
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 1246, 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 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, 101 S.Ct. 1784, 1790-92, 68 L.Ed.2d 114 (1981).
Notes
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.
The degree of care required depends upon the subject to which it is to he 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....
Id. at 148, 11 S.Ct. at 929. We recognize that Briggs arose before Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (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 that 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.“).