Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-11-02019/USCOURTS-ca4-11-02019-0/pdf.json

Nature of Suit Code: 423
Nature of Suit: Bankruptcy Withdrawal 28 USC 157
Cause of Action: 

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FILED: January 2, 2013

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 11-2019

In re: BEACH FIRST NATIONAL BANCSHARES, INCORPORATED

 Debtor

----------------------------

MICHELLE LEIGH VIEIRA, as Trustee for the Estate of Beach First 

National Bancshares, Incorporated

 Plaintiff - Appellant

v.

MICHAEL BERT ANDERSON; ORVIS BARTLETT BUIE; RAYMOND E. CLEARY, 

III; THOMAS FULMER; MICHAEL D. HARRINGTON; JOE N. JARRETT, JR.; 

RICHARD E. LESTER; LEIGH AMMONS MEESE; RICK H. SEAGROVES; DON J. 

SMITH; SAMUEL ROBERT SPANN, JR. ; B. LARKIN SPIVEY, JR.; WALTER 

E. STANDISH, III, as President and Chief Excecutive Officer of 

Beach First National Bancshares, Incorporated; JAMES C. YAHNIS, 

as Directors of Beach First National Bancshares, Incorporated

 Defendants - Appellees

O R D E R

The court amends its opinion filed December 28, 2012, by 

changing the fourth word, last sentence, first paragraph to 

"Bancshares'."

For the Court

 /s/ Patricia S. Connor

 Clerk

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PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: BEACH FIRST NATIONAL 

BANCSHARES, INCORPORATED,

Debtor.

MICHELLE LEIGH VIEIRA, as Trustee

for the Estate of Beach First

National Bancshares, Incorporated,

Plaintiff-Appellant,

v.

MICHAEL BERT ANDERSON; ORVIS

BARTLETT BUIE; RAYMOND E.

CLEARY, III; THOMAS FULMER;  No. 11-2019

MICHAEL D. HARRINGTON; JOE N.

JARRETT, JR.; RICHARD E. LESTER;

LEIGH AMMONS MEESE; RICK H.

SEAGROVES; DON J. SMITH; SAMUEL

ROBERT SPANN, JR.; B. LARKIN

SPIVEY, JR.; WALTER E. STANDISH,

III, as President and Chief

Executive Officer of Beach First

National Bancshares, Incorporated;

JAMES C. YAHNIS, as Directors of

Beach First National Bancshares,

Incorporated,

Defendants-Appellees. 

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Appeal from the United States District Court

for the District of South Carolina, at Charleston.

David C. Norton, District Judge.

(2:11-cv-00055-DCN; 10-03499-DD; 10-80143-AP)

Argued: September 18, 2012

Decided: December 28, 2012

Before AGEE, WYNN, and FLOYD, Circuit Judges.

Affirmed in part, reversed in part, and remanded by published

opinion. Judge Agee wrote the opinion, in which Judge Wynn

and Judge Floyd joined.

COUNSEL

ARGUED: David Jay Parrish, NEXSEN PRUET, Charleston,

South Carolina, for Appellant. Dennis James Connolly,

ALSTON & BIRD, LLP, Atlanta, Georgia, for Appellees. ON

BRIEF: Richard L. Tapp, NEXSEN PRUET, Charleston,

South Carolina, for Appellant. F. Truett Nettles, II, GRIMBALL & CABANISS, LLC, Charleston, South Carolina;

Robert R. Long, ALSTON & BIRD, LLP, Atlanta, Georgia,

for Appellees.

OPINION

AGEE, Circuit Judge:

I

Michelle Leigh Vieira, trustee in bankruptcy of Beach First

National Bancshares, Inc., (the "Trustee" and "Bancshares,"

2 IN RE: BEACH FIRST NATIONAL BANCSHARES

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respectively) filed this action against the former directors and

officers of Bancshares (collectively, including both fiduciary

capacities, the "Directors"). The Directors also all formerly

served as the officers and directors of First National Bank

Myrtle Beach, SC (the "Bank"), a wholly owned subsidiary of

Bancshares. The Bank was Bancshares’ primary asset.

In 2008, the United States Office of the Comptroller of the

Currency ("OCC") began monitoring the Bank.1

 Finding serious deficiencies with the management and operation of the

Bank, OCC required the Bank to take a number of corrective

actions. These corrective actions failed to sustain the financial

stability of the Bank. Consequently, on April 9, 2010, OCC

closed the Bank and named the Federal Deposit Insurance

Corporation ("FDIC") as its receiver. The FDIC subsequently

liquidated all of the Bank’s assets so that the Bank ceased as

a going concern or functional entity.

As a consequence of the Bank’s failure, Bancshares filed

for bankruptcy under Chapter 7 on May 14, 2010, in the

United States Bankruptcy Court for the District of South Carolina. The Trustee then filed this adversary proceeding, asserting breach of fiduciary duty and negligence against the

Directors in their capacity as the officers and directors of

Bancshares. Specifically, the Trustee alleged that the Directors breached a number of duties to Bancshares, resulting in

mismanagement and lack of oversight of the Bank and over

Bancshares’ interest in a real estate holding entity.

The Directors moved the bankruptcy court to (1) stay the

adversary proceeding, (2) withdraw the reference to the bank1OCC is an independent bureau of the U.S. Department of the Treasury

that charters, regulates, and supervises all national banks and federal savings associations. Among other things, OCC may take enforcement

actions against national banks and federal savings associations that fail to

comply with laws and regulations or otherwise engage in unsound practices. 

IN RE: BEACH FIRST NATIONAL BANCSHARES 3

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ruptcy court and transfer the action to the United States District Court for the District of South Carolina, or (3) dismiss

the case for failure to state a claim under Rule 12(b)(6) of the

Federal Rules of Civil Procedure. The bankruptcy court

stayed the proceedings, and the district court granted the

motion to withdraw the reference.2

After briefing and argument, the district court granted the

Directors’ motion to dismiss, concluding that the Trustee

lacked standing to bring the action. See Vieira v. Anderson (In

re Beach First Nat’l Bancshares, Inc.), No. 2:11-CV-0055-

DCN, 2011 WL 3794234, at *6 (D.S.C. Aug. 25, 2011). In

analyzing the Trustee’s pleading, the district court determined

that the Trustee pled against the Directors only claims derived

from alleged defalcations in the Directors’ operation of the

Bank. The district court then held that the Trustee’s right to

bring such derivative claims had been divested by statute in

favor of the FDIC. Derivative claims of the nature asserted by

the Trustee, the district court determined, could be brought

only by the FDIC under the Financial Institutions Reform,

Recovery and Enforcement Act of 1989 ("FIRREA"). To

date, the FDIC has not brought an action against the Directors

and has stated in communications to the Trustee that it would

likely not proceed against them.

From the judgment dismissing her Complaint, the Trustee

now timely appeals. We have jurisdiction under 28 U.S.C.

§ 1291.

2Pursuant to Rule 5011 of the Federal Rules of Bankruptcy Procedure,

"[a] motion for withdrawal of a case or proceeding shall be heard by a district judge." Motions for withdrawal "shall be by motion filed with [the

bankruptcy court]," which, through the clerk of the bankruptcy court,

"shall promptly transmit to the United States District Court the motion"

for its review. Bankr. D.S.C. R. 5011-1. 

In view of the withdrawal of the reference, for purposes of this opinion,

we will refer to the Trustee’s adversary proceeding pleading as a "complaint." 

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II

In a nutshell, the Trustee contends on appeal that the district court erred in granting the Directors’ motion to dismiss

for two reasons. First, the Trustee argues that she did not

plead derivative claims against the Directors, but instead

asserted direct claims that do not fall within the purview of

the FDIC. Alternatively, the Trustee contends that the claims

against the Directors, even if derivative in nature, remain hers

to bring because the FDIC has declined to act and has acquiesced in the Trustee’s assertion of those claims.

We review a district court’s dismissal of an action under

Rule 12(b)(6) de novo. See Giarratano v. Johnson, 521 F.3d

298, 302 (4th Cir. 2008). When reviewing a Rule 12(b)(6)

dismissal, we accept all factual allegations in the complaint as

true. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per

curiam). We review questions of law de novo. See Logan v.

JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 510

(4th Cir. 2005). To the extent that we consider questions of

state law to reach our decision, South Carolina law applies.3

Applying those standards, we disagree, for the most part,

with the Trustee’s arguments for the reasons set forth below.

Accordingly, we affirm the judgment of the district court,

with the exception of its dismissal of the Trustee’s claim

regarding Bancshares’ interest in a real estate holding entity.

III

A

A trustee in bankruptcy succeeds to all rights of the debtor,

including the right to assert any causes of action belonging to

3Bancshares was organized under the laws of South Carolina. We agree

with the parties and the district court that South Carolina law is the controlling law for state law purposes. 

IN RE: BEACH FIRST NATIONAL BANCSHARES 5

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the debtor. See Nat’l Am. Ins. Co. v. Ruppert Landscaping

Co., 187 F.3d 439, 441 (4th Cir. 1999). A debtor’s right to

bring a legal claim is part of the bankruptcy estate under 11

U.S.C. § 541(a). Applying that foundational principle to the

case at bar, the Trustee has the authority to assert any cause

of action that Bancshares could have brought in its own right.

Absent statutory modification, this power includes the right to

assert derivative claims of Bancshares (as the Bank’s sole

shareholder) against the Directors in their capacity as officers

and directors of the Bank. This is so because, under South

Carolina law, when an officer or director of a corporation

causes injury to the corporation or fails to fulfill a duty to the

corporation, that corporation may bring a direct action against

the officer or director. See Babb v. Rothrock, 401 S.E.2d 418,

419–20 (S.C. 1991). When the corporation fails to bring a

direct action, a shareholder may bring suit on behalf of the

corporation in a derivative action. See Rice-Marko v.

Wachovia Corp., 728 S.E.2d 61, 65 (S.C. 2012). In this case,

that shareholder is Bancshares, now acting by virtue of the

bankruptcy proceeding through the Trustee.

Under FIRREA, however, the FDIC, when appointed

receiver of a bank, succeeds to "all rights, titles, powers, and

privileges of the insured depository institution, and of any

stockholder . . . of such institution with respect to the institution and the assets of the institution." 12 U.S.C.

§ 1821(d)(2)(A)(i) (emphasis added). The Trustee does not

dispute that derivative claims fall within the powers and privileges of a stockholder of a financial institution "with respect

to the institution" as contemplated by § 1821(d)(2)(A)(i). 

The district court concluded that the Trustee brought only

derivative claims against the Directors because "the directors

and officers of Bancshares and the Bank were one and the

same, and the harm caused to Bancshares, the holding company, was the direct result of the failure of its wholly-owned

subsidiary and primary asset, the Bank." Vieira, 2011 WL

3794234, at *6. In reviewing the basis of the Directors’ liabil6 IN RE: BEACH FIRST NATIONAL BANCSHARES

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ity to Bancshares as pled by the Trustee, the district court

observed that the only harm pled "result[ed] from the mismanagement and failure of its primary asset, the Bank." Id. at

*3. In support of its conclusions, the district court cited its

previous decision in FDIC v. American Bank Trust Shares,

Inc., which held:

It is well settled under South Carolina law, as well

as the law of other jurisdictions, that causes of action

for losses sustained because of the mismanagement

and negligence of directors, officers, and employees

of a bank belong to the bank itself, and not to the

stockholders or creditors; and in the event of its liquidation, such causes of action are vested in its

receiver; and may be conveyed and sold as any other

asset.

412 F. Supp. 302, 306 (D.S.C. 1976), vacated on other

grounds, 558 F.2d 711 (4th Cir. 1977). The Fourth Circuit

affirmed this principle in Bauer v. Sweeny, 964 F.2d 305, 308

(4th Cir. 1992). Those cases, however, involved individual

shareholders asserting clearly derivative claims against officers and directors of an operating bank entity. They did not

include the additional element, present in this case, of dualrole fiduciaries at the holding company and subsidiary bank

levels.

B

The Trustee correctly asserts that the fiduciary duties the

Directors owed to Bancshares, as a distinct corporate entity

from the Bank, were separate from those duties the Directors

owed the Bank. The actual basis of liability the Trustee pled

against the Directors, however, flows only from the duties the

Directors may have violated in their operation and management of the Bank (with one exception discussed below).

While the Directors could, conceptually, have undertaken

actions uniquely and separately harmful to Bancshares (as

IN RE: BEACH FIRST NATIONAL BANCSHARES 7

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opposed to the Bank), the Trustee has pled primarily causes

of action for liability derivative of the alleged failures at the

Bank level.

The Trustee repeatedly pled that the Directors allowed mismanagement of the Bank, but such conduct caused injury first

to the Bank and then only indirectly to Bancshares as the

Bank’s sole shareholder. For example, the Trustee pled that

the Directors were responsible "for the operations and management of the Bank, and as such were directly or indirectly

responsibility [sic] for the lack of management and oversight

that led to the Bank’s failure and resulting financial failure of

Bancshares" (J.A. 8); that they failed "to cause the proper and

needed controls, systems, procedures and practices be established, implemented, maintained and enforced at the Bank in

order to ensure the financial success of the Bank, as the

wholly-owned corporate asset of the Bank" (J.A. 9); and that

they failed to implement and enforce

prudent lending and underwriting practice and standards, and they allowed the Bank to engage in high

volume of real estate and construction lending practices (including, upon information and belief, a large

number of timeshare loans and "stated income"

loans) of an imprudent and risky nature and in

excess of reasonable and prudent lending practices in

light of the volume of such lending and the nature of

the market (i.e., a resort and second home environment) in which the Bank operated.

(J.A. 10.)

These alleged harms, as pled, occurred at the Bank—not

Bancshares—level. While the Directors wore, so to speak,

fiduciary hats at both the parent and subsidiary level, the

Trustee has not pled a harm or an act that occurred at the

Bancshares (parent) level that did not simultaneously and primarily occur at the Bank (subsidiary) level. The Trustee

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seemed to concede as much at the hearing before the district

court: 

THE COURT: So [Bancshares] couldn’t have any

other damages other than the bank, right?

[COUNSEL]: . . . yes, if this is the only asset, the

damages to the bank would be the same . . . other

than the building issue that I pled separately, in general the damages are the same.

(J.A. 674–75.)

While there is limited appellate authority directly on point,

the Eleventh Circuit recently considered issues somewhat

similar to those in the case at bar in an unpublished decision,

Lubin v. Skow (In re Integrity Bancshares, Inc.), 382 Fed.

App’x 866 (11th Cir. 2010) (per curiam). In Lubin, as here,

the trustee in bankruptcy of a bank holding company filed an

adversary proceeding against the holding company’s officers

and directors, alleging breaches of fiduciary duty and negligence. Id. at 869. Specifically, the trustee in Lubin alleged

that the defendant officers and directors had caused the holding company to take on excess debt to fund its subsidiary

bank, devaluing the holding company stock. Id. Most of the

defendants in Lubin served as officers and directors of both

the holding company and the subsidiary bank. Id.

The Eleventh Circuit concluded that the FDIC succeeded to

all derivative claims against the officers and directors of the

subsidiary bank. Id. at 871. As to the liability of those fiduciaries to the holding company, the debtor entity in Lubin, the

court observed that the bankruptcy trustee could bring claims

for direct harm to the holding company, as opposed to claims

derived from subsidiary level breaches of duty, and that such

direct claims were not foreclosed by FIRREA in favor of the

FDIC. Id. at 872. The bankruptcy trustee in Lubin, however,

had failed to raise direct claims in his pleadings:

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Because the Complaint fails to plead sufficient facts

connecting any act or omission by the defendants

with a harm to the Holding Company that is distinct

from the harm the Holding Company suffered when

its investment in the Bank soured, the Complaint

states no claim for which the Trustee may recover.

Id. at 873.

As we noted above, the main thrust of the Trustee’s pleading here meets the same fate as the bankruptcy trustee’s

claims in Lubin because it focuses on harm that is not "distinct from the harm [Bancshares] suffered when its investment

in the Bank soured." Id. In other words, the Trustee has pled

mainly claims deriving from defalcations at the Bank level,

not a distinct and separate harm specific to Bancshares at the

holding company level. Consequently, the Trustee lacked

standing to pursue the derivative claims under FIRREA as the

right to pursue such claims belongs to the FDIC.

Not to be deterred, the Trustee contends that, even if we

have accurately characterized most of her claims, she has pled

three particular acts by the Directors that caused distinct harm

to Bancshares and that are sufficiently distinct from acts at the

Bank level to be direct claims not within the ambit of the

FDIC through FIRREA.

First, the Trustee alleges that the Directors breached a duty

owed to Bancshares by appointing unqualified directors to the

Bank’s board. Second, the Trustee alleges that the Directors

caused Bancshares to guarantee the Bank’s restoration plan

while simultaneously failing to ensure that the Bank complied

with OCC requirements. And third, the Trustee alleges that

the Directors caused Bancshares to improperly subordinate its

equity interest in a limited liability company ("LLC") that

owned certain real property.4

4According to the Trustee’s Complaint, Bancshares formed an LLC

with a law firm for the purpose of constructing and owning an office

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With respect to the first claim from ¶ 28(b) of the Complaint—the appointment of unqualified directors to the Bank’s

board—any injury primarily occurred to the Bank. Any harm

to Bancshares was a secondary result of direct injury to the

Bank when the Bank-level fiduciaries failed to properly operate the Bank. Thus, we disagree with the Trustee that this

claim is a direct claim of Bancshares against the Directors.

Rather, this claim is essentially a derivative claim that the

Trustee lacks standing to raise.

Citing Official Committee of Unsecured Creditors of

BankUnited Financial Corp. v. FDIC, No. 11-20305-CV

(S.D. Fla. Sept. 28, 2011), the Trustee contends that her second claim, contained in ¶ 28(d) of the Complaint, sufficiently

alleges a direct claim against the Directors for their conduct

that "caused Bancshares to execute a guaranty that the Bank

would comply with the OCC’s requirements for a Capital

Restoration Plan." (J.A. 8.) At first glance, this part of the

pleading appears similar to claims that the district court in

BankUnited concluded were direct claims not subject to the

exclusive rights of the FDIC and thus could be brought by the

trustee in bankruptcy. See id., slip op. at 7.

In BankUnited, the court held that claims that a bank holding company’s officers improperly "induced" that entity to

pay out holding company dividends, repurchase holding company stock, and inject funds into the bank subsidiary were not

derivative in nature. Id. In other words, those claims were not

subject to the FDIC’s exclusive rights flowing from acts and

harm at the bank level, but were direct claims because the

complaint "pled damages unique to the Holding Company."

building in Myrtle Beach, South Carolina. Bancshares owned a two-thirds

membership interest in the LLC, and the law firm owned the remaining

one-third membership interest. At some point, the Directors caused Bancshares to subordinate its interest in the LLC to that of the law firm, ultimately resulting in its loss of equity in the LLC. 

IN RE: BEACH FIRST NATIONAL BANCSHARES 11

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Id. While we can envision circumstances where directors or

officers could be liable in a direct claim for inappropriately

causing the parent holding company to guarantee the debt of

a subsidiary (like the Bank), the Trustee’s pleading here,

unlike that in BankUnited, fails to plead the causal connection

between the act of making the guaranty to "damages unique

to" Bancshares. Id. As pled, the alleged defalcation of the

Directors is their "fail[ure] to ensure the Bank submitted a

Capital Restoration Plan that complied with the OCC’s

requirements," which resulted in OCC closing the Bank. (J.A.

8.) Thus, as with the Trustee’s other claims, ¶ 28(d) is a derivative claim of harm at the Bank level that the Trustee lacks

standing to bring.

Finally, the Trustee alleged that the Directors caused Bancshares to improperly subordinate its equity interest in the LLC

that owned real property. This particular act does indeed support a direct claim against the Directors, and the district court

erred in granting the motion to dismiss as to that claim. Bancshares held a majority membership interest in an LLC that

"construct[ed] and own[ed] an office building in Myrtle

Beach, South Carolina." (J.A. 11.) In ¶ 28(p) of the Complaint, the Trustee pled that the Directors, "contrary to standard and prudent practices," caused Bancshares to

improvidently subordinate Bancshares’ majority LLC interest

to that of the minority interest-holder, which caused the "loss

of Bancshares’ equity interest in the LLC." (J.A. 11.) For purposes of surviving the Directors’ motion to dismiss, ¶ 28(p)

adequately pleads direct harm to Bancshares unrelated to any

defalcation at the Bank level. That is, the Directors’ actions

caused "damages unique to" Bancshares, cf. BankUnited, slip

op. at 7, and the Trustee’s claim is thus not a derivative claim.

Therefore, the Trustee can proceed with this claim in the district court.5

5The Directors also raised several alternate defenses to all claims of the

Trustee. As the district court granted the Directors’ motion to dismiss on

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C

In her ending argument, the Trustee contends that, even if

any or all of her claims are derivative, the statutory rights of

the FDIC under FIRREA do not deprive her of standing

against the Directors under the facts of this case. The Trustee

bases this argument on the FDIC’s ostensible deference to her

pursuit of the claims against the Directors. In support of this

argument, the Trustee points to an FDIC letter stating: "[S]taff

is not convinced that any civil claim against the directors or

officers [of Bancshares] would be cost-effective and will not

recommend that any claim be pursued. We make no comment

as to whether or not there is a meritorious claim." (J.A. 575.)

The FDIC did, however, file a proof of claim in the underlying Bancshares bankruptcy proceeding. Based on the FDIC’s

declination to act, the Trustee contends that she thus has full

authority to proceed against the Directors on all derivative

claims. We disagree.

As stated above, FIRREA vested in the FDIC "all rights,

titles, powers, and privileges of the [Bank], and of any stockholder . . . of [the Bank] with respect to the [Bank] and the

assets of the [Bank]." 12 U.S.C. § 1821(d)(2)(A)(i). In pursuit

of these rights, the FDIC may "take any action authorized by

[FIRREA], which the [FDIC] determines is in the best interests of the [Bank], its depositors, or the [FDIC]." Id.

§ 1821(d)(2)(J)(ii).

all counts on standing grounds, it did not address any of these other

defenses. Since the district court has not first had the opportunity to

address these defenses on the merits, we will not undertake to do so initially on appeal. See, e.g., Ray Commc’ns, Inc. v. Clear Channel

Commc’ns, Inc., 673 F.3d 294, 308 (4th Cir. 2012) (reversing a district

court’s grant of summary judgment and remanding for further consideration of affirmative defenses raised before but not addressed by the district

court). The Directors are free to assert these defenses on remand for consideration by the district court in the first instance. 

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FIRREA provides no direct statutory authority by which

the FDIC may transfer to another party its exclusive statutory

rights. The Trustee points to no case supporting such authority. And even if the FDIC had authority to transfer its statutory rights to another party, the FDIC letter at issue cannot

properly be read to do any such thing.

The letter contains no waiver, disclaimer, assignment, or

other purported transfer of the FDIC’s rights against the

Directors. It simply states that FDIC "staff is not convinced

that any civil claim . . . would be cost-effective and will not

recommend that any claim be pursued." (J.A. 575.) Nothing

in the FDIC letter prohibits it from proceeding against the

Directors if it so chooses. Moreover, our conclusion is bolstered by the language of the FDIC proof of claim, which

reserves to the FDIC "any rights at law or equity that the

FDIC-R has or may have against the Debtor or any other

entity, person or persons, including inter alia, the insiders,

directors or officers of the Debtor." (J.A. 193.)

IV

For the above-stated reasons, we hold that the Trustee may

pursue her claims only as to the Directors’ alleged improper

subordination of Bancshares’ LLC interest. We therefore

reverse and remand the district court’s judgment as to that

claim, but affirm its judgment in all other respects. Accordingly, we hold that the district court did not err in granting the

Directors’ motion to dismiss except as to ¶ 28(p), the claim

for subordination of the LLC interest of Bancshares.

AFFIRMED IN PART, 

REVERSED IN PART, 

AND REMANDED

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