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Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 13, 2010 Decided October 22, 2010 

No. 08-7150 

MORTON A. BENDER AND GRACE M. BENDER, 

APPELLEES

v. 

CAROLYN D. JORDAN, ET AL., 

APPELLANTS

INDEPENDENCE FEDERAL SAVINGS BANK, 

APPELLEE

Appeal from the United States District Court 

for the District of Columbia 

(No. 1:06-cv-00092-RMC) 

Frederick D. Cooke Jr. argued the cause and filed the 

briefs for appellants. Peter E. Strand entered an appearance. 

Dale A. Cooter argued the cause for appellee 

Independence Federal Savings Bank. With him on the brief 

was Donna S. Mangold. Griffin V. Canada Jr. entered an 

appearance.

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Before: BROWN, Circuit Judge, and EDWARDS and

WILLIAMS, Senior Circuit Judges. 

Opinion for the Court filed by Senior Circuit Judge

WILLIAMS. 

WILLIAMS, Senior Circuit Judge: This is a fee dispute 

arising out of prolonged litigation between various parties 

interested in Independence Federal Savings Bank (“IFSB” or 

the “Bank”), a federal stock savings association regulated at 

the time of the relevant events by the Office of Thrift 

Supervision (“OTS”).1 One substantive phase, possibly the 

last, began in 2006 when shareholders Morton and Grace 

Bender filed a securities law suit against IFSB, five then 

directors and its president and CEO. Those six individuals 

executed agreements with IFSB under which the Bank 

advanced funds for defense of the suit, on the condition that 

each individual would repay the expenses if later determined 

not to be entitled to indemnification under an OTS regulation, 

12 C.F.R. § 545.121. 

On the merits, the district court granted a preliminary 

injunction in favor of the Benders, Bender v. Jordan, 439 F. 

Supp. 2d 139 (D.D.C. 2006), who soon thereafter acquired 

control of the Bank. With them in charge, the district court 

dismissed their substantive claims as moot. Bender v. Jordan, 

515 F. Supp. 2d 10 (D.D.C. 2007). 

 1

Under the recently enacted Dodd-Frank Wall Street Reform 

and Consumer Protection Act, the Office of Thrift Supervision will 

be eliminated and its authority over federal savings associations will 

be transferred to the Office of the Comptroller of the Currency. 

Pub. L. No. 111-203, §§ 311-13, 369, 124 Stat. 1376, 1520-23, 

1557-65 (2010) (to be codified at 12 U.S.C. §§ 5412-13, 1463). 

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ISFB’s new board of directors then unanimously 

approved a resolution stating that three of the original six 

individual defendants—namely, two former directors and the 

former president and CEO—were not entitled to 

indemnification and demanding repayment of legal fees 

advanced pursuant to their respective agreements. Joint 

Appendix (“J.A.”) 130. These three individuals refused to 

repay. IFSB filed a cross-claim against them for breach of 

contract, and the district court granted summary judgment in 

favor of IFSB. Bender v. Jordan, 570 F. Supp. 2d 37 (D.D.C. 

2008). The district court also rejected the three crossdefendants’ argument that the obligation should be split six 

ways among the original six individuals, and ruled that each 

of the three cross-defendants should be severally liable for 

one-third of the entire amount advanced. It absolved the three 

original defendants not named by IFSB as cross-defendants, 

saying, “Because [the other three defendants] were not found 

to be actively involved [in the securities law violations alleged 

by the Benders] . . . , it was not unreasonable for the current 

Board to decide that their ‘fair share’ of the legal fees and 

expenses was $0.00.” Id. at 48. 

The three cross-defendants (here called for simplicity’s 

sake the “former directors”) appeal on the grounds that IFSB 

failed to comply with the procedures set forth in 12 C.F.R. 

§ 545.121 and that they therefore are not required to 

reimburse IFSB under the terms of the agreements. They also 

appear to make an obscure argument that the agreements 

themselves obligate the IFSB to initiate procedures alluded to 

in the regulation. Because their reading of 12 C.F.R. 

§ 545.121 is mistaken (as is their reading of the contract, to 

the extent that they rely on it at all), we affirm the judgment of 

the district court. In their brief to this court the former 

directors did not specifically challenge the district court’s 

exclusion of the other three original defendants, and only did 

so indirectly at oral argument. See Oral Arg. Recording at 

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38:18-40:18. The apportionment issue is therefore forfeited. 

See Williams v. United States, 396 F.3d 412, 415 (D.C. Cir. 

2005) (argument inadequately raised in opening brief is 

forfeited). 

 * * * 

Although the parties do not raise the issue, we must first 

consider whether the district court properly exercised 

jurisdiction. A case arises under federal law within the 

meaning of 28 U.S.C. § 1331 “if ‘a well-pleaded complaint 

establishes either that federal law creates the cause of action 

or that the plaintiff’s right to relief necessarily depends on 

resolution of a substantial question of federal law.’” Empire 

Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 690 

(2006) (quoting Franchise Tax Bd. of Cal. v. Construction 

Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 27-28 

(1983)). IFSB’s cause of action—breach of contract—

appears on its face to be one created by state law. But even 

where that is true, the federal courts have jurisdiction when, as 

here, it is apparent that the federal questions overwhelmingly 

predominate. 

For federal courts to have jurisdiction, the state law claim 

must turn on an “actually disputed and substantial” issue of 

federal law, Grable & Sons Metal Products, Inc. v. Darue 

Engineering & Mfg., 545 U.S. 308, 314 (2005), and federal 

jurisdiction must be “consistent with congressional judgment 

about the sound division of labor between state and federal 

courts governing the application of § 1331.” Id. at 313-14. 

The Court has said that this depends on such factors as the 

strength of the federal interest in a federal forum to resolve 

questions of federal law and whether federal jurisdiction 

would “materially affect” the “normal currents of litigation.” 

Id. at 315, 319. Federal jurisdiction is favored in cases that 

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present “a nearly ‘pure issue of law’ . . . ‘that could be settled 

once and for all and thereafter would govern numerous . . . 

cases.’” Empire, 547 U.S. at 700 (quoting Richard H. Fallon, 

Jr., Daniel J. Meltzer, & Daniel L. Shapiro, Hart & 

Wechsler’s The Federal Courts and the Federal System 65 

(2005 Supp.)). Conversely, federal jurisdiction is disfavored 

for cases that are “fact-bound and situation-specific” or which 

involve substantial questions of state as well as federal law. 

Empire, 547 U.S. at 701. 

As in Grable (but not in Empire), this case presents a 

nearly pure issue of federal law, and none of the other relevant 

factors weighs against federal jurisdiction. Although breach 

of contract is a state law cause of action, the agreements 

themselves are “creatures of federal law,” see Jackson Transit 

Authority v. Local Division 1285, Amalgamated Transit 

Union, 457 U.S. 15, 23 (1982), in the sense of being intended 

to implement the scheme designed by 12 C.F.R. § 545.121. 

The former directors and IFSB entered into the agreements 

because federal law requires the execution of such contracts 

before legal fees can be advanced to defendant officers and 

directors. Id. § 545.121(e). And the parties’ legal duties turn 

almost entirely on the proper interpretation of that regulation. 

The federal interest in a federal forum for this case is 

substantial. At stake is the interpretation of a federal 

regulation that governs the conduct of a federal agency—the 

Office of Thrift Supervision—and federally chartered savings 

associations. By contrast, there is no discernable state interest 

in a state forum. 

The Court’s opinions in this area call on the federal courts 

to make predictive judgments about, for example, whether 

jurisdiction over such actions as the one in question will 

“materially affect, or threaten to affect, the normal currents of 

litigation,” Grable, 545 U.S. at 319, presumably by leading to 

a wave of new filings in federal court. Creation of precedent 

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interpreting 12 C.F.R. § 545.121 is likely in fact to reduce the 

frequency of disputes over contracts under 12 C.F.R. 

§ 545.121(e). And in many instances (indeed, it may be the 

case here, but we need not reach it), the federal courts would 

have supplemental jurisdiction over 12 C.F.R. § 545.121(e) 

breach of contract claims. Here we have turned first to federal 

question jurisdiction primarily because idiosyncrasies of the 

record pose special problems for supplemental jurisdiction. In 

any case, we do not anticipate that this exercise of federal 

jurisdiction will portend any more than “a microscopic effect 

on the federal-state division of labor.” Grable, 545 U.S. at 

315. 

Our finding of jurisdiction under Empire and Grable 

makes it unnecessary to consider alternative grounds. These 

include federal question jurisdiction under the opinion in 

Jackson Transit (for cases where Congress has intended that 

“all rights and duties stemming from” a contract should be 

governed by federal law, see Empire, 547 U.S. at 693) and 

supplemental jurisdiction under 28 U.S.C. § 1367. 

* * * 

Thus we reach the merits, which depend on the federal 

regulation and, to a much lesser extent, on the identically 

worded agreements seeking to implement that regulation. We 

start with the latter: 

Pursuant to Regulations of the Office of Thrift 

Supervision (the “OTS”) governing advancement of 

expenses to directors and officers of a federal savings 

association, 12 C.F.R. § 545.121(e), (the “Regulation”), 

with respect to claims brought against a director or officer 

arising from service as a director or officer of a federal 

savings association, I hereby request that Independence 

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Federal Savings Bank (the “Bank”) pay reasonable 

expenses and costs that have been or will be incurred in 

the defense or settlement of the litigation styled as 

Morton A. Bender, et al. v. Carolyn D. Jordan, et al. 

Under the Regulation, I hereby agree that I will repay the 

Bank any amounts so paid on my behalf by the Bank if it 

is later determined that I am not entitled to 

indemnification with respect to the litigation under 12 

C.F.R. § 121 [sic], and I represent that I have sufficient 

assets to repay my fair share of such amounts. 

J.A. 109-11 (punctuation as in original). The parties agree 

that the second reference to the regulation should be 

understood to refer to 12 C.F.R. § 545.121 (as does the first, 

accurately). 

 Although 12 C.F.R. § 545.121(f) authorizes covered 

banks to enact bylaws governing indemnification of officers 

and directors, IFSB did not do so. Thus the former directors’ 

claim of a violation by the Bank turns on the indemnification 

provisions of 12 C.F.R. § 545.121(b) and (c): 

(b) General. Subject to paragraphs (c) and (g) of this 

section, a savings association shall indemnify any person 

against whom an action is brought or threatened because 

that person is or was a director, officer, or employee of 

the association, for: 

(1) Any amount for which that person becomes 

liable under a judgment if [sic; presumably in] such 

action; and 

(2) Reasonable costs and expenses, including 

reasonable attorney's fees, actually paid or incurred 

by that person in defending or settling such action, or 

in enforcing his or her rights under this section if he 

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or she attains a favorable judgment in such 

enforcement action. 

(c) Requirements. Indemnification shall be made to such 

period [sic; presumably person] under paragraph (b) of 

this section only if: 

(1) Final judgment on the merits is in his or her 

favor; or 

(2) In case of: 

(i) Settlement, 

(ii) Final judgment against him or her, or 

(iii) Final judgment in his or her favor, other 

than on the merits, [¶] 

if a majority of the disinterested directors of the 

savings association determine that he or she was 

acting in good faith within the scope of his or her 

employment or authority as he or she could 

reasonably have perceived it under the circumstances 

and for a purpose he or she could reasonably have 

believed under the circumstances was in the best 

interests of the savings association or its members. 

12 C.F.R. § 545.121 (b), (c). We have inserted a ¶ sign in 

brackets before the “if” clause at the very end, to make clear 

that, as all parties agree, that clause governs indemnification 

under any of the subsections of § 545.121(c)(2). 

In the useful nomenclature adopted by the court in Harris 

v. Resolution Trust Corporation, 939 F.2d 926 (11th Cir. 

1991), this regulation allows for two types of 

indemnification—“mandatory indemnification” under 12 

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C.F.R. § 545.121(c)(1) for directors who receive final 

judgment in their favor on the merits, and “permissive 

indemnification” under 12 C.F.R. § 545.121(c)(2) for those 

who do not. In the second case indemnification is proper only 

if a majority of disinterested directors make certain prescribed 

findings. 

Because the former directors did not receive final 

judgment in their favor on the merits, they are not entitled to 

“mandatory indemnification.” They argue, however, that they 

are not in breach of contract until a majority of disinterested 

new directors has determined, in good faith, that each former 

director was not “acting in good faith within the scope of his 

or her employment or authority as he or she could reasonably 

have perceived it under the circumstances and for a purpose 

he or she could reasonably have believed under the 

circumstances was in the best interest of the savings 

association and its members.” 12 C.F.R. § 545.121(c)(2). In 

essence, they claim that the regulation obliges a bank to 

launch a process that might create a permissive entitlement. 

Thus, the board would have to take whatever steps are 

necessary to assure the presence of directors qualifying 

thereunder as disinterested and to be sure that such directors 

then determine whether the former directors were acting in 

good faith and for purposes that they could reasonably believe 

were in the best interest of the savings association. If these 

disinterested persons found that these conditions were met, 

then the Bank would be required to indemnify the former 

directors. 

The former directors’ interpretation of the regulation is 

mistaken. 12 C.F.R. § 545.121(c) does not require a board of 

directors to indemnify directors and officers in any 

circumstances in which the officers or directors have not 

received final judgment on the merits in their favor. 

Permissive indemnification is discretionary. 12 C.F.R. 

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§ 545.121(c)(2) provides a standard that must be met for a 

board of directors to grant permissive indemnification; it goes 

on, in a passage not quoted, to require notice to the OTS 60 

days before a bank provides indemnification under either 

subsection of 12 C.F.R. § 545.121(c), and to bar 

indemnification if the OTS states an objection within the 

notice period. The policy manifested by 12 C.F.R. 

§ 545.121(c)(2) is one of protecting the financial health of 

savings associations by limiting the ability of boards to 

indemnify undeserving officers and directors and by providing 

for regulatory review. For us to find that the regulation 

mandates that directors jump through the hoops required for 

permissive indemnification would, inconsistently with that 

purpose, impose a potentially costly burden on savings 

associations (even if we were to disregard the attendant risks 

of litigation). There is no requirement for a board of directors 

to do anything at all under 12 C.F.R. § 545.121(c)(2) and 

therefore no entitlement to indemnification for officers and 

directors beyond 12 C.F.R. § 545.121(c)(1) unless and until 

the disinterested directors have approved permissive 

indemnification in accordance with 12 C.F.R. § 545.121(c)(2) 

and the OTS has not objected during the 60-day notice period. 

The former directors cite Resolution Trust Corporation v. 

Nicholson, Civ. No. 3-88-163, 1991 U.S. Dist. LEXIS 21143 

(E.D. Tenn. Sept. 5, 1991), in support of their interpretation of 

12 C.F.R. § 545.121(c)(2). The Nicholson court stated in 

dictum that a board of directors’ decision not to indemnify a 

director under 12 C.F.R. § 545.121(c)(2) “is to be made in 

good faith and based on the board’s fiduciary 

responsibilities.” Nicholson, 1991 U.S. Dist. LEXIS 21143 at 

*18 (citing OTS Opinion Letter, 1989 FHLBB LEXIS 458, 

1989 WL 1114183 (October 6, 1989)). Because the court 

determined that Nicholson’s claim was not ripe, it did not rule 

on the exact scope of the board of directors’ duties. Id. at *19. 

In contrast to Nicholson, we reach the merits of the argument. 

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We agree that insofar as the new directors are acting in their 

official capacity, they are bound by their fiduciary duties to 

IFSB. But 12 C.F.R. § 545.121(c)(2) imposes no additional 

duty of good faith for board members to undertake the 

procedures prerequisite to permissive indemnification. It 

therefore creates no general entitlement to indemnification 

under 12 C.F.R. § 545.121(c)(2) where the board of directors 

does not consider the determinations necessary to create a 

permissive entitlement. 

In their opening brief the former directors hint, in the 

most subtle way imaginable, at a claim that the agreements

themselves created a duty on the Bank’s part to launch the 

procedures for finding a permissive entitlement. The 

argument becomes explicit in the reply brief, but of course we 

typically disregard arguments that pop up only at that stage, 

when the appellee’s chance to respond has passed. Carducci 

v. Regan, 714 F.2d 171, 177 (D.C. Cir. 1983). 

In any event, the argument’s lack of merit is plain. To be 

sure, the agreements call for the recipients of advances to 

repay them “if it is later determined that I am not entitled to 

indemnification” under the regulation. J.A. 109-11. The 

board in fact made such a determination, adopting a resolution 

to the effect that the former directors were not entitled to 

indemnity. The board did not purport to address the 

possibility of permissive indemnification. Presumably the 

parties could have assigned the board a duty to address that 

issue, a duty altogether outside 12 C.F.R. § 545.121, but it 

used no language purporting to do so. Especially in 

agreements declaring themselves to be “[p]ursuant” to OTS’s 

regulations, where the former directors agreed to repay 

“[u]nder” 12 C.F.R. § 545.121, it would take far clearer 

language to impose any such burden on the board. 

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The former directors’ brief is replete with assertions that 

the Bank’s new board directors are subject to a general duty of 

good faith. No doubt. But that general interpretive gloss is no 

basis for generating a whole new duty ex nihilo. 

As the former directors have satisfied neither the 

conditions for mandatory nor those for permissive entitlement, 

and the board has made a determination embodying that fact, 

the former directors are obligated under the agreements to 

repay IFSB for the cost of their legal defense. 

* * * 

The judgment of the district court is therefore 

Affirmed. 

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