1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-23-1995

RTC v Cityfed & Schuster

Precedential or Non-Precedential:

Docket 94-5307

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Recommended Citation

"RTC v Cityfed & Schuster" (1995). 1995 Decisions. Paper 172.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/172
 UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

_______________ 

NO. 94-5307 

_______________ 

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 

(Trenton New Jersey District Civil No. 92-cv-05261) 

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 

(Trenton New Jersey District Civil No. 93-cv-01811) 

Resolution Trust Corporation, in its capacity

as Receiver for City Savings, F.S.B.,

Appellant in No. 94-5307

________________ 

NO. 94-5308 

________________ 

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 

(New Jersey District Civ. No. 93-cv-02560) 

Martin R. Siegel, and Joan C. Moonan, as

Executrix of the Estate of Robert J. Moonan

and individually,

Appellants in No. 94-5308

_______________________________ 

On Appeal From the United States District Court 

For the District of New Jersey 

D.C. Civ. Nos. 92-cv-05261, 93-cv-01811, 93-cv-02569 

_______________________________ 

Argued: November 8, 1994 

Before: BECKER, MANSMANN, and ALITO, 

Circuit Judges.

(Filed June 23, 1995) 

 DAVID M. FITZGERALD, ESQUIRE (ARGUED) 

 APRIL A. BRESLAW, ESQUIRE 

 Resolution Trust Corporation 

 Litigation Division 

 801 17th Street, NW 

 H-10th Floor 

 Washington, DC 20434 

 GERALD A. LILOIA, ESQUIRE 

 GLENN D. CURVING, ESQUIRE 

 Riker, Danzig, Scherer, Hyland 

 & Perretti 

 Headquarters Plaza 

 One Speedwell Avenue 

 Morristown, NJ 07962 
 Attorneys for Resolution 

Trust Corporation, Appellant in No. 94-5307

 RONALD W. STEVENS, ESQUIRE 

(ARGUED) 

 Kirkpatrick & Lockhart 

 1800 M Street, N.W. 

 South Lobby, Suite 900 

 Washington, DC 20036 

 Attorney for John W. Atherton, 

Jr., Alfred J. Hedden and Gilbert G. 

 Roessner, Appellees in No. 94-5307 

 DOUGLAS M. KRAUS, ESQUIRE 

 Skadden, Arps, Slate, Meagher 

 & Flom 

 919 Third Avenue 

 New York, NY 10022 

 BRUCE I. GOLDSTEIN, ESQUIRE 

 Saiber, Schlesinger, Satz 

 & Goldstein 

 One Gateway Center, 13th Floor 

 Newark, NJ 07102 

 Attorneys for Gordon E. 

Allen,

 Marshall M. Criser, Peter R. 

Kellogg, and Victor A. Pelson,

 Appellees in No. 94-5307 

 JOHN F. COONEY, ESQUIRE 

 RONALD R. GLANCZ, ESQUIRE 

 WILLIAM D. COSTON, ESQUIRE 

 MELISSA LANDAU STEINMAN, ESQUIRE 

 Venable, Baetjer, Howard, 

 & Civiletti 

 201 New York Avenue, NW, Suite 1000 

 Washington, DC 20005 

 LAURA V. STUDWELL, ESQUIRE 

 Orloff, Lowenbach, Stifelman, 

 & Siegel 

 101 Eisenhower Parkway 

 Roseland, NJ 07068 

 Attorneys for John Kean, Jr. 
 Appellee in No. 94-5307 

 EDWARD J. DAUBER, ESQUIRE (ARGUED) 

 JEFFREY S. BERKOWITZ, ESQUIRE 

 Greenberg, Dauber & Epstein 

 A Professional Corporation 

 One Gateway Center, Suite 600 

 Newark, NJ -7102-5311 

 Attorneys for Martin R. Siegel,

 Appellant in No. 94-5308

 J. SHANE CREAMER, ESQUIRE (ARGUED) 

 MAJORIE OBOD, ESQUIRE 

 Dilworth, Paxson, Kalish & Kauffman 

 3200 The Mellon Bank Center 

 Philadelphia, PA 19103 

 Attorneys for Joan C. Moonan,

 individually and as Executrix of

 the Estate of Robert J. Moonan,

 Appellant in No. 94-5308

 DANIEL KINBURN, ESQUIRE (ARGUED) 

 SUSAN L. HALL, ESQUIRE 

 Williams, Caliri, Miller & Otley 

 A Professional Corporation 

 1428 Route 23 

 Wayne, NJ 07474-0995 

 LLOYD S. MARKIND, ESQUIRE 

 MARGRET E. ANDERSON, ESQUIRE 

 Arnelle & Hastie 

 Woodland Falls Corporate Park 

 210 Lake Drive East, Suite 307 

 Cherry Hill, NJ 08002 

 

 Attorneys for Resolution Trust 

Corporation, Appellee in No.

 94-5308

 FREDERIC J. SCHRAGGER, ESQUIRE 

 Law Offices of Frederic J. Schragger 

 3131 Princeton Pike, Building 1B 

 Lawrenceville, NJ 08648 

 Attorney for Alfred J. Schuster,
 Richard P. Pearlman, Eugene J. Elias, 

 Harry H. Jaeger, Appellees in

 No. 94-5308

 RUDOLPH A. SOCEY, JR., ESQUIRE 

 Lenox, Socey, Wilgus, Formidoni, & 

 Casey 

 3131 Princeton Pike 

 Trenton, NJ 08648 

 Attorney for Thomas J. 

Lynam,

 Appellee in No. 94-5308 

 DANIEL J. GRAZIANO, ESQUIRE 

 Brotman & Graziano 

 3685 Quakerbridge Road 

 P.O. Box 3333 

 Trenton, NJ 08619 

 Attorney for James W. Dwyer,

 Appellee in No. 94-5308

 STEPHEN W. ARMSTRONG, ESQUIRE 

 Montgomery, McCracken, Walker & 

 Rhoads 

 Three Parkway, 20th Floor 

 Philadelphia, PA 19102 

 

 Attorney for John C. Lauricella,

 Appellee in No. 94-5308

 ___________________________ 

 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 12 U.S.C.A. § 1821(k) (1989)), which 

provides: 
 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.

12 U.S.C.A. § 1821(k) (emphases added). These interlocutory 

appeals, brought pursuant to 28 U.S.C.A. § 1292(b) (1993), 

require us to address, with regard to this provision, two 

important questions of first impression in this circuit -- 

whether Congress, by its enactment of § 1821(k), (1) preempted 

state law, and/or (2) displaced federal common law actions that 

impose liability against directors and officers of insolvent 

federally insured depository institutions for conduct less 

culpable than gross negligence (e.g. for ordinary negligence). 

 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 

provided directors with protection from gross negligence claims 

by limiting the grounds for liability to instances of reckless, 

willful and wanton boardroom misconduct. This section of FIRREA 

permits the Resolution Trust Corporation ("RTC") to seek recovery 
for such directors’ and officers’ gross negligence, while 

preserving the RTC’s rights under "other applicable law." The 

particular questions raised by these appeals relate to whether 

Congress intended its reference to "other applicable law" to 

include state law and federal common law. 

 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 § 1821(k) did not 

preempt any available actions for negligence and breach of 

fiduciary duty under New Jersey law. In the City Federal action, 

the district court granted the defendants’ motion to dismiss the 

RTC's federal common law claims, concluding that the enactment of 
§ 1821(k) supplanted any available federal common law actions for 

negligence and breach of fiduciary duty.1

 Courts of appeals that have considered these issues 

have concluded that § 1821(k) does not preempt state law,2 but 

that it does displace federal common law.3 We agree that this 

provision does not preempt any available state law negligence or 

fiduciary duty claims; however, we disagree with the conclusion 

that Congress intended by enactment of this statute to supplant 

the RTC’s ability to bring such actions under federal common law. 

Accordingly, we will affirm the district court's order in the 

United Savings action and reverse the court's order in the City 

Federal action. 

 I. FACTS AND PROCEDURAL HISTORY

 

 1 In referring to the supplanting or displacement of federal 

common law by federal statutory enactments, we refrain from the 

use of the term "preemption" so as to avoid any confusion with 

the alternative question of state law preemption and its various 

incidents, which is also addressed in this opinion. See

Milwaukee v. Illinois, 451 U.S. 304, 317 n.9 101 S. Ct. 1784, 

1792 n.9 (1981) (illustrating the confusion which can result when 

the term "preemption" is used to refer to the displacement of 

federal common law by federal statutory enactments). 

 

2 See FDIC v. McSweeney, 976 F.2d 532 (9th Cir. 1992), cert. 

denied, 113 S. Ct. 2440 (1993); FDIC v. Canfield, 967 F.2d 443 

(10th Cir.) (en banc), cert. dismissed, 113 S. Ct. 516 (1992). 

 

3 See RTC v. Frates, 52 F.3d 295 (10th Cir. 1995); FDIC v. 

Bates, 42 F.3d 369 (6th Cir. 1994); RTC v. Miramon, 22 F.3d 1357 

(5th Cir. 1994); RTC v. Gallagher, 10 F.3d 416 (7th Cir. 1993). 
 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 12 U.S.C.A. 

§ 1821(d)(2)(A)(i) (1989), which provides that the RTC succeeds, 

upon its appointment as receiver, to all rights, titles, powers 

and privileges of such institutions, including claims arising out 

of the conduct of the institutions' directors and officers. See

O'Melveny & Myers v. FDIC, ___ U.S. ___, 114 S. Ct. 2048, 2054 

(1994) (recognizing that upon its appointment as receiver, the 

RTC "obtain[ed] the rights ‘of the insured depository 

institution’ that existed prior to receivership" (quoting 12 

U.S.C.A. § 1821(d)(2)(A)(i))). 

 A. United Savings

 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 Bank's 

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 

 

 

4 The Director of the Office of Thrift Supervision of the 

U.S. Treasury Department ("OTS") appointed the RTC as Receiver of 

both institutions, declaring City Federal insolvent on December 

7, 1989 and United Savings insolvent on June 15, 1990. 
§ 1821(k) in the approval of these loans, which allegedly 

resulted in a loss to United Savings of approximately $12.7 

million. 

 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, badfaith 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 § 1821(k) preempts the 

RTC's right to bring such claims. The district court entered an 

order denying defendants' motion and then granted the defendants' 

request to certify the court’s order for interlocutory appeal 
pursuant to 28 U.S.C.A. § 1292(b) (1993).5 We granted the 

petition for leave to appeal.6 

 

 

5 While the question of federal common law preemption was 

also certified by the district court in the United Savings 

action, the RTC now concedes that, absent the application of 

§ 1821(k), only state law governs cases involving the liability 

of directors and officers of state-chartered institutions such as 

United Savings, while federal law exclusively governs such cases 

when the institution is federally chartered, like City Federal. 

This concession flows from the RTC’s recognition that the 

applicable law governing the liability of officers and directors 

for their stewardship of the corporation is the law of the 

jurisdiction of incorporation. See RTC v. Chapman, 29 F.3d 1120, 

1122 (7th Cir. 1994) (reaching this conclusion under the 

"venerable choice-of-law principle known as the internal affairs 

doctrine") 

 

6 In denying the United Savings defendants' motion to 

dismiss all negligence and breach of fiduciary duty claims under 

New Jersey law, the district court also rejected the defendants' 

argument that the business judgment rule as applied by New Jersey 

courts precludes any claims against independent, disinterested 

directors in the absence of an allegation of self-dealing, 

conflict of interest, bad faith or fraud. While we certified 

this interesting and important issue for interlocutory appeal, we 

now conclude that it is not ripe for decision. See Michota v. 

Anheuser-Busch, Inc., 755 F.2d 330, 336 (3d Cir. 1985) (declining 

to decide an issue certified as part of an interlocutory appeal 

pursuant to § 1292(b) and "remand[ing] it for resolution in the 

proper course of the remaining litigation"). Resolving this 

question at this stage of the litigation would require us to 

prescribe the scope of the protection provided by the business 

judgment rule to directors and officers under New Jersey case law 

without the benefit of greater factual development in this case. 

As the new Restatement of Corporate Governance recognizes, "[t]he 

application of duty of care standards is . . . [a] heavily fact 

oriented" analysis. PRINCIPLES OF CORPORATE GOVERNANCE § 4.01 cmt. h 

(1994) (emphasis added) ("The application of duty of care 

standards is . . . shaped by evidence of what can reasonably be 

expected of directors and officers in the context of the 

functioning of the modern corporation."). Given the factintensive nature of the law in this area, we conclude that the 

preferable course is to permit the district court's order denying 

the United Savings defendants' motion for summary judgment to 

stand so that greater factual development can occur. This course 
 B. City Federal

 In the City Federal action, the RTC alleged that the 

defendants failed to discharge their duties and obligations 

properly as directors and officers of City Federal in connection 

with their consideration, approval and subsequent oversight of 

several large acquisition, development and construction loans 

made to various borrowers during 1985 through 1989. The RTC's 

complaint alleges breach of fiduciary duty, negligence under 

federal common law, and gross negligence under both federal 

common law and § 1821(k) in the approval of these loans, which 

allegedly resulted in damages to City Federal of approximately 

$100 million. In particular, the RTC alleges that the defendants 

violated their duty of care by: (1) failing to obtain and verify 

necessary financial information from borrowers; (2) maintaining 

inadequate appraisal procedures; (3) consistently loaning funds 

based on excessively high loan-to-value ratios that violated 

mandatory limits placed on such ratios; (4) making repeated 

imprudent long-range commitments to future lending or funding; 

(5) failing to monitor loan disbursements and the ongoing status 

of projects and loans; (6) improperly waiving risk limitations 

and other conditions contained in loan commitments to certain 

borrowers; (7) failing to require and verify that necessary 

 

will allow the district court better to predict the scope of 

protection that the New Jersey Supreme Court would accord the 

defendants under the business judgment rule by providing the 

court with the opportunity to evaluate the defendants' conduct 

vis-à-vis New Jersey case law. 
permits and approvals were obtained before funding the loans; (8) 

improperly assessing the value of guarantees given as security 

for the loans; and (9) not requiring adherence to the Bank’s 

lending policies and procedures. In this action, the RTC does 

not allege any self-dealing, conflict of interest, bad-faith or 

fraud on the part of the defendants. 

 The City Federal defendants responded to the RTC's 

complaint by moving to dismiss all claims, other than gross 

negligence, arguing that § 1821(k) established an exclusive 

federal gross negligence standard of care for directors and 

officers of failed federally chartered financial institutions 

which supplanted any simple negligence claims available under 

federal common law. The district court agreed with the 

defendants' argument and accordingly granted their motion to 

dismiss the RTC's complaint to the extent that it alleged claims 

other than gross negligence. The district court granted the 

RTC’s request to certify the court’s order pursuant to 28 U.S.C. 

§ 1292(b), and we granted the petition for leave to appeal. 

 II. FINANCIAL INSTITUTIONS, REFORM, RECOVERY, 

 AND ENFORCEMENT ACT OF 1989 

 

 

 All parties agree that in enacting § 1821(k) Congress 

intended to preempt state laws which limit the liability of 

directors and officers to instances of conduct more culpable than 
gross negligence (i.e. intentional misconduct). At issue in 

these appeals is whether Congress, by its enactment of § 1821(k), 

also preempted state law or displaced federal common law actions 

that impose liability for conduct less culpable than gross 

negligence (e.g. ordinary negligence). As we have stated, the 

question of the interpretation of § 1821(k) is one of first 

impression in this circuit. Our review of the construction of 

federal statutes is plenary. See Doherty v. Teamsters Pension 

Trust Fund, 16 F.3d 1386, 1389 (3d Cir. 1994). 

 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 

(1990) (internal quotation marks omitted). 

 The disposition of these appeals turns on the breadth 

of § 1821(k)'s last sentence, which has become known as the 

"savings clause." Congress provided that "[n]othing in this 

paragraph shall impair or affect any right of the Corporation 

under other applicable law." 12 U.S.C.A. § 1821(k) (emphases 

supplied). The RTC contends that this sentence manifests 

congressional intent to preserve the RTC's ability to seek 

recovery from directors and officers under all "other applicable 
laws," including the less forgiving negligence and fiduciary duty 

standards of care under state law and federal common law. We 

agree.7 

 The defendants contend that, when Congress referred to 

"other applicable law" in § 1821(k), it intended to refer only to 

the RTC’s ability to pursue regulatory actions under other 

sections of FIRREA, such as the RTC’s rights under 12 U.S.C.A. 

 

 

7 We note that, in addition to focusing on the statute’s 

saving clause, courts concluding that § 1821(k) did not preempt 

state laws which held directors and officers liable for conduct 

less culpable than gross negligence, have also gleaned the 

limited preemptive intent of Congress from its use of the word 

"may" as opposed to "may only" in the first sentence of the 

provision: "[a] director or officer . . . may be held personally 

liable for monetary damages . . . for gross negligence." In 

Canfield, for example, the court read "may" as a "permissive 

term" that "does not imply a limitation on the standards of 

officer and director liability," refusing "to construe the first 

sentence of the section as saying that an officer or director may 

only be held personally liable for gross negligence." Canfield, 

967 F.2d at 446 (citing Rose v. Rose, 481 U.S. 619, 626-27, 107 

S. Ct. 2029, 2034 (1987), where the Court refused to read "may" 

as establishing anything but discretionary power). The Ninth 

Circuit in McSweeney agreed. McSweeney, 976 F.2d at 537 ("Had 

Congress intended this authorizing provision to limit the FDIC . 

. . it would have inserted the word `only' in the sentence."). 

But see Bates, 42 F.3d at 371 (rejecting this reading as placing 

"undue emphasis on the word `may,' which does not modify the 

substance of the provision"); Miramon, 22 F.3d at 1361 (same); 

Gallagher, 10 F.3d at 420 (same). 

 We decline to rest our reading of the text of § 1821(k) 

primarily on the belief that Congress intended to demonstrate its 

limited preemptive intent through the use of the word "may" in 

the statute's first sentence. We do acknowledge, however, that 

such a construction is consistent with what we believe to be 

otherwise obvious from the statute's language and legislative 

history -- Congress intended to permit the RTC to continue to 

seek recovery under laws that hold directors and officers to a 

more stringent standard of care. 
§ 1818(b)-(g) (West Supp. 1995) to seek removal of negligent 

directors and officers and to issue "cease and desist" orders in 

cases of simple negligence. But Congress could not have intended 

to restrict the RTC to such a limited and specific set of legal 

claims by a general reference in this provision to "other 

applicable law." When Congress limited its reference to the law 

of a particular jurisdiction in other sections of FIRREA, it did 

so with specific language. See, e.g., 12 U.S.C.A. 

§ 1821(c)(3)(B) (1993) ("powers imposed by State law" (emphasis 

added)); 12 U.S.C.A. § 1821(c)(4) (1993) ("notwithstanding any 

other provision of Federal law, the law of any State, or the 

constitution of any State" (emphasis added)). In particular, 

when Congress limited its reference to other portions of FIRREA 

itself, it also did so specifically. See, e.g., 12 U.S.C.A. 

§ 1821(e)(3)(C)(ii) (West Supp. 1995) ("except as otherwise 

specifically provided in this section" (emphasis added)). Given 

the specific nature of these references in other portions of 

FIRREA, we think that § 1821(k)’s reference to other applicable 

law plainly demonstrates an intent to refer to all other 

applicable law. 

 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 (1992), where the Court read a 

reference to "applicable nonbankruptcy law" in 11 U.S.C.A. 

§ 541(c)(2) to encompass "any relevant nonbankruptcy law, 
including federal law such as ERISA." See also Reich v. Webb, 

336 F.2d 153, 158 (9th Cir. 1964) (reading the language "any 

other law" of 12 U.S.C. § 1464(d)(1) as authorizing federal 

regulators to enforce "common law fiduciary responsibilities 

. . . through appropriate court action"), cert. denied 380 U.S. 

915 (1965). 

 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 Lab. v. 

Gardner, 387 U.S. 136, 145, 87 S. Ct. 1507, 1513-14 (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 § 1821(k)'s language is supported by 

clear legislative history, which, in our view, manifests an 

effort to place a floor, not a ceiling, on the liability of 

directors and officers. See Chapman, 29 F.3d at 1126 (Posner, 

C.J., dissenting) ("The purpose of section 1821(k), as the timing 

of the statute's enactment and other features of its history make 

clear, was to place a floor under the liability of directors of 

savings and loan associations, which were falling like 

ninepins."). We necessarily begin our examination of § 1821(k)’s 
legislative history with an inspection of "the provisions of the 

whole law, and . . . its object and policy." Dole v. United 

Steelworkers, 494 U.S. 26, 35, 110 S. Ct. 929, 934 (1990). 

 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." Pub. L. No. 101-

73, § 101(9)-(10), 103 Stat. 183, 187 (1989) (emphasis added) 

(reprinted in 12 U.S.C.A. § 1811 note (West Supp. II 1990)). An 

overriding purpose in enacting this legislation was to facilitate 

an effort to "seek out and punish those that have committed 

wrongdoing in the management of the failed institutions,"8 not to 

protect such directors and officers from claims of ordinary 

negligence. 

 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 

which protected directors from gross negligence claims by 

limiting their liability to instances of reckless, willful and 

 

 

8 President’s News Conference on Savings Crisis and 

Nominees, N.Y. TIMES, Feb. 7, 1989, at D8, col. 1 (statement of 

President Bush). 
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 cashout 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 

 

 

9 See, e.g., IND. CODE ANN. § 23-1-35-1(e)(2) (Burns 1994) 

(declaring that directors are not liable unless their conduct 

constitutes at least "willful misconduct or recklessness"); FLA.

STAT. ANN. § 607.0831 (West 1994) ("recklessness or an act or 

omission which was committed in bad faith or with malicious 

purpose"); OHIO REV. CODE ANN. § 1701.59(D) (Anderson 1994) 

("deliberate intent to cause injury to the corporation or 

undertaken with reckless disregard for the best interest of the 

corporation"); see also 8 DEL. CODE ANN. § 102(b)(7) (West 1994) 

(permitting a company's stockholders to adopt provisions that 

would limit a director's liability to actions that are illegal, 

that constitute a breach of the separate duty of loyalty or that 

constitute intentional transgressions); ARIZ. REV. STAT. ANN. § 10-

054(A)(9) (West 1994) (same); CAL. CORP. CODE § 204(a)(10) (West 

1995) (same). 

 

10 William L. Cary, Federalism and Corporate Law: 

Reflections upon Delaware, 83 YALE L.J. 663 (1974) (describing 

the process whereby states follow each other in enacting changes 

in their corporate law that provide greater protection to 

officers and directors as a "race to the bottom") 
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 § 1821(k) represents an attempt to facilitate this 

litigation in the wake of the impediments posed by state statutes 

insulating directors and officers from liability for gross 

negligence. The debates over § 1821(k) in the Senate demonstrate 

this intent to facilitate the recovery effort.12

 The original Senate provision, § 214(n) of the Act, 

would have allowed the RTC to sue directors and officers under 

 

 

11 See generally Daniel R. Fischel, The Business Judgment 

Rule and the Trans Union Case, 40 BUS. LAW. 1437 (1985); Harvey 

Gelb, Director Due Care Liability: An Assessment of the New 

Statutes, 61 TEMP. L. REV. 13 (1988). 

 

12 Section 1821(k) originated in the Senate; and, other than 

a technical change in the wording of the savings clause, no 

substantive debate or amendments to this provision occurred in 

the House or at Conference. The House replaced the Senate 

version of the Savings clause, which had referred to "any right, 

if any, of the [RTC] that may have existed immediately prior to 

the enactment of the FIRREA act," with the current version. The 

defendants in these actions, however, correctly do not attribute 

any substantive change in Congressional intent to the adoption of 

this amendment. See McSweeney, 976 F.2d at 541 n.9 ("We see 

nothing in this change to indicate an intent to expand the 

preemptive effect of this provision."). 
"any cause of action available at common law, including, but not 

limited to, negligence . . . [and] breach of fiduciary duty." S. 

774, 101st Cong., 1st Sess. § 214(n) (1989). During the Senate 

debate, this proposal was modified so as to scale back the extent

of state law preemption by raising the floor on the liability of 

directors from "negligence" to "gross negligence." 

 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," since, as we have 

demonstrated, the evolution of § 1821(k) in the Senate does not 

represent the adoption of a national standard of gross negligence 

over one of ordinary negligence, but rather reflects an effort to 

decrease the amount of state law preemption by raising the floor 

on the liability of directors and officers. 

 The limited sweep of § 1821(k) is also explicitly 

demonstrated in a final section-by-section report prepared by the 

Senate Banking Committee. This report is consistent with other 

contemporaneous legislative history, and it makes clear that 

§ 1821(k) did not disturb any claims, available as a matter of 

state or federal law, that would hold directors and officers 

liable for conduct less culpable than gross negligence: 

 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. 

 

 

13 To support their position the defendants also incorrectly 

point to a statement made by Senator Heflin: "I think the 

language should be reviewed and, in my judgment, changed to 

ensure that financial institutions are able to attract strong and 

capable individuals as directors and officers." 135 CONG. REC. at 

7137. As recognized by the Tenth Circuit in Canfield, 967 F.2d 

at 790, Senator Heflin’s comments do not relate to § 1821(k), but 

rather involved a proposed change to 12 U.S.C.A. § 1818(i)(2) 

(Supp. 1995), which made it more difficult for the RTC to obtain 

civil penalties against directors and officers. See 135 CONG.

REC. at 7138 ("I am merely recommending that due process and 

fairness dictate that clear standards should be included in 

assessment of civil penalties." (statement of Senator Heflin)). 
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 

(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 § 1821(k), did

have this report "before it" in passing the final version of 

FIRREA. Moreover, the legislative history in Clarke did not 
involve a report prepared by the congressional committee that 

originally considered the provision in question but rather 

involved a statement by a single congressman whom the Court 

considered not to be an "impartial interpreter of the bill." Id.

 To support their reading of § 1821(k)’s legislative 

history, the defendants rely on a portion of FIRREA's Conference 

Report, which provides: 

 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 § 1821(k) preempts State 

law, such an acknowledgement is entirely consistent with the 

statute's limited preemptive intent. Moreover, the second 

sentence of this portion of the Conference Report acknowledges 

that which is evident throughout the legislative history: 

§ 1821(k) "allows" the RTC to pursue claims for gross negligence 

in states not permitting such claims, but does not "limit" it 

from pursuing claims for ordinary negligence, when available 

under applicable law. See Canfield, 967 F.2d at 448 n.6; 

McSweeney, 976 F.2d at 539. 
 We are also unpersuaded by the defendants' reliance on 

congressional attempts to preserve more explicitly the RTC's 

right to bring a claim for negligence under other applicable 

state or federal law by seeking to amend § 1821(k) in years 

following its enactment.14 It is settled law that post-enactment 

legislative history should be afforded little or no weight, 

especially in the face of contradictory contemporaneous 

legislative history. See U.S. v. Texas, ___ U.S. ___, ___ n.4, 

113 S. Ct. 1631, 1635 n.4 (1993) ("[S]ubsequent legislative 

history is a hazardous basis for inferring the intent of an 

earlier Congress." (internal quotation marks omitted)); U.S. v. 

Knox, 32 F.3d 733, 749 n.14 (3d Cir. 1994) ("[P]ost-enactment 

legislative history . . . should be given little, if any, weight 

because [it] do[es] not necessarily reflect the intent of the 

members of Congress who originally enacted the statutory 

language."), cert. denied 115 S. Ct. 897 (1995). As this court 

has stated, adopting the language of Justice Scalia, 

 

 

14 For example, Congressman Richard Baker of Louisiana 

proposed an amendment in October 1991, which provided: 

 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. 

H.R. 3435, 102d Cong., 1st Sess. § 228 (Comm. Markup Oct. 18, 

1991). 
 "Subsequent legislative history" -- which 

presumably means the post-enactment history 

of a statute’s 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. 

Id. (quoting Sullivan v. Finkelstein, 496 U.S. 617, 631-32, 110 

S. Ct. 2658, 2667 (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 § 1821(k) in 

the face of conflicting judicial interpretations15 is not 

surprising. Courts finding "retrospective" legislative intent in 

such proposed enactments could improperly draw inferences from 

unsuccessful Congressional attempts to clarify ambiguities which 

Congress did not perceive at the time of enactment. Such 

attempts simply do not shed light on the intent of the Congress 

that originally enacted the provision. 

 

 

15 The dispute in the Courts of Appeals about the intended 

preemptive effect of § 1821(k) was preceded by similar 

disagreement among district courts considering these issues at 

the time Congress proposed the clarifying amendment. Compare

FDIC v. Canfield, 763 F. Supp. 533 (D. Utah 1991) (concluding 

that § 1821(k) preempts state law), rev’d, 967 F.2d 443 (10th 

Cir. 1992) (en banc); FDIC v. Miller, 781 F. Supp. 1271 (N.D. 

Ill. 1991) (concluding that § 1821(k) displaces federal common 

law) with FDIC v. Isham, 777 F. Supp. 828 (D. Colo. 1991) 

(concluding that § 1821(k) does not preempt state law), and FDIC 

v. Haddad, 778 F. Supp. 1559 (S.D. Fla. 1991) (same). 
 In sum, we conclude that the legislative history 

associated with FIRREA, and particularly § 1821(k), does not 

manifest Congressional intent to adopt a uniform gross negligence 

standard of care for directors and officers of bankrupt federally 

insured depository institutions. Rather, the legislative history 

reflects an effort to ensure that directors and officers of 

state-chartered institutions (whom Congress viewed as responsible 

for a portion of the significant amount of federal money lost in 

the insolvency of such institutions) not escape liability to the 

RTC under the shield of certain state laws that had effectively 

insulated them even from claims based on their grossly negligent 

or reckless conduct. The intent of Congress was to strengthen, 

not weaken, the RTC’s hand in pursuit of directors and officers. 

Mindful of this intent, and of our reading of the statute’s 

language, we now directly address, in turn, the particular 

questions whether Congress preempted state law, or supplanted 

federal common law claims brought by the RTC for negligence and 

breach of fiduciary duty. 

 III. State Law Preemption 

 Pursuant to the Supremacy Clause, U.S. Const. Art. VI, 

cl. 2, "state laws that ‘interfere with, or are contrary to the 

laws of congress, made in pursuance of the constitution’ are 

invalid." Wisconsin Public Intervenor v. Mortier, 501 U.S. 597, 

604, 111 S. Ct. 2476, 2481 (1991) (quoting Gibbons v. Ogden, 9 
Wheat 1, 211 (1824)). Federal law preempts existing state law in 

either of two ways: (1) through evidence of congressional intent 

to supplant state authority in a particular area, as expressed 

either through the language of the statute, see Jones v. Rath 

Packing Co., 430 U.S. 519, 525, 97 S. Ct. 1305, 1309-10 (1977), 

or implicitly through the enactment of a federal regulatory 

scheme "so pervasive as to make reasonable the inference that 

Congress left no room for the States to supplement it," Rice v. 

Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152 

(1947); or (2) when federal law and state law actually conflict, 

such as when "compliance with both federal and state regulations 

is a physical impossibility," Florida Lime & Avocado Growers, 

Inc. v. Paul, 373 U.S. 132, 142-43, 83 S. Ct. 1210, 1217 (1963), 

or when a state law "stands as an obstacle to the accomplishment 

and execution of the full purposes and objectives of Congress," 

Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404 (1941). 

 As we have stated, both a plain reading of § 1821(k) 

and an interpretation of its legislative history reflect a 

congressional effort to expand, not constrain, the RTC’s ability 

to recover against directors and officers by enabling it to seek 

recovery in those states that had adopted laws insulating 

officers and directors from liability. Given this interpretation 

of the statute and its legislative history, we conclude that 

Congress intended to leave room for state law to supplement 

§ 1821(k) by permitting recovery in instances of ordinary 
negligence. Moreover, we do not believe that state laws 

subjecting directors of federally insured depository institutions 

to a more stringent standard of care by permitting recovery in 

instances of negligence conflict in any way with the 

congressional enactment of § 1821(k). In fact, such state laws 

are consistent with the expressed congressional purpose in 

enacting FIRREA of "strengthen[ing] the enforcement powers of 

Federal regulators of depository institutions" and 

"strengthen[ing] the civil sanctions . . . for . . . damaging the 

depository institutions and their depositors." Pub. L. No. 101-

73, § 101(9)-(10), 103 Stat. 183, 187 (1989) (emphases added) 

(reprinted in 12 U.S.C.A. § 1811 note (West Supp. II 1990)). 

 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 

§ 1821(k) did not preempt available state law claims that permit 

the RTC to recover in instances of conduct less culpable than 

gross negligence, and the Ninth Circuit in McSweeney, 976 F.2d at 

532, relying on Canfield, reached an identical result. In 

addition to interpreting § 1821(k)'s language and legislative 

history in a manner similar to that expressed supra, these courts 

set forth several additional reasons in support of their 

conclusion, which we also find persuasive. 

 First, they rejected the contention that Congress was 

motivated in enacting § 1821(k) by a need for a national 
liability standard in view of the fact that the statute clearly 

calls for the application of various applicable state law 

definitions of gross negligence. 12 U.S.C.A. § 1821(k) ("as such 

terms are defined and determined under applicable State law"); 

McSweeney, 976 F.2d at 539; Canfield, 967 F.2d at 447. The 

Canfield court noted that, given the vast differences in the 

standards of gross negligence in the various states, id.

("`[T]here is . . . no generally accepted meaning [of gross 

negligence]'" (quoting W. PAGE KEETON, ET AL., PROSSER & KEETON ON THE 

LAW OF TORTS § 34 at 212 (5th ed. 1984)), "the statute cannot 

possibly, even without the last sentence, create a national 

standard of liability." Canfield, 967 F.2d at 447. We agree 

that the congressional use of state law formulations of gross 

negligence further illustrates the limited preemptive intent of 

Congress in enacting § 1821(k). If Congress had been motivated 

by a need for uniformity in the law it would not have invoked the 

application of alternative state definitions of gross negligence, 

but rather would have called for the application of a uniform 

federal standard. 

 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 § 1821(k). See also Canfield, 967 F.2d 

at 450 n.5 (Brorby, J., dissenting). On balance, however, we 

find this rejoinder to the RTC's policy argument unpersuasive. 

Directors and officers of financial institutions are well advised 

of their potential liability under the law. (Indeed, the 

argument that too stringent a standard of care will discourage 

capable people from becoming or remaining as directors itself 

presumes a sophisticated level of knowledge on the part of such 

individuals.) For instance, they would undoubtedly be aware that 

federal receivership would insulate them from claims of 

negligence. Armed with this knowledge, directors and officers of 

institutions chartered in states permitting such claims would 

have more of an incentive to engage in conduct, which the RTC 
could not necessarily prove rises to the level of intentional 

conduct or gross negligence, but which nonetheless placed the 

institution at greater risk of receivership. 

 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 § 1821(k) does not preempt 

the RTC’s right to pursue a claim for conduct less culpable than 

gross negligence, if any are available under New Jersey law, 

against the United Savings defendants. 

 IV. Displacement of Federal Common Law

 We next address whether, by its enactment of § 1821(k), 

Congress foreclosed the RTC’s ability to bring a claim against 

officers or directors of federally chartered depository 

institutions under federal common law for conduct less culpable 

than gross negligence. The answer to the question of federal 

common law displacement turns on an interpretation of 

congressional intent. While it is unnecessary to find that 

Congress "had affirmatively proscribed the use of federal common 

law," in order to conclude that federal common law has been 

supplanted, Milwaukee v. Illinois, 451 U.S. 304, 315, 101 S. Ct. 

1784, 1791 (1981) (internal quotation mark omitted), "any terms 
of the statute explicitly preserving or preempting judge-made law 

are of course controlling, as is clear evidence of Congressional 

intent to achieve such results." In re Complaint of Oswego Barge 

Corp., 664 F.2d 327, 339 (2d Cir. 1981) ("In the absence of 

clearly expressed legislative intent, legislative history may 

provide useful guidance."). 

 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 v. 

Illinois, 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, 101 S. Ct. at 1791-92 n.8 (examining whether "‘the 

field has been made the subject of comprehensive legislation or 

authorized administrative standards.’" (quoting Texas v. Pankey, 

441 F.2d 236, 241 (10th Cir. 1971)). In whole, our inquiry must 

discern the intent of Congress so as to resolve the question 

whether applying federal common law would constitute "filling a 

gap left by Congress’ silence," which is proper, or involve 

"rewriting rules that Congress has affirmatively and specifically 

enacted," which is improper. Mobil Oil Corp. v. Higginbotham, 

436 U.S. 618, 625, 98 S. Ct. 2010, 2015 (1978). 

 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 § 1821(k), Congress provided such language, 

stating "[n]othing in this paragraph shall impair or affect any 

right of the Corporation under other applicable law." 12 

U.S.C.A. § 1821(k) (emphases supplied). We read the plain 

meaning of this savings clause as preserving the RTC’s right to 

proceed against directors and officers of federally-chartered 

institutions under federal common law. The defendants concede 

that before receivership City Federal ("the Corporation") had a 

right to bring an action against them under federal common law. 

Furthermore, they concede that upon receivership the RTC 

"obtain[ed] the rights of [City Federal,] the insured depository 

institution that existed prior to receivership." O’Melveny & 

Myers, 114 S. Ct. at 2054. Accordingly, we conclude the plain 

meaning of this provision -- which, stated again, preserves "any

right of the Corporation under other applicable law" -- secures 

the RTC’s ability to proceed against the defendants pursuant to 

City Federal’s pre-existing rights under federal common law. In 

so doing, we reject the City Federal defendants’ reading of this 

provision’s reference to "other applicable law" as one intended 

to invoke only the RTC’s rights under other sections of FIRREA or 

State law. As we have demonstrated, when Congress intended to 

limit its reference to the law of a particular jurisdiction or to 

other portions of FIRREA itself, it did so with the use of 

specific language. See supra pages 14-15. 
 Notwithstanding the plain meaning of § 1821(k)’s 

savings clause, the defendants contend that we must declare any 

available federal common law claims supplanted if Congress "spoke 

directly" to the question of the liability of directors and 

officers of insolvent depository institutions or "‘occupied the 

field through the establishment of a comprehensive regulatory 

program supervised by an expert administrative agency,’" 

Gallagher, 10 F.3d at 424 (quoting Milwaukee, 451 U.S. at 317, 

101 S. Ct. at 1792). We think that is not enough since, as we 

have stated, the answer to the question of federal common law 

displacement, like state law preemption, must turn, in the first 

instance, on an interpretation of congressional intent, looking 

to the text of the statute and then to its legislative history. 

 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 § 1821(k), as evident by both the 

provision’s plain meaning and its legislative history, explicitly 

preserves any federal remedy for conduct violating a lower 

standard of care, such as simple negligence. The relevant Senate 

Report clearly states that "this subsection does not prevent the 

FDIC from pursuing claims under . . . other 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). 

 Moreover, we do not believe (1) that § 1821(k) "spoke 

directly" to the standard of care applicable to directors and 

officers of federally-chartered depository institutions or (2) 

that the scope of this legislation occupied the field. The 

defendants contend that in enacting § 1821(k) Congress "spoke 

directly" to the standard of care for directors and officers of 

federally chartered institutions previously governed by federal 

common law. We disagree. As we have demonstrated, in enacting 

§ 1821(k) Congress sought to address the question of what 

standard should apply in cases where the RTC was confronted with 
an applicable state insulating statute, so as to ensure that the 

RTC could recover when the applicable state law insulated 

directors and officers from actions for gross negligence. While 

portions of FIRREA were enacted to govern both state and 

federally chartered institutions, see 12 U.S.C.A. § 1813(a)-(c) 

(1989), § 1821(k) was simply not enacted to define the standard 

of care applicable to federally chartered institutions governed 

by federal common law. 

 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 § 1821(k), but rather enacted the 

provision for the purpose of preempting state insulating 

statutes. 

 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 29-
31. Congress could not have intended to create such an incentive 

in enacting a statute intended to "strengthen the enforcement 

powers of Federal regulators." Pub. L. No. 101-73, § 101(10), 

103 Stat. 183, 187 (1989). Even 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.16 

 

 

16 Given our conclusion that § 1821(k) does not address the 

liability of directors and officers of federally chartered 

institutions, we need not discern whether the federal common law 

standard is one of ordinary or gross negligence. The district 

court should simply permit the RTC to proceed against the City 

Federal defendants under existing federal common law. We note 

that the Supreme Court first articulated a common law standard of 

care for directors and officers of federally chartered depository 

institutions over 100 years ago in Briggs v. Spaulding, 141 U.S. 

132, 11 S. Ct. 924 (1891): 

 

 The degree of care required depends upon the 

subject to which it is to be 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 . . . . 
 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 

 

Id. at 148, 11 S. Ct. at 929. 

 We recognize that Briggs arose before Erie R.R. v. Tompkins, 

304 U.S. 64 (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 to have occurred to 

the legal and economic environment confronted by federallychartered 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."). 
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)). 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 § 1821(k) in 

particular, was exactly the opposite. 

 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 the field and supplant existing 
powers already available as a matter of federal common law. 

Rather, Congress explicitly preserved "any right" available 

"under other applicable law." 

 In sum, the intent of Congress in enacting § 1821(k) 

was not to insulate directors and officers of bankrupt federally 

insured depository institutions from federal common law liability 

for conduct less culpable than gross negligence. Rather, 

§ 1821(k) reflects, as we have demonstrated, an effort to ensure 

that directors and officers could not escape liability to the RTC 

under the shield of certain state laws that had effectively 

insulated them from claims based on their grossly negligent or 

reckless conduct. To read any more into the enactment of 

§ 1821(k) would, as Chief Judge Posner has recognized, "make 

traps of its words" and perniciously turn the statute on its 

head, since Congress intended this provision to strengthen, not 

weaken, the RTC’s ability to recover for director and officer 

misconduct. See Chapman, 29 F.3d at 1126-27 (Posner, C.J., 

dissenting) ("What would otherwise be a more stringent standard, 

that of simple negligence, is diluted by interpretation of a 

statute intended to make the liability of such directors more 

stringent."). 

 We recognize that the two Courts of Appeals to have 

addressed both state law preemption and the displacement of 

federal common law by § 1821(k) would permit the RTC to pursue an 

action for negligence under state law, but not under federal 
common law. See Frates, 52 F.3d at 295 and Canfield, 967 F.2d at 

443 (10th Cir.); Chapman, 29 F.3d at 1122 and Gallagher, 10 F.3d 

at 416 (7th Cir.). These courts have justified such a 

distinction by the need for greater congressional intent to 

preempt state law as opposed to that necessary to displace 

federal common law, given the federalism concerns present when 

state law is preempted. Gallagher, 10 F.3d at 424 ("‘Such 

concerns are not implicated in the same fashion when the question 

is whether federal statutory or federal common law governs, and 

accordingly the same sort of evidence of clear and manifest 

purpose is not required.’" (quoting Milwaukee, 451 U.S. at 316, 

101 S. Ct. at 1792); see also Milwaukee, 451 U.S. at 317, 101 S. 

Ct. at 1792 ("[T]he assumption [is] that it is for Congress, not 

federal courts, to articulate the appropriate standards to be 

applied as a matter of federal law." (internal quotation mark 

omitted)). 

 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 § 1821(k) and the 

clear legislative history surrounding its enactment, which 

demonstrates that this provision was not intended to apply to 

federally chartered institutions, sufficiently overcome the 

presumption favoring the displacement of federal common law. 
 In reaching the contrary conclusion that § 1821(k) 

displaced federal common law, the courts of appeals to have 

considered the question have relied, in significant part, on the 

argument that permitting the RTC to seek recovery for a 

director’s negligence would render § 1821(k) meaningless. The 

Seventh Circuit in Gallagher stated that "[r]eading the ‘savings 

clause’ as preserving a federal common law standard of liability 

for less culpable conduct than gross negligence would render the 

substantive portion of § 1821(k) surplusage." Gallagher, 10 F.3d 

at 420 ("It is illogical that Congress intended in one sentence 

to establish a gross negligence standard of liability and in the 

next sentence to eviscerate that standard by allowing actions 

under federal common law for simple negligence."); see also

Bates, 42 F.3d at 372 ("If the court reads the savings clause to 

preserve simple negligence claims, then the gross negligence 

standard explicitly articulated . . . is redundant, meaningless 

surplusage."); Miramon, 22 F.3d at 1361. Moreover, in 

articulating this "surplusage" argument, the Fifth Circuit in 

Miramon rhetorically inquired -- "Why would the RTC ever bring an 

action under section 1821(k), where it would have to prove gross 

negligence, when it could bring an action under the federal 

common law and only be required to prove simple negligence?" Id.

 We are unpersuaded by this argument. Given the RTC’s 

concession that it can only bring federal common law claims 

against directors and officers of federally chartered 
institutions and not against their state-chartered counterparts, 

the answer to the Miramon court’s question is clear. Concluding 

that § 1821(k) does not displace federal common law does not

render this provision "redundant, meaningless surplusage" because 

the RTC still needs § 1821(k) to bring actions for gross 

negligence against directors and officers of institutions 

chartered in states with statutes insulating them from such 

liability. More particularly, the RTC could not bring a federal 

common law claim of negligence against directors and officers of 

depository institutions chartered in states with statutes 

insulating them from liability claims of gross negligence (or 

worse), since, as the RTC concedes, state law governs the 

liability of these individuals in the instances where § 1821(k) 

does not apply. See Chapman, 29 F.3d at 1122 (holding that the 

applicable law governing the liability of officers and directors 

for their stewardship of the corporation is the law of the 

jurisdiction where the institution was incorporated or 

chartered). Accordingly, § 1821(k) is needed to ensure that the 

RTC is not constrained from seeking recovery for gross negligence 

in instances where a state insulating statute would apply. 

 As we have stated, allowing the RTC to bring such 

actions was precisely the purpose underlying the enactment of 

§ 1821(k). When the defendants are directors of federally 

chartered institutions, such as City Federal, this purpose is not 

present and the statute simply has no relevance. Permitting the 
RTC to pursue an action under federal common law when the 

depository institution is federally chartered in no way renders 

the statute inoperative; rather such a conclusion merely 

appropriately limits § 1821(k) to its intended realm. 

 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. 

 

 

17 As we have noted, in addition to bringing a claim under 

federal common law in the City Federal action, the RTC has also 

brought a claim of gross negligence under § 1821(k). Given our 

conclusion that Congress did not intend § 1821(k) to apply to 

federally-chartered depository institutions, the RTC cannot

proceed under § 1821(k) in the City Federal action. 

RTC v. Cityfed Financial Corp, et al., No. 94-5307 

RTC v. Schuster, et al., No. 94-5308 

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"), 12 U.S.C. § 1821(k), does not preempt 

claims for simple negligence or breach of fiduciary duty that may 

be available to the RTC under state law. I respectfully dissent, 

however, from Part IV of the opinion, where the majority holds 

that section 1821(k) does not supplant the RTC's ability to bring 

such actions under federal common law. I find the majority's 

conclusion contrary to the statute's language and legislative 

history. I believe that section 1821(k) establishes a gross 

negligence standard of liability in suits brought by the RTC 

against the directors and officers of federally-chartered insured 

depository institutions, and accordingly would hold, as our 

sister courts of appeals in the Fifth, Sixth, Seventh and Tenth 

Circuits have held18, that the federal common law standard of 

simple negligence19 must yield to section 1821(k)'s higher 

standard in such cases. 

 

 

18 RTC v. Frates, ___ F.3d ___ (10th Cir. 1995) [1995 U.S. 

App. LEXIS 7990]; RTC v. Bates, 42 F.3d 369 (6th Cir. 1994); RTC 

v. Miramon, 22 F.3d 1357 (5th Cir. 1994); RTC v. Gallagher, 10 

F.3d 416 (7th Cir. 1993). 

 

19 The majority does not decide what standard of liability 

controls under the federal common law. Nevertheless, it strongly 

suggests in footnote 16 that it is one of ordinary (or simple) 

negligence and discusses the question before us as if the federal 

common law would permit the RTC to sue the directors and officers 

of failed federally chartered insured depository institutions for 

simple negligence. 
 My analysis is guided throughout by the vastly 

different tests the Supreme Court has instructed us to use when 

deciding whether a federal statute supplants federal common law 

on the one hand, or preempts state law on the other. When 

considering state law preemption, "`we start with the assumption 

that the historic police powers of the States are not to be 

superseded by the Federal Act unless that was the clear and 

manifest purpose of Congress'". Milwaukee v. Illinois, 451 U.S. 

304, 316 (1981) (citations omitted). By contrast, when the 

question is whether federal statutory or federal common law 

governs, "`we start with the assumption' that it is for Congress, 

not federal courts, to articulate the appropriate standards to be 

applied as a matter of law." Id. at 317 (footnote omitted). 

Federal common law is a "`necessary expedient'", resorted to in 

the absence of a federal statute and is "`subject to the 

paramount authority of Congress.'" Id. at 313-14 (citations 

omitted). Although a statute will not invade well established 

principles of common law unless a statutory purpose to the 

contrary is present, United States v. Texas, ___ U.S. ___, 113 S. 

Ct. 1631, 1634 (1993), when Congress "speak[s] directly" to the 

question addressed by the common law, federal common law is 

supplanted. Id.; Milwaukee v. Illinois, 451 U.S. at 315. 

Moreover, it is not necessary for Congress to "affirmatively 

proscribe" the federal common law rule in order to abrogate its 

application. Id. 
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 (1990), quoting

Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 

102, 108 (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".20 Under 

 

 

20 Section 1821(k) provides in pertinent part: 

 (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 
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." 12 U.S.C. § 1813(c)(2) (emphasis added). Thus, that 

Congress has spoken directly in section 1821(k)'s substantive 

provision to the standard of liability for the directors and 

officers of all failed federally-insured depository institutions, 

including those with a federal charter is, I believe, not open to 

question. 

 I also do not share the majority's confidence in the 

clarity of the savings clause.21 Beginning its analysis by 

inquiring whether any terms of section 1821(k) "`explicitly 

preserv[e] or preempt[] judge-made law[]'", the majority "read[s] 

the plain meaning of th[e] savings clause as preserving the RTC's 

 

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. 

12 U.S.C. § 1821(k). 

 

21 I could not discern the meaning of the savings clause 

without reference to section 1821(k)'s legislative history. In 

my view, the savings clause ensures that even though state 

insulating statutes are preempted, state law which imposes a 

higher standard than section 1821(k)'s gross negligence liability 

standard, holding directors and officers liable for simple 

negligence, remains available to the RTC. See supra pp. 9-10. 
right to proceed against directors and officers of federallychartered institutions under federal common law." Majority Op. 

at 32-33. This interpretation of the savings clause, however, 

has been rejected by our sister courts as contrary to elementary 

canons of statutory construction. They have concluded that if 

the savings clause were construed to preserve federal common law 

actions for simple negligence, then the language of the 

substantive sentence of section 1821(k) which specifically 

enunciates a cause of action for gross negligence would be 

meaningless surplusage and rendered a nullity. I agree. RTC v. 

Bates, 42 F.3d 369, 372 (6th Cir. 1994); RTC v. Miramon, 22 F.3d 

1357, 1361-62 (5th Cir. 1994); RTC v. Gallagher, 10 F.3d 416, 420 

(7th Cir. 1993). See RTC v.Frates, ___ F.3d ___ (10th Cir. 1995) 

[1995 U.S. App. LEXIS 7990 at 4]. ("[W]e believe Ga[l]agher, 

Miramon, and Bates have correctly resolved the [federal common 

law displacement] issue . . . and we see no reason to depart from 

or add to the analysis . . . ."). 

 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.22 

 The majority's position that section 1821(k)'s 

"intended realm" is limited to state chartered depository 

institutions, Majority Op. at 44, 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 21 U.S.C. § 

1813(c)(2). Subsections 1813(c)(4) and (5), on the other hand, 

distinguish between and define respectively "Federal depository 

institution[s]" and "State depository institution[s]".23 If 

 

 

22 I would also disagree with the view that the 

substantive sentence of section 1821(k) speaks only to RTC 

actions against the directors and officers of state institutions 

and the savings clause speaks to RTC actions against the 

directors and officers of both state and federal institutions. 

Neither the statute's language nor its legislative history 

indicates that Congress restricted the subject matter of section 

1821(k)'s first sentence to state institutions, then expanded it 

to include state and federal institutions in the second. 

Further, if section 1821(k)'s substantive provision only concerns 

state insulating statutes, federal common law need not be 

"preserved". Finally, "other applicable law" in the savings 

clause cannot refer to federal common law if the substantive 

provision relates only to actions involving state institutions, 

because federal common law does not have a place in such actions. 

 

23 Subsections 1813(c)(4) and (5) provide: 

 (4) Federal depository institution

 The term "Federal depository institution" 

means any national bank, any Federal savings 

association, and any Federal branch. 
section 1821(k) was intended to apply only to state institutions, 

Congress would have referred in the statute to insured "State 

depository institution[s]". Indeed, when Congress sought to 

restrict the application of section 1821's subsections to state 

institutions, it did so explicitly by using the appropriate term. 

E.g., 12 U.S.C. § 1821(c)(3)(A) ("Whenever the authority having 

supervision of any insured State depository institution . . . 

appoints a conservator . . . the Corporation may accept such 

appointment.")(emphasis added). 

 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 36, 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 in such cases.24 In addition, the majority concludes 

 

 (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. 

21 U.S.C. § 1813(c)(4),(5). 

 

24 In making this point, the majority cites FDIC v. 

McSweeny, 976 F.2d 532, 539 (9th Cir. 1992), cert. denied, ___ 

U.S. ___, 113 S. Ct. 2440 (1993), and FDIC v. Canfield, 967 F.2d 

433, 447 (10th Cir. 1992). In these cases, the courts concluded 
that a federal statutory gross negligence standard and section 

1821(k)'s reference in the first sentence to "applicable State 

law" cannot co-exist. I do not find them mutually exclusive, and 

read the statute as directing the courts to define "gross 

negligence" in cases involving failed federal depository 

institutions by the state law that has the closest connection to 

the institution at issue. Congress has, at various times and in 

various contexts, enacted statutes which rely upon state laws of 

decision in an overall federal statutory scheme. In re TMI 

Litigation Cases Consol. II, 940 F.2d 832, 855 (3d Cir. 1991), 

cert. denied, 503 U.S. 906 (1992).25 Concepts of negligence fall 

 

that section 1821(k) does not preempt state law claims for simple 

negligence, viewing the statute's reliance on state law for the 

definition of gross negligence as directly refuting the 

proposition that FIRREA establishes a uniform, national standard 

of gross negligence liability. Id.

 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, ___ F.3d ___ (10th Cir. 1995) [1995 

U.S. App. LEXIS 7990] 

 

25 Examples of federal statutes that explicitly authorize 

the use of state law include: the Price-Anderson Amendments Act 

of 1988, 42 U.S.C. § 2014(hh) (the "substantive rules for 

decision" in public liability actions "shall be derived from" the 

law of the state in which the nuclear incident occurs); the 

Federal Tort Claims Act, 28 U.S.C. § 1346(b)(the law of the place 

where the act or omission occurred determines the liability of 

the United States); 16 U.S.C. § 457 (claims for death or personal 

injury within a federal enclave are governed by laws of the 

state); the Outer Continental Shelf Lands Act, 43 U.S.C. § 

1333(2)(A) (the civil and criminal laws of each adjacent state 

are the law of the United States regarding the Outer Continental 

Shelf's subsoil and seabed). At times, the use of state law in a 

federal scheme is a matter of congressional intent. See, e.g., 

Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204 
squarely within the province of the state courts and the conduct 

that rises to the level of gross negligence may vary from place 

to place. Thus, a direction from Congress to look for guidance 

to the law of the locality in which a federally chartered 

depository institution is based represents a sensible and 

reasonable way to determine the parameters of the gross 

negligence liability standard in any given case. 

 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 

 

(1946) (Congress intended that state law define "real property" 

for tax purposes under the Reconstruction Finance Corporation 

Act.). 
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. McSweeny, 976 F.2d 532, 540 (9th 

Cir. 1992), cert. denied, ___ U.S. ___, 113 S.Ct. 2440 (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.26 

 While Congress sought to set a standard of liability in 

section 1821(k) that provided federal regulators with adequate 

enforcement power, Pub.L. No. 101-73, § 101(9)-(10), 103 Stat. 

183, 187 (1989), it also understood the importance of attracting 

qualified persons to serve as officers and directors of financial 

institutions.27 RTC v. Gallagher, 10 F.3d 416, 422 (7th Cir. 

 

 

26 During the floor debate in the Senate on the managers' 

amendment to the Senate's original bill, Senator Riegle, the 

bill's sponsor, explained that the amended bill sought to limit 

the preemptive scope of section 1821(k) to state insulating 

statutes. See Majority Op. at 20. 

 

27 The remarks of Senator Sanford during the floor debate 

on the managers' amendment indicate that Congress was concerned 

that financial institutions be able to attract competent 

management: 

 Mr. President, I would like to thank the 

distinguished managers of the bill, Senator 
1993). Accordingly, the standard of liability to be included in 

the statute -- simple or gross negligence -- was a matter of 

debate. While the Senate's initial bill would have allowed the 

RTC to bring claims "for any cause of action available at common 

law, including but not limited to, negligence, gross negligence, 

willful misconduct, breach of fiduciary duty . . . .", S.774, § 

 

RIEGLE and Senator GARN, for including in the 

managers' amendment modifications to the bill 

regarding directors and officers liability 

insurance contracts, surety bond, 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 21 U.S.C. § 1818(i)(2), I, 

unlike the majority, believe that the Senator's statements 

further our understanding of section 1821(k). The Supreme Court 

has counseled that "`[t]he true meaning of a single section of a 

statute . . ., however precise its language, cannot be 

ascertained if it be considered apart from related sections. . . 

.'" Commissioner v. Engle, 464 U.S. 206, 223 (1984), quoting

Helvering v. Morgan's, Inc., 293 U.S. 121, 126 (1934). See also

Richards v. United States, 369 U.S. 1, 11 (1962) ("We believe it 

fundamental that a section of a statute should not be read in 

isolation from the context of the whole Act . . . ."). 
214(n), 101st Cong., 1st Sess. at 105-106 (calendar N. 45, April 

13, 1989), its amended version removed, inter alia, all 

references to a simple negligence standard: 

 [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).28 

 

 

28 The majority relies exclusively on the following Senate 

Report as demonstrative of Congress' intent to "explicitly 

preserve[] any federal remedy for conduct violating a lower 

standard of care, such as simple negligence[]", Majority Op. at 

34-35: 

 [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). 
 Commenting in favor of the amended bill, Senator 

Sanford unmistakenly articulated Congress' intent to establish a 

standard of liability of gross negligence in section 1821(k) and 

clarified that the standard Congress enacted for actions brought 

under the statute was not intended for other cases: 

 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. 

 

 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) ("[E]xamination 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."). 
Id. at S4264-65.29

 The House version of section 1821(k), passed after the 

Senate version, H.R. 1278, 101st Cong., 1st Sess., 135 Cong.Rec. 

H2602 (daily ed. June 15, 1989), and the version that was 

ultimately voted into law, preserved the Senate's removal of the 

simple negligence standard. See Pub.L. No. 101-73, 103 Stat. 183 

(Aug. 9, 1989), reprinted in 1989 U.S.C.C.A.N. 86. The HouseSenate Conference Report which represents the final statement of 

terms agreed upon by both Houses of Congress confirms that 

Congress decided upon a gross negligence standard for section 

1821(k): 

 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 

 

 

29 The majority also points to Senator Sanford's comments 

for support. While the Senator's comments certainly demonstrate 

that section 1821(k) was not intended to set a universal standard 

of director and officer liability, I do not believe they support 

the view that Congress did not address the standard of liability 

to be used in this RTC action. 

 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 37. 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. 
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 (1979). There were two unsuccessful efforts to 

amend section 1821(k) to include a simple negligence standard of 

liability, one by the FDIC,30 and the other by Congressman Baker 

of Louisiana.31 Gallagher, 10 F.3d at 423. Only the presence of 

 

 

30 The FDIC amendment provided: 

 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, 27 F.3d at 1363 n.10. 

 

31 The Baker amendment provided: 

 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 
a gross negligence standard in section 1821(k) would have 

precipitated these attempts to reintroduce simple negligence as a 

standard in the statute. Further, had Congress preserved the 

federal common law standard in section 1821(k), as the majority 

contends, these amendments would not have been necessary. 

 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 37, 

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 

 

of an insured depository institution under 

any standard pursuant to such law. 

H.R. 3435, 102nd Cong., 1st Sess. § 228 (Comm. Markup Oct. 18, 

1991). 
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 

(1984).