Opinion ID: 681620
Heading Depth: 2
Heading Rank: 1

Heading: By Or On Behalf Of The FDIC

Text: 15 Defendants Rosenberg, Hepinstall, and Rudert initially point out that the FDIC itself did not bring suit against them for improper banking practices and argue that the regulatory exclusion endorsement is inapplicable to them. While it is true that the FDIC's complaint in these proceedings named only Gerald Martin and Richard Graves as defendants, it is also true that the shareholders' derivative suit brought by Crisman against Rosenberg, Hepinstall, and Rudert was explicitly brought on behalf of the FDIC. The individual defendants submit, nevertheless, that the mere wording of a plaintiff's complaint cannot transform an action into one barring insurance coverage pursuant to a regulatory exclusion. Moreover, the individual defendants argue that the FDIC was given the opportunity, under Michigan law, to bring the suit that Crisman requested and chose not to do so. 16 The facts surrounding American Casualty's claim that the Crisman suit was brought on behalf of the FDIC are not in dispute in this matter. Thus, the trial court properly reviewed this issue under the summary judgment principles of Fed.R.Civ.P. 56. This court reviews the grant of a motion for summary judgment de novo. Jones v. Tennessee Valley Auth., 948 F.2d 258, 261 (6th Cir.1991). Summary judgment is proper when there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law. However, the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. Anderson v. Liberty Lobby, 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). 17 Applicable law supports the district court's conclusion that the regulatory exclusion of the 1987 policy does bar coverage of the individual defendants under the facts of this case. Despite the individual defendants' attempt to recharacterize Crisman's complaint, Crisman did attempt to bring a shareholder's derivative action against the officers and directors of the bank on behalf of ... the Federal Deposit Insurance Corporation. Moreover, under established principles of corporate law, a shareholder's derivative action cannot be brought except on behalf of the corporation itself, or on behalf of another entity, such as the FDIC, that has succeeded to the corporation's derivative rights. Gaff v. FDIC, 814 F.2d 311, 315 (6th Cir.), vacated in part on other grounds on reh'g, 828 F.2d 1145 (6th Cir.1987), modified in other respects, 933 F.2d 400 (6th Cir.1991). 18 Furthermore, the fact that the FDIC did not itself bring an action against Rosenberg, Hepinstall, and Rudert does not necessarily foreclose application of the terms of the regulatory exclusion. Pursuant to the unambiguous terms of the exclusion itself, the policy provision included any type of legal action which such Agencies have the legal right to bring as receiver, conservator, liquidator or otherwise. Because the FDIC, as the receiver of First State Bank, had the legal right to bring an action against the individual defendants for their actions allegedly resulting in the diminution in the value of the bank's stock, the action by Crisman fell under the provisions of the regulatory exclusion on this basis as well. 19 In an effort to secure coverage under the bank's D & O policy, the individual defendants claim that the decision in this matter should follow the reasoning of the district court in American Casualty Co. v. FSLIC, 683 F.Supp. 1183 (S.D.Ohio 1988), and they advance the same arguments made by the FDIC in FDIC v. Zaborac, 773 F.Supp. 137 (C.D.Ill.1991), aff'd in FDIC v. American Casualty Co., 998 F.2d 404 (7th Cir.1993). As noted by the district court in this case, however, both of those cases involved substantively different situations. In those cases, the courts wrestled with the issue of whether the action under consideration was brought by the federal regulatory agency. Furthermore, in each case, the original complaint was filed prior to the receivership of the FDIC or the FSLIC. Consequently, even though the court in Zaborac ultimately held that the regulatory exclusion was applicable to the situation presented to it, 773 F.Supp. at 140-41, both American Casualty Co. v. FSLIC and FDIC v. Zaborac are readily distinguishable from this case. 20 The individual defendants also argue that a decision upholding a denial of coverage in this case would necessarily prevent coverage of directors and officers under regulatory exclusions in all shareholder derivative actions. Such an assertion is, however, far too broad. Only those shareholder derivative actions brought in situations in which a regulatory agency has succeeded to a corporation's cause of action are affected by the regulatory exclusion. In situations in which a bank has not failed, for instance, a shareholder's derivative action would be brought on behalf of the corporation itself, and a regulatory agency would not have the legal right to bring such an action. Thus, the shareholder's suit would not trigger the provisions of a regulatory exclusion. See e.g., American Casualty Co. v. FSLIC and FDIC v. Zaborac, supra. 21 Finally, if Crisman had not brought his shareholder's derivative suit on behalf of the FDIC, he could not have brought the action at all. The corporation allegedly injured by the actions of the individual defendants no longer possessed the legal right to bring such an action; all such rights had been effectively transferred to the FDIC as receiver for the failed bank. In fact, even the individual defendants recognize in their brief that 12 U.S.C. Sec. 1821(d)(2)(a)(i) (1989) provides: 22 The [FDIC] shall, as conservator or receiver, and by operation of law, succeed to ... all rights, title, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution.... 23 Thus, from a purely practical standpoint, any shareholder's derivative action brought by Crisman must have been brought on behalf of the successor to the corporation's legal right to bring such an action--the FDIC.