Court Opinion

ID: 9001673
Source: CourtListenerOpinion
Date Created: 2022-11-27 13:08:01.612318+00
Date Added: 2024-06-11T17:11:11.082155
License: Public Domain

BRORBY, Circuit Judge,
respectfully dissenting.
Few are so naive as to believe there exists but a single correct interpretation of any given statute. Those who are intellectually honest admit the real question is: Which “correct” interpretation will the court adopt, and why? 1
The parties in this case have aptly illustrated that Congress’ choice of language in 12 U.S.C. § 1821(k) is susceptible to two valid yet opposing interpretations. The majority has adopted the FDIC’s interpretation — the plain words of § 1821(k) do not create an exclusive federal standard of liability for bank directors and officers in civil damages suits brought by the FDIC. This interpretation is supportable and the majority opinion is well written; however, I fear the majority has lost sight of the forest but for a single tree. When construing statutes we must remember “laws are not abstract propositions. They are expressions of policy arising out of specific situations and addressed to the attainment of particular ends.” Felix Frankfurter, Some Reflections on the Reading of Statutes, 47 Colum.L.Rev. 527 (1947), reprinted in 3 N. Singer, Sutherland Statutory Construction 265, 272 (4th ed. 1986). Believing the majority has construed the phrase “other applicable law” in isolation from the substantive import of § 1821(k) and the overriding objectives of the national banking system, I respectfully dissent. The better interpretation of § 1821(k) — the interpretation advocated by defendant directors and officers and numerous Amici Curiae — not only gives effect to the plain language of the statute, but also serves Congress’ longstanding goal to achieve uniform administration of federal financial institutions and heeds important public policy concerns which underlie this legislation.
Congress enacted § 1821(k) of FIRREA as part of its extensive revision of the national banking system and “to nationalize the law of directors’ and officers’ liability when banks are taken over by the FDIC.” Gaff v. FDIC, 919 F.2d 384, 391 (6th Cir.1990).2 The substantive import of *450the statute is set forth in the first sentence3 and its message is unmistakable: § 1821(k) establishes a threshold gross negligence standard of officer and director personal liability for money damages arising from bank losses.4 As concisely stated by the district court,
[t]his part of the statute expressly defines the parameters of liability for officers and directors where the FDIC is acting as a successor in interest to the claims of a depository institution. It carefully sets the standard and defines the terms used, including a reference to state law where one is intended and en-compassed_ Congress clearly intended to preempt conflicting state and federal law on the issue of director and officer liability in this area and set a standard of gross negligence.
FDIC v. Canfield, 763 F.Supp. 533, 536 (D.Utah 1991). In defining the applicable standard as gross negligence,5 language indicating liability might be imposed for simple negligence is conspicuously absent.
It is at this point and within this context that we must consider the meaning of the last sentence of § 1821(k).6 Simply put, to read the last sentence to preserve the FDIC’s right to bring actions against directors and officers of closed institutions based on state liability standards below § 1821(k)’s gross negligence threshold not only ignores the plain language of the first sentence, but also renders the substantive import of § 1821(k) — the specific, unambiguous gross negligence standard — facially meaningless. The majority fails to address why Congress would go to the trouble of defining a threshold standard of liability only to preserve the gamut of FDIC’s state law causes of action which arguably require a lesser disregard of duty of care than gross negligence.7 Absent a satisfac*451tory explanation for this inherent contradiction, the phrase “other applicable law” should be construed to exclude state law claims.8
My proposed interpretation of § 1821(k) is further supported by public policy considerations inextricably woven into the FIRREA umbrella.9 FIRREA was enacted in response to the massive institutional failures of the past decade and in hopes of curbing continuing instability in the financial industries. Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No. 101-73,1989 U.S.C.C.A.N. 87. Such failures and instability have never been attributed in significant part to the simple negligence of officers and directors of depository institutions. Instead, these failures are believed to primarily result from insider abuse and fraud. Thus, simple negligence is not the problem FIRREA was designed to remedy.
In this context, it is difficult to imagine how FIRREA’s goals will be served by the majority’s interpretation — an interpretation which will breed inconsistent application of a pivotal national banking statute by causing directors’ and officers’ personal liability to turn not on the gravity of the alleged misconduct, but rather, on the state situs of the federally insured bank. The practical effect of the majority’s interpretation is perhaps best illustrated by a simple hypothetical: In these days of interstate branch banking, Ms. X, a resident of State Y, may very well be a director of banks located in State Y and State Z. Because the majority has concluded the standard of care demanded of Ms. X as a bank director is a function of the location of the bank, Ms. X’s evaluation and approval of a particular loan application might never be questioned in State Y, while the same evaluation and approval would expose her to personal liability for subsequent losses in State Z.
The majority’s interpretation of § 1821(k) also contravenes the long recognized need to attract and retain bright, ambitious community leaders to serve as officers and directors. Under the majority’s interpretation the personal risk is just too great.10 By its very nature, the lending business is risky. Bank officers and directors are responsible for managing that risk; however, it is not possible to do so in a manner that results in no losses or only in losses that will be found in retrospect to have been *452unavoidable. Given the benefit of hindsight and a simple negligence or fiduciary standard, the FDIC is a formidable opponent. Under these circumstances, no reasonable attorney would advise his client to accept, and no reasonable person would accept an offer to become a bank officer or director. As FIRREA was enacted in part to drive thieves and self-dealers from financial institutions, it seems illogical to hold Congress wished to drive honest, responsible persons with assets to protect from banking directorships, especially at a time when the need for such individuals is so great.
In summary, the basis for my dissension is simple: It is unreasonable to interpret § 1821(k) so as to render its substantive import meaningless. Moreover, it is incongruous to interpret legislation designed to assure the safety and soundness of this country’s banking system, in large part by establishing uniform regulatory control over federal financial institutions, in such a manner as to subject the directors and officers of those institutions to varying standards of liability dependent solely upon the institutions’ locale. For these reasons, I would interpret the plain language of 12 U.S.C. § 1821(k) to define an exclusive, uniform federal threshold of gross negligence for the personal liability of bank directors and officers named in civil damage suits brought by the FDIC.

. For nearly every canon of statutory construction, there exists an opposing canon which supports a contrary interpretation. See Karl N. Llewellyn, Remarks on the Theory of Appellate Decision and the Rules or Canons About How Statutes are to be Construed, 3 Vand.L.Rev. 395 (1950), reprinted in 3A N. Singer; Sutherland Statutory Construction 203, 206-09 (4th ed. 1986).

. Although the interpretation of § 1821(k) was not squarely before the Gaff court, the Sixth Circuit’s reading of § 1821(k) was integral to its holding that federal law totally preempts state law under various FIRREA sections, including § 1821(k).

. This sentence reads in relevant part:
A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil action by ... the Corporation ... for gross negligence, including any similar conduct or conduct that demonstrates a greater disregard of a duty of care (than gross negligence) including intentional tortious conduct, as such terms are defined and determined under applicable State law.
12 U.S.C. § 1821(k) (emphasis added).

. Given the unmistakable purpose of § 1821(k) to define a standard of liability, the majority’s discussion of the term “may" is a red herring. See maj. op. at 446. Read in context, the word "may” refers to the right of the FDIC to bring an action under this section. “May” cannot reasonably be read to qualify the gross negligence liability standard and is therefore irrelevant to the substance of the provision.

. The majority asserts "the statute's reliance on state law for its definition of gross negligence directly refutes the proposition that FIRREA establishes a national standard of liability for officers or directors.” Maj. op. at 447. This assertion is simply unfounded. A world of difference exists between defining a standard of liability vis-a-vis the rights of the FDIC to pursue an action under § 1821(k) and congressional deference to variations in the wordage used by states to define the applicable "gross negligence” standard.

. Recall, the last sentence reads: "Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law.” 12 U.S.C. § 1821(k).

.To suggest the law in most states precludes suits based on liability standards requiring a lesser disregard of duty of care than gross negligence, see Maj. op. at 445 n. 2, is to understate the issue. A closer evaluation of state law designed to insulate officers and directors from liability reveals the degree of liability protection varies greatly from state to state. See generally, James J. Hanks, Jr., Evaluating Recent State Legislation on Director and Officer Liability Limitation and Indemnification, 43 Bus.Law. 1207 (1988).
For example, by enacting charter option statutes, the majority of states (approximately 31) leave the decision to the corporation whether to adopt a provision eliminating or limiting the personal liability of a director or officer. Id. at 1210. Furthermore, charter option statutes vary among states — the principal difference being the enumerated exceptions, "which in effect state the standard that a plaintiff must meet in order to impose personal liability for money damages upon a director.” Id. at 1211. These exceptions may be as broad as "[bjreach of the director’s duty of loyalty to the corporation or its stockholders” or “ ‘any appropriation, in violation of [the director’s] duties, of any business opportunity of the corporation,’" or as narrow as "[k]nowing violation of the law.” Id. at 1211-12. Moreover, many states have adopted a broad statutory standard patterned after section 8.30(a) of the Revised Model Business Corporation Act (RMBCA). The RMBCA standard requires directors "to act in 'good faith,’ with the care of an ‘ordinarily prudent person in a like *451position ... under similar circumstances,’ and in a manner ‘he reasonably believes to be in the best interests of the corporation.’” Id. at 1212. Conduct not rising to the level of gross negligence could arguably satisfy these broader liability standards. In addition, liability limitation by charter provision usually does not apply to conduct occurring prior to the effective date of the provision. Id. at 1211.
The ready availability of claims based on liability standards requiring a lesser disregard of duty of care than gross negligence is further evidenced by the cases filed. Cases in this Circuit alone indicate the FDIC does not hesitate to pursue civil litigation against directors and officers after a financial institution fails. Moreover, FDIC complaints typically set forth claims of common law negligence, fraud and breach of fiduciary duty. If these claims are unauthorized in most states as the majority suggests, then Fed.R.Civ.P. 11 sanctions may be warranted in future cases.

.The Conference Report, which is the best evidence of the congressional intent behind § 1821(k) as it was finally enacted, squarely and conclusively states,
Title II [section 1821(k) ] preempts State law with respect to claims brought by the FDIC in any capacity against officers or directors of an insured depository institution. The preemption allows the FDIC to pursue claims for gross negligence or any conduct that demonstrates a greater disregard of a duty of care, including intentional tortious conduct.
H.Rep. No. 101-222, 101st Cong., 1st Sess. 393, 398 (1989), reprinted in 1989 U.S.C.C.A.N. 432, 437.

. The only public policy concern expressed by the majority is more imagined than real. Fearing that Defendants’ interpretation of § 1821 (k) would create an incentive to allow the bank to fail because the liability standard after closure would be gross negligence rather than simple negligence, maj. op. at 449, the majority apparently overlooked the likelihood that deliberate conduct designed to allow a bank to fail in order to take advantage of the gross negligence standard would in and of itself constitute gross negligent conduct actionable under § 1821(k).

. Notably, because of the "regulatory exclusion” clause, insurance is generally not available to protect officers and directors from personal financial loss where claims are brought by the FDIC or other government regulatory agencies.