Atherton v. Fdic, 519 U.S. 213 (1997)

Atherton v. Federal Deposit Insurance Corporation

No. 95-928

Argued November 4, 1996
Decided January 14, 1997
519 U.S. 213

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Syllabus

After City Federal Savings Bank, a federally chartered, federally insured savings association, went into receivership, the Resolution Trust Corporation (RTC), which has since been replaced as receiver by respondent Federal Deposit Insurance Corporation (FDIC), brought this action in City Federal’s name against several of its officers and directors, claiming that they had acted (or failed to act) in ways that led City Federal to make bad loans, and that these actions (or omissions) were unlawful because they amounted to gross negligence, simple negligence, and breaches of fiduciary duty. The defendants moved to dismiss under 12 U.S.C. § 1821(k), which states, in relevant part:

A director or officer of [a federally insured bank] may be held personally liable for monetary damages in any [RTC-initiated] civil action . . . for gross negligence [or] similar conduct . . . that demonstrates a greater disregard of a duty of care (than gross negligence). . . . Nothing in this paragraph shall impair or affect any right of the [RTC] under other applicable law.

(Emphasis added.) In dismissing all but the gross negligence claims, the District Court agreed with the defendants that, by authorizing actions for gross negligence or more seriously culpable conduct, the statute intended to forbid actions based upon less seriously culpable conduct, such as simple negligence. Reversing, the Third Circuit interpreted § 1821(k) as simply offering a safeguard against state legislation that had watered down applicable state standards of care -- below a gross negligence benchmark. As so interpreted, the statute did not prohibit actions resting upon stricter standard of care rules -- whether originating in state law (which the Circuit found applicable to state-chartered banks) or in federal common law (which the Circuit found applicable to federally chartered banks). Noting City Federal’s federal charter, the Circuit concluded that the Government could pursue any claims for negligence or breach of fiduciary duty available as a matter of federal common law.

Held: state law sets the standard of conduct for officers and directors of federally insured savings institutions as long as the state standard (such as simple negligence) is stricter than that of § 1821(k). The federal statute nonetheless sets a "gross negligence" floor, which applies as a substitute for state standards that are more relaxed. Pp. 217-231.

(a) There is no federal common law that would create a general standard of care applicable to this case absent § 1821(k). The federal common law corporate governance standard enunciated in cases such as Briggs v. Spaulding, 141 U.S. 132, applied to federally chartered banks, but does not survive this Court’s later decision in Erie R. Co. v. Tompkins, 304 U.S. 64, 78. Normally, a federal court may fashion federal common law rules only upon a specific showing that the use of state law will create a significant conflict with, or threat to, some federal policy or interest. See, e.g., O’Melveny & Myers v. FDIC, 512 U.S. 79, 87. The basic arguments that the FDIC implicitly or explicitly raises -- (1) its invocation of the need for "uniformity" in fiduciary responsibility standards for federally chartered banks; (2) its suggestion that a federal common law standard must be applied simply because the banks in question are federally chartered; (3) its analogy to the conflict of laws "internal affairs doctrine" to support its contention that courts should look to federal law to find the applicable standard of care; and (4) its reliance on federal Office of Thrift Supervision opinions applying the Briggs standard to federal savings bank directors and officers -- do not point to a significant conflict with, or threat to, a federal interest that would be caused by the application of state law standards of care. The Court notes that here, as in O’Melveny, the FDIC is acting only as a receiver of a failed institution; it is not pursuing the Government’s interest as a bank insurer -- an interest likely present whether the insured institution is state, or federally, chartered. The federal need here is far weaker than was present in the few and restricted instances in which this Court has created a federal common law. Thus, state law (except as modified by § 1821(k)) provides the applicable rules for decision. Pp. 217-226.

(b) Section 1821(k)’s "gross negligence" standard provides only a floor; it does not stand in the way of a stricter state law standard making directors and officers liable for conduct, such as simple negligence, that is less culpable than gross negligence. For one thing, the statutory savings clause’s language, read literally, preserves the applicability of stricter state standards when it says that "[n]othing [here]in . . . shall impair . . . any [RTC] right . . . under other applicable law." (Emphasis added.) For another, § 1821(k)’s background as a whole -- its enactment at a time of failing savings associations, large federal payments to insured bank depositors, and recent state law changes designed to limit preexisting officer and director negligence liability -- supports a reading of the statute as an effort to preserve the Government’s ability to recover federal insurance funds by creating a standard of care floor. The legislative history, insofar as it is relevant, supports this conclusion. The petitioner’s argument that § 1821(k) displaces federal common law by applying a uniform "gross negligence" standard for federally chartered, but not state-chartered, savings banks fails in light of the statute’s language and history, this Court’s conclusion that federal common law is inapplicable, and the fact that Congress did not separate its consideration of the two types of institutions. Pp. 226-231.

57 F.3d 1231, vacated and remanded.

BREYER, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and STEVENS, KENNEDY, SOUTER, and GINSBURG, JJ., joined, and in which O’CONNOR, SCALIA, and THOMAS, JJ., joined, except to the extent the opinion relies on legislative history. O’CONNOR, J., filed an opinion concurring in part and concurring in the judgment, in which SCALIA and THOMAS, JJ., joined, post, p. 231.