Barnes v. Harris , 783 F.3d 1185 ( 2015 )

FILED
United States Court of Appeals
Tenth Circuit
PUBLISH
April 21, 2015
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
TENTH CIRCUIT
J. CANUTE BARNES; W. KING
BARNES; ROBERT V. JONES,
derivatively on behalf of all similarly
situated shareholders of Barnes
Bancorporation,
Plaintiffs - Appellants,
v.
CURTIS H. HARRIS; NED H. GILES;
DAVID N. BARNES; ROBERT L.
THURGOOD; JERRY W. STEVENSON;
MICHAEL D. PAVICH; GARY M. No. 14-4002
WRIGHT; DOUGLAS STANGER;
BARNES BANCORPORATION, a
nominal defendant,
Defendants - Appellees.
------------------------------
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for Barnes
Banking Corporation,
Intervenor - Appellee.
Appeal from the United States District Court
for the District of Utah
(D.C. No. 2:12-CV-01010-TS)
Thomas R. Karrenberg (R. Willis Orton and Justin W. Starr, Kirton, McConkie, Salt
Lake City, Utah; and Jon V. Harper, Anderson & Karrenberg, Salt Lake City, Utah, with
him on the briefs), Anderson & Karrenberg, Salt Lake City, Utah, for the Plaintiffs -
Appellants.
Jonathan A. Dibble (Scott H. Clark, Kelly J. Applegate, and Adam K. Richards, Ray
Quinney & Nebeker P.C., Salt Lake City, Utah, with him on the briefs), Ray Quinney &
Nebeker P.C., Salt Lake City, Utah, for the Defendants - Appellees.
Minodora D. Vancea (Colleen J. Boles and Kathryn R. Norcross with her on the briefs),
Federal Deposit Insurance Corporation, Arlington, Virginia, for the Intervenor -
Appellee.
Before LUCERO, MURPHY, and McHUGH, Circuit Judges.
LUCERO, Circuit Judge.
This appeal follows on the heels of a bank failure, the Barnes Banking Company
(the “Bank”) having been placed into Federal Deposit Insurance Corporation (“FDIC”)
receivership in 2010. Three shareholders in Barnes Bancorporation (the “Holding
Company”), parent of the failed bank, brought suit against the Holding Company and its
officers and directors. The district court’s dismissal of their suit was on the basis that
most of the claims advanced by the plaintiffs were owned solely by the FDIC under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), and
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the remaining allegations were insufficient to state a claim.
We agree with the district court. Because almost all of the plaintiffs’ claims assert
injury to the Holding Company that is derivative of harm to the Bank, those claims
belong to the FDIC. Further, the one theory of recovery advanced by plaintiffs that
identifies claims not owned by the FDIC under FIRREA, which involves the alleged
misappropriation of $265,000, was pled in too conclusory a fashion.
Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
I
Inconsistent with its long history of conservative, community-based lending, the
Bank began engaging in risky lending practices in the early 2000s.1 As a result of
mismanagement by the Bank’s officers and directors, it experienced numerous economic
setbacks. The Bank ultimately closed in January 2010, and the FDIC was appointed as
receiver.
In January 2012, J. Canute Barnes filed a derivative shareholder complaint against
the Holding Company, as a nominal defendant, and its officers and directors in Utah state
court, alleging a breach of fiduciary duty. Attached to the complaint was a demand letter,
a prerequisite to suit under Utah Code § 16-10a-740, which described the Holding
Company as having only a single asset, namely the Bank. The initial complaint states
1
Because this case was dismissed pursuant to Fed. R. Civ. P. 12(b)(6), we draw
the facts from the operative, second amended complaint unless otherwise noted. See
Wilson v. Montano, 715 F.3d 847, 852 (10th Cir. 2013).
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that defendants are sued in their capacities as officers and directors of the Holding
Company and not as officers and directors of the Bank. However, the specific factual
allegations contained in the complaint center on mismanagement of the Bank.
Holding all of the Bank’s assets and property after being appointed as the Bank’s
receiver, the FDIC filed a motion to intervene in state court. In its motion, the FDIC
argued that it possessed the exclusive statutory authority under FIRREA to assert the
derivative claims at issue. The state court granted the FDIC’s motion to intervene, and
the FDIC removed the case to federal court.
Following removal, the district court granted a motion to amend the complaint to
add two shareholder plaintiffs, W. King Barnes and Robert Jones. Plaintiffs then filed a
motion to remand to state court, arguing that the FDIC was not a party to the case
because it had not filed a pleading. That motion was rejected. Plaintiffs then moved to
dismiss the FDIC from the litigation for failure to state a claim. When the FDIC
responded with its own motion to dismiss, the defendants moved for judgment on the
pleadings. The district court denied plaintiffs’ motion, but granted in part the motions
filed by defendants and the FDIC. It dismissed most of the plaintiffs’ claims with
prejudice but allowed some to be re-pled.
In their second amended complaint, plaintiffs attempt to refocus their allegations
from Bank-level harm to mismanagement at the Holding Company level. They allege
that the Bank was the “primary asset” of the Holding Company. However, the complaint
continues to reference the previously attached demand letter, which indicates the Bank is
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the “sole asset.” And the gravamen of the harm alleged remains the Bank’s failure.
Plaintiffs claim that the defendants should have removed and replaced the Bank’s
management; that the Holding Company breached a letter agreement with the Federal
Reserve Bank to “change the Bank’s practices”; and that the Holding Company
improperly issued dividends. The second amended complaint also alleges that the
Holding Company and the Bank were issued a $9 million tax refund on a joint return,
none of which was recovered by the Holding Company. It further alleges that the
Holding Company misused $265,000 by paying Directors and Officers insurance policy
premiums and retaining counsel for the defendants.
Both the FDIC and the defendants moved to dismiss the second amended
complaint. The district court granted the motions, dismissed plaintiffs’ claims, and
denied further leave to amend. Plaintiffs timely appealed.
II
We, of course, first consider whether the district court has jurisdiction. The
existence of subject-matter jurisdiction “is a question of law which we review de novo.”
Plaza Speedway Inc. v. United States, 311 F.3d 1262, 1266 (10th Cir. 2002). Subject-
matter jurisdiction may be raised at any time and cannot be waived. Huffman v. Saul
Holdings Ltd. P’ship, 194 F.3d 1072, 1076-77 (10th Cir. 1999).
During the 1980s, the United States banking system faced a crisis due to
inadequate and ineffective regulations. See United States v. Winstar Corp., 518 U.S. 839,
856 (1996). In order to protect the FDIC, which is responsible for insuring depositors’
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funds against loss, and to stabilize the banking system, Congress enacted FIRREA. See
id.; see also Rundgren v. Wash. Mut. Bank, FA, 760 F.3d 1056, 1060 (9th Cir. 2014);
Cavallari v. Office of the Comptroller of the Currency, 57 F.3d 137, 145 (2d Cir. 1995).
As part of its effort to ensure the expeditious disposition of suits involving the FDIC,
FIRREA provides that “all suits of a civil nature at common law or in equity to which the
[FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United
States.” 12 U.S.C. § 1819(b)(2)(A).
Plaintiffs contend that the FDIC is not a party, and thus the district court lacked
jurisdiction, because the FDIC never filed a pleading.2 They refer us to a treatise for the
general proposition “that jurisdiction may not be created by intervention unless the
intervening party brings separate claims over which the district court has an independent
basis to exercise jurisdiction.” 16 Moore’s Federal Practice—Civil § 107.15[7][a]
(emphasis added). That statement comes from a discussion of Village of Oakwood v.
State Bank & Trust Co., 481 F.3d 364 (6th Cir. 2007). In Village of Oakwood, the FDIC
2
A majority of circuits to have considered the issue have held that non-
compliance with Fed. R. Civ. P. 24(c), which requires that a motion to intervene be
accompanied by a pleading, may be excused in some circumstances. See Providence
Baptist Church v. Hillandale Comm., Ltd., 425 F.3d 309, 313-14 (6th Cir. 2005)
(collecting cases and noting a circuit split). In this case, however, we are not asked to
decide whether any federal court erred in permitting intervention absent a pleading; the
FDIC’s motion to intervene was granted by the state court prior to removal. Whether the
motion to intervene was proper under state law is ultimately immaterial to the question of
whether removal jurisdiction exists. See Castleberry v. Goldome Credit Corp., 408 F.3d
773, 783 (11th Cir. 2005) (“[F]ederal law determines whether the exercise of removal
jurisdiction was proper, irrespective of state law procedural violations.”).
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removed a case from state court before it had been granted leave to intervene. Id. at 366.
The federal district court permitted FDIC intervention only after the case was in federal
court. Id. The Sixth Circuit concluded that this procedure could not create jurisdiction:
“In the absence of jurisdiction over the existing suit, a district court simply has no power
to decide a motion to intervene; its only option is to dismiss.” Id. at 367. Further, the
court held that the suit did not fit within “a narrow exception” to this rule that applies
when “the intervening party brings separate claims, and the district court has an
independent basis to exercise jurisdiction over those claims.” Id. In that scenario, “the
district court [should] dismiss the original claims in the action for lack of subject matter
jurisdiction while retaining jurisdiction over the intervenor’s claims only.” Id.
As the Sixth Circuit acknowledged in Village of Oakwood, the circuits are split on
the question of whether the FDIC may create removal jurisdiction by filing a motion to
intervene in federal court. Id. at 368. In Heaton v. Monogram Credit Card Bank, 297
F.3d 416 (5th Cir. 2002), the Fifth Circuit concluded that a district court possessed
“subject matter jurisdiction . . . under 12 U.S.C. § 1819(b)(2)(A) as soon as the FDIC
filed its motion to intervene.” Id. at 421. We are not tasked with weighing in on that
split. In this case, the FDIC had successfully intervened before it removed the case.
Accordingly, we need not consider “the general rule that jurisdiction may not be created
by intervention.” 16 Moore’s Federal Practice—Civil § 107.15[7][a]. Because the FDIC
had already intervened at the time of removal, the question presented is simply whether
intervention absent a pleading confers party status. We conclude that under circuit
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precedent, it does.
In Alvarado v. J.C. Penney Co., 997 F.2d 803 (10th Cir. 1993), we considered the
status of a company that had been granted leave to intervene after the claims against it
were voluntarily dismissed. Id. at 804. Prior to the voluntary dismissal, the company had
filed a motion to dismiss and a motion for summary judgment, but had not filed a
pleading. Id. After being permitted to intervene, the company renewed its motion for
summary judgment on a discrete issue even though no claims were pending against it. Id.
at 804-05. The district court granted the motion and entered judgment on that issue
against the plaintiff and the defendant. Id. at 804. The defendant appealed, arguing that
in the absence of a claim by or against the intervenor, judgment was inappropriate. Id. at
805. We rejected this argument, holding that “when a party intervenes, it becomes a full
participant in the lawsuit and is treated just as if it were an original party.” Id. (quotation
and alteration omitted). Although we noted that Rule 24(c) contemplates an intervenor
filing a pleading setting forth its claims and defenses, we held that the company’s
renewed motion for summary judgment sufficed to “make [its] claims known” by
“requesting a declaratory judgment of sorts.” Id.The FDIC is in the same position as the intervenor in Alvarado. It was permitted
to intervene and, through its motion, insisted that it had exclusive grounds to sue under
FIRREA. Under Alvarado, we are obliged to treat the FDIC “as if it were an original
party.” Id. (quotation omitted); see also Coal. of Ariz./N.M. Counties for Stable Econ.
Growth v. Dep’t of the Interior, 100 F.3d 837, 844 (10th Cir. 1996) (“If a party has the
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right to intervene under Rule 24(a)(2), the intervenor becomes no less a party than others
and has the right to file legitimate motions . . . .”).
Treating an intervening entity as a party even if that entity has not filed a pleading
is consonant with the Federal Rules. Under Fed. R. Civ. P. 12(b), “[e]very defense to a
claim for relief in any pleading must be asserted in the responsive pleading if one is
required.” Id. “But a party may assert [certain listed] defenses by motion” and a motion
containing those defenses “must be made before pleading.” Id. (emphasis added). Were
we to accept plaintiffs’ argument that an entity is not a party until it has filed a pleading,
Rule 12(b)’s use of the term “party” would make no sense, given that the term refers to
defendants who have not filed pleadings.
Further, allowing the FDIC to intervene and remove the case is consistent with
Congress’ purpose in enacting FIRREA: providing the FDIC a federal forum. See, e.g.,
Mizuna, Ltd. v. Crossland Fed. Sav. Bank, 90 F.3d 650, 657 (2d Cir. 1996) (observing
that Congress “deliberately sought to channel the cases in which the FDIC would have or
may wield [its] powers away from the state courts and into federal courts” (quotation
omitted)); FDIC v. Meyerland Co. (In re Meyerland Co.), 960 F.2d 512, 515 (5th Cir.
1992) (en banc) (“Access to federal courts in all actions to which it is a party allows the
FDIC to develop and rely on a national and uniform body of law, consistent with
eliminating the problems identified by Congress in having less rigorous state standards
coexisting with federal ones.”); Kirkbride v. Cont’l Cas. Co., 933 F.2d 729, 731-32 (9th
Cir. 1991) (“[T]he grant of subject matter jurisdiction contained in FDIC’s removal
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statute evidences Congress’ desire that cases involving FDIC should generally be heard
and decided by the federal courts.” (quotation omitted)).
Because the FDIC was a party to the state court action by virtue of its intervention,
we conclude that the district court properly exercised jurisdiction over the removed action
pursuant to 12 U.S.C. § 1819(b)(2)(A).
III
Having assured ourselves that the district court possessed jurisdiction, we proceed
to review its merits decision. Dismissal for failure to state a claim is reviewed de novo,
accepting all well-pled facts as true and viewing them in the light most favorable to the
plaintiff. Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.
1999).
A
Once the FDIC is appointed as a receiver, FIRREA grants it “all rights, titles,
powers, and privileges of the [bank], and of any stockholder . . . of such [bank] with
respect to the [bank] and the assets of the [bank].” 12 U.S.C. § 1821(d)(2)(A)(i). By
passing FIRREA, “Congress has transferred everything it could to the FDIC, and that
includes a stockholder’s right, power, or privilege to demand corporate action or to sue
directors or others when action is not forthcoming.” See Pareto v. FDIC, 139 F.3d 696,
700 (9th Cir. 1998). When the FDIC became the Bank’s receiver, FIRREA gave the
FDIC all rights that the Holding Company, a stockholder of the Bank, possessed with
respect to the Bank and its assets.
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Whether FIRREA applies to cases like this, in which a suit for breach of fiduciary
duty is brought against a bank holding company’s officers after a subsidiary bank has
gone into FDIC receivership, presents a question of first impression in our circuit.
However, cases from other circuits provide instructive guidance.
In Vieira v. Anderson (In re Beach First National Bancshares, Inc.), 702 F.3d 772(4th Cir. 2012), the Fourth Circuit considered claims quite similar to those at issue in this
case. The trustee of a bank holding company brought claims against its former officers
and directors—who were also officers and directors of the bank held by that company—
after the subsidiary bank was placed into FDIC receivership. Id. at 775. Although the
court acknowledged that the defendants owed fiduciary duties to the holding company
independent of those owed to the bank, it held that all but one of plaintiffs’ claims
belonged to the FDIC under FIRREA because the complaint alleged “causes of action for
liability derivative of the alleged failures at the [b]ank level.” Id. at 777. “The Trustee
repeatedly pled that the [defendants] allowed mismanagement of the [b]ank, but such
conduct caused injury first to the [b]ank and then only indirectly to [the holding
company] as the [b]ank’s sole shareholder.” Id. at 778. One of the claims at issue, a
holding company’s interest in an LLC rather than the failed bank itself, asserted “direct
harm to [the holding company] unrelated to any defalcation at the [b]ank level” and was
allowed to proceed. Id. at 780.
The Seventh Circuit, in Levin v. Miller, 763 F.3d 667 (7th Cir. 2014), addressed
similar claims brought by the trustee of a holding company against its officers and
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directors after the FDIC took over the company’s subsidiary banks. Id. at 669. FIRREA,
the court explained, “allocate[s] to the FDIC not only the closed banks’ rights but also
any claims that investors might assert derivatively on behalf of the closed banks.” Id.Applying Indiana law, which “treats a stockholder’s claim as derivative if the corporation
itself is the loser and the investor is worse off because the value of the firm’s stock
declines,” id. at 670, the court concluded that most of the claims at issue belonged to the
FDIC, id. at 672. In Miller, plaintiffs attempted to artfully plead that the defendants (who
served as management of both the holding company and the banks) breached a duty “to
[the holding company] to protect it from their own behavior at the [b]anks.” Id. at 670.
The Seventh Circuit concluded that this was “a veneer over a derivative claim based on
the harm the [defendants’] choices caused to the [b]anks and transmitted to [the holding
company] through a decline in the value of the shares it held.” Id. “The FDIC, not [the
holding company], therefore owns any claim against the [defendants] that depends on the
choices they made as directors or employees of the [b]anks.” Id. at 670-71.
In an unpublished per curiam opinion, Lubin v. Skow, 382 F. App’x 866 (11th Cir.
2010) (unpublished) (per curiam), the Eleventh Circuit also considered claims brought by
the trustee of a holding company against the officers and directors of the holding
company and its subsidiary, a bank in FDIC receivership. Id. at 869. That circuit
concluded that “FIRREA grants the FDIC ownership over all shareholder derivative
claims against the Bank’s officers,” and that state law controlled the question of whether
a claim is derivative. Id. at 870 & n.6. Applying Georgia law, the court held that
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plaintiffs’ claims against the bank’s officers belonged to the FDIC because “[t]he alleged
harm to the [h]olding [c]ompany stems from the [b]ank officers’ management of [b]ank
assets” and that “harm is inseparable from the harm done to the [b]ank.” Id. at 871-72.
“That the [b]ank officers’ poor business choices reduced the value of the [h]olding
[c]ompany’s investment does not alter the fact that the harm is decidedly a derivative
one.” Id. at 872. As to the plaintiffs’ claims against defendants as officers of the holding
company, the court stated without analysis that FIRREA does not apply. Id.The facts of this case and the claims advanced by plaintiffs parallel those in Beach
First, Miller, and Lubin. On our independent analysis, we are largely in agreement with
the approach of those cases. If the Holding Company’s claims are based on harm
derivative of injuries to the Bank, then they qualify as claims of a shareholder “with
respect to the [bank] and the assets of the [bank]” and belong to the FDIC.
§ 1821(d)(2)(A)(i). The parties agree that Utah corporate law applies. Accordingly, we
look to that state’s law to determine whether a claim is derivative.3
Under Utah law, “[d]erivative suits are those which seek to enforce any right
which belongs to the corporation.” Aurora Credit Servs., Inc. v. Liberty W. Dev., Inc.,
3
There is no dispute that the plaintiffs, as shareholders of the Holding Company,
are asserting derivative claims of the Holding Company. The parties dispute whether the
claims at issue are derivative in the sense that the Holding Company, as a shareholder of
the Bank, may assert derivative claims of the Bank. Such actions are sometimes referred
to as “double derivative” suits. See, e.g., Brown v. Tenney, 532 N.E.2d 230, 231 (Ill.
1988) (“A double derivative suit is one wherein a shareholder of a parent or holding
company seeks to enforce a right belonging to a subsidiary of the parent or holding
company.”).
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970 P.2d 1273, 1280 (Utah 1998) (quotation omitted). Utah courts look to the nature of
the injury in determining whether a claim is derivative or direct: “[I]n a direct action, the
plaintiff can prevail without showing an injury to the corporation—the shareholder need
show only an injury to him- or herself that is distinct from that suffered by the
corporation.” Id. “[T]he shareholder must examine his injury in relation to the
corporation and demonstrate that the injury was visited upon him and not the
corporation.” Dansie v. City of Herriman, 134 P.3d 1139, 1144 (Utah 2006). If the
“[p]laintiffs were injured because the [c]ompany was injured,” the claim is derivative. Id.Other than their claims regarding the $265,000 allegedly misused by the
defendants, plaintiffs do not allege any harm to the Holding Company that is distinct and
separate from the harm to the Bank.4 This includes their allegation that defendants made
improper dividend payments to the Holding Company’s shareholders, for as the district
court correctly identified, even if the plaintiffs could show that dividend payments
weakened the Holding Company’s finances, this weakening would not have injured
plaintiffs absent the Bank’s failure. Plaintiffs liken this claim to a similar one presented
in Levin. See 763 F.3d at 671. However, in Levin, the plaintiff complained that
improper dividend payments left a holding company itself unable to “realize[] the benefit
of being better capitalized” when the “financial crunch” occurred in 2007 and 2008. Id.
4
For reasons discussed in Section III.B, we conclude that plaintiffs’ allegations
regarding a $9 million tax return also are for the FDIC to advance.
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at 670. As characterized by the Seventh Circuit, this claim asserts harm suffered directly
at the holding company level. In contrast, in the case at bar, plaintiffs’ limited argument
on appeal as to the dividend payments indicates that their theory of liability is derivative.
Plaintiffs contend that the dividend payments left the Holding Company unable to serve
as a source of financial strength for the Bank. The allegedly improper dividend payments
thus did not cause any independent harm, but rather resulted in injury because of the
Bank’s failure. A better analogy for this claim appears in Lubin. In that case, plaintiffs
alleged that a holding company suffered unique harm because its officers took on $34
million in debt. Lubin, 382 F. App’x at 872. Noting that “debt is not an intrinsic harm,”
the court held that this claim was derivative because “[t]he [b]ank’s insolvency, which
precluded the [h]olding [c]ompany from repaying the $34 million, is what forced the
[h]olding [c]ompany into bankruptcy.” Id. Similarly, the issuance of dividend payments
did not cause any harm in and of itself. Only because the Bank failed could it have
resulted in injury.
Plaintiffs allege that mismanagement by the defendants harmed the Bank and in
turn the Holding Company. They have attempted to carefully plead their claims, alleging
that the defendants breached their duties to the Holding Company by failing to protect the
Holding Company from mismanagement—by these same defendants—at the Bank level.
But plaintiffs nonetheless seek redress for injuries that first befell the Bank, and reached
the Holding Company only derivatively as a result of its ownership interest in the Bank.
Under Utah law, such claims are decidedly derivative in nature. See Aurora Credit
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Servs., 970 P.2d at 1280.5 Importantly, none of these claims allege that the Holding
Company held any interest in non-Bank assets. Cf. Beach First, 702 F.3d at 780
(determining that the FDIC did not own a claim that was unconnected to the bank in
receivership).
Plaintiffs attempt to support their argument that the bulk of their claims are direct
rather than derivative by citing to a New York case, General Rubber Co. v. Benedict, 109
N.E. 96 (N.Y. 1915), and lower court decisions following it. In General Rubber, the
court held that a parent corporation may sue a director for failing to prevent
mismanagement of a subsidiary, and that such a claim is direct rather than derivative. Id.
at 96-97. However, General Rubber is contrary to Utah corporate law. See Stone Flood
& Fire Restoration, Inc. v. Safeco Ins. Co. of Am., 268 P.3d 170, 177-78 (Utah 2011)
(holding that a shareholder may bring a direct action only for a “wrong suffered directly
and solely by the shareholder, not derivative of any loss or injury sustained by the
corporation” (quotation omitted)). Utah law is in agreement with that of other
jurisdictions. See, e.g., Beach First, 702 F.3d at 777 (applying South Carolina law);
Pareto, 139 F.3d at 699-700 (applying California law).
Our decision is consistent with the requirement that shareholders not circumvent
5
To the extent that the Eleventh Circuit concluded that this analysis need not be
undertaken with respect to claims asserted against defendants in their capacities as
directors or officers of a holding company, see Lubin, 382 F. App’x at 872, such a
holding is inconsistent with Utah law’s focus on the nature of the injury, see Dansie, 134
P.3d at 1144.
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the interests of creditors and the FDIC. As Judge Hamilton of the Seventh Circuit noted
in his concurrence in Miller:
At the core of the financial crisis of 2008 were policies that allowed
bankers and other financiers to privatize profits but socialize losses. There
are of course powerful reasons for the FDIC and its counterparts . . . to play
their vital roles in socializing losses to protect depositors and stabilize the
economy. Any student of the Great Depression who remembers the runs on
banks can appreciate those roles. . . . The holding company structure and
the direct/derivative dichotomy are being used in ways that could allow
those who ran the banks into the ground to take for themselves some of the
modest sums available to reimburse the FDIC for a portion of the socialized
losses they inflicted.
Miller, 763 F.3d at 674 (Hamilton, J., concurring) (quotation and citation omitted).
Ultimately, even though plaintiffs in this case may not have been to blame for the
losses incurred, they did fail to prevent the officers and directors from incurring the
losses at issue. After the Bank had run aground, these plaintiffs then brought suit to
recover their losses. However, the Bank’s failure imposed losses not only on
sophisticated parties like plaintiffs, who had the ability to inspect the Bank’s records, but
also on ordinary depositors, whom the FDIC is obliged to make whole. See id. at 673-74
(noting that the FDIC incurred “losses . . . to protect depositors from the folly of the
banks and their parent company”).6
At bottom, most of plaintiffs’ claims rest on injuries to the Holding Company that
6
That the FDIC may ultimately decline to pursue litigation as a remedy against the
defendants does not entitle plaintiffs to pursue litigation. See Beach First, 702 F.3d at
780-81. Allowing plaintiffs to pursue claims possessed but not asserted by the FDIC
could interfere with the FDIC’s ability to bring about an orderly disposition of assets by,
for example, impairing its ability to effectively negotiate with the officers and directors.
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are derivative of injuries to the Bank. We affirm the district court’s conclusion that those
claims belong to the FDIC.
B
Plaintiffs allege that a $9 million tax refund was due based on a joint tax return
filed by the Holding Company and the Bank. The operative complaint states that “some
or all” of that refund belongs to the Holding Company and that defendants had a duty to
recover “that portion of the refund that was due to the Holding Company.” The district
court concluded that this claim was unavailing because under the facts alleged, the right
to a refund, if any, belongs to the FDIC. That reasoning is correct.
As the district court explained, a tax refund due from a joint return generally
belongs to the company responsible for the losses that form the basis of the refund. See
W. Dealer Mgmt., Inc. v. England (In re Bob Richards Chrysler-Plymouth Corp.), 473
F.2d 262, 265 (9th Cir. 1973). Plaintiffs did not allege that the Holding Company
possessed any business interests other than the Bank that might have generated losses.
We are directed to a demand letter which was attached to a previous filing claiming that
the Bank is the Holding Company’s “sole asset.” See Gee v. Pacheco, 627 F.3d 1178,
1183 (10th Cir. 2010) (in ruling on a motion to dismiss, a court may consider “documents
referred to in the complaint if the documents are central to the plaintiff’s claim and the
parties do not dispute the documents’ authenticity” (quotation omitted)). If the Bank is
the Holding Company’s sole asset and business operation, the entirety of the refund
belongs to the Bank.
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Plaintiffs counter that companies may agree to alter the default allocation rule by
agreement. See Bob Richards, 473 F.2d at 265. They state that the FDIC’s entitlement to
the refund may depend on whether certain notice requirements have been met. Yet
plaintiffs have not alleged the existence of any agreement to allocate the refund, nor have
they pled that the FDIC failed to comply with the regulations they assert are relevant. In
complaining that the district court improperly resolved the issue of ownership of the tax
refund, plaintiffs forget that they bear “the burden of alleging sufficient facts on which a
recognized legal claim could be based.” Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir.
1991). Plaintiffs must allege “enough facts to state a claim to relief that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). By simply asserting that some portion of a tax refund
might be due to the Holding Company without alleging any factual basis for such
ownership (and in light of other information strongly suggesting the Holding Company
lacks an ownership interest in the refund), plaintiffs “have not nudged their claims across
the line from conceivable to plausible,” and dismissal of their tax refund claim was
therefore appropriate. Twombly, 550 U.S. at 570.
C
Plaintiffs allege that the defendants wasted $265,000 in company funds. The
FDIC asserts no claim to these funds, which were apparently Holding Company property
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rather than bank assets, and thus the claim is not barred by FIRREA. This claim was
dismissed for inadequacy of pleading.
On appeal, plaintiffs argue that we should adopt a more relaxed pleading standard
because information regarding the $265,000 is in the defendants’ sole possession. They
support their argument by referencing two cases from the Second Circuit. See Arista
Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010); Boykin v. KeyCorp, 521 F.3d
202, 215 (2d Cir. 2008). The FDIC and the defendants respond that plaintiffs are
required to meet the heightened pleading standard of Fed. R. Civ. P. 9(b), which applies
when fraud is alleged, and that the complaint in any event fails to meet the ordinary
Iqbal/Twombly pleading standards.
We must reject plaintiffs’ request. “[W]e have noted that the nature and
specificity of the allegations required to state a plausible claim will vary based on
context.” Khalik v. United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012) (quotation
and alteration omitted). But the cases holding that plaintiffs may receive a more relaxed
pleading standard when relevant information is entirely outside their control are
inapplicable here. Unlike Boykin and Arista Records, the facts in question were not
entirely within defendants’ control; plaintiffs were empowered by Utah law to obtain the
relevant information before filing suit. Utah Code § 16-10a-1602 (providing that a
shareholder of a corporation is entitled to inspect corporate records); cf. Burnett v. Mortg.
Elec. Registration Sys., Inc., 706 F.3d 1231, 1240 (10th Cir. 2013) (noting that if plaintiff
who is “well-positioned to know” the facts fails entirely to include details, such failure is
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“fatal to the complaint”).
We need not reach the question: Does plaintiffs’ claim meet the higher Rule 9(b)
pleading standard? That claim fails even under the ordinary Twombly/Iqbal criteria.
Plaintiffs allege that the Holding Company used $265,000 for “potential [Company]
business opportunities.” They further allege that some of these funds were used to pay
for Directors and Officers insurance, and to pay legal fees. But they do not explain how
these common expenditures would constitute an actionable wrong. See Utah Code § 16-
10a-901 to 909 (permitting corporations to indemnify officers and directors, and to
purchase insurance for such individuals). Given plaintiffs’ privileged position and access
to the relevant facts, their allegations are far too conclusory to plausibly state a claim for
relief.
IV
Finally, plaintiffs contend that the district court should have permitted them
another opportunity to amend their complaint. The district court concluded that further
amendment would have been futile. “A proposed amendment is futile if the complaint, as
amended, would be subject to dismissal.” Full Life Hospice, LLC v. Sebelius, 709 F.3d
1012, 1018 (10th Cir. 2013) (quotation omitted). “Although we generally review for
abuse of discretion a district court’s denial of leave to amend a complaint, when this
denial is based on a determination that amendment would be futile, our review for abuse
of discretion includes de novo review of the legal basis for the finding of futility.” Cohen
v. Longshore, 621 F.3d 1311, 1314 (10th Cir. 2010) (quotation omitted).
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Even under the proffered third amended complaint, plaintiffs’ claims for all but
the $265,000 would remain under the ownership and control of the FDIC, as our prior
analysis explains. Plaintiffs’ proposed amendments, which would add a claim for waste
against the officers and directors and seek equitable relief, do not disturb that legal
conclusion.
With respect to the $265,000, plaintiffs offer additional allegations suggesting that
the funds belonged to the Holding Company rather than the Bank. But the proffered third
amended complaint fails to provide any additional support for their conclusory
allegations that those funds were misappropriated. Because plaintiffs’ complaint as
amended fails to state a claim for relief, we affirm the district court’s denial of the motion
to amend.
V
We are not unmoved by the frustration that plaintiffs express as they describe the
collapse of the Barnes Banking Company. And our decision should not be read as
evincing approbation of the conduct allegedly engaged in by its officers and directors,
much less the larger pattern of misconduct exemplified by those alleged actions. The
allegations demonstrate a pattern which, when repeated in many instances, inflicted
severe injury on our financial system and on the many families whose livelihoods were
dependent on that system. See, e.g., Dodge v. Comptroller of the Currency, 744 F.3d
148, 159 (D.C. Cir. 2014) (describing misrepresentation and concealment by bank CEO
that could have injured depositors). But, we uphold the district court’s order because we
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recognize the broad scope of authority afforded the FDIC in dealing with the aftermath of
just such a bank failure. Bank holding company shareholders, concerned about the
potential collapse of a bank, must employ their powers as shareholders to stave off a bank
collapse. When they fail to do so, they cannot then get underfoot and attempt to advance
claims which are inconsistent and interfere with the cleanup efforts properly delegated by
Congress to the FDIC.
AFFIRMED.
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