-MRW Federal Deposit Insurance Corporation v. Michael Perry, No. 2:2011cv05561 - Document 49 (C.D. Cal. 2012)
Court Description: AMENDED ORDER Denying Defendant's MOTION to Dismiss 18 , 34 by Judge Otis D Wright II. Based on the foregoing, the Court DENIES Defendants Motion to Dismiss in its entirety. Pursuant to 28 U.S.C. § 1292(b), the Court finds the instant or der involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate interlocutory appeal therefrom may materially advance the ultimate termination of the litigation. (sch) Modified on 2/21/2012 (sch).
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-MRW Federal Deposit Insurance Corporation v. Michael Perry Doc. 49 O 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 CENTRAL DISTRICT OF CALIFORNIA 9 WESTERN DIVISION 10 11 12 13 14 15 16 17 Case No. CV 11-5561-ODW (MRWx) FEDERAL DEPOSIT INSURANCE) CORPORATION, AS RECEIVER FOR) ) INDYMAC BANK, F.S.B., ) ) Plaintiff, ) ) v. ) ) MATTHEW PERRY, ) ) Defendant. _______________________________ ) AMENDED ORDER DENYING DEFENDANT’S MOTION TO DISMISS [18] 18 19 I. INTRODUCTION 20 Currently before the Court is Defendant Matthew Perry’s (“Perry” or “Defendant”) 21 Motion to Dismiss Plaintiff Federal Deposit Insurance Corporation (“FDIC”), as Receiver 22 for Indymac Bank, F.S.B.’s (“Plaintiff”) Complaint. (Dkt. No. 18.) After careful 23 consideration, the Court deems the matter appropriate for decision without oral argument. 24 See Fed. R. Civ. P. 78; C. D. Cal. L. R. 7-15. For the following reasons, the Court 25 DENIES Defendant’s Motion. 26 II. FACTUAL BACKGROUND 27 This case arises from Defendant’s actions related to Indymac Bank, F.S.B.’s 28 (“Indymac”) investment in risky residential loans. Specifically, between at least April 1 Dockets.Justia.com 1 and October 2007, Defendant—Indymac’s chief executive office (“CEO”)—is alleged 2 to have negligently permitted the production of a pool of more than $10 billion in risky, 3 residential loans intended for sale into a secondary market. (Compl. ¶ 3.) Due to the 4 volatility of the secondary market, however, Indymac was forced by the fourth quarter 5 of 2007 to transfer the loans into its own investment portfolio. (Id.) Plaintiff alleges that 6 Defendant’s actions, whereby he chose to aggressively gamble by investing in these risky 7 loans, were beyond what a reasonable banker would have done under similar 8 circumstances. (Compl. ¶¶ 3, 97–98.) As a result, the loans that had to be transferred 9 into Indymac’s investment portfolio generated substantial losses in excess of $600 10 million. (Compl. ¶ 3.) On July 11, 2008, Indymac ultimately closed and the FDIC was 11 appointed as its receiver. (Compl. ¶ 13.) 12 Based on the foregoing, Plaintiff brings this action pursuant to 12 U.S.C. 13 § 1821(d)(2) and 12 U.S.C. § 1821(k) alleging that Defendant, as CEO, breached his 14 duties to Indymac and acted negligently in allowing Indymac to continue to generate and 15 purchase loans for sale into the secondary market.1 (Compl. ¶ 97.) As a result of the 16 Defendant’s conduct, Plaintiff alleges that it was damaged in a sum in excess of $600 17 million. (Compl. ¶ 98.) 18 III. LEGAL STANDARD 19 “To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), a 20 complaint generally must satisfy only the minimal notice pleading requirements of Rule 21 8(a)(2).” Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). Rule 8(a)(2) requires “a 22 short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. 23 24 25 26 27 28 1 The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) provides that directors and officers of insured depository institutions may be held liable for money damages brought by the FDIC 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). “[S]tate law sets the standard of conduct as long as the state standard (such as simple negligence) is stricter than that of the federal statute.” Atherton v. FDIC, 519 U.S. 213, 215-16 (1997). Because California’s simple negligence standard is stricter than the gross negligence standard provided for in 12 U.S.C. § 1821(k), California law and its simple negligence standard is applicable for assessing liability under Atherton. FDIC v. Castetter, 184 F.3d 1040, 1043 (9th Cir. 1999). 2 1 R. Civ. P. 8(a)(2). For a complaint to sufficiently state a claim, its “[f]actual allegations 2 must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v. 3 Twombly, 550 U.S. 554, 555 (2007). Mere “labels and conclusions” or a “formulaic 4 recitation of the elements of a cause of action will not do.” Id. Rather, to overcome a 5 12(b)(6) motion, “a complaint must contain sufficient factual matter, accepted as true, to 6 state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 7 1949 (2009) (internal quotation and citation omitted). “The plausibility standard is not 8 akin to a probability requirement, but it asks for more than a sheer possibility that a 9 defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent 10 with a defendant’s liability, it stops short of the line between possibility and plausibility 11 of entitlement of relief.” Id. (internal quotation and citation omitted). When considering a 12(b)(6) motion, a court is generally limited to considering 12 13 materials within the pleadings and must construe “[a]ll factual allegations set forth in the 14 complaint . . . as true and . . . in the light most favorable to [the plaintiff].” See Lee v. 15 City of L.A., 250 F.3d 668, 688 (9th Cir. 2001) (citing Epstein v. Wash. Energy Co., 83 16 F.3d 1136, 1140 (9th Cir. 1996)). A court is not, however, “required to accept as true 17 allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable 18 inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). 19 Thus, the Ninth Circuit has summarized the governing standard, in light of Twombly and 20 Iqbal, as follows: “In sum, for a complaint to survive a motion to dismiss, the non- 21 conclusory factual content, and reasonable inferences from that content, must be plausibly 22 suggestive of a claim entitling the plaintiff to relief.” Moss v. U.S. Secret Serv., 572 F.3d 23 962, 969 (9th Cir. 2009) (internal quotation marks omitted). 24 IV. DISCUSSION 25 The parties dispute as to whether the business judgment rule (“BJR”) protects 26 corporate officers as well as directors from judicial second guessing business decisions 27 made on behalf of the corporation. Specifically, Defendant moves to dismiss Plaintiff’s 28 Complaint arguing that the allegations fail to plead facts sufficient to overcome BJR. In 3 1 making this argument, Defendant contends that California law applies BJR to corporate 2 decision makers including both directors and officers. In addition, Defendant avers that 3 even if BJR does not apply to officers, the Complaint focuses on Indymac’s allegedly 4 flawed core business strategy. Thus, Defendant argues that BJR applies in this case as 5 the allegations implicate Defendant’s performance as a director and not as his role as 6 Indymac’s CEO. In any event, Defendant contends that BJR applies and insulates him 7 from personal liability related to his actions during the alleged time period prior to 8 Indymac’s demise. 9 Plaintiff opposes Defendant’s Motion arguing that BJR does not apply to officers 10 in California. Likewise, Plaintiff contends that Defendant is being sued in his capacity 11 as Indymac’s CEO as opposed to his role as director, and consequently, Plaintiff argues 12 that BJR need not apply. As a result, Plaintiff contends that it was not required to plead 13 around this defense. Moreover, Plaintiff avers that the issue of whether BJR applies to 14 officers is not properly before this Court pursuant to a Rule 12(b)(6) motion. 15 As an initial matter, plaintiffs generally need not anticipate a defense. See Fed. R. 16 Civ. P. 8(b)-(c); see also Gomez v. Toledo, 446 U.S. 635, 640 (1980) (holding the burden 17 of pleading a defense rests with the defendant). Where the complaint’s allegations, 18 however, reveal the existence of an affirmative defense, as Defendant argues here, 19 plaintiffs must plead around the defense, by alleging specific facts that would avoid the 20 apparent defense as Defendant argues. Doe II v. Myspace, Inc., 175 Cal. App. 4th 561, 21 566 (Ct. App. 2009) (citation and quotation omitted). “Absent such allegations, the 22 complaint is subject to demurrer for failure to state a cause of action . . . .” Id. at 566 23 (citation omitted); Berg & Berg Enters., LLC v. Boyle, et al., 178 Cal. App. 4th 1020, 24 1046 (Ct. App. 2009) (“[T]he failure to sufficiently plead facts to rebut the business 25 judgment rule or establish its exceptions may be raised on demurrer, as whether sufficient 26 facts have been so pleaded is a question of law.” (citations omitted)). Thus, 27 if BJR applies to corporate officers under California law, the Complaint must include 28 facts pleading around the defense. The Court holds, however, that Plaintiff was not 4 1 required to plead around BJR because BJR does not apply to corporate decisions of 2 officers in California. 3 At first blush, Defendant’s argument that BJR applies to both corporate directors 4 as well as officers seems viable. Many California courts, when mentioning BJR, have 5 repeatedly lumped officers and directors together without distinction, albeit in dicta. In 6 addition, and not surprisingly, the distinction as to whether BJR applies to both corporate 7 officers and directors has been the subject of much academic debate as the parties in this 8 case suggest. 9 Defendant’s contention. Despite the confusion and debate, the Court must disagree with 10 To begin, common law BJR “has two components—one which immunizes 11 directors from personal liability if they act in accordance with its requirements, and 12 another which insulates from court intervention those management decisions which are 13 made by directors in good faith in what the directors believe is the organization’s best 14 interest.” Berg & Berg Enters., LLC, 178 Cal. App. 4th at 1045 (citations and quotations 15 omitted.) California courts traditionally have applied common law BJR to shield from 16 scrutiny qualifying decisions made by a corporation’s board of directors. See, e.g., 17 Lamden v. La Jolla Shores Clubdominium Homeowners Ass’n, 21 Cal. 4th 249, 259 18 (1999) (emphasis added). Detracting from its traditional application, Defendant proposes 19 that common law BJR apply to corporate officers as well as directors. Defendant’s 20 proposition, however, seems unprecedented as the Court’s research reveals no judicial 21 decision in California applying common law BJR to corporate officers. 22 Rather, one decision by the California Court of Appeal has held that judicial 23 deference afforded under BJR should not apply to interested directors who effectively 24 were acting as officers. Gaillard v. Natomas, Co., 208 Cal. App. 3d 1250, 1265 (Ct. 25 App. 1989) (“[Interested directors] were not ‘perform[ing] the duties of a director’ as 26 specified in section 309, but were acting as officer employees of the corporation. The 27 judicial deference afforded under the business judgment rule therefore should not apply.” 28 (citation and quotations omitted)). The Court of Appeal further articulated that “an 5 1 officer-director might be liable for particular conduct because of his capacity as an 2 officer, whereas the other directors would not. This result is in accord with the premise 3 of the business judgment rule that courts should defer to the business judgment of 4 disinterested directors who presumably are acting in the best interests of the corporation.” 5 Gaillard, 208 Cal. App. 3d at 1265. Still, Defendant contends that the broader “second 6 component” of common law BJR encompassing the general judicial policy of deference 7 to business decisions should apply to officers. The Court, nevertheless, finds that no 8 authority exists supporting such a proposition.2 9 In addition, California’s statutory BJR does not extend its protection to corporate 10 officers. Cal. Corp. Code § 3093 (“§ 309”), which codifies California’s common law 11 BJR, expressly pertain to directors’ duties and liabilities and does not mention “officer” 12 anywhere in its text. Consequently, the California legislature, without mistake, omitted 13 officers in codifying BJR, and this Court cannot infer otherwise. 14 Valverde, 40 Cal. 4th 1121, 1135 n.10 (2007) (Courts are “not to insert what has been 15 omitted, or to omit what has been inserted . . . .”) (citing Cal. Code Civ. Proc. § 1858; 16 Cal. Teachers Ass’n v. Governing Bd. of Rialto Unified Sch. Dist., 14 Cal. 4th 627, 633 17 (1997)). See Troppman v. 18 19 20 21 22 23 24 25 26 27 28 2 Defendant cites cases that do not support his contention that common law BJR applies to corporate officers. See Berg & Berg Enters., 178 Cal. App. 4th at 1045 (applying BJR to a director); Lee v. Interinsurance Exch., 50 Cal. App. 4th 694, 713 (Ct. App. 1996) (same); Biren v. Equality Emergency Med. Group, 102 Cal. App. 2d 663, 676 (Ct. App. 2002) (same); Francis T. v. Village Green Owners Ass’n, 42 Cal. 3d 490, 508-09 (1986) (holding that third party tort claims against corporate directors and officers are governed by the common law “ordinary prudent person” standard); PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1386-87 (Ct. App. 2000) (applying tort and agency principles in determining liability pursuant to third party intentional tort claims); FDIC v. Castetter, 184 F.3d at 1044 (applying BJR to a director). 3 Corporations Code § 309, subdivision (a) provides that “[a] director shall perform the duties of a director . . . in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances.” A director “who performs the duties of a director in accordance with” this subdivision, as well as other subdivisions that permit reliance on information provided by others under certain circumstances not relevant here, “shall have no liability based upon any alleged failure to discharge the person’s obligations as a director.” Cal. Corp. Code § 309(c). 6 1 Likewise, the legislative committee’s comments show that it was the drafters’ 2 intent not to include officers when applying BJR’s standard of care to directors. See San 3 Diego Cnty. Emps. Ret. Ass’n v. Superior Court, 196 Cal. App. 4th 1228, 1237 (Ct. App. 4 2011) (“A court’s overriding purpose in construing a statute is to ascertain legislative 5 intent . . . a court looks first to the words of the statute and gives them their usual and 6 ordinary meaning.”) (citations and quotations omitted); see also Pacific Gas & Elec. Co. 7 v. Workers’ Comp. Appeals Bd., 114 Cal. App. 4th 1174, 1180 (Ct. App. 2004) (“Both 8 the legislative history of the statute and the wider historical circumstances of its 9 enactment may be considered in ascertaining the legislative intent.”) (citation omitted). 10 Specifically, with respect to the standard of care, the legislative comments state, in part: 11 “[I]t is the intent of the draftsmen, by combining the requirement of good faith within the 12 standard of care, to incorporate the familiar concept that, these criteria being satisfied, a 13 director should not be liable for an honest mistake of business judgment.” See Cal. Corp. 14 Code § 309 (Legislative Committee Comment) (quotation omitted). With respect to this 15 standard of care, officers were expressly excluded. See id. (“The standard of care does 16 not include officers.”). The draftsmen reason: “Although a non-director officer may have 17 a duty of care similar to that of a director [ ], his ability to rely on factual information, 18 reports or statements may, depending upon the circumstances of the particular case, be 19 more limited than in the case of a director in view of the greater obligation he may have 20 to be familiar with the affairs of the corporation.” Id. In other words, when the California 21 legislature had the opportunity to codify common law BJR, it purposely excluded its 22 application to corporate officers. 23 In light of the apparent lack of authority and the California legislature’s expressed 24 intent not to include corporate officers in codifying common law BJR, this Court holds 25 that BJR does not protect officers’ corporate decisions. Accordingly, to the extent 26 Defendant argues that Plaintiff’s Complaint should be dismissed for failure to plead 27 around BJR, the Court DENIES Defendant’s Motion. 28 Furthermore, the Court finds unavailing Defendant’s argument that Plaintiff’s 7 1 allegations pertain to Defendant’s capacity as Indymac’s director as opposed to his role 2 as CEO. It is axiomatic that Plaintiff is the master of the Complaint. See, e.g., Lincoln 3 Property Co. v. Roche, 546 U.S. 81, 90 (2005) ( “In general, the plaintiff is the master of 4 the complaint and has the option of naming only those parties the plaintiff chooses to sue, 5 subject only to the rules of joinder [of] necessary parties.” (citation omitted)). Here, 6 Plaintiff alleges sufficiently that Defendant’s conduct and actions were undertaken in his 7 capacity as an officer. Whether Plaintiff can ultimately prove these allegations is not 8 before this Court at this time. Accordingly, to the extent Defendant’s Motion is based on 9 this argument, the Court DENIES Defendant’s Motion. 10 11 12 V. CONCLUSION Based on the foregoing, the Court DENIES Defendant’s Motion to Dismiss in its entirety. 13 Pursuant to 28 U.S.C. § 1292(b), the Court finds the instant order involves a 14 controlling question of law as to which there is substantial ground for difference of 15 opinion and that an immediate interlocutory appeal therefrom may materially advance 16 the ultimate termination of the litigation. 17 18 19 IT IS SO ORDERED. February 21, 2012 20 21 22 23 _________________________________ HON. OTIS D. WRIGHT II UNITED STATES DISTRICT JUDGE 24 25 26 27 28 8
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