United States District Court, Eastern District of New York
December 14, 1990
FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER OF GUARDIAN BANK, N.A., PLAINTIFF,
ECKERT SEAMANS CHERIN & MELLOTT, A PENNSYLVANIA PARTNERSHIP, ET AL., DEFENDANTS.
The opinion of the court was delivered by: Mishler, District Judge.
MEMORANDUM OF DECISION AND ORDER
Federal Deposit Insurance Corporation ("FDIC"), as receiver
of Guardian Bank, N.A., moves, pursuant to Fed.R.Civ.P. 12(f),
to strike the Twelfth and Thirteenth Affirmative or Other
Defenses asserted by Eckert Seamans Cherin & Mellott
The Twelfth Affirmative Defense claims a failure on the part
of the FDIC and "its current counsel, to pursue claims against
the OCC, the FDIC, Ginnie Mae, and the Federal National
Mortgage Association ("Fannie Mae") for the losses alleged in
the complaint . . ."
The Thirteenth Affirmative Defense states:
By reason (among others) of its conflict of
interest in acting as receiver of a Bank which as
a regulator it hoped to close, plaintiff FDIC has
failed to marshall all the assets of the
The amended complaint recites the appointment of FDIC as
receiver of the Guardian Bank, N.A. ("bank") on June 21, 1989,
by the Office of the Comptroller of the Currency upon the
determination of the insolvency of the bank. It alleges that on
or about December 14, 1984, the bank retained defendant Robert
C. Zimmer, then a member of the law firm of Lane & Edsen, as
counsel; that subsequently, on or before September 30, 1986,
Zimmer left Lane & Edsen and became a member of the Eckert
firm; that Eckert became and remained as general counsel to the
bank through the date of closing the bank on June 21, 1989.
The amended complaint alleges claims based on a breach of
fiduciary duty, malpractice, fraud, and negligent
misrepresentation. The basis for the claims is that while
acting as counsel for the bank and its subsidiaries "Eckert was
faced with a significant conflict between the interests of the
Bank and the desire of Louis B. Bernstein ("Bernstein"), a
director of the Bank and the owner of approximately 85% of the
Bank's stock, to retain control of the Bank and to continue to
use it as a source of funding for The New York Guardian
Mortgagee Corporation ("NYGMC"), the Bank's mortgage servicing
subsidiary, regardless of the harmful effects on the Bank.
Eckert, while engaged as general counsel to the Bank,
represented Bernstein and other persons and entities with
interests adverse to the Bank. Eckert facilitated and advanced
Bernstein's personal goals by, inter alia, structuring
transactions designed to provide Bernstein with access to
millions of dollars in cash for his personal use, free from the
scrutiny of bank examiners." (¶ 2).
Motion to Strike Pursuant to Rule 12(f)
A motion to strike an affirmative defense pursuant to Rule
12(f) is not favored and will be granted only if it clearly
appears that the plaintiff "`would succeed despite any state of
facts which could be proved in support of the defense.'"
William Z. Salcer, etc. v. Envicon Equities, 744 F.2d 935, 939
(2d Cir. 1984), quoting Durham Industries, Inc. v. North River
Insurance Co., 482 F. Supp. 910, 913 (S.D.N.Y. 1979), quoting
Lehmann Trading Corp. v. J. & H. Stolow, Inc., 184 F. Supp. 21,
22-23 (S.D.N.Y. 1960). Where the defense is insufficient as a
matter of law, the defense should be stricken to eliminate the
delay and unnecessary expense from litigating the invalid
claim. Federal Deposit Ins. Corp. v. Berry, 659 F. Supp. 1475,
1478-79 (E.D.Tenn. 1987); Anchor Hocking Corp. v. Jacksonville
Elec. Authority, 419 F. Supp. 992, 1000 (M.D.Fla. 1976). The
extensive pre-trial discovery available to Eckert in these
affirmative defenses could take many months. The extra cost and
the delay in bringing the case to trial is substantial.
The Dual Capacity of the FDIC
The Federal Deposit Insurance Act (the "Act"), 12 U.S.C. § 1811
et seq., provided that the FDIC "shall insure, as
hereinafter provided, the deposits of all banks . . ." Id. at §
1811. FDIC acts in its corporate capacity as an insurer under
the provisions contained in section 1821 (Permanent Insurance
Fund). The Act also authorized the FDIC to act as a receiver of
insolvent banks pursuant to section 1822. The purpose of
creating the FDIC was to lend stability and confidence in the
national banking system, first by providing depositors with
insurance for payment in the event of a bank's insolvency, and
second by taking custody of a failed bank's assets through
FDIC's authority as a receiver of the failed bank. Congress
thus authorized the FDIC to act in its corporate capacity as
insurer and in a separate capacity as a receiver of a failed
bank. Gunter v. Hutcheson, 674 F.2d 862 (11th Cir.),
cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63, reh'g
denied, 459 U.S. 1059, 103 S.Ct. 477, 74 L.Ed.2d 624 (1982);
First State Bank of Hudson County v. United States,
599 F.2d 558 (3rd Cir. 1979).
In Federal Deposit Ins. Corp. v. Jenkins, 888 F.2d 1537,
1539-40 (11th Cir. 1989), the court discussed the manner in
which the FDIC is authorized to deal with the obligations of
the FDIC in its corporate capacity as insurer and the
alternative as a receiver. The court stated:
When a bank fails, the FDIC will generally be
appointed as a receiver. 12 U.S.C. § 1821(c),
(e) (1982). The FDIC will then proceed to
determine the future course of the failed bank.
The FDIC has two alternatives: (1) a "deposit
payoff" or liquidation where the bank is closed
and the FDIC pays the depositors up to $100,000
per account limit out of the deposit insurance
fund, see 12 U.S.C. § 1821(d) (1982); or (2)
a "purchase and assumption" transaction where the
FDIC arranges for the sale of the failed bank's
assets and deposit liabilities to another solvent
bank. See 12 U.S.C. § 1823(c)(2), (c)(4)(A)
(1982). The failed bank reopens in the solvent
bank's name, and depositors are benefited by
uninterrupted banking service. See Gunter v.
Hutcheson, 674 F.2d 862, 865 (11th Cir. 1982).
The assuming bank has the option to return to the
FDIC in its receiver capacity those assets which
the assuming bank finds to be of limited value.
Id. The FDIC in its "corporate" capacity then
purchases the returned assets from the receiver
FDIC, which transfers the purchase price of the
returned assets to the assuming bank. Id. The
corporate FDIC attempts to collect on the returned
assets, and proceeds from these collections are
applied to replenish the insurance fund.
In Gunter, 674 F.2d at 865, the court observed:
A purchase and assumption involves three entities:
the receiver of the failed bank, the purchasing
bank, and the FDIC as insuror. In most cases, the
FDIC is appointed receiver by the appropriate
banking authority and thus acts in two separate
capacities: as receiver and as corporate insuror.
See FDIC v. Ashley, 585 F.2d 157 (6th Cir. 1978)
FDIC may act simultaneously in both capacities, as it does
when it assigns commercial paper as a receiver to the FDIC as
an insurance corporation. Federal Deposit Ins. Corp. v.
Godshall, 558 F.2d 220
, 223 (4th Cir. 1977).
The Affirmative Defenses
It appears that the Twelfth Affirmative Defense asserts
FDIC's failure to mitigate based on its failure to prosecute
claims against the named governmental agencies after the
authority of NYGMC to service Ginnie Mae and Fannie Mae
mortgages was terminated; a failure that allegedly deprived the
bank of the income derived therefrom. The basis of FDIC's claim
against Eckert for losses due to Eckert's alleged participation
in a fraudulent scheme, resulting in Bernstein's appropriation
of millions of dollars of the bank's funds, is unrelated to a
claim of the improper
exercise of the named governmental agencies' authority.
Further, we find that the assertion of any claim based on
FDIC's conduct in its corporate capacity may not be asserted
against FDIC as a receiver of the bank. In re F & T
Contractors, Inc., 718 F.2d 171 (6th Cir. 1983).
The availability of the affirmative defense of failure to
mitigate damages has not been decided in this Circuit Court of
Appeals. Numerous district court opinions persuade this court
that the defense is unavailable against the FDIC as receiver.
One court, in Federal Sav. and Loan Ins. Corp. v. Burdette,
718 F. Supp. 649, 663 (E.D.Tenn. 1989),*fn1 states the public
policy reasons for denying affirmative offenses as follows:
In cases of the failure of a savings
institution, it is important to the public that
the receiver rapidly and efficiently convert the
assets of that institution to cash to repay the
losses incurred by the insurance fund and the
depositors for deposits not covered. Suits by the
FSLIC as a receiver to recover assets, or to
recover damages for wrongdoing, should not be
encumbered by an examination in court of the
correctness of any specific act of the FSLIC in
its receivership. The rule that there is no duty
owed to the institution or wrongdoers by the
FSLIC/Receiver is simply a means of expressing the
broad public policy that the banking laws creating
the FSLIC and prescribing its duties are directed
to the public good, and that every separate act of
the FSLIC as a receiver in collecting assets is
not open to second guessing in actions to recover
damages from wrongdoing directors and officers. If
there is no wrongdoing by the officer or director,
there can be no liability, but if wrongdoing is
established, the officer or director should not be
allowed to set up as a defense a claim that would
permit the detailed examination of the FSLIC's
action as a receiver.
In striking the affirmative defense of failure to mitigate
damages, the court held:
Whether a duty is owed by the FSLIC to the
defendants in this case or not, the policy against
having the public bear any losses due to errors in
judgment by the FSLIC as a receiver of a failed
institution still applies, and the court's concern
that the jury could be distracted by excessive
evidence concerning the discretionary decisions by
the FSLIC as receiver of Knox [the failed savings
and loan association] will exist as long as the
mitigation defense remains in this case.
Id. at 664.
For cases to the same effect, with FDIC acting in its
corporate capacity, see the following: Federal Deposit Ins.
Corp. v. Baker, 739 F. Supp. 1401 (C.D.Cal. 1990) (affirmative
defenses, inter alia, of failure to mitigate, contributory
negligence, and restrictions and limitations imposed on bank by
governmental agencies, stricken); Federal Deposit Ins. Corp. v.
Greenwood, 719 F. Supp. 749 (C.D.Ill. 1989) (court excluded
affirmative defense that "as to certain loans there existed
sources of repayment"); Federal Deposit Ins. Corp. v. Carlson,
698 F. Supp. 178 (D.Minn. 1988) (defense of failure to maximize
recovery on bad loans rejected); Federal Deposit Ins. Corp. v.
Butcher, 660 F. Supp. 1274 (E.D.Tenn. 1987) (affirmative
defenses, of failure to mitigate, contribution, negligence and
estoppel, stricken); Federal Deposit Ins. Corp. v. Dempster,
637 F. Supp. 362 (E.D.Tenn. 1986) (affirmative defenses of
failure to mitigate, contributory negligence and estoppel,
In Federal Deposit Ins. Corp. v. Harrison, 735 F.2d 408 (11th
Cir. 1984), however, the court held "that FDIC is subject to a
claim of equitable estoppel when it acts in its corporate
capacity to collect a debt acquired from an insolvent bank . .
the same effect, Federal Deposit Ins. Corp. v. Cherry Bekaert &
Holland, 742 F. Supp. 612 (M.D.Fla. 1990), allowed the
affirmative defenses of failure to mitigate damages, and
comparative and/or contributory negligence. The court held
"Here, the FDIC has stepped out of its role as a bank's
receiver seeking to collect on borrower's debts, and instead is
acting in its corporate capacity as an assignee. As the FDIC
concedes, under Florida law an assignee takes the assignment
subject to any defenses the obligor could raise against the
assignor." Id. at 615. See also Federal Deposit Ins. Corp. v.
Carter, 701 F. Supp. 730 (C.D.Cal. 1987) (FDIC in its corporate
capacity asserts claims against former officers and directors
of the failed bank for negligence and breach of fiduciary duty;
affirmative defense claiming that FDIC's loss was the fault of
FDIC, not defendants, survives motion to strike).*fn3
We are cited to no compelling authority permitting the
assertion of an affirmative defense of failure to mitigate
damages in answer to a claim of negligence, breach of fiduciary
relationship and fraud on the part of officers, directors,
We turn to briefly discuss the Thirteenth Affirmative Defense
alleging a conflict of interest in FDIC's dual role as receiver
and regulator. "Section 1823(d) . . . clearly contemplates
transactions between the FDIC as receiver and FDIC as corporate
insuror, stating `receivers or liquidators of insured banks .
. . shall be entitled to offer the assets of such banks for
sale to the Corporation' . . . Finally, we note that other
federal courts have recognized that under the statute the FDIC
may act in a dual capacity [citations omitted]. In
Ashley and Godshall, moreover, the courts held that
transactions between the FDIC as receiver and FDIC as corporate
insurer were bona fide transactions [citations omitted]."
Gunter v. Hutcheson, 674 F.2d at 873-74.
The motion to strike the Twelfth Affirmative Defense and the
Thirteenth Affirmative Defense is granted, and it is