Federal Deposit Insurance v. Cherry, Bekaert & Holland

Citations: 742 F. Supp. 612; 1990 U.S. Dist. LEXIS 7428; 1990 WL 103153Docket: 88-1147-CIV-T-15C

Court: District Court, M.D. Florida; April 18, 1990; Federal District Court

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The Federal Deposit Insurance Corporation (FDIC) is pursuing damages against Cherry, Bekaert, Holland, a partnership of certified public accountants, for alleged negligence in auditing Park Bank, for which the FDIC was appointed receiver in February 1986. The FDIC has filed motions for summary judgment on Cherry Bekaert's third, fourth, and eleventh affirmative defenses. Cherry Bekaert's defenses claim that the FDIC's claims are barred due to comparative and/or contributory negligence, as well as failure to mitigate damages. Cherry Bekaert argues that, as the FDIC in its corporate capacity is an assignee of the FDIC as receiver, it can assert the same defenses against the FDIC, including the alleged negligence of Park Bank's officers and the FDIC's own negligence after assuming control of the bank.

The Court references two Eleventh Circuit precedents to evaluate Cherry Bekaert’s ability to assert these defenses. In FDIC v. Harrison, the court determined that the FDIC acting in its corporate capacity is subject to the same defenses as a private party, allowing defendants to assert equitable estoppel against the FDIC. The case noted that while the FDIC is shielded from certain defenses like fraud from the failed bank, this protection is intended to facilitate the FDIC's acquisition of assets in transactions aimed at stabilizing the banking system. In a subsequent case, FDIC v. Jenkins, the court declined to grant the FDIC absolute priority over other creditors, reinforcing that in normal commercial contexts, the FDIC is not exempt from state law. Thus, the Court is assessing whether Cherry Bekaert can successfully assert its affirmative defenses against the FDIC's claims.

The FDIC asserts in its motion that it has no legal duty to Cherry Bekaert regarding the management of collateral for loans post-receivership, referencing case law from various jurisdictions. The cases cited include FDIC v. Renda, which upheld sovereign immunity against the FDIC's suit; FDIC v. Greenwood, where the FDIC was found not to owe a duty to former bank directors due to public policy concerns; and Vogel v. Grissom, which established the FDIC's discretionary authority in asset disposition, shielding it from contributory negligence claims. Conversely, FDIC v. Carter determined that the FDIC's actions in asset disposal do not align with its public policy role and may be subject to counterclaims and defenses.

While the decisions in Vogel and Carter are distinguishable and non-binding on the current court, the reasoning in Carter is viewed as persuasive. The court aligns with the notion that the FDIC, as a plaintiff, operates in a commercial context similar to other litigants. Therefore, Cherry Bekaert can assert its affirmative defenses against the FDIC. The FDIC's argument for dismissal of these defenses, based on the D'Oench doctrine—which limits borrowers' ability to invoke defenses not documented in loan agreements—does not hold, as the court finds the protections offered by D'Oench to be limited in scope, as reiterated in the Harrison decision.

The FDIC's cited cases generally prevent borrowers from raising affirmative defenses related to alleged oral agreements and fraud by former bank officials, aimed at protecting the FDIC as a receiver. However, the current case involves different defendants and defenses than those previously addressed in the D'Oench progeny cases. The FDIC's position differs here, as it acts as an assignee rather than a bank receiver, and under Florida law, an assignee is subject to defenses that obligors can assert against the assignor. This is supported by case law, allowing Cherry Bekaert to present comparative negligence as a defense against the FDIC. The court refers to Eleventh Circuit rulings, which do not confer special status to the FDIC in its corporate capacity, thus treating it like any other assignee.

The FDIC's motion for summary judgment on Cherry Bekaert's affirmative defense based on the statute of limitations is considered next. The FDIC argues that the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) governs the statute of limitations in this case, specifically citing § 212(a), which outlines longer limitation periods for contract and tort claims. This section indicates that the statute of limitations begins to run from the date the FDIC was appointed receiver or when the cause of action accrued, whichever is later. The FDIC claims that since it was appointed receiver on February 14, 1986, its claims cannot be barred by statute.

In contrast, Cherry Bekaert disputes the applicability of FIRREA, asserting that § 212(a) clearly pertains to the FDIC as receiver, not in its corporate capacity. Cherry Bekaert also contends that § 217(4) does not modify the limitations set by § 212(a) and argues that FIRREA was not intended to apply retroactively to ongoing litigation.

Cherry Bekaert argues that FIRREA's text indicates Congress explicitly specified retroactive application in certain sections, suggesting that it did not intend for the act to apply retroactively in general. This assertion is supported by statements from Representatives Solomon Ortiz and Henry Gonzalez made during Congressional hearings. Ortiz emphasized that the bill aimed to enhance the Federal Insurance Corporation's powers for future receiverships, clarifying that these powers were not meant for cases established before the bill's enactment. Gonzalez reiterated that there was no retroactive language affecting pending litigation regarding banks' claims against FSLIC. The Court agrees that it need not consider whether FIRREA § 212(a) applies to FDIC actions, as it is not convinced Congress intended retroactive application, bolstered by the representatives' comments.

The FDIC contends that even if FIRREA does not apply, its claims are not barred by the statute of limitations under 28 U.S.C. §§ 2415-16. These provisions require contract claims to be filed within six years and tort claims within three years from when the right of action accrues, allowing exclusions for unknown material facts. The FDIC argues its claims did not accrue until it was appointed receiver of Park Bank on February 14, 1986, meaning the statute of limitations for tort actions would not start until February 14, 1989, after this action was filed. While courts generally agree that §§ 2415-16 apply to FDIC claims, there is a split among circuits regarding the accrual timing. The Third and Ninth Circuits assert that accrual occurs upon the FDIC's appointment as receiver, while the Tenth Circuit and D.C. district court suggest it occurs when the claim arises. Although the Eleventh Circuit has not ruled on this, Cherry Bekaert references a Fifth Circuit case that indicated the statute of limitations begins at the loan's default date, regardless of when the government agency acquired the claim. The Court notes that even if it accepts the FDIC's position on accrual, further examination of the issue is necessary.

In FDIC v. Hinkson, the Third Circuit ruled that an FDIC claim accrues upon the FDIC's appointment as receiver and that if a state statute of limitations has expired on a claim, it is not revived by transferring the claim to a federal agency. This decision relied on the Supreme Court's ruling in Guaranty Trust Co. v. United States, which established that the United States does not obtain rights free from pre-existing limitations, including statutes of limitations. The court noted that Florida's statute of limitations for professional malpractice is two years, implying that if a claim had expired under state law prior to the FDIC's appointment, it could not be transferred to the FDIC in its corporate capacity. The FDIC attempted to argue that its regulatory goals should exempt it from state limitations, asserting that a two-year limit would hinder its ability to collect assets and restore the Insurance Fund. However, the court found the Hinkson and Metropolitan Bank rulings persuasive, concluding that the statute of limitations applicable to the FDIC's claims is governed by federal law, and that claims barred by Florida's statute prior to receivership are not revived by the appointment. The court maintained that this conclusion does not obstruct the FDIC's asset acquisition in purchase and assumption transactions, aligning with Eleventh Circuit precedents that justify special protections for the FDIC.

The court has denied the FDIC's motions for summary judgment regarding the defendants' third, fourth, and eleventh affirmative defenses, allowing the defendants to assert these defenses in line with the court's discussions. The FDIC cited remarks by Senator Riegle, emphasizing that the limitations periods in question would enhance recovery for the Federal Government and ensure accountability for losses incurred from failures of insured institutions. The FDIC interpreted these statements as indicative of a legislative intent for retroactive application of the section. The excerpt also references several legal precedents relevant to the case.