VanDellen Motion For Judgment On The Pleadings

Case 2:10-cv-04915-DSF-CW Document 65 Filed 08/22/11 Page 1 of 30 Page ID #:976
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NOSSAMAN LLP THOMAS D. LONG (CA 105987) DAVID GRAELER (CA 197836) DAVID J. FARKAS (CA 203821) 777 S. Figueroa Street, 34th Floor Los Angeles, CA 90017 Telephone: 213.612.7800 Facsimile: 213.612.7801 Email: tlong@nossaman.com dgraeler@nossaman.com dfarkas@nossaman.com Attorneys for Plaintiff Federal Deposit Insurance Corporation, as Receiver for Indymac Bank, F.S.B. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR INDYMAC BANK, F.S.B. Case No: CV 10-4915 DSF (SHx)
PLAINTIFF FEDERAL DEPOSIT INSURANCE CORPORATION, AS Plaintiff, RECEIVER FOR INDYMAC BANK, F.S.B.S NOTICE OF MOTION AND v. MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS AGAINST ALL SCOTT VAN DELLEN, RICHARD KOON, KENNETH SHELLEM, AND DEFENDANTS REGARDING CERTAIN OF THEIR AFFIRMATIVE DEFENSES; WILLIAM ROTHMAN, MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF Defendants.
[Declaration Of Thomas D. Long And Proposed Order Filed Concurrently]
Date: Time: Dept: Judge:

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September 19, 2011 1:30 p.m. Courtroom 840 Hon. Dale S. Fischer
PLAINTIFF FDIC-RS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS AGAINST ALL DEFENDANTS REGARDING CERTAIN OF THEIR AFFIRMATIVE DEFENSES
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TABLE OF CONTENTS Page MEMORANDUM OF POINTS AND AUTHORITIES...................................................1 INTRODUCTION AND SUMMARY OF ARGUMENT ................................................1 ARGUMENT .....................................................................................................................3 I. THIS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS MAY PROPERLY DISPOSE OF DEFENDANTS AFFIRMATIVE DEFENSES...............................................................................3 A. B. II. FDIC-R May Move For Partial Judgment On The Pleadings As To Certain Of Defendants Affirmative Defenses. ...............................3 The Standard For Motions For Judgment On The Pleadings Is Met Here. ....................................................................................................4
THE AFFIRMATIVE DEFENSE OF THE CALIFORNIA BUSINESS JUDGMENT RULE (AND DEFENDANTS RELATED AFFIRMATIVE DEFENSES) ARE NOT AVAILABLE TO OFFICER DEFENDANTS.............................................................................5 A. B. The Business Judgment Rule Applies Only To Directors, Not Officers. ......................................................................................................5 Defendants Other Asserted Defenses Which Merely Restate The Business Judgment Rule Also Do Not Apply To Officers. ................9
III.
DEFENDANTS AFFIRMATIVE DEFENSES OF FAILURE TO MITIGATE, UNCLEAN HANDS AND RATIFICATION, WHETHER BASED ON THE FDICS PRE- OR POST-SEIZURE CONDUCT OR SOME OTHER CONDUCT, MUST FAIL AS A MATTER OF LAW. .............................................................................................10 A. The FDIC, Either In Its Pre-Failure Regulation Or Post-Failure Liquidation Of IndyMac, Has No Duty To Defendants That Could Serve As A Basis For These Affirmative Defenses. .......................10 The Discretionary Function Exception To The Federal Tort Claims Act, Together With FDIC Discretion Under FIRREA, Further Support Granting Partial Judgment On The Pleadings
B.
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As To These Affirmative Defenses. ...........................................................12 1. 2. Defendants Are Precluded From Putting The Discretionary Conduct Of The FDIC On Trial. ...............................12 FIRREA Provides The FDIC As Receiver With Considerable Discretion In Liquidating Failed Institutions. .......................................................................................14 Supreme Court Precedent Confirms The Need To Protect The Congressional Determination To Grant The FDIC Discretion And To Prevent Indirect Attacks On That Discretion. ................................................................................15
3.
C.
Should Defendants Affirmative Defenses Be Based On The Conduct Of IndyMac Prior To Its Seizure By The FDIC, They Too Must Fail As A Matter of Law Because Equitable Defenses That Are Available Against A Failed Bank Are Not Available Against The Receiver.................................................................16
IV.
DEFENDANTS AFFIRMATIVE DEFENSE OF VAGUE AND UNCERTAIN FAILS AS A MATTER OF LAW GIVEN THE PARTICULARIZED FACTS ALLEGED IN THE COMPLAINT.....................17 DEFENDANTS AFFIRMATIVE DEFENSE OF DISCHARGE IN BANKRUPTCY FAILS AS A MATTER OF LAW BECAUSE THE FDICS CLAIMS ARE NOT SUBJECT TO DISCHARGE IN THE INDYMAC BANCORP, INC. BANKRUPTCY PROCEEDING.......................18 DEFENDANTS KOONS AND SHELLEMS AFFIRMATIVE DEFENSE OF RESERVATION OF RIGHTS UNDER FRCP 14 FAILS AS A MATTER OF LAW IN LIGHT OF THIS COURTS RULING DECLINING TO EXTEND THE NOW EXPIRED DEADLINE TO ADD PARTIES. ........................................................................19 CONCLUSION.....................................................................................................20
V.
VI.
VII.
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TABLE OF AUTHORITIES Page(s) Cases Bader v. Anderson, 179 Cal.App.4th 775 (2009).............................................................................................7 Barnes v. State Farm Mutual Auto. Ins. Co., 16 Cal.App.4th 365 (1993)...............................................................................................8 Berg & Berg Enterprises, LLC. v. Boyle, 178 Cal. App.4th 1020 (2009)..........................................................................................7 Biren v. Equal Emergency Med-Grp., Inc., 102 Cal.App.4th 125 (2002).........................................................................................7, 8 Boyle v. United Technologies, 487 U.S. 500 (1988) .................................................................................................15, 16 Curry v. Baca, 497 F.Supp.2d 1128 (C.D. Cal. 2007)..............................................................................3 FDIC v. Baker, 739 F. Supp. 1401 (C.D. Cal. 1990)...............................................................................11 FDIC v. Bierman, 2 F.3d 1424 (7th Cir. 1993) ......................................................................................11, 13 FDIC v. Healey, 991 F. Supp. 53 (D. Conn. 1998) .......................................................................11, 13, 14 FDIC v. Isham, 782 F. Supp. 524 (D. Colo. 1992) ..................................................................................14 FDIC v. Mijalis, 15 F.3d 1314 (5th Cir. 1994)....................................................................................11, 13 FDIC v. OMelveny & Meyers, 61 F.3d 17 (1995) ...........................................................................................................17 FDIC v. Oldenburg, 38 F.3d 1119 (10th Cir. 1994)............................................................................11, 13, 14
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FDIC v. Raffa, 935 F. Supp. 119 (D. Conn. 1995) ...............................................................10, 11, 13, 14 Federal Deposit Insurance Corporation v. Appleton, et al., No. LA CV11-00476 JAK (PLAx) (C.D. Cal. July 25, 2011).........................................7 Federal Deposit Insurance Corporation v. Castetter, 184 F.3d 1040 (9th Cir. 1999)......................................................................................5, 7 Finely v. Superior Court, 80 Cal.App.4th 1152 (2000).............................................................................................7 Fleming v. Pickard, 581 F.3d 922 (9th Cir. 2009)............................................................................................4 Frances T. v. Village Green Owners Assoc., 42 Cal.3d 490 (1986)........................................................................................................7 Gaillard v. Natomas Company, 208 Cal.App.3d 1250 (1989)........................................................................................5, 6 Grant Thornton, LLP v. FDIC, 535 F.Supp.2d 676 (S.D. W. Va. 2007) .........................................................................11 In Re Indymac Bancorp, Inc. No. 2:08-bk-21752-BB (Bankr. C.D. Cal. July 31, 2008) .............................................18 Kruss v. Booth, 185 Cal.App.4th 699 (2010).............................................................................................7 Lamden v. La Jolla Shores Clubdominium Homeowners Assoc., 21 Cal.4th 249 (1999)...................................................................................................7, 8 Lee v. Interinsurance Exchange, 50 Cal.App.4th 694 (1996)...........................................................................................7, 8 Lehman v. Superior Court, 145 Cal.App.4th 109 (2006).............................................................................................7 Moran v. Peralta Community College Dist., 825 F.Supp. 891 (N.D. Cal. 1993)....................................................................................3 Natl Credit Union Admin. Bd. v. Siravo, et al., No. CV-10-1597 (C.D. Cal. December 20, 2010)............................................................7
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O' Melveny & Myers v. FDIC, 512 U.S. 79 (1994) .........................................................................................................16 RTC v. Alshuler, No. 93-992-IEG (LSP) (S.D. Cal. October 16, 1994)....................................................14 RTC v. Dauterive, No. 92-2058-LGB (C.D. Cal. November 14, 1994).......................................................12 RTC v. Edie, 1994 WL 744672 (D. N.J. October 4, 1994)..................................................................11 RTC v. Fleischer, 835 F. Supp. 1318 (D. Kan. 1993) .................................................................................14 RTC v. Gravee, 1995 WL 599056 (N.D. Ill. October 5, 1995)................................................................11 RTC v. Sands, 863 F. Supp. 365 (N.D. Tex. 1994)................................................................................14 RTC v. Tushner, No. 94-152 (C.D. Cal. February 24, 1995) ....................................................................11 RTC v. Williams, 1995 WL 261588 (D. Kan. April 25, 1995) ...................................................................11 RTC v. Youngblood, 807 F.Supp. 765 (N.D. Ga. 1992) ..................................................................................14 Sonista, Inc. v. Hsieh, 2005 U.S. Dist. LEXIS 31397..........................................................................................7 Strigliabotti v. Franklin Resources, Inc., 398 F.Supp.2d 1094 (N.D. Cal. 2005) .............................................................................3 United States v. Gaubert, 499 U.S. 315 (1991) .................................................................................................12, 15 Statutes 11 U.S.C. 727(a)(1).........................................................................................................18 12 U.S.C. 1821(c)(13)(B) ...............................................................................................15
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12 U.S.C. 1821(d)(2)(J)(ii) .......................................................................................10, 15 12 U.S.C. 1821(d)(4).......................................................................................................15 12 U.S.C. 1821(p)(1)(B) .................................................................................................10 12 U.S.C. 1823(d)(13)(D)(ii) ..........................................................................................15 12 U.S.C. 1823(d)(4).......................................................................................................10 28 U.S.C. 2680(a) ...........................................................................................................12 California Corporations Code Section 309.................................................................passim California Corporations Code Section 309(a) .....................................................................9 Other Authorities 1 Douglas M. Bria, et al., Counseling California Corporations 2.83, at 207 (3d ed. 2009)..............................................................................................7 G. Hugh Friedman, California Practice Guide: Corporations 6:245-246, at 6-46 - 46.17 (The Rutter Group 2011)..................................................7 H. Ballantine & G. Sterling, California Corporation Laws 292.06 (2011) ......................7 Legislative Committee Comment (1975) Assembly [Corrected], Wests Ann. Corp. Code foll. 309, p. 150.....................................................................6 Marsh, Cal. Corporation Law (2d ed. 1988) 10.3, p. 576) ...............................................7 Schwarzer, et al., California Practice Guide: Federal Civil Procedure Before Trial, 9:340 (The Rutter Group 1997).....................................................................................3 William W. Schwarzer, A. Wallace Tashima & James M. Wagstaffe, California Practice Guide: Federal Civil Procedure Before Trial, 9:340, 9:341 (The Rutter Group 2007)...........................................................................................................3
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Rules Federal Rule of Civil Procedure 12(b)(6) ............................................................................4 Federal Rule of Civil Procedure 12(c) .........................................................................1, 3, 4 Federal Rule of Civil Procedure 14 ...................................................................................19 Federal Rule of Evidence 201..................................................................................7, 12, 14
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TO ALL DEFENDANTS AND THEIR ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on the above date and time, or at such other date and time ordered by this Court, located at 255 E. Temple Street, Los Angeles, California, 90012, plaintiff Federal Deposit Insurance Corporation, as Receiver for IndyMac Bank, F.S.B. (FDIC-R), will, and hereby does, move for partial judgment on the pleadings against defendants Scott Van Dellen, Richard Koon, Kenneth Shellem, and William Rothman (collectively, defendants) pursuant to Federal Rule of Civil Procedure 12(c) on the grounds that the following affirmative defenses asserted by defendants fail as a matter of law: (1) (2) (3) (4) (5) (6) (7) (8) (9) Rothman);
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Business Judgment Rule (7th Affirmative Defense for defendants Van Dellen Exercise of Duty of Care (6th Affirmative Defense for defendants Van Reliance on Employees (12th Affirmative Defense for defendants Van Dellen Reasonable Grounds (13th Affirmative Defense for defendants Van Dellen Reliance on Experts (14th Affirmative Defense for defendants Van Dellen Good Faith/No Culpable Participation (15th Affirmative Defense for Failure to Mitigate (22nd Affirmative Defense for defendants Van Dellen and Unclean Hands (3rd Affirmative Defense for defendants Van Dellen and Ratification (16th Affirmative Defense for defendants Van Dellen and
and Rothman, and 8th Affirmative Defense for defendants Koon and Shellem); Dellen and Rothman, and 7th Affirmative Defense for defendants Koon and Shellem); and Rothman); and Rothman); and Rothman); defendants Van Dellen and Rothman); Rothman, and 15th Affirmative Defense for defendants Koon and Shellem); Rothman, and 4th Affirmative Defense for defendants Koon and Shellem);
-1PLAINTIFF FDIC-RS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS AGAINST ALL DEFENDANTS REGARDING CERTAIN OF THEIR AFFIRMATIVE DEFENSES
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(10) Vague and Uncertain (2nd Affirmative Defense for defendants Van Dellen and Rothman, and 3rd Affirmative Defense for defendants Koon and Shellem); (11) Discharge in Bankruptcy (4th Affirmative Defense for defendants Van Dellen and Rothman, and 5th Affirmative Defense for defendants Koon and Shellem); and (12) Reservation of Rights Under FRCP 14 (18th Affirmative Defense for defendants Koon and Shellem). This motion is made following the conference of counsel pursuant to L.R. 7-3 which took place on July 22, 2011 and subsequent written communication between and among all counsel. This motion is based upon this Notice of Motion and Motion; the accompanying Memorandum of Points and Authorities; the accompanying Declaration of Thomas D. Long and exhibits attached thereto; the parties pleadings on file in this matter; oral argument that may be presented at the hearing of this motion; and such further matters as this Court may consider. Dated: August 22, 2011 NOSSAMAN LLP THOMAS D. LONG DAVID GRAELER DAVID J. FARKAS
By:
/s/ Thomas D. Long THOMAS D. LONG ATTORNEYS FOR FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR INDYMAC BANK, F.S.B.
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MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION AND SUMMARY OF ARGUMENT Defendants raise various affirmative defenses in each of their respective Answers to the Complaint that fail as a matter of law. As permitted under Federal Rule of Civil Procedure (FRCP or Rule) 12(c), FDIC-R herein seeks to dispose of these defenses to narrow the issues upon which discovery need be sought to prepare for trial, and to conserve this Courts valuable time. Although defendants did not plead facts sufficient to support any of the affirmative defenses subject to this motion, FDIC-R assumes, solely for the sake of this motion, that the facts necessary to support these affirmative defenses have been plead and are true. Defendants each rely on Californias Business Judgment Rule to seek to defeat FDIC-Rs claims. The Business Judgment Rule, as codified in California Corporations Code Section 309, however, only protects the conduct of directors. It does not apply to the conduct of officers like defendants. Indeed, there is not a single case interpreting California law on this topic that applies any form of the Business Judgment Rule to corporate officers. For these reasons, this affirmative defense fails as a matter of law. Defendants each also assert the affirmative defense of the exercise of duty of care, and defendants Van Dellen and Rothman raise the additional affirmative defenses of reliance on employees; reasonable grounds; reliance on experts; and good faith/no culpable participation. Because these defenses each merely restate the Business Judgment Rule, they too must fail as a matter of law. Several of defendants affirmative defenses seek to improperly challenge the FDICs discretionary conduct and judgment in regulating IndyMac Bank, F.S.B. (IndyMac or Bank) and then acting as the Banks receiver. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), however, clearly states that the FDIC owes its duties solely to depositors, creditors, and the public at large, as opposed to defendant officers who are alleged to have contributed to a banks failure.
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Indeed, there is nothing in FIRREA that requires the FDIC to exercise its discretion in a manner that might favor defendants over other interests and policy objectives. This federal no duty rule, together with related authority interpreting the discretionary function exception to the Federal Tort Claims Act (FTCA), precludes defendants from raising their affirmative defenses of failure to mitigate, unclean hands and ratification, which each seek to minimize defendants liability by litigating the FDICs discretionary conduct and judgment. Nor can defendants assert these defenses based on IndyMacs conduct prior to its seizure, because equitable defenses that are available against a bank are not available against the receiver. For all of these reasons, defendants affirmative defenses of failure to mitigate, unclean hands and ratification fail as a matter of law. Finally, defendants assert three additional affirmative defenses that each have no legal basis. First, their defense of vague and uncertain must fail given that each Count in the Complaint identifies in explicit detail the various negligent acts committed by each defendant, putting each defendant on clear notice of the claims against each of them. Further, defendants did not move for a more definite statement of the Complaint under Rule 12(e) when the opportunity to do so existed. Second, as to the affirmative defense of discharge in bankruptcy, defendants have now agreed to abandon this defense, and thus appear willing to submit to this Courts partial judgment against them on this defense. Third, defendants Koon and Shellem no longer have any legal basis to continue to raise their affirmative defense of reservation of rights under FRCP 14, given this Courts denial of their motion to continue the now-expired deadline to add parties to this lawsuit. For all of the reasons described above and herein, FDIC-R respectfully submits that it is entitled to partial judgment against defendants on these affirmative defenses. // // //
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ARGUMENT I. THIS MOTION FOR PARTIAL JUDGMENT ON THE PLEADINGS MAY PROPERLY DISPOSE OF DEFENDANTS AFFIRMATIVE DEFENSES. A. FDIC-R May Move For Partial Judgment On The Pleadings As To Certain Of Defendants Affirmative Defenses. FRCP 12(c) states, in pertinent part, that [a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. Although Rule 12(c) does not specifically authorize a motion for judgment on the pleadings directed to less than the entire complaint or answer, it does not specifically prohibit such a motion. More important, it is the common practice of many courts, including those in the Central District, to permit partial judgment on the pleadings, if appropriate, as to individual causes of action or defenses. Curry v. Baca, 497 F.Supp.2d 1128, 1130-31 (C.D. Cal. 2007) (citing William W. Schwarzer, A. Wallace Tashima & James M. Wagstaffe, California Practice Guide: Federal Civil Procedure Before Trial, 9:340, 9:341 (The Rutter Group 2007)); Strigliabotti v. Franklin Resources, Inc., 398 F.Supp.2d 1094, 1097 (N.D. Cal. 2005) (citing Moran v. Peralta Community College Dist., 825 F.Supp. 891, 893 (N.D. Cal. 1993) and Schwarzer, et al., California Practice Guide: Federal Civil Procedure Before Trial, 9:340 (The Rutter Group 1997) ). As demonstrated below, many of defendants affirmative defenses fail as a matter of law. In order to save the parties needless and considerable time and expense which otherwise would be incurred during discovery and in preparation for trial in September 2012, and to avoid wasting the Courts valuable time, FDIC-R respectfully submits that this motion for partial judgment on the pleadings is the most appropriate mechanism to achieve these important goals. // //
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B.
The Standard For Motions For Judgment On The Pleadings Is Met Here.
The standard applied on a Rule 12(c) motion is essentially the same as that applied on Rule 12(b)(6) motions: judgment on the pleadings is appropriate when, even if all material facts in the pleading under attack are true, the moving party is entitled to judgment as a matter of law. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). As with Rule 12(b)(6) motions, the court must assume the truthfulness of the material facts alleged in the complaint (or answer), and all inferences reasonably drawn from these facts must be construed in favor of the responding party. Ibid. Though defendants included some factual allegations in each of their Answers to the Complaint when responding to FDIC-Rs 68 counts, they did not make any material allegations of fact in support of each of their affirmative defenses. (See Defendant Scott Van Dellens Answer to Complaint; Demand for Jury Trial, filed September 7, 2010 [Document No. 33], at pp. 61-66 (Declaration of Thomas D. Long (Long Decl.), Exh. A); Defendant Richard Koons Answer and Affirmative Defenses, filed August 9, 2010 [Document No. 17], at pp. 59-63 (Long Decl., Exh. B); Defendant Kenneth Shellems Answer and Affirmative Defenses, filed August 9, 2010 [Document No. 18], at pp. 62-66 (Long Decl., Exh. C); and Defendant William Rothmans Answer to Complaint; Demand for Jury Trial, filed September 7, 2010 [Document No. 34], at pp. 59-63 (Long Decl., Exh. D).) Even if they had, however, and even assuming those facts to be true (as well as the other material facts alleged in each Answer), FDIC-R would still be entitled to judgment as a matter of law on the affirmative defenses further discussed below, for all of the reasons discussed herein. // // // //
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II.
THE AFFIRMATIVE DEFENSE OF THE CALIFORNIA BUSINESS JUDGMENT RULE (AND DEFENDANTS RELATED AFFIRMATIVE DEFENSES) ARE NOT AVAILABLE TO OFFICER DEFENDANTS. A. The Business Judgment Rule Applies Only To Directors, Not Officers. Among their many affirmative defenses, defendants assert that the California
Business Judgment Rule insulates them from liability in this case. (See 7th Affirmative Defense (AD) for defendants Van Dellen and Rothman (Long Decl., Exh. A at p. 63, Exh. D at p. 60), and 8th AD for defendants Koon and Shellem (Long Decl., Exh. B at p. 61, Exh. C at p. 63)). The California Legislature codified the Business Judgment Rule in section 309 of the Corporations Code. Gaillard v. Natomas Company, 208 Cal.App.3d 1250, 1264 (1989); Federal Deposit Insurance Corporation v. Castetter, 184 F.3d 1040, 1044 (9th Cir. 1999). Section 309 provides as follows: (a) A director shall perform the duties of a director, including duties as a member of any committee of the board upon which the director may serve, 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. In performing the duties of a director, a director shall be entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (1) One or more officers or employees of the corporation whom the director believes to be reliable and competent in the matters presented. Counsel, independent accountants or other persons as to matters which the director believes to be within such person' s professional or expert competence. A committee of the board upon which the director does not serve, as to matters within its designated authority, which committee the director believes to merit confidence,
(b)
(2)
(3)
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so long as, in any such case, the director acts in good faith, after reasonable inquiry when the need therefor is indicated by the circumstances and without knowledge that would cause such reliance to be unwarranted. (c) A person who performs the duties of a director in accordance with subdivision (a) and (b) shall have no liability based upon any alleged failure to discharge the persons obligations as a director. In addition, the liability of a director for monetary damages may be eliminated or limited in a corporations articles to the extent provided in paragraph (10) of subdivision (a) of Section 204.
As is apparent from the text of the statute, the Business Judgment Rule applies only to corporate directors, however, and not officers like defendants.1 The legislative history of Corporations Code Section 309 expressly notes that "[t]he standard of care does not include officers." Cal. Corp. Code 309, Legislative Committee Comment (1975) Assembly [Corrected], Wests Ann. Corp. Code foll. 309, p. 150. The court of appeal in Gaillard, supra, confirmed that the California Business Judgment Rule did not apply to the officer employees who sought to immunize themselves from liability in that case. Gaillard, supra, 208 Cal.App.3d at 1265. In support of its holding, the Gaillard court also quoted from the authoritative Marshs California Corporation Law: As stated by Marsh in his discussion of section 309: [Section 309, subdivision (a)] does not relate to officers of the corporation, but only to directors . . . . [A]n officer-director might be liable for particular conduct because of his capacity of an officer, whereas the other directors would not. (1 Marsh, op. cit, supra, 10.3, at p. 576). This result is in accord with the premise of the business judgment rule that courts should defer to the business judgment of disinterested directors who presumably are acting in the best interests of the corporation.
1 Each defendant admits in his Answer that he was an officer of the Bank, as opposed to a director. See Van Dellens Answer, 13; Koons Answer, Introduction at p. 1:16-17 and 14; Shellems Answer, Introduction at p. 1:17-18 and 15; and Rothmans Answer, 16 (Long Decl., Exhs. A-D, respectively).
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Gaillard, supra, 208 Cal.App.3d at 1265-66 (citing to 1 Marsh, Cal. Corporation Law (2d ed. 1988) 10.3, p. 576); see also Sonista, Inc. v. Hsieh, 2005 U.S. Dist. LEXIS 31397, at p. 6, fn. 1. (finding that California Corporations Code sections 309 and 310 deal with director, not officer, liability). California courts otherwise have frequently referenced (sometimes in dicta) that the standard of care which section 309 creates is one imposed on directors, as opposed to officers. (See, e.g., Lamden v. La Jolla Shores Clubdominium Homeowners Assoc., 21 Cal.4th 249, 259-60 (1999); Frances T. v. Village Green Owners Assoc., 42 Cal.3d 490, 507-08 (1986); Kruss v. Booth, 185 Cal.App.4th 699, 717-18 (2010); Bader v. Anderson, 179 Cal.App.4th 775, 787-88 (2009); Berg & Berg Enterprises, LLC. v. Boyle, 178 Cal. App.4th 1020, 1045-46 (2009); Lehman v. Superior Court, 145 Cal.App.4th 109, 120 (2006); Finely v. Superior Court, 80 Cal.App.4th 1152, 1157 (2000); Castetter, supra, 184 F.3d at 1045 [California allows non-officer directors to rely upon company employees and advisors without a duty of further inquiry absent special circumstances]; see also 1 Douglas M. Bria, et al., Counseling California Corporations 2.83, at 207 (3d ed. 2009) [discussing application of the Business Judgment Rule to limit liability of directors, not officers]; G. Hugh Friedman, California Practice Guide: Corporations 6:245-246, at 6-46 - 46.17 (The Rutter Group 2011) [same]; H. Ballantine & G. Sterling, California Corporation Laws 292.06 (2011) [same].2 Neither Biren v. Equal Emergency Med-Grp., Inc., 102 Cal.App.4th 125 (2002) nor Lee v. Interinsurance Exchange, 50 Cal.App.4th 694 (1996) compels a different
2 In addition, two recent decisions in the Central District have also found that Californias Business Judgment Rule does not apply to officers. See Natl Credit Union Admin. Bd. v. Siravo, et al., No. CV-10-1597, civil minutes at 10-12 (C.D. Cal. December 20, 2010) (adopted as final decision in civil minutes at 1 (C.D. Cal. January 31, 2011) (Long Decl., Exhs. J and K, respectively); Federal Deposit Insurance Corporation v. Appleton, et al., No. LA CV11-00476 JAK (PLAx), civil minutes at 2 (C.D. Cal. July 25, 2011) (Long Decl., Exh. L). FDIC-R respectfully requests that the Court take judicial notice of these decisions under Federal Rule of Evidence 201.
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result. In Biren, the cross-defendant was both a director and an officer, and the Court of Appeal found that the Business Judgment Rule only insulated the cross-defendants conduct as a director. Biren, 102 Cal.App.4th at 136-138. As to the cross-defendants conduct as the chief financial officer, however, the Court of Appeal upheld the trial courts finding that the cross-defendants conduct in failing to timely pay pension plan contributions was negligent and did not apply the Business Judgment Rule to her conduct as an officer. Id. at 143-44. In Lee, though the Court of Appeal found that notwithstanding Corporations Code Section 309, there is a remaining common law component of the Business Judgment Rule in California, it only discussed that component in connection with decisions made by directors, and not officers. Lee, 50 Cal.App.4th at 714. Other decisions addressing this issue have similarly spoken of a common law component of the Business Judgment Rule only in the context of directors. See, e.g., Barnes v. State Farm Mutual Auto. Ins. Co., 16 Cal.App.4th 365, 378-79 (1993); Lamden, supra, 21 Cal.4th at 259, n.6.3 Good reasons exist as to why the Business Judgment Rule does not apply to corporate officers like defendants. Unlike directors, officers do not need the Business Judgment Rule to induce service. Officers receive higher absolute levels of pay than do directors, and a significant portion of that pay is likely based upon performance. Further, officers stand to reap substantial rewards for taking risks that they are much better able to assess than directors because of their full-time employment by the corporation, extensive knowledge and skill, and considerably greater access to more detailed information
3 When meeting and conferring with counsel for defendants in advance of filing this motion, FDIC-R received an August 9, 2011 e-mail from counsel for defendants Koon and Shellem (Long Decl., Exh. N) about the extraordinary work entailed in performing legal research to respond to FDIC-Rs meet and confer letter of July 25, 2011 related to this motion (Long Decl., Exh. M). This extraordinary legal research led to counsels letter of August 17, 2011 (Long Decl., Exh. O), which cites only to Biren for the mistaken proposition that the Business Judgment Rule applies to officers as well as directors, and which then argues that this federal Court should ignore or change existing California state law that clearly holds otherwise.
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regarding company affairs than directors. On the other hand, directors need liability protections to induce risk taking because their relatively small stockholdings and lack of incentive compensation give them little of the upside gains on investment projects. In sum, this Court should apply existing California law and reject defendants invitation to assume the role of the California Legislature and re-write that law contrary to the Legislatures intent in adopting Corporations Code Section 309. The California Business Judgment Rule is not available to officers such as defendants as a matter of law. B. Defendants Other Asserted Defenses Which Merely Restate The Business Judgment Rule Also Do Not Apply To Officers. In addition to the Business Judgment Rule, defendants each assert an affirmative defense styled as the exercise of duty of care. (See 6th AD for defendants Van Dellen and Rothman (Long Decl., Exh. A at p. 63, Exh. D at p. 60), and 7th AD for defendants Koon and Shellem (Long Decl., Exh. B at p. 61, Exh. C at p 63)). Assuming this defense represents something other than just a restatement of defendants efforts to disprove an element of the FDIC-Rs prima facie case, i.e., the failure to exercise the duty of care (and if it does not, it is not a properly asserted affirmative defense), it would appear to be merely another way to describe Californias Business Judgment Rule, which includes a duty of care component as set forth in Corporations Code Section 309(a). For the reasons articulated above, this affirmative defense also fails as a matter of law. Defendants Van Dellen and Rothman each also raise the following affirmative defenses: 12th AD of Reliance on Employees; 13th AD of Reasonable Grounds; 14th AD of Reliance on Experts; and 15th AD of Good Faith/No Culpable Participation. (Long Decl., Exh. A at p. 64, Exh. D at p. 61). As can be seen from the text of Section 309(b) of the California Corporations Code quoted above, however, which protects directors who rely on information, opinions, reports or statements, . . . prepared or presented by employees of the corporation or experts and who act in good faith, it is apparent each of these defenses simply restates the California Business Judgment Rule.
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Again, because the Business Judgment Rule does not protect officers in California, these affirmative defenses fail as a matter of law. III. DEFENDANTS AFFIRMATIVE DEFENSES OF FAILURE TO MITIGATE, UNCLEAN HANDS AND RATIFICATION, WHETHER BASED ON THE FDICS PRE- OR POST-SEIZURE CONDUCT OR SOME OTHER CONDUCT, MUST FAIL AS A MATTER OF LAW. A. The FDIC, Either In Its Pre-Failure Regulation Or Post-Failure Liquidation Of IndyMac, Has No Duty To Defendants That Could Serve As A Basis For These Affirmative Defenses. FIRREA is one of the principal sources for the FDIC' s duties both as regulator/insurer and as receiver for IndyMac. Through FIRREA, Congress imposed a complex series of statutory policies and objectives that the FDIC must balance and accommodate when regulating an open bank or later marshaling and disposing of the assets of a failed bank. FIRREA specifically grants discretion to the FDIC in implementing those congressional policies. See, e.g., 12 U.S.C. 1823(d)(4): The Corporation, in its discretion, may . . . purchase and liquidate or sell any part of the assets of an insured depository institution which is now or may hereafter be in default. (Emphasis added.) Even more important, FIRREA provides that the FDIC owes its duties solely to depositors, creditors, and the public at large, as opposed to defendant directors and officers who are alleged to have contributed to a financial institution' s failure. See, e.g., 12 U.S.C. 1821(d)(2)(J)(ii) (FDIC must determine the best interests of the depository institution and its depositors); 12 U.S.C. 1821(p)(1)(B) (FDIC is prohibited from selling bank assets to officers or directors of a failed bank); see also FDIC v. Raffa, 935 F. Supp. 119, 123 (D. Conn. 1995) (holding that the FDIC' s "regulatory oversight of banks is intended only to protect depositors, the insurance fund and the public.") Because these statutory duties are inconsistent with the assertion of state law affirmative defenses that seek to put the conduct of the FDIC on trial,
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defendants affirmative defenses of failure to mitigate, unclean hands and ratification4 are barred as a matter of federal law. (See 3rd, 16th, and 22nd ADs for defendants Van Dellen and Rothman (Long Decl., Exh. A at pp. 62 and 65, Exh. D at pp. 59 and 62-63), and 4th and 15th ADs for defendants Koon and Shellem (Long Decl., Exh. B at pp. 60 and 62, Exh. C at pp. 62 and 65)). This well-established "no duty" rule holds that defendant directors and officers of a failed bank are precluded as a matter of law from litigating the discretionary conduct of the FDIC. In the context of suits brought by the FDIC or the Resolution Trust Corporation ("RTC")5, federal courts have rejected efforts by defendants to avoid or mitigate their liability through attacks on the conduct of the FDIC or the RTC. These courts have adopted the "no duty" rule and barred affirmative defenses which seek to litigate the discretionary conduct of the FDIC, both as a regulator before seizure of a bank and in its receivership capacity. FDIC v. Oldenburg, 38 F.3d 1119, 1121-22 (10th Cir. 1994), cert. denied sub. nom., 516 U.S. 861 (1995); FDIC v. Mijalis, 15 F.3d 1314, 132324 (5th Cir. 1994); FDIC v. Bierman, 2 F.3d 1424, 1438-41 (7th Cir. 1993); FDIC v. Baker, 739 F. Supp. 1401, 1407 (C.D. Cal. 1990); FDIC v. Healey, 991 F. Supp. 53, 5562 (D. Conn. 1998); FDIC v. Raffa, supra, 935 F. Supp. 119 at 123-127; Grant Thornton, LLP v. FDIC, 535 F.Supp.2d 676 (S.D. W. Va. 2007); FDIC v. Schreiner, 892 F. Supp. 848 (W.D. Tex. 1995); RTC v. Gravee, 1995 WL 599056, at *2-3 (N.D. Ill. October 5, 1995) (collecting cases); RTC v. Williams, 1995 WL 261588, at *1-2 (D. Kan. April 25, 1995); RTC v. Edie, 1994 WL 744672, at *2-4 (D. N.J. October 4, 1994); RTC v. Tushner, No. 94-152, civil minutes at 2 (C.D. Cal. February 24, 1995) (Long Decl., Exh.
4 Only defendants Van Dellen and Rothman asserted the defense of ratification. The other two defenses have been raised by all defendants. 5 FIRREA provided the RTC the same powers and rights as the FDIC as receiver of a failed financial institution prior to the RTC' s termination of operations on December 31, 1995. 12 U.S.C. 1441a(b)(4)(A).
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E); RTC v. Dauterive, No. 92-2058-LGB, slip op. at 3-5 (C.D. Cal. November 14, 1994) (Long Decl., Exh. F).6 Nowhere does FIRREA call for the FDIC to exercise discretion or judgment in carrying out its responsibilities with respect to IndyMac in a manner that might favor defendants over other interests and policy objectives. Indeed, the imposition of such incongruent duties would substantially impair the FDIC' s ability to execute its statutory mandates. In the instant case, it would severely disserve the substantial federal interests embodied in FIRREA to allow defendants to deflect the focus of this litigation and shift the risk of the damage they have caused back to the public or the Deposit Insurance Fund by way of affirmative defenses which seek to improperly challenge the FDICs discretionary conduct and judgment. Defendants affirmative defenses of the failure to mitigate, unclean hands and ratification thus must fail as a matter of law under the federal no duty rule discussed above. B. The Discretionary Function Exception To The Federal Tort Claims Act, Together With FDIC Discretion Under FIRREA, Further Support Granting Partial Judgment On The Pleadings As To These Affirmative Defenses. 1. Defendants Are Precluded From Putting The Discretionary Conduct Of The FDIC On Trial. In addition to the "no duty" rule, federal court decisions also have cited to the discretionary function exception to the FTCA, 28 U.S.C. 2680(a), to support barring affirmative defenses which seek to attack the FDIC' s discretionary conduct to immunize or minimize the liability of defendants who are alleged to have caused a failed institution to incur substantial losses. In United States v. Gaubert, 499 U.S. 315, 334 (1991), the Supreme Court reviewed the discretionary function exception to the FTCA and held that
6 FDIC-R respectfully requests that the Court take judicial notice of these Central District decisions under Federal Rule of Evidence 201.
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the myriad actions a federal regulatory agency undertakes in supervising federallyinsured financial institutions are discretionary in nature and are sheltered from claims under the FTCA. Federal court decisions post-Gaubert have cited that case and the discretionary function exception to the FTCA to further support the rejection of affirmative defenses by defendants who seek to defeat or lessen their responsibility for loss to a failed institution by attempting to shift blame onto the actions of the FDIC. See, e.g., FDIC v. Bierman, supra, 2 F.3d at 1440-41; FDIC v. Mijalis, supra, 15 F.3d at 1324; FDIC v. Oldenburg, supra, 38 F.3d at 1121; FDIC v. Healey, supra, 991 F. Supp. at 59; FDIC v. Raffa, supra, 935 F. Supp. at 124-125. In FDIC v. Bierman, the Seventh Circuit recognized that "excepting the FDIC from such affirmative defenses is consonant with the purpose of the discretionary function exception to the FTCA." 2 F.3d at 1441. As that court noted, federal banking laws require the FDIC to act decisively in dealing with the complex issues posed by the failure of federally insured depository institutions. In that context, the same policies that prohibit "judicial ` second-guessing' " of agency determinations under the FTCA also bar affirmative defenses challenging FDIC-Rs conduct. Ibid. The Fifth Circuit reached the same conclusion in FDIC v. Mijalis, affirming the district court' s refusal to give a proposed mitigation instruction to the jury or to admit evidence that the defendants contended would demonstrate that the FDIC was the proximate cause of some of the damages claimed against them. 15 F.3d at 1324. After reviewing FDIC v. Bierman and the various rationales articulated by federal district courts in support of their rejection of defendants' efforts to litigate questions related to the conduct of the FDIC, the Fifth Circuit concurred with the "cogent analysis" of FDIC v. Bierman and adopted it as its own. FDIC v. Mijalis, 15 F.3d at 1324. Finally, the Tenth Circuit in FDIC v. Oldenburg again reviewed and affirmed this federal rule, noting that FDIC v. Bierman "recognized that special public policy considerations distinguish banking cases from ordinary tort cases where [defenses of
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contributory negligence and failure to mitigate damages] are normally available." FDIC v. Oldenburg, 38 F.3d at 1121. The Tenth Circuit also agreed that the rule enunciated in FDIC v. Bierman and FDIC v. Mijalis was consistent with the policies of the FTCA and concluded that "the analysis ... expressed in Bierman and other cases is sound, and we see no reason to depart from the majority rule in this case." FDIC v. Oldenburg, 38 F.3d at 1121. In addition to these circuit court decisions, the vast majority of federal district court decisions also apply Gaubert and the discretionary function exception to the FTCA as a further rationale to bar affirmative defenses which seek to litigate the conduct of the FDIC, both as a regulator and a receiver. See, e.g., FDIC v. Raffa, supra, 935 F. Supp. at 124; FDIC v. Healey, supra, 991 F. Supp. at 61; RTC v. Sands, 863 F. Supp. 365, 373374 (N.D. Tex. 1994); RTC v. Fleischer, 835 F. Supp. 1318, 1321-26 (D. Kan. 1993) (collecting cases); RTC v. Youngblood, 807 F.Supp. 765, 771-774 (N.D. Ga. 1992); FDIC v. Isham, 782 F. Supp. 524, 531-532 (D. Colo. 1992); RTC v. Alshuler, No. 93-992-IEG (LSP), slip op. at 3-5 (S.D. Cal. October 16, 1994) (Long Decl., Exh. G).7 Because defendants' affirmative defenses of failure to mitigate, unclean hands and ratification could have the effect of reducing recovery by FDIC-R in this case, this Court should not permit that result for defenses to which FDIC-R clearly would not be subject had the claims been brought directly or as counterclaims. 2. FIRREA Provides The FDIC As Receiver With Considerable Discretion In Liquidating Failed Institutions. Effective implementation and balancing of the congressional policies in FIRREA necessarily require that FDIC-R must exercise considerable discretion in its function as receiver of IndyMac. As cited above in discussing the no duty rule, FIRREA
7 FDIC-R respectfully requests that the Court take judicial notice of this Southern District decision under Federal Rule of Evidence 201. In addition, FDIC-R notes that the Ninth Circuit has yet to render a decision on this issue.
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specifically grants the FDIC-R such discretion. See 12 U.S.C. 1821(d)(2)(J)(ii) (authorizing FDIC to take any action in the best interests of the depository institution and its depositors); 12 U.S.C. 1821(c)(13)(B) (FDIC as receiver of an insured state depository institution may similarly take the same discretionary action); 12 U.S.C. 1821(d)(4) ("The Corporation, in its discretion, may ... purchase and liquidate or sell any part of the assets of an insured depository institution which is now or may hereafter be in default"); and 12 U.S.C. 1823(d)(13)(D)(ii) (generally barring courts from entertaining "any claim relating to any act or omission of ... the Corporation as receiver."). The premise of defendants affirmative defenses of failure to mitigate, unclean hands and ratification is antithetical to the express congressional directive that FDIC-R determine in its discretion how best to effectuate the numerous and often competing policy objectives set out in FIRREA. Choices FDIC-R has made, and continues to make, in striking the appropriate balance with regard to its liquidation of IndyMac and disposition of the loans at issue in this litigation are, by statute, discretionary judgments not subject to defendants' second-guessing in this litigation. 3. Supreme Court Precedent Confirms The Need To Protect The Congressional Determination To Grant The FDIC Discretion And To Prevent Indirect Attacks On That Discretion. Rejecting affirmative defenses under state law that challenge discretionary conduct of the FDIC is essential to protect the substantial federal policies and interests implicated in cases of this kind. Aside from Gaubert, supra, the Supreme Court' s earlier decision in Boyle v. United Technologies, 487 U.S. 500, 511 (1988) recognizes that federal common law rules should be created in appropriate cases to prevent indirect attacks on the kinds of discretionary conduct of government officers that cannot be directly challenged under the FTCA. These Supreme Court authorities provide the foundation for the continued application of the federal rule that prevents defendants in failed bank litigation from advancing affirmative defenses or other legal doctrines that attack the conduct of the
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FDIC. These decisions, together with O' Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994), also reaffirm the basic principle that underlies this extensive body of case law that "judicial creation of a special federal rule would be justified ... where there is a ' significant conflict between some federal policy or interest and the use of state law.' " Ibid. (internal citation omitted).8 As indicated in Boyle, supra, the potential for that "significant conflict" is especially present when the application of state law would permit courts or juries to engage in "second-guessing" judgments that Congress has committed to the discretion of those federal officials to whom it has delegated the duty to weigh and balance various policy considerations. Boyle, 487 U.S. at 511. Accordingly, this Court should follow the majority of federal court decisions precluding affirmative defenses like those raised by defendants that seek to litigate discretionary FDIC conduct that is essential to the effective performance of the many discretionary judgments that Congress has empowered the FDIC to make. C. Should Defendants Affirmative Defenses Be Based On The Conduct Of IndyMac Prior To Its Seizure By The FDIC, They Too Must Fail As A Matter of Law Because Equitable Defenses That Are Available Against A Failed Bank Are Not Available Against The Receiver. To the extent defendants affirmative defenses of failure to mitigate, unclean hands, and ratification are based on IndyMacs conduct, as opposed to that of the FDIC,
8 In O' Melveny, the Supreme Court held that state law establishes whether attorneys sued for malpractice by the FDIC as receiver can raise imputation defenses based on the knowledge of the institution' s former directors and officers. 512 U.S. at 88. The Courts ruling was limited to the pre-takeover conduct of private actors and did not address defenses based on post-takeover conduct, or based on the pre- or post-takeover conduct of public agencies such as the FDIC. Ibid. Most important, OMelveny did not address the conduct of public agencies based directly on the express statutory provisions of FIRREA. The majority of federal court decisions that have analyzed O' Melveny in this context have thus held that it does not affect the application of the "no duty" rule barring affirmative defenses based on the conduct of the FDIC. See cases cited above on page 11 and the top of page 12.
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prior to IndyMacs seizure, these defenses too must fail as a matter of law. The Ninth Circuit held in FDIC v. OMelveny & Meyers, 61 F.3d 17, 19 (1995) that, under California law, equitable defenses that are available against the bank are not available against the receiver. As the court noted, while a party can be denied relief for its own misdeeds, there is little reason to deny relief to an innocent party such as a receiver who steps into the partys shoes by operation of law, and to allow a windfall to the opposing party at the expense of innocent creditors. Ibid. Accordingly, any effort by defendants to argue that the conduct of other IndyMac employees or management somehow can be imputed to the FDIC, the innocent party in this proceeding, to defeat or otherwise minimize FDIC-Rs claims in this lawsuit should be swiftly rejected.9 IV. DEFENDANTS AFFIRMATIVE DEFENSE OF VAGUE AND UNCERTAIN FAILS AS A MATTER OF LAW GIVEN THE PARTICULARIZED FACTS ALLEGED IN THE COMPLAINT. In addition to the affirmative defenses discussed above, defendants also each assert the affirmative defense of vague and uncertain. (See 2nd AD for defendants Van Dellen and Rothman (Long Decl., Exh. A at p. 62, Exh. D at p. 59), and 3rd AD for defendants Koon and Shellem (Long Decl., Exh. B at p. 60, Exh. C at p. 62)). Given the extremely detailed facts alleged in support of each of the 68 Counts in the over 300-page Complaint, however, FDIC-R respectfully submits that there is nothing vague or uncertain about FDIC-Rs claims in this lawsuit. Indeed, each Count in the Complaint painstakingly identifies the various negligent acts committed by each defendant, and as such, puts each defendant on clear and unambiguous notice of the claims against each of them. Moreover, the time to move for a more definite statement of the Complaint has passed under Rule 12(e). The defense of vague and uncertain therefore fails as a matter of law.
9 Though defendants do not assert the affirmative defense of equitable estoppel in their respective Answers, this defense, if ever raised, would nevertheless fail as a matter of law as well, for all of the reasons described in this Section III.
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V.
DEFENDANTS AFFIRMATIVE DEFENSE OF DISCHARGE IN BANKRUPTCY FAILS AS A MATTER OF LAW BECAUSE THE FDICS CLAIMS ARE NOT SUBJECT TO DISCHARGE IN THE INDYMAC BANCORP, INC. BANKRUPTCY PROCEEDING. Defendants each raise the affirmative defense of discharge in bankruptcy and
allege in support of such defense that Plaintiffs claims are barred in whole or in part because any loss is subject to discharge in Indymacs bankruptcy, In Re Indymac Bancorp, Inc. No. 2:08-bk-21752-BB (Bankr. C.D. Cal. July 31, 2008). (See 4th AD for defendants Van Dellen and Rothman (Long Decl., Exh. A at p. 62, Exh. D at p. 59), and 5th AD for defendants Koon and Shellem (Long Decl., Exh. B at p. 60, Exh. C at pp. 6263)). As part of the meet and confer process before filing this motion, defendants recently agreed to abandon this defense,10 and for good reason. First, FDIC-R is pursing claims as receiver for IndyMac Bank, F.S.B., not Indymac Bancorp, Inc (Bancorp). The latters bankruptcy filing and the ongoing proceedings related thereto pending in bankruptcy court do not in any way impinge upon FDIC-Rs unequivocal right under FIRREA and applicable California law to recover damages from defendants for losses sustained within a division of IndyMac Bank, F.S.B. caused by defendants breaches of their fiduciary duty of care and their other negligent acts. Second, even if these losses could in some manner become a part of Bancorps bankruptcy estate, they are not dischargeable under the Bankruptcy Code because Bancorp cannot discharge any debts under relevant bankruptcy law because it is not an individual. 11 U.S.C. 727(a)(1).
10 See Long Decl., Exh. O, and letter of August 18, 2011 from counsel for defendants Van Dellen and Rothman (Long Decl., Exh. P). Though defendants agreed to neither pursue nor rely on this defense, they did not explicitly agree to a partial judgment against them regarding this defense. For this reason, FDIC-R requests that the Court include in its Order a finding that the affirmative defense of discharge in bankruptcy fails as a matter of law.
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In light of the parties agreement that the affirmative defense of discharge in bankruptcy is not available to defendants in this case, this Court should therefore enter partial judgment on the pleadings in favor of FDIC-R and against each defendant on this affirmative defense. VI. DEFENDANTS KOONS AND SHELLEMS AFFIRMATIVE DEFENSE OF RESERVATION OF RIGHTS UNDER FRCP 14 FAILS AS A MATTER OF LAW IN LIGHT OF THIS COURTS RULING DECLINING TO EXTEND THE NOW EXPIRED DEADLINE TO ADD PARTIES. Defendants Koon and Shellem each assert an affirmative defense of Reservation of Rights Under Fed. R. Civ. Proc. 14. (See 17th AD (Long Decl., Exh. B at p. 63, Exh. C at p. 66).) The deadline to add parties to this proceeding, however, expired on June 22, 2011. (See Order Re Jury Trial dated February 28, 2011 [Document No. 47], A (Long Decl., Exh. H).) In addition, this Court denied defendants Koons and Shellems motion to continue this deadline on July 19, 2011. (See Order Denying Motion to Continue Deadline for Adding Parties [Document No. 62] (Long Decl., Exh. I).) Accordingly, defendants Koon and Shellem no longer have any right to add parties to this lawsuit under FRCP 14, rendering their affirmative defense of reserving rights under such Rule null and void. FDIC-R is thus entitled to partial judgment on the pleadings against defendants Koon and Shellem on this affirmative defense. // // // // // // // //
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VII. CONCLUSION. For all of the reasons set forth in this memorandum of points and authorities, FDIC-R respectfully requests that the Court grant this motion for partial judgment on the pleadings and enter partial judgment in favor of FDIC-R and against each defendant as set forth in the Proposed Order filed concurrently herewith. Dated: August 22, 2011 NOSSAMAN LLP THOMAS D. LONG DAVID GRAELER DAVID J. FARKAS
By:
/s/ Thomas D. Long THOMAS D. LONG ATTORNEYS FOR FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER FOR INDYMAC BANK, F.S.B.
410944_2.DOC

VanDellen Motion For Judgment On The Pleadings

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