Opinion
95 Civ. 9281 (NRB)
December 24, 2002
OPINION AND ORDER
Plaintiff Golden Pacific Bancorp ("Bancorp"), for itself and derivatively on behalf of Golden Pacific National Bank ("the Bank"), filed this action against defendant Federal Deposit Insurance Corporation ("FDIC") in both its corporate capacity ("FDIC-C") and in its capacity as receiver of the Bank ("FDIC-R"), asserting claims for (1) unjust enrichment, (2) breach of fiduciary duty, (3) corporate waste, and (4) an accounting, in connection with the defendant's management of the Bank's receivership and liquidation commencing on June 21, 1985. Now pending is defendant's motion, pursuant to Fed.R.Civ.P. 56, for summary judgment on all of these claims.
I. Background
Unless otherwise stated, the facts herein are drawn from the parties' submissions in connection with this motion, including the Memorandum of Law of Defendant Federal Deposit Insurance Corporation in Support of Motion for Summary Judgment ("Def. Memo."), Defendant's Rule 56.1 Statement of Undisputed Material Facts in Support of Motion for Summary Judgment ("Def. Rule 56.1 Statement"), Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment ("Pl. Memo."), and Plaintiff's Statement of Disputed Material Facts in Opposition to Defendant's Motion for Summary Judgment ("Pl. Rule 56.1 Statement").
A. Golden Pacific National Bank and the Receivership
Golden Pacific National Bank was founded in 1977. By 1985, in addition to its principal place of business at 241 Canal Street, in Chinatown, the Bank had three branch offices in the New York metropolitan area. The Bank's President during much of that time was Kuang Hsung (Joseph) Chuang, who was also President, Chairman, and CEO of Bancorp, the holding company for the Bank. Theresa Shieh was Secretary and Treasurer of the Bank and Vice President and Treasurer of Bancorp.
Bancorp's pleadings refer to Dr. Chuang alternately as "Dr. Chuang" and "Mr. Chuang." We will refer to him as Dr. Chuang.
From as early as 1979 until June 1985, the Bank offered its customers high-interest certificates that were called "yellow certificates or yellow CD's" because they were printed on yellow paper. The Bank used the proceeds of these yellow certificates to purchase assets that were not recorded on the Bank's books.
On June 17, 1985, examiners from the Office of the Comptroller of the Currency ("0CC") and the FDIC initiated an investigation into the yellow certificates and the impact of those certificates on the Bank's financial picture. The Bank argued to the examiners that as of June 21, 1985, it had assets in excess of $166 million and liabilities of $157 million. The OCC concluded, however, that when the $15 million in liabilities for the yellow certificates were added to the $157 million in other liabilities, the Bank's liabilities outweighed its assets by about $6 million. On June 21, 1985, the OCC declared the Bank insolvent, closed the Bank, and appointed the FDIC as receiver to liquidate the Bank's assets.
The OCC did not include in this calculation the assets backing the yellow certificates, because those assets, or some portion of those assets, were not held in the Bank's name.
To fulfill its insurance obligations, the FDIC decided to hold an auction inviting other banks, who presumably saw value in acquiring the ongoing relationships with Golden Pacific's depositors, to bid for the right to become the paying agent for Golden Pacific's deposits. When the FDIC held this auction, the Hong Kong and Shanghai Banking Corporation ("HKSB") was the only bidder. Its bid of $6,351,276 won, and on June 26, 1985, five days after the closing of the Bank, the FDIC entered into a Deposit Insurance Transfer and Asset Purchase Agreement with HKSB. As part of this transaction, HKSB also agreed to purchase $61,629,803 of Golden Pacific's assets. Also as part of the transaction, on June 28, the FDIC-C wired $115,697,512 to HKSB as an initial payment to cover the insured deposit liabilities.
Eventually, FDIC-C would expend $146,410,273 to fulfill its insurance obligations. Report of Wayne S. Green, Def. Memo. Exh. 19, at 9.
Bancorp argues that, if the liabilities on the yellow certificates were excluded from the calculation, for much if not all of the period during which the Bank was in receivership, its assets continued to outweigh its liabilities. A balance sheet apparently prepared by the FDIC on June 21, 1985, which apparently did not include the liabilities on the yellow certificates, shows the Bank having $9,138,000 in "Equity Capital and Reserves." Joint Appendix filed in this case with United States Cour't of Appeals for the Second Circuit ("J.A."), 1739. Similarly, a Touche Ross Co. report dated November 22, 1985 includes a September 30, 1985 balance sheet showing an "adjusted equity" of $16,545,483 without the liabilities on the yellow certificates. J.A. at 1744.
During the course of the receivership, the FDIC-R paid to the FDIC-C a total of $11,204,166 in interest denominated by the parties as post-insolvency interest. The FDIC-C asserted this claim to post-insolvency interest because it expended its own funds to fulfill its insurance obligation, and it was thus subrogated to the rights of the insured depositors. The FDIC calculated post-insolvency interest from the date of the expenditure until the date of repayment by FDIC-R at a rate of 9% based on the amount of funds the FDIC-C had paid to insured depositors. Using this method of calculating post-insolvency interest, the FDIC claimed it was owed a total of $23,020,785. The balance beyond the $11,204,166 was not paid to the FDIC because the receivership lacked the funds.
It should be noted that there is no dispute about the repayment by FDIC-R to FDIC-C of the principle amount of the deposits paid by FDIC-C.
The FDIC-C first extended funds to depositors on June 28, 1985, and the FDIC-R finished making its repayments to creditors on January 10, 1990. Report of Wayne S. Green, Def. Memo. Exh. 19, at 8, 14 n. 12.
Following its appointment as receiver, the FDIC-R sued Dr. Chuang, Ms. Shieh, and others to recover funds allegedly diverted from the Bank. Compl. in FDIC v. Chuang, No. 85 Civ. 7468 (SWK) (S.D.N.Y. filed Sept. 20, 1985). The defendants in that suit counterclaimed against the FDIC, asserting breach of contractual and fiduciary duty, misappropriation of funds, loss of business opportunities, and other claims. In May of 1988, Bancorp and the. FDIC settled their respective claims in that suit. Bancorp agreed to pay the FDIC $14,625,000 and acquire certain assets of the receivership in return.
Additionally, in October of 1985, the FDIC-C brought a declaratory judgment action to determine the status of certain transactions entered into by the Bank ("the yellow certificates lawsuit"). Compl. in FDIC v. Holders of Yellow Certificates Nos. 1 Throuoh 367, 85 Civ. 8164 (VLB) (S.D.N.Y. Mar. 4, 1987). Bancorp alleges that the FDIC charged legal expenses in this action to the receivership.
Bancorp challenges other expenses that the FDIC incurred as well as other decisions the FDIC made in the administration of the receivership. First, Bancorp asserts that the FDIC paid excessive interest to holders of the yellow certificates after the closing of the Bank. Supplemental Declaration of Joseph Chuang ("Chuang Supp. Decl."), ¶ 5. Second, Bancorp challenges the FDIC's closing of Dr. Chuang's law office, which was located in the Bank building, for some time during the receivership. As part of the May 1988 settlement agreement between Bancorp and the FDIC, the FDIC credited Bancorp $200,000 to settle Bancorp's claim that the closing of this office was wrongful. Third, Bancorp also complains, that the FDIC failed to pursue a lawsuit against a former employee for embezzlement and check-kiting. Id. at ¶ 7. Fourth, Bancorp alleges the FDIC failed to collect rent when the FBI occupied space in the Bank building. Id. at ¶ 9. Fifth, Bancorp asserts the FDIC repurchased certain assets from HKSB that it was not obligated to repurchase. Id. at ¶ 10.
Finally, we note that Dr. Chuang and Ms. Shieh were convicted on January 18, 1989 on 22 counts relating to the sale of the yellow certificates and misrepresentations to regulatory officials.
B. Procedural Posture
In October of 1995, Bancorp commenced the present action. In May of 1996, the FDIC moved to dismiss the complaint for lack of subject matter jurisdiction pursuant to the Federal Tort Claims Act and the Administrative Procedures Act. In response to that motion, Judge Schwartz ruled that the FDIC's conduct is actionable only to the extent that it decided to proceed with a liquidation of a bank it had learned was solvent, and its actions were "deliberately wasteful and self-serving."Golden Pac. Bancorp v. FDIC, No. 95 Civ. 9281 (AGS) (HBP), 1997 U.S. Dist. LEXIS 15537, at *6 (S.D.N.Y. Oct. 7, 1997) (hereinafter "Golden Pac. Bancorp, Schwartz Opinion"). If it could be proven that the FDIC's action were "deliberately wasteful and self-serving," then they would "not fall into the category of 'the permissible exercise of policy judgment' exempted from judicial review" under the Administrative Procedures, Act. Id. at *7 (quoting Berkovitz v. United States, 486 U.S. 531, 539 (1988)).
On December 15, 1999, after the parties had exchanged discovery, the FDIC moved for summary judgment. The FDIC argued that the action was barred by the 1988 settlement agreement in FDIC v. Chuang and that the statute of limitations for Bancorp's claims had expired. This court found for the FDIC on both grounds. Golden Pac. Bancorp v. FDIC, No. 95 Civ. 9281 (NRB), 2000 U.S. Dist. LEXIS 8240, at *13, *18 (S.D.N.Y. June 15, 2000). The Second Circuit Court of Appeals reversed and remanded, finding that the 1998 agreement covered only claims against the FDIC based on the OCC's closing of the bank, not the FDIC's subsequent management of the receivership, and that the statute of limitations period had not run, because it was tolled by the fiduciary relationship between Bancorp and the FDIC, and because the cause of action accrued when post-insolvency interest was actually paid, not when it began to accrue. Golden Pac. Bancorp v. FDIC, 273 F.3d 509, 516-520 (2d Cir. 2001). We now consider the defendant's arguments that we found unnecessary to reach previously, namely that none of Bancorp's claims can be supported as a matter of law.
II. Discussion
We apply the familiar summary judgment standards. See Golden Pac. Bancorp v. FDIC, 2000 U.S. Dist. LEXIS 8240, at *9-*10.
A. Unjust enrichment
Bancorp claims that the FDIC-C, was unjustly enriched by charging post-insolvency interest to the receivership estate. Pl. Memo. at 15. Bancorp first argues that the FDIC-C was not entitled to interest on its payments to depositors because it did not properly obtain subrogation rights from the Bank's prior creditors. Id. Second, Bancorp appears to argue that, even if the FDIC-C initially had the right to interest, the FDIC should have halted the receivership when it realized a "surplus" was probable, and thus that seeking interest payments that accrued after that point resulted in unjust enrichment to the FDIC. Id. at 18. Third, Bancorp argues that the interest rate the FDIC used was excessive. Id. Fourth, Bancorp argues that the FDIC-C inappropriately charged its own corporate expenses to the receivership estate. First Amended Compl. ("Am. Compl."), ¶ 81.
To recover on a theory of unjust enrichment, "a plaintiff must prove that the defendant was enriched, that such enrichment was at plaintiff's expense, and that the circumstances were such that in equity and good conscience the defendant should return the money or property to the plaintiff." Dolmetta v. Uintah Nat'l Corp., 712 F.2d 15, 20 (2d Cir. 1983).
We deal first with Bancorp's argument that the FDIC did not properly attain its subrogation rights. Specifically, Bancorp asserts: "It is the 'condition precedent' of the bank's insolvency that triggers the FDIC's duty to pay insurance proceeds to the, insured depositors. Accordingly, whether the Bank was solvent at the time the FDIC exercised its duties is a genuine issue of material fact, precluding summary judgment." Id. at 15. In other words, Bancorp contends, if the Bank was not truly insolvent, then the FDIC-C should not have made any payments to insured depositors, and thus was not entitled to be subrogated to the depositors' rights.
We note at the outset that Bancorp's contention that the FDIC needed to redetermine whether a bank was insolvent before paying insured depositors would intrude on the role of the Comptroller of the Currency, who is vested with the responsibility to make such an investigation before a bank is closed. 12 U.S.C. § 191 (1959). Nevertheless, Bancorp argues that the FDIC-C was not permitted to advance funds on the Bank's behalf "unless the bank had an 'inability to meet the demands of its depositors'" Id. at 16.
The D.C. Circuit Court of Appeals has previously ruled that the Comptroller's decision to close the Bank was within the discretionary function exemption of the Federal Tort Claims Act, and thus not reviewable. Golden Pac. Bancorp v. Clarke, 837 F.2d 509, 511-12 (D.C. Cir. 1988). This decision formed the basis for Judge Schwartz's ruling that Bancorp was collaterally estopped in the present action from arguing that the Bank was not insolvent at the time of closure. Golden Pac. Bancorp, Schwartz Opinion, 1997 U.S. Dist. LEXIS 15537, at *7-*8. It would thus appear that Bancorp's suggestion that the FDIC should re-evaluate the solvency of the Bank is an effort to make an end-run around the D.C. Circuit and Judge Schwartz.
Bancorp takes the "inability to meet the demands of depositors" language from that section of the Federal Deposit Insurance Act, as it existed in 1985, that governed the FDIC-C's obligation to make payments to insured depositors. That language read: "Whenever an insured depository institution . . . shall have been closed on account of inability to meet the demands of its depositors, payment of the insured deposits in such bank shall be made by the Corporation as soon as possible, subject to the provisions of subsection(g) of this section. . . ." 12 U.S.C. § 1821(f) (1982). Rather than supporting Bancorp's case, the statutory language undermines it as it makes clear that the FDIC has no discretion in fulfilling its duty to meet the demands of depositors. Rather, the payment to insured depositors is mandatory once a liquidation begins.
Subsection (g) related only to the FDIC's subrogation for the rights of the depositors of the closed bank. 12 U.S.C. § 1821(g) (1982).
Under the statutes in existence at the time of the Bank's closing, a liquidation began when the Comptroller of the Currency became "satisfied of the insolvency of a national banking association." 12 U.S.C. § 191 (1959). At such time, the Comptroller was to "appoint a receiver, who shall proceed to close up such association." Id.
There is, of course, good reason to require the FDIC to pay insured depositors immediately, apart from avoiding duplicating the function of the OCC. When a bank has failed, time is of the essence to maintain confidence in the banking system. see Gunster v. Hutcheson, 674 F.2d 862, 865 (11th Cir. 1982) (noting importance of speed in fulfilling FDIC's insurance obligation in order to promote confidence in banking system). Re-examining the solvency of a bank declared insolvent by the OCC would waste time while potentially fueling investor and consumer unease.
Further, it is clear under the applicable Federal Deposit Insurance Act in existence at the time that once the FDIC-C fulfilled its insurance obligation to depositors, it was subrogated to their rights: "[T]he [FDIC], upon the payment to any depositor as provided in [ 12 U.S.C. § 1821(f)], shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment." 12 U.S.C. § 1821(g) (1982). Here, it is undisputed that the FDIC-C fulfilled its insurance obligation to depositors. Thus, the only remaining question is whether interest payments are among the "rights of the depositor" under the language of 12 U.S.C. § 1821(g) and thus whether the FDIC-C was entitled to interest. We answer this question answer in the affirmative.
The general right of a creditor of a national bank in default to receive post-insolvency interest on principal amounts owed to the creditor was established as far back as 1876, in the case of Nat'l Bank of the Commonwealth v. Mechanics Nat'l Bank, 94 U.S. 437 (1876). There, the Supreme Court held: "The interest lawfully accruing upon each of [the creditors' claims] was as much a part of it as the original debt. The creditor had the same right to the payment of the one as of the other."Id. at 439-40. Though this. case does not deal specifically with the rights the FDIC inherits under the Federal Deposit Insurance Act (as neither were then in existence), it does demonstrate that creditors' rights in a liquidation do include the right to interest.
Subsequent cases, however, do address the rights of the FDIC to interest as subrogee. In First Nat'l Bank in Humboldt, 523 N.W.2d 591 (Iowa 1994), the Supreme Court of Iowa held that the right to post-insolvency interest was one of the rights to which the FDIC-C became entitled when it acted to fulfill its obligation to depositors. Id. at 595. Under such circumstances, the Court concluded, "Congress not only authorized FDIC corporate to recover interest on the use of money from the insurance fund, but in fact made it FDIC corporate's fiduciary duty to do so." Id. Though we recognize that a state court's interpretation of federal law is not binding, Hurwitz v. Sher, 789 F. Supp. 134, 138 (S.D.N.Y. 1992), we nevertheless find the reasoning of the Court in First Nat'l Bank in Humboldt persuasive, and adopt it here.
As that Court noted, the funds that the FDIC advances to fulfill its insurance obligations to depositors come from its bank insurance fund, a fund that is financed by assessments on the deposits of insured banks.First Nat'l Bank in Humboldt, 523 N.W.2d at 594; 12 U.S.C. § 1821(a)(5), 1817(b). The Court continued:
When these insurance funds are not "otherwise employed" in securing the accounts of insured depositors, the [Federal Deposit Insurance Act] requires them to be "invested in obligations of the United States or in obligations guaranteed as to principal and interest by the United States." [12 U.S.C.] § 1823(a)(1). This provision reflects Congress intent that money in the deposit insurance fund bear interest in order to protect the fiscal integrity of the fund. . . . When insurance funds are diverted from investments to finance the liquidation or purchase and assumption of a failed bank, the same concerns for fiscal integrity apply.First Nat'l Bank in Humboldt, 523 N.W.2d at 594-95.
Bancorp attempts to differentiate First Nat'l Bank in Humboldt by arguing that in that case, "post-insolvency interest was recoverable because it was permitted by a contractual arrangement between the parties." Pl. Memo. at 15. However, the contract in First Nat'l Bank in Humboldt that provided for the payment of interest was between the FDIC in its corporate capacity and the FDIC in its capacity as receiver, not between the FDIC and the stockholders of the failed bank. 523 N.W.2d at 593. For the existence of the contract to be relevant, the stockholders would have had to be parties to it. Only then could it be said to have relieved the FDIC of its fiduciary duty. The contract in First Nat'l Bank in Humboldt was simply a necessary measure to govern the application of funds gained from the liquidation of assets that the FDIC-C was acquiring from the FDIC-R. Id. The teaching of the Supreme Court of Iowa — that applying those funds in part to the payment of post-insolvency interest did not violate whatever duties might have existed between the FDIC and the bank's stockholders — is indeed informative in our case.
Moreover, the Eighth Circuit's decision in FDIC v. Citizens State Bank of Niangua, 130 F.2d 102 (8th Cir. 1942), is instructive. In that case, the Commissioner of Finance of the State of Missouri was attempting to distribute "surplus funds to the failed bank's stockholders instead of paying interest to creditors, including the FDIC. Id. at 103. The relevant language of the predecessor of the Federal Deposit Insurance Act, the Federal Reserve Act, was nearly identical to the language at issue here. It stated that the Corporation, 'upon the payment' of any depositor . . ., shall be subrogated to all rights of the depositor against the closed bank to the extent of such payment." 12 U.S.C. § 264(1)(7) (1940). The Commissioner argued that the "to the extent of such payment" language limited the FDIC to recovering only the sum that it had paid out.Citizens Bank of Niangua, 130 F.2d at 103. Rejecting the Commissioner's argument, the Court concluded that the rights attained by the FDIC "obviously include the usual and inherent incident of interest for the period that the bank's obligation for the deposit remains unsatisfied as against the Corporation, if a surplus is available for that purpose." Id. at 104. As in First Nat'l Bank in Humboldt, the Court noted Congress's intent to protect the finances of the insurance fund, observing that "[n]either the kurpose of the [Federal Reserve Act] nor its legislative history evidences any philanthropic intent, in a situation such as this, to allow the use of the [FDIC's] funds to become a source of profit to stockholders of a defaulting bank, at the expense of the [FDIC]." Id. at 104 n. 6.
In light of these decisions, and in view of the importance of maintaining the bank insurance fund, we hold that the FDIC is entitled to the payment of interest on the funds that it extends when it is subrogated to the rights of depositors.
We now consider Bancorp's second claim of unjust enrichment, namely that the FDIC had a duty to halt the liquidation and restore the Bank's assets to the stockholders because it knew or should have known that the Bank's assets outweighed its liabilities. Pl. Memo. at 18. If the FDIC had such a duty, Bancorp argues, then it was unjustly enriched when it continued the liquidation and the payment of interest to itself. Id.
Bancorp asserts that the FDIC's duty is based on the text of the National Banking Act. "[T]here are significant factual issues as to whether the FDIC properly exercised its statutory duty under 12 U.S.C. § 197 to return the assets to the shareholders when a 'surplus' was probable." Pl. Memo. at 18. Bancorp is simply incorrect. Section 197 directs the FDIC to call a shareholders meeting "when . . . there has been paid to each and every creditor of [the bank in receivership] . . . the full amount of such claims, and all expenses of the receivership." § 197(a). At that meeting, the FDIC is required to take steps to transfer any remaining assets back to the stockholders.Id.
The triggering event for a return of the remaining assets to the shareholders never occurred here. While Bancorp disputes the FDIC's entitlement to interest, there is no dispute that at the conclusion of the receivership, $13,264,185 in interest claims were still outstanding against the Bank. Report of Wayne S. Green ("Green Report"), Def. Memo. Exh. 19, at 16 n. 18. Thus, the FDIC, never called the shareholders meeting mentioned in the statute because the claims of all the creditors were never satisfied. For the reasons discussed above, we have already resolved the dispute over the FDIC's legal entitlement to interest in favor of the FDIC. As this second aspect of the FDIC's unjust enrichment claim rests upon the first, we reject it as well.
Thus, we hold that the FDIC-C did not enrich itself unjustly when it paid itself some portion of the interest for the funds it had extended.
Bancorp might argue that this holding violates the law of the case doctrine because it departs from the view of Judge Schwartz in his 1997 opinion in this case. In that opinion, Judge Schwartz wrote that the FDIC's contentions "that it only took interest to which it was statutorily entitled and that it had no duty to maximize shareholder return" did not "answer plaintiff's two main contentions," namely that the FDIC proceeded with a liquidation after learning that the Bank was "solvent," and that the FDIC's management of the liquidation "amounted to wrongful appropriation." Golden Pac. Bancorp, Schwartz Opinion, 1997 U.S. Dist. LEXIS 15537, at *9 There are two responses to this. First, the law of the case doctrine does bind us at this juncture. When the mandate of a higher court is not involved, the doctrine is a purely discretionary one. Perillo v. Johnson, 205 F.3d 775, 780-81 (5th Cir. 2000); United States v. United States Smelting Refining Mining Co., 339 U.S. 186, 199 (1950); 6 James Wm. Moore et al., Moore's Federal Practice § 134.21[1] (Matthew Bender 3d ed.). Second, we do not believe that there is as much of a distinction as Bancorp might have us believe between Judge Schwartz's reading of the law and our own. We must bear in mind that Judge Schwartz was considering Bancorp's arguments at the motion to dismiss stage, and was thus obligated to give full credit to Bancorp's allegations of wasteful and self-serving conduct. With the benefit of a wealth of evidence to which Judge Schwartz did not have access, we have obviously concluded that these allegations are in many instances unfounded.
We address Bancorp's contention that the interest rate the FDIC used was excessive and constituted unjust enrichment. Pl. Memo. at 12, 18. To compute the post-insolvency interest it was owed, the FDIC-C used the New York statutory pipe-judgment interest rate of 9%. Def. Rule 56.1 Statement at ¶ 59; see also N.Y. C.P.L.R. § 5004. However, because the FDIC-C was only paid a portion of the total interest calculation, the effective interest rate it was actually paid was much lower than 9%. Uncontroverted evidence establishes that the effective rate of' interest to the FDIC was 4.3%. Deposition of Gail Verley, Def. Memo. Exh. 18, at 26. Interest of 4.3% is well within the FDIC's cost of funds. The weekly average interest rate on one-year constant maturity Treasury bills from the day the FDIC first expended funds to depositors, June 28, 1985, to the day payments to creditors concluded, January 10, 1990, was 7.42%. Federal Reserve Release: Selected Interest Rates, http://www.federalreserve.gov/releases/h15/data/wf/tcmly.txt (Dec. 11, 2002). Thus, we conclude that the FDIC paid itself interest at a reasonable rate.
Using the 9% rate, the FDIC-C would have been entitled to post-insolvency interest of $23,020,785. Green Report at 14. However, the FDIC-C was only paid $11,204,166. Id. at 16 n. 18.
We have in past decisions explained the relevance of a party's actual cost of funds over fixed state statutory rates. Merchant v. Lymon, 87 Civ. 7199 (BDP) (NRB), 1995 U.S. Dist. LEXIS 4676, at *27 (S.D.N.Y. Apr. 11, 1995); Hollie v. Korean Air Lines Co., 834 F. Supp. 65, 69-71 (S.D.N.Y. 1993). Here, as the. above discussion demonstrates, the effective rate of interest to the FDIC was well below both the FDIC's actual cost of funds and the statutory rate the FDIC chose.
Not only does this rate represent a fair approximation of the FDIC's cost of funds, it is also the federally mandated rate for money judgments. 28 U.S.C. § 1961(a).
In this context, we are mindful of the current posture of the case. When considering whether judicial review of the FDIC's action is precluded by the Administrative Procedures Act, Judge Schwartz held that if the FDIC "conducted [the] liquidation [of the Bank] in a deliberately wasteful and self-serving manner, then those decisions do not fall into the category of 'the permissible exercise of policy judgment' exempted from judicial review" by the Act. Golden Pac. Bancorp, Schwartz Opinion, 1997 U.S. Dist. LEXIS 15537, at *6-*7 (quoting Berkovitz, 486 U.S. at 537 (1988)). Given the significant difference between the effective rate of interest paid to the FDIC-C and the relevant market rates, no reasonable juror could find the interest paid to the FDIC-C to be "deliberately wasteful and self-serving."
Payment of post-insolvency interest is not the sole basis of Bancorp's unjust enrichment claim, however. Bancorp included in its Amended Complaint the allegation that "[t]he FDIC-C . . . passed off corporate expenses to be borne by the receivership estate," and cited as an example $600,000 in legal costs that the FDIC-C incurred in its declaratory judgment action in October 1985 concerning the yellow certificates. Am. Compl. at ¶ 81. The FDIC makes no mention of this aspect of the unjust enrichment claim in the section of its brief dealing with this claim, which is essentially based on the same facts as Bancorp's corporate waste claim. For the reasons discussed infra in Section II.C, we decline to grant summary judgment at this stage of the proceeding on this aspect of this claim.
B. Breach of Fiduciary Duty
Bancorp claims that the FDIC-C violated its fiduciary duty by proceeding with the liquidation of a bank that it knew to be "solvent" and by choosing to fulfill its insurance obligations by entering into a Deposit Insurance Transfer and Asset Purchase Agreement ("DITAPA transaction") with HKSB. Am. Compl., ¶ 88(d), (e), and (h). We have already dealt with Bancorp's contention that the FDIC proceeded with the liquidation of a bank that it knew to be "solvent." See Section II.Asupra. We consider here Bancorp's argument concerning the DITAPA transaction.
In its brief, the FDIC does not address certain aspects of Bancorp's breach of fiduciary duty claim. Bancorp asserts in its complaint that the FDIC-C violated its fiduciary duty by planning the Bank's receivership before the Bank had been declared insolvent and by participating in the pre-closure examination of the Bank in bad faith. Am. Compl., ¶ 88(a)-(c). These aspects of the fiduciary duty claim could only have harmed the Bank if they led to the Comptroller closing the Bank when it was in fact solvent. However, based on Judge Schwartz's opinion in this case, Bancorp is precluded from arguing that the Bank was in fact solvent when it was closed. Golden Pac. Bancorp, Schwartz Opinion, 1997 U.S. Dist. LEXIS 15537, at *7-*8 (citing Golden Pac. Bancorp. v. Clarke, 837 F.2d 509 (D.C. Cir. 1988)). The FDIC has also not addressed specifically Bancorp's arguments that the FDIC-C and FDIC-R were aware that shareholders of the Bank "were eager to re-enter banking" and yet withheld bank assets from them, and that, had the FDIC not aided in the closing of the Bank, it would have benefitted from "members of the Chinese community relocating during the 1990's, for example, as a result of the repatriation of Hong Kong to China." Am. Compl., ¶ 88(f), (g). These components of the claim are essentially already a part of Bancorp's argument that FDIC should have ceased the liquidation of a "solvent" bank. If the FDIC was not required to halt the liquidation because it knew or should have known that the Bank's assets outweighed its liabilities, then it was not required to act on shareholders' particular "eagerness" to re-enter the banking industry, or anticipate any influx of banking business from Chinese immigrants.
We also note here that in its complaint, Bancorp asserts that the FDIC-R owes the Bank's shareholders a fiduciary duty based on its receivership function under the National Bank Act, and that the FDIC-C owes such a duty based on its status as operating head of all FDIC-Rs. Am. Compl. at ¶ 73. The FDIC apparently does not dispute these contentions.
Bancorp argues in its complaint that the "FDIC-C selected the most expensive method of resolution, and the most damaging to the interests of the shareholders, by placing all assets in liquidation while transferring the valuable business of deposit taking and management with HKSB." Am. Compl. at ¶ 88(h).
Under the DITAPA transaction used by the FDIC, the FDIC-C sold to another bank, HKSB, the right to become the paying agent for the insured depositors of Golden Pacific. Def. Rule 56.1 Statement at ¶ 37. As noted earlier, HKSB also agreed to buy many of Golden Pacific's assets. Id. Under this arrangement, HKSB was not assuming any liabilities toward the depositors, but instead acting as paying agent on behalf of the FDIC-C — it presumably saw some potential to develop a longer term relationship with Golden Pacific's customers. Barry S. Zisman Marguerite N. Woung, Superpowers of the FDIC/RTC and Their Availability to Third Parties, 108 Banking L.J. 516 ("Zisman Woung"), 521 (1991). Thus, the FDIC-C fulfilled its insurance obligation by wiring to HKSB the money required to pay the principal amounts of the insured deposits transferred to HKSB. Def. Rule 56.1 Statement at ¶ 38.
Bancorp points to no evidence that a DITAPA transaction is, "the most expensive method of resolution, and the most damaging to the interests of the shareholders." Am. Compl. at ¶ 88(h). Bancorp merely asserts that there are alternatives, including paying depositors directly, and a purchase and assumption transaction. Pl. Memo. at 19 n. 19.
In its Statement of Disputed Material Facts, Bancorp asserts that "[t]he payout method is the most expensive method of a bank liquidation," and points us to the deposition of William R. Watson, the Director of the FDIC's Division of Research and Statistics. Pl. Rule 56.1 Statement at ¶ 11. However, Mr. Watson's deposition does not support this proposition. In the section to which the FDIC points, Mr. Watson states that the "loss rate," the percentage loss generally taken on liquidated assets, for "the typical small bank's" was "something like 25 percent on assets." Watson Deposition, Pl. Memo. Exh. 7, at 62. Mr. Watson appears to have been speaking about loss rates for small banks generally, no matter what the liquidation method used. Bancorp points us to nothing that indicates that Mr. Watson was speaking specifically about losses incurred when the FDIC used a DITAPA transaction to fulfill its insurance obligation. Moreover, even if Mr. Watson's statement did stand for the proposition that the loss rate when DITAPA transactions were used was 25%, Bancorp points us to no evidence that that rate was higher than the resulting rate when other methods were used.
In a purchase and assumption transaction, deposits are transferred to another institution, and that other institution actually assumes liability for the deposits, instead of simply becoming the paying agent. Zisman Woung at 521.
However, the FDIC had discretion to choose the method it believed appropriate to fulfill its insurance obligation. The relevant statute allowed the FDIC to make payment "either (1) by cash or (2) by making available to each depositor a transferred deposit in a new bank in the same community or in another insured depository institution in an amount equal to the insured deposit of such depositor." 12 U.S.C. § 1821(f) (1982). Again, we are conscious of the posture of the case, and we are directed to no evidence suggesting that the FDIC's actions were wrongful, let, alone "deliberately wasteful and self-serving." Golden Pac. Bancorp, Schwartz Opinion, 1997 U.S. Dist. LEXIS 15537, at *6.
Thus, summary judgment on Bancorp's breach of fiduciary duty claim is granted to the FDIC.
C. Corporate Waste
Bancorp also advances a claim for corporate waste. Bancorp first alleges that the FDIC-C's allocation of FDIC expenses to receiverships it manages is arbitrary and not founded on fair and equitable treatment of shareholders in cases where there is solvency in the estates, or reasonably foreseeable solvency." Am. Compl. at ¶ 91. Along these lines, Bancorp specifically attacks the amounts spent on salaries, allocation of overhead, travel, and professional fees as constituting waste. Id. at ¶ 92. Second, Bancorp asserts that waste was committed by the inappropriate payment of post-insolvency interest. Id. Third, Bancorp argues the FDIC-R committed waste by improperly discontinuing a lawsuit against a former employee. Id. at ¶ 93. The FDIC asserts that there is no genuine issue of material fact as to these allegations. Def. Memo. at 19-21.
Under New York law, "the essence of waste is the diversion of corporate assets for improper or unnecessary purposes." Aranoff v. Albanese, 446 N.Y.S.2d 368, 370, 85 A.D.2d 3, 5 (N.Y.App.Div. 1982). We also note that receivers, just like corporate directors, are entitled to the deference of the business judgment rule in their decision-making concerning the management of a corporation, Citibank, N.A. v. Nyland (CF8), Ltd., No. 86 Civ. 9181 (WK), 1990 U.S. Dist. LEXIS 12338, at *8 (S.D.N.Y. Sept. 19, 1990), and that when the FDIC administers a receivership it is also entitled to this deference. Corbin v. Federal Reserve Bank, 475 F. Supp. 1060, 1071 (S.D.N.Y. 1979).
We address seriatim Bancorp's allegations of waste.
(1) Post-Insolvency Interest
Because we have concluded that these payments were legal and appropriate, see Section II.A supra, we grant summary judgment to the FDIC on the issue of whether the payment of post-insolvency interest constituted waste.
(2) Allocation of Expenses
We deal next with the allocation of expenses during the receivership. Here the FDIC points to the absence of support for Bancorp's argument concerning expenses in the deposition testimony of two witnesses for Bancorp: Dr. Chuang and Dr. Warren Heller. Id. at 20-21. When Dr. Chuang was asked whether he had "an understanding as to the allocability of expenses in an insolvent bank," he replied: "I have no any position. I am not in a position to comment on that issue, whether the FDIC have the right or FDIC have discretionary power or how the FDIC [al]locate the liquidation expenses." Def. Memo. Exh. 11, at 404. In further response to the same question, Dr. Chuang said, "That — I'm not authority to — I don't know." Id. Similarly, the deposition of Dr. Warren Heller, Bancorp's expert, was equally vague. Dr. Heller stated that he had no detailed knowledge of the FDIC's method for charging receivership expenses, and no knowledge of whether the FDIC's handling of expenses in the Golden Pacific receivership was any different from its handling of expenses in other receiverships. Def. Memo. Exh. 20, at 261-62.
The FDIC, by pointing to this testimony, or lack thereof, has made a preliminary showing that there is no genuine issue of material fact as to the permissibility of the allocated expenses. This shifts the burden to Bancorp to designate specific facts showing that there is such an issue.Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
Bancorp failed to do so in its brief. In its brief, Bancorp alleges that the FDIC charged "unnecessary and unauthorized expenses" to the receivership estate. Pl. Memo. at 12. However, to support those allegations, Bancorp cites mainly to the First Amended Complaint in this action. Id. at 12-13. A party cannot rely on the complaint to defeat a motion for summary judgment. Champion v. Artuz, 76 F.3d 483, 485 (2d Cir. 1996) (per curiam). Bancorp also points us to the declaration of Joseph Chuang, the former Chairman and President of Golden Pacific. However, with the exception of Dr. Chuang's statement that he is the former Chairman and President of Golden Pacific National Bank, there is nothing in his declaration that is based on personal knowledge or that points to other admissible evidence. Thus, Bancorp's answering papers to the FDIC's motion for summary judgment did not raise a genuine issue of material fact as to expenses.
Bancorp also cites to the FDIC's Statement of Undisputed Material Facts filed in December of 1999 in support of the FDIC's earlier motion for summary judgment in this case. That citation is in support of the following sentence in Bancorp's brief: "Some of these expenses were charged to the receivership estate after January 10, 1990, by which timeall principal claims had been paid in full." Pl. Memo. at 13. However, the section of the FDIC's Rule 56.1 Statement that is relied on does not support this proposition. It states only that interest stopped accruing on the receivership on January 10, 1990, but says nothing concerning whether expenses continued to accrue beyond that date. Defendant's Rule 56.1 Statement of Undisputed Material Facts in Support of Motion for Summary Judgment, December 15, 1999, ¶¶ 65-66.
However, the FDIC, simultaneously with the filing of its reply on its summary judgment motion, filed an additional motion, entitled a "Motion to Strike Affidavits." This motion argued what we concluded above, namely that the declaration of Dr. Chuang ("Chuang Decl.") failed to offer facts that would be admissible into evidence.
The FDIC also moved to have the affirmation of Thomas A. Brooks ("Brooks Affirm.") stricken. Brooks was general counsel to the FDIC from 1981 to 1984. The FDIC's motion concerning the Brooks Affirmation concerns only that portion of the affidavit that discusses the FDIC's handling of the solvency issue. Def. Affidavits Memo. at 4 n. 4. Because we have concluded that the FDIC had no duty to determine the solvency of the Bank before it acted to fulfill its insurance obligations, this portion of the Brooks Affirmation is no longer relevant, and the motion to strike the Brooks Affirmation is denied as moot.
In response to the FDIC's motion to strike affidavits, Bancorp submitted a Supplemental Declaration of Joseph Chuang ("Chuang, Supp. Decl."). This declaration, like the original, is based on Dr. Chuang's attendance at and participation in depositions, and his review of discovery documents and the pleadings in the action. Chuang Supp. Decl., ¶ 1. Thus, it is still not based on personal knowledge. However, it does point to specific pieces of evidence that are in the record, see, infra, that would apparently be admissible at trial, and that could serve to create a genuine issue of material fact. See Santos v. Murdock, 243 F.3d 681, 683 (2d Cir. 2001) ("Affidavits submitted to defeat summary judgment must be admissible themselves or must contain evidence that will be presented in an admissible form at trial.").
Dr. Chuang also claims in the supplemental declaration that it is based on his interaction with officials of the FDIC during the course of the receivership. Chuang Supp. Decl. at ¶ 1. Depending on what he were to allege, this could mean that his statements were based on personal knowledge. However, though the declaration in its first paragraph purports to be based in part on these interactions with FDIC officials while the events in question were taking place, a review of the specific factual allegations in it reveals that it is not. Instead, all of Dr. Chuang's statements are based on depositions, documents produced during discovery, or pleadings. Chuang Supp. Decl. at ¶¶ 2-16.
We note that were it not for the FDIC's Motion to Strike Affidavits, Bancorp would have had no occasion to submit a supplemental declaration. Though this entire procedure — both the motion to strike and the supplemental declaration — is unusual, nonetheless we believe we should be careful not to deny the party opposing summary judgment the chance for a full trial on an issue as to which reasonable triers of fact might disagree. See Whitaker v. Coleman, 115 F.2d 305, 307 (5th Cir. 1940) (noting that summary judgment is "not a catch penny contrivance to take unwary litigants into its toils and deprive them of a trial," and ruling that transcript of trial testimony could defeat summary judgment despite possible defects in its certification and presentation); Wright, Miller Kane, Federal Practice and Procedure § 2738, at 343 (3d ed. 1998) (noting that courts seem to "treat papers of the party opposing [a summary judgment] motion indulgently"). Accordingly, since the supplemental declaration refers to evidence in the record that is relevant to the claim of waste, we deny the FDIC's Motion to Strike Affidavits as to the Chuang declarations, and we proceed to consider that evidence.
a. Legal Fees Incurred in Yellow Certificates Lawsuit
One of the expenses that Bancorp believes amounts to waste is the payment of legal fees in a lawsuit the FDIC brought to determine the status of the yellow certificates. The FDIC brought a declaratory judgment action to determine whether the FDIC was liable for insurance on these securities. In his supplemental declaration, Dr. Chuang points to a letter from Gail Verley, a manager at the FDIC, indicating that the FDIC paid $595,677 in connection with this litigation. J.A. at 56. Having been directed to nothing that would dispute this or justify the expenditure, we decline to grant summary judgment to the FDIC on the issue of whether the payment of at least $595,677 in litigation expenses out of receivership funds constituted waste.
b. Post-Insolvency Interest on Yellow Certificates
Bancorp also asserts that the FDIC's payment of postinsolvency interest on the yellow certificates was excessive. The sole support for this contention is an internal FDIC memorandum indicating that the FDIC-C filed a claim against the FDIC-R for $1,043,086 for the payment of post-closing interest on the yellow certificates. Chuang Supp. Decl. at ¶ 5; Chuang Supp. Decl. Exh. 1. However, Bancorp has failed to offer any more specific information about this payment, such as the interest rate used to determine it, nor has Bancorp offered any reason why this amount might possibly be "excessive." This bald allegation does not suffice to create a genuine issue of material fact, and summary judgment is hence granted to the FDIC on this issue.
c. $200,000 Credit to Dr. Chuang
Bancorp asserts as part of its waste claim that the FDIC "had to payoff . . . claims caused by its own misconduct." Pl. Memo. at 20. This assertion derives from the settlement agreement reached. in 1988 between Dr. Chuang, Bancorp, and the FDIC to resolve claims in FDIC v. Chuang, No. 85 Civ. 7468 (SWK). In that agreement, Bancorp agreed to pay the FDIC $14,625,000 and to acquire certain assets of the receivership. Id., 2, 26-33. In the same agreement, the FDIC agreed to give Dr. Chuang a $200,000 credit to settle his claim against the FDIC for closing down Dr. Chuang's law office, which was located in the Golden Pacific building. Chuang Supp. Decl. at ¶ 6; Chuang Supp. Decl. Exh. 2. Bancorp's argument must be placed in perspective: the net effect of the $200,000 credit is that the amount the FDIC received was reduced by 1.3%. This resolution of a burdensome litigation, which facilitated a large cash infusion to the receivership, and enabled the FDIC to further the process of liquidating the Bank's assets cannot meaningfully be described as wasteful. Moreover, as far as the actual handling of Dr. Chuang's office is concerned, absent other evidence, it strikes us as reasonable to limit the access of the former Chairman and President of a failed bank to his offices in the Bank building while that bank was in a state of receivership. Thus, we conclude that the credit, especially when viewed as a tiny percentage of an overall favorable settlement, was within the reasonable business judgment of the FDIC. Summary judgment is granti to the FDIC on this issue.
d. Failure to Pursue a Claim
Bancorp asserts as part of its waste claim that the FDIC "failed to pursue some claims." Pl. Memo. at 20. The Chuang Supplemental Declaration's somewhat more specific, claiming the FDIC "admitted" in its Memorandum of Law in Support of its First Motion for Summary Judgment, dated December 15, 1999, that it did not pursue a suit for embezzlement and check-kiting against a former employee of the Bank. Chuang Supp. Decl. at ¶ 7. Again, we are pointed to no specific information concerning why this litigation was worth pursuing, and again, Bancorp has failed at this late stage of the case to raise a genuine issue of material fact as to whether the FDIC's decision was not reasonably within the FDIC's business judgment. Thus, the FDIC is granted summary judgment on this claim as well.
e. Alleged Failure to Collect Rent
Bancorp's next claim, that the FDIC "failed to collect rent," Pl. Memo. at 20, is similarly unsupported in Bancorp's brief. The Chuang Supplemental Declaration's effort to fill the void is unavailing. Although the declaration refers to the deposition of the FDIC's closing manager, George M. Herger, and claims Mr. Herger "admitted . . . that the Receiver did not charge FBI rent for use of the bank's premises, and that was wrong," Chuang Supp, Decl. at ¶ 9, Bancorp overstates Mr. Herger's actual testimony. Mr. Herger states that the FDIC giving the FBI space without charging rent "wouldn't be appropriate," but offers no evidence to support Bancorp's claim that this is what happened. Deposition of George Herger, Chuang Supp. Decl. Exh. 3, at 102. In fact, Mr. Herger states specifically that he doesn't recall "being involved in any lease or renting of any space to the FBI." Id. Thus, summary judgment on this issue is granted to the FDIC.
f. Repurchase of Loan Assets from HKSB
In the supplemental declaration Bancorp also asserts that the FDIC-R unnecessarily repurchased from HKSB loan assets that HKSB had originally purchased from the FDIC-R as part of the DITAPA transaction. Chuang Supp. Decl. at ¶ 10. To support this allegation, Bancorp points to a letter from Robert M. Cittadino, an FDIC manager, to Mr. N.P. Snaith at HKSB, dated Feb. 18, 1986. Id. Cittadino Letter, Chuang Supp. Decl. Exh. 4. In that letter, Mr. Cittadino responds to a request by HKSB that the FDIC repurchase assets totaling $826,355. Though the FDIC in the letter declines to repurchase the assets in question, the FDIC does recite a partial history of the loan repurchase transactions between the FDIC and HKSB. According to the letter, under the terms of the DITAPA transaction, which was entered into on June 26, 1985, HKSB had "sixty (60) days in which to notify the FDIC of any loans" it wished to have repurchased. Within the sixty-day period, HKSB had asked to have the FDIC repurchase all of the loans, but the FDIC had apparently only agreed to repurchase a portion of the loans at that time. However, the FDIC did make a second repurchase of assets on October 29, 1985. Although the letter does not specify the value of the assets involved in either the first or the second repurchase, which was outside the sixty-day limit, it does state that the total amount of loans repurchased in both transactions was "$7.3 million of the $11.8 million in loans your organization originally purchased as part of this transaction."
The FDIC has not responded either factually or legally to this aspect of the waste claim. Thus, the FDIC's application for summary judgment must be denied as to this issue.
However, as we have noted, Bancorp's initial papers in opposition to the FDIC's motion for summary judgment were insufficient to raise genuine issues on any claim of waste. Nonetheless, Bancorp took advantage of the FDIC's cross-motion to strike the affidavit of Dr. Chuang to supplement Dr. Chuang's affidavit. Based on the supplementation and limited response of the FDIC, we find that the FDIC has not met its burden as to certain issues on its motion for summary judgment. Under these circumstances, the FDIC is granted leave to renew its motion for summary judgment on any of the remaining issues. If the FDIC decides to renew its motion for summary judgment, it should inform us within two weeks of the issuance of this opinion and a prompt briefing schedule will be set.
To summarize our disposition of the waste claim, the FDIC is granted summary judgment on all aspects of Bancorp's claim for corporate waste, except for 1) Bancorp's argument concerning the, allocation of the expenses in the yellow certificates lawsuit, and 2) Bancorp's argument concerning the repurchase of loan and/or other assets from HKSB. D. Accounting
As we note, the factual basis of Bancorp's claim of corporate waste is essentially the same as the factual basis of one aspect of Bancorp's unjust enrichment claim. See Section II.A supra. To the extent that Bancorp's claims of unjust enrichment and corporate waste overlap, we reach the same decision on each.
The FDIC argues that it is entitled to summary judgment on Bancorp's claim for an accounting. We agree. Given our decision that the FDIC had no duty to re-evaluate the Bank's solvency before it fulfilled its insurance obligation, and given the significant discovery completed to date, an accounting is simply not appropriate.
There are two meanings of the term "accounting" that could conceivably be applicable here. One version of an accounting, also known as an accounting for profits, is a remedy designed to avoid unjust enrichment by forcing the defendant to pay restitution for its ill-gotten gains. Dobbs, Law of Remedies, § 4.3(5), at 608 (2d ed. 1993). An accounting for profits is an appropriate and highly useful remedy when a fiduciary has engaged in wrongdoing that has yielded "profits produced by property which in equity and good conscience belonged to the plaintiff," id., and imposes on the defendant the burden of accounting for and disgorging all gains, improperly attained. Dobbs, supra, § 4.3(5), at 610; see Newby v. Enron Corp., 188 F. Supp.2d 684, 706 (S.D.Tex. 2002).
The alternative meaning of an "accounting" that Bancorp could be invoking is "in effect hardly more than a discovery order" a procedure that existed historically, "originating in equity at a time when discovery was not generally available otherwise." Dobbs, supra, § 4.3(5), at 610. Under this form of accounting, the defendant was compelled to produce books or other data once a prima facie case had been made out. Id.
It is not clear which type of accounting Bancorp seeks here. In its complaint, Bancorp cites what it deems are "questionable expenses and practices," and demands "an accounting of this receivership estate to determine the true measure of self-dealing and arbitrary financial arrangements arrived at between the FDIC-R and the FDIC-C." Am. Compl. at ¶ 95. Its brief on the issue states that "an accounting should be made by Bancorp's fiduciary." Pl. Memo. at 20. This language seems to indicate a request for an accounting for profits. However, the complaint also claims "that the FDIC's responses to date to critical issues is woefully lacking," Am. Compl. at ¶ 96, and Bancorp's brief notes the "complexity of the exorbitant expenses incurred or charged to the estate." Pl. Memo. at 20. This would seem to indicate that Bancorp desires an order for an accounting as a discovery tool. Because Bancorp has not specified which type of accounting it, seeks, we consider whether it is entitled to an accounting under either meaning.
To order an accounting for profits requires a conclusion that fundamentally the FDIC's management of the receivership was wrongful, i.e., accepting Bancorp's argument concerning solvency: that the FDIC had a duty to re-examine the solvency of the receivership and to terminate the receivership if it concluded that the receivership's assets outweighed its liabilities. However, we have rejected Bancorp's argument concerning a duty to re-evaluate solvency. See Section II.A supra. Thus, there is no basis for ordering an accounting for profits.
The historical type of accounting as a discovery device does not appear to be used often in modern cases, perhaps because the need for such a tool has been obviated by the discovery procedures that have emerged. See Dobbs, supra, § 4.3(5), at 610 ("In the light of extensive modern discovery, this kind of accounting [as a discovery tool] probably has little or no use today.").
Indeed, use of an accounting in lieu of discovery is disfavored.Arrowroot Natural Pharmacy v. Standard Homeopathic Co., Civ. No. 96-3934, 1998 U.S. Dist. LEXIS 1327, at *33 (E.D.Pa. Feb. 10, 1998) ("An accounting request is not a substitute for plaintiffs' obligation to establish their damages through discovery.").
In the case at bar, there is no reason to conclude that there has been a breakdown in the discovery process that would justify an accounting for discovery purposes. We assume that Bancorp has requested the documents it thought relevant and in the absence of a motion to compel we further assume that the FDIC has fulfilled its discovery obligations. Certainly, there is every indication that discovery has been exhaustive. The evidence submitted on this motion totals more than 6,000 pages, and includes excerpts from fifteen depositions, two affirmations, seven affidavits, three declarations, and one sworn statement, as well as two expert reports. More specifically, the record includes a report prepared by the FDIC's expert, Wayne S. Green, which is itself a detailed accounting of the finances of the receivership. In light of this, a demand for an accounting as a form of discovery, if that is what Bancorp seeks, is unnecessary.
For these reasons, summary judgment on Bancorp's claim for an accounting is granted to the FDIC.
III. Plaintiff's Jury Demand
The FDIC has moved to strike Bancorp's demand for a jury trial.
The right to a jury trial stems from the Seventh Amendment to the Constitution, which states: "In Suits at common law, where the value in controversy shall exceed twenty dollars, the, right of trial by jury shall be preserved, and no fact tried by jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law." U.S. Const. amend. VII. In doubtful cases, a court should favor the party seeking a jury. trial. Prudential Oil Corp. v. Phillips PeLroleum Co., 392 F. Supp. 1018, 1022 (S.D.N.Y. 1975).
According to the Supreme Court, "the phrase 'Suits at common law' refers to 'suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies [are] administered."Chauffeurs, Teamsters Helpers Local No. 391 v. Terry, 494 U.S. 558, 564 (1990) (quoting Parsons v. Bedford, 3 Pet. 433, 447 (1830)) (emphasis and alterations in original). Thus, our function is to determine whether each of Bancorp's remaining claims requires the determination of legal or equitable rights and remedies. In view of our decision in Part II, we only need to consider Bancorp's unjust enrichment and waste claims.
We deal first with the unjust enrichment claim. To decide whether Bancorp is entitled to a jury trial on this claim, we must decide whether it seeks damages, traditionally a legal remedy, Chauffeurs, Teamsters Helpers Local No. 391, 494 U.S. at 570, or restitution, traditionally an equitable remedy. Porter v. Warner Holding Co., 328 U.S. 395, 402 (1946). In a claim for damages, the plaintiff seeks money to compensate for loss or injury sustained by the plaintiff due to the defendant's wrongful action. Dobbs, Law of Remedies, § 4.1(1), at 551 (2d ed. 1993); Black's Law Dictionary (7th ed. 1999). In a claim for restitution, the plaintiff seeks the return or restoration of whatever the defendant gained due to, the wrongful action. Dobbs, supra, § 4.1(1) at 551; Black's Law Dictionary.
It is clear that restitution is the traditional remedy employed for unjust enrichment claims. Brown v. Sandimo Materials, 250 F.3d 120, 126 (2d Cir. 2001); Fotta v. Trustees of the United Mine Workers, 165 F.3d 209, 213 (3d Cir. 1998); Reprosystem, B.V. v. SCM Corp., 727 F.2d 257, 263 (2d Cir. 1984). See also Dobbs, supra, § 4.1(1), at 552 (noting that "purpose [of restitution claims] is to prevent the defendant's unjust enrichment by recapturing the gains the defendant secured in a transaction"). Not surprisingly, courts have held that an unjust enrichment claim is an equitable claim that does not entitle a party to a jury trial. SEC v. Commonwealth Chem. Secur., Inc., 574 F.2d 90, 95-96 (2d Cir. 1978); Emmpressa Cubana Del Tabaco v. Culbro Corp., 123 F. Supp.2d 203, 206 (S.D.N.Y. 2000); Merriam-Webster, Inc. v. Random House, Inc., 91 Civ. 1221 (LMM), 1993 U.S. Dist. LEXIS 7693, at *7 (S.D.N.Y. June 10, 1993).
Bancorp made a conscious decision to proceed in equity rather than in tort. This choice was apparently made, at least in part, to avoid the application of the exhaustion requirements of the Federal Tort Claims Act. In its brief to Judge Schwartz on the Federal Tort Claims Act issue, Bancorp asserted that its case was "not a tort action for money damages. Rather, Bancorp . . . has raised an equitable claim of unjust enrichment that seeks, restitution from the FDIC." Plaintiff's Objections to the Report and Recommendation dated July 31, 1997. Similarly, the unjust enrichment section of the complaint uses the language of equity and calls for "disgorgement" of funds. Am. Compl. at ¶¶ 74-75, 78. Having made its choice to proceed in equity, and not in law, Bancorp must now live with that choice.
Bancorp cites only one case in support of its argument that unjust enrichment claims are primarily legal in nature, Miller v. Doniger, which states that "claims for unjust enrichment where an award of money would fairly compensate the party bringing the claim" are "legal in nature." 742 N.Y.S.2d 191, 193, 293 A.D.2d 282, 282 (N.Y.App.Div. 1st Dep't 2002). This quotation does not Motion to Strike Plaintiff's Jury Demand Exh. 2, at 3. Moreover, Bancorp's argument to Judge Pitman was well supported by case authority. Relevant precedent demonstrates that corporate waste claims are equitable in nature. Travelers Ins. Co. v. 633 Third Assocs., 14 F.3d 114, 126 (2d Cir. 1994) ("[A]n action in equity for waste could have lain against the partnership."); Kamen v. Kemper Financial Services, Inc., 908 F.2d 1338, 1350-51 (7th Cir. 1990);In re Gerbereux's Will, 266 N.Y.S. 134, 140 (Surr.Ct. 1933) (noting that if directors who are trustees under a will act for their own enrichment, "courts of equity will hold them liable for corporate waste").
Finally, we briefly mention the one case to which Bancorp points to support its argument that it is entitled to a jury trial on its corporate waste claim. Ross v. Bernhard, 396 U.S. 531 (1970), is simply not a holding for the proposition for which Bancorp cites it. While the court noted in its description of the shareholders' derivative claims that certain payments by the corporation constituted "waste and spoliation,"id. at 532, the Court's ultimate determination that the plaintiffs should not necessarily have been denied their right to a jury trial did not turn on the legal or equitable nature of a waste claim, but rather on the Court's view that the plaintiffs' claim as a whole was, "at least in part, a legal one." Id. at 542. Significantly, in explaining this conclusion, the Court did not mention the waste allegation, but instead noted that the complaint included "allegations of ordinary breach of contract and gross negligence." Id.
As we have concluded that Bancorp is not entitled to a jury trial on either or its remaining claims, the FDIC's motion to strike Bancorp's jury demand is granted.
CONCLUSION
Defendant's motion for summary judgment as to plaintiff's claims of breach of fiduciary duty and for an accounting is granted. Defendant's motion for summary judgment as to plaintiff's claims of unjust enrichment and corporate waste is granted except as to Bancorp's argument concerning the FDIC's allocation of expenses to the yellow certificates lawsuit and Bancorp's argument concerning the repurchase of loans from HKSB. Defendant's motion to strike plaintiff's jury demand is granted as to the claims remaining in the case. Defendant's motion to strike affidavits is denied.