United States District Court, N.D. Iowa, Western Division
FEDERAL DEPOSIT INSURANCE CORPORATION, AS RECEIVER OF VANTUS BANK, Plaintiff,
MICHAEL W. DOSLAND, et al., Defendants.
LEONARD T. STRAND, Magistrate Judge.
This case is before me on defendants' second motion to compel (Doc. No. 24). Plaintiff Federal Deposit Insurance Corporation, as Receiver of Vantus Bank (FDIC-R), has filed a resistance (Doc. No. 34) and defendants have filed a reply (Doc. No. 40). I heard oral arguments by telephone on April 2, 2014. Maureen Roach Tobin and Stephen Marso appeared for plaintiff while David Tank and William Miller appeared for defendants. The motion is now fully submitted.
On September 4, 2009, the Office of Thrift Supervision (OTS) closed Vantus Bank (Bank) and appointed FDIC-R as its receiver. On May 20, 2013, FDIC-R filed this action against the Bank's former officers and directors and seeks to recover losses "in excess of $58 million." See Complaint (Doc. No. 2) at ¶¶ 49(h). In general, FDIC-R alleges that the defendants acted imprudently in deciding to invest the Bank's funds in collateralized debt obligations backed by trust preferred securities (CDOs), starting in 2006. FDIC-R, in its role as receiver for the Bank, asserts state law claims of negligence, gross negligence and breach of fiduciary duty.
The defendants have filed an answer (Doc. No. 8) in which they deny liability and assert various affirmative defenses. On December 23, 2013, Judge Bennett entered an order (Doc. No. 20) that granted, in part, FDIC-R's motion to strike certain affirmative defenses. Among other things, he struck defendants' second affirmative defense, which invokes certain equitable doctrines, "only to the extent that the equitable' defenses cannot be based on conduct of the OTS, a separate entity, one not a party to this lawsuit, and one that acted in a different capacity than the FDIC-R, acting as receiver for the Bank." Doc. No. 20 at 23.
III. SPECIFIC ALLEGATIONS
Because the pending discovery motion raises issues of relevance, it is helpful to review the details of the parties' contentions:
FDIC-R. FDIC-R contends that defendants Dosland and Moderski, who allegedly lacked sufficient knowledge and experience, and whom the other defendants had insufficiently vetted, convinced the Bank's board of directors to amend the Bank's investment policy to give them virtual "carte blanche authority" over the Bank's investment policies, procedures, and reviews, with little or no oversight by the board. Dosland and Moderski then allegedly started investing in CDOs, which are described as being high risk, complex securities. FDIC-R alleges that from December 2006 through March 2007, Dosland and Moderski caused the Bank to borrow $50 million through certificates of deposit and advances from the Federal Home Loan Banks (FHLB) to purchase CDOs. FDIC-R further alleges that the Bank eventually borrowed for and purchased more than $65 million of CDOs, constituting more than 120% of the Bank's capital, in violation of limitations in applicable banking regulations and the Bank's own investment policies. FDIC-R then alleges:
46. After OTS learned of the Bank's purchases of the [CDOs], it gave notice to the D&O Defendants that at least two of the purchases were in excess of regulatory guidelines. OTS directed the Bank not to purchase any additional [CDOs], and directed the Bank to sell two of the [CDOs] to reduce the Bank's exposure.
47. [Defendant] Dosland thereafter sent a letter to OTS dated June 29, 2007, in which he advised OTS that the Bank would comply with the OTS directive to reduce the Bank's exposure in two of the [CDOs]...
48. The Bank, with knowledge and consent of the D&O Defendants, never reduced the amount of [CDOs] it held, did not comply with the OTS directive to reduce the Bank's exposure, but instead continued to hold the [CDOs] it had previously purchased.
Complaint (Doc. No. 2) at ¶¶ 46-48.
Defendants. Defendants deny that OTS's position concerning the Bank's investments in CDOs was as clear and immediate as FDIC-R contends. They allege that correspondence between the Bank and OTS during the relevant period of time included an ongoing dialogue regarding application of OTS Thrift Bulletin 73a (TB73a). They contend that seven months passed between the date OTS first raised questions about the Bank's CDOs and the date OTS ordered the Bank to submit a "plan to obtain compliance, " with the market for CDOs deteriorating substantially during that time. They also ...