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Federal Deposit Ins. Corp. v. Dosland

United States District Court, N.D. Iowa, Western Division

October 7, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of Vantus Bank, Plaintiff,
v.
MICHAEL W. DOSLAND, MICHAEL S. MODERSKI, ARLENE T. CURRY, BARRY E. BACKHAUS, GARY L. EVANS, RONALD A. JORGENSON, JON G. CLEGHORN, and CHARLES D. TERLOUW, Defendants. MICHAEL W. DOSLAND, MICHAEL S. MODERSKI, ARLENE T. CURRY, BARRY E. BACKHAUS, GARY L. EVANS, RONALD A. JORGENSON, JON G. CLEGHORN, and CHARLES D. TERLOUW, Third-Party Plaintiffs,
v.
THE UNITED STATES OF AMERICA, Third-Party Defendant

For Federal Deposit Insurance Corporation, as Receiver for Vantus Bank, Plaintiff: Maureen R Tobin, LEAD ATTORNEY, G Mark Rice, Stephen D Marso, Whitfield & Eddy, PLC, Des Moine, IA.

For Barry E Backhaus, Michael W Dosland, Michael S Moderski, Arlene T Curry, Gary L Evans, Ronald A Jorgenson, Jon G Cleghorn, Charles D Terlouw, Defendants: Daniel L Hartnett, LEAD ATTORNEY, Crary-Huff-Inkster-Sheehan-Ringenberg-Hartnett-Storm, Sioux City, IA; David A Tank, Megan Flynn, LEAD ATTORNEYS, William John Miller, Dorsey & Whitney, LLP, Des Moines, IA.

Page 1071

MEMORANDUM OPINION AND ORDER REGARDING THIRD-PARTY PLAINTIFFS' MOTION FOR JURISDICTIONAL DISCOVERY

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MARK W. BENNETT, UNITED STATES DISTRICT JUDGE.

TABLE OF CONTENTS

I. INTRODUCTION

A. Background

B. Arguments Of The Parties

II. LEGAL ANALYSIS

A. The " Discretionary Function Exception"

B. Standards For Jurisdictional Discovery

1. Discretion and factors

2. Jurisdictional discovery in FTCA " discretionary function" cases

C. Application Of The Standards

III. CONCLUSION

I. INTRODUCTION

A. Background

The Federal Deposit Insurance Corporation, as Receiver for Vantus Bank, (FDIC-R) filed this action, pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1811 et seq., against the former officers and directors of Vantus Bank in Sioux City, Iowa, asserting claims of gross negligence, negligence, and breach of fiduciary duty. The FDIC-R's claims are based primarily on its allegations that the defendants caused Vantus Bank to use $65 million--120 percent of its core capital--to purchase fifteen high risk collaterized debt obligations backed by Trust Preferred Securities (CDO-TruPS) without due diligence and in disregard and ignorance of regulatory guidance about the risks of and limits on purchases of such securities.

On May 27, 2014, the officers and directors filed their Third-Party Complaint and Jury Demand (docket no. 54), asserting a claim pursuant to the Federal Tort Claims Act (FTCA), 28 U.S.C. § 2671 et seq. In their Third-Party Complaint, the officers and directors (hereafter, the third-party plaintiffs) allege that the United States acting as the Office of Thrift Supervision (OTS) owed duties to Vantus Bank, its stockholders, members, accountholders, depositors, officers, directors, the FDIC, and the Deposit Insurance Fund. They allege, further, that the OTS negligently violated that duty by failing to analyze accurately Vantus Bank's investments and to take more timely action to remedy Vantus Bank's alleged investment violations. The third-party plaintiffs allege that, because of the OTS's negligence, the OTS should be apportioned a share of fault and be liable for contribution, pursuant to Iowa Code Ch. 668, for any damages sought by the FDIC-R.

In response, on July 15, 2014, the OTS filed a Motion To Dismiss (docket no. 63), seeking dismissal of the Third-Party Complaint for at least two independent reasons: (1) this court lacks jurisdiction, because the " discretionary function exception" to the FTCA applies in this case; and (2) even if this court has jurisdiction, the Third-Party Complaint fails to state a claim upon which relief can be granted, because the regulators and examiners owed no duty to the failed bank. Litigation of that motion was put on hiatus when I entered an Order (docket no. 70), on August 1, 2014. In that Order, I granted the third-party plaintiffs to and including August 8, 2014, to file any motion for jurisdictional discovery and stated that the deadline for their response to the OTS's Motion To Dismiss would be reset either upon denial of their anticipated motion

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for jurisdictional discovery or upon the completion of any jurisdictional discovery allowed by the court.

The third-party plaintiffs' Motion For Jurisdictional Discovery (docket no. 71), followed in due course, on August 8, 2014. On August 19, 2014, the OTS filed its Response To The Third-Party Plaintiffs' Motion For Jurisdictional Discovery (docket no. 77), opposing any such discovery. On August 22, 2014, the FDIC-R filed its separate Resistance To Defendants' Motion For Jurisdictional Discovery (docket no. 78), likewise opposing any such discovery. On September 8, 2014, the third-party plaintiffs filed their Reply In Support Of Motion For Jurisdictional Discovery (docket no. 85), responding to both the OTS's and the FDIC-R's resistances. In an Order (docket no. 87), filed September 9, 2014, I took the unusual step of allowing the OTS to file a surreply to address what it argued were new legal arguments and new facts in the third-party plaintiffs' Reply, primarily because the OTS's request to file a surreply was unopposed. Thus, the OTS's Surreply (docket no. 88) was filed September 9, 2014. With that filing, the briefing of the question of jurisdictional discovery was complete.

The third-party plaintiffs requested oral arguments on their Motion For Jurisdictional Discovery. The OTS stated in its Response that it neither resisted nor joined in that request, but it did opine that the nature of the issues presented makes oral arguments unnecessary in this instance. I agree with the OTS and note, further, that my crowded schedule has not permitted the timely scheduling of oral arguments. Therefore, I deny the third-party plaintiffs' request for oral arguments, and I will consider their Motion For Jurisdictional Discovery fully submitted on the written submissions.

B. Arguments Of The Parties

In their Motion For Jurisdictional Discovery, the third-party plaintiffs seek discovery to determine the existence of a statute, regulation, or policy specifically prescribing a course of action or a mandatory timeline for the OTS to act with respect to Vantus Bank. They point out that the record shows that the OTS first raised concerns regarding certain of Vantus Bank's investments in a letter dated June 26, 2007, but never " ordered" divestment of those assets; indeed, they argue, the OTS initially did nothing. It was not until February 13, 2008, they contend, that the OTS requested a " plan to obtain compliance" by March 15, 2008. They contend that the OTS's delay had a significant effect on the damages claimed by the FDIC-R, because of the loss of liquidity in the securities at issue during the seven months that the OTS did nothing.

The third-party plaintiffs recognize that this court lacks jurisdiction under the FTCA over claims arising from regulatory actions that fall within the " discretionary function exception." The third-part plaintiffs argue that they have taken substantial steps to try to obtain discovery demonstrating that the OTS's actions do not fall within this exception, despite attempts by the FDIC-R to block such discovery and the FDIC-R's delays in producing such discovery once it was ordered to do so. They argue that, because of the FDIC-R's tactics and delays, they were forced to file their Third-Party Complaint by an existing deadline to add parties, based on allegations of their beliefs concerning OTS's failure to comply with mandatory requirements, rather than file a request for a further extension of the deadline to add parties until after the FDIC-R had fully complied with their discovery requests. They now assert that the FDIC-R and the OTS are attempting to place them in a

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" Catch-22," by asserting that they have no factual basis for their claims that the OTS violated mandatory requirements, while attempting to prevent them from discovering any such factual basis. They contend that, while the FDIC-R and the OTS have simply asserted that there are no mandatory standards for the OTS's conduct at issue here, they " believe that mandatory standards or policies likely governed the OTS's conduct with respect to Vantus, and that they should be allowed to conduct limited jurisdictional discovery to find them." Third-Party Plaintiffs' Brief (docket no. 74), 11-12.

The third-party plaintiffs argue that the question of whether or not to allow jurisdictional discovery is a discretionary one with the court. They argue, further, that various courts have allowed jurisdictional discovery in FTCA cases in which the " discretionary function exception" was at issue. The jurisdictional discovery that they seek is the following: four categories of documents; a Rule 30(b)(6) deposition on five topics; and the deposition of a current employee of the Office of the Comptroller of the Currency (OCC), Mr. Anthony Jardieu, whom they believe to be a person involved in the examination of Vantus Bank during the relevant period.[1]

In its Response, the OTS acknowledges that it has put the " discretionary function exception" to FTCA jurisdiction directly at issue in its Motion To Dismiss the Third-Party Complaint against it, because the Third-Party Complaint fails to reveal any potential that the regulators and examiners failed a specific non-discretionary mandate.[2] The OTS argues that the third-party plaintiffs are simply trying to delay the inevitable dismissal of their Third-Party Complaint by seeking additional discovery, while failing to present anything but a speculative hypothesis that there may be some evidence somewhere of non-discretionary standards or policies that governed the OTS's conduct with respect to Vantus Bank. In other words, they contend, the third-party plaintiffs seek a " fishing expedition" in the guise of " jurisdictional discovery."

More specifically, the OTS argues that the third-party plaintiffs fail to satisfy pertinent factors that courts consider when determining whether or not to allow jurisdictional discovery. Specifically, they argue that the third-party plaintiffs have not demonstrated that the requested discovery could reasonably be expected to reveal any facts giving rise to jurisdiction, because there is no reasonable probability that discovery will lead to some type of mandatory policy upon which this court could find that it possesses jurisdiction. They argue that the third-party plaintiffs' " belief" that there may be such evidence should carry no weight. The OTS argues that this failing is particularly clear where the third-party plaintiffs have already managed to obtain, through what the OTS describes as " creative discovery" from the FDIC-R, hundreds of thousands of pages of pertinent documents and emails from OTS files. Thus, the OTS argues, if there is any documentary support for a specific mandate, the third-party plaintiffs already have access to it, but they have failed to turn up anything. The OTS points out that the third-party plaintiffs also already have access to the Office of Inspector General, Department of the Treasury Audit

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Report, SAFETY AND SOUNDNESS: Material Loss Review of Vantus Bank, but that they have failed to find any support for an alleged violation of a purportedly mandatory standard in that report.

The OTS argues that, whether its challenge to jurisdiction is " facial" or " factual," no jurisdictional discovery should be allowed, because the third-party plaintiffs have not presented anything but bare allegations of their " beliefs" to support their assertion of jurisdiction over their third-party claim. The OTS also contends that, if the third-party plaintiffs are entitled to some jurisdictional discovery, their present requests are overbroad and unnecessarily burdensome.

The FDIC-R's separate Resistance covers much the same ground as the OTS's. The FDIC-R specifically challenges the third-party plaintiffs' characterization of their alleged difficulties in obtaining pertinent discovery from the FDIC-R. The FDIC-R also points out, however, that the production of OTS documents from the FDIC-R is now complete, yet the third-party plaintiffs still have not identified any OTS documents that support their claim against the OTS. The FDIC-R also argues that jurisdictional discovery ...


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