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Quintero Cmty. Ass'n Inc. v. Federal Deposit Insurance Corporation

United States Court of Appeals, Eighth Circuit

July 8, 2015

Quintero Community Association Inc., et al., Plaintiffs - Appellants
v.
Federal Deposit Insurance Corporation as Receiver for Hillcrest Bank, et al., Defendants - Appellees

Submitted February 10, 2015.

Appeal from United States District Court for the Western District of Missouri - Kansas City.

For Quintero Community Association Inc., Lyle P. Phillips, Phillips W. Upham, II, Kenneth Nichols, George Benz, Larry Hilcher, David Ostermeyer, Cathleen Ostermeyer, George Benz and Sons LLC, Karen Benz, Tory H. Upham, Britton B. Upham, Nowell C. Upham, Sondra R. Upham, Peggy Phillips, Theodore B. Benz, George M. Benz, Plaintiffs - Appellants: Linus L. Baker, Stilwell, KS.

For Federal Deposit Insurance Corporation as Receiver for Hillcrest Bank, Defendant - Appellee: Steven M. Leigh, Martin & Leigh, Kansas City, MO; Jerome A. Madden, Federal Deposit Insurance Corporation, Appellate Litigation, Arlington, VA.

For Hillcrest Bancshares, George A. Lieberman, Thomas J. Davies, Joel Richards, Tim Gervy, G. Richard Degen, Gerald M. White, Paul S. Fingersh, Jack N. Fingersh, Robert Campbell, Irwin Blitt, Scott I. Asner, Jeffrey F. Wheeler, Sue Gallatin, Defendants - Appellees: Thomas R. Larson, Scott Andrew Wissel, Lewis & Rice, Kansas City, MO.

For Brian K. Schneider, Dan Schwartzkopf, Wanda Holderman, Nicole Davis, Jon Forgey, Defendants - Appellees: Mark S. Carder, Stinson & Leonard, Kansas City, MO; Thomas R. Larson, Scott Andrew Wissel, Lewis & Rice, Kansas City, MO.

Before LOKEN, SMITH, and COLLOTON, Circuit Judges.

OPINION

LOKEN, Circuit Judge.

Appellants are investors who suffered losses when an Arizona golf course and residential development failed, allegedly due to the fraud and mismanagement of the developer, Gary McClung. Unable to recover from the insolvent McClung, appellants filed this action in state court against the development's principal lender, Hillcrest Bank, and its directors, officers, and sole shareholder, asserting numerous claims. The Kansas Banking Commissioner closed Hillcrest Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. Some months later, the FDIC removed the case to federal court under 12 U.S.C. § 1819(b)(2)(B). The district court[1] denied appellants' timely motion to remand. Subsequently, the court dismissed fourteen of the sixteen counts for failure to state a claim, dismissed the FDIC because Hillcrest Bank's bankruptcy rendered appellants' claims against the Bank prudentially moot, and granted summary judgment to the remaining defendants on appellants' remaining count. Appellants appeal the denial of their motion to remand, the dismissal of fourteen counts for failure to state a claim, the grant of summary judgment on the final count, and the district court's refusal to permit an amendment to add an additional tort claim for spoliation. We affirm.

I. Background

McClung's failed development was a golf course and residential subdivision in Peoria, Arizona, named Quintero Golf and Country Club (Quintero). Appellant Quintero Community Association (QCA) was the homeowners association for the subdivision and a property owner in Quintero. The remaining appellants are individuals who between 1999 and 2008 invested in Quintero by purchasing " Revenue Producing Membership Collateral Certificates" or by loaning money to McClung. In March 2005, Hillcrest Bank loaned McClung $31 million to finance Quintero's construction and issued a number of irrevocable standby letters of credit naming QCA as beneficiary. As beneficiary, QCA had the right to demand payment of a letter of credit in the event Quintero failed to complete the particular improvement specified in the letter of credit by a certain date.

Appellants' Omnibus Petition alleged that, by late 2006, McClung was unable to pay development contractors on time, and many had ceased working. Appellants alleged that defendants knew of McClung's financial distress but loaned him money anyway, contrary to sound banking practices, thereby " prolong[ing his] financial life" to appellants' detriment. They further alleged that defendants " concocted a scheme with McClung" to conceal his insolvency from appellants, banking regulators, and the Arizona Department of Real Estate (ADRE). The alleged scheme included " jimm[ying]" the Bank's books to make the Quintero project look to be in better financial health than it was, thereby assisting McClung's fraudulent communications to appellants, and allowing McClung to " sen[d] back" letters of credit in March 2007 contrary to their terms and ADRE requirements. On March 31, 2010, the ADRE suspended Quintero's public report due to McClung's failure to complete required infrastructure. See Ariz. Admin. Code § R4-28-B1203(E). As a result, appellants lost some or all of their investments.

In May 2010, appellants filed suit against Hillcrest Bank in Missouri state court. On October 22, 2010, the Kansas Banking Commissioner determined the Bank was " critically undercapitalized" and appointed the FDIC as receiver. In preparation for litigation, some Hillcrest Bank directors had caused Bank records to be copied onto digital storage media and sent to lawyers at the Bryan Cave law firm for review. The FDIC accepted appointment as receiver and demanded return of the copied files. Bryan Cave complied.

In January 2011, appellants filed a separate action in state court against Hillcrest Bank officers and directors and its holding company, Hillcrest Bancshares (the " Director Defendants" ). The state court consolidated the two cases. On February 28, Hillcrest Bank filed a motion to substitute the FDIC as defendant. The state court granted the motion on March 1, but on May 7, appellants moved to vacate the substitution order because the Bank's motion was not ...


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