Vieira Ex Rel. Estate of Beach First National Bancshares, Inc. v. Anderson ( 2012 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: BEACH FIRST NATIONAL 
BANCSHARES, INCORPORATED,
Debtor.
MICHELLE LEIGH VIEIRA, as Trustee
for the Estate of Beach First
National Bancshares, Incorporated,
Plaintiff-Appellant,
v.
MICHAEL BERT ANDERSON; ORVIS
BARTLETT BUIE; RAYMOND E.
CLEARY, III; THOMAS FULMER;  No. 11-2019
MICHAEL D. HARRINGTON; JOE N.
JARRETT, JR.; RICHARD E. LESTER;
LEIGH AMMONS MEESE; RICK H.
SEAGROVES; DON J. SMITH; SAMUEL
ROBERT SPANN, JR.; B. LARKIN
SPIVEY, JR.; WALTER E. STANDISH,
III, as President and Chief
Executive Officer of Beach First
National Bancshares, Incorporated;
JAMES C. YAHNIS, as Directors of
Beach First National Bancshares,
Incorporated,
Defendants-Appellees.

2 IN RE: BEACH FIRST NATIONAL BANCSHARES
Appeal from the United States District Court
for the District of South Carolina, at Charleston.
David C. Norton, District Judge.
(2:11-cv-00055-DCN; 10-03499-DD; 10-80143-AP)
Argued: September 18, 2012
Decided: December 28, 2012
Before AGEE, WYNN, and FLOYD, Circuit Judges.
Affirmed in part, reversed in part, and remanded by published
opinion. Judge Agee wrote the opinion, in which Judge Wynn
and Judge Floyd joined.
COUNSEL
ARGUED: David Jay Parrish, NEXSEN PRUET, Charleston,
South Carolina, for Appellant. Dennis James Connolly,
ALSTON & BIRD, LLP, Atlanta, Georgia, for Appellees. ON
BRIEF: Richard L. Tapp, NEXSEN PRUET, Charleston,
South Carolina, for Appellant. F. Truett Nettles, II, GRIM-
BALL & CABANISS, LLC, Charleston, South Carolina;
Robert R. Long, ALSTON & BIRD, LLP, Atlanta, Georgia,
for Appellees.
OPINION
AGEE, Circuit Judge:
I
Michelle Leigh Vieira, trustee in bankruptcy of Beach First
National Bancshares, Inc., (the "Trustee" and "Bancshares,"
IN RE: BEACH FIRST NATIONAL BANCSHARES 3
respectively) filed this action against the former directors and
officers of Bancshares (collectively, including both fiduciary
capacities, the "Directors"). The Directors also all formerly
served as the officers and directors of First National Bank
Myrtle Beach, SC (the "Bank"), a wholly owned subsidiary of
Bancshares. The Bank was Bankshares’ primary asset.
In 2008, the United States Office of the Comptroller of the
Currency ("OCC") began monitoring the Bank.1 Finding seri-
ous deficiencies with the management and operation of the
Bank, OCC required the Bank to take a number of corrective
actions. These corrective actions failed to sustain the financial
stability of the Bank. Consequently, on April 9, 2010, OCC
closed the Bank and named the Federal Deposit Insurance
Corporation ("FDIC") as its receiver. The FDIC subsequently
liquidated all of the Bank’s assets so that the Bank ceased as
a going concern or functional entity.
As a consequence of the Bank’s failure, Bancshares filed
for bankruptcy under Chapter 7 on May 14, 2010, in the
United States Bankruptcy Court for the District of South Car-
olina. The Trustee then filed this adversary proceeding, assert-
ing breach of fiduciary duty and negligence against the
Directors in their capacity as the officers and directors of
Bancshares. Specifically, the Trustee alleged that the Direc-
tors breached a number of duties to Bancshares, resulting in
mismanagement and lack of oversight of the Bank and over
Bancshares’ interest in a real estate holding entity.
The Directors moved the bankruptcy court to (1) stay the
adversary proceeding, (2) withdraw the reference to the bank-
1
OCC is an independent bureau of the U.S. Department of the Treasury
that charters, regulates, and supervises all national banks and federal sav-
ings associations. Among other things, OCC may take enforcement
actions against national banks and federal savings associations that fail to
comply with laws and regulations or otherwise engage in unsound prac-
tices.
4 IN RE: BEACH FIRST NATIONAL BANCSHARES
ruptcy court and transfer the action to the United States Dis-
trict Court for the District of South Carolina, or (3) dismiss
the case for failure to state a claim under Rule 12(b)(6) of the
Federal Rules of Civil Procedure. The bankruptcy court
stayed the proceedings, and the district court granted the
motion to withdraw the reference.2
After briefing and argument, the district court granted the
Directors’ motion to dismiss, concluding that the Trustee
lacked standing to bring the action. See Vieira v. Anderson (In
re Beach First Nat’l Bancshares, Inc.), No. 2:11-CV-0055-
DCN, 2011 WL 3794234, at *6 (D.S.C. Aug. 25, 2011). In
analyzing the Trustee’s pleading, the district court determined
that the Trustee pled against the Directors only claims derived
from alleged defalcations in the Directors’ operation of the
Bank. The district court then held that the Trustee’s right to
bring such derivative claims had been divested by statute in
favor of the FDIC. Derivative claims of the nature asserted by
the Trustee, the district court determined, could be brought
only by the FDIC under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"). To
date, the FDIC has not brought an action against the Directors
and has stated in communications to the Trustee that it would
likely not proceed against them.
From the judgment dismissing her Complaint, the Trustee
now timely appeals. We have jurisdiction under 28 U.S.C.
§ 1291.
2
Pursuant to Rule 5011 of the Federal Rules of Bankruptcy Procedure,
"[a] motion for withdrawal of a case or proceeding shall be heard by a dis-
trict judge." Motions for withdrawal "shall be by motion filed with [the
bankruptcy court]," which, through the clerk of the bankruptcy court,
"shall promptly transmit to the United States District Court the motion"
for its review. Bankr. D.S.C. R. 5011-1.
In view of the withdrawal of the reference, for purposes of this opinion,
we will refer to the Trustee’s adversary proceeding pleading as a "com-
plaint."
IN RE: BEACH FIRST NATIONAL BANCSHARES 5
II
In a nutshell, the Trustee contends on appeal that the dis-
trict court erred in granting the Directors’ motion to dismiss
for two reasons. First, the Trustee argues that she did not
plead derivative claims against the Directors, but instead
asserted direct claims that do not fall within the purview of
the FDIC. Alternatively, the Trustee contends that the claims
against the Directors, even if derivative in nature, remain hers
to bring because the FDIC has declined to act and has acqui-
esced in the Trustee’s assertion of those claims.
We review a district court’s dismissal of an action under
Rule 12(b)(6) de novo. See Giarratano v. Johnson, 521 F.3d
298, 302 (4th Cir. 2008). When reviewing a Rule 12(b)(6)
dismissal, we accept all factual allegations in the complaint as
true. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per
curiam). We review questions of law de novo. See Logan v.
JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 510
(4th Cir. 2005). To the extent that we consider questions of
state law to reach our decision, South Carolina law applies.3
Applying those standards, we disagree, for the most part,
with the Trustee’s arguments for the reasons set forth below.
Accordingly, we affirm the judgment of the district court,
with the exception of its dismissal of the Trustee’s claim
regarding Bancshares’ interest in a real estate holding entity.
III
A
A trustee in bankruptcy succeeds to all rights of the debtor,
including the right to assert any causes of action belonging to
3
Bancshares was organized under the laws of South Carolina. We agree
with the parties and the district court that South Carolina law is the con-
trolling law for state law purposes.
6 IN RE: BEACH FIRST NATIONAL BANCSHARES
the debtor. See Nat’l Am. Ins. Co. v. Ruppert Landscaping
Co., 187 F.3d 439, 441 (4th Cir. 1999). A debtor’s right to
bring a legal claim is part of the bankruptcy estate under 11
U.S.C. § 541(a). Applying that foundational principle to the
case at bar, the Trustee has the authority to assert any cause
of action that Bancshares could have brought in its own right.
Absent statutory modification, this power includes the right to
assert derivative claims of Bancshares (as the Bank’s sole
shareholder) against the Directors in their capacity as officers
and directors of the Bank. This is so because, under South
Carolina law, when an officer or director of a corporation
causes injury to the corporation or fails to fulfill a duty to the
corporation, that corporation may bring a direct action against
the officer or director. See Babb v. Rothrock, 401 S.E.2d 418,
419–20 (S.C. 1991). When the corporation fails to bring a
direct action, a shareholder may bring suit on behalf of the
corporation in a derivative action. See Rice-Marko v.
Wachovia Corp., 728 S.E.2d 61, 65 (S.C. 2012). In this case,
that shareholder is Bancshares, now acting by virtue of the
bankruptcy proceeding through the Trustee.
Under FIRREA, however, the FDIC, when appointed
receiver of a bank, succeeds to "all rights, titles, powers, and
privileges of the insured depository institution, and of any
stockholder . . . of such institution with respect to the institu-
tion and the assets of the institution." 12 U.S.C.
§ 1821(d)(2)(A)(i) (emphasis added). The Trustee does not
dispute that derivative claims fall within the powers and privi-
leges of a stockholder of a financial institution "with respect
to the institution" as contemplated by § 1821(d)(2)(A)(i).
The district court concluded that the Trustee brought only
derivative claims against the Directors because "the directors
and officers of Bancshares and the Bank were one and the
same, and the harm caused to Bancshares, the holding com-
pany, was the direct result of the failure of its wholly-owned
subsidiary and primary asset, the Bank." Vieira, 2011 WL
3794234, at *6. In reviewing the basis of the Directors’ liabil-
IN RE: BEACH FIRST NATIONAL BANCSHARES 7
ity to Bancshares as pled by the Trustee, the district court
observed that the only harm pled "result[ed] from the mis-
management and failure of its primary asset, the Bank." Id. at
*3. In support of its conclusions, the district court cited its
previous decision in FDIC v. American Bank Trust Shares,
Inc., which held:
It is well settled under South Carolina law, as well
as the law of other jurisdictions, that causes of action
for losses sustained because of the mismanagement
and negligence of directors, officers, and employees
of a bank belong to the bank itself, and not to the
stockholders or creditors; and in the event of its liq-
uidation, such causes of action are vested in its
receiver; and may be conveyed and sold as any other
asset.
412 F. Supp. 302, 306 (D.S.C. 1976), vacated on other
grounds, 558 F.2d 711 (4th Cir. 1977). The Fourth Circuit
affirmed this principle in Bauer v. Sweeny, 964 F.2d 305, 308
(4th Cir. 1992). Those cases, however, involved individual
shareholders asserting clearly derivative claims against offi-
cers and directors of an operating bank entity. They did not
include the additional element, present in this case, of dual-
role fiduciaries at the holding company and subsidiary bank
levels.
B
The Trustee correctly asserts that the fiduciary duties the
Directors owed to Bancshares, as a distinct corporate entity
from the Bank, were separate from those duties the Directors
owed the Bank. The actual basis of liability the Trustee pled
against the Directors, however, flows only from the duties the
Directors may have violated in their operation and manage-
ment of the Bank (with one exception discussed below).
While the Directors could, conceptually, have undertaken
actions uniquely and separately harmful to Bancshares (as
8 IN RE: BEACH FIRST NATIONAL BANCSHARES
opposed to the Bank), the Trustee has pled primarily causes
of action for liability derivative of the alleged failures at the
Bank level.
The Trustee repeatedly pled that the Directors allowed mis-
management of the Bank, but such conduct caused injury first
to the Bank and then only indirectly to Bancshares as the
Bank’s sole shareholder. For example, the Trustee pled that
the Directors were responsible "for the operations and man-
agement of the Bank, and as such were directly or indirectly
responsibility [sic] for the lack of management and oversight
that led to the Bank’s failure and resulting financial failure of
Bancshares" (J.A. 8); that they failed "to cause the proper and
needed controls, systems, procedures and practices be estab-
lished, implemented, maintained and enforced at the Bank in
order to ensure the financial success of the Bank, as the
wholly-owned corporate asset of the Bank" (J.A. 9); and that
they failed to implement and enforce
prudent lending and underwriting practice and stan-
dards, and they allowed the Bank to engage in high
volume of real estate and construction lending prac-
tices (including, upon information and belief, a large
number of timeshare loans and "stated income"
loans) of an imprudent and risky nature and in
excess of reasonable and prudent lending practices in
light of the volume of such lending and the nature of
the market (i.e., a resort and second home environ-
ment) in which the Bank operated.
(J.A. 10.)
These alleged harms, as pled, occurred at the Bank—not
Bancshares—level. While the Directors wore, so to speak,
fiduciary hats at both the parent and subsidiary level, the
Trustee has not pled a harm or an act that occurred at the
Bancshares (parent) level that did not simultaneously and pri-
marily occur at the Bank (subsidiary) level. The Trustee
IN RE: BEACH FIRST NATIONAL BANCSHARES 9
seemed to concede as much at the hearing before the district
court:
THE COURT: So [Bancshares] couldn’t have any
other damages other than the bank, right?
[COUNSEL]: . . . yes, if this is the only asset, the
damages to the bank would be the same . . . other
than the building issue that I pled separately, in gen-
eral the damages are the same.
(J.A. 674–75.)
While there is limited appellate authority directly on point,
the Eleventh Circuit recently considered issues somewhat
similar to those in the case at bar in an unpublished decision,
Lubin v. Skow (In re Integrity Bancshares, Inc.), 382 Fed.
App’x 866 (11th Cir. 2010) (per curiam). In Lubin, as here,
the trustee in bankruptcy of a bank holding company filed an
adversary proceeding against the holding company’s officers
and directors, alleging breaches of fiduciary duty and negli-
gence. Id. at 869. Specifically, the trustee in Lubin alleged
that the defendant officers and directors had caused the hold-
ing company to take on excess debt to fund its subsidiary
bank, devaluing the holding company stock. Id. Most of the
defendants in Lubin served as officers and directors of both
the holding company and the subsidiary bank. Id.
The Eleventh Circuit concluded that the FDIC succeeded to
all derivative claims against the officers and directors of the
subsidiary bank. Id. at 871. As to the liability of those fidu-
ciaries to the holding company, the debtor entity in Lubin, the
court observed that the bankruptcy trustee could bring claims
for direct harm to the holding company, as opposed to claims
derived from subsidiary level breaches of duty, and that such
direct claims were not foreclosed by FIRREA in favor of the
FDIC. Id. at 872. The bankruptcy trustee in Lubin, however,
had failed to raise direct claims in his pleadings:
10 IN RE: BEACH FIRST NATIONAL BANCSHARES
Because the Complaint fails to plead sufficient facts
connecting any act or omission by the defendants
with a harm to the Holding Company that is distinct
from the harm the Holding Company suffered when
its investment in the Bank soured, the Complaint
states no claim for which the Trustee may recover.
Id. at 873.
As we noted above, the main thrust of the Trustee’s plead-
ing here meets the same fate as the bankruptcy trustee’s
claims in Lubin because it focuses on harm that is not "dis-
tinct from the harm [Bancshares] suffered when its investment
in the Bank soured." Id. In other words, the Trustee has pled
mainly claims deriving from defalcations at the Bank level,
not a distinct and separate harm specific to Bancshares at the
holding company level. Consequently, the Trustee lacked
standing to pursue the derivative claims under FIRREA as the
right to pursue such claims belongs to the FDIC.
Not to be deterred, the Trustee contends that, even if we
have accurately characterized most of her claims, she has pled
three particular acts by the Directors that caused distinct harm
to Bancshares and that are sufficiently distinct from acts at the
Bank level to be direct claims not within the ambit of the
FDIC through FIRREA.
First, the Trustee alleges that the Directors breached a duty
owed to Bancshares by appointing unqualified directors to the
Bank’s board. Second, the Trustee alleges that the Directors
caused Bancshares to guarantee the Bank’s restoration plan
while simultaneously failing to ensure that the Bank complied
with OCC requirements. And third, the Trustee alleges that
the Directors caused Bancshares to improperly subordinate its
equity interest in a limited liability company ("LLC") that
owned certain real property.4
4
According to the Trustee’s Complaint, Bancshares formed an LLC
with a law firm for the purpose of constructing and owning an office
IN RE: BEACH FIRST NATIONAL BANCSHARES 11
With respect to the first claim from ¶ 28(b) of the Com-
plaint—the appointment of unqualified directors to the Bank’s
board—any injury primarily occurred to the Bank. Any harm
to Bancshares was a secondary result of direct injury to the
Bank when the Bank-level fiduciaries failed to properly oper-
ate the Bank. Thus, we disagree with the Trustee that this
claim is a direct claim of Bancshares against the Directors.
Rather, this claim is essentially a derivative claim that the
Trustee lacks standing to raise.
Citing Official Committee of Unsecured Creditors of
BankUnited Financial Corp. v. FDIC, No. 11-20305-CV
(S.D. Fla. Sept. 28, 2011), the Trustee contends that her sec-
ond claim, contained in ¶ 28(d) of the Complaint, sufficiently
alleges a direct claim against the Directors for their conduct
that "caused Bancshares to execute a guaranty that the Bank
would comply with the OCC’s requirements for a Capital
Restoration Plan." (J.A. 8.) At first glance, this part of the
pleading appears similar to claims that the district court in
BankUnited concluded were direct claims not subject to the
exclusive rights of the FDIC and thus could be brought by the
trustee in bankruptcy. See id., slip op. at 7.
In BankUnited, the court held that claims that a bank hold-
ing company’s officers improperly "induced" that entity to
pay out holding company dividends, repurchase holding com-
pany stock, and inject funds into the bank subsidiary were not
derivative in nature. Id. In other words, those claims were not
subject to the FDIC’s exclusive rights flowing from acts and
harm at the bank level, but were direct claims because the
complaint "pled damages unique to the Holding Company."
building in Myrtle Beach, South Carolina. Bancshares owned a two-thirds
membership interest in the LLC, and the law firm owned the remaining
one-third membership interest. At some point, the Directors caused Banc-
shares to subordinate its interest in the LLC to that of the law firm, ulti-
mately resulting in its loss of equity in the LLC.
12 IN RE: BEACH FIRST NATIONAL BANCSHARES
Id. While we can envision circumstances where directors or
officers could be liable in a direct claim for inappropriately
causing the parent holding company to guarantee the debt of
a subsidiary (like the Bank), the Trustee’s pleading here,
unlike that in BankUnited, fails to plead the causal connection
between the act of making the guaranty to "damages unique
to" Bancshares. Id. As pled, the alleged defalcation of the
Directors is their "fail[ure] to ensure the Bank submitted a
Capital Restoration Plan that complied with the OCC’s
requirements," which resulted in OCC closing the Bank. (J.A.
8.) Thus, as with the Trustee’s other claims, ¶ 28(d) is a deriv-
ative claim of harm at the Bank level that the Trustee lacks
standing to bring.
Finally, the Trustee alleged that the Directors caused Banc-
shares to improperly subordinate its equity interest in the LLC
that owned real property. This particular act does indeed sup-
port a direct claim against the Directors, and the district court
erred in granting the motion to dismiss as to that claim. Banc-
shares held a majority membership interest in an LLC that
"construct[ed] and own[ed] an office building in Myrtle
Beach, South Carolina." (J.A. 11.) In ¶ 28(p) of the Com-
plaint, the Trustee pled that the Directors, "contrary to stan-
dard and prudent practices," caused Bancshares to
improvidently subordinate Bancshares’ majority LLC interest
to that of the minority interest-holder, which caused the "loss
of Bancshares’ equity interest in the LLC." (J.A. 11.) For pur-
poses of surviving the Directors’ motion to dismiss, ¶ 28(p)
adequately pleads direct harm to Bancshares unrelated to any
defalcation at the Bank level. That is, the Directors’ actions
caused "damages unique to" Bancshares, cf. BankUnited, slip
op. at 7, and the Trustee’s claim is thus not a derivative claim.
Therefore, the Trustee can proceed with this claim in the dis-
trict court.5
5
The Directors also raised several alternate defenses to all claims of the
Trustee. As the district court granted the Directors’ motion to dismiss on
IN RE: BEACH FIRST NATIONAL BANCSHARES 13
C
In her ending argument, the Trustee contends that, even if
any or all of her claims are derivative, the statutory rights of
the FDIC under FIRREA do not deprive her of standing
against the Directors under the facts of this case. The Trustee
bases this argument on the FDIC’s ostensible deference to her
pursuit of the claims against the Directors. In support of this
argument, the Trustee points to an FDIC letter stating: "[S]taff
is not convinced that any civil claim against the directors or
officers [of Bancshares] would be cost-effective and will not
recommend that any claim be pursued. We make no comment
as to whether or not there is a meritorious claim." (J.A. 575.)
The FDIC did, however, file a proof of claim in the underly-
ing Bancshares bankruptcy proceeding. Based on the FDIC’s
declination to act, the Trustee contends that she thus has full
authority to proceed against the Directors on all derivative
claims. We disagree.
As stated above, FIRREA vested in the FDIC "all rights,
titles, powers, and privileges of the [Bank], and of any stock-
holder . . . of [the Bank] with respect to the [Bank] and the
assets of the [Bank]." 12 U.S.C. § 1821(d)(2)(A)(i). In pursuit
of these rights, the FDIC may "take any action authorized by
[FIRREA], which the [FDIC] determines is in the best inter-
ests of the [Bank], its depositors, or the [FDIC]." Id.§ 1821(d)(2)(J)(ii).
all counts on standing grounds, it did not address any of these other
defenses. Since the district court has not first had the opportunity to
address these defenses on the merits, we will not undertake to do so ini-
tially on appeal. See, e.g., Ray Commc’ns, Inc. v. Clear Channel
Commc’ns, Inc., 673 F.3d 294, 308 (4th Cir. 2012) (reversing a district
court’s grant of summary judgment and remanding for further consider-
ation of affirmative defenses raised before but not addressed by the district
court). The Directors are free to assert these defenses on remand for con-
sideration by the district court in the first instance.
14 IN RE: BEACH FIRST NATIONAL BANCSHARES
FIRREA provides no direct statutory authority by which
the FDIC may transfer to another party its exclusive statutory
rights. The Trustee points to no case supporting such author-
ity. And even if the FDIC had authority to transfer its statu-
tory rights to another party, the FDIC letter at issue cannot
properly be read to do any such thing.
The letter contains no waiver, disclaimer, assignment, or
other purported transfer of the FDIC’s rights against the
Directors. It simply states that FDIC "staff is not convinced
that any civil claim . . . would be cost-effective and will not
recommend that any claim be pursued." (J.A. 575.) Nothing
in the FDIC letter prohibits it from proceeding against the
Directors if it so chooses. Moreover, our conclusion is bol-
stered by the language of the FDIC proof of claim, which
reserves to the FDIC "any rights at law or equity that the
FDIC-R has or may have against the Debtor or any other
entity, person or persons, including inter alia, the insiders,
directors or officers of the Debtor." (J.A. 193.)
IV
For the above-stated reasons, we hold that the Trustee may
pursue her claims only as to the Directors’ alleged improper
subordination of Bancshares’ LLC interest. We therefore
reverse and remand the district court’s judgment as to that
claim, but affirm its judgment in all other respects. Accord-
ingly, we hold that the district court did not err in granting the
Directors’ motion to dismiss except as to ¶ 28(p), the claim
for subordination of the LLC interest of Bancshares.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED