Zucker v. Rodriguez

United States Court of Appeals
For the First Circuit
No. 17-1749
CLIFFORD A. ZUCKER, in his capacity as plan administrator of R&G
Financial Corp.,
Plaintiff, Appellant,
v.
ROLANDO RODRIGUEZ; MARIA VINA; CONJUGAL PARTNERSHIP RODRIGUEZ-
VINA; NELIDA FUNDORA; ANDRES I. PEREZ; JOSEPH R. SANDOVAL;
JACQUELINE MARIE CATES-ELLEDGE; CONJUGAL PARTNERSHIP SANDOVAL-
CATES; VICENTE GREGORIO; CARMEN A. MARTINEZ; CONJUGAL
PARTNERSHIP GREGORIO-MARTINEZ; MELBA ACOSTA; XL SPECIALTY
INSURANCE COMPANY; VICTOR J. GALAN; CONJUGAL PARTNERSHIP GALAN-
FUNDORA; FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of
R-G Premier Bank of Puerto Rico,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Pedro A. Delgado-Hernández, U.S. District Judge]
Before
Lynch, Stahl, and Kayatta,
Circuit Judges.
Alfred S. Lurey, with whom Stephen E. Hudson, Todd C. Meyers,
Kilpatrick Townsend & Stockton, LLP, Carlos A. Rodríguez-Vidal,
and Goldman Antonetti & Córdova, L.L.C., were on brief for
appellant.
Joseph Brooks, Counsel, Federal Deposit Insurance
Corporation, with whom Colleen J. Boles, Assistant General
Counsel, and Kathryn R. Norcross, Senior Counsel, were on brief
for appellee Federal Deposit Insurance Corporation.
Andrew W. Robertson, Zwerling, Schachter & Zwerling, LLP,
Roberto A. Cámara-Fuertes, and Ferraiuoli LLC on brief for
appellees Joseph R. Sandoval, Jaqueline Marie Cates-Elledge, and
Conjugal Partnership Sandoval-Elledge.
Andrés Rivero, Alan H. Rolnick, M. Paula Aguila, Bryan L.
Paschal, and Rivero Mestre LLP, on brief for appellees Rolando
Rodriguez, Andres I. Perez, Vicente Gregorio, Melba Acosta-Febo,
and Victor J. Galan.
March 27, 2019
LYNCH, Circuit Judge. In 2010, R&G Financial
Corporation, a holding company, entered Chapter 11 bankruptcy
after its primary subsidiary, R-G Premier Bank of Puerto Rico (the
Bank), failed. Weeks prior, Puerto Rican regulators had closed
the Bank and named the Federal Deposit Insurance Corporation (FDIC)
as the Bank's receiver. The Bank's failure was one of the largest
in Puerto Rico's history, costing the FDIC's Deposit Insurance
Fund at least $1.2 billion.
Two years after the Bank's failure, Clifford Zucker, the
plan administrator (the Administrator) for the Chapter 11 estate
of R&G Financial (the Holding Company), filed this suit against
six of the Holding Company's former directors and officers (the
Directors) and their insurer, XL Specialty Insurance Company.1
The Administrator's complaint alleged that negligence and breach
of fiduciary duties owed to the Holding Company caused the Bank's
failure and the Holding Company's resultant loss of its investment
in the Bank. The FDIC intervened to defend its interests as the
Bank's receiver, arguing that the claims asserted belonged to it
and not to the Administrator. We affirm the district court's
dismissal of the complaint, albeit on different reasoning. See
1 The other defendants are the Directors' spouses and the
legal conjugal partnerships formed between the Directors and their
spouses.
- 3 -
Zucker v. Rodriguez, No. 12-CV-1408, 2017 WL 2345683, at *1 (D.P.R.
May 30, 2017).2
The FDIC and the Directors argue that the
Administrator's complaint must be dismissed because the claims he
has asserted for the Holding Company are the FDIC's under 12 U.S.C.
§ 1821(d)(2)(A), a provision of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA). That provision
provides that as receiver of a bank, the FDIC "shall . . . succeed
to . . . all rights, titles, powers, and privileges of the insured
depository institution, and of any stockholder . . . of such
institution with respect to the institution and the assets of the
institution." We agree that, under § 1821(d)(2)(A), the FDIC
succeeded to the Administrator's claims, and affirm on that ground.
I.
The following facts are taken from the complaint, except
where otherwise noted. Cooper v. Charter Commc'ns Entm'ts I, LLC,
760 F.3d 103, 105 (1st Cir. 2014).
A. The Bank and the Holding Company
The Bank was established in 1983 as a federal savings
bank and became a subsidiary of the Holding Company in 1994.3 Like
2 The district court's order captioned the case as Zuker
v. Rodriguez, No. 12-CV-1408.
3 See Executive Summary, Office of Inspector General,
Material Loss Review of R-G Premier Bank of Puerto Rico, Hato Rey,
Report No. MLR-11-009 (Dec. 2010),
https://www.fdicoig.gov/sites/default/files/publications/11-
- 4 -
other savings and loan, or thrift, institutions, the Bank's primary
lending activity was home mortgages. See Executive Summary, OIG
Report; see also United States v. Winstar Corp., 518 U.S. 839,
844-45 (1996) (plurality opinion) (describing the thrift
industry). In the 2000s, the Holding Company, with its
subsidiaries, was Puerto Rico's second-largest residential
mortgage loan originator and servicer. As the Holding Company's
primary subsidiary, the Bank did most of this lending.4 Indeed,
from 2009 until the Bank's failure, the Bank's assets made up over
ninety percent of the Holding Company's assets. See OIG Report
at 3 n.2.
The Holding Company and the Bank had separate boards,
but the same individuals served on both boards. See id. at 3.
The entities also shared a CEO.5 Victor Galán, a defendant here,
009.pdf (last visited Mar. 6, 2019) [hereinafter OIG Report].
This report, the authenticity of which is not disputed, is
extensively quoted in the Administrator's complaint, has "merge[d]
into th[at] pleading[]," and may be properly considered on a motion
to dismiss. See Alt. Energy, Inc. v. St. Paul Fire & Marine Ins.
Co., 267 F.3d 30, 33 (1st Cir. 2001) (quoting Beddall v. State St.
Bank & Tr. Co., 137 F.3d 12, 17 (1st Cir. 1998)).
4 In 2005, the Bank accounted for sixty-six percent of the
Holding Company's assets. See OIG Report at 3 n.2.
5 See Complaint at 5, FDIC v. Galán-Alvarez, No. 12-CV-
1029 (D.P.R. Jan. 18, 2012). The district court took judicial
notice of this complaint filed by the FDIC against officers and
directors of the Bank for grossly negligent conduct that led to
the Bank's failure. Zucker, 2017 WL 2345683, at *4 n.4. We do
the same. See E.I. Du Pont de Nemours & Co. v. Cullen, 791 F.2d
5, 7 (1st Cir. 1986) (Breyer, J.) (taking judicial notice of the
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was the Holding Company's President and Chief Executive Officer
(CEO) until 2006. He remained Chairman of both boards until
December 2008, and he controlled at least fifty-eight percent of
the Holding Company's stock during the relevant period. Rolando
Rodríguez, also a defendant, took over as President and CEO of the
Holding Company in 2007. Galán and Rodríguez also served as CEOs
of the Bank while leading the Holding Company. See Complaint at
5, Galán-Alvarez, No. 12-CV-1029.
Also among the director defendants are Joseph Sandoval,
Vincente Gregorio, Andres Pérez, and Melba Acosta-Febo, each of
whom served at some relevant time as Executive Vice President and
Chief Financial Officer (CFO) of the Holding Company. The record
does not say what roles, if any, these defendants held at the Bank.
B. Mid-2000s Accounting Fraud Scheme
While Galán and Sandoval were at the helm, the Holding
Company and the Bank engaged in an accounting fraud scheme with
two other major lending institutions in Puerto Rico -- First
BanCorp and Doral Financial Corporation (Doral) -- and their
subsidiary banks. The accounting scheme, which ran from 2002
until 2005, involved a series of transactions in which the Holding
Company or the Bank transferred interest in non-conforming
mortgage loans to First BanCorp, Doral, or to their subsidiary
complaint in a relevant case on a motion to dismiss).
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banks. The participants then improperly recorded these
transactions on their books as true sales; with proper accounting,
the transactions would have been categorized as secured lending
transactions. Categorizing the transactions as true sales allowed
the participants to account for the sales as gains. Ultimately,
because of the scheme, each bank holding company reported greater
assets than it actually had and appeared healthier than it actually
was on capital- and risk-related measures.
In 2005, investors questioned assumptions disclosed in
Doral's 2004 Form 10-K used to calculate the "gains" from its
transactions with the Holding Company and the Bank. In April of
that year, the Holding Company publicly acknowledged that because
of the accounting scheme, it would need to restate its consolidated
financial statements for 2003 and 2004. The consolidated
statements presented aggregated financial information for the
Holding Company and its subsidiaries, including the Bank. The
errors in the consolidated financial statements were sizable, in
dollar terms: for example, for 2004, the Holding Company misstated
its net income as $160.2 million when it had actually suffered a
loss of $15.9 million.
C. The Bank's Failure
The Administrator's complaint alleged that negligence
and breach of fiduciary duties by the Directors in the aftermath
of this accounting scheme led to years-long delays in the
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correction of the consolidated financial statements for 2002
through 2004 and in the preparation and issuance of new
consolidated financial statements for 2005 through 2008.6 These
delays, the complaint said, led to the failure of the Bank and to
resulting losses to the Holding Company.
Between 2005 and 2010, the Holding Company and its
subsidiaries, including the Bank, desperately needed to replenish
the capital eroded during the accounting fraud and subsequent class
action litigation.7 These capital shortages were exacerbated by
the 2008 collapse of the housing market in Puerto Rico and
elsewhere. In 2006 and 2007, in an apparent effort to raise
capital, the Holding Company had sold off several other non-bank
subsidiaries. However, it retained ownership of its wholly owned
mortgage lending business, R&G Mortgage Corporation, and the Bank.8
Further capital-raising efforts faltered because, without up-to-
date consolidated financial statements, it was impossible, the
Administrator's complaint alleged, for the Holding Company and its
6 The restated 2002 through 2004 statements were not
issued until the fall of 2007. The 2005 to 2007 statements were
not issued until 2009. The 2008 statements were issued in 2010.
7 Several class actions related to the accounting fraud
were filed in federal court in New York and Puerto Rico. After
the suits were consolidated, the class actions were resolved by a
court-approved settlement.
8 It also kept a portion of R&G Investments Corporation.
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subsidiaries to access capital markets or private capital
sufficient to remain solvent.
The Bank failed on April 30, 2010 when Puerto Rican
regulators closed it and named the FDIC as its receiver. By that
time, the Holding Company had made R&G Mortgage a subsidiary of
the Bank. The Holding Company had transferred all of its stock
interests in R&G Mortgage to the Bank to satisfy debt owed by R&G
Mortgage to the Bank. When the Bank closed, its liabilities
exceeded its assets by at least $1.2 billion. See OIG Report at
1. This $1.2 billion difference is the estimated loss to the
FDIC's Deposit Insurance Fund because of the Bank's failure. Id.
Having lost its only significant operating subsidiary,
the Holding Company filed for Chapter 11 bankruptcy in May 2010.
D. Procedural Histories of the Administrator's Action and the
FDIC's Action
The Administrator initiated this proceeding in the
Holding Company's Chapter 11 case in May 2012. The complaint's
Counts I through IV alleged that the Directors acted negligently
and breached their fiduciary duties to the Holding Company by
failing to implement and maintain effective internal controls over
financial reporting. Counts V and VI alleged that the Directors
breached a fiduciary duty of care owed to the Holding Company by
failing to provide complete and accurate financial reports to the
Holding Company's board. (Recall that the financial statements
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of the Holding Company and the Bank were consolidated.) Count XI
of the complaint was brought against XL Specialty Insurance Company
and alleged that the claims asserted fell within the coverage
provided to the Directors by XL. Finally, Counts VII through X
of the complaint were ultimately withdrawn and are discussed below.
The sole injury alleged in the complaint was the Holding
Company's loss of its interest in the Bank when the Bank failed.
"The loss of [the Bank] caused severe injury to [the Holding
Company]," the complaint stated, "in an amount to be proven at
trial but not less than $278 million."
Once the reference to the bankruptcy court was withdrawn
and the case was in federal district court, the FDIC moved to
intervene to protect its interests as receiver of the Bank. Its
motion informed the district court of an action filed by the FDIC
alleging that gross negligence by officers and directors of the
Bank in the supervision of the Bank's lending practices led to the
Bank's failure. See Complaint at 2-4, Galán-Alvarez, No. 12-CV-
1029.
The FDIC's complaint named as defendants three of the
defendants in this case -- Galán and Rodríguez, in their capacities
as CEO of the Bank, and XL Specialty Insurance Company. See id.
at 1-2. As stated above, Galán and Rodríguez led the Bank, the
Holding Company, and both entities' boards. Further, the same XL
Specialty Insurance policy insured the officers and directors of
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the Holding Company, defendants here, and the officers and
directors of the Bank, defendants in the FDIC's action. Compare
Complaint at 4, Galán-Alvarez, No. 12-CV-1029, with Complaint at
36, Zucker v. Rodriguez, No. 12-00270-MCF (Bankr. P.R. May 11,
2012).
After the district court granted the FDIC leave to
intervene, the FDIC and the Directors moved to dismiss.9 They
argued that the Administrator lacked standing to assert his claims
because the claims belong to the FDIC under 12 U.S.C.
§ 1821(d)(2)(A), which we quoted earlier.10
The Administrator then filed a notice of withdrawal of
various claims that he admitted the FDIC had succeeded to under
§ 1821(d)(2)(A). These claims, in Counts VII through X of the
complaint (and parts of Counts V and VI) alleged that the Directors
had failed to implement adequate risk controls and good lending
practices at the Bank. These claims overlapped with the claims
brought by the FDIC in its action.
9 One of the Directors instead filed a motion for judgment
on the pleadings. The district court addressed this motion with
the motions to dismiss. Zucker, 2017 WL 2345683, at *2.
10 The Directors' motion also argued other grounds for
dismissal not reached by the district court. Zucker, 2017 WL
2345683, at *2 & n.2. On appeal, Sandoval continues to press one
of these grounds, but our disposition of the case makes it
unnecessary to reach that argument.
- 11 -
In its order allowing the Administrator to withdraw
these claims and dismissing the remainder of the complaint, the
district court read § 1821(d)(2)(A) to allocate to the FDIC all
claims that shareholders like the Holding Company might assert
derivatively on behalf of the Bank under the relevant state law.
Zucker, 2017 WL 2345683, at *3. Concluding that the
Administrator's claims were derivative under Puerto Rican law and
that the claims therefore belonged to the FDIC, the district court
dismissed the Administrator's complaint for lack of standing. Id.
at *12.
II.
We hold, based on our interpretation of the text of
§ 1821(d)(2)(A), the persuasive value of the FDIC's interpretation
of this provision (which it administers), and our rejection of the
Administrator's interpretive arguments, that the Administrator's
claims belong to the FDIC and were thus properly dismissed.11
We begin with a close look at the structure of federal
savings and loan regulation and at FIRREA. The savings and loan
industry has long been highly "regulated and . . . closely
supervised" by the federal government. Winstar, 518 U.S. at 844
11 The district court dismissed the complaint for lack of
standing. Zucker, 2017 WL 2345683, at *1. We affirm the
dismissal on the ground that the Administrator cannot state a claim
upon which relief can be granted because his claims belong to the
FDIC.
- 12 -
(quoting Fahey v. Mallonee, 332 U.S. 245, 250 (1947)). Indeed,
in enacting FIRREA, Congress described the thrift industry as a
"federally-conceived and assisted system," one whose purpose is
"to provide citizens with affordable housing funds." H.R. Rep.
No. 101-54(I), at 292 (1989). "Every thrift," Congress explained,
"is chartered by the government and consequently, voluntarily
assumes an enormous public responsibility in return for deposit
insurance and other government benefits." Id. at 294.
That system was born in the Great Depression. After
forty percent of the country's home mortgages were defaulted on
and almost two thousand savings institutions failed, Congress
created federal agencies authorized to charter and to regulate
thrifts and established federal insurance for thrift deposits.12
See Winstar, 518 U.S. at 844; see also Home Owners' Loan Act of
1933, ch. 64, 48 Stat. 128 (1933) (codified as amended at 12 U.S.C.
§§ 1461-1468); National Housing Act of 1934, ch. 847, 48 Stat.
1246, 1255 (1934) (codified as amended at 12 U.S.C. §§ 1701-1749).
12 Deposit insurance stabilizes financial institutions, and
the wider economy, by guaranteeing deposits in the event of bank
failure. See, e.g., Kenneth E. Scott & Thomas Mayer, Risk and
Regulation in Banking: Some Proposals for Federal Deposit
Insurance Reform, 23 Stan. L. Rev. 857, 858 (1971); see also Levin
v. Miller, 763 F.3d 667, 674 (7th Cir. 2014) (Hamilton, J.,
concurring) (describing FDIC's "vital roles in socializing losses
to protect depositors and stabilize the economy"). Insurance not
only replaces deposits that would be lost, but it also reassures
the public about the security of their deposits, thereby preventing
dangerous bank runs. Scott & Mayer, supra, at 858.
- 13 -
Federal deposit insurance has been funded primarily by
premiums collected from banks. See Kenneth E. Scott & Thomas
Mayer, Risk and Regulation in Banking: Some Proposals for Federal
Deposit Insurance Reform, 23 Stan. L. Rev. 857, 864 (1971) ("The
purpose of charging insurance premiums . . . is to require the
banking and [savings and loan] industries to cover the costs they
impose on the economy."). But it is ultimately "backed by the
full faith and credit of the United States government," making the
taxpayers the final guarantors of losses. Levin v. Miller, 763
F.3d 667, 674 (7th Cir. 2014) (Hamilton, J., concurring); see also
id. (describing deposit insurance as a form of "socializing
losses") (citing Joseph E. Stiglitz, Freefall: America, Free
Markets, and the Sinking of the World Economy (2010)). Indeed,
Congress has on several occasions appropriated money to make up
for shortfalls in the thrift deposit insurance fund. See, e.g.,
12 U.S.C. § 1441b(f)(2)(E) (authorizing use of Department of
Treasury funds to address insolvencies at thrift institutions
after the savings and loan crisis); see also Cheryl D. Block,
Measuring the True Cost of Government Bailout, 88 Wash. U. L. Rev.
149, 166-69 (2010) (discussing the role of federal funds in
supporting deposit insurance).
The savings and loan crisis of the 1980s was one such
occasion. Block, supra, at 167. Then, thousands of thrift
institutions failed, federal agencies lacked sufficient resources
- 14 -
to address the failures, and the existing deposit insurance fund
teetered toward insolvency. See Winstar, 518 U.S. at 846-47.
Congress responded with FIRREA. See Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, 103
Stat. 183 (1989). FIRREA not only "put the Federal deposit
insurance funds on a sound financial footing." Id. § 101
(codified at 12 U.S.C. § 1811 note). It also restructured and
expanded the government's regulatory and enforcement powers. See
Winstar, 518 U.S. at 856 (noting the "enormous changes in the
structure of federal thrift regulation" made in FIRREA); see also,
e.g., LaSalle Talman Bank, F.S.B. v. United States, 317 F.3d 1363,
1372–73 (Fed. Cir. 2003) (FIRREA made "a fundamental change in
savings and loan regulatory policy and procedure, for the greater
public benefit").
Relevant here, FIRREA transferred to the FDIC from a
predecessor agency the power to act as conservator or receiver of
a failed thrift institution. FIRREA, § 212 (codified at 12 U.S.C.
§ 1821); see also H.R. Rep. 101-45(I), at 329-31 (noting that these
powers were transferred). In doing so, Congress aimed "to give
the FDIC power to take all actions necessary to resolve the
problems posed by a financial institution in default." H.R. Rep.
101-45(I), at 329-31. The FIRREA provision at issue defines the
"General powers" of the FDIC as the "Successor to [the]
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institution." 12 U.S.C. § 1821(d)(2). Again, the relevant
subparagraph reads:
The Corporation shall, as conservator or
receiver, and by operation of law, succeed
to--
(i) all rights, titles, powers, and
privileges of the insured depository
institution, and of any stockholder,
member, accountholder, depositor,
officer, or director of such institution
with respect to the institution and the
assets of the institution.
12 U.S.C. § 1821(d)(2)(A).
III.
In holding that the FDIC succeeded to the
Administrator's claims under § 1821(d)(2)(A), we first conclude
that § 1821(d)(2)(A)(i)'s language about the "rights . . . of any
stockholder . . . with respect to the institution and the assets
of the institution" plainly encompasses the Administrator's
claims. We reject the Administrator's favored reading of
§ 1821(d)(2)(A), which limits the provision's key language to
claims that shareholders may assert derivatively under state law
on behalf of the institution in receivership. There is no support
in the text of § 1821(d)(2)(A) for such a judicial gloss. Nor do
the Administrator's non-textual interpretive arguments, which we
evaluate in the next section, convince us to depart from our
reading of the plain language. And while the FDIC does not have
much of a track record of interpreting that text in this context,
- 16 -
it reads the provision it administers as we read it, not as the
Administrator does; the FDIC's arguments in support of its reading
are persuasive.
Our ruling is a limited one: it applies only to claims
like those before us. The claims are brought by a former bank
holding company to recover its interest in a wholly owned
subsidiary bank (a bank that made up over ninety percent of the
holding company's assets). And the holding company seeks to
recover from assets, like insurance, that the FDIC also seeks in
its own action related to the Bank's failure. We do not establish
any broader principles, and future claims by holding companies and
other shareholders of banks in FDIC receivership will need to be
evaluated on their own terms. With that overview in place, we
turn back once again to § 1821(d)(2)(A)'s text.
When the FDIC succeeded to "all rights, titles, powers,
and privileges of the insured depository institution, and of any
stockholder . . . of such institution with respect to the
institution and the assets of the institution," it succeeded to
the Administrator's claims. 12 U.S.C. § 1821(d)(2)(A)(i). We
reach that conclusion by applying the provision's terms to the
claims step-by-step. Cf. New Prime Inc. v. Oliveira, 139 S. Ct.
532, 537-38 (2019) (emphasizing the importance of step-by-step
reading).
- 17 -
First, the Holding Company was the Bank's sole
shareholder, so the Holding Company's right to bring legal claims
is a "right[] . . . of [a] stockholder" of the Bank. 12 U.S.C.
§ 1821(d)(2)(A)(i). As the FDIC emphasizes, although the claims
allege breach of duties owed to the Holding Company by the Holding
Company's officers and directors, the claims are not brought by
the Holding Company qua Holding Company. Instead, the suit
depends entirely on the Holding Company's position as a Bank
stockholder, as it seeks to recover for lost interest in the Bank.
The claims, as pleaded by the Administrator, necessarily require
the Administrator to prove that, but-for the malfeasance of the
Holding Company Directors, the assets of the Bank would have been
much greater, and that increase in Bank assets would have inured
to the benefit of the Holding Company as the Bank's parent
stockholder.
Second, it follows from that reading of the complaint
that the claims represent the assertion of a right of the
stockholder "with respect to . . . the assets of the institution"
in receivership. Id. That the claims depend on the Holding
Company's proving that malfeasance by its directors depressed the
Bank's assets means that the claims relate to or concern the assets
of the Bank. See, e.g., Khan v. United States, 548 F.3d 549, 556
(7th Cir. 2008) (defining "with respect to" as "pertaining to" or
"concerning"); cf. Lamar, Archer & Cofrin, LLP v. Appling, 138 S.
- 18 -
Ct. 1752, 1760 (2018) (defining "respecting" and "relating to").
The claims in the Administrator's complaint therefore constitute
the assertion of rights of a stockholder with respect to the assets
of the Bank.
We add that the Holding Company's right to bring the
insurance coverage claim in Count XI is a "right[] . . . of [a]
stockholder . . . with respect to . . . the assets of the
institution" for another, independent reason: the coverage under
the insurance policy is an asset shared by the Holding Company and
the Bank, so the Holding Company's competing right to that coverage
is a claim of a stockholder with respect to an asset of the Bank.
12 U.S.C. § 1821(d)(2)(A)(i).
In sum, because the Administrator's claims assert
"right[s] . . . of [a] stockholder . . . of [the Bank] . . . with
respect to the [Bank] and the assets of the [Bank]," the FDIC as
receiver succeeded to those claims "by operation of law" under
§ 1821(d)(2)(A).
The Administrator urges us to read this language about
the rights of a stockholder as limited to claims that the Holding
Company might assert derivatively under state law on behalf of the
Bank. He argues that his claims are direct under Puerto Rico law
so that, under his reading, the FDIC did not succeed to them.
The most basic problem for the Administrator's
interpretation is that the direct-derivative distinction appears
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nowhere in the language of § 1821(d)(2)(A). Courts must avoid
reading into statutes concepts or exceptions absent from the text,
so we cannot assume, without a textual basis, that Congress
intended to place such a limitation on the FDIC's power. See,
e.g., Barnhart v. Sigmon Coal Co., 534 U.S. 438, 461–62 (2002)
("[C]ourts must presume that [Congress] says in a statute what it
means and means in a statute what it says there." (quoting Conn.
Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992))); EPA v. EME
Homer City Generation, L.P., 572 U.S. 489, 508 (2014) (rejecting
an interpretation that would add to the statute an "unwritten
exception"); cf. United States v. Nunez, 146 F.3d 36, 40 (1st Cir.
1998) (rejecting "an unwritten limitation plucked from thin air"
in the sentencing guidelines).
The Administrator points to the majority opinion in
Levin v. Miller, 763 F.3d 667 (7th Cir. 2014), the only other
circuit case to engage with this textual question to date. There,
the majority read the phrase "rights . . . with respect to . . .
the assets of the institution" to refer, just "in other words," to
claims "that investors . . . would pursue derivatively." Id. at
672. Yet those concepts are not self-evidently synonymous, and
the Levin majority provided no further explanation. In
concurrence, Judge Hamilton disagreed with the majority's reading,
writing, "[i]f 'rights . . . of any stockholder' was meant to refer
only to derivative claims, it's a broad and roundabout way of
- 20 -
expressing that narrower idea." Id. at 673 (Hamilton, J.,
concurring).13 We agree, and conclude that Levin's reasoning does
not supply a textual basis for the Administrator's interpretation.
The other circuit cases applying § 1821(d)(2)(A) that
the Administrator relies on also do not help him. Barnes v.
Harris, 783 F.3d 1185 (10th Cir. 2015) and Vieira v. Anderson (In
re Beach First Nat'l Bancshares, Inc.), 702 F.3d 772 (4th Cir.
2012) evaluated, using the direct-derivative distinction, whether
the FDIC had succeeded to claims brought by former bank holding
companies. But both did so without considering whether, under the
language of § 1821(d)(2)(A), the FDIC's ownership is limited to
derivative claims.
In fact, those cases are consistent with our holding
that § 1821(d)(2)(A) covers the Administrator's claims. The
Administrator concedes that Barnes is inconsistent with his
position. There, the court held that § 1821(d)(2)(A) allocated
to the FDIC claims that are, in all legally relevant respects,
indistinguishable from the Administrator's. Barnes, 783 F.3d at
13 The concurrence framed this point as one about avoiding
statutory surplusage. Levin, 763 F.3d at 673. The parties here
debate whether the Administrator's reading creates surplusage. We
find the Administrator's reading unpersuasive without resort to an
evaluation of those surplusage arguments. Cf. Rimini St., Inc. v.
Oracle USA, Inc., No. 17-1625, 2019 WL 1005828, at *7 (U.S. Mar.
4, 2019) (recognizing, even when there may be statutory redundancy,
a party may still "overstate[] the significance of statutory
surplusage" arguments).
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1194. As for Vieira, that case decided that the FDIC succeeded
to claims by a former holding company's trustee in bankruptcy
against the holding company's directors, reasoning that the claims
were based entirely on harms to the bank's assets. 702 F.3d at
779. Here, the FDIC stresses the Administrator's concession that
all of the Administrator's claims are based solely on the Bank's
failure. And the FDIC emphasizes its authority, indeed its
responsibility, to recover for the same Bank failure from a similar
set of defendants.
Finally, the Administrator argues that the FDIC's
position should be rejected because the FDIC had not, before this
litigation, advanced the reading of § 1821(d)(2)(A) that it
embraces now and that we adopt. But the FDIC has never changed
its fundamental position. In Levin, Vieira, and Barnes, as here,
the FDIC said that § 1821(d)(2)(A) allocated claims like the
Administrator's to the FDIC. That those past suits were framed
in state law terms does not preclude the FDIC from relying on the
plain language of § 1821(d)(2)(A) here.
In this litigation, the FDIC takes the position that
nothing in the language of § 1821(d)(2)(A) limits the claims to
which the FDIC succeeds to claims that state law classifies as
derivative. This litigation position, the FDIC says, largely
encompasses the reasoning of Judge Hamilton's concurring opinion
in Levin. See 763 F.3d at 673-74.
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The FDIC adds that Congress confirmed, in a related
provision, that the FDIC should own actions like the Holding
Company's. The provision lays out FIRREA's priority scheme for
the payment of certain claims not allocated to the FDIC. This
scheme provides that claims of shareholders, "including any
depository institution holding company," cannot be satisfied until
after all other claims, by depositors and others. 12 U.S.C.
§ 1821(d)(11)(A)(v). The Administrator's interpretation, were it
applied here, would allow former bank holding companies to turn
this priority scheme on its head.
Finally, the FDIC says that, should we determine that
§ 1821(d)(2)(A) is ambiguous, then its litigation position is
entitled to deference under Skidmore v. Swift & Co., 323 U.S. 134,
140 (1944).
In the end, there is no ambiguity in Congress's choice
not to limit the claims to which the FDIC succeeds to derivative
claims. Our conclusion that § 1821(d)(2)(A) covers the
Administrator's claims is consistent with the plain meanings of
the words Congress chose. Further, compared to the
Administrator's narrowing construction, our reading better
reflects § 1821(d)(2)(A)'s breadth. See Pareto v. FDIC, 139 F.3d
696, 700 (9th Cir. 1998) (stating that "Congress has transferred
everything it could to the FDIC"); see also Levin, 763 F.3d at 673
(Hamilton, J., concurring).
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IV.
Ordinarily, our interpretive efforts stop when, as here,
the meaning of a provision's text is plain. See, e.g., NLRB v.
SW Gen., Inc., 137 S. Ct. 929, 942 (2017) ("The text is clear, so
we need not consider this extra-textual evidence."); Robb Evans &
Assocs., LLC v. United States, 850 F.3d 24, 34 (1st Cir. 2017)
("If the plain language of a statute elucidates its meaning, that
meaning governs."). But the Administrator makes two additional
interpretive arguments. Neither convinces us to depart from our
reading.
A. Absurdity and Avoidance
The Administrator first argues that our reading must be
avoided because it leads to an absurd result. State law, the
Administrator says, does not grant the subsidiary Bank standing to
bring his claims alleging breach of duties to the parent Holding
Company. As a result, the Administrator contends, if
§ 1821(d)(2)(A) is read to allocate his claims to the FDIC as that
Bank's receiver, his claims would disappear.
This resort to state law and the holding company form is
unconvincing. What the Administrator's argument misses is that
§ 1821(d)(2)(A) itself conveys, "by operation of law," the
relevant rights in the causes of action to the FDIC. For that
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simple reason, those rights are not lost, they are transferred,
and they now belong to the FDIC.14
Next, the Administrator objects that transferring his
right in the causes of action to the FDIC would violate the
Constitution's Takings Clause and should therefore be avoided.
But "[t]he canon [of constitutional avoidance] 'has no
application' absent 'ambiguity.'" Nielsen v. Preap, No. 16-1363,
2019 WL 1245517, at *13 (U.S. Mar. 19, 2019) (quoting Warger v.
Shauers, 574 U.S. 40, 50 (2014)). Given that the text of
§ 1821(d)(2)(A) "cuts clearly against" the Administrator's
reading, adopting that interpretation for reasons of
constitutional avoidance is not an option. Id.
There is no constitutional problem in any event. The
Takings Clause requires the government to provide "just
compensation" before taking private property for "public use,"
U.S. Const. amend. V, but only for deprivations of vested property
rights, see, e.g., Landgraf v. USI Film Prod., 511 U.S. 244, 266
14 As a policy matter, vesting the holding company's claims
in the FDIC is not absurd, it is sensible. That is especially
true where a former holding company and the FDIC seek to recover
for the same bank failure from the same pot of money (here, the
same insurance policy). Vesting the claims in FDIC prevents
holding companies that may have contributed to or failed to prevent
the collapse of their wholly owned subsidiary banks from recovering
"ahead of or on par with the FDIC" for the bank's failure. Levin,
763 F.3d at 673; see Barnes, 783 F.3d at 1195 (finding such a
result "consistent with the requirement that shareholders not
circumvent the interests of creditors and the FDIC").
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(1994). And, for purposes of the Takings Clause, "[i]t is well
established that a party's property right in a cause of action
does not vest 'until a final, unreviewable judgment has been
obtained.'" Cooperativa de Ahorro y Credito Aguada v. Kidder,
Peabody & Co., 993 F.2d 269, 273 n.11 (1st Cir. 1993) (quoting
Hammond v. United States, 786 F.2d 8, 12 (1st Cir. 1986)); see
also Hoffman v. City of Warwick, 909 F.2d 608, 621 (1st Cir.
1990).15
B. Legislative History and Legislative Intent
The Administrator next argues that § 1821(d)(2)(A)
cannot be read to cover his claims based on his view of the
legislative history of a rejected amendment to FIRREA. We will
not "allow[] ambiguous legislative history to muddy clear
statutory language." Milner v. Dep't of Navy, 562 U.S. 562, 572
(2011); see also Barnhart, 534 U.S. at 457 (similar). The text
here is clear, and so this rejected amendment cannot change our
result.
We find the rejected amendment irrelevant in any event.
The Senate version of FIRREA initially included § 214(o), which
read:
15Other circuits have observed the same. See, e.g.,
Bowers v. Whitman, 671 F.3d 905, 914 (9th Cir. 2012); Sowell v.
Am. Cyanamid Co., 888 F.2d 802, 805 (11th Cir. 1989). The Court
of Federal Claims cases relied on by the Administrator are neither
binding nor, in the face of this settled law, persuasive.
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In any proceeding related to any claim
acquired under [§ 1821] against an insured
financial institution's director, officer,
employee, agent, attorney, accountant,
appraiser, or any other party employed by or
providing services to an insured financial
institution, any suit, claim, or cause of
action brought by the Corporation shall have
priority over any such suit, claim, or cause
of action asserted by depositors, creditors,
or shareholders of the insured financial
institution . . . .
S. 774, 101st Cong. § 214(o) (1989). This, as the Administrator
reads it, would have given priority to the FDIC in proceedings
"related" to claims the FDIC had acquired as receiver. The
conference committee tasked with reconciling the House and Senate
versions of the bill cut § 214(o) from the final version of FIRREA.
The Administrator asks us to infer that the conference
committee's rejection of § 214(o)'s priority language means that
Congress could not have intended to give the FDIC ownership of
claims like his. Inferences of this sort are notoriously
unreliable and are to be avoided by courts. The fact that Congress
rejected a provision about one thing tells us little about what
Congress intended in enacting a provision about something else.
See generally William N. Eskridge, Jr., Interpreting Legislative
Inaction, 87 Mich. L. Rev. 67, 94 (1988) ("[L]egislative inaction
rarely tells us much about relevant legislative intent."); see
NLRB v. C & C Plywood Corp., 385 U.S. 421, 426-27 (1967) (rejecting
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an inference from a rejected amendment). Congress might have
excluded § 214(o) for any number of reasons.
The Administrator urges that a floor statement by a
member of the conference committee demonstrates that the amendment
was rejected for relevant reasons. Courts do not attribute to
Congress as a whole the views expressed in individual legislators'
floor statements. See SW Gen., 137 S. Ct. at 943 ("[F]loor
statements by individual legislators rank among the least
illuminating forms of legislative history."). In any event, the
primary fear expressed in the floor statement was that § 214(o)
would reduce private parties' incentives to bring securities fraud
suits, undermining the federal government's ability to rely on
those parties to aid in anti-fraud efforts and "lead[ing] to more
fraud." 135 Cong. Rec. H4985, H4989 (daily ed. Aug. 3, 1989)
(statement of Rep. Staggers). But this action is not one alleging
fraud or one to enforce the securities laws. Moreover, we think
that allocating the Administrator's claims to the FDIC increases
incentives for bank holding companies not to engage in conduct
that leads to a bank's failure.
V.
The long history of extensive federal involvement in the
savings and loan industry reveals that the protection of depositors
and the stability of thrift institutions are paramount among
congressional concerns. A strong and solvent deposit insurance
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fund and an FDIC well-equipped to recover funds to address the
needs of failed banks are essential to achieving those goals. We
doubt that a Congress with these concerns would have intended to
allow a holding company that played a role in the failure of its
subsidiary bank to recover for that bank's failure at the expense
of the FDIC, the deposit insurance fund, and ultimately, ordinary
depositors and taxpayers. See Levin, 763 F.3d at 674 (Hamilton,
J., concurring); Barnes, 783 F.3d at 1195.
The judgment of the district court is affirmed.
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