Facts
- American Diversified Savings Bank (ADSB), a California-chartered, federally insured savings and loan, was controlled by officers who allegedly committed accounting and asset-valuation fraud to conceal insolvency.
- In 1985, O’Melveny & Myers represented ADSB in two real estate syndications; the offerings closed on December 31, 1985.
- Federal regulators determined ADSB was insolvent on February 14, 1986, and the FDIC was appointed receiver.
- As receiver, the FDIC rescinded the syndications and caused ADSB to refund investors’ funds plus interest after investor deception claims.
- The FDIC sued O’Melveny & Myers in federal court on state-law claims (professional negligence and breach of fiduciary duty).
- The law firm argued that (1) it owed no duty to uncover the bank’s internal fraud and (2) the officers’ knowledge and fraud must be imputed to ADSB (and thus to the FDIC as receiver), barring the FDIC’s claims through defenses such as estoppel.
- The district court granted summary judgment to the law firm; the Ninth Circuit reversed, applying a federal common-law rule that did not impute the officers’ wrongdoing to the FDIC as receiver.
Issues
- Whether state law or federal common law governs imputation of corporate officers’ knowledge and related defenses in a tort suit brought by the FDIC as receiver for a failed, state-chartered bank.
- Whether federal banking statutes and federal interests justify a special federal common-law rule preventing imputation against the FDIC as receiver.
Decision
- The Supreme Court unanimously reversed the Ninth Circuit and remanded.
- The Court held that state law supplies the rule of decision for the law firm’s alleged tort liability, including imputation and related defenses.
- The Court rejected creation of a special federal common-law rule for cases in which the FDIC sues as receiver.
- The Court did not decide what California law requires on imputation, leaving that determination for further proceedings.
Legal Principles
- There is no general federal common law; absent statutory displacement, state law governs state-created claims and their incident defenses.
- When the FDIC acts as receiver, it succeeds to the failed institution’s rights and limitations and generally “steps into the shoes” of the institution under 12 U.S.C. § 1821(d)(2)(A)(i).
- Courts should not craft judge-made federal rules to supplement a comprehensive federal regulatory scheme; gaps are presumed left to state law unless a significant conflict with federal policy requires displacement.
- General policy arguments that federal receivership serves public interests do not, without clear statutory direction or significant conflict, justify replacing state law with federal common law.
Conclusion
The Court held that state law governs imputation and related defenses in the FDIC’s receiver-capacity tort suit against a bank’s attorneys, and it rejected a special federal common-law rule that would insulate the FDIC from the bank officers’ wrongdoing.