Federal Deposit Insurance v. Barton

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 99-31123

FEDERAL DEPOSIT INSURANCE CORPORATION,
As Manager of the Federal Savings and Loan
Insurance Corporation Resolution Fund,

Plaintiff-Appellant,

versus

GERALD C. BARTON, ET AL.,

Defendants,

GERALD C. BARTON; WILLIAM W. VAUGHAN,

Defendants-Appellees.

Appeal from the United States District Court
for the Eastern District of Louisiana

November 15, 2000

Before WOOD*, DAVIS, and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

For the wrongful bankruptcy claim at hand, primarily at issue

is the burden of proof for causation and damages. The Federal

Deposit Insurance Corporation contests the summary judgment awarded

Appellees. We VACATE and REMAND.

I.

*
United States Circuit Judge for the Seventh Circuit, sitting
by designation.
 Appellees Gerald C. Barton and William W. Vaughan are former

officers and directors of the Oak Tree Savings Bank, S.S.B., a

Louisiana-chartered savings bank. For its wrongful bankruptcy

claim, FDIC maintains that Appellees breached their fiduciary duty

to Oak Tree by abetting the filing in 1991 of bankruptcy petitions

by six Oak Tree Subsidiaries.

Prior to its failure in 1991, Oak Tree was Louisiana’s largest

thrift. It was the successor to two insolvent savings and loans

that its parent, Landmark Land Company, Inc., acquired at the

behest of the Federal Savings and Loan Insurance Corporation. Oak

Tree, wholly owned by Landmark, was the parent company to several

first and second tier subsidiary corporations (Subsidiaries).

Appellees held key positions in the Landmark corporations.

Barton was chairman of the board of Landmark, Oak Tree, and each of

the Subsidiaries, as well as chief executive officer of Landmark

and Oak Tree. Vaughan, Barton’s son-in-law, was a director and

officer of Oak Tree and most of the Subsidiaries, and was general

counsel to the Subsidiaries.

The Subsidiaries developed, owned, and managed residential

resort communities. Prior to the bankruptcy filings, the

Subsidiaries received more than $986 million in financing from Oak

Tree.

As a result of changes in accounting practices, pursuant to

the Financial Institutions Reform, Recovery, and Enforcement Act of

1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183 (codified in

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scattered sections of 12 U.S.C.), Oak Tree did not meet certain

regulatory capital requirements. Therefore, in January 1991, its

directors entered into a consent agreement with the Office of

Thrift Supervision (OTS), pursuant to which: the Subsidiaries were

not to enter into any material transactions without prior approval

from OTS; and the directors were to resign from their positions at

Oak Tree and its Subsidiaries at OTS’ request and consent to the

appointment of a receiver for Oak Tree, if OTS deemed one

necessary.

At directors’ meetings held on 9 October 1991, approximately

nine months after the consent agreement took effect, the

Subsidiaries voted to seek bankruptcy protection. Appellees were

either absent or abstained from these votes. Nevertheless, FDIC

alleges Appellees engineered the plan. The next day, Appellees

resigned from their positions at Oak Tree. And, the day after

that, 11 October, the Subsidiaries filed petitions in bankruptcy

court in South Carolina.

The Subsidiaries immediately obtained an injunction to prevent

Oak Tree, or its receiver, from exercising control over the

Subsidiaries or their assets or from exercising ownership rights

over them. Immediately thereafter, on 13 October, OTS appointed

the Resolution Trust Corporation (RTC) as Oak Tree’s receiver.

Eleven months of litigation ensued, by which RTC sought to

gain over the Subsidiaries the control to which it would have been

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entitled under a FIRREA administration. In August 1992, the Fourth

Circuit dissolved the injunction. In re Landmark Land Co. of

Okla., Inc., 973 F.2d 283, 290 (4th Cir. 1992) (concluding that the

district court was without jurisdiction to enjoin RTC from

exercising its ownership rights over the Subsidiaries).

RTC then removed Appellees from their positions with the

Subsidiaries. But, fearing that dismissal of the bankruptcies

would be even more costly and time-consuming, RTC elected to leave

the Subsidiaries in bankruptcy. However, RTC did propose, and

obtain, its own reorganization plan, through which Oak Tree has

recovered approximately $400 million.

FDIC, as statutory successor to RTC, contends that Oak Tree

has recovered substantially more under RTC’s reorganization plan

than it would have under the plan allegedly orchestrated by

Appellees (Appellees’ plan). In fact, FDIC contends that, under

Appellees’ plan, Oak Tree would have recovered nothing.

In October 1994, RTC filed this action against Appellees,

claiming gross negligence arising from mismanagement and improper

lending practices. RTC amended its complaint to add a claim for

wrongful bankruptcy. Appellees’ motion to dismiss RTC’s complaint

was granted, except for the wrongful bankruptcy claim. Resolution

Trust Corp. v. Barton, No. CIV.A.94-3294, 1995 WL 241849 at *5

(E.D. La. 24 Apr. 1995). Our court affirmed. Federal Deposit Ins.

Corp. v. Barton, 96 F.3d 128 (5th Cir. 1996).

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 In August 1997, Appellees moved for summary judgment on the

wrongful bankruptcy claim. The district court denied Appellees’

summary judgment motion on the issue of whether the filing of the

bankruptcies was indeed wrongful and, thus, constituted a breach of

Appellees’ fiduciary duties. Federal Deposit Ins. Corp. v. Barton,

No. CIV.A.94-3294, 1998 WL 169696 (E.D. La. 8 Apr. 1998).

Later, however, the district court granted Appellees’ summary

judgment motion on the issues of causation and damages. (For that

motion, the district court assumed that the bankruptcy filings were

wrongful.) RTC v. Barton, 81 F. Supp. 2d 666 (E.D. La. 1999).

Therefore, this action was dismissed.

II.

For its wrongful bankruptcy claim, FDIC contends that the

district court erred by requiring it to meet a legally erroneous

burden of proof on the issues of causation and damages, and by

failing to find material fact issues that precluded summary

judgment. In support of their summary judgment, and in addition to

urging that the district court ruled correctly as to causation and

damages, Appellees assert, among other things: the bankruptcy

filings were not wrongful; and, under Louisiana law, FDIC cannot

recover attorney’s fees.

We review a summary judgment de novo, applying the same

analysis employed by the district court. Vielma v. Eureka Co., 218

F.3d 458, 462 (5th Cir. 2000). Such judgment is proper if, viewing

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the summary judgment record in the light most favorable to the

nonmovant, there is no genuine issue of material fact, and the

movant is entitled to judgment as a matter of law. FED. R. CIV. P.

56(c); e.g., Madison v. Parker, 104 F.3d 765, 767 (5th Cir. 1997).

Claiming that Appellees are liable under LA. REV. STAT. ANN. §

6:291 for grossly negligent breach of the duty of care by a

corporate fiduciary, FDIC seeks damages of over $13 million for

professional fees it paid to gain the control of the Subsidiaries

to which it claims it was legally entitled under FIRREA. FDIC

asserted in district court that, but for Appellees’ wrongdoing in

abetting the filing of the Subsidiaries’ bankruptcies, the fees

would not have been incurred. Barton, 81 F. Supp. 2d at 668.

In awarding summary judgment to Appellees on the issues of

causation and damages, the district court concluded: FDIC could

not prove its damages, because it could not prove “bankruptcy was

a less desirable regime financially than FIRREA administration, in

terms of what it cost and what it recovered”; and FDIC could not

prove causation, because it could not show that, “but for the

wrongful bankruptcies (if they were in fact wrongful), the same

amount would have been recovered, and the $13,000,000 or some

portion of it would not have been expended”. Id. at 669 (emphasis

added).

Under Louisiana law, the elements for a negligence claim are

fault, causation, and damages. Gauthe v. Asbestos Corp., Ltd., 703

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So. 2d 763, 766 (La. Ct. App. 1997) (citing Owens v. Martin, 449

So. 2d 448, 450 (La. 1984)). We turn first to causation and

damages. The fault element, which Appellees appear to advance, is

discussed last.

A.

“Negligence is only actionable where it is both a cause-in-

fact of the injury and a legal cause of the injury.” Carter v. Dr.

Pepper Bottling Co. of Baton Rouge, Inc., 470 So. 2d 496, 499-500

(La. Ct. App. 1985).

If plaintiff can show he probably would not have suffered the

injuries complained of but for defendant’s conduct, he has met his

burden of proof for cause-in-fact. Charpentier v. St. Martin

Parish School Bd., 411 So. 2d 717, 720 (La. Ct. App. 1982). See

also Stroik v. Ponseti, 699 So. 2d 1072, 1077 (La. 1997) (“To the

extent the defendant’s actions had something to do with the injury

the plaintiff sustained, the test of a factual, causal relationship

is met.”). Obviously, cause-in-fact, vel non, involves a factual

determination.

Equally obvious, legal cause, vel non, is a matter of law.

Paul v. Louisiana State Employees’ Group Benefit Program, 762 So.

2d 136, 143 (La. Ct. App. 2000). The legal cause inquiry is

ultimately a question of policy — whether the particular risk falls

within the scope of duty. Id. The risk is not within the scope of

duty “where the circumstances of that injury to that plaintiff

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could not be reasonably foreseen or anticipated”. Id. (emphasis

added).

Accordingly, for causation, FDIC must prove that, but for

Appellees’ alleged wrongdoing, the collateral litigation expenses

it incurred in gaining control over the Subsidiaries would have

been avoided. FDIC is not required to show that, but for the

wrongful bankruptcies, the amount recovered in the bankruptcies

would have been the same as that recovered under a FIRREA

administration, and that the $13 million, or some portion of it,

would not have been expended. Cf. Barton, 81 F. Supp. 2d at 669.

Restated, what FDIC might have recovered from Oak Tree’s

property, absent Appellees’ alleged wrongful conduct, compared to

what FDIC ultimately recovered from the property, after overcoming

Appellees’ alleged wrongdoing, is irrelevant. See, e.g., RESTATEMENT

(SECOND) OF TORTS § 433B cmt. b (1965); Hastings v. Baton Rouge Gen.

Hosp., 498 So. 2d 713, 720 (La. 1986); LeJeune v. Allstate Ins.

Co., 365 So. 2d 471, 476 (La. 1978) (all stating that plaintiff may

not be charged with the impossible burden of proving to a

reasonable certainty the outcome of speculative scenarios that

assume the absence of defendant’s misconduct). Because Appellees

allegedly sought to protect their own interests at the expense of

Oak Tree’s by abetting the filing of the bankruptcies, RTC was

forced, through litigation, to wrest control of the Subsidiaries

from Appellees. Had RTC allowed the bankruptcies to proceed under

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Appellees’ plan, Appellees’ alleged scheme to defeat Oak Tree’s

interests in the Subsidiaries would have succeeded. Instead, RTC

gained control of the Subsidiaries; allowed them to remain in

bankruptcy; and filed its own reorganization plan, through which

Oak Tree recovered approximately $400 million. RTC’s decision to

allow the Subsidiaries to remain in bankruptcy is immaterial,

because that decision was made subsequent to RTC’s legal battle to

overcome the alleged wrongful bankruptcies.

Further, FDIC has not alleged that bankruptcy was a less

desirable regime for the Subsidiaries than an administration under

FIRREA. Davis v. American Commercial Barge Line Co., No. CIV.A.98-

537, 1998 WL 754541, at *2 (E.D. La. 22 Oct. 1998) (“The plaintiff

is the master of her complaint.”). Instead, FDIC has alleged that,

had Appellees not wrongfully filed the bankruptcies, FDIC would not

have incurred the $13 million in professional fees to gain control

of the Subsidiaries.

Appellees do not appear to contest “legal cause” — that FDIC’s

injury was a foreseeable result of their alleged wrongdoing. In

any event, we hold that it was foreseeable. And, because there are

material fact issues regarding whether Appellees’ alleged

wrongdoing was a cause in fact of FDIC’s damages, summary judgment

should not have been granted Appellees on this issue.

B.

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 Under Louisiana law, damages are awarded in an attempt to

place the injured party in the condition he would have occupied

but for the injury complained of. Shell Petroleum Corp. v. Scully,

71 F.2d 772, 775 (5th Cir. 1934). See also Scurria v. Hodge, 720

So. 2d 460, 466 (La. Ct. App. 1998) (“The basic theory of

reparation for the breach of a fiduciary duty is that the damaged

party should be returned as nearly as possible to his condition

prior to the act causing the damage.”).

Damages must be proved with “legal certainty”. Craig v.

Burch, 228 So. 2d 723, 731 (La. Ct. App. 1969). FDIC is seeking

the expenses it incurred to gain control over the Subsidiaries.

Thus, FDIC must show to a “legal certainty” how much it expended in

the collateral litigation to gain such control. FDIC is not

required to prove that it would have recovered more under a FIRREA

administration than it did via the bankruptcies. Cf. Barton, 81 F.

Supp. 2d at 669.

Again, what FDIC might have recovered from Oak Tree’s property

absent Appellees’ alleged wrongdoing compared to what it ultimately

recovered is irrelevant. Further, it did not seek such damages,

perhaps due to their speculative nature. See Bourdette v. Sieward,

107 La. 258, 31 So. 630 (La. 1902) (speculative damages cannot be

recovered). As the district court noted: “The problem is, we do

not know, nor can we ever know, what would have been recovered, and

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what it would have cost to do so, through [a] FIRREA

administration”. Barton, 81 F. Supp. 2d at 669.

C.

As alternative grounds for upholding the summary judgment,

Appellees contend, as they did in district court, that FDIC’s claim

for attorneys’ fees is not cognizable under Louisiana law. They

also appear to contend, contrary to the summary judgment denied

them on this point, that they are not, and cannot be, at fault. Of

course, we may affirm a summary judgment on grounds other than

those relied on by the district court. E.g., Lady v. Neal Glaser

Marine, Inc., No. 99-60382, 2000 WL 1405075, at *2 (5th Cir. 26

Sept. 2000).

1.

In Louisiana, attorney’s fees usually are not allowed in civil

actions in the absence of a statute or contract. Smith v. Atkins,

218 La. 1, 7, 48 So. 2d 101, 103 (La. 1950). However, the

Louisiana Supreme Court has awarded attorney’s fees as damages in

legal malpractice cases despite the absence of statutory or

contractual provisions allowing for their recovery. See, e.g.,

Ramp v. St. Paul Fire & Marine Ins. Co., 263 La. 774, 788, 269 So.

2d 239, 244-45 (La. 1972). Similarly, fees incurred in bankruptcy

have been allowed as damages for the wrongdoing that caused the

bankruptcy. Pelts & Skins Export, Ltd. v. State Dep’t of Wildlife

& Fisheries, 735 So. 2d 116, 128 (La. Ct. App. 1999). See also

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Orange Nat’l Bank v. Goodman & Beer Co., 150 So. 676, 677 (La. Ct.

App. 1933) (“Lawyers’ fees incurred in recovering property which

had been improperly seized in a suit against another person, may be

recovered back in a suit for damages for the illegal seizure.”

(quoting Dyke v. Walker, 5 La. Ann. 519 (1850))).

In sum, the fees are a proper form of damages for this

wrongful bankruptcy claim.

2.

As noted, as an alternative basis for upholding the summary

judgment, Appellees appear to contend that they are not, and cannot

be, at fault. However, as reflected supra, and as the district

court correctly concluded, there is a material fact issue

concerning whether Appellees abetted filing the bankruptcies to

harm Oak Tree. See Barton, 1998 WL 169696, at *6 (Appellees’

“state of mind, ... whether [Appellees] ‘schemed’ to harm Oak Tree,

is hotly contested”). In the light of this material fact issue,

and at this summary judgment stage, we decline to reach Appellees’

numerous other related contentions, such as preemption.

III.

For the foregoing reasons, we VACATE the summary judgment and

REMAND this case for further proceedings consistent with this

opinion.

VACATED AND REMANDED

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