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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