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Federal Deposit Insurance Corporation As Receiver for Butte Community Bank v. Ching

United States District Court, E.D. California

July 8, 2014

ROBERT CHING, et al., Defendants.


KIMBERLY J. MUELLER, Magistrate Judge.

Robert Ching, Eugene Even, Donald Leforce, Ellis Matthews, Luther McLaughlin, Robert Morgan, James Rickards, Gary Strauss, Hubert Townshend, John Coger and Keith Robbins ("defendants") move for summary judgment against the Federal Deposit Insurance Corporation ("FDIC"), acting as receiver for Butte Community Bank ("the Bank"). Def.'s Mot. Summ. J. ("Mot.") at 1, ECF No. 19-1. The court heard argument on April 25, 2014, with Jeremy J. Gray appearing for the FDIC and Kevin D. Hughes appearing for defendants. For the reasons below, the court GRANTS IN PART and DENIES IN PART the motion.


Incorporated in California on May 11, 1990, the Bank began operations on December 14, 1990. Compl. ¶ 21, ECF No. 1. The Bank was insured under the Federal Deposit Insurance Act and participated in the FDIC's Transaction Account Guarantee Program, whereby all non-interest bearing transaction accounts were fully guaranteed. Id. ¶ 22. At all relevant times, the Bank was a wholly owned subsidiary of California Valley Bancorp ("CVB"), a presently existing California corporation registered as a financial holding company under the Bank Holding Company Act of 1956. Id. ¶ 25. CVB was incorporated in July 2001 and acquired all outstanding shares of the Bank in May 2002. Id. ¶ 26.

The FDIC complains that "[b]efore 2007, the Bank had developed an overconcentration of lending in real estate, " id. ¶ 30, which led to "significant deterioration in asset quality and... limit[ed]... its ability to grow in a declining market, " id. ¶ 32. After seeking and rejecting an investment-banking firm's recommended remedy as too conservative, defendants "independently decided to engage in a large one-time tender offer' that would maximize the amount of cash transferred from the Bank to stockholders." Id. ¶¶ 33-34. "Under this plan, the Bank would raise cash by selling seven Bank buildings (which it would then immediately lease back), " and "[t]hat cash, along with other cash on hand, would then be transferred to CVB in the form of a dividend, and CVB would then distribute the cash to participating CVB stockholders in a tender offer." Id. ¶ 34.

The Bank closed the sale-leaseback transaction in February 2008; CVB issued a $13 million tender offer to stockholders in March 2008; and the Bank paid a dividend of $8.8 million to CVB in May 2008. Id. ¶ 37. Three days after receiving the dividend, CVB paid $13 million to participating stockholders. Id .; see also Pl.'s Statement of Undisputed Facts ("Pl.'s SUFs") at 3, ECF No. 26-2. Eventually, citing the Bank's inability to meet its financial obligations, the California Department of Financial Institutions ("CDFI") closed the Bank on August 20, 2010 and named the FDIC, a federal agency, as receiver. Compl. ¶ 2. At the time of closure, the Bank's administrative office was in Chico, California. Id. ¶ 21.

On behalf of "the Bank and of any stockholder, member, accountholder, depositor, and other creditor of the Bank, " the FDIC filed suit on August 19, 2013. Id. ¶ 3. It brings four claims: (1) negligence under state common law; (2) gross negligence under 12 U.S.C. § 1821(k); (3) gross negligence under California Corporations Code § 309; and (4) breach of fiduciary duties under state common law. Id. ¶¶ 64-94. The complaint alleges that defendants

negligently, grossly negligently, and in breach of their fiduciary duties failed to maintain adequate capitalization of the Bank, improperly caused the Bank to transfer funds and property to its holding company, failed to direct the business and affairs of the Bank to insure safe, sound and prudent principles of banking, and caused or contributed to an unwarranted depletion of capital, all as the result of a May 2008 dividend..., partially funded by a sale-leaseback transaction involving seven of the Bank's branch buildings... that was used to repurchase 13 million shares of Bank holding company stock from the Defendants and others....

Id. ¶ 4. It does not allege violation of California Corporations Code sections 316, 500, 501 or 506 or California Financial Code sections 1132 or 1175 (collectively "the California dividend statutes"). Pl.'s SUF at 2.

Defendants are eleven former members of the Bank's Board of Directors ("the Board"). Compl. ¶ 27. Defendants Coger and Robbins were both members of the Board and officers of the Bank. Id. ¶ 28. At all relevant times, the Board also served as the Board of Directors of CVB. Id. ¶ 29. Defendants Coger and Robbins were also officers of CVB. Id.

The court held an initial scheduling conference on January 23, 2014. Status (Pretrial Scheduling) Order at 1, ECF No. 13. At the conference, defendants represented they would seek summary judgment "on the legal issue of whether California's bank dividend statutes preclude plaintiff from bringing its common law cause of action against defendants for bank dividend liability." Id. at 2-4. On that basis, the court stayed discovery for ninety days and ordered the instant motion to be heard by April 25, 2014. Id. The court considers only the legal issues presented in the motion.


Summary judgment is proper "if... there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). "Material" facts are those that "might affect the outcome of the suit under the governing law, " Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986), and an "issue of fact [is]... genuine'" where established by the presence or absence of "specific facts, " not mere "metaphysical doubt, " Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). A moving party is entitled to judgment as a matter of law "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party...." Id. at 587 (citing First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)); accord FED. R. CIV. P. 50(a) ("If a party has been fully heard on an issue... and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may... grant a motion for judgment as a matter of law....").

The moving party bears the initial burden of showing the "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party successfully does so, the burden shifts to the nonmoving party, who "must establish that there is a genuine issue of material fact...." Matsushita Elec. Indus. Co., 475 U.S. at 585. In carrying their burdens, both parties must "cit[e] to particular parts of materials in the record... or show... that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." FED. R. CIV. P. 56(c)(1). The court views all evidence and ...

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