Atherton v. Federal Deposit Insurance Corporation

PETITIONER: Atherton
RESPONDENT: Federal Deposit Insurance Corporation
LOCATION: Larned State Hospital

DOCKET NO.: 95-928
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 519 US 213 (1997)
ARGUED: Nov 04, 1996
DECIDED: Jan 14, 1997

ADVOCATES:
Richard P. Bress - on behalf of the Respondent
Ronald W. Stevens - on behalf of the Petitioner

Facts of the case

City Federal Savings Bank (City Federal) lost a significant amount of its clients' money because of negligent investing by employee John Atherton. The client, Resolution Trust Corporation (RTC), sued Atherton under state law for "gross negligence," "simple negligence," and "breach of fiduciary duty." A three-judge District Court held that Atherton could only be sued for gross negligence, because the more lenient "gross negligence" standard for negligent conduct set by federal statutory law annulled stricter standards set by state law. The U.S. Appeals Court for the Third Circuit reversed the decision, and held that federal statutes only ensured a minimum standard of "gross negligence." The stricter state standards still applied.

On appeal to the Supreme Court, the Federal Deposit Insurance Corporation (FDIC), petitioning on behalf of RTC, argued that federal common law should set a uniform standard of negligent conduct for all employees at federally chartered banks. According to FDIC, allowing state statutes to regulate federally chartered banks would contradict the federal charter system's purpose of upholding federal common law. The Supreme Court was asked to decide which law applied to Atherton: state law, federal common law, or federal statutory law.

Question

1) Can states apply standards of negligence that are stricter (more inclusive) than the federal standard of "gross negligence" for employees of federally-chartered banks?

2) Is there a federal common law governing negligence by employees of federally-chartered banks?

Media for Atherton v. Federal Deposit Insurance Corporation

Audio Transcription for Oral Argument - November 04, 1996 in Atherton v. Federal Deposit Insurance Corporation

William H. Rehnquist:

We'll hear argument now in Number 95-928, John W. Atherton, Jr. v. Federal Deposit Insurance Corporation.

Mr. Stevens.

Ronald W. Stevens:

Mr. Chief Justice and may it please the Court:

At issue in this case is whether the FDIC, in its capacity as Receiver of a federally chartered savings association, has a Federal common law claim based on simple negligence against the former directors and officers of that association for breach of their fiduciary duty of care, which is the proposition for which the Government contends, or whether the FDIC's sole Federal claim is the statutory claim for gross negligence under 12 U.S.C. section 1821(k), which is the proposition for which we contend.

That latter provision was adopted as part of the Financial Institution Reform, Recovery, and Enforcement Act of 1989, otherwise known as FIRREA.

Although a divided panel of the Third Circuit found that 1821(k) does not even apply to federally chartered depository institutions, the Government has conceded in this Court that it does.

Where petitioner and the Government part company is on the question of whether the FDIC has a preexisting Federal common law claim for simple negligence and, if it does, whether that claim was displaced by section 1821(k).

Sandra Day O'Connor:

Mr. Stevens, I think, if I remember correctly, the Third Circuit Court of Appeals assumed there was a Federal common law standard here, and left it open on remand to the district court to determine the scope of the standard, is that right?

Ronald W. Stevens:

Yes, Justice O'Connor, they did... they--

Sandra Day O'Connor:

Did the petitioners here concede in the court of appeals that a Federal common law standard applied?

Ronald W. Stevens:

--No, we did not.

We argued to the Third Circuit, which argument occurred subsequent to this Court's decision in O'Melveny and Myers, that under that decision there was no general Federal common law right of action that accrued prior to the enactment of FIRREA.

Sandra Day O'Connor:

And do you think that the question whether there exists a Federal common law rule was preserved--

Ronald W. Stevens:

Yes, I do.

Sandra Day O'Connor:

--here?

Ronald W. Stevens:

Yes.

Sandra Day O'Connor:

It wasn't... it wasn't set out that clearly in your original cert petition.

Ronald W. Stevens:

Well, in the... the second of the two questions presented in the cert petition is as follows, quote, Whether the court of appeals erred in concluding that section 1821(k)... and I'm leaving out some descriptive language of that now... has no application whatsoever to RTC actions against officers and directors of failed federally chartered FDIC insured institutions, and that the liability of officers and directors of such institutions is instead governed exclusively by Federal common law.

The second of the reasons for granting the writ which was set forth at page 8 of the petition is, quote, the court of appeals' conclusion that Federal common law instead of section 1821(k) supplies the applicable law in this case violates this Court's longstanding rules respecting the creation and application of such judgemade law, and finally, section 2 of the petition is expressly entitled, quote, the Third Circuit's decision is in direct conflict with this Court's prior rulings respecting the application of Federal common law, and particularly its recent decision in O'Melveny and Myers v. FDIC.

Sandra Day O'Connor:

And what State law do you say applies in this case?

Ronald W. Stevens:

It's our contention that the State law that would apply in cases such as this would be the law of the place of the location of the principal place of business of the association.

Sandra Day O'Connor:

Which is?

Ronald W. Stevens:

New Jersey.

In this case, however, the FDIC has waived its State law claim.

Ruth Bader Ginsburg:

But that was in response to the district court's ruling, wasn't it?

Ronald W. Stevens:

No, Your Honor.

That was a unilateral voluntary action taken by the FDIC and articulated in its brief to the district court below when the matter was being briefed in connection with the motion to dismiss.

It was not an action taken subsequent to the district court's order.

It was a voluntary, unilateral decision by the FDIC.

Ruth Bader Ginsburg:

But do I understand correctly that the district court's opinion said that 1821(k) was the exclusive law applicable to a Federal, federally chartered institution?