O'Melveny & Myers v. Federal Deposit Insurance Corporation - Oral Argument - March 21, 1994

O'Melveny & Myers v. Federal Deposit Insurance Corporation

Media for O'Melveny & Myers v. Federal Deposit Insurance Corporation

Audio Transcription for Opinion Announcement - June 13, 1994 in O'Melveny & Myers v. Federal Deposit Insurance Corporation

Audio Transcription for Oral Argument - March 21, 1994 in O'Melveny & Myers v. Federal Deposit Insurance Corporation

William H. Rehnquist:

We'll hear argument now in Number 93-489, O'Melveny & Myers v. Federal Deposit Insurance Corporation.

Mr. Lee.

Rex E. Lee:

Mr. Chief Justice and may it please the Court:

At issue in this case is whether Federal or State law determines the elements and the defenses of a negligence claim brought by the FDIC as receiver for a savings and loan against an outside attorney for that savings and loan.

The case arises out of the petitioner's assisting in the preparation of two private placement memoranda for American Diversified Savings Bank over the period from September through December of 1985.

During and prior to that time, two individuals named Sahni and Day, who owned 100 percent of ADSB, were engaged and had been for some time in fraudulent and other illegal activities which eventually resulted in Federal and State regulators placing ADSB into receivership.

None of the O'Melveny lawyers was aware of any of the illegal acts, nor are they alleged to have been, nor of ADSB's financial or regulatory problems and, indeed, the ADSB officers concealed this information from the petitioner.

The Ninth Circuit created two Federal rules of decision: first, that the knowledge of ADSB's 100 percent owners was not imputed to ADSB, and second, that the FDIC can avoid defenses to tort claims that would be good against the predecessor, ADSB.

In response to an argument by the petitioner pointing out certain provisions of State law, the Ninth Circuit stated as follows, and this is a quote:

"The flaw in O'Melveny's argument is the law O'Melveny assumes applies. "

"It is now clear beyond doubt that Federal, not State, law governs the application of defenses against the FDIC. "

and that's the issue in this case.

William H. Rehnquist:

Mr. Lee, you don't challenge, I take it, the Ninth Circuit's view that a law firm in this situation is under a duty of inquiry when it prepares a private prospectus like this?

Rex E. Lee:

We do challenge it, Mr. Chief Justice, but it's not one of the issues... we think they erred as a matter of California law in deciding that.

William H. Rehnquist:

But you're not asking us to--

Rex E. Lee:

That is correct.

That's not one of the questions before the Court.

What is before--

Sandra Day O'Connor:

--And you are satisfied that California law is what governs in this case?

Rex E. Lee:

--That's the issue.

That's the issue.

That's the issue on which--

Sandra Day O'Connor:

But if any State law governs--

Rex E. Lee:

--Oh, yes, that is correct.

Sandra Day O'Connor:

--it's California.

Rex E. Lee:

That is correct.

Sandra Day O'Connor:

It is the law of California, and do we know what the law of California is on the imputation defense?

Rex E. Lee:

I certainly do.

My friends here have a little doubt about it, but I certainly do.

[Laughter]