Daly v. Federal Deposit Insurance Corporation

Background

Robert A. Daly sued the Federal Deposit Insurance Corporation (FDIC), acting as receiver for First Republic Bank. Daly alleged that the bank recruited him in late 2022 and induced him to join on March 3, 2023, by making false statements about its financial condition, lending platform, referral network, mortgage rates, and ability to withstand economic conditions. He also alleged that the bank concealed risks involving rising interest rates, its net interest income and margin, its mortgage portfolio, liquidity, and balance sheet.

Daly alleged that the bank’s credit ratings were downgraded less than two weeks after he joined, that the bank entered receivership on May 1, 2023, and that he resigned on May 2, 2023. After the FDIC became receiver, Daly filed an administrative claim, which the FDIC disallowed on November 16, 2023.

Daly asserted claims for intentional misrepresentation, fraudulent concealment, negligent misrepresentation, promissory fraud, intentional interference with prospective economic advantage, negligent interference with prospective economic advantage, and violation of California Business and Professions Code § 17200. The opinion states that the § 17200 claim was derivative of the other claims. The FDIC moved to dismiss.

FDIC-bar arguments

The FDIC argued that the D’Oench doctrine and 12 U.S.C. §§ 1823(e) and 1821(d)(9)(A) barred Daly’s claims. The D’Oench doctrine and these statutes generally protect the FDIC from claims or defenses based on unwritten or unrecorded agreements that could reduce the value of assets acquired from a failed bank. The court explained that an agreement covered by these protections generally must satisfy requirements including being written, executed as required, approved by the bank’s board or loan committee, and continuously maintained as an official bank record.

The court rejected the FDIC’s argument that these protections barred Daly’s employment-related claims. It reasoned that the doctrine and statutes are aimed at protecting the reliability of records concerning ordinary banking transactions, such as loans and other bank assets. The FDIC had not shown that the same rule applied to an employment relationship, and it cited no contrary authority involving this context.

Pleading analysis

The court also rejected the FDIC’s argument that Daly was improperly asserting claims based on director and officer misconduct. Daly was not seeking to hold any bank officer or director personally liable, so the statutes cited by the FDIC did not support dismissal on that basis.

For the fraud-related claims, the court held that Daly had alleged enough facts to proceed past a motion to dismiss for failure to state a claim. The court accepted the complaint’s factual allegations as true at this stage and drew reasonable inferences in Daly’s favor. It concluded that the timing of the bank’s credit-rating downgrades and failure supported a reasonable inference that the bank’s senior executives may have known about its precarious financial condition when they recruited Daly. The court stated that questions about the bank’s knowledge and intent could be tested later on a developed factual record, such as at summary judgment or trial.

The court also rejected the argument that the bank had no duty to disclose its financial condition. It explained that if the bank chose to make affirmative statements about its safety, it could not provide misleading half-truths by concealing material facts that qualified those statements. The court further held that Daly’s sophistication and the public availability of information about regional-bank failures did not justify dismissal because those points raised factual questions and senior bank executives may have had nonpublic information.

Interference claims

The court dismissed the intentional-interference claim because Daly had not alleged concrete facts suggesting that the bank intended to disrupt his customer relationships or acted for that purpose. The dismissal was with leave to amend.

The court found that Daly adequately identified two possible economic opportunities: a customer’s potential $95 million loan and a potential $18 million mortgage. The court concluded that the negligent-interference claim could proceed as to the first opportunity because the complaint alleged that the bank knew about it during recruitment. But the complaint did not clearly allege that the bank knew about the potential $18 million mortgage before it acted, so the court dismissed the negligent-interference claim in part to the extent it relied on that opportunity. Daly received leave to amend that portion as well.

Punitive damages and disposition

The FDIC argued that 12 U.S.C. § 1825(b)(3) barred punitive damages against it while acting as receiver. The court granted the FDIC’s request to dismiss or strike the punitive-damages request and gave no leave to amend.

The court therefore granted in part and denied in part the FDIC’s motion to dismiss. The motion was granted only as to the intentional-interference claim, the negligent-interference claim based on the prospective economic advantage identified in paragraph 18 of the complaint, and punitive damages. Daly could amend the first two claims, but not the punitive-damages request. The amended complaint was due October 15, 2024, and the FDIC’s response was due November 12, 2024. The court did not consider the FDIC’s argument under 12 U.S.C. § 1821(j) because the FDIC raised it for the first time in its reply brief.