Ousted Banker Wins Round in Case : FDIC Loses Bid for Dismissal of Suit by Ex-Heritage Chief
Douglas E. Patty, the former Heritage Bank chairman who was ousted from his bank post by the Federal Deposit Insurance Corp. and is suing the agency for damages, won a preliminary round in federal court in Los Angeles Monday when U.S. District Judge Alicemarie Stotler denied the FDIC’s bid to dismiss the suit.
Patty filed his $54-million suit in June, 1985, claiming the FDIC violated a 1983 agreement under which Patty agreed to leave Heritage Bank of Anaheim in return for a promise that the FDIC would not file a civil lawsuit against him in connection with Heritage’s financial problems. The bank was declared insolvent and closed by state banking regulators on March 16, 1984, and the agency sued Patty and several other former Heritage officers and directors on March 15, 1985, in an attempt to recover some of Heritage’s losses.
The FDIC currently is presiding over the liquidation of the bank’s estimated $158 million in assets. The suit against Patty and the others seeks a minimum of $150 million.
In arguing for dismissal of Patty’s countersuit, FDIC attorneys contend that the disputed agreement with Patty was arranged by the agency’s regulatory division as an enforcement action. The FDIC bank liquidation division, which filed its suit against Patty and the others, did so as a receiver and is a different legal entity not bound by the initial agreement, the agency’s attorneys claim.
But Stotler said Monday that Patty’s agreement with FDIC was ambiguous enough for her to deny the FDIC’s motion for summary judgment and to allow the case to proceed. The language of the settlement agreement “seems to be something of a puzzlement,” Stotler said.
Before ruling, Stotler said she wanted attorneys for both sides to know that she had “the interesting experience of standing in line when Heritage Bank was taken over by the FDIC.”
And, Stotler said, Heritage Bank also carried a loan on a business building in which her family had an interest. When neither side objected to her peripheral involvement with the bank, Stotler denied the FDIC’s motion.
“This is a very important hurdle,” said Steven Stanwyck, Patty’s attorney. Stanwyck said Patty believed that when he signed the FDIC agreement two years ago, he was finished dealing with the federal government.
After Stotler commented that the settlement agreement with Patty was “very broad,” Assistant. U.S. Atty. Dzintra Janavs said the FDIC always used similar language in its administrative agreements.
According to a declaration filed with the court, Patty said he “agreed to the imposition of severe restrictions to act as a banker and to preserve my multimillion-dollar investment in Heritage Bank. I did the forgoing only upon my belief and understanding that I had gained peace of mind in that the FDIC gave me a complete release and would never again be my adversary in any manner, shape or form.”
Patty’s declaration quotes Ford Paulson, regional counsel for the FDIC, as saying to Patty when he signed the agreement that “this will make you happy. This will be the last time you will be (seeing or hearing) from the FDIC.”
Stanwyck said Patty believes that California state banking officials should have been the ones to take control of the ailing state-chartered bank, not the federal government’s insurance agency.
He said Patty also believes that all depositors would have recovered all their money if the bank had been allowed to continue operating under state control.
The FDIC, inaugurating a new policy with the Heritage closure, made only partial payment to depositors whose accounts exceeded the $100,000 FDIC insurance limit.
Such depositors received only 35% of balances in excess of $100,000 and were told that they would have to line up with other creditors and wait until the bank’s assets were liquidated before they could collect any more of their funds. In all, the FDIC withheld about $7 million in uninsured deposits from 75 Heritage customers.
