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Federal Deposit Insurance Corp. v. Dee

United States District Court, D. New Mexico

December 5, 2016

FEDERAL DEPOSIT INSURANCE CORP., as Receiver for First Community Bank, Plaintiff,
v.
H. PATRICK DEE; PAUL D. DIPAOLA; V. WILLIAM DOLAN, JR.; JOHN E. FANNING; MARSHALL G. MARTIN; BOBBY J. NAFUS; RONALD R. SANCHEZ and PAMELA J. SMITH, Defendants.

          Mary T. Torres Beall & Biehler Law Firm Albuquerque, New Mexico and Dennis S. Klein Hughes Hubbard Miami, Florida Attorneys for the Plaintiff

          Andrew G. Schultz Rodey, Dickason, Sloan, Akin & Robb, P.A. Albuquerque, New Mexico and William Frank Carroll Thomas B. Alleman Aubrey Colvard Labanowski Dykema Cox Smith Dallas, Texas Attorneys for Defendants H. Patrick Dee, Paul D. DiPaola, V. William Dolan, Jr., John E. Fanning, Marshall G. Martin, Ronald R. Sanchez, and Pamela J. Smith

          Phil Krehbiel Marian B. Hand Nicholas L. Pino Keleher & McLeod Albuquerque, New Mexico Attorneys for Defendant Bobby J. Nafus

          MEMORANDUM OPINION AND ORDER [1]

         THIS MATTER comes before the Court on: (i) Plaintiffs Motion for Leave to Amend its Complaint in Accordance with the Court's March 3, 2015 Order, filed March 10, 2015 (Doc. 67)("Motion for Leave to Amend Complaint"); (ii) Plaintiffs Motion to Stay Deadlines in this Court's Scheduling Order, filed March 10, 2015 (Doc. 68)("Motion to Stay Deadlines"); (iii) Notice of Adoption of Previously Filed Certain Defendants' Motion to Dismiss and Defendants' Joint Response in Opposition to Plaintiffs Motion for Leave to Amend, filed March 31, 2016 (Doc. 97)("Notice of Adoption of Previously Filed Motion to Dismiss"); and (iv) Defendant Nafus's Renewed Motion to Dismiss, filed March 31, 2016 (Doc. 98)(“Nafus' Renewed Motion to Dismiss”). The primary issues are whether: (i) the Plaintiff Federal Deposit Insurance Corporation's Amended Complaint, filed March 10, 2015 (Doc. 67-1)(“Amended Complaint”), sufficiently alleges an injury and causation to cure deficiencies in the original Complaint, filed January 23, 2014 (Doc. 1)(“Complaint”); (ii) whether a stay of discovery deadlines in this case is appropriate; and (iii) whether the Amended Complaint contains sufficient factual allegations to plead negligence, gross negligence, and breach of fiduciary duty as to all, or some, of the Defendants. The Court concludes (i) that the Amended Complaint sufficiently cures deficiencies in the original Complaint; (ii) granting a stay to the discovery deadlines would not unduly delay the case or prejudice the parties; and (iii) the Amended Complaint contains sufficient factual allegations to plead negligence, gross negligence, and breach of fiduciary duty as to all of the Defendants. Accordingly, the Court will: (i) grant the FDIC's Motion for Leave to Amend; (ii) grant the FDIC's Motion to Stay Deadlines; (iii) deny the Notice of Adoption of Previously Filed Motion to Dismiss; and (iv) deny Nafus' Renewed Motion to Dismiss.

         FACTUAL BACKGROUND

         This case arises out of a series of loans that First Community Bank of Taos, New Mexico, issued between January 29, 2007, and February 16, 2010. The Court takes its facts from the Amended Complaint, as it must when considering a motion to dismiss for failure to state a claim under rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court has reorganized the Complaint's allegations to explain the facts more clearly.

         1. The Parties.

         The FDIC is a corporation and an instrumentality of the United States of America that Congress established in the Federal Deposit Insurance Act, 12 U.S.C. §§ 1811-35(a). See Amended Complaint ¶ 7, at 3. On January 28, 2011, the New Mexico Regulation & Licensing Department, Financial Institutions Division (“NMFID”) appointed the FDIC as the Receiver[2] for First Community. Amended Complaint ¶ 7, at 3.

         Dee was First Community's President from May 16, 2001, to January 28, 2011, and Chief Executive Officer (“CEO”) from December 31, 2009, to January 28, 2011. See Amended Complaint ¶ 8, at 3. He was also a member of First Community's Board of Directors from January 9, 1992, to January 28, 2011, and a member of First Community's Credit Committee from October 17, 2005, to January 28, 2011. See Amended Complaint ¶ 8, at 3.

         DiPaola was First Community's Regional President of New Mexico from 2003 to January 28, 2011. See Amended Complaint ¶ 9, at 4. DiPaola was a Board member from March 28, 1994, to January 28, 2011, and a Credit Committee member from July 25, 2005, to January 28, 2011. See Amended Complaint ¶ 9, at 4.

         Dolan was a First Community loan officer from October 28, 1991, to September 16, 2009, and head of First Community's Special Assets Group from February 11, 2009, to September 16, 2009. See Amended Complaint ¶ 10, at 4. Dolan was a Board member from July 15, 1993, to August 4, 2009, and a Credit Committee member from July 25, 2005, to September 8, 2009. See Amended Complaint ¶ 10, at 4.

         Fanning was First Community's Regional President for Southern New Mexico and Arizona from November 14, 2005, to October 21, 2008, and Chief Credit Officer (“CCO”) from October 27, 2008, to January 28, 2011. See Amended Complaint ¶ 11, at 4. Fanning was a Board member from January 23, 2006, to January 28, 2011, and a Credit Committee member from November 15, 2005, to January 28, 2011. See Amended Complaint ¶ 11, at 4.

         Martin was corporate counsel at First Community from September 17, 2003, to January 28, 2011. See Amended Complaint ¶ 12, at 4. Martin was a Board member from September 15, 2003, to August 4, 2009, an advisory director from August 5, 2009, to January 28, 2011, and a Credit Committee member from July 25, 2005, to October 20, 2009. See Amended Complaint ¶ 12, at 4.

         Nafus was a senior vice president and a loan officer in First Community's “Northern New Mexico territory” from June 17, 1991, to September 11, 2009. Amended Complaint ¶ 13, at 4. Sanchez was First Community's Regional President for Northern New Mexico and Utah from 2004 to October 5, 2009. See Amended Complaint ¶ 14, at 4. Sanchez was a Board member from December 16, 1993, to September 11, 2009, and a Credit Committee member from July 25, 2005, to September 8, 2009. See Amended Complaint ¶ 14, at 4.

         Smith was a loan reviewer at First Community from July 12, 2004, to October 30, 2006, CCO from October 30, 2006, to October 27, 2008, and Deputy CCO from October 27, 2008, to January 28, 2011. See Amended Complaint ¶ 15, at 4-5. Smith was a Credit Committee member from July 25, 2005, to January 28, 2011, and served as its Chairwoman from November 21, 2006, to October 21, 2008. See Amended Complaint ¶ 15, at 5.

         2. Background.

         In or about 2002, First Community began to expand its operations into unfamiliar markets and promote a production-driven lending culture while ignoring appropriate credit-risk management practices. See Amended Complaint ¶ 21, at 5. As a result, First Community's commercial real estate (“CRE”) loan concentrations -- including acquisition, development, and construction loans (“ADC”) -- rapidly increased “to dangerous levels.” Amended Complaint ¶ 21, at 5. By 2007, those loans constituted more than seventy-four percent of First Community's loan portfolio -- placing it in the upper ninetieth percentile of its peer group from 2007 to 2010. See Amended Complaint ¶ 21, at 5-6. This “reckless lending” ultimately led to a significant increase in classified assets, [3] which increased sharply from thirty-two million dollars in 2006 to $538 million in 2009. Amended Complaint ¶ 23, at 6.

         At all relevant times, First Community's Loan Policy (“Loan Policy”) required senior management to “instill a credit culture that fosters and actively supports the extension of credit on sound, fundamental lending principles.” Amended Complaint ¶ 25, at 6 (internal quotation marks omitted). The Loan Policy mandated that “[c]redit was only to be granted to reputable borrowers and only when supported by acceptable and reliable financial information.” Amended Complaint ¶ 25, at 6.

         For each loan, the Loan Policy required, among other things:

(a) that the loan comply in all respects with the spirit and letter of all applicable laws and regulations; (b) a loan write up that referenced the industry outlook, the borrower's position within the industry, and, if applicable, the current concentration guideline, exposure, and control limits for each credit; (c) two years (three years, as of August 11, 2009) of financial information from the borrower and all guarantors, and a current interim financial statement if the loan request occurred more than 6 months after the borrower's last fiscal year end; (d) an accountant-prepared compilation statement for loans under $3 million, a CPA-prepared financial statement for loans between $3 million and $5 million, or an audited financial statement for loans over $5 million; (e) an analysis of the adequacy and reliability of historic and anticipated cash flows; (f) financial spreads for operating companies with relationship amounts of $250, 000 or more; (g) a maximum term of 2 years, or 3 years with supporting authority, for ADC loans; and a maximum term of 18 months for non-owner occupied commercial construction loans; (h) a maximum loan-to-value ratio[4] of the lesser of 75 percent of the appraised value or 85 percent of costs (75 percent of costs, as of January 1, 2009) for ADC loans; a maximum loan-to-value ratio of the lesser of 75 percent of the appraised value or 80 percent of costs (75 percent of costs, as of January 1, 2009) for non-owner occupied commercial construction loans and non-owner occupied CRE loans; and a maximum loan-to-value of the lesser of 65 percent of the appraised value or cost for loans to acquire unimproved land; and (i) an appraisal less than a year old from an independent source for all property taken as collateral.

Amended Complaint ¶ 26, at 6-7 (internal quotation marks omitted).

         3. The Kitts Development, LLC, Loans.

         On or about January 29, 2007, Nafus approved a $2.89 million loan to Kitts Development, LLC, to fund the acquisition and development of a 10.07-acre site. See Amended Complaint ¶ 29, at 8. Kitts Development's principal, T.J., [5] served as the loan's guarantor. See Amended Complaint ¶ 29, at 8.

         Nafus made a number of mistakes in approving the loan. See Amended Complaint ¶ 30, at 8. First, Nafus failed to analyze Kitts Development's financial strength alone, but instead relied on the combined financial information of Kitts Development and Larkspur, LLC -- both of which T.J. owned. See Amended Complaint ¶ 30, at 8. Second, Nafus relied on the cash-flow analysis in Kitts Development's Loan Approval Form (“LAF”) that improperly double-counted T.J.'s and Larkspur, LLC's income. See Amended Complaint ¶ 30, at 8. Third, although the LAF presented a rudimentary cash flow analysis for T.J., Nafus failed either to conduct a global cash-flow analysis that included both Kitts Development and T.J., or to verify either party's assets. See Amended Complaint ¶ 30, at 8. Fourth, Nafus ignored a number of red flags in the financial information that he received which indicated that the loan should not be approved: (i) Larkspur, LLC was the sole source of T.J.'s income, but did not guarantee the loan; (ii) Larkspur, LLC's financial information indicated a heavy twenty-five to one debt-to-worth ratio; (iii) the LAF calculated Kitts Development's debt-service-coverage ratio using only Larkspur, LLC's financial information -- even though Larkspur, LLC was neither a borrower nor a guarantor; (iv) the LAF presented two dramatically conflicting debt-service-coverage ratios[6]: nineteen to one and 1.15:1; and (v) the nineteen to one ratio was improperly calculated using Larkspur, LLC's working capital rather than its income. See Amended Complaint ¶ 31, at 8-9.

         On or about September 23, 2009, Dee, DiPaola, Dolan, and Smith approved a transaction that consolidated Kitts Development's initial $2.98 million loan with an unsecured line of credit and an additional $1.03 million to fund additional construction costs on the project. See Amended Complaint ¶ 32, at 9. Dee, DiPaola, Dolan, and Smith approved the transaction despite numerous Loan Policy violations, and violations of prudent lending practices and procedures. See Amended Complaint ¶ 33, at 9. Specifically, they ignored continued indications that Kitts Development and T.J. were not creditworthy and that their financial information was unreliable. See Amended Complaint ¶ 33, at 9. For example, Kitts Development reported on its 2007 tax returns -- the most recent available at the time of the loan's approval -- $219, 000.00 in gross revenue, and a net loss of $1.375 million. See Amended Complaint ¶ 33, at 9. By contrast, Kitts Development reported in its December 31, 2007, financial statement $890, 000.00 in gross revenue, and a net gain of $799, 000.00. See Amended Complaint ¶ 33, at 9. The December 31, 2007, financial statement also reported no liabilities, despite that Kitts Development was indebted for at least the amount outstanding on the prior First Community loan. See Amended Complaint ¶ 33, at 9. The LAF on which Dee, DiPaola, Dolan, and Smith relied to approve the loan failed either to explain or to question these discrepancies. See Amended Complaint ¶ 33, at 9. Moreover, the Kitts Development loan's loan-to-value ratio was reported as 103% -- well beyond the maximum seventy-five percent that the Loan Policy permitted. See Amended Complaint ¶ 33, at 9. The LAF also failed to explain why T.J., with a reported net worth of $6.619 million, was not required to contribute additional equity to keep the loan-to-value ratio below seventy-five percent. See Amended Complaint ¶ 33, at 9.

         4. The K&M Development, Inc., Loans.

         On or about March 27, 2007, Dolan and Nafus approved an $885, 000.00 loan to K&M Development, Inc. to fund the purchase and development of a lot containing a former Knights of Columbus facility into fourteen townhomes. See Amended Complaint ¶ 36, at 10. K&M Development's principal, M.D., guaranteed the loan. See Amended Complaint ¶ 36, at 10.c Dolan and Nafus approved the loan despite numerous violations of the Loan Policy, and of prudent lending practices and procedures. See Amended Complaint ¶ 37, at 10.

         First, they approved the loan without sufficient financial information from M.D. or K&M Development. See Amended Complaint ¶ 37, at 10. The most recent tax returns that M.D. provided in support of the loan were from 2004 -- three years before the loan was approved. See Amended Complaint ¶ 37, at 10. Although M.D. reported that her 2007 income was $9, 000.00 per month, there is no indication that either Dolan or Nafus attempted to verify the source of her income. See Amended Complaint ¶ 37, at 10-11. Dolan and Nafus neither analyzed nor received any financial information from K&M Development. See Amended Complaint ¶ 37, at 10. The LAF on which Dolan and Nafus relied explained that, because K&M Development was newly formed, none of its financials were available. See Amended Complaint ¶ 37, at 10. The LAF also stated, however, that M.D. received the development company that she had co-owned with her ex-husband -- Cerami Building and Design -- through their divorce settlement, and changed the name to K&M Development. See Complaint ¶ 37, at 10. Despite this information, the LAF failed to analyze either financial information from Cerami Building and Design, or any projected financial information for K&M Development. See Amended Complaint ¶ 37, at 10.

         Second, Dolan and Nafus relied on an LAF that failed to discuss M.D.'s experience -- or lack thereof -- as a developer aside from noting that she was a “principal” in her husband's construction business. Amended Complaint ¶ 37, at 10. Had Dolan and Nafus required additional information on M.D.'s background, they would have discovered that she had virtually no commercial real estate development experience and had never worked on a project of this size. See Amended Complaint ¶ 37, at 10-11.

         Third, Nafus and Dolan ignored significant red flags indicating that the loan should not be approved. See Amended Complaint ¶ 38, at 11. For example, because there was no analysis or verification of M.D.'s finances, there was not a reliable secondary source of repayment --making the transaction “undesirable” under the Loan Policy. Amended Complaint ¶ 38, at 11. M.D. also had not obtained the necessary building permits. See Amended Complaint ¶ 38, at 11. Moreover, the proposed loan had a loan-to-value ratio of seventy-five percent -- the maximum that the Loan Policy permitted. See Amended Complaint ¶ 38, at 11. The appraisal used to value the collateral and calculate the loan-to-value ratio, however, assumed that the necessary building permits would be issued and construction would not be delayed. See Amended Complaint ¶ 38, at 11. Because the necessary building permits had not been issued at the time of the loan's approval -- and, in fact, were never issued -- the loan-to-value ratio was in excess of the Loan Policy's limit. See Amended Complaint ¶ 38, at 11. There was also evidence that M.D. would have difficulty paying off her debt. See Amended Complaint ¶ 38, at 11. Her liquidity was very limited -- with $160, 000.00 in cash and $360, 000.00 in liabilities. See Amended Complaint ¶ 38, at 11. That she had also taken out a $300, 000.00 home equity line of credit to fund the project further compounded the dangers of her limited liquidity. See Amended Complaint ¶ 38, at 11.

         On or about January 11, 2008, Nafus approved five $314, 140.00 construction loans to K&M Development -- for a total of $1.571 million. See Amended Complaint ¶ 39, at 11. Each loan funded the construction of one townhome as part of the development project described previously. See Amended Complaint ¶ 39, at 11-12. Although the LAFs for these loans did not reflect the entire project's the loan-to-value ratio, the ratio reached eighty-six percent with this additional funding -- above the seventy-five percent maximum ratio that the Loan Policy permitted. See Amended Complaint ¶ 39, at 12. This ratio was “especially egregious, ” because the LAFs indicated that the real estate market was “softening” -- suggesting that First Community would have a difficult time selling the townhomes. Amended Complaint ¶ 39, at 12.

         On or about November 20, 2008, Dolan, and on or about November 21, 2008, Fanning approved a renewal and consolidation of the initial loan and the five construction loans, and approved an additional $216, 072.10 to cover interest and “carrying costs” for an additional year -- for a total loan commitment of $1.526 million. Amended Complaint ¶ 40, at 12. In approving the loan, Dolan and Fanning ignored multiple warning signs that indicated the loan should not have been approved. See Amended Complaint ¶¶ 40-41, at 12-13.

         First, as with the previous loans, M.D. did not provide current tax returns, which meant that Dolan and Fanning had to rely on First Community's projections to determine her current financial situation. See Amended Complaint ¶ 41, at 12. Second, there was significant evidence that neither K&M Development nor M.D. were creditworthy. See Amended Complaint ¶ 42, at 12. For example, a First Community loan officer estimated M.D.'s liquid and personal assets at $0.00. See Amended Complaint ¶ 42, at 12. M.D.'s ability to repay the loans, thus, turned on whether she could sell her illiquid water rights to property that she was developing -- a situation that the Loan Policy considered “undesirable.” Amended Complaint ¶ 42, at 12. Third, the LAF acknowledged that M.D. “had very nominal commercial development experience and has never completed a project of this size or nature.” Amended Complaint ¶ 42, at 13 (internal quotation marks and brackets omitted). Fourth, although the LAF indicated that M.D. planned to alter the project from fourteen townhomes to thirty condominiums, she had not obtained the necessary permits to do so. See Amended Complaint ¶ 42, at 13.

         5. The Katerina, Inc., Loans.

         On or about March 29, 2007, Dolan, Fanning, Sanchez, Martin, and Smith approved a $6.88 million loan to Katerina, Inc., to fund a land-swap deal with the State of New Mexico and refinance two land loans -- one of which was from First Community in the amount of $1.056 million. See Amended Complaint ¶ 44, at 13. Katerina, Inc.'s principal, P.P., and Philippou, LLC guaranteed the loan. See Amended Complaint ¶ 44, at 13. Dolan, Fanning, Sanchez, Martin, and Smith approved the loan “despite numerous departures from the Loan Policy and prudent lending practices.” Amended Complaint ¶ 45, at 13.

         First, they failed to require sufficient financial information before approving the transaction. See Amended Complaint ¶ 45, at 13. The financial information was so lacking that the loan's LAF acknowledged that the “compiled quality of the financial statements” was a weakness of the loan. Amended Complaint ¶ 45, at 13. Moreover, although the LAF acknowledged that Katerina, Inc.'s income came primarily from land and lot sales, its cash flow analysis did not consider Katerina, Inc.'s ability to pay off its loan if a slumping housing market caused its revenues to decline. See Complaint ¶ 45, at 13-14. Fanning, Dolan, Martin, and Smith also did not review the appraisals of the loan's collateral before approving the loan. See Amended Complaint ¶ 46, at 14.

         Second, Fanning, Dolan, Martin, and Smith approved the loan even though its LAF acknowledged there was no formal succession plan in place for P.P.'s businesses. See Complaint ¶ 47, at 14 (alterations and internal quotation marks omitted). Had these defendants required P.P. to submit a succession plan, his businesses could have avoided the substantial delays on its development projects that occurred after P.P. became incapacitated from illness. See Amended Complaint ¶ 47, at 14.

         Third, Fanning, Dolan, Martin, and Smith approved the loan despite significant warning signs regarding the valuation of the loan's collateral. See Complaint ¶ 46, at 14. The loan had a loan-to-value ratio of sixty-two percent -- within the Loan Policy's sixty-five percent maximum loan-to-value ratio for raw land. See Complaint ¶ 46, at 14. The appraised value used to calculate this ratio, however, did not account for the costs of selling the collateral -- e.g., the holding costs, marketing costs, and “entrepreneurial profit.”[7] Amended Complaint ¶ 46, at 14.

         6. The Empire at Estrella Town Center, LLC, Loans.

         On or about July 16, 2007, DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith approved a $10.7 million loan to Empire at Estrella Town Center, LLC (“Empire, LLC”) to refinance an acquisition and development loan from another bank, and to provide additional funding for constructing and developing a shopping mall. Amended Complaint ¶ 49, at 14. R.F., K.F., G.J., K.A.J., Meritage Investments, and ECD, LLC, (“Empire Guarantors”) guaranteed the loan. Amended Complaint ¶ 49, at 15. DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith made four mistakes in approving the loan. See Amended Complaint ¶¶ 50-52, at 15-16.

         First, they approved the loan without sufficient financial information from Empire, LLC, or the Empire Guarantors. See Amended Complaint ¶ 50, at 15. The 2006 financial statements from R.F., K.F., F.J., and G.J. showed “Investments in Closely Held Business” as an asset, which was calculated on a “net equity” basis -- i.e., without accounting for any related debt. Amended Complaint ¶ 50, at 15. The financial statements, therefore, made it impossible for DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith to know the extent to which the closely held businesses were indebted to R.F., K.F., F.J., and G.J., and/or whether R.F., K.F., F.J., and G.J. served as those businesses' guarantors. See Amended Complaint ¶ 50, at 15. DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith also did not: (i) verify Empire, LLC's, or the Empire Guarantors' financial information; (ii) obtain a credit report from Empire, LLC; (iii) check Empire, LLC's credit with its prior lender; or (iv) conduct a global cash-flow analysis of all of the “principals' entities and debt service obligations.”[8] Amended Complaint ¶ 50, at 15.

         Second, they approved the loan despite that certified public accountants did not prepare any of the Empire Guarantors' financial statements -- as the Loan Policy required. See Amended Complaint ¶ 50, at 15. Third, they ignored a number of warning signs that the loan should not be approved. See Amended Complaint ¶ 51, at 15. For example, the LAF's cash-flow analysis on which DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith relied in approving the loan showed that the project's cash flow would not be sufficient to service the loan. See Amended Complaint ¶ 51, at 15. There were also clear discrepancies in the reported financial information. See Amended Complaint ¶ 51, at 15. Although the principals reported contributing $2.186 million in equity to the project, Empire, LLC's 2006 financial statements show that they had only $684, 549.00 in equity in the project. See Amended Complaint ¶ 51, at 15.

         Fourth, they approved the loan based on an appraisal of the loan's collateral that failed to account for the costs of selling the collateral -- e.g., holding costs, marketing costs, or “entrepreneurial profit.” Amended Complaint ¶ 52, at 16. This approval was problematic, because the property's appraised value was, in turn, used to calculate the loan's seventy-five percent loan-to-value ratio. See Amended Complaint ¶ 52, at 16. Because the loan was already at the maximum loan-to-value ratio that the Loan Policy permitted, the actual loan-to-value ratio -- adjusted for those costs -- exceeded the Loan Policy's maximum. See Amended Complaint ¶ 52, at 16.

         On or about February 16, 2010, Dee, DiPaola, Fanning, and Martin approved a renewal of the loan, restructured the loan, and authorized $144, 000.00 in additional funds. See Amended Complaint ¶ 53, at 16. The total outstanding amount of the loan after the approval was $8, 084, 686.18. See Amended Complaint ¶ 53, at 16. Dee, DiPaola, Fanning, and Martin approved the loan's renewal despite there not being a clear funding source to meet the debt's payments. See Amended Complaint ¶ 54, at 16. The project's cash flow remained insufficient to pay off any of the principal, and the Empire Guarantors had already refused to pay the loan personally despite their obligations as guarantors. See Amended Complaint ¶ 54, at 16. Dee, DiPaola, Fanning, and Martin approved the loan on an interest-only basis, despite that it exceeded the Loan Policy's maximum term for interest-only payments by over a year. See Complaint ¶ 54, at 16. By this time, the loan's loan-to-value ratio had risen to 87.52% -- well beyond the seventy-five percent maximum ratio that the Loan Policy permitted. See Amended Complaint ¶ 54, at 16. Moreover, Dee, DiPaola, Fanning, and Martin disregarded the LAF, which acknowledged that “alternative financing is unlikely.” Amended Complaint ¶ 54, at 16 (brackets and internal quotation marks omitted).

         7. The La Cuentista I, LLC, Loan.

         On or about October 26, 2007, Dolan and Nafus approved a $3, 071, 822.00 loan to La Cuentista I, LLC, to fund the acquisition and development of a 140-lot subdivision. See Amended Complaint ¶ 56, at 17. “The seven partner developers and their corporate entities were guarantors for the loan.” Amended Complaint ¶ 56, at 17. Dolan and Nafus made three mistakes in approving this loan. See Complaint ¶¶ 57-59, at 17-18.

         First, they relied on faulty analyses of the guarantors' financial information. See Amended Complaint ¶ 57, at 17. The LAF on which Dolan and Nafus relied improperly considered the guarantors' working capital as liquidity, and failed to account for the guarantors' pre-existing loan-payment obligations. See Amended Complaint ¶ 57, at 17. Second, although the Loan Policy required the loan officer to “analyze the contractor's[9] capabilities both in terms of finance and past performance, ” Dolan and Nafus did not require such an evaluation. Amended Complaint ¶ 57, at 17.

         Third, they ignored multiple warning signs indicating that the loan was “extremely risky.” Amended Complaint ¶ 57, at 17. For example, two of the guarantor limited liability corporations had negative working capital, and two of the individual guarantors had negative cash flow to make loan payments. See Amended Complaint ¶ 57, at 17. Moreover, although the LAF reported that the loan-to-cost ratio was within Loan Policy limits, First Community had already granted La Cuentista, LLC, a loan to provide 100% financing for the project -- including interest reserves of $490, 000.00 and cost overruns. See Amended Complaint ¶ 58, at 17. Consequently, when compared to the total development costs, the actual loan-to-cost ratio for the project was approximately 106% -- far above the seventy-five percent maximum that the Loan Policy permitted. See Amended Complaint ¶ 58, at 17. The loan was also structured so that each guarantor was responsible for only one-seventh of the debt -- despite that the financial information clearly showed that some guarantors were financially stronger than others. See Amended Complaint ¶ 58, at 17. Furthermore, the collateral appraisal warned of a declining real estate market, stating:

[B]etween the end of the 2nd quarter 2006 and 2007 all market areas referenced show dramatic declines in permits issued with declines of 39% and 56% noted. This decline in permits is in direct response to the dramatic slowdown in the housing market due to a large number of foreclosures nationwide because of questionable mortgage practices.

Amended Complaint ¶ 58, at 18 (internal quotation marks omitted).

         8. The P.A. Loan.

         On or about January 10, 2008, Dolan approved a two-million-dollar commercial revolving line of credit to P.A. to fund the purchase of trucks that P.A. planned to retrofit with proprietary cleaning machinery for P.A.'s company, Blast N Clean. See Amended Complaint ¶ 60, at 18. Dolan approved the loan despite multiple violations of the Loan Policy and of prudent lending practices. See Amended Complaint ¶ 61, at 18.

         First, Dolan approved the loan without receiving financial statements either for P.A., or for Blast N Clean. See Amended Complaint ¶ 61, at 18-19. Second, there is no evidence that Dolan attempted to verify P.A.'s assets. See Amended Complaint ¶ 61, at 19. Third, Dolan did not request or conduct an independent appraisal of the eight trucks listed as collateral, but assumed that their value was their cost plus the cost of retrofitting them with the cleaning equipment. See Amended Complaint ¶ 61, at 18-19. Besides the failure to use an independent appraiser, this estimate was faulty, because it was “highly unlikely that each truck could be liquidated at full cost due to the proprietary nature of the cleaning equipment.” Amended Complaint ¶ 61, at 19.

         Fourth, Dolan disregarded a number of warning signs indicating that he should not approve the loan. See Amended Complaint ¶ 62, at 19. For example, the last two years of P.A.'s tax returns showed an insufficient cash flow to make loan payments. See Amended Complaint ¶ 62, at 19. Moreover, P.A.'s cash-flow analysis included his two other companies -- neither of which was a guarantor of the loan. See Amended Complaint ¶ 62, at 19. Without those two companies, P.A.'s cash flow was insufficient to support even his pre-existing debt, let alone the debt payments associated with the new First Community loan. See Amended Complaint ¶ 62, at 19. Furthermore, the LAF assumed that at least fifty percent of P.A.'s trucks would sell and failed to analyze P.A.'s ability to make loan payments if none of the trucks sold. See Amended Complaint ¶ 62, at 19. The value of P.A.'s non-truck collateral, after accounting for all senior liens, was less than the loan's principal. See Amended Complaint ¶ 62, at 19. The loan also should have been considered “undesirable” under Loan Policy, which classified “loans with a unique industry, wherein the lender lacks specialized expertise to properly evaluate the risks, or manage the credit, ” and “loans secured by collateral of uncertain marketability, ” as undesirable. Amended Complaint ¶ 62, at 19 (internal quotation marks and brackets omitted).

         PROCEDURAL BACKGROUND

         The FDIC alleges three claims against the Defendants: (i) negligence, see Amended Complaint, ¶¶ 64-69, at 20-21; (ii) gross negligence, see Amended Complaint ¶¶ 70-75, at 21-23; and (iii) breach of fiduciary duties, see Amended Complaint ¶¶ 76-79, at 23-24. Regarding the negligence and gross negligence claims, the FDIC alleges that the Defendants owed a duty to use reasonable care, skill, and diligence in the performance of their duties, including, but not limited to, the following:

(a) informing themselves about proposed transactions and their risks before approving them; (b) approving only those loans that conformed with the Loan Policy; (c) ensuring that any transactions they approved were underwritten in a safe and sound manner; (d) ensuring that any transactions they approved were secured by sufficiently valuable collateral and guarantees in order to prevent or minimize risk; (e) ensuring that any transactions they approved were made to creditworthy borrowers; (f) ensuring that any transactions they approved did not violate applicable banking laws and regulations; and (g) ensuring that any transactions they approved did not create unsafe and unsound concentrations of credit.

Amended Complaint ¶ 66, at 20. See id. ¶ 73, at 22. The FDIC alleges that the Defendants were negligent, grossly negligent, and breached their fiduciary duties in their actions and inactions, including, but not limited to, the following:

(a) failing to inform themselves about the Subject Transactions and their risks before approving them; (b) approving the Subject Transactions on terms that violated the Loan Policy; (c) failing to ensure that the Subject Transactions were underwritten in a safe and sound manner before approving them; (d) failing to ensure that the Subject Transactions were secured by sufficiently valuable collateral and guarantees in order to prevent or minimize risk; (e) approving Subject Transactions to borrowers who were not creditworthy; (f) failing to ensure that the Subject Transactions did not violate applicable banking laws and regulations; (g) failing to ensure that the Subject Transactions did not create unsafe and unsound concentrations of credit; and (h) approving the Subject Transactions without proper analysis of the borrower's ability to satisfy the debt.

Amended Complaint ¶ 67, at 20-21. See id. ¶ 74, at 22-23; id. ¶ 78, at 23.

         1. The MTD 1.

         Dee, DiPaola, Dolan, Fanning, Martin, Sanchez, and Smith (“First Community Defendants”) filed their Certain Defendants' Motion to Dismiss on March 3, 2014. See Certain Defendants' Motion to Dismiss at 1 (Doc. 15)(“MTD 1”). The First Community Defendants begin the MTD 1 by explaining that N.M. Stat. Ann. § 53-11-35(B) and the common-law business judgment rule define corporate officers' and directors' standard of care in New Mexico. See MTD 1 at 13-14. According to the First Community Defendants, § 53-11-35(B) states, in pertinent part:

A director shall perform his duties as a director, including his duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director believes to be in or not opposed to the best interests of the corporation, and with such care as an ordinarily prudent person would use under similar circumstances in a like position.

MTD 1 at 6 (quoting N.M. Stat. Ann. § 53-11-35(B))(internal quotation marks omitted). The First Community Defendants assert that § 53-11-35 dictates that a director's or officer's liability is assessed individually and cannot be based on group decisions. See MTD 1 at 13. The First Community Defendants argue that § 53-11-35's plain text prohibits claims of ordinary negligence against directors and officers, because it states that they are not liable unless they subjectively believe their actions are not in the corporation's best interests. See MTD 1 at 13. The First Community Defendants contend that the common-law business judgment rule also protects corporate directors and officers. See MTD 1 at 13. According to the First Community Defendants, the rule indicates that such individuals cannot be held liable for negligence unless the plaintiff also pleads fraud, conflict of interest, or waste in addition to any alleged violations of § 53-11-35(B). See MTD 1 at 13.

         The First Community Defendants argue that the Court should dismiss the Complaint for three reasons. See MTD 1 at 16-20. First, the First Community Defendants assert that the subjective element in § 53-11-35 indicates that allegations of ordinary negligence -- which involve a reasonable-person standard -- do not state a valid cause of action against corporate officers or defendants. See MTD 1 at 16-17. The First Community Defendants note that, under the United States Court of Appeals for the Tenth Circuit's holding in FDIC v. Schuchmann, 235 F.3d 1217 (10th Cir. 2000), the party seeking to impose liability must show “a lack of good faith and that each director or officer separately did not believe his or her actions were in the best interests of the corporation.” MTD 1 at 17. According to the First Community Defendants, because the Complaint fails to satisfy either of these requirements, it does not state a claim for which relief can be granted. See MTD 1 at 17.

         Second, the First Community Defendants contend that “gang pleading” negligence is not permitted. MTD 1 at 17. The First Community Defendants note that the Complaint alleges, for example, that “no Defendant voted against any of the Subject Transactions.” MTD 1 at 17 (citing Complaint ¶ 27, at 7)(internal quotation marks omitted). In the First Community Defendants' view, “[s]uch pleading is insufficient, ” because the relevant issue is whether a defendant voted for the subject loan. MTD 1 at 17. In support of this proposition, the First Community Defendants cite Burnett v. Mortgage Electronic Registration Systems, Inc., 706 F.3d 1231 (10th Cir. 2013), in which the Tenth Circuit, in an opinion that the Honorable Stephanie K. Seymour, United States Circuit Judge for the Tenth Circuit, authored, and Judges Lucero and Tymkovich joined, stated:

Ms. Burnett's complaint is not just deficient because it attributes actions to a large group of collective “defendants, ” which includes fifty unknown Doe defendants in addition to MERS and Mr. Woodall, but also because it is a litany of diverse and vague alleged acts (“emails, faxes, correspondence, and/or meetings, and the like”) with zero details or concrete examples. From such broad allegations against a large and mostly anonymous group of people, this court cannot “draw the reasonable inference that the defendant [Mr. Woodall] is liable for the misconduct alleged, ” because we cannot tell which defendant is alleged to have done what, nor can we tell what the misconduct was.

MTD 1 at 4 (quoting Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d at 1240)(alterations in MTD 1 but not original)(emphasis in MTD 1 but not in original)(internal quotation marks omitted).

         The First Community Defendants argue that, with few exceptions -- which themselves are insufficient to state a claim -- the FDIC makes no attempt to plead each individual director's or officer's specific failures in approving the subject loans. See MTD 1 at 17. Third, the First Community Defendants maintain that New Mexico law does not require them to be perfect in making their corporate decisions or to “apply the same microscope” to the subject loans' applications that the FDIC has. MTD 1 at 18. Instead, the First Community Defendants assert, the focus in determining their liability “is on process, not results.” MTD 1 at 18.

         The First Community Defendants state that they anticipate the FDIC will argue that they are entitled to § 53-11-35(B)'s protections only if they show that they were fully informed about the subject loans. See MTD 1 at 18-19. The First Community Defendants say that such an assertion is contrary to both § 53-11-35(B)'s plain language and FDIC v. Schuchmann. The First Community Defendants note that, in FDIC v. Schuchmann, in an opinion that the Honorable Carlos F. Lucero, United States Circuit Judge for the United States Court of Appeals for the Tenth Circuit, wrote, and Judges Anderson and Broby joined, the Tenth Circuit held that the FDIC bears the burden to prove the defendants' lack of good faith and lack of a subjectively honest belief that their actions were in the corporation's best interests. See MTD 1 at 19.

         The First Community Defendants say that the FDIC may also argue that, because its claims are fact-intensive, the Court should not dismiss the Complaint until it can develop the record. See MTD 1 at 19. The First Community Defendants assert that such a contention not only flies in the face of the FDIC's conduct preceding this case, but also runs afoul of the plausibility pleading standard. See MTD 1 at 20. The First Community Defendants point out that the FDIC has “unprecedented investigatory powers, ” and “more than ample time and opportunity, ” to develop facts showing the Defendants' lack of individual good faith. MTD 1 at 20. In the First Community Defendants' view, seeking further development of the record would indicate only that the FDIC has not pled sufficient facts to support a motion to dismiss. See MTD 1 at 20.

         Taking up the FDIC's gross-negligence claim, the First Community Defendants assert that the Complaint makes no allegations that satisfy the elements of “individual bad faith and individualized subjective lack of honest belief that are necessary to support a claim of gross negligence under New Mexico law.” MTD 1 at 20-21. In the First Community Defendants' view, the Complaint states only that there were violations of internal policies -- which boil down to allegations of bad judgment. See MTD 1 at 21. The First Community Defendants contend that such allegations are insufficient to state a claim for gross negligence. See MTD 1 at 21.

         Last, the First Community Defendants address the FDIC's breach-of-fiduciary-duty claim. See MTD 1 at 21. The First Community Defendants assert that, unless the challenged action involves a conflict of interest, usurpation of a corporate opportunity, or similar breach of the duty of loyalty, no breach of fiduciary duty claim exists under New Mexico law. See MTD 1 at 21. The First Community Defendants say that the Complaint contains no allegations of “lying, cheating or stealing” -- the hallmarks of a breach-of-fiduciary-duty claim. MTD 1 at 22 (internal quotation marks omitted). Instead, the First Community Defendants notes, the Complaint alleges only “incorrect decisions and unstated losses.” MTD 1 at 22.

         The FDIC responded to the MTD 1 on April 23, 2014. See Plaintiff's Opposition to Certain Defendants' Motion to Dismiss (Document 15), filed April 23, 2014 (Doc. 23)(“MTD 1 Response”). First, the FDIC contends that the Complaint sufficiently alleges claims for ordinary negligence. See MTD 1 Response at 8-12. The FDIC argues that § 53-11-35(B) imposes on officers and directors three separate duties to the corporation: (i) a duty of good faith; (ii) a duty of loyalty; and (iii) a duty of care. See MTD 1 Response at 8. The FDIC says that, accordingly, the Defendants are liable if they violated any one of these duties. See MTD 1 Response at 8. The FDIC notes that the Complaint alleges that the Defendants violated their duty of care by, among other things: (i) failing to inform themselves about proposed loans and their risks before approving them; (ii) approving loans that did not comply with the Loan Policy; and (iii) failing to ensure that any loans they approved were underwritten in a safe and sound manner. See MTD 1 Response at 8 (citations omitted).

         The FDIC says that the New Mexico Business Corporation Act, N.M. Stat. Ann. § 53-12-2, sets forth certain provisions that a corporation can include in its articles of incorporation as a limitation on director liability. See MTD 1 Response at 8. The FDIC explains that § 53-12-2(E)(2)(a) states that articles of incorporation may provide that a director shall not be personally liable to the corporation for monetary damages for breach of fiduciary duty as a director “unless the breach of failure to perform constitutes: negligence, willful misconduct or recklessness in the case of a director who . . . receives as an employee of the corporation compensation of more than two thousand dollars ($2, 000) from the corporation in any calendar year.” MTD 1 Response at 8-9 (internal quotation marks omitted). The FDIC states that First Community's articles of incorporation do not, however, contain any such provision. See MTD 1 Response at 9. The FDIC notes that, even if the articles of incorporation included such a provision, it would not apply to these Defendants, because they were all First Community employees who received more than $2, 000.00 in compensation per year. See MTD 1 Response at 9.

         The FDIC also notes that courts around the country have consistently upheld nearly identical complaints that the FDIC brought against former directors and officers of failed banks -- holding that similar allegations constitute not just ordinary negligence, but gross negligence. See MTD 1 Response at 9-12 (citing FDIC v. Switzer, No. CIV 13-03834 RS (N.D. Cal April 9, 2014)(Seeborg, J.); FDIC v. Castro, No. CIV 13-80596 DMM (S.D. Fla. March 31, 2014)(Middlebrooks, J.); FDIC v. Dodson, No. CIV 13-00416 MW/CAS (N.D. Fla. Feb. 27, 2014)(Walker, J.); FDIC v. Aultman, No. 2:13-CV-58-FTM-38UAM, 2013 WL 3357854, at *1 (M.D. Fla. July 3, 2013)(Chappell, J.); FDIC v. Price, No. CIV 12-0148 FTM/DNF, 2012 WL 3242316 (M.D. Fla. Aug. 8, 2012)(Presnell, J.); FDIC v. Stahl, 840 F.Supp. 124, 128 (S.D. Fla. 1993)(Ryskamp, J.)). The FDIC argues that “[t]hese decisions indisputably demonstrate that the Complaint in this case is sufficient to establish gross negligence -- let alone ordinary negligence -- against each Defendant.” MTD 1 Response at 12.

         Second, the FDIC asserts that the Complaint satisfies the gross-negligence standard. See MTD 1 Response at 12-14. The FDIC explains that the Defendants are liable for gross negligence under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, 12 U.S.C. § 1821(k) (“FIRREA”). MTD 1 Response at 12. The FDIC says that FIRREA does not define gross negligence, but rather incorporates the definition that the relevant state law provides. See MTD 1 Response at 12. The FDIC points out that the Supreme Court of New Mexico has “formally abolished the distinction between ordinary and gross negligence, because the concept of gross negligence is so nebulous as to have no generally accepted meaning.” MTD 1 Response at 12 (quoting Paiz v. State Farm & Casualty Co., 1994-NMSC-079, ¶ 29, 880 P.2d 300, 309)(internal quotation marks omitted). The FDIC contends that, even if it “is required to show a standard of care higher than ordinary negligence for the director defendants, the FDIC[]'s allegations in this case clearly satisfy any reasonable definition of gross negligence.” MTD 1 Response at 12-13. The FDIC says that, for example, the Defendants personally approved the subject loans despite obvious and serious underwriting deficiencies. See MTD 1 Response at 13. The FDIC argues that, in particular, the Defendants approved the loans despite: (i) inadequate repayment sources; (ii) missing tax returns and financial statements from the borrower and guarantors; (iii) missing appraisals and appraisal reviews; (iv) inadequate analysis of the borrower's and guarantors' financial information and ability to service the debt; and (v) loan-to-value and loan-to-cost ratios that exceeded the maximum ratio that the Loan Policy prescribed. See MTD 1 Response at 13. The FDIC states that, while New Mexico law does not clearly distinguish gross negligence from ordinary negligence, courts in other jurisdictions have consistently upheld gross negligence claims premised on virtually identical allegations. See MTD 1 Response at 13 (citing, e.g., FDIC v. Switzer; FDIC v. Castro).

         The FDIC also notes that FIRREA preempts any state law that purports to require the FDIC to show conduct more culpable than gross negligence to establish the Defendants' liability. MTD 1 Response at 14 (citing FDIC v. Stahl, 89 F.3d 1510, 1516 (11th Cir. 1996)(“[Section] 1821(k) permits claims against directors for gross negligence regardless of whether state law would require greater culpability.”)(emphasis in FDIC v. Stahl)). Responding to the First Community Defendants' contention that it must show bad faith to have a plausible claim, the FDIC argues that, even if New Mexico requires a showing of bad faith -- “which it does not” --FIRREA would preempt such a requirement. MTD 1 Response at 14.

         Third, the FDIC argues that the common-law business judgment rule does not apply in this case. See MTD 1 Response at 14-15. The FDIC notes that, as Judge Lucero explained in FDIC v. Schuchmann, the business judgment rule protects corporate officers and directors only if they satisfy certain prerequisites -- including acting with a “reasonable basis, ” and based on “their independent direction and judgment.” MTD 1 Response at 14 (quoting FDIC v. Schuchmann, 235 F.3d at 1228)(internal quotation marks omitted). The FDIC says that, moreover, courts have consistently recognized that allegations of gross negligence overcome the business judgment rule. See MTD 1 Response at 14 (citing In re Citigroup Inc. S'holder Derivative Litig., 964 A.2d 106, 125 (Del. Ch. 2009)). In the FDIC's view, the Complaint establishes gross negligence by demonstrating that, in approving the subject loans, the Defendants acted without a reasonable basis and without exercising independent judgment. See MTD 1 Response at 14-15 (citations omitted).

         Fourth, the FDIC asserts that the Complaint plausibly alleges a breach-of-fiduciary-duty claim. See MTD 1 Response at 15. Responding to the First Community Defendants' contention that a breach-of-fiduciary-duty claim rests on what would ordinarily be thought of as corporate loyalty claims, the FDIC states that directors also owe a fiduciary duty of care to the corporation. See MTD 1 Response (citing RTC v. Foley, 829 F.Supp. 352, 355 (D.N.M. 1993)(Campos, J.)(denying motion to dismiss breach-of-fiduciary-duty claims, because the “complaint clearly alleges that defendants breached their duties of care . . . by, among other things, failing to change their loan policies in the face of repeated regulatory warnings and by approving six defective transactions”)). The FDIC points out that the Complaint alleges that the Defendants breached their fiduciary duties by approving the subject loans and that those breaches caused damages exceeding $14.8 million. See MTD 1 Response at 15. In the FDIC's view, RTC v. Foley dictates that the Court should not dismiss the breach-of-fiduciary-duty claim. See MTD 1 Response at 15.

         Fifth, responding to the First Community Defendants' argument that the Complaint impermissibly “gang plead[s]” the Defendants, the FDIC states that the Complaint details the material information for each loan -- including the loan's approval date, loan amount, loss amount, and the Defendants who approved it. See MTD 1 Response at 16. In the FDIC's view, it is, therefore, abundantly clear which Defendants are being sued for which loans and the factual basis of the claims against them. See MTD 1 Response at 16.

         The First Community Defendants replied to the MTD 1 Response on May 23, 2014. See Reply in Support of Certain Defendants' Motion to Dismiss, filed May 23, 2014 (Doc. 28)(“MTD 1 Reply”). In the MTD 1 Reply, the First Community Defendants offer four responses to the FDIC's contentions in the MTD 1 Response. See MTD 1 Reply at 3-12. First, the First Community Defendants argue that New Mexico law provides the only relevant standard for judging their conduct -- cases from other jurisdictions applying the standards applicable in those states, therefore, provide no guidance in this case. See MTD 1 Reply at 3. The First Community Defendants note that FDIC v. Schuchmann provides the applicable standard of care. See MTD 1 Reply at 3. In the First Community Defendants' view, FDIC v. Schuchmann states that the FDIC bears the burden of proving that the Defendants did not “arrive at their decisions, within the corporation's powers and their authority, with a reasonable basis, and while acting in good faith, as the result of their independent discretion and judgment and uninfluenced by any consideration other than what they honestly believe to be in the best interests of the corporation.” MTD 1 Reply at 3-4 (quoting FDIC v. Schuchmann, 235 F.3d at 1228-29)(emphasis in MTD 1 Reply but not in FDIC v. Schuchmann)(internal quotation marks omitted). According to the First Community Defendants, the Complaint's allegations do not satisfy this exacting standard. See MTD 1 Reply at 4.

         Second, the First Community Defendants assert that, contrary to the FDIC's contentions, Paiz v. State Farm Fire & Casualty Insurance Company is relevant to this case only insofar as it provides guidance on an element that the FDIC must prove -- that the First Community Defendants did not act in good faith. See MTD 1 Reply at 5. The First Community Defendants explain that, even if New Mexico no longer has a separate gross negligence claim, §1821(k) retains the term for cases that the FDIC brings. See MTD 1 Reply at 6. According to the First Community Defendants, Paiz v. State Farm Fire & Casualty Company explains that gross negligence means “an entire want of care.” MTD 1 Reply at 6 (citing Paiz v. State Farm Fire & Cas. Co., 1994-NMSC-079, ¶ 26)(internal quotation marks omitted). The First Community Defendants assert that Paiz v. State Farm Fire & Casualty Company is, therefore, relevant to this action, but not in the way which the FDIC argues. See MTD 1 Reply at 6.

         Third, the First Community Defendants challenge the FDIC's reliance on RTC v. Foley. See MTD 1 Reply at 10. The First Community Defendants state that, although RTC v. Foley summarily states that it involves a claim for breach of fiduciary duty in approving loans, the “pre-Iqbal and pre-Schuchmann complaint does not address the contours of a claim for breach of fiduciary duty under New Mexico law that have developed since it was rendered.” MTD 1 Reply at 10. The First Community Defendants conclude: “Schuchmann . . . and only Schuchmann applies here.” MTD 1 Reply at 10.

         Fourth, the First Community Defendants argue that, by citing decisions from other jurisdictions, the FDIC “implicitly attempts to resuscitate an argument . . . that the United States Supreme Court rejected in Atherton [v. FDIC, 519 U.S. 213 (1997)]: that there is a need for a uniform standard of responsibility for bank officers and directors.” MTD 1 Reply at 11. In the First Community Defendants' view, because those cases do not apply New Mexico law -- or something identical to it -- they provide no basis for denying the MTD 1. See MTD 1 Reply at 11.

         The First Community Defendants filed supplemental authority on October 23, 2014. See Notice of Supplemental Authority, filed October 23, 2014 (Doc. 40)(“Notice 1”). In the Notice 1, the First Community Defendants call to the Court's attention a recent decision in FDIC v. Wertheim, No. CIV 13-0050 KG/KBM, Memorandum Opinion and Order, filed Oct. 20, 2014 (D.N.M.)(Doc. 41)(“Wertheim MOO”). The First Community Defendants point out that, in the Wertheim MOO, the Honorable Kenneth J. Gonzales, United States District Judge for the District of New Mexico, denied the defendants' motion to dismiss. See Wertheim MOO at 8. According to the First Community Defendants, Judge Gonzales reasoned that, because the FDIC alleged that the defendants violated § 53-11-35(B)'s first sentence, “the New Mexico common-law business judgment rule would not apply, ” and that it was, therefore, unnecessary for the FDIC to “plead facts demonstrating the inapplicability of that rule.” Notice 1 at 1 (quoting Wertheim MOO at 8)(internal quotation marks omitted). The First Community Defendants argue, without further explanation, that Judge Gonzales' decision “diverges from” FDIC v. Schuchmann, in which the Tenth Circuit upheld the district court's decision requiring the FDIC to prove that a director had violated the business judgment rule. Notice 1 at 1-2.

         The FDIC responded to the Notice, on October 24, 2014. See Plaintiff's Response to Defendants' Notice of Supplemental Authority (Document 40), filed October 24, 2014 (Doc. 41)(“Notice 1 Response”). In the Response to Notice 1, the FDIC argues that the First Community Defendants disagree with the Wertheim MOO, because it “unambiguously rejects” their argument that they are not liable unless the FDIC establishes they acted in bad faith. Notice 1 Response at 1. The FDIC states that the Wertheim MOO explains why the First Community Defendants are incorrect:

a. “Because the first sentence of Section 53-11-35(B) requires, in the conjunctive, that directors act in good faith, believe that they are acting in the best interests of the corporation, and act as ordinarily prudent persons, Plaintiff need only plead that the Director Defendants did not meet one of those requirements.”
b. “If the director violates the first sentence of Section 53-11-35(B), then the New Mexico common-law business judgment rule does not apply.”
c. “Since the New Mexico common-law business judgment rule requires, in the conjunctive, that officers have a reasonable basis for their actions, act in good faith, and honestly believe that they acted in the best interests of the corporation, as with Section 53-11-35(B), Plaintiff need only plead that the Officer Defendants did not meet one of those requirements.”
d. The Complaint in the Wertheim case should not be dismissed as to director defendants because its, “factual allegations support a plausible claim that the Director Defendants did not perform their duties with the care ordinarily prudent persons would use under similar circumstances in like positions, and that they, thus, violated the first sentence of Section 53-11-35(B).”
e. The Complaint in the Wertheim case should not be dismissed as to officer defendants because it “plausibly pled that the Officer Defendants did not have a reasonable basis for their actions and that, therefore, the Officer Defendants are not entitled to protection under the New Mexico common-law business judgment rule.”

Notice 1 Response ¶ 1, at 1-2 (quoting Wertheim MOO at 8-11)(emphases in Notice 1 Response but not in Wertheim MOO)(citations and internal quotation marks omitted). The FDIC argues that, although the First Community Defendants attempt to escape Judge Gonzales' reasoning by arguing that it diverges from FDIC v. Schuchmann, Judge Gonzales stated that § 53-1135(B) “controls the pleading issue, ” and that FDIC v. Schuchmann “did not address the interplay between the first sentence of Section 53-11-35(B) and the New Mexico business judgment rule.” Notice 1 Response ¶ 2, at 2-3 (quoting Wertheim MOO at 8)(internal quotation marks omitted).

         The FDIC also notes that the First Community Defendants' focus on FDIC v. Schuchmann's holding that a plaintiff must “prove that a director had not satisfied the requirements of the business judgment rule” reflects their continued misunderstanding of officers' and directors' duties. Notice 1 Response ¶ 3, at 3 (quoting Notice 1 at 1-2)(internal quotation marks omitted). The FDIC says that, although the First Community Defendants argue that FDIC v. Schuchmann and § 53-11-35(B) require the FDIC to establish that the Defendants breached all of their relevant duties, Judge Gonzales recognized that “the conjunctive” in both § 53-11-35(B) and FDIC v. Schuchmann require them to satisfy all of their relevant duties to avoid liability. Notice 1 Response ¶ 3, at 3. The FDIC asserts that, consequently, it need prove only that the Defendants breached one of their duties to establish liability. See Notice 1 Response ¶ 3, at 3.

         2. MTD 2.

         Nafus filed Defendant Bobby J. Nafus's Motion to Dismiss and Notice of Joinder Pursuant to D.N.M.L.R-CIV. 7.1(a) in Certain Defendant's Motion to Dismiss [Doc. 15] on March 3, 2014. See Defendant Bobby J. Nafus's Motion to Dismiss and Notice of Joinder Pursuant to D.N.M.L.R-CIV. 7.1(a) in Certain Defendant's Motion to Dismiss [Doc. 15] at 1, (Doc. 18)(“MTD 2”). In the MTD 2, Nafus asks the Court to dismiss the FDIC's claims of negligence, gross negligence, and breach of fiduciary duty as to him. See MTD 2 at 4-12. Nafus contends that the Court should dismiss the FDIC's negligence claim for two reasons. First, Nafus asserts that the Complaint fails to state a claim for negligence under § 53-11-35 or the New Mexico common-law business judgment rule. See MTD 2 at 6. Nafus asserts that, under § 53-11-35, the FDIC must plead sufficient facts to demonstrate that he: (i) acted in bad faith; (ii) acted in a manner that he did not reasonably believe to be in First Community's best interests; and (iii) failed to use such care as an ordinarily prudent person would use under similar circumstances. See MTD 2 at 6. Moreover, Nafus contends that, under the business judgment rule, the FDIC must plead sufficient facts to demonstrate that he acted: (i) outside First Community's powers and his authority; (ii) without a reasonable basis; (iii) in bad faith; (iv) without independent judgment; and (v) under the influence of improper considerations -- i.e., other than what he honestly believed to be in First Community's best interests. See MTD 2 at 6. Nafus argues that, because the Complaint does not contain any allegations of bad faith, lack of subjective reasonable belief, or conflict of interest, it fails to state a claim of ordinary negligence under either § 53-11-35 or under the business judgment rule. See MTD 2 at 6.

         Second, Nafus maintains that the Complaint, in making undifferentiated and vague allegations against all of the Defendants collectively, fails to plausibly plead that Nafus is individually liable for negligence. See MTD 2 at 7. Nafus notes, for example, that the FDIC alleges that “no Defendant voted against any of the Subject Transactions.” MTD 2 at 7 (quoting Complaint ¶ 27, at 7). Nafus explains that the Complaint alleges that he was involved in only three of the six loans -- making it impossible for him to have voted for or against all six loans. See MTD 2 at 7. Nafus states that, although the Complaint alleges that the Defendants' improper actions continued through February 16, 2010, it also alleges that Nafus left First Community by September 11, 2009. See MTD 2 at 7. Nafus notes that the Complaint does not clarify to what extent he is liable for loans which he approved that were later consolidated into new loans for which he played no role in the approval process. See MTD 2 at 8. Nafus argues that the Complaint's use of the “highly confusing and vague short-form ‘Approving Defendants, '” makes it impossible to determine to which Defendants the Complaint is referring -- particularly with respect to the Kitts Development and K&M Development loans. MTD 2 at 8. Nafus argues that, as a result, he cannot determine how the FDIC purports to attach liability for these loans and is severely limited in preparing his defenses. See MTD 2 at 8.

         Third, Nafus argues that the Complaint does not plausibly allege either that the FDIC suffered damages, or that he was the proximate and actual cause of those damages -- which, Nafus notes, are essential elements of a negligence claim. See MTD 2 at 9-11. Nafus asserts that the Complaint does not allege, for example, that any of the loans that he approved are in default, that any of them had to be restructured on terms unfavorable to the FDIC, or that any of the debtors have had problems paying off their loans. See MTD 2 at 9. Nafus contends, moreover, that the Complaint does not allege that any of the loans that he approved caused First Community's alleged insolvency. See MTD 2 at 9.

         Nafus next addresses the FDIC's gross negligence claim. See MTD 2 at 11. Nafus explains that, under New Mexico law, gross negligence requires allegations that the defendant committed “an act or omission with conscious indifference to harmful consequences and failed to exercise even slight care.” MTD 2 at 11 (quoting Smith v. Ingersoll-Rand Co., 214 F.3d 1235, 1251 (10th Cir. 2000)(alterations omitted)(emphasis in MTD 2 but not in Smith v. Ingersoll-Rand Co.)(internal quotation marks omitted)). Nafus contends that the Complaint fails to state a claim for gross negligence, because it does not allege any facts indicating that Nafus acted with conscious indifference to any alleged harmful consequences or that he failed to exercise even slight care in approving the subject loans. See MTD 2 at 11. Nafus asserts that the Complaint acknowledges that the loans which Nafus approved were secured by personal guarantees and collateral -- “negating any plausible inference of conscious indifference or failure to exercise even slight care.” MTD 2 at 11-12.

         Nafus argues that the Complaint also fails to state a claim for breach of fiduciary duty. See MTD 2 at 12. Nafus explains that a claim for breach of fiduciary duty must involve some conflict of interest or allegation of self-dealing at the corporation's expense. See MTD 2 at 12 (citing Walta v. Gallegos Law Firm, P.C., 2002-NMCA-015, ¶ 41, 40 P.3d 449 (“The duty between shareholders of a close corporation is similar to that owed by directors, officers, and shareholders to the corporation itself; that is, loyalty, good faith, inherent fairness, and the obligation not to profit at the expense of the corporation.”)). Nafus asserts that the Complaint lacks any such allegations. See MTD 2 at 12.

         Nafus also argues, in a footnote, that the Complaint's failure to allege concrete injury raises standing concerns. See MTD 2 at 9 n.1. Nafus notes that a plaintiff has standing only when: (i) he or she has suffered an injury in fact; (ii) there is a causal connection between the injury and the conduct of which the pleading complains; and (iii) it is likely that a favorable decision will redress the injury. See MTD 2 at 9 n.1 (citing United States v. Colo. Sup. Ct., 87 F.3d 1161, 1164 (10th Cir. 1996)). Nafus asserts that, even if the Complaint vaguely alleges that First Community's failure constitutes an “injury in fact, ” it does not allege any facts showing a causal connection between the three loans that Nafus approved and First Community's failure. MTD 2 at 9 n.1.

         The FDIC responded to the MTD 2 on April 23, 2014. See Plaintiff's Opposition to Defendant Bobby J. Nafus' Motion to Dismiss (Document 18), filed April 23, 2014 (Doc. 25)(“MTD 2 Response”). The FDIC asks the Court to deny the MTD 2 for three reasons. See MTD 2 Response at 4-8. First, the FDIC argues that the Complaint sufficiently alleges negligence, gross negligence, and breach of fiduciary duty. See MTD 2 Response at 4-5. The FDIC explains that New Mexico applies an ordinary negligence standard to officers and directors. See MTD 2 at 4 (citing N.M. Stat. Ann. § 53-11-35(B)). In the FDIC's view, Nafus was negligent, because he approved the subject loans despite: (i) missing tax returns and financial statements from the borrowers and guarantors; (ii) missing appraisals and appraisal reviews; (iii) inadequate analysis of the borrower's and guarantor's financial information and ability to service the debt; and (iv) loan-to-value and loan-to-cost ratios that exceeded the maximum that the Loan Policy prescribed. See MTD 2 Response at 4 (citing Complaint ¶¶ 30-31, at 8-9; Complaint ¶¶ 37-39, at 10-12; Complaint ¶¶ 56-57, at 17). Turning to its gross-negligence claim, the FDIC reiterates that numerous courts around the country have found that identical allegations exceed ordinary negligence to sufficiently allege gross negligence. See MTD 2 Response (citing MTD 1 Response at 9-12). The FDIC asserts that, consequently, although New Mexico law does not distinguish between gross negligence and ordinary negligence, the Court should not dismiss its gross-negligence claim. See MTD 2 Response at 4-5.

         The FDIC asserts that the business judgment rule does not protect Nafus, because the Complaint alleges that he acted without a reasonable basis and without exercising independent judgment. See MTD 2 Response at 5. Moreover, the FDIC argues that Nafus' contention that a breach of fiduciary duty must involve some conflict of interest or allegation of self-dealing is incorrect. See MTD 2 Response at 5. Instead, according to the FDIC, “New Mexico law recognizes that directors and officers owe a duty of fiduciary care as well as of loyalty . . . .” MTD 2 Response at 5.

         Second, the FDIC argues that the Complaint sufficiently alleges Nafus' personal involvement in the subject loans. See MTD 2 Response at 5. The FDIC asserts that the Complaint identifies which of the subject loans Nafus approved and “more than adequately puts him on notice of the specific misconduct as to each transaction.” MTD 2 Response at 5. Regarding the Kitts Development loans, the FDIC states:

Paragraph 29 clearly states that Defendant Nafus initially approved a $2.89 million loan on January 29, 2007. Paragraphs 30 and 31 explain the precise actions and inactions by Defendant Nafus that constitute negligence, gross negligence, and breaches of fiduciary duty. Paragraph 35 estimates the damages ...

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