The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
Defendants Carolyn D. Jordan, David Wilmot and Thomas L. Batties ("Defendants") obtained an advancement of legal fees from Independence Federal Savings Bank ("IFSB" or "Bank"), for which they were either Directors or Acting President when Morton A. Bender sued the Bank, some of its Directors, and Mr. Batties. Pursuant to regulations issued by the Office of Thrift Supervision ("OTS"), each Defendant agreed to repay the advances if it were later determined that they were not entitled to indemnification. After this Court entered a preliminary injunction in Mr. Bender's favor, OTS directed the Bank to obtain collateral from each of the Defendants to ensure reimbursement and to cease advancing legal expenses until OTS approved the collateral. See Cross- Pl.'s Mem. of P. & A. in Opp. to Cross-Def.'s Mot. to Dismiss ("Pl.'s Mem."), Ex. 2 [Dkt. #95]. The Bank demanded a return of the advancements but the Defendants have not made any repayment. This claim followed.
Defendants argue that this Court is without jurisdiction to rule in this matter because it does not arise under federal law and it is premature. After careful consideration, the Court finds otherwise for the reasons stated below. The Defendants' motion to dismiss the cross claim against them will be denied.
The instant matter is a small part of a multi-year struggle for control of the Bank between Morton A. Bender, a dissident shareholder, and the Bank's former Board of Directors, of which Ms. Jordan was Chair and Mr. Wilmot was Vice-Chair at the relevant time periods. Defendant Batties was the Bank's Acting President and Chief Executive Officer. When Mr. Bender sued, challenging the Defendants' conduct of the 2005 Shareholders' Meeting and pre-meeting proxy statements to shareholders, the Bank conferred with OTS about indemnifying the Defendants. Mr. Bender filed his suit on January 18, 2006. The Office of Thrift Supervision issued a letter regarding the pending litigation and the circumstances surrounding the indemnification of the Directors:
[O]n January 24, 2006, the Bank's counsel, John R. Hall of Muldoon Murphy and Aguggia, LLP, discussed at length the implication of the litigation pursuant to 12 C.F.R. § 545.121(e) (the Regulation) with Regional Counsel Karen K. Bruton. Specifically, they discussed advancement of legal expenses by Independence for the Director Defendants [and Mr. Batties]. On January 30, 2006, Regional Counsel Bruton provided Mr. Hall a copy of the December 2, 1992 legal opinion by then Office of Thrift Supervision (OTS) Chief Counsel Harris Weinstein (1992 Opinion) interpreting the Regulation. Their discussion of the 1992 Opinion specifically focused on the language indicating that "[i]t would be an abuse of discretion for directors to provide an advance for expenses unless they first concluded on the basis of full disclosure of all facts by the prospective indemnitee that the prospective indemnitee is clearly more likely than not to succeed in the underlying matter and ample security exists to assure repayment in the absence of ultimate success in the underlying matter."
On February 15, 2006, the Board of Directors (Board), by a vote of five to four, adopted a Resolution authorizing advancement of legal expenses on behalf of the Director Defendants [and Mr. Batties], in accordance with the requirements of the Regulation. Under cover letter dated March 17, 2006, then Vice President, Counsel and Corporate Secretary Sheila R. Finlayson provided this Office copies of the Request for Advancement of Expenses for Claims Against an Officer or Director executed by each of the Director Defendants [and Mr. Batties] (Advancement Requests). Each of the Advancement Requests contain[s] identical two sentence declarations in which the individual requests advancement of reasonable expenses and costs for their defense in this case and each agrees that he/she "will repay the Bank any amounts so paid on my behalf by the Bank if it is later determined that I am not entitled to indemnification with respect to the litigation under 12 C.F.R. § 545.121, and I represent that I have sufficient assets to repay my fair share of such amounts."
See Pl.'s Mem., Ex. 2 at 1-2 (Letter from John E. Ryan, OTS Regional Director, to Board of Directors). The Advancement Requests were submitted specifically "[p]ursuant to Regulations of [OTS] governing advancement of expenses to directors and officers of a federal savings association, 12 C.F.R. § 545.121.(3)." See Pl.'s Cross-Claim, Exs. 1-3 [Dkt. #89]. It was "[u]nder the Regulation," that each Defendant agreed to repay the advancements if not entitled to them. Id.
At that time, a majority of the Board of Directors of the Bank opposed Mr. Bender's efforts to change the direction of the Bank. They vigorously defended against his lawsuit. The Bank advanced $649,614.00 in attorneys' fees and other related litigation expenses and costs. Id. ¶ 12. After this Court's July 2006 opinion granted a preliminary injunction in Mr. Bender's favor, the previous majority members resigned their positions from the Board, leaving only Ms. Jordan and Mr. Wilmot. The new majority of the Board favored Mr. Bender; this majority replaced Ms. Jordan as Chair and Mr. Wilmot as Vice-Chair and selected a new President for the Bank. Ms. Jordan and Mr. Wilmot resigned their positions from the Board at the end of the year; all Defendants sold the Bank stock they owned. See May 31, 2007 Mem. Op. at 2, 8 [Dkt. #90].
On January 12, 2007, the Bank, through counsel, sent letters to each of the Defendants demanding reimbursement of the sums advanced by the Bank. See Pl.'s Cross-Claim ¶ 15. The Defendants have failed to reimburse the Bank any sums. The Bank filed its cross-claim against the Defendants on February 15, 2007.*fn1 The Bank has alleged claims for breach of contract and unjust enrichment, on the basis that the Defendants are not entitled to indemnification under 12 C.F.R. § 545.121 and should be required to repay any and all amounts previously advanced pursuant to 12 C.F.R. § 545.121(e).
Pursuant to 12 C.F.R. § 545.121, a "Federal savings association shall indemnify its directors, officers, and employees" in accordance with the express requirements set forth in the Regulation. Specifically, the Regulation provides, inter alia, that:
(b) General. Subject to paragraphs (c) and (g) of this section, a savings association shall indemnify any person against whom an action is brought or threatened because that person is or was a ...