February 18, 2008

Can the Red Cross, FDIC, or Federal Credit Unions Be Sued for Punitive Damages?

We previously blogged here about our firm's pending cert petition in McGee v. Tucoemas Federal Credit Union. My partner Rob Wright, who is counsel of record for the credit union, explains the important issues raised by the petition:

Congress has given most federal instrumentalities, including federal credit unions, authority to “sue and be sued.” In Tucoemas Federal Credit Union v. McGee, we have petitioned for a writ of certiorari on the issue of whether a federal credit union’s authority to sue and be sued includes being sued for punitive damages. The appellate court in this case was confronted with two lines of seemingly conflicting authority. One line includes decisions by the Sixth, Eighth, Ninth, and Eleventh Circuits of the United States Court of Appeals holding that a federal instrumentality’s authority to sue and be sued does not include being sued for punitive damages. Typical of these decisions is Matter of Sparkman, 703 F.2d 1097 (9th Cir. 1983), which relied on “the long-established principle that the United States, its agencies, and instrumentalities cannot be held liable for punitive damages unless there is express statutory authorization for such liability.” Id. at 1100. As a result, the Ninth Circuit held that while the “sue and be sued” clause in the enabling legislation for the federal instrumentality at issue in that case (a production credit association) “waives sovereign immunity from ordinary lawsuits, it does not subject production credit associations to liability for punitive damages. Such immunity must be waived expressly.” Id.

The other line of authority consists of decisions by the United States Supreme Court holding that “sue and be sued” clauses are construed liberally. Typical of these decisions is FDIC v. Meyer, 510 U.S. 471 (1994), which holds that courts “‘liberally construe the sue-and-be-sued clause’” and will presume that a federal instrumentality’s liability “‘is the same as that of any other business.’” Id. at 481 (original emphasis). However, none of the decisions in this second line of authority address punitive damage claims.

In this case, the California Court of Appeal held that the line of United States Supreme Court decisions liberally construing the sue and be sued clause impliedly overrule the line of Court of Appeals decisions construing the clause to exclude punitive damage claims. As a result, the California Court of Appeal affirmed the punitive damages award against the federal credit union.

Because the issue here could affect not just federal credit unions but other federal instrumentalities with sue and be sued clauses as diverse as the American Red Cross and the Federal Deposit Insurance Corporation, this petition may be worth watching.