Billman v. State of Maryland Deposit Insurance Fund Corp.

⁸⁷ LAWRENCE F. RODOWSKY, Judge, Specially Assigned. Appellee, State of Maryland Deposit Insurance Fund Corporation (MDIF), is the receiver of Community Savings & Loan, Inc. (CSL), a Maryland chartered, capital stock savings and loan corporation. In an action for damages based on breaches of the duties of loyalty and care owed to CSL by its officers and directors, MDIF obtained judgments, jointly and severally, against appellants, Tom J. Billman (Billman), Clayton C. McCuistion (McCuistion), and Leonard Meltz (Meltz), in excess of $112 million, against appellant, Crysopt Corporation (Crysopt), for approximately $94 million, and against two holding companies of CSL, which are also appellants, for $109 million. 1 On an earlier consideration of this appeal, this court reversed the judgment and remanded for a new trial because documents which had not been admitted into evidence mistakenly had been delivered to the jury room where they were available to the jury during its deliberations. Billman v. State of Maryland Deposit Ins.

Fund Corp., 80 Md.App. 333 , 563 A.2d 1110 (1989). Finding that the error was not prejudicial, in light of the record as a whole, the Court of Appeals reversed. State of Maryland Deposit Ins. Fund Corp. v. Billman, 321 Md. 3 , 580 A.2d 1044 (1990).

The appeals are now before this court on remand from the Court of Appeals for the purpose of considering the issues which were not decided in the prior opinions. CSL was one among a myriad of corporations and partnerships affiliated with Equity Programs Investment Corporation (EPIC), a syndicator of tax shelter limited partnerships which invested in residential real estate. Billman was the founder of EPIC and a controlling principal in the EPIC group of corporations and partnerships. Crysopt is a holding company wholly owned by Billman. ⁸⁸ Appellants claim that many errors were committed in the proceedings below.

The nature of MDIF’s claims and an outline of the proof supporting those claims may be found in the Court of Appeals opinion, supra. Throughout this opinion we shall set forth facts, additional to those found in the Court of Appeals opinion, to the extent necessary to present the issue under consideration and the grounds of its disposition. I By a preliminary motion under Maryland Rule 2-322, Crysopt challenged personal jurisdiction. Crysopt, a Delaware corporation, maintained its principal business office in Alexandria, Virginia during the relevant period.

The Circuit Court for Montgomery County denied the motion. Crysopt claims that was error. Md.Code (1974,1989 Repl.Vol.), § 6-103 of the Courts and Judicial Proceedings Article, the Maryland long arm statute, provides in relevant part as follows: “(a) Condition. — If jurisdiction over a person is based solely upon this section, he may be sued only on a cause of action arising from any act enumerated in this section. (b) In general. — A court may exercise personal jurisdiction over a person, who directly or by an agent: (3) Causes tortious injury in the State by an act or omission in the State[.]” The breaches of fiduciary duty owed to CSL by the individual defendants in this case were torts.

See Restatement (Second) of Torts § 874 (1977) (“One standing in a fiduciary relation with another is subject to liability to the other for harm resulting from a breach of duty imposed by the relation.”). The theory of MDIF’s complaint against Crysopt is that Crysopt “was among the means and instrumentalities by which” Billman and others committed the tort or series of torts. It was on that theory that the case went to the jury against Crysopt, and the verdicts against ⁸⁹ Crysopt must be viewed as based on that theory. The tort victim, CSL, had its principal place of business in Montgomery County, Maryland.

Crysopt’s role in the EPIC “reorganization” of February 28, 1985, sufficiently demonstrates that Crysopt caused tortious injury to CSL in Maryland. In summarizing that role we shall refer to the two tiers of holding companies of CSL collectively as “EPIC Holdings,” as did the Court of Appeals. Billman, 321 Md. at 18 , 580 A.2d 1044 . Billman owned eighty percent of the stock of EPIC Holdings, and McCuistion owned twenty percent.

In the reorganization Billman received assets valued in excess of $31 million, including all of the stock of Crysopt. Between January 9 and February 25, 1985, CSL paid to EPIC Holdings $1.5 million in tax allocation payments and $7,999,998 in dividends. EPIC Holdings then utilized those payments when it infused $14 million of immediately available funds into Crysopt. Nearly $9 million of those funds were déposited to an account of Crysopt at CSL on February 19, 1985, which was drawn down to $63,000 by early March 1985.

Parts of the tortious injury allegedly suffered by CSL were the tax allocation payments and the February 7, 1985, illegal dividend of $7,999,998. 2 Also included in the assets of Crysopt was the stock of Batts Neck Corporation, which, through a number of subsidiary corporations, owned valuable real estate on the Eastern Shore. The net worth of Batts Neck Corporation was $1.2 million. In addition to the $14 million in cash and the stock of Batts Neck Corporation, Crysopt had other assets valued at the time of the reorganization at $16.5 million. Essentially, because Billman controlled Crysopt, Crysopt acted through Billman.

There is no issue concerning Maryland’s jurisdiction over Billman. When Billman utilized Crysopt in transactions which violated Billman’s duties to ⁹⁰ CSL; Crysopt was acting in Maryland to the same extent that Billman was. The nexus here between the contacts supporting an exercise of personal jurisdiction and the nature of the action brought is extremely strong. Cf.

Camelback Ski Corp. v. Behning, 307 Md. 270 , 513 A.2d 874 (1986), vacated and remanded, 480 U.S. 901 , 107 S.Ct. 1341 , 94 L.Ed.2d 512 (1987), on remand, 312 Md. 330 , 539 A.2d 1107 , cert. denied, 488 U.S. 849 , 109 S.Ct. 130 , 102 L.Ed.2d 103 (1988). There was personal jurisdiction over Crysopt. II Appellants contend that their “recoupment” counterclaims were improperly dismissed and that their “recoupment” defenses were improperly stricken. The argument is an effort to bring this case within the holding of State v. Hogg, 311 Md. 446 , 535 A.2d 923 (1988).

In Hogg , MDIF sued as successor to Maryland Savings-Share Insurance Corporation (MSSIC), the private insurer of deposits in Maryland chartered savings and loans. MSSIC had been statutorily merged into MDIF. See 1985 Maryland Laws (First Special Session), Ch. 6, uncodified § 4. The action was against former officers and directors of MSSIC.

The Hogg opinion used the term, “recoupment,” to describe the principle “that, by initiating an action for money damages, a sovereign who has not by statute consented to suit against it, consents to a reduction of its claim for any amount payable to the defendants by a private party in the position of the sovereign which arises out of the same transaction or occurrence sued upon.” 311 Md. at 457 , 535 A.2d 923 . Hogg held that “ ‘recoupment ]’ does not offend Maryland’s sovereign immunity.” Id. The appeal in Hogg was noted by MDIF from the refusal by the trial court to strike the defendants’ recoupment defense. That appeal was permitted only under the collateral order doctrine, thereby limiting the issue before the Court of Appeals to whether sovereign immunity would be infringed were the case to be tried with recoupment as a ⁹¹ viable defense. 311 Md. at 471 and n. 11, 535 A.2d 923 .

Thus, the Hogg Court had no occasion to consider whether any duty was owed to the defendants in Hogg by the State and its agencies there involved. The matter now before us was tried on MDIF’s second amended complaint. MDIF prosecuted the action as receiver of CSL. See Billman, 321 Md. at 5 , 580 A.2d 1044 .

The theory of the complaint was that Billman and others caused loss to CSL by unlawful loans to EPIC entities (Count I), by unlawful loans to “Insider Partnerships,” ie., those composed of officers and directors of EPIC affiliated entities, including most of the defendants (Count II), by unlawfully paying dividends (Count III), by unlawfully prepaying to EPIC Holdings moneys for taxes (Count IV), by unlawfully paying certain fees to related entities (Count V), and by certain acts of waste (Count VI). Appellants filed counterclaims against MDIF, expressly including MDIF in its capacities as conservator and receiver of CSL, as regulator, as insurer, and as successor to MSSIC. The counterclaims also invoked Maryland Rule 2-331(c) in an attempt to join additional parties as counterclaim defendants. These were the Maryland Board of Savings and Loan Commissioners (Commissioners) and its Chairman, the Maryland Division of Savings and Loan Associations (DSL) and its Director, the Maryland Department of Licensing and Regulation and its Secretary, the Director of MDIF, and the Governor of Maryland.

The theory of the counterclaims was that the counterclaim defendants owed duties, based in contract, general tort law, statutes, and constitutions, to the counterclaimants. The appellants’ summary of the breaches of duty is that the counterclaim defendants “failed to ensure that other MSSIC S & L’s were operated properly and failed to ensure that MSSIC had adequate funds to meet its insurance obligations; failed to use their resources to maintain public confidence in member S & L’s and to absorb potential losses at Old Court; and caused the failure of public confidence which led to the run on deposits and the S & L [cjrisis.” Brief of Appellant ⁹² Billman at 20. 3 The appellants also filed answers denying MDIFs material allegations. These allegations of the counterclaim, and the attempted joinder of additional parties, are simply attempts to sue the State in its various manifestations. The public officials are joined only in their official capacities, as a way of alleging wrong by the State.

But appellants do not invoke any statutory waivers of sovereign immunity. Their argument rests on fitting their allegations into the recoupment concept. Under Hogg , sovereign immunity is not infringed by a defense which was recognized at common law as a pure recoupment. Hogg, 311 Md. at 458 , 535 A.2d 923 , quoting from State v. Baltimore & O.R.R., 34 Md. 344 (1871), aff'd, 21 Wall. 456 , 22 L.Ed. 678 (1875), relied on the distinction between common law recoupment and statutory set off (a precursor of present Maryland Rule 2-331(a) and (c)).

Appellants’ labeling of their pleading as a counterclaim is not determinative of the recoupment issue, so long as the substance of their allegations does not exceed common law recoupment. Here, appellants’ allegations do not satisfy the requirements of common law recoupment. The defendants claim against MDIF as part of the State when MDIF is suing only in a representative capacity, as receiver of CSL, a private corporation. Further, appellants’ claims rest on transactions and occurrences which are beyond those relied on in MDIF’s complaint.

The distinction between set-off and recoupment in Maryland is described in W. Brantly’s Notes to Milburn v. Guyther, 8 Gill 92 (1849). That annotator states in part: “Set-off is distinguished from recoupment, in that while a set-off is in the nature of a cross suit, ex dispari causa, ⁹³ is a remedy conferred by statute, and must be specially pleaded, a recoupment is a cross claim arising out of the same contract which forms the cause of action, (ex eadem causa,) is a common-law remedy, and need not be specially pleaded.” 8 Gill at ⁹³ (at reprint 69), note (b) (citations omitted). “Recoupment is a species of common law set off for damages due the defendant, growing out of the same transaction. It is allowed both in actions ex contractu and actions ex delicto, to avoid circuity of action. Lee vs. Rutledge, 51 Md. 318 .

The doctrine of recoupment is comparatively modern, but it has become the settled law of this State. Warfield vs. Booth, 33 Md. 72, 73 . The tendency of modern decisions has been to avoid circuity and multiplicity of actions, by allowing matters growing out of the same transaction to be given in evidence by way of defence instead of requiring a cross-action, when it can be done without a violation of principle or great inconvenience in practice. Ibid.

Matter of defence by recoupment is raised under the general issue by way of evidence and is not usually the subject of plea. 51 Md. 318 .” 8 Gill at ⁹³ (at reprint 73). Thus, common law recoupment is the most narrow of the concepts. It is embraced within the larger concept of set off, which in turn is embraced within the even more liberal scope of the claims permitted under Rule 2-331. Purely defensive recoupment does not lie here because MDIF sued solely in a representative capacity, as the receiver of CSL.

See 2 R. Clark, The Law and Practice of Receivers § 579 (3d ed. 1959). MDIF controlled CSL as receiver and brought this action in the right of CSL directly. The counterclaims which appellants assert as recoupment are not claims against MDIF in its representative capacity. They are not claims against CSL.

The counterclaims assert MDIF’s assumption of an alleged liability of MSSIC to the appellants and allege a failure by MDIF, as a state agency, and by other state agencies and officials to perform their ⁹⁴ duties. But, “[a]n essential element of the doctrine of set-off [ie., recoupment] is that the cross claims or demands must be mutual and in the same right; that is to say, a claim held in a representative capacity cannot be set off against a personal debt of a representative, such as a trustee or an executor____” Ghingher v. Fanseen, 166 Md. 519, 527 , 172 A. 75 (1934). Analogous to the instant matter is Coppage v. Maryland Thrift Sav. & Loan Co., 253 Md. 238 , 252 A.2d 869 (1969). A private insurer of accounts in thrift associations had loaned money to Maryland Thrift.

Both were later placed in receivership. The insurer, through its receiver, claimed the balance due on the loan. The receiver for Maryland Thrift was authorized by court order to claim on behalf of Maryland Thrift’s depositors against the insurer for losses on the depositors’ accounts. Maryland Thrift’s receiver attempted to set off against the association’s loan balance due to the insurer the amounts due by the insurer for deposit account losses.

The Court of Appeals held that there could be no set off because the court order did not make the debts mutual. 253 Md. at 253 , 252 A.2d 869 . See also McPherson v. Ross, 1 Md. 181 (1853). Under Fed.R.Civ.P. 13 “[t]he general rule seems to be that in an action brought in a representative capacity, defendant cannot assert a counterclaim against plaintiff in his individual capacity because it would not be a counterclaim against an ‘opposing party.’ ” 6 C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 1404, at 19 (1990) (footnote omitted). The difficulty which appellants here encounter in asserting recoupment was not presented (or discussed) in Hogg .

There the State, through MDIF, sued as the successor by merger to MSSIC, asserting breaches of the duties owed by the defendant officers and directors of MSSIC to MSSIC. In essence, the State, through MDIF, had gone into the business of insuring accounts, MDIF was suing in MDIF’s own corporate capacity, as MDIF, and MDIF’s standing in ⁹⁵ the Hogg litigation was not representative, i.e., MDIF was not suing as the receiver of MSSIC. Another deficiency in appellants’ reliance on recoupment is that appellants’ claims rest on occurrences and transactions which go well beyond the breaches of duty to CSL by the defendants in the instant matter. In substance, appellants’ claim embraces the entire savings and loan crisis.

The claim embraces all of the relationships and activities between MSSIC, the state regulators, and other large, state chartered associations which were ultimately placed in receivership. Hogg pointed out that the scope of what may be raised by recoupment is determined by the complaint. 311 Md. at 465-66 , 535 A.2d 923 . The complaint in the instant matter is limited to the relationship between the defendants and CSL. The instant matter is unlike Hogg where the activities of MSSIC blanketed the industry of state chartered associations.

That enabled the officers and directors of MSSIC, when sued with respect to activities pertaining to the entire industry, in turn to assert against the State, as plaintiff, alleged deficiencies of the state regulators relating to the entire industry. Even if the agencies and individuals whom the appellants sought to join in their counterclaim are to be treated as separate from the State, or from MDIF, and even if Md. Rule 2-331(a) can be used to assert recoupment, with additional parties joined per Rule 2-331(c), it was nevertheless proper for the circuit court to strike the appellants’ counterclaims. Because recoupment did not lie against MDIF in its representative capacity, the “recoupment” counterclaim did not lie. Absent a cognizable counterclaim against an original party to the action, Rule 2-331 does not provide for the joinder of additional parties as counterclaim defendants.

For the same reason appellants’ derivative suit theory fails. Under that theory the counterclaim would be viewed as brought by appellants as shareholders of CSL, in the right of CSL, without the need for any demand on CSL, then under the control of MDIF, and against third parties (MDIF as insurer and other state agencies and officials) ⁹⁶ who had injured CSL. But under that theory there still is no cognizable recoupment against MDIF as receiver of CSL. Ill A lack of standing in MDIF to sue for some $38 million of the damages awarded is also asserted by appellants.

This argument moves from the macroscale of issue II to the microscale of distinguishing between CSL and its direct and indirect subsidiaries. For example, unpaid loans to insider partnerships, on which the approximately $8 million verdict on Count II was predicated, were carried on the books of EPIC, a CSL subsidiary, and not directly on those of CSL. Similarly, tax allocation payments which underlay part of the verdict on Count IV were paid by CSL subsidiaries to EPIC Holdings. Appellants contend that this means that the damages were awarded to CSL for harm to subsidiaries of CSL, not to CSL itself.

In their brief-in-chief appellants rely on the common law principle, illustrated by Waller v. Waller, 187 Md. 185, 189 , 49 A.2d 449 (1946), “that an action at law to recover damages for an injury to a corporation can be brought only in the name of the corporation itself acting through its directors, and not by an individual stockholder though the injury may incidentally result in diminishing or destroying the value of the stock.” MDIF points out that the rule relied upon is changed by statute. Md.Code (1980, 1986 Repl.Vol.), § 9-702(b) of the Financial Institutions Article (FI) recognizes that the conservator of a savings and loan association exercises “the powers granted by order of the court.” FI § 9-708(c)(3) provides that the receiver of such an association has “[a]ny other powers and authority as may be expressed in the order of any court of competent jurisdiction.” In the instant matter, the order appointing MDIF as conservator for CSL provided that “the conservator shall exercise all powers, rights and privileges of [CSL] and its subsidiaries, and shall conduct the operations of [CSL] and its subsidiaries.” ⁹⁷ The order appointing MDIF as receiver of CSL provided that the receiver succeeded to all interests of the conservator. The circuit court’s use of the above-quoted provisions of FI §§ 9-702(b) and 9-708(c)(3) is consistent with the reason underlying the common law rule applied in Waller . “The reason for this rule is that the cause of action for injury to the property of a corporation or for impairment or destruction of its business is in the corporation, and such an injury, although it may diminish the value of the capital stock, is not primarily or necessarily a damage to the stockholder, and hence the stockholder’s derivative right can be asserted only through the corporation. The rule is advantageous not only because it avoids a multiplicity of suits by the various stockholders, but also because any damages so recovered will be available for the payment of debts of the corporation, and, if any surplus remains, for distribution to the stockholders in proportion to the number of shares held by each.” Waller v. Waller, 187 Md. at 189-90 , 49 A.2d 449 .

That is precisely what happens in the receivership of CSL. In their reply brief appellants reject MDIF’s response as immaterial. They say that “[t]he authority to bring a derivative action does not mean that the suit, as instituted, was in fact properly brought as a derivative action.” Reply Brief of Crysopt at 2. Thus, this issue reduces to a matter of pleading.

Even if the proof of damages demonstrated harm to a subsidiary and not to CSL, MDIF was substantively authorized to sue as representative of subsidiaries of CSL. Appellants do not argue that they have been improperly prejudiced by the admission of the damage proof in the absence of allegations in MDIF’s complaint that it also sued as representative of CSL subsidiaries. This deficiency, if any, is not a ground for reversal. Maryland Rule 2-341(c) provides that “[ejrrors or defects in a pleading not correct ⁹⁸ ed.by an amendment shall be disregarded unless they affect the substantial rights of the parties.” IV Appellants also claim error in the trial court’s ruling and subsequent jury instructions concerning a so-called “federal tie-in” statute.

This issue involves construing the statute dealing with authorized investments of savings and loan associations as that statute stood from July 1, 1983, through June 30, 1985. The statute involved was Md.Code (1980, 1983 Cum.Supp.), FI § 9-419(c). Appellants assert, and MDIF denies, that subsection (c) superseded regulations of the Commissioners which (1) established a loan to value ratio of ninety percent for mortgage loans secured by non-owner occupied residences, and (2) required that mortgages on owner-occupied residences comprise at least fifty percent of a Maryland association’s assets. See Md.Regs.

Code tit. 9, § 05.01.30C(13) and .30D(1) (1980). The jury instructions rejected appellants’ construction. Analysis of the parties’ arguments requires consideration of other subsections of § 9-419, from time to time, and of other sections of the Financial Institutions Article. At all times relevant to the problem the Commissioners had authority to “adopt rules and regulations to carry out the provisions of [the Financial Institutions Article] that relate to savings and loan associations.” FI § 8-207(b)(l).

Throughout the relevant period, and until repealed by Chapter 282 of the Acts of 1986, FI § 9-419.1 provided that, “[i]n its investments under § 9-419 [an] association shall give priority to first mortgages for owner-occupied residences in the State.” Also throughout the relevant period FI § 9-419 contained the following introductory language: “(a) Investments enumerated. — Subject to the regulations of the Board of Commissioners, a savings and loan association may invest in any of the following types of investments[.]” ⁹⁹ There followed a listing comprising twenty subparagraphs. Prior to July 1, 1983, that is, as amended through Chapters 796 and 819 of the Acts of 1982, the relevant subparagraphs read: “(10) Deposits in or obligations of any bank insured by the Federal Deposit Insurance Corporation; (11) Deposits in or obligations of: (i) Any insured financial institution of this State; or (ii) Any insured financial institution of any state, after the investing savings and loan association has total deposits in all branches which exceed an amount equal to $100,000 times the number of chartered savings and loan associations in the State; (19) Any investment permitted to a banking institution in this State provided that the savings and loan association meets the conditions required of an investing banking institution; and (20) Any other investment authorized by the Board of Commissioners.” Subsection (b) of FI § 9-419 simply provides that associations “may accept any additional security on any investment authorized by [§ 9-419].” At the 1983 session of the General Assembly, House Bill 284, a departmental bill of the Department of Licensing and Regulation, was introduced to repeal subparagraph (11) and enact a new subparagraph permitting an association to invest in “deposits in any other financial institution, provided the deposits are insured by” one of five types of insurers. 4 ¹⁰⁰ House Bill 284 was assigned to the Economic Matters Committee where it was amended. The proviso that “the deposits are insured” was changed to read, “provided each deposit is insured.” Absent any further changes in the bill, this change would have eliminated an argument, based on ambiguity, that, by having some form of insurance on accounts a depository qualified under House Bill 284, even if the total deposits of the depositor association were not fully insured there. Instead, each deposit of the depositing Maryland association would have to be insured.

After passage by the House, the bill was referred to the Senate Economic Affairs Committee where a Maryland association proposed a further amendment. 5 At that time a proposed regulation pending before the Federal Home Loan Bank Board (FHLBB) would have allowed federal institutions to invest unlimited amounts in insured institutions. In order to achieve investment parity with federal associations under the anticipated regulation, by allowing state associations to obtain the higher interest rates available on short-term deposits in excess of $100,000, the association submitted the following language to be added at the end of proposed new subparagraph (11) of FI § 9-419(a): “And provided further that this subsection shall not prohibit a state-chartered savings and loan association from making any investment that is permissible for a federal savings and loan association.” The Senate Committee, however, reported House Bill 284 with an amendment which, while basically tracking the language proposed by the association to the Senate Committee, placed the language in a new subsection (c) to § 9-419, reading: “This section does not prohibit a State-chartered savings and loan association from making any investment that is permissible for a federal savings and loan association.” ¹⁰¹ 3 Md.SenJ. at 2151 (1983). The House concurred in the Senate amendment, and the bill was enacted as Chapter 678 of the Acts of 1983. The parties to the action now before us agree that the FHLBB never adopted the proposed regulation that had been under consideration while Chapter 678 was being enacted.

They further agree that federal regulations, at least under certain circumstances, permitted a loan to value ratio of ninety-five percent on federal association first mortgage loans on non-owner occupied residences, and that there was no federal regulation establishing a minimum percentage of assets required to be invested in first mortgage loans on owner-occupied residences. In a July 1984 memorandum to a legislative task force, the director of DSL said in part as follows: “Whereas the investments under [FI § 9-419(a) ] are subject to rules and regulations of the Board of Commissioners, the authority to make investments the same as federal associations was done by adding Section 9-419(c) which gives the associations blanket authority to make investments the same as federal associations but not under the jurisdiction of the Board of Commissioners. We would like to see the authority to make investments the same as federal associations moved to Section 9-419(a) so that the Board of Commissioners would have control of these investments.” Almost immediately thereafter, however, in a letter opinion of August 3, 1984, from the offices of the Attorney General of Maryland, the deputy counsel of the Department of Licensing and Regulation together with the chief of the Antitrust Division advised the Commissioners that Chapter 678 did not abrogate the power of the Commissioners (1) to establish lower loan to value ratios than those applicable to federal associations and (2) to set minimum requirements for categories of assets. That opinion recognized that a court might construe Chapter 678 differently and urged clarifying legislative action. ¹⁰² By letter of September 24, 1984, outside counsel advised the in house counsel of EPIC that the General Assembly’s “purpose in adopting a federal tie-in for investments was to maintain ‘competitive equality’ with federal associations.” Because “Maryland’s more restrictive loan-to-value ratio requirements can impair a Maryland chartered institution’s ability to compete for loans with federally chartered institutions in a deregulated environment,” and because the “more restrictive percentage of assets investment limitations ... impair a Maryland chartered thrift’s ability to diversify so as to be able to survive and compete in an environment of volatile interest rates,” the private opinion to EPIC concluded that the Commissioners’ regulations, described above, were superseded.

Counsel to EPIC also recognized that the state regulators would likely have a contrary opinion. In the case before us appellants’ position is essentially that embodied in the opinion to EPIC. The General Assembly again addressed the subject by Chapter 134 of the Acts of 1985. The title to that bill in part provides that it is “FOR the purpose of clarifying and making express the legislative intent that the ...

Commissioners may impose reasonable limitations on certain business practices of the savings and loan industry under certain conditions____” Chapter 134 amended FI § 8-207 to provide in new subsection (b)(2) as follows: “Except as otherwise provided in this title and in title 9 of this article and to the extent required to promote and assure the business and financial stability of savings and loan associations, the rules and regulations adopted by the Board of Commissioners under this section may include reasonable requirements and limitations on the types and amounts of investments, the manner of raising capital, and the nature and amounts of reserves, irrespective of their effects on free economic competition.” The bill further amended FI § 9-419. Subparagraph (a)(10) was changed to authorize “[djeposits in any financial institution insured by [the FDIC or the FSLIC] to the same extent and subject to the same conditions as a federal ¹⁰³ savings and loan association.” FI § 9-419(c) was amended to read: “This section does not prohibit a State-chartered savings and loan association from making any additional investment other than those authorized in subsection (a) of this section that is permissible for a federal savings and loan association to the same extent and subject to the same conditions as a federal savings and loan association.” (Emphasis added). These 1985 amendments unmistakably articulate the same position, as to regulatory power, taken under the 1983 statute by the Attorney General’s staff. Within that context, these amendments confine the scope of the changes to that sought by the amendment tendered to the Senate in 1983 by a state association.

In the case before us, the essence of appellants’ position is that, during 1983-1985, subsection (c) injected an overriding principle into Maryland’s regulation of state associations, namely, that “any” investment permissible for a federal association was permissible for a state association. MDIF’s and the Attorney General’s interpretation is that investments permissible for federal associations became investments authorized for state associations, in addition to those enumerated in subsection (a), but that the additional types of investments were subject to limitations or other restraints by regulation of the Commissioners. We adopt MDIF’s construction. First, it is consistent with the legislative history which limits the purpose of the 1983 changes to obtaining parity with federal associations only in short-term deposits, as opposed to a purpose of achieving extensive deregulation as argued by appellants.

Secondly, MDIF’s construction avoids massive repeals by implication of other provisions of the Financial Institutions Article which appellants’ construction requires. It is noteworthy that § 9-419(a) does not expressly prohibit investments which are not expressly authorized by subsection (a). It affirmatively authorizes certain invest- ¹⁰⁴ merits. There is, however, an implication that that which is unauthorized is prohibited.

Thus, depending on the interpretation of subsection (a), the 1983 version of subsection (c) either expanded the types of expressly authorized investments, or rejected the implied prohibition with respect to expressly approved investments for federal associations. In either event, however, investments of the type permissible for federal associations, when made by a state association, remained subject to regulations of the Commissioners. Otherwise, the conferral by FI § 8-207(b)(l) of authority on the Commissioners to make rules and regulations is rendered largely nugatory, because appellants’ position gives primacy to federal regulations, both as to type and extent of investment. Further, appellants’ interpretation reaches the extreme of concluding that, where there was no federal prohibition of any kind, subsection (c) of 1983 was intended to prevent state rulemaking.

In other words, because there is no federal requirement dealing with the percentage of the investment portfolio which must be maintained in mortgages on owner-occupied residences, appellants conclude that Maryland’s requirement to that effect is abrogated. That would mean that a Maryland association need not maintain any portion of its portfolio in mortgages on owner-occupied residences. Yet, that cannot have been the legislative intent in enacting subsection (c) because the General Assembly left intact § 9-419.1 requiring state associations to “give priority to first mortgages for owner-occupied residences in the State.” MDIF’s interpretation, and that applied by the trial court in this case in its instructions, is more consistent with the statutory scheme as a whole than is the radical departure therefrom advocated by appellants. The 1985 clarifying amendments to FI § 9-419(c) and to related provisions confirm this construction of the 1983 enactment.

Of course, “[a] subsequent legislative construction of the meaning of a prior statute is not binding or controlling on the Court____” A.G. Crunkleton Elec. Co. v. Barkdoll, 227 Md. 364, 369 , 177 A.2d 252 (1962) ¹⁰⁵ (citations omitted). “An effort to clarify statutory language so as to avoid the recurrence of a question and to settle it one way or the other does not necessarily establish the meaning of the language sought to be clarified.” Congressional School of Aeronautics, Inc. v. State Roads Comm’n, 218 Md. 236, 253 , 146 A.2d 558 (1958). Nevertheless, “a subsequent ‘statute purporting to declare the intent of an earlier one might be of great weight in assisting a court when in doubt.’ ” Swarthmore Co. v. Comptroller, 38 Md.App. 366, 373, 381 A.2d 27 (1977) (quoting United States v. Stafoff, 260 U.S. 477, 480 , 43 S.Ct. 197, 199 , 67 L.Ed. 358, 361 (1923)). And see Brafman v. State, 38 Md.App. 465, 469 , 381 A.2d 687 (1978).

To the extent that ambiguity in the 1983 legislation raises any doubt as to its proper construction, the doubt is removed by the clarification in the 1985 legislation. Thus, the trial court did not err in its instructions dealing with the duty of the officers and directors of CSL to comply with the Commissioners’ regulations. V Appellants challenge certain of the trial court’s instructions to the jury. After giving instructions applicable to jury trials generally, the court read verbatim Md.Code (1975, 1985 Repl.Vol.), § 2-405.1 of the Corporations and Associations Article (CA).

That statute embodies the business judgment rule in Maryland. It provides that a director shall perform the duties of that position in good faith, with reasonable belief that the performance is in the best interest of the corporation, and “[w]ith the care that an ordinarily prudent person in a like position would use under similar circumstances.” CA § 2-405.1(a)(3) (emphasis added). The jury was then told, in the language of subsection (b), that a director may rely on information and opinion presented by others, particularly by professionals as to matters reasonably believed to be within the professional’s expert competence. ¹⁰⁶ After instructing that the case involved duties both of care and of loyalty, the court defined the duty of care, again substantially in the language of CA § 2-405.1(a). Due care, the court then said, required management of the “institution’s property with the same degree of care that [the officers and directors] would use to manage their own property.” They need avoid gross negligence and should diligently abide by prudent business practices and applicable laws and regulations.

The jury was also told the following: “In the context of a savings and loan, the directors and officers owe a higher duty of care than is owed by their counterparts in a general corporation. This is because they are entrusted with funds belonging to the general public. “Directors and officers of a savings and loan may be held liable if they acted with gross negligence and that negligence was the proximate cause of damage to the savings and loan. “Gross negligence can be defined as a failure to perform a duty, with reckless disregard for the consequences.” The court then described the duty of loyalty and, thereafter, the effect of violations of law in making loans. The jurors were instructed that the latter was evidence of negligence, but that it was “up to [the jurors] to determine whether or not the negligence in this case amounts to gross negligence as I defined it for you.” A The appellants contend that it was error to refer to a higher duty of care owed by the officers and directors of a savings and loan than by those of a general corporation. In the context of the instructions as a whole there was no error, and certainly no reversible error.

The court first had given a general instruction that the standard of care was that which “ordinarily prudent persons in a like position ¹⁰⁷ would use under similar circumstances.” In the challenged portion the court made the instruction somewhat more specific by focusing on the circumstance applicable to officers and directors of savings and loans — investing the savings of others. The instruction is supported by a number of judicial decisions. In Atherton v. Anderson, 99 F.2d 883 (6th Cir.1938), an action by the receiver of a national bank against its directors, the court said: “[T]he directors are required ... to use ordinary diligence; and by ordinary diligence is meant, that degree of care demanded by the circumstances____ They must keep in mind that a national bank is not a private corporation in which stockholders alone are interested____ [0]ne of its principal purposes among others is to hold and safekeep the money of its depositors.” Id. at 888 . And see First Nat’l Bank of La Marque v. Smith, 436 F.Supp. 824, 831 (D.C.S.D.Tex.1977), modified on other grounds, 610 F.2d 1258 (1980); Gadd v. Pearson, 351 F.Supp. 895, 903 (D.C.M.D.Fla.1972); Litwin v. Allen, 25 N.Y.S.2d 667 , 678 (1940); Broderick v. Marcus, 152 Misc. 413 , 272 N.Y.S. 455, 461 (1934).

See also 1 Michie on Banks and Banking, Ch. 3, § 20, at 419 (1986 Repl.Vol.). W. Keeton, Prosser and Keeton on the Law of Torts (5th ed. 1984) discusses comparative degrees of care, using as an illustration the common carrier’s “highest” degree of care. “Although the language used by the courts sometimes seems to indicate that a special standard is being applied, it would appear that none of these cases should logically call for any departure from the usual formula. What is required is merely the conduct of the reasonable person of ordinary prudence under the circumstances, and the greater danger, or the greater responsibility, is merely one of the circumstances, demanding only an increased amount of care. “... There is seldom reason to think that [the courts] mean to say anything more than that greater or less care will be required under the circumstances.

Yet the ‘high ¹⁰⁸ degree’ instruction is unlikely ever really to mislead the jury....” Id,., § 34, at 209 (footnotes omitted). The challenged instruction correctly advised that compliance with the standard of care for officers and directors of a banking institution should be determined by comparison to the care exercised by the officers and directors of that type of enterprise. That includes responsibility for the savings of others. B The circuit court refused to give two of the appellants’ proposed instructions on the business judgment rule.

We find no error in either refusal. The more basic of the requested instructions would have told the jury that directors had no liability to the corporation for an honest mistake of judgment “even though the errors may be so gross that they may demonstrate the unfitness of the directors to manage the corporate affairs.” The instruction is contrary to Maryland law. There is liability for gross negligence in exercising business judgment. See Parish v. Maryland & Virginia Milk Producers Ass’n, 250 Md. 24, 74-76 , 242 A.2d 512 (1968).

The second requested instruction incorporated the first and would have applied the first specifically to the making of loans. C The trial court submitted to the jury the issue of whether or not the savings and loan crisis was a superseding cause of the losses which MDIF attributed to the acts and omissions of the defendants. Appellants complain that this issue was not submitted on their requested instruction which purported to present the rule of causation applied in Walker v. Vail, 203 Md. 321, 328 , 101 A.2d 201 (1953) (“[W]here either of two causes results in injury, for only one of which a defendant is responsible, and there is no basis for concluding that that was the cause rather than the ¹⁰⁹ other for which the defendant is not responsible, no recovery can be had.”). The appellants’ requested instruction, however, would have told the jury that the quoted rule could be applied “[e]ven if defendants’ acts may have caused plaintiffs’ injuries[.]” The requested instruction contradicted the rule of Maryland law embraced in the balance of the request, and was properly refused.

D Appellants also claim that the court erred in the instruction concerning the burden of proof on breaches of the duty of loyalty. In a lengthy conference on proposed instructions, defendants took the position that, if a transaction between CSL and an officer or director were fully disclosed to the board, and if that transaction were approved by the affirmative vote of a majority of the disinterested directors, plaintiff had the burden of proving that the transaction was not fair and reasonable. The defendants relied on CA § 2-419 and on Sullivan v. Easco Corp., 656 F.Supp. 531 (D.Md.1987). CA § 2-419(a) provides that transactions between a corporation and any of its directors are not void or voidable if there is compliance with subsection (b).

Under subsection (b) there are alternative forms of compliance, (1) disclosure with ratification by disinterested directors or by stockholders, or (2) “[t]he contract or transaction is fair and reasonable to the corporation.” CA § 2-419(b)(2). In that conference on prayers the plaintiff took the position that Easco Corp. was not on point because it involved an ordinary business corporation.