Associated Mortgage Bankers, Inc. v. Castro
Civil Action No. 2017-0075
| D.D.C. | Dec 1, 2017Background
- AMB originated FHA-insured mortgages and in 2012 entered an Indemnification Agreement with HUD agreeing to indemnify HUD for losses related to a particular loan for up to five years from endorsement.
- In 2013 HUD sold the note (not the property) for the Loan through its Single Family Loan Sale (SFLS) program, recovering roughly 66% of the collateral’s appraised value; HUD’s PSA with JPMorgan required HUD to exclude loans subject to indemnification agreements from SFLS pools.
- HUD later sought $160,448.62 from AMB under the Indemnification Agreement; AMB appealed to HUD’s Office of Hearings and Appeals (AJ), which found the insurance claim valid and that HUD did not breach the Indemnification Agreement by including the Loan in the SFLS sale, and authorized collection.
- AMB sued in district court under the APA to set aside the AJ’s decision and alleged breach of the covenant of good faith; the court dismissed the contract claim as within Tucker Act jurisdiction but allowed APA review of the AJ’s administrative-offset decision.
- AMB moved for leave to file a first amended complaint to add two new claims: (1) HUD’s SFLS program should have been promulgated through notice-and-comment rulemaking (APA claim), based on a HUD OIG report; and (2) HUD AJs are inferior officers violative of the Appointments Clause.
- The district court ruled on AMB’s motion to amend: it struck the (first) contract claim as futile for lack of jurisdiction, but granted leave to add factual allegations and the two new claims (notice-and-comment and Appointments Clause), without prejudging their merits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Leave to amend to re-plead contract claim | AMB seeks to add/clarify contract-based allegations (breach of covenant) | HUD contends contract claim is beyond district court jurisdiction (Tucker Act) | Denied as futile; contract claim struck (may be refiled in Court of Federal Claims) |
| Leave to add notice-and-comment rulemaking claim | HUD lacked publicly promulgated SFLS rules; OIG report shows HUD should have used notice-and-comment; failure caused erroneous sale | HUD says AMB waived/exhaustion failure and undue delay (should have raised during prior rulemaking or before AJ) | Granted leave to amend; court rejects futility on exhaustion/waiver and finds no undue prejudice from short delay; merits not decided |
| Leave to add Appointments Clause claim | HUD AJs are inferior officers not properly appointed; this undermines AJ authority over administrative offset | HUD contends constitutional challenge can be waived/exhausted and AMB could have raised it earlier | Granted leave to amend; court finds exhaustion/waiver arguments insufficient and delay not prejudicial; merits reserved |
| Mootness/futility based on administrative exhaustion and undue delay | AMB says claims arise from post-filing OIG report and Lucia authority; timely sought amendment | HUD argues claims were or could have been raised earlier and administrative review required | Court: exhaustion/waiver not shown by HUD; short post-report amendment delay and early-case posture weigh for allowing amendment |
Key Cases Cited
- In re Interbank Funding Corp. Sec. Litig., 629 F.3d 213 (D.C. Cir. 2010) (Rule 15 leave-to-amend standard and futility concept)
- Barkley v. U.S. Marshals Serv., 766 F.3d 25 (D.C. Cir. 2014) (courts should freely give leave to amend absent good reason)
- Forman v. Davis, 371 U.S. 178 (1962) (standard favoring liberal amendment practice)
- Darby v. Cisneros, 509 U.S. 137 (1993) (APA limits exhaustion doctrine to what statute or rule clearly mandates)
- CSX Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076 (D.C. Cir. 2009) (waiver/exhaustion principles in administrative context)
- Freytag v. C.I.R., 501 U.S. 868 (1991) (Appointments Clause analysis and review of officer status)
- Hettinga v. United States, 560 F.3d 498 (D.C. Cir. 2009) (administrative exhaustion principles)
- DSE, Inc. v. United States, 169 F.3d 21 (D.C. Cir. 1999) (exhaustion/waiver and judicial review doctrines)
- Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000) (judicial review of Appointments Clause claims may proceed despite attenuated injury)