4:11-cv-00893
W.D. Mo.Apr 29, 2014Background
- Plaintiffs (individual investors and Quintero Community Association — QCA) invested in a failed Arizona golf-course development financed in part by Hillcrest Bank and related entities. The development collapsed and plaintiffs sued various defendants for losses.
- After Kansas closed Hillcrest Bank, the FDIC was appointed receiver (FDIC‑R) and was later substituted as a defendant; the case was removed to federal court under FIRREA jurisdictional provisions.
- Most claims were dismissed earlier; the only claims remaining were QCA’s breach of contract claim against FDIC‑R (Count 11) and a conversion claim against former Hillcrest directors/officers (Count 1).
- FDIC‑R determined (and published in the Federal Register) that Hillcrest’s receivership had insufficient assets to pay administrative expenses and deposit liabilities, leaving no assets for general unsecured creditors (the “No Value Determination”).
- FDIC‑R moved to dismiss for lack of subject‑matter jurisdiction, arguing QCA is a general unsecured creditor under FIRREA and therefore cannot obtain money even if it prevailed, rendering the claim moot; the court considered FIRREA’s priority scheme and the public record No Value Determination.
- The court granted FDIC‑R’s motion, dismissing FDIC‑R on prudential‑mootness grounds, but exercised supplemental jurisdiction and retained the conversion claim against the former directors/officers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether QCA’s breach‑of‑contract claim is a "general unsecured creditor" claim under FIRREA | QCA suggested FDIC had not proved the claim is unsecured and implied it might fall into a higher‑priority tier (administrative expense or deposit liability) | FDIC‑R argued QCA’s claim arises from a pre‑receivership contract breach and thus fits FIRREA’s third tier for general unsecured creditors | Court: QCA’s claim is a general unsecured creditor claim under FIRREA’s third tier |
| Whether the No Value Determination deprives the court of jurisdiction (mootness/prudential mootness) | QCA implied an Article III case or controversy remained and disputed FDIC’s characterization | FDIC‑R argued prudential (and possibly Article III) mootness because the receivership has no assets for general unsecured creditors, so QCA could not obtain relief even if it prevailed | Court: Even assuming Article III standing, claim is prudentially moot; dismiss FDIC‑R from the case |
| Whether to retain supplemental jurisdiction over remaining state‑law conversion claim against former directors/officers | QCA sought to continue the litigation in this forum (implicitly) | Former directors/officers requested the court retain jurisdiction to avoid refiling and duplicative work; FDIC‑R’s dismissal removed federal question jurisdiction | Court: Under 28 U.S.C. §1367, the court retained supplemental jurisdiction based on judicial economy, convenience, fairness, and comity |
Key Cases Cited
- MBIA Ins. Corp. v. F.D.I.C., 708 F.3d 234 (D.C. Cir. 2013) (discussing FIRREA receiver functions and liquidation priorities)
- MBIA Ins. Corp. v. F.D.I.C., 816 F. Supp. 2d 81 (D.D.C. 2011) (holding breach‑of‑contract claims against an insolvent failed bank fall in the general unsecured creditor tier)
- F.D.I.C. v. Estrada‑Rivera, 722 F.3d 50 (1st Cir. 2013) (analyzing Article III mootness in the context of FDIC receivership no‑value determinations)
- Adams v. Resolution Trust Corp., 927 F.2d 348 (8th Cir. 1991) (discussing limits on relief when receivership assets are insufficient)
- Data Mfg. Inc. v. UPS, Inc., 557 F.3d 849 (8th Cir. 2009) (standard for Rule 12(b)(6) consideration when assuming allegations true)
- Ali v. Cangemi, 419 F.3d 722 (8th Cir. 2005) (distinguishing Article III mootness and prudential mootness)
- Brown v. Mortgage Elec. Registration Sys., Inc., 738 F.3d 926 (8th Cir. 2013) (factors for exercising supplemental jurisdiction under §1367)