Westberg v. Federal Deposit Insurance
408 U.S. App. D.C. 246
| D.C. Cir. | 2014Background
- In May 2008 Kim and Laverne Westberg obtained a $1,318,000 residential construction loan from Silver State Bank; Silver State disbursed $171,510.95 before failing.
- The FDIC was appointed receiver, repudiated the loan under 12 U.S.C. § 1821(e), and told the Westbergs they still owed the amount already disbursed.
- The Westbergs filed an administrative proof of claim seeking damages for construction delays but did not request declaratory relief that repudiation relieved them of repayment obligations.
- The FDIC disallowed the damages claim; the Westbergs sued in district court seeking a declaratory judgment that repudiation discharged their repayment duty. The FDIC later assigned the loan to Multibank, and Multibank was added as a defendant.
- The district court dismissed the declaratory-judgment claim against Multibank for lack of subject-matter jurisdiction, concluding FIRREA’s administrative-exhaustion requirement applied and had not been satisfied; the Westbergs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FIRREA’s administrative-exhaustion requirement bars the Westbergs’ declaratory-judgment claim against Multibank | Westberg: The claim is against Multibank (a third party) and thus not a "claim" under FIRREA that must be administratively exhausted | FDIC/Multibank: The claim is functionally against the FDIC because it arises from the FDIC’s repudiation; FIRREA exhaustion therefore applies | The claim is functionally against the FDIC (subsection (ii)) and exhaustion is required |
| Whether the Westbergs satisfied FIRREA’s exhaustion requirement | Westberg: Filed a timely administrative proof of claim, so jurisdiction exists | FDIC/Multibank: The proof of claim sought only damages and did not put the FDIC on notice of the declaratory relief sought | The administrative claim did not assert declaratory relief; exhaustion failed, so court lacked jurisdiction |
Key Cases Cited
- Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) (explains FIRREA’s claims process and the FDIC’s broad receivership powers)
- Auction Co. of Am. v. FDIC, 141 F.3d 1198 (D.C. Cir. 1998) (interprets interaction of FIRREA §1821(d)(6) and §1821(d)(13)(D) exhaustion rule)
- American Nat’l Ins. Co. v. FDIC, 642 F.3d 1137 (D.C. Cir. 2011) (adopts functional test to determine when suit against a third party is nevertheless a FIRREA "claim")
- Village of Oakwood v. State Bank & Trust Co., 539 F.3d 373 (6th Cir. 2008) (holds claim against assuming bank was functionally against FDIC and required exhaustion)
- Tellado v. IndyMac Mortg. Servs., 707 F.3d 275 (3d Cir. 2013) (applies functional test where plaintiffs’ claim depended wholly on pre-receivership wrongdoing)
- Avocados Plus, Inc. v. Veneman, 370 F.3d 1243 (D.C. Cir. 2004) (confirms FIRREA’s exhaustion requirement is jurisdictional)