BHC INTERIM FUNDING II, L.P., and BHC Interim Funding III, L.P., Plaintiffs, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Waterfield Bank, Defendant.
Civil Action No. 10–1952 (BJR)
United States District Court, District of Columbia.
March 30, 2012.
BARBARA JACOBS ROTHSTEIN, District Judge.
Accordingly, Plaintiff‘s claims in Count II will be dismissed as asserted against the Wachovia FSB.
4. Count III
Count III alleges a common law unconscionability claim against defendant. Specifically, Plaintiff alleges that
- Defendant “obtained and finalized the mortgage to [her] home under procedurally and substantially unconscionable circumstances.” (Compl. ¶ 82.)
- “The terms of the transaction were substantively and procedurally unconscionable, unreasonably favorable to Defendants, and varied grossly from the market rates to the detriment of Plaintiff. The mortgage offered and the methods of obtaining and finalizing the mortgage are so gross as to shock the conscience.” (Compl. ¶ 84.)
As discussed above, Plaintiff‘s challenges relating to defendant‘s advertisements, loan document disclosures, or terms of the loan are preempted.
IV. CONCLUSION
For the reasons set forth above, Plaintiff‘s state law claims as asserted against the Wachovia FSB defendants will be dismissed with prejudice pursuant to
SO ORDERED.
Melanie L. Cyganowski, Erik B. Weinick, Steven B. Soll, Otterbourg, Steindler, Houston & Rosen, New York, NY, for Defendant.
MEMORANDUM OPINION
BARBARA JACOBS ROTHSTEIN, District Judge.
Plaintiffs BHC Interim Funding II, L.P. and BHC Interim Funding III, L.P. (collectively, “BHC“) bring this suit against the Federal Deposit Insurance Corporation as receiver for Waterfield Bank. Defendant FDIC has moved to dismiss the complaint pursuant to
I. STATUTORY BACKGROUND
“Passed to ‘enable the FDIC . . . to expeditiously wind up the affairs of literally hundreds of failed financial institutions throughout the country,‘” Am. Nat. Ins. Co. v. FDIC, 642 F.3d 1137, 1141 (D.C.Cir. 2011) (quoting Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C.Cir.1995)), “[t]he Financial Institutions Reform, Recovery and Enforcement Act of 1989 (‘FIRREA‘) gives the receivers of failed savings and loan institutions wide-ranging powers to consolidate and liquidate those institutions,” Nashville Lodging Co. v. Resolution Trust Corp., 59 F.3d 236, 241 (D.C.Cir.1995). Upon its appointment as receiver, the FDIC acquires “all rights, titles, powers, and privileges of the insured depository institution,”
The FDIC pays those obligations through an administrative claims process. See
II. FACTUAL BACKGROUND
When deciding a 12(b)(6) motion “a court construes the complaint liberally in the plaintiff‘s favor, accepting as true all of the factual allegations contained in the complaint, with the benefit of all reasonable inferences derived from the facts alleged.” Aktieselskabet AF 21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C.Cir.2008) (citations, brackets, and quotation marks omitted); see also Kassem v. Wash. Hosp. Ctr., 513 F.3d 251, 253-54 (D.C.Cir.2008); Stewart v. Nat‘l Educ. Ass‘n, 471 F.3d 169, 173 (D.C.Cir. 2006). Courts may not consider “matters outside the pleadings” without converting the 12(b)(6) motion into “one for summary judgment under Rule 56,”
In 2008, BHC made two loans to Affinity Financial Corporation (“Affinity“), totaling $14.5 million. Compl. ¶¶ 10-11. Each loan was secured by a first priority lien on the assets of Affinity, id. ¶ 12, and guaranteed by Waterfield Financial Services (“Waterfield Financial“), a wholly-owned subsidiary of Affinity. Id. ¶¶ 11, 13. The Waterfield Financial guarantees were secured by a first priority lien on the company‘s “[d]eposit [a]ccounts (as defined in the UCC but excluding deposits made by customers of Waterfield Financial Services, Inc.... and held at other banks),” as well as its “[g]eneral [i]ntangibles.” Id., Ex. A at 47-48 (Continuing Unconditional Guarantee of Waterfield Financial (Apr. 28, 2008)), 57-58 (Continuing Unconditional Guarantee of Waterfield Financial (Jan. 15, 2008)). BHC perfected its security interest in those assets by filing U.C.C. financing statements with the Indiana Secretary of State. Id. ¶ 14; id., Ex. A at 65 (U.C.C. Financing Statement (Apr. 28, 2008)); id. at 73 (U.C.C. Financing Statement (Jan. 15, 2008)). In March 2010, Affinity defaulted on its loan and Waterfield Financial defaulted on its guarantees. Id. ¶¶ 42-43.
The primary asset of both Affinity and its subsidiary Waterfield Financial was a stream of income from the business of selling financial products and services to the members of “affinity groups” such as unions and other membership organizations. Waterfield Financial1 would enter into a licensing agreement with a group, then market products such as group-branded checks and ATM cards and, most importantly, bank accounts with favorable interest rates to that group‘s members. Id. ¶ 16. Waterfield Financial would contract with banks to accept the deposits of its customers, which were then held in single pooled account at each participating bank. The participating banks would pay a fee to Waterfield Financial based on the average balance in the pooled account. Id. ¶¶ 17-18. Banks holding such accounts would not, however, interact directly with Waterfield Financial customers—all customer service, including the processing of deposits and withdrawals and the associated record keeping, was performed by another bank. That bank would send customers’ deposits to the other, larger banks in accordance with Waterfield Financial‘s instructions. Id. ¶ 19.
In early 2008, Affinity acquired Waterfield Bank, which assumed the customer service and bookkeeping role described above and also maintained some customer deposits itself. Id. ¶ 21. Under the agreement governing their deposit accounts, customers gave Waterfield Bank “the authority to determine whether it will retain [the customer‘s] funds in a direct deposit relationship” with the customer. Def.‘s Mot. for Summ. J., Ex. 1 (Waterfield Bank, Deposit Account Terms and Conditions (Sept. 2009)) (“Customer Agreement“), at 1.2 If Waterfield Bank chose not
to maintain the funds, it would “notify [Waterfield Financial],” which the custom-
When Waterfield Financial guaranteed the loans that BHC made to Affinity, and gave as security for that guarantee a lien in its general intangibles, its largest intangible asset was its right to the fees described above. Compl. ¶ 22. Through February 2010, those fees produced enough revenue to enable Affinity (the parent of Waterfield Financial) to make its monthly loan payments to BHC of approximately $145,000. Id. ¶ 23.
In late February 2010, the Office of Thrift Supervision (“OTS“), the regulatory body that then oversaw savings and loan associations, determined that Waterfield Bank was undercapitalized. OTS “threatened [Waterfield Financial] and its principals with unspecified legal action if Affinity did not cause [Waterfield Financial] to immediately assign to [Waterfield Bank]” the contracts underlying the pooled-account scheme and “all rights to the [pooled accounts] held by [Waterfield Financial] as agent for its customers.” Id. ¶ 24. An assignment agreement between Waterfield Financial and Waterfield Bank was completed by March 2, 2010. See id., Ex. A at 8-15 (the “Assignment Agreement“). In its initial recitals, the assignment agreement stated that:
[Waterfield Bank] has been, by letter dated February 26, 2010, directed (“the Directive“) by the Office of Thrift Supervision, Department of the Treasury ... to accept the assignment of all deposit account agreements held by [Waterfield Financial] and to ensure “that the account titles at the participating institutions are changed from ‘[Waterfield Financial] as agent for its customers’ to ‘Waterfield Bank as agent for its customers,[‘]” pursuant to the Waterfield Bank Deposit Account Terms and Conditions....
[A]s a result of the Directive, [Waterfield Financial] desires to transfer to [Waterfield Bank] (x) its full right, title and interest in and to all deposit accounts opened by retail customers who appointed [Waterfield Financial] as their special attorney-in-fact and agent ... under the Waterfield Bank Deposit Account Terms and Conditions ... on all [Waterfield Financial] Banking Centers previously or now owned and/or operated by [Waterfield Financial] (the “Agency Relationships“), and (y) its authority to act as Agent for all of its retail customers in connection with certain deposit accounts listed on Schedule A ... (the “Agency Deposits“)....
Id. at 8. The “Assignment and Assumption” clause provided that:
Effective immediately upon execution of this Agreement by both of the parties hereto and the receipt of all necessary third party consents, the receipt of
which from the OTS below is hereby acknowledged, [Waterfield Financial] hereby ... assigns ... to [Waterfield Bank], its successors and assigns forever, all of [Waterfield Financial‘s] rights, title and interest ... in and to all and any of [Waterfield Financial‘s] rights, costs and obligations under, pursuant to and arising out of the Agency Relationships and the Agency Deposits, as fully and entirely as the same would have been held and enjoyed by [Waterfield Financial] as if this assignment had not been made ... and [Waterfield Bank] covenants and agrees to discharge, perform and comply with, and to be bound by, all the terms, conditions, provisions, obligations, covenants and duties of [Waterfield Financial] in connection with all and any of [Waterfield Financial‘s] rights and obligations under, pursuant to and arising out of the Agency Relationships and the Agency Deposits....
Id. at 8-9. As part of the assignment agreement, Waterfield Financial “repre-sent[ed] and warrant[ed] that ... it [had] all requisite corporate power and authority to execute and deliver this Agreement ... subject to its agreements with BHC Interim Funding II, LLC and BHC Interim Funding III, LLC.” Id. at 9.
Shortly after this agreement was signed, the Office of Thrift Supervision took control of Waterfield Bank and appointed the FDIC as receiver. The FDIC cancelled all of the pooled deposit accounts that had formerly been controlled by Waterfield Financial and returned the funds to individual customers. Compl. ¶ 37. BHC sent default notices to Affinity and Waterfield Financial, stating that as of the date of the closing of Waterfield Bank, Affinity was indebted to BHC for the full amount of each loan, plus interest and other fees and costs. Id. ¶ 42. Neither Affinity nor Waterfield Financial has made any loan payments since that date. Id. ¶ 43.
BHC filed two claims with the FDIC, each for an “[a]mount due to claimant based on indebtedness of Waterfield Financial Services, Inc. to claimant which was assumed by Waterfield Bank pursuant to the terms of the Assignment Agreement.” Id., Ex. A at 5, 15. The first claim was for $9,369,949.76, id. at 5, and the second for $5,486,986.30, id. at 15. The FDIC denied the claims, on the grounds that they had not “been proven to the satisfaction of the Receiver.” Compl. ¶ 37; id. at Ex. B. This suit followed.
The complaint includes five claims for relief. The first claim requests a declaratory judgment that the assignment agreement between Waterfield Financial and Waterfield Bank was void when signed, and therefore that the FDIC did not validly take title to “the deposits in those accounts” when it was appointed as receiver. The first claim also requests an award of damages to BHC for the amount owed by Affinity. Compl. ¶¶ 47-52. The second claim alleges that the assignment of contractual rights to Waterfield Bank was a fraudulent conveyance, and seeks an award for the value of the contractual rights. Id. ¶¶ 54-60. The third claim alleges that, if the assignment was valid, Waterfield Bank (and the FDIC as its receiver) assumed Waterfield Financial‘s obligations as a guarantor of BHC loans along with its contractual rights, and is therefore liable to BHC for the outstanding loan balance. Id. ¶¶ 62-69. The fourth claim alleges that BHC had a perfected security interest in the assigned contractual rights, that the FDIC violated a statutory prohibition against “avoiding a legally enforceable or perfected security interest in any of the assets of any depository institution,”
III. JURISDICTION
“Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Because “the inferior courts of the United States ... are creatures of statute and possess no jurisdiction except as afforded by congressional enactment,” Owens v. Republic of Sudan, 531 F.3d 884, 887 (D.C.Cir.2008), “the district courts may not exercise jurisdiction absent a statutory basis.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). Because no court may act beyond its authority, “subject matter jurisdiction ‘is, of necessity, the first issue for an Article III court,‘” Loughlin v. United States, 393 F.3d 155, 171 (D.C.Cir.2004) (quoting Tuck v. Pan Am. Health Org., 668 F.2d 547, 549 (D.C.Cir.1981)), and federal courts “are obliged always to ascertain whether they have subject matter jurisdiction over the litigation before them, even when the parties prefer to ignore the question,” Reynolds v. Sheet Metal Workers, Local 102, 702 F.2d 221, 223 (D.C.Cir.1981); see also Athens Cmty. Hosp., Inc. v. Schweiker, 686 F.2d 989, 992 (D.C.Cir.1982) (“It is axiomatic that subject matter jurisdiction may not be waived, and that courts may raise the issue sua sponte“). The Court therefore begins its analysis by examining its authority to hear this suit.
BHC identifies FIRREA as the primary basis of subject matter jurisdiction over its claims. It is clear that FIRREA “provides for administrative determination of ‘any claim against a depository institution for which the Corporation is receiver’ and thereafter for adjudication in district court.” Auction Co. of Am. v. FDIC, 141 F.3d 1198, 1200 (D.C.Cir.1998) (quoting
claims against the FDIC for its conduct as
Turning to the complaint in this case, it is clear that BHC presented its third claim to the receiver as required by FIRREA. In that claim, BHC alleges that Waterfield Bank assumed Waterfield Financial‘s obligations as a guarantor of the loans from BHC to Affinity, and that the FDIC as receiver for Waterfield Bank is therefore liable to BHC for the outstanding loan balance. Compl. ¶¶ 62-69. BHC submitted to the FDIC two proofs of claim for an “[a]mount due to claimant based on indebtedness of Waterfield Financial Services, Inc. to claimant which was assumed by Waterfield Bank pursuant to the terms of the Assignment Agreement.” Compl., Ex. A at 5, 15. As BHC explained in a letter accompanying its claims, “because the Assignment Agreement provides that all of WFS’ obligations under, pursuant to or arising out of the Agency Relationships and the Agency Deposits are assumed by the Bank, the Bank has assumed the obligations due to BHC and is responsible for satisfaction of such obligations which are more fully set forth in the attached Proofs of Claims.” Id. at 4. The FDIC rejected that claim and BHC brought a timely suit in this court, which therefore has jurisdiction to hear the claim.
But BHC did not present its first, second, fourth, and fifth claims to the FDIC. Those claims request a declaratory judgment that the assignment from Waterfield Financial to Waterfield Bank was void ab initio;4 that BHC has a right to the assigned assets on the theory that they were fraudulently conveyed; that BHC has a valid security interest in those same assets; and, finally, that the FDIC effected an unconstitutional taking of property without just compensation by emptying the pooled deposit accounts held at other banks and returning the funds to customers. These claims are all distinct from the claim that BHC presented to the FDIC. The third claim does not, as these new claims do, require the FDIC to assess the value of the transferred contract rights. Nor does it require the FDIC to determine the scope and validity of BHC‘s security interest in those rights, as at least some of these new claims do. “Where ... a [FIRREA] complaint alleges entirely new legal theories that are different than those reflected in the administrative proof of claim, the Court is without subject matter jurisdiction to consider the new causes of action.” Jahn v. FDIC, 828 F.Supp.2d 305, 317 (D.D.C.2011) (dismissing claims for civil conspiracy and conversion because only a claim for fraudulent transfer was submitted to the receiver); see also McGlothlin v. Resolution Trust Corp., 913 F.Supp. 15, 18-19 (D.D.C.1996) (dismissing claims for negligence and breach of contract because only a claim for fraudulent inducement was submitted to the receiver); Aljaf Assocs. Ltd. P‘ship v. FDIC, 879 F.Supp. 515, 517-18 (E.D.Pa.1995) (dismissing fraud claim because it was not among the claims submitted to the receiver); Brown Leasing Co. v. FDIC, 833 F.Supp. 672, 674-76 (N.D.Ill.1993) (dismissing claims for conversion and breach of contract because only a claim for breach of other agreements was submitted to the receiver); Coleman v. FDIC, 826 F.Supp. 31, 32 (D.Mass.1993) (“This Court ... has no jurisdiction over claims and theories of recovery in the Amended Complaint that were not asserted in the original Complaint,” which was submitted to the receiver, because “no court may exercise jurisdiction over any claim against the FDIC as receiver unless the claimant has first submitted its claim to the FDIC administrative claim process.“); Hibyan v. FDIC, 812 F.Supp. 271, 275 (D.Me.1993) (dismissing claims based on one contractual provision because only another contractual provision was presented to the receiver as the basis for a claim).5 Because BHC‘s first, second, fourth, and fifth claims were not submitted to the administrative claims process, “no court shall have jurisdiction over” them. See
IV. MOTION TO DISMISS PLAINTIFF‘S THIRD CLAIM
Under Rule 12(b)(6), a defendant may move to dismiss a complaint, or a claim therein, for failure to state a claim upon which relief may be granted.
In its third claim, BHC alleges that Waterfield Bank assumed Waterfield Financial‘s obligations as a guarantor of the loans from BHC to Affinity, and that the FDIC as receiver for Waterfield Bank stands in the bank‘s shoes and is therefore liable to BHC for the outstanding loan balance. It grounds this claim in the assignment agreement, a contract between Waterfield Financial and Waterfield Bank. The FDIC argues that this claim must fail because the assignment agreement does not purport to transfer those obligations.
Under California law, which governs the assignment agreement, see Assignment Agreement at 10, “[w]hether language in a contract is ambiguous is a question of law,” and therefore appropriate for determination on a motion to dismiss. Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903, 925 (1986). Where the terms of a contract “are plain and unambiguous, the courts have a duty to enforce the contract as agreed upon by the parties.” Travelers Ins. Co. v. Nat‘l Union Fire Ins. Co., 207 Cal.App.3d 1390, 731 (1989) (quoting Hackethal v. Nat‘l Cas. Co., 189 Cal.App.3d 1102, 856 (1987)). The language of a contract is to be “construed in light of the objectives and fundamental purposes of the parties to the agreement,” Roden v. AmerisourceBergen Corp., 186 Cal.App.4th 620, 46 (2010) (quoting Leo F. Piazza Paving Co. v. Found. Constructors, Inc., 128 Cal.App.3d 583, 273 (1981)), and each clause must be read in light of the others, see
By signing the assignment agreement, Waterfield Bank agreed to “discharge, perform and comply with, and to be bound by, all the terms, conditions, provisions, obligations, covenants and duties of [Waterfield Financial] in connection with all and any of [Waterfield Financial‘s] rights and obligations under, pursuant to and arising out of the Agency Relationships and the Agency Deposits...” Assignment Agreement at 9 (emphasis added). The “Agency Relationships” and “Agency Deposits” were defined in the recitals, which provided that:
[Waterfield Financial] desires to transfer to [Waterfield Bank] (x) its full right, title and interest in and to all deposit accounts opened by retail customers who appointed [Waterfield Financial] as their special attorney-in-fact and agent ... under the Waterfield Bank Deposit Account Terms and Conditions ... on all [Waterfield Financial] Banking Centers previously or now owned and/or operated by [Waterfield Financial] (the “Agency Relationships“), and (y) its authority to act as Agent for all of its retail customers in connection with certain deposit accounts listed on Schedule A ... (the “Agency Deposits“)....
Id. at 8. The “Agency Relationships” are therefore constituted by the deposit agreements between Waterfield Bank and its customers, while the “Agency Deposits” are the pooled deposit accounts that Waterfield Financial established on behalf of those customers. BHC argues that the Waterfield Financial Guarantees were “obligations ... arising out of the Agency Relationships and the Agency Deposits,” id. at 9, because “no such obligation would have existed without those Agency Relationships.” Pls.’ Mem.’ in Opp. at 18. The Court understands this somewhat puzzling formulation to assert that BHC would not have loaned money to Affinity—and Waterfield Financial would have had no debt to guarantee—without the revenue stream produced by the Agency Relationships. The guarantees, on this account, resulted from the Agency Relationships and therefore arose out of them. See BLACK‘S LAW DICTIONARY 123 (9th ed. 2009) (defining “arise” as “1. To originate; to stem (from).... 2. To result (from)....“).
Perhaps BHC would not have loaned money to Affinity without Waterfield Financial‘s guarantee, and perhaps that guarantee was only of value because of the income stream that Waterfield Financial received from the Agency Relationships and Agency Deposits. But that does not mean that the guarantee arose out of those Relationships and Deposits. If Waterfield Financial had rented water coolers, and the bottled water company was only willing to do business with Waterfield Financial because of its income stream, would we say that the water cooler lease was an obligation that arose out of that income stream? Like that lease, the guarantee was an obligation independent of the Agency Relationships and Agency Deposits and the income that they produced. The language of the assignment agreement makes clear that the only transfer made to Waterfield Bank was the contractual relationship between Waterfield Financial and its customers; there is no reason to conclude that the guarantee of an unrelated loan was transferred as well.
The assignment agreement clearly states that it was created to transfer the Agency Relationships and the Agency De-
V. CONCLUSION
The issue of subject matter jurisdiction was not raised in the briefs or at oral argument. If either party believes that there are authorities that should be brought to the Court‘s attention, the Court invites that party to brief its argument on a motion for reconsideration. But for the reasons stated above, the FDIC‘s motion to dismiss is hereby GRANTED as to BHC‘s third claim, and the remaining claims hereby DISMISSED without prejudice for lack of subject matter jurisdiction. BHC may refile its claims after it has presented them to the receiver for determination.
BARBARA JACOBS ROTHSTEIN
UNITED STATES DISTRICT JUDGE