MBIA Insurance v. Federal Deposit InsuranceMBIA Insurance v. Federal Deposit Insurance
Case Information
*2 Before: H ENDERSON and R OGERS , Circuit Judges and S ENTELLE , Senior Circuit Judge .
Opinion for the Court by Circuit Judge R OGERS . R OGERS , Circuit Judge
: The issue in this appeal is
whether payments made by the MBIA Insurance Corporation
(“MBIA”) to investors in mortgage securitizations of a failed
bank (IndyMac Bank, F.S.B.) constitute “administrative
expenses” entitled to priority under the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”),
Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989),
I.
In the wake of IndyMac Bank’s financial collapse, a new
federally chartered bank, IndyMac Federal, assumed various
contractual agreements to which the failed bank had been a
party, including the three PSAs that are the basis for MBIA’s
claims. According to MBIA, the FDIC Conservator of IndyMac
Federal breached its seller-and-servicer obligations under the
PSAs, causing damages to MBIA. To assess MBIA’s contention
that its damages constitute “administrative expenses” entitled to
priority under
A .
FIRREA was enacted in 1989 in the wake of the savings
and loan crisis “to enable the FDIC . . . to expeditiously wind
up the affairs of literally hundreds of failed financial institutions
throughout the country.”
Freeman v. FDIC
,
In addition, in 1993 Congress adopted the National
Depositor Preference Amendment to the Federal Deposit
Insurance Act. Pub. L. 103–66, § 3001(a), 107 Stat. 312,
336–37. This required, as relevant, that in the distribution of the
assets of a failed institution depositors be paid before general
creditors could collect on their claims.
[1]
As codified at
amounts realized from the liquidation or other resolution of any insured depository institution by any receiver appointed for such institution shall be distributed to pay claims (other than secured claims to the extent of any such security) in the following order of priority: (i) Administrative expenses of the receiver. (ii) Any deposit liability of the institution. (iii) Any other general or senior liability of the institution (which is not a liability described in clause (iv) or (v)).
(iv) Any obligation subordinated to depositors or general creditors . . . .
(v) Any obligation to shareholders . . . .
Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator. Nothing in this paragraph shall be construed to limit the power of a receiver or conservator to exercise any rights under contract or law, including to terminate, breach, cancel, or otherwise discontinue such agreement.
B.
According to MBIA’s amended complaint, IndyMac Bank was heavily involved in the creation and promotion of residential mortgage loan securitizations prior to its insolvency in July 2008. Am. Compl. ¶¶ 23–25. Between 2002 and 2006, it sponsored residential mortgage securitizations valued at approximately $98.6 billion. Id. ¶ 24. To create a securitization, IndyMac Bank sold portfolios of mortgage loans to trusts managed by an outside banking institution, which, upon pooling the loans, would divide the cash flows from the pools and issue securities to investors. Id. ¶ 26. In order to increase marketability, lower interest costs, and mitigate risk to investors, many securitizations included the purchase of a financial guaranty policy from an insurer, such as MBIA. Id. ¶ 29. Throughout 2006 and 2007, IndyMac Bank contracted with MBIA to provide financial guaranty insurance policies for the three IndyMac Bank securitization transactions at issue: INDS 2006-H4, INDS 2007-1, and INDS 2007-2. Id. ¶ 32 . For each securitization, MBIA and IndyMac Bank entered into an Insurance and Indemnity Agreement, pursuant to which MBIA issued insurance policies guaranteeing investors in the securitized mortgages the promised cash flows in the event of defaults and other losses in the mortgage loans underlying the investors’ securities. Id . ¶¶ 32, 36, 38. In addition to representations and warranties by IndyMac Bank regarding its underwriting guidelines and practices for the loans in the securitized mortgage pools, id. ¶ 39, the Insurance and Indemnity Agreements incorporated by reference, for the benefit of MBIA, the representations and warranties contained in the PSAs for each securitization between IndyMac Bank and the trusts managed by the outside banking institution, thereby making MBIA a third-party beneficiary of the PSAs. Id. ¶¶ 40–44. Among other obligations, the PSAs set forth “Seller” and “Servicer” obligations of IndyMac Bank with respect to the loans upon which the securitizations were based, including a “Put Back” process. [2]
On July 11, 2008, the Office of Thrift Supervision
(“OTS”) appointed the FDIC to act as receiver for IndyMac
Bank because it was “likely to be unable to pay its obligations
or meet its depositors’ demands in the normal course of
business,” “in an unsafe and unsound condition to transact
business due to its lack of capital and its illiquid condition,” and
had “no reasonable prospect of becoming adequately
capitalized.” OTS Order No. 2008-24,
Pass-Through
Receivership Of A Federal Savings Association Into A De Novo
Federal Savings Association That
is Placed Into
Conservatorship With the FDIC
, July 11, 2008 at 2 (“OTS 2008
Order”); Am. Compl. ¶ 46. From the third quarter of 2007 to the
first quarter of 2008, IndyMac Bank had suffered losses
amounting to approximately $842 million and was projected to
report another $354 million loss for the second quarter of 2008.
OTS 2008 Order at 2. The OTS Director had determined that
“OTS must act immediately in order to prevent the probable
default of [IndyMac Bank].”
Id.
at 3. The OTS approved the
FDIC’s request for issuance of a new federal mutual savings
association charter pursuant to
To carry out its responsibilities, the FDIC, in its several capacities, executed a Purchase and Assumption Agreement (“P&A”) on the date of its appointment. Among the contracts transferred to the successor institution organized by the FDIC, IndyMac Federal, were the PSAs for the three IndyMac Bank securitizations at issue. See P&A § 2.1(j)-(l). A “put” provision allowed IndyMac Federal to require the IndyMac Bank Receiver to reassume certain liabilities or assets upon request. See id. § 3.6. Any proceeds from a sale of IndyMac Federal’s assets and liabilities that remained after satisfaction of all obligations arising from IndyMac Federal’s operation were to be paid to the IndyMac Bank Receiver to use in paying remaining claims. See id. § 7.2. Section 13.5 of the P&A provided that “the obligations and statements of responsibilities” in the P&A “are for the sole and exclusive benefit of the Receiver, the Corporation and the Assuming Bank and for the benefit of no other Person.” Id. § 13.5 (emphasis added).
By March 2009, the FDIC Conservator had wound up most of IndyMac Bank’s affairs. It sold a substantial portion of IndyMac Federal’s assets and transferred all deposits to a newly chartered federal savings bank — OneWest Bank; OneWest agreed to “purchase all deposits and approximately $20.7 billion [of IndyMac Federal’s $23.5 billion] in assets at a discount of $4.7 billion.” FDIC Press Release, FDIC Closes Sale of IndyMac Federal Bank, Pasadena, California , Mar. 19, 2009 (“FDIC 2009 Press Release”); Am. Compl. ¶ 70. As conservator the FDIC had exercised authority under the “put” provision to require the IndyMac Bank Receiver to reacquire “any rights, obligations, or liabilities whatsoever” (enumerated under the PSA) in connection with INDS 2007-1, as well as two other securitizations not at issue here. See Agreement to Evidence Put of Assets and Liabilities at 4–5 & Attachment A, Mar. 2009. This FDIC Receiver repudiated the PSA contracts as burdensome and not in the interests of the orderly administration of IndyMac Bank’s affairs. See FDIC Letter of Mar. 19, 2008 to Deutsche Bank National Trust Co. With the end of the FDIC conservatorship upon the sale to OneWest Bank, IndyMac Federal was placed in a FDIC receivership, which transferred IndyMac Federal’s remaining assets to FDIC Corporate in satisfaction of certain obligations that arose in connection with IndyMac Federal. Am. Compl. ¶ 85.
On May 29, 2009, MBIA filed suit against IndyMac Bank and the FDIC as its receiver, alleging that MBIA had incurred “significant losses in connection with its obligations . . . to insure certain shortfalls in payments to investors in the IndyMac [Securitization] Transactions, all as a result of IndyMac’s misrepresentations and misleading conduct.” Compl. ¶ 49. MBIA also submitted in the FDIC administrative process proofs of claims on June 16, 2009 and August 25, 2009, based on alleged breaches of the representations and warranties in IndyMac Bank’s PSAs and failure to honor the “Put Back” obligation. See Am. Compl. ¶¶ 12, 130.
On November 12, 2009, the FDIC Board of Directors made a “No Value Determination,” finding that the receiverships for IndyMac Bank and IndyMac Federal had insufficient assets to cover their respective liabilities. See FDIC Resolution, Nov. 12, 2009 (“No Value Determination”). The receiverships thus would make no “distribution on general unsecured claims (and any lower priority claims).” Id. at 2. “[T]herefore all such claims, asserted or unasserted, will recover nothing and have no value.” Id. MBIA was advised by letter on December 10, 2009 that no distribution would be made on its submitted proofs of claims, which the FDIC classified as general creditor claims.
On February 8, 2010, MBIA filed an amended complaint alleging that its damages arising from the breach of three IndyMac Bank PSAs to which it was a third-party beneficiary constituted “administrative expenses” under § 1821(d)(11)(A) because the PSAs had been “approved” under § 1821(d)(20) by the FDIC Conservator. Id. ¶ 4. Specifically, the FDIC Conservator had “approved” the PSAs by entering into the P&A on behalf of IndyMac Federal, collecting servicing fees under the PSAs, partially performing its servicing obligations under the PSAs, and selling two of the three PSAs to OneWest Bank. Id . ¶¶ 60–62, 69. MBIA also asserted claims against FDIC Corporate based on the No Value Determination deeming MBIA’s claims worthless general creditor claims, and on FDIC Corporate’s allegedly wrongful receipt of the proceeds of IndyMac Federal’s sale of assets, liabilities, and deposits to OneWest Bank. [3] Id. ¶¶ 182–193. MBIA sought declaratory and injunctive relief regarding the FDIC’s purported repudiation of contracts related to INDS 2007-1, an IndyMac Bank securitization. Id . ¶¶ 40, 194–202.
The district court, upon finding that MBIA had failed to
plead facts sufficient to demonstrate its monetary damages were
entitled to priority as administrative expenses of the FDIC
Conservator or Receiver, ruled that MBIA’s damages claims are
general creditor claims not entitled to administrative priority,
granted the FDIC’s motion to dismiss MBIA’s claims as
prudentially moot, and denied MBIA’s other requests for relief.
MBIA Ins. Corp. v. FDIC
,
II.
MBIA’s contention that its damages claims, arising from
payouts on insurance policies supporting three IndyMac Bank
mortgage securitizations, constitute “administrative expenses”
entitled to priority under
We begin by examining whether the statutory text resolves whether “approved” requires a formal, written acknowledgment — as urged by the FDIC — or rather indicates that approval by implication from other conduct is sufficient, as MBIA urges. MBIA points to dictionary definitions that “approved” means simply “to consent or agree to” or “to ratify.” MBIA Br. at 38 (citing R ANDOM H OUSE W EBSTER ’ S U NABRIDGED D ICTIONARY 103 (2d ed. 1998)). It also points out that, unlike in other subsections calling for approval by the Corporation, [4] Congress did not prescribe formal procedures for a contract to be “approved” in § 1821(d)(20). Further, MBIA views FIRREA to establish “a binary scheme whereby contracts of a failed institution are either repudiated or not repudiated, and those that are not repudiated may be enforced by the FDIC.” Id. at 42. In other words, “approved” is the equivalent of “non- repudiated” because, MBIA claims, invoking a statutory canon against redundancy, otherwise § 1821(e)(1)-(3), which authorizes the FDIC to repudiate contracts executed before appointment of a receiver or conservator, is redundant. “‘Approved’ contracts thus should include those that are assumed and not repudiated, like the PSAs.” Id. at 42. After all, MBIA maintains, when § 1821(d)(20)’s use of “approved” is read in conjunction with § 1821(e)(7) on acceptance of services, it is clear that Congress wanted counterparties to be protected when they satisfied their contractual obligations.
In contrast to MBIA’s broad interpretation of § 1821(d)(20), the FDIC’s view is that in that provision:
Congress created a simple, bright-line rule. If counterparties wish to ensure that they receive administrative priority, they need to obtain written documentation: a contract “executed or approved” by FDIC after its appointment. This simple rule protects the receivership estate, depositors, contractual counterparties, and the courts from precisely the kind of disputes involved here.
FDIC Br. at 14. As to dictionary definitions, the FDIC responds
that in the context of contract approval the dictionaries all say the
same thing, namely that “approve” means to “confirm or
sanction formally” or to “confirm authoritatively.”
See id.
at 23
(citing R ANDOM H OUSE W EBSTER ’ S U NABRIDGED D ICTIONARY
103 (2d ed. 1998), W EBSTER ’ S T HIRD N EW I NTERNATIONAL
D ICTIONARY 106 (2002), B LACK ’ S L AW D ICTIONARY 118 (9th
ed. 2009), and A N EW E NGLISH D ICTIONARY ON H ISTORICAL
P RINCIPLES 416 (1st ed. 1888)). It emphasizes that its
interpretation gathers meaning from the words around
“approved.”
See Jarecki v. G.D. Searle & Co.
,
MBIA replies that a list of two words is an inappropriate occasion for application of noscitur a sociis , citing to Graham County Soil & Water Conservation District v. United States ex rel. Wilson , 130 S. Ct. 1396, 1403 (2010), and S.D. Warren Company v. Maine Board of Environmental Protection , 547 U.S. 370, 378 (2006). Functionally, however, the FDIC points out that there would have been no point for Congress to use a narrow and precise term only to eliminate its usefulness and specificity by intending that “approved” be read more broadly and in a way that would make “executed” unnecessary or redundant. MBIA has no response. Also, the FDIC explains that its narrow interpretation does not read “executed” out of the statute as a subset of “approved,” but gives each word its typical meaning: “executed” refers to the FDIC giving legal validity by signing a contract entered into by the receiver while “approved” refers to the FDIC giving legal validity to a contract previously entered into by the failed bank . MBIA agrees with this temporal analysis, but maintains that “[t]his distinction . . . is entirely consistent with MBIA’s allegation that the FDIC ‘approved’ the PSAs” at issue. Reply Br. at 7.
The parties’ dictionary references and interpretation of “executed or approved” suggest that MBIA’s “clear on its face” claim fails, or at least does not resolve the precise question. Considering § 1821(d)(20) in the context of other provisions of § 1821 does, however, confirming that “approved” requires a formal, written sanction and cannot take the broad meaning urged by MBIA. In the only other instance where Congress provided for “administrative expenses” status in § 1821 — in § 1821(e)(7) — it used a narrow and circumscribed provision. Both parties cite Russello v. United States , 464 U.S. 16, 23 (1983), in support of their interpretations of “approved,” but the FDIC points out that, in tying administrative priority to “acceptance” in § 1821(e)(7)(B)(ii), Congress indicated it meant something more specific by the word “approved” in § 1821(d)(20) than mere “acceptance” of a counterparty’s performance. And having limited “acceptance” in § 1821(e)(7) to the acceptance of services performed for the FDIC after its appointment, Congress thereby demonstrated that it did not intend administrative priority to extend to claims based on other types of contractual obligations.
MBIA suggests that § 1821(e)(7) shows Congress intended that “the FDIC should not accept benefits from counterparties . . . without those counterparties being compensated ahead of depositors during the resolution process.” MBIA Br. at 46 (emphasis added). But the plain text of § 1821(e)(7) shows the opposite; Congress did not confer administrative priority whenever the FDIC accepts “benefits” from counterparties, but rather limited the priority status to acceptance of “services performed” for the FDIC post- appointment. MBIA does not deny it provided no such services for the IndyMac Federal Conservator. So too, MBIA’s reference to § 1821(n), supra note 4, regarding bridge banks and formal approval by the Corporation, does not address administrative expense priority much less demonstrate that § 1821(d)(20)’s “approved” is “clear on its face” in MBIA’s favor; approval by the Corporation is what the FDIC’s interpretation contemplates when the Corporation acts as conservator or receiver.
To the extent MBIA relies on the contract repudiation
provisions of § 1821(e), it does not advance its cause. MBIA
points to a comment in the legislative history of § 1821(e) that
it was “closely modeled on parallel provisions of section 365 of
the Bankruptcy Code” to support its argument that its reading of
“approved” in the FIRREA context is correct. MBIA Br. at 52
(citing S. R EP . N O . 101-19 at 314 (1989)). But a reading of the
two sections shows they have little in common because
Congress omitted from § 1821(e) key language in
MBIA also maintains that the repudiation provisions
would be unnecessary and ineffective if damages arising from
the conservator’s breach of an un-repudiated contract left a
counterparty with only a general creditor claim. There is no
reason to view these provisions as unnecessary even it they do
not change the priority of damages, because the provisions serve
to limit the damages available to a counterparty (by eliminating
expectation and punitive damages). As the FDIC explains,
expectation damages in contract cases are of particular concern
to failed banks; for instance, repudiation protects the FDIC from
paying damages for lost profits resulting from repudiated
installment contracts.
See ALLTEL Info. Servs. v. FDIC
, 194
F.3d 1036, 1041 (9th Cir. 1999). Even assuming protections
from expectation and punitive damages were as insignificant as
MBIA suggests, which the FDIC emphasizes they are not, their
elimination constitutes the only consequences Congress attached
to repudiation.
See
Furthermore, a broad reading of “approved” would
undermine Congress’s stated purpose to prefer depositors over
other creditors.
18
purpose that “administrative expenses” be a narrowly drawn
category, limited to “ordinary and necessary expenses of the
[failed] institution . . . but only those that the receiver
determines are necessary to maintain services and facilities and
to effect an orderly resolution of the institution.” H.R. C ONF .
R EP . N O . 103-213, at 436–37 (1993). Conservator duties are
similarly circumscribed.
See
In sum, by means of a pass-through receivership and
organization of a successor institution, continued banking
services could be provided to IndyMac Bank’s depositors while
Reg. 35,487-01, 35,487-1 (July 10, 1995). MBIA suggests the
regulations provide a nonexclusive list; still they reflect a limited
scope for “administrative expenses” that is consistent with the FDIC’s
narrow interpretation of
[7] During oral argument counsel for MBIA acknowledged that
its breach of contract claims, which it contends constitute
“administrative expenses” could amount to as much as five hundred
million dollars.
See
Oral Arg. Tr. Nov. 14, 2012 at 13, 27.
a buyer was located for IndyMac Bank’s assets and other
property. Certain on-going contracts of the failed bank would
continue for these purposes. But Congress distinguished, by its
choice of words, between contracts merely “accepted” upon
transfer or thereafter “non-repudiated” and contracts that
qualified for “administrative expenses” priority under
The FDIC has presented a careful contextual analysis of
Our decision in
Wells Fargo
,
The district court therefore properly rejected MBIA’s
broad interpretation of “approved” in
III .
MBIA also contends that the district court erred in
dismissing counts VI and VII for failure to state a claim.
See
MBIA Ins. Corp.
,
A.
MBIA sought an injunction ordering FDIC Corporate to return any assets it received from the IndyMac Federal Receiver as a result of the sale of IndyMac Federal’s assets to OneWest Bank. Maintaining that “[w]hatever payments were made by FDIC Receiver to FDIC Corporate . . . surely did not constitute ‘dividends’” within the meaning of this statute, MBIA Br. at 65, MBIA alleged that the FDIC either “retained the $1.5 billion paid by OneWest . . . and has since liquidated other assets, the proceeds from which it is holding in reserve to satisfy administrative expense claims” and erroneously refused to review MBIA’s claims, or “transferred or otherwise dissipated the proceeds” from the sale without regard for these priority claims, Am. Compl. ¶¶ 188–89. Under either theory, MBIA insists, payment to FDIC Corporate was premature and therefore exceeded statutory authority. Id.
Section 1821(d)(10)(B) provides: The receiver may, in the receiver's sole discretion, pay dividends on proved claims at any time, and no liability shall attach to the Corporation (in such Corporation's corporate capacity or as receiver), by reason of any such payment, for failure to pay dividends to a claimant whose claim is not proved at the time of any such payment.
B.
MBIA also sought an injunction reversing the FDIC’s
denial of MBIA’s claims against FDIC Corporate and the FDIC
Receivers, and a declaratory judgment that the FDIC failed to
repudiate the INDS 2007-1 PSA within a “reasonable period” as
required by
MBIA suggests that the FDIC acted beyond its statutory
powers when: (1) the “FDIC Receiver ignored
Section 1821(j) provides: Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.
The FDIC as conservator or receiver is authorized to
“disaffirm or repudiate any contract or lease,”
IV.
Finally, as an alternative theory of recovery, MBIA
contends that FDIC Corporate was obligated under
Section 1821(m) addresses when the FDIC “organize[s]
a new national bank in the same community as the bank in
default.”
If any new bank, during the period it continues its status as such, sustains any losses with respect to which it is not effectively protected except by reason of being an insured bank, the Corporation shall furnish to it additional funds in the amount of such losses.
The Corporation may, as receiver – (i) with respect to savings associations and by application to the [OTS] organize a new Federal savings association to take over such assets or such liabilities as the Corporation may determine to be appropriate.
Accordingly, we affirm the dismissal of MBIA’s amended complaint.
[1] Previously, depositors and general creditors of a failed bank had typically been treated to the same liquidation priority when claims against such an institution were being resolved. See James A. Marino & Rosalind L. Bennett, The Consequences of National Depositor Preference , 12 FDIC B ANKING R EV . 19, 22 (1999).
Notes
[2] As Seller of the mortgage loans, IndyMac Bank made representations and warranties about the quality and characteristics of the loans in the pools of mortgages it transferred to the trusts for use in securities. Am. Compl. ¶ 41; INDS 2007-1 PSA § 2.03, Schedule III, Feb. 1, 2007. Also as Seller, IndyMac Bank obligated itself to participate in a “Put Back” process, whereby the bank assumed ongoing responsibility for curing any discovered breach of its representations and warranties by replacing or repurchasing the affected mortgage loans. Am. Comp. ¶¶ 58–59; INDS 2007-1 PSA § 2.03. As Servicer, IndyMac Bank collected principal and interest payments from borrowers, Am. Compl. ¶¶ 27, 55; INDS 2007-1 PSA § 3.01-3.06, and provided other collection services in the event that
[3] In the district court MBIA counsel clarified that MBIA was
seeking “administrative expenses” priority under FIRREA’s
administrative claims process and “[did]n’t care what happened to the
$1.5 [billion]” in proceeds that the FDIC obtained from the sale to
OneWest Bank, and that its only alternative theory of recovery was
based on
[4]
[5] The FDIC characterizes MBIA’s lawsuit as an “attempt[] to push off onto FDIC responsibility for the losses MBIA sustained when the extreme risks it had knowingly assumed came home to roost and MBIA had to pay out on its insurance commitments.” FDIC Br. at 1.
[6] The FDIC regulation instructs that the receiver’s
“administrative expenses” are “necessary expenses,”
[8] Neither party has waived its contention on this issue. The
district court analyzed MBIA’s alternative theory of recovery on its
merits.
See MBIA Ins. Corp.
,