Kim S. WESTBERG, Husbаnd, and Laverne V. Westberg, Wife, Appellants v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for and on Behalf of Silver State Bank, and Multibank 2009-1 Res-Adc Venture, LLC, Appellees.
No. 13-5080.
United States Court of Appeals, District of Columbia Circuit.
Argued Nov. 21, 2013. Decided Jan. 31, 2014.
741 F.3d 1301
Christopher Alan LaVoy argued the cause for the appellants.
Kathleen V. Gunning, Counsel, Federal Deposit Insurance Corporation, argued the cause for the appellees. Colleen J. Boles, Assistаnt General Counsel, Kathryn R. Norcross, Senior Counsel, John B. Isbister and Jaime W. Luse were on brief.
Before: HENDERSON, BROWN and GRIFFITH, Circuit Judges.
In May 2008, Kim and Laverne Westberg (Westbergs) obtained a residential construction loan from Silver State Bank (Silver State), located in Henderson, Nevada. Silver State collapsed shortly thereafter and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. The FDIC repudiated the loan agreement but notified the Westbergs that they were obligated to continue making payments on the portion of the loan that had been disbursed to them before Silver State‘s failure. The Westbergs brought suit in district court seeking, inter alia, a declaratory judgment that the FDIC‘s repudiation relieved them of any obligation to continue making loan payments. The FDIC subsequently assigned its interest in the loan to Multibank 2009-1 RES-ADC Venture, LLC (Multibank) and the Westbergs amendеd their complaint to add Multibank as a defendant. The district court dismissed the Westbergs’ claim for declaratory relief against Multibank for lack of subject matter jurisdiction, concluding that their claim was subject to the administrative exhaustion requirement set
I. Background
A
The Congress enacted FIRREA “in the midst of the savings and loan insolvency crisis to enable the FDIC ... to expeditiously wind up the affairs of literally hundreds of failed financial institutions throughout the country.” Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C. Cir. 1995) (citing H.R. REP. No. 101-54(I), reprinted in 1989 U.S.C.C.A.N. 86, 87, 103). FIRREA confers broad powers on the FDIC in its capacity as receiver for failed depository institutions. See id. at 1398-99. Its powers include the authority to repudiate any contract “(A) to which [the failed] institution is a party; (B) the performance of whiсh the [FDIC], in [its] discretion, determines to be burdensome; and (C) the disaffirmance or repudiation of which the [FDIC] determines, in [its] discretion, will promote the orderly administration of the institution‘s affairs.”
FIRREA also authorizes the FDIC to adjudicate creditors’ claims against failed depository institutions for which the FDIC has been appointed receiver. See
Except as otherwise provided in this subsection, no court shall have jurisdiction over—
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver, including assets which the [FDIC] may acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such institution or the [FDIC] as receiver.
B
Pursuant to a loan agreement, a promissory note and a deed of trust (collectively,
On April 21, 2009, the FDIC-as-receiver notified the Westbergs that it had elected to repudiate the loan agreement pursuant to
On September 3, 2009, the Westbergs filed a complaint against the FDIC in the district court for the District of Columbia. Count One sought a declaratory judgment that the FDIC‘s repudiation of the loan agreement released the Westbergs from the obligation to repay the loan amount already disbursed to them; Count Two sought damages resulting from the FDIC‘s repudiation, including alleged project delay costs. On February 9, 2010, the FDIC assigned its rights, title and interest in the Westbergs’ loan to Multibank. Multibank maintained the FDIC‘s position that the Westbergs were obligated to repay the previously disbursed portion of the loan.
On July 19, 2010, the Westbergs filed an amended complaint adding Multibank as a defendant on Count One but not Count Two. The district court granted the FDIC‘s motion to dismiss the Westbergs’ claims against it, Westberg v. FDIC, 759 F. Supp. 2d 38, 45, 48 (D.D.C. 2011), and the Westbergs do not appeal that decision. The district court denied Multibank‘s motion to dismiss, however, because Multibank had submitted only a brief joinder to the FDIC‘s motion, failing to explain how the FDIC‘s arguments applied to the Westbergs’ claim against Multibank. Id. at 45-46. After the Westbergs and Multibank cross-moved for summary judgment, the district court sua sponte raised the issue of administrative exhaustion and instructed the parties to file supplemental briefs. On February 26, 2013, the district court dismissed the Westbergs’ claim against Multibank for lack of subject matter jurisdiction, concluding that they were required to exhaust their administrаtive remedies but had not done so. Westberg v. FDIC, 926 F. Supp. 2d 61, 64 (D.D.C. 2013). The Westbergs timely appealed.
II. Analysis
We review de novo the district court‘s dismissal for lack of subject matter jurisdiction. Benoit v. U.S. Dep‘t of Agric., 608 F.3d 17, 20 (D.C. Cir. 2010). Our review of the district court‘s statutory
A. Is Exhaustion Required?
As already noted,
Subsection (i) seems the more relevant provision at first blush: It applies to “any claim or action for payment” or “any action seeking a determination of rights” and the latter phrase more naturally describes a declaratory judgment action than does subsection (ii), which applies to “any claim.” We have held, however, that “claim” as used in FIRREA “is a term-of-art that encompasses only demands that are resolvable through the administrative process set out by FIRREA,” Am. Nat‘l Ins. Co., 642 F.3d at 1142, and that declaratory rеlief against the FDIC is obtainable through the administrative process, see Freeman, 56 F.3d at 1400, 1404; see also Placida Prof‘l Ctr., LLC v. FDIC, 512 Fed. Appx. 938, 947 n. 9 (11th Cir. 2013); Hudson United Bank v. Chase Manhattan Bank of Conn., N.A., 43 F.3d 843, 844, 848-49 (3d Cir. 1994). Thus, subsection (ii)‘s reference to “any claim” includes a request for declaratory relief.1 The question is whether declaratory relief remains obtainable through the administrative process if sought against a third-party acquiring bank like Multibank, rather than the FDIC. If so, the request would fit within the definition of “claim” in subsection (ii) and judicial review would be precludеd
absent administrative exhaustion. See Am. Nat‘l Ins. Co., 642 F.3d at 1142 (“[D]emands unresolvable through the process are not ‘claims,’ as the term is used in the Act.”); see also Auction Co. of Am., 141 F.3d at 1200-01 (section 1821(d)(13)(D) applies to same claims resolvable in administrative process); Homeland Stores, Inc. v. Resolution Trust Corp., 17 F.3d 1269, 1274 (10th Cir. 1994) (same).
A few cases illustrate how the functional approach has been applied. During the recent financial crisis, Washington Mutual Bank was seized by a federal agency, the Office of Thrift Supervision, and placed into receivership with the FDIC. In American National Insurance Co. v. FDIC, Washington Mutual bondholders brought state tort claims against JPMorgan Chase & Co. (JPMC), alleging that it had pressured the FDIC to sell Washington Mutual‘s most valuable assets to JPMC at a drastically undervalued price. 642 F.3d 1137, 1138-40 (D.C. Cir. 2011). We held that “[b]ecause appellants’ suit is against a third-party bank for its own wrongdoing, not against the depository institution for which the FDIC is receiver (i.e., Washington Mutual), their suit is not a claim within the meaning of the Act and thus is not barred by subsectiоn (ii).” Id. at 1142. Notwithstanding the FDIC‘s actions may have “form[ed] one link in the causal chain connecting JPMC‘s wrongdoing with appellants’ injuries,” we concluded that the bondholders’ suit was functionally against JPMC for its wrongdoing. Id. at 1144. Accordingly, the bondholders were not required to exhaust their claims. Id. at 1144-45.
On the other hand, in Village of Oakwood v. State Bank & Trust Co., uninsured depositors of a failed bank sued another bank (“assuming bank”) that had purchased the failed bank‘s assets from the FDIC-as-receiver. 539 F.3d 373, 375-76 (6th Cir. 2008). The suit alleged that the FDIC had breached its fiduciary duty to depositors, but the assuming bank, not the FDIC, was the named defendant. Id. Although the plaintiffs alleged that the assuming bank had aided and abetted the FDIC‘s breach, the Sixth Circuit held that plaintiffs’ claim was functionally against the FDIC because the FDIC was the primary wrongdoer. Id. at 386 (“[A]ll of [plaintiffs‘] claims against [the assuming
Similarly, in Tellado v. IndyMac Mortgage Services, the plaintiffs had obtained a mortgage loan from IndyMac Bank, FSB (IndyMac) before IndyMac‘s failure. 707 F.3d 275, 277-78 (3d Cir. 2013). After IndyMac entered into FDIC receivership and the FDIC sold the loan to OneWest Bank, FSB (OneWest), the plaintiffs sued OneWest seeking to cancel the loan. Id. Their claim, however, was based on IndyMac‘s alleged failure to provide adequate notice (under state law) of their right to cancel the loan and ultimately the Third Circuit held that the claim was functionally against IndyMac. Id. at 280. Notably, although OneWest had refused the plaintiffs’ pre-suit request to cancel the loan, the court rejected the argument that its refusal made the claim functionally against OneWest, finding instead that their claim was “wholly dependent upon IndyMac‘s wrongdoing”—i.e., IndyMac‘s failure to provide adequate notice. Id. Exhaustion was thus required. Id. at 281.2
This case is more like Village of Oakwood and Tellado than it is like American National Insurance Co. The Westbergs’ complaint seeks “a declaration that the FDIC‘s repudiation of the [loan agreement] released and discharged Plaintiffs from any and all obligations under the [Loan Documents].” First Amended Complaint (FAC), Westberg v. FDIC, No. 09-cv-1690 128 (D.D.C. July 19, 2010) (reprinted at JA 24) (emphasis added). The claim is based on the FDIC-as-receiver‘s act of repudiating the loan because, without that act, the Westbergs would not have sought a declaration freeing them from having to repay the already disbursed portion of the loan. Functionally, the claim “relat[es] to an[] act ... of ... the [FDIC] as receiver.”
The Westbergs argue that their claim relates not to the FDIC‘s repudiation of the loan agreement but rather to “Multibank‘s discretionary call about how to interpret and respond to [the repudiation] after acquiring the loan.” Brief of Appellants 24, Westberg v. FDIC, No. 13-5080 (D.C. Cir. July 15, 2013). Their contention is belied by their pleadings, which make no mention of a discretionary call by Multibank but simply state: “Because Multibank has no greater rights than the FDIC from which it acquired the Loan, Plaintiffs are entitled to the same declaration as to Multibank.” FAC 28 (reprinted at JA 25) (capitalization altered). Moreover, the argument is similar to the
B. Have the Westbergs Exhausted?
Having concluded that administrative exhaustion is required, we have little difficulty cоncluding that the Westbergs have failed to meet the requirement. Although they filed a timely proof of claim with the FDIC, their claim requested only
damages for construction delays. See JA 59-65. Their claim made no mention of the declaratory relief the Westbergs now seek nor could anything in the claim fairly be construed to put the FDIC on notice that the Westbergs challenged its conclusion that repudiation of the loan аgreement did not erase the Westbergs’ duty to repay the previously disbursed amount. Because the Westbergs failed to route their claim for declaratory relief through the administrative review process,
Because the Westbergs failed to administratively exhaust their claim for declaratory relief, the district court correctly dismissed their action for lack of subject matter jurisdiction and we affirm.4
So ordered.