SunSouth Bank v. First NBC Bank, et al.

Filing 84

MEMORANDUM OPINION AND ORDER directing that: (1) defs' 69 MOTION to Dismiss is GRANTED for lack of subject-matter jurisdiction based upon FIRREA's jurisdictional bar; and (2) this action is DISMISSED. Signed by Chief Judge William Keith Watkins on 12/29/15. (djy, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
SOUTHERN DIVISION
SUNSOUTH BANK,
Plaintiff,
v.
FIRST NBC BANK, et al.,
Defendants.

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CASE NO. 1:13-CV-379-WKW
[WO]

MEMORANDUM OPINION AND ORDER
Before the court is the renewed motion to dismiss filed by Defendants First
NBC Bank and HCB Financial Corp. (Doc. # 69.) The motion has been fully
briefed. (Docs. # 70, 79, and 81.) Defendants advance multiple theories in support
of dismissal, but upon consideration of the relevant factors, the motion is due to be
granted for the sole reason that subject-matter jurisdiction is lacking.
I. JURISDICTION AND VENUE
Defendants contend that this court lacks subject-matter jurisdiction and that
venue is improper. (Doc. #70, at 5–21.) Neither Defendant contests personal
jurisdiction.
II. STANDARD OF REVIEW
Defendants invoke Rule 12(b)(1) in support of their renewed motion to
dismiss, which they filed on October 15, 2015. Rule 12(b) “defenses must be

made before pleading if a responsive pleading is allowed.” Fed. R. Civ. P. 12(b).
Defendants answered SunSouth’s complaint in September 2013, but it is never too
late to point out a federal court’s lack of subject-matter jurisdiction. The court
must dismiss an action if it determines “at any time that it lacks subject-matter
jurisdiction.” Fed. R. Civ. P. 12(h)(3) (emphasis added).
Attacks on subject-matter jurisdiction come in two forms: facial and factual.
McElmurray v. Consol. Gov’t of Augusta-Richmond Cty., 501 F.3d 1244, 1251
(11th Cir. 2007). In a 12(b)(1) facial attack, the court evaluates whether the
complaint, along with any attached exhibits, “sufficiently allege[s] a basis of
subject matter jurisdiction” and employs standards similar to those governing Rule
12(b)(6) review. Houston v. Marod Supermarkets, Inc., 733 F.3d 1323, 1335 (11th
Cir. 2013).
A Rule 12(b)(1) factual attack, however, “challenge[s] the existence of
subject matter jurisdiction in fact, irrespective of the pleadings, and matters outside
the pleadings, such as testimony and affidavits, are considered.” Lawrence v.
Dunbar, 919 F.2d 1525, 1529 (11th Cir. 1990) (citation and internal quotation
marks omitted). When the attack is factual, “the trial court is free to weigh the
evidence and satisfy itself as to the existence of its power to hear the case.” Id.
Therefore, “no presumptive truthfulness attaches to [the] plaintiff’s allegations, and
the existence of disputed material facts will not preclude the trial court from
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evaluation for itself the merits of jurisdictional claims.” Id. “The district court has
the power to dismiss for lack of subject-matter jurisdiction on any of three separate
bases: (1) the complaint alone; (2) the complaint supplemented by undisputed
facts evidenced in the record; or (3) the complaint supplemented by undisputed
facts plus the court’s resolution of disputed facts.” McElmurray, 501 F.3d at 1251
(quoting Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (internal
quotation marks omitted)).
III. BACKGROUND
This breach of contract action arises from a transaction between two banks.
In its remaining claims, SunSouth alleges breach of contract on the part of both
defendants. The facts and procedural history will be briefly recounted.
A.

Facts
On February 4, 2009, SunSouth bought a 40.1553% participation interest in

loans made by Central Progressive Bank (“CPB”) to Mississippi Investors VI, LLC
(“Mississippi Investors”).

SunSouth’s rights are recorded in a Participation

Agreement. (See Doc. # 23-1.) On February 5, 2009, SunSouth assigned a subparticipation interest to Citizens State Bank for 58.566% of its 40.1553%
participation interest. Per the Participation Agreement, SunSouth held the “first
out” rights to be paid in full in the event that Mississippi Investors defaulted on its
loans to CPB.
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In contemplation of the CPB loans, Mississippi Investors executed three
promissory notes.

The first note was secured by property in Stone County,

Mississippi (“Mississippi Collateral”). (Doc. # 70, at 1; Ralph Menetre Aff., Doc.
# 70-1, at 2.) CPB’s security interest in the Mississippi Collateral was subordinate
to the security interest of Double A Firewood, Inc. (“Double A Firewood”). Prior
to the execution of the Participation Agreement, Mississippi Investors had
delivered a deed of trust on the Mississippi Collateral to Double A Firewood as
security for a loan. The remaining two notes were secured by property located in
Stone County, Mississippi, commonly known as Villages D and E. CPB held a
first priority security interest in Villages D and E. (Doc # 70, at 2; Menetre Aff.,
Doc. # 70-1, at 3.)
Mississippi Investors defaulted on the Double A Firewood loan, and Double
A Firewood began foreclosure proceedings.

CPB approached SunSouth and

requested that SunSouth participate in the purchase of the Double A Firewood loan
because CPB’s subordinate lien would be stripped at the foreclosure sale.
(Doc. # 70, at 2; Menetre Aff., Doc. # 70-1, at 4–5.)

SunSouth declined to

participate in the purchase. CPB then notified SunSouth of its position that the
purchase of the Double A Firewood loan would terminate the Participation
Agreement. (Doc. # 70, at 2; Menetre Aff., Doc. # 70-1, at 5.)

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On April 9, 2010, CPB purchased the Double A Firewood loan, and Double
A Firewood assigned the deed of trust and the promissory note securing the Double
A Firewood loan to CPB. On April 16, 2010, CPB purchased the Mississippi
Collateral at the foreclosure sale. SunSouth did not attend or participate in the
foreclosure proceedings. (Doc. # 70, at 3.) From April of 2010 until May of 2011,
CPB and SunSouth disputed the “first out” and “pro-rata” provisions of the
Participation Agreement. (Doc. # 70, at 3; see Menetre Aff., Doc. # 70-1, at 5–6;
Doc. # 70-3.)
CPB later failed, and the Federal Deposit Insurance Corporation (“FDIC”)
was appointed as receiver. (Doc. # 1-7, at 3.) The FDIC sold all of CPB’s assets,
including ownership of the Mississippi Investors loans and entitlement to
collection for default, in a “whole bank” sale to First NBC Bank. (See Doc. # 22
(Purchase and Assumption Agreement Among the FDIC as Receiver, the FDIC,
and First NBC).) There is no allegation that the FDIC took any collection action
on the CPB loan to Mississippi Investors. According to SunSouth, First NBC
purchased all rights and assumed all obligations set out in the Participation
Agreement that CPB entered with SunSouth.
The complaint alleges that First NBC successfully collected several hundred
thousand dollars after selling collateral that secured the Mississippi Investors loans.
The funds allegedly have been kept segregated and are identifiable. SunSouth
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claims that is entitled to all of these funds under the Participation Agreement. First
NBC has refused to surrender the funds or provide an accounting to SunSouth.
(Doc. # 1-7.)
First NBC sold its interest as the lead bank in the Mississippi Investors loans
to HCB Financial.

SunSouth maintains that HCB Financial assumed

responsibilities to SunSouth under the Participation Agreement. SunSouth has
demanded delivery of its property and an accounting from HCB Financial, and
HCB Financial has refused both demands. HCB Financial did inform SunSouth,
however, that the sale of collateral had resulted in the receipt of approximately
$640,000.
B.

Procedural History
On February 26, 2013, SunSouth filed this lawsuit against First NBC and

HCB Financial in Houston County Circuit Court. (Doc. # 1-7.) On June 5, 2013,
HCB Financial removed the case, with first NBC’s consent, to the United States
District Court for the Middle District of Alabama. (Docs. # 1 and 2.) Defendants
answered the complaint. (Docs. # 12 and 13.) In February of 2014, Defendants
moved to dismiss the complaint in its entirety pursuant to Rules 12(b)(1), 12(b)(6),
and 12(b)(7) of the Federal Rules of Civil Procedure.

(Doc. # 18, at 1.)

Defendants asserted a facial challenge to this court’s subject-matter jurisdiction.
The 12(b)(1) motion was denied on the grounds that Defendants failed to respond
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to the complaint’s “contention that [SunSouth] did not have any claims to assert”
against CPB or the FDIC while the FDIC held CPB’s assets in receivership. (Doc.
# 41, at 15.)
On October 15, 2015, Defendants filed a renewed motion to dismiss,
asserting a factual challenge to this court’s subject-matter jurisdiction. Defendants
insist that SunSouth’s claims arose from a dispute with CPB prior to the FDIC’s
receivership and therefore that they are subject to the administrative exhaustion
requirement of the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 (“FIRREA”). (Doc. # 70, at 7–8.) SunSouth responds that Defendants did
not identify what claim SunSouth should have filed and that FIRREA does not
apply. (Doc. # 79.)
SunSouth previously abandoned Counts II, IV, and V, and they were
dismissed. (Doc. # 57, at 1.) The remaining counts are Count I, Breach of the
Participation Agreement by First NBC, and Count III, Breach of the Participation
Agreement by HCB Financial. (Doc. # 1-7, at 6–7.)
IV. DISCUSSION
Defendants contend that subject-matter jurisdiction is lacking because
SunSouth failed to comply with the requirements of FIRREA.
Congress enacted FIRREA, among other reasons, to enable the FDIC to
wind up the affairs of failed financial institutions.
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The law creates an

administrative claims process for banks in receivership with the FDIC. See Am.
Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1141 (D.C. Cir. 2011) (citing 12 U.S.C.
§ 1821(d)(3)–(13)).

Judicial review of disallowed claims is permitted after

exhaustion of a claimant’s administrative remedies. See 12 U.S.C. § 1821(d)(6).
But where a claimant has failed to comply with § 1821(d)(6), courts are barred
from exercising 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.
Id. § 1821(d)(13)(D); see also Damiano v. F.D.I.C., 104 F.3d 328, 333 (11th Cir.
1997) (“For post-receivership claims, the court has no subject matter jurisdiction
unless the claimant has exhausted the administrative remedies.”). Thus,
the plain language of [§ 1821(d)(13)(D)] . . . divests the district
court[s] of jurisdiction over requests for relief which can be
characterized as: (1) claims for payment from assets of any
depository institution for which the [FDIC] has been appointed
Receiver; (2) actions for payment from assets of such depository
institutions; (3) actions seeking a determination of rights with respect
to the assets of such depository institutions; and (4) a claim relating to
any act or omission of such institution or the [FDIC] as receiver.
Am. First Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1263 (11th Cir.
1999) (citing Nat’l Union Fire Ins. v. City Sav., F.S.B., 28 F.3d 376, 393 (3d Cir.
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1994)). Successors-in-interest to the FDIC that purchase the assets of failed banks
stand in the shoes of the FDIC and may assert as a defense that a party has failed to
exhaust administrative remedies pursuant to FIRREA. Id. at 1263 n.3; see also
Aber-Shukofsky v. JPMorgan Chase & Co., 755 F. Supp. 2d 441, 447 (E.D.N.Y.
2010).
Plaintiffs cannot strategically draft complaints in order to avoid FIRREA’s
jurisdictional bar. Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1144 (D.C. Cir.
2011). Application of the administrative exhaustion requirement is not based on
the entity named as the defendant in the complaint. Instead, it is based upon “the
actor responsible for the alleged wrongdoing: ‘Where a claim is functionally, albeit
not formally, against a depository institution for which the FDIC is receiver, it is a
“claim” within the meaning of FIRREA’s administrative claims process.’”
Westberg v. FDIC, 741 F.3d 1301, 1306 (D.C. Cir. 2014) (quoting Am. Nat’l Ins.
Co., 642 F.3d at 1144) (emphasis in the original).
Under FIRREA, “claim” 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. A claim that is based upon a pre-insolvency
contract exists before insolvency even if payment is not required until a stated
event occurs. McMillian v. FDIC, 81 F.3d 1041, 1047 (11th Cir. 1996) (discussing
the FDIC’s denial of a claim for severance payments because the employee was
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not terminated until after insolvency and noting that “[t]he fact that certain postinsolvency events affect liability under a pre-insolvency contract does not
necessarily mean that the claim did not exist before insolvency.”). Generally, a
claim “first accrues when all the events have occurred which fix the alleged
liability of the defendant and entitle the plaintiff to institute an action . . . and the
plaintiff was or should have been aware of their existence.” FDIC v. Kane, 148
F.3d 36, 39 (1st Cir. 1998) (internal citation and quotation marks omitted).
Because Defendants’ first motion to dismiss asserted a facial attack, the Rule
12(b)(1) analysis was confined to the complaint’s allegations, which were accepted
as true. The complaint’s allegations that SunSouth did not have a claim against
CPB or the FDIC while CPB’s assets were in receivership, therefore, were
controlling. (Doc. # 41, at 15.)

Denial of Defendants’ initial motion to dismiss

was required based upon Defendants’ failure to rebut SunSouth’s assertion that
FIRREA does not apply. (Doc. # 41, at 14.) In the present motion, which asserts a
factual attack, Defendants include affidavits and other evidence to support their
arguments that FIRREA poses a jurisdictional bar to this lawsuit, and that evidence
contradicts the complaint’s allegations. SunSouth has not offered any evidence

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rebutting Defendants’ evidence. Accordingly, the evidence is undisputed.1 (See
Doc. # 79.)
Defendants maintain that the dispute regarding the enforcement of the
Participation Agreement began immediately after CPB purchased the Double A
Firewood loan and the Mississippi Collateral. (Doc. # 70, at 12.) They submit the
affidavit of Ralph N. Menetre III, who managed CPB’s operations on the north
shore of Lake Ponchartrain and in Lacombe, Louisiana (Doc. # 70-1), and a letter
to CPB’s counsel (Doc. # 70-3) to show the ongoing dispute prior to the FDIC’s
appointment as receiver. According to Defendants’ evidence, the dispute began
when CPB informed SunSouth of its belief that the purchase of the Double A
Firewood loan would terminate SunSouth’s interest in the Participation
Agreement. (Menetre Aff., Doc. # 70-1, at 5.) CPB and SunSouth never reached
an agreement regarding the enforceability of the Participation Agreement prior to
the FDIC’s receivership.
The complaint alleges that “Mississippi Investors subsequently defaulted on
its loans, and CPB engaged in collection actions.” (Doc. # 1-7, at 3.) The next
paragraph states that “CPB failed as a banking institution and was placed in
receivership by the State of Louisiana, and the Federal Deposit Insurance
1

SunSouth advances two arguments against the renewed motion. First, it argues that the
court previously ruled on the Rule 12(b)(1) issue. The previous decision, however, considered a
facial attack, not a factual attack. The second argument is based upon cases that do not
overcome the defense of a lack of subject-matter jurisdiction. (See Doc. # 41, at 13 n.4.)
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Corporation was appointed as receiver.” (Doc. # 1-7, at 3.) The complaint did not
explain that the Mississippi Investors’ default was on the loan to Double A
Firewood, which held the first priority lien on the Mississippi Collateral. The
complaint did not contain allegations explaining the discussions and dispute
regarding the Participation Agreement that occurred as a result of the purchase of
the Double A Firewood loan. The evidence adduced outside of the pleadings
establishes that SunSouth’s claim arose prior to receivership and is in effect a
claim against CPB. The obligations under the Participation Agreement, if any,
arose prior to receivership, and the dispute concerning the nature of the obligations
and the enforceability of the Participation Agreement arose prior to receivership.
Therefore, based upon the undisputed evidence, the original contract obligation
was that of CPB, which existed prior to and during receivership.
SunSouth’s claims are functionally based upon CPB’s assertion that the
Participation Agreement was cancelled by the purchase of the Double A Firewood
loan. The claims are “inextricably related” to CPB’s actions pre-receivership. See
Westberg, 741 F.3d at 1308 (finding that the plaintiff’s claim was functionally
against the FDIC and noting that “[i]t might be a different story if the FDIC had
not repudiated the loan and [the acquiring institution] had instead purchased the
loan from the FDIC intact and then itself repudiated or breached the agreement”).
Defendants’ actions regarding a Participation Agreement that was deemed
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cancelled by CPB pre-receivership are not independent from the actions of CPB.
SunSouth’s lawsuit is “seeking a determination of rights with respect to the assets
of [CPB]” and relates to the actions of CPB, which originated pre-receivership.
See Am. First Fed., Inc., 198 F.3d at 1263. Therefore, the claims are subject to the
exhaustion requirement of FIRREA. See id.
It is undisputed that SunSouth did not file an administrative claim while the
FDIC was receiver. Accordingly, this court lacks subject-matter jurisdiction.2
V. CONCLUSION
Based on the foregoing analysis, it is ORDERED that:
(1)

Defendants’ motion to dismiss (Docs. # 69) is GRANTED for lack of

subject-matter jurisdiction based upon FIRREA’s jurisdictional bar; and
(2)

This action is DISMISSED.

A separate final judgment will be entered.
DONE this 29th day of December, 2015.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE

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Because the court does not have subject-matter jurisdiction, the remaining arguments
that Defendants advance in the renewed motion to dismiss need not be discussed.
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