The State of Alabama Department of Revenue v. Federal Deposit Insurance Corporation et al

Filing 18

MEMORANDUM OPINION AND ORDER: The Alabama Department of Revenue failed to allege sufficient facts to establish that it had a valid lien at the time BB&T entered into the Purchase and Assumption Agreement with the FDIC. What is more, the ADOR's c omplaint lacked any facts suggesting that its tax liens, if valid, would have priority against a purchaser like BB&T. For these reasons, it is hereby ordered that the Motion to Dismiss (Doc. 8 ) is GRANTED and the complaint against BB&T is DISMISSED without prejudice. Signed by Honorable Judge Mark E. Fuller on 1/17/2012. (Attachments: # 1 Civil Appeals Checklist)(dmn, )

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
NORTHERN DIVISION
THE STATE OF ALABAMA,
DEPARTMENT OF REVENUE,
Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
Colonial Bank, and BRANCH
BANKING AND TRUST COMPANY,
as Successor in Interest to COLONIAL
BANK,
Defendants.

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Case No. 2:11-cv-272-MEF
(WO—Publish)

MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
This cause comes before the Court on Branch Banking and Trust’s (BB&T)
Motion to Dismiss (Doc. # 8). The Alabama Department of Revenue (ADOR) initially
brought suit against the Federal Deposit Insurance Corporation (FDIC) and BB&T for
the payment of taxes incurred by Colonial Bank and its various affiliates, claiming that
both the FDIC and BB&T were successors to the failed bank’s liabilities. BB&T now
moves to dismiss, contending that the Purchase and Assumption Agreement it entered
into with the FDIC does not contemplate BB&T owing the ADOR for back taxes owed
by Colonial Bank and its affiliates. After careful consideration of the arguments of

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counsel and the relevant law, the Court finds that BB&T’s motion is due to be

GRANTED and the complaint DISMISSED without prejudice.
II. JURISDICTION AND VENUE
The Court has subject matter over this case under 12 U.S.C § 1821(d)(6)(A)
(allowing judicial determination of claim on deposit insurance fund). The parties do not
contend that the Court lacks personal jurisdiction over them, nor do they dispute that
venue is proper.
III. LEGAL STANDARD
A motion to dismiss mainly tests the legal sufficiency of the complaint. Fed. R.
Civ. P. 12(b)(6). It does not delve into disputes over the proof of the facts alleged—such
a crucible is reserved for the summary judgment stage. With this in mind, the Court
accepts as true all well-pled factual allegations in the complaint, viewing them in the
light most favorable to the plaintiff. Pielage v. McConnell, 516 F.3d 1282, 1284 (11th
Cir. 2008); Am. United Life Ins. Co. v. Martinez, 480 F.3d 1043, 1057 (11th Cir. 2007).
And while a court typically keeps its motion to dismiss inquiry within the four corners of
the complaint, the Court may nonetheless consider an outside document when it is
undisputed and central to the plaintiff’s claims. Speaker v. U.S. Dep’t of Health &
Human Servs., 623 F.3d 1371, 1379–80 (11th Cir. 2010). The Court will grant a motion
to dismiss “when, on the basis of a dispositive issue of law, no construction of the factual
allegations will support the cause of action.” Marshall Cnty. Bd. of Ed. v. Marshall Cnty.

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Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).
A motion to dismiss also requires compliance with some minimal pleading
standards. Indeed, although a plaintiff’s complaint generally need only contain “a short
and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R.
Civ. P. 8(a)(2), the plaintiff must still allege “enough facts to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007). And
“[a] claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009). The plaintiff must provide
“more than labels and conclusions, and a formulaic recitation of the elements of a cause
of action will not do.” Twombly, 550 U.S. at 559. Nor does it suffice if the pleadings
merely leave “open the possibility that a plaintiff might later establish some set of
undisclosed facts to support recovery.” Id. at 561.
IV. BACKGROUND1
This case has its genesis in the failure of Colonial Bank. On August 14, 2009, the
State of Alabama Banking Department closed Colonial Bank and appointed the FDIC to
act as receiver. (Doc. # 1 at ¶ 5.) On the same day, the FDIC marshaled Colonial Bank’s
assets and then entered into a Purchase and Assumption Agreement with BB&T. (Doc. #
8-1.) Meanwhile, the Alabama Department of Revenue (ADOR) sprung into action,
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The Court takes the following facts from the ADOR’s complaint and the Purchase and
Assumption Agreement between BB&T and the FDIC.

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assessing a bevy of taxes owed to it by Colonial Bank and four of its affiliates—The
Colonial BancGroup, Inc., CBG, Inc., CBG Investments, Inc., and CBG Nevada Holding
Corp. (Doc. # 1 at ¶¶ 30, 42, 57, 76.) The assessments claimed that Colonial BancGroup
and Colonial Bank’s four subsidiaries owed taxes for the years 1998 to 2007 totaling
$158,287,023.31.2 (Id. at ¶ 13.)
Based on these assessments, the ADOR filed claims with the FDIC. (Id. at ¶ 10.)
After much delay, the FDIC eventually disallowed the ADOR’s claims, stating, “This
claim has not been proven to the satisfaction of the Receiver.” (Id. at ¶ 18.) The ADOR
appealed this determination, seeking a fresh review of its claims in federal court. (Id. at ¶
19.) It also joined BB&T in the action, asserting that “responsibility for the payment of
the . . . tax assessments . . . rests with the FDIC and/or BB&T as successors and as
receivers of the assets of Colonial Bank.” (Id. at ¶ 33.)
V. DISCUSSION
The parties agree that the disputed motion turns on a single legal question: did
BB&T agree to assume excise taxes owed to the ADOR under its Purchase and
Assumption Agreement with the FDIC? BB&T contends that it agreed to take on only
certain liabilities—namely, those specifically described in § 2.1 of the Purchase and
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The ADOR claimed that CBG Investments, Inc. owed $81,748,364.39, which included the tax,
penalty, and interest assessed for tax years 1999 through 2007. (Doc. # 1 at ¶ 32.) And it claimed that
CBG, Inc. owed $48,073,984.23 for the same years. (Doc. # 1 at ¶ 44.) As for CBG Nevada Holding
Corp., the ADOR alleged that it owed $15,754,138.01 for tax, penalty, and interest assessed for 2002
through 2007. (Doc. # 1 at ¶ 59.) Finally, it asserted that Colonial BancGroup, Inc. owed $12,757,095.33
for the taxes, penalties, and interest assessed against it from 2000 to 2007. When added together, the total
is $158,333,581.63.

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Assumption Agreement. The ADOR essentially agrees with BB&T on this point, but
with the added caveat that § 2.1 included the tax obligations at issue here. After carefully
considering the federal statutory scheme governing bank takeovers, Alabama law, and
the Purchase and Assumption Agreement attached to the motion to dismiss, the Court
finds that the ADOR failed to allege sufficient facts to state a legally cognizable claim
against BB&T.
A. The relevant law
1. The federal scheme for dealing with bank failures
Dealing with a bank failure usually requires a three-step process. First, either the
authority that chartered the bank or the FDIC closes the failed institution and appoints a
fiduciary. 12 U.S.C. § 1821(c)(3), (9). Typically the FDIC, like it did here, takes on that
job by becoming the failed bank’s receiver. Second, the fiduciary marshals the failed
bank’s assets by identifying all potentially valuable ownership interests held by the
institution. Third, the fiduciary handles the outstanding claims against the failed bank.
See id. § 1821(d)(2)(H).
Upon its appointment as receiver, the FDIC “steps into the shoes of the [failed
bank] and operates as its successor.” In re Shirk, 437 B.R. 592, 600 (S.D. Ohio 1992);
see also 12 U.S.C. § 1821(d)(2)(A) (“the [FDIC] shall . . . by operation of law, succeed
to—(i) all rights, titles, powers, and privileges of the insured depository
institution . . . .”); O’Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994) (stating that

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FDIC “steps into the shoes” of failed savings and loan banks); Gibson v. RTC, 51 F.3d
1016, 1025 (11th Cir. 1195). As receiver, the FDIC can “transfer any asset or liability of
the institution in default . . . without any approval, assignment, or consent with respect to
such transfer.” 12 U.S.C. § 1821(d)(2)(G)(i)(II). The FDIC, therefore, can use this power
to transfer an asset “while retaining a related liability” so that “no liability is transferred
to an assuming institution . . . absent an express transfer.” Shirk, 437 B.R. at 600; see
also Jonathan R. Macey, Geoffrey P. Miller, & Richard Scott Carnell, Banking Law &
Regulation 742 (3d ed. 2001) (“If some liabilities are excluded, then the acquirer will not
assume them.”).
The express terms of a purchase and assumption agreement hence govern whether
an acquiring institution takes on a given liability to the failed institution’s creditors. So a
party entering into a purchase and assumption agreement with the FDIC assumes the
failed bank’s liabilities only to the extent called for in the contract. In other words, when
the contract remains silent as to whether an acquirer has agreed to assume a given
liability, the default rule is that it has not and that those liabilities remains with the FDIC.
See, e.g., Payne v. Security Sav. & Loan Ass’n, F.A., 924 F.2d 109, 111 (7th Cir. 1991)
(holding FDIC “is the successor to a failed thrift’s liabilities unless [it] expressly
designates otherwise”); Kennedy v. Mainland Sav. Ass’n, 41 F.3d 986, 990–91 (5th Cir.
1994) (“The federal receiver such as the FSLIC or RTC has the power to sell an asset . . .
while retaining a related liability, and no liability is transferred to an assuming institution

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such as Old Southwest absent an express transfer.”); Lawson v. Household Bank, 20 F.3d
786, 788 (7th Cir. 1994) (stating the plaintiff’s claims against successor bank had to be
based on the P & A agreement between the RTC and the successor bank “under which
the latter acquired certain deposits and assumed certain liabilities”). Otherwise, potential
suitors would have to investigate thoroughly the extent of the liabilities on the failed
bank’s books, in turn making it more difficult for the FDIC to find an acquirer
posthaste.3 See Vernon v. RTC, 907 F.2d 1101, 1109 (11th Cir. 1990) (“very few, if any,
banks would enter into purchase and assumption agreements with a federal receiver if the

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The speed and timing of these transactions is important. Typically, the FDIC takes over a failed
bank at the close of business on Friday, enters into a purchase and assumption agreement with a suitor,
and allows the solvent bank to take over operations by Monday. Using purchase and assumption
agreements in this way has a number of advantages according to Professors Macey, Miller, and Carnell:
First, it maximizes the going-concern value on both sides of the balance
sheet: The acquirer picks up a deposit base, as in the case of insured
deposit transfers, but also succeeds to a base of loan customers who are
likely to return to the acquirer in the future for new financing. Second,
by bundling the transfer of assets and liabilities, the purchase and
assumption method saves on the costs of resolution. Third, the purchase
and assumption transaction allows the failed institution to remain in
operation, albeit in many cases under a different name, thus eliminating
the danger that banking services will be disrupted and mitigating public
concerns about bank failure. Fourth, purchase and assumption
transactions remove some of the burden from the FDIC of collecting on
the failed institution’s assets. Finally, purchase and assumption
transactions are sometime said to be superior because they can provide
protection for all depositors, even those with deposits in excess of the
[$250,000] insurance limit.
Jonathan R. Macey, Geoffrey P. Miller, & Richard Scott Carnell, Banking Law & Regulation 741 (3d ed.
2001). It is unclear whether a State can use last minute tax assessments to hinder this process in a way
that undermines federal policy. Well-established precedent suggests a State cannot. See M’Culloch v.
Maryland, 17 U.S. 316, 431 (1819) (barring Maryland from taxing corporation created by federal
government because state taxation would undermine federal policy, stating, “the power to tax involves
the power to destroy”).

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successor banks had to assume the latent claims of unknown magnitude of shareholders
like appellants”); FDIC v. Newhart, 892 F.2d 47 (8th Cir. 1989) (stating essential
element of purchase and assumption transaction is speedy evaluation by purchasing bank
of failed bank’s assets). Thus, the rule lessens the uncertainty surrounding an acquirer’s
newfound liabilities, furthering the policy of making acquirers more willing to enter into
purchase and assumption agreements.
2. Alabama law governing tax liens
Alabama law authorizes tax liens. Equally important, it regulates their creation,
validity, and priority over other claims. For starters, “unless another date is specifically
fixed by law,” a tax lien generally arises “at the time the . . . return . . . was due to have
been filed with or made to the Department of Revenue.” Ala. Code § 40-1-2(a). A tax
lien lacks validity, however, as to a purchaser in the ordinary course of business—at least
“until after the time a notice thereof has been filed by the Department of Revenue . . . in
the office of the judge of probate of the county in which such property . . . is located.” Id.
§ 40-1-2(b). The Alabama Code defines a purchaser as “[a] person who, for adequate and
full consideration in money or money’s worth, acquires an interest . . . in property which
is valid against subsequent purchasers without actual notice.” Id. § 40-29-22(g)(6).
When it comes to priority, a lien is invalid against purchasers until the
Commissioner of Revenue perfects the State’s claim by properly filing notice. Ala. Code
§ 40-29-22. For real property, perfection requires the State to file tax lien notices “in the

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probate office of the county in which the property subject to the lien is situated.” Id. §
40-29-22(f)(1)a. Perfecting a lien on personal property requires the State to file notice “in
the office (i) in which a financing statement would be filed to perfect a security interest
with respect to such property” under Alabama’s version of the Uniform Commercial
Code. Id. § 40-29-22(f)(1)b. And notice is only effective as to third parties “when
properly included by name in the index of such financing statements available for public
inspection.” Id. 40-29-22(f)(1)b.
B. Analysis
Courts interpret purchase and assumption agreements according to the contract’s
plain language. Vernon v. RTC, 907 F.2d 1101, 1109 (11th Cir. 1990). Section 2.1 of the
agreement between the FDIC and BB&T states, in pertinent part:
2.1

Liabilities Assumed by Assuming Bank. The
Assuming Bank expressly assumes at Book Value
(subject to adjustment pursuant to Article VIII) and
agrees to pay, perform, and discharge all of the
following liabilities of the Failed Bank as of Bank
Closing, except as otherwise provided in this
Agreement (such liabilities referred to as “Liabilities
Assumed”):
...
(b)
liabilities for indebtedness secured by
mortgages, deeds of trust, chattel mortgages,
security interests or other liens on or affecting
any Assets, if any; provided, that the
assumption of any liability pursuant to this
paragraph shall be limited to the market value
of the Assets securing such liability as
determined by the Receiver;
...
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(Doc. # 8-1 at 8.)4 This section does not, however, state that BB&T assumes liens that
become valid after execution of the Purchase and Assumption Agreement. Quite to the
contrary, the agreement says that BB&T agrees to assume only those liabilities in
existence “as of Bank Closing.” (Id.) And the agreement defines “Bank Closing” as “the
date on which the Chartering Authority closed such institution.” (Id. at 2.) By way of its
definitions section, the Purchase and Assumption Agreement also excluded liabilities on
assets held by entities other than Colonial Bank: the FDIC and BB&T defined “Assets”
as “all assets of the Failed Bank,” and the definition noted that “[a]ssets owned by
Subsidiaries of the Failed Bank are not ‘Assets.’” (Id. at 8.)
The ADOR fails to allege in its complaint that BB&T expressly assumed the tax
liens it issue. Instead, it asserts claims against BB&T with the bare allegation that “the
FDIC and/or BB&T” succeeded in Colonial Bank’s liabilities. Federal law, however,
makes clear that a bank that enters into a purchase and assumption agreement does not
step into the failed bank’s shoes. Rather, the FDIC does.5 So allowing the ADOR to state
a claim without alleging that BB&T expressly assumed the tax liens would contravene a

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As noted in the standard of review, a court typically keeps its motion to dismiss inquiry within
the four corners of the complaint. But the Court may nonetheless consider documents outside of the
complaint when the attached document is undisputed and central to the plaintiff’s claims. Speaker v. U.S.
Dep’t of Health & Human Servs., 623 F.3d 1371, 1379–80 (11th Cir. 2010). The Purchase and
Assumption Agreement is such a document. See Danilyuk v. JP Morgan Chase, N.A., No. 10-712-JLR,
2010 WL 2679843 (W.D. Wa. 2010) (taking judicial notice of purchase and assumption agreement on
motion to dismiss); Federici v. Monroy, No. 09-4025-PVT, 2010 WL 1223192 (N.D. Cal. 2010) (same).
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The Alabama Department of Revenue recognizes this, stating in its complaint that, “As between
BB&T and the FDIC, the FDIC assumed all liabilities relating to Colonial Bank and its subsidiaries as of
August 14, 2009.” (Doc. # 1 at ¶ 8.)

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stated federal policy by turning every takeover of a failed bank into a de facto merger.
Compare 12 U.S.C. § 1821(d)(2)(G)(i)(II) (allowing FDIC to transfer some assets
without the attendant liabilities) with 12 U.S.C. § 1821(d)(2)(G)(i)(I) (allowing FDIC to
complete a wholesale merger). Such a construction would make § 1821(d)(2)(G)(i)(II)
irrelevant. Thus, the ADOR cannot state a legally cognizable claim against BB&T using
the theory set forth in its complaint.
Still, the ADOR relies on the Purchase and Assumption agreement in its response
brief, arguing that “if [its] claims for unpaid taxes are a ‘lien on or affecting any Assets’
of what was Colonial Bank or its subsidiaries, then that liability was specifically assumed
by BB&T.” (Doc. # 15 at 4.) Even putting aside for a moment ADOR’s failure to allege
liability under this theory, the Purchase and Assumption Agreement’s definition section
undermines this interpretation. In fact, the agreement specifically excludes liabilities
attached to any “[a]ssets owned by Subsidiaries of the Failed Bank,” which means any
taxes assessed against CBG, Inc., CBG Investments, and CBG Nevada Holding Corp.
See 12 U.S.C. § 1821(d)(2)(G)(i)(II); In re Shirk, 437 B.R. 592, 600 (S.D. Ohio 1992)
(allowing FDIC to transfer asset while “retaining a related liability” so that “no liability is
transferred to an assuming institution . . . absent an express transfer”). Similarly, the
agreement refers to Colonial Bank, not BancGroup, Inc., as the “Failed Bank”
throughout, thus implicitly excluding BancCorp Inc.’s tax liabilities when BB&T agreed
to take on “the following liabilities of the Failed Bank.” (Doc. # 8-1 at 8.)

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The ADOR, moreover, simply assumes in its complaint that the process by which
it filed its tax liens suffices to state a claim against BB&T. But the only allegations
related to the filing, notice, and perfection process state that “BB&T and FDIC knew or
should have known of the existence of the unpaid liabilities,” (Doc. # 1 at ¶ 85), and that
“[t]he statutory liens noted above were . . . perfected against certain persons when they
were properly recorded on or about August 14, 2009.” (Doc. # 1 at ¶ 86.) This does not
suffice. The rule governing the creation of a valid lien and providing the process for
gaining priority over purchasers requires more than knowledge or constructive
knowledge. Indeed, Alabama law makes clear that the ADOR had to give notice by filing
in the appropriate jurisdiction. See Ala. Code § 40-1-2(b) (providing for appropriate
notice for validity against purchasers). Yet the ADOR failed to allege that it took these
steps. Therefore, it failed to allege facts sufficient to support its claim that it had a valid
lien.
The ADOR also failed to allege sufficient facts to claim that it perfected an
interest in the assets bought by BB&T. As already noted, perfecting a tax lien as to a
purchaser requires filing notice of the tax assessment in the correct office and
jurisdiction. See Ala. Code §§ 40-29-22(f)(1)a (describing notice procedure for
perfecting lien as against purchasers of real property), 40-29-22(f)(1)b (describing notice
procedure for perfecting lien as against purchasers of personal property). Here, the
ADOR only alleged that it perfected the “statutory liens noted above” (Doc. # 86 at ¶ 86

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(emphasis added))—namely, the liens against Colonial BancGroup and Colonial Bank’s
four subsidiaries—which, as discussed above, were excluded liabilities under the
Purchase and Assumption Agreement.6
VI. CONCLUSION
The Alabama Department of Revenue failed to allege sufficient facts to establish
that it had a valid lien at the time BB&T entered into the Purchase and Assumption
Agreement with the FDIC. What is more, the ADOR’s complaint lacked any facts
suggesting that its tax liens, if valid, would have priority against a purchaser like BB&T.
For these reasons, it is hereby ordered that the Motion to Dismiss (Doc. # 8) is
GRANTED and the complaint against BB&T is DISMISSED without prejudice.
th

Done this the 17 day of January, 2012.

/s/ Mark E. Fuller
UNITED STATES DISTRICT JUDGE

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Although the Court construes allegations in the light most favorable to the plaintiff, the
ADOR’s claim that it perfected the liens on August 14, 2009, in a single day runs into facial plausibility
problems. First, the Court can take judicial notice that August 14, 2009, was a Saturday, see Horne v.
Potter, 392 Fed. App’x 800, 802 (11th Cir. 2010) (allowing judicial notice of public records not subject
to reasonable dispute on a motion to dismiss), which means the various probate and government offices
for filing notice likely had their doors closed. Second, even if the ADOR gained access to the various
courts and government buildings, it is unlikely that it could have filed notice in the various jurisdictions,
some of which were located in other states. See Ala. Code 7-9A-301(1) (stating that law of jurisdiction of
debtor governs where the ADOR should file and perfect a lien); (Doc. # 1 (alleging BancGroup created
under Delaware law and claiming four subsidiaries created under Nevada law)). It is even more
implausible that the various bureaucracies in Alabama, Delaware, and Nevada rapidly indexed the claims
on August 14, 2009, so as to give BB&T one last shot to check the records before entering into its
agreement with the FDIC. Because the liens at issue do not cover the assets bought by BB&T, however,
the Court has not rested its decision on the facial implausibility of the perfection allegations and has
instead taken them as true.

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