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

Filing 42

MEMORANDUM OPINION AND ORDER that BB&T's 34 MOTION to Dismiss is GRANTED and ADOR's claims against BB&T are DISMISSED without prejudice. Signed by Honorable Judge Mark E. Fuller on 7/9/2012. (Attachments: # 1 Civil Appeals Checklist)(wcl, )

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, et al.,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)

CASE NO. 2:11-cv-272-MEF
[WO – Do Not Publish]

MEMORANDUM OPINION AND ORDER
This case arises from the failure of Colonial Bank and specifically concerns Branch
Banking & Trust’s (“BB&T”) subsequent assumption of some of Colonial’s assets and
liabilities pursuant to a Purchase & Assumption Agreement (“P&A Agreement”) entered into
by BB&T and the Federal Deposit Insurance Corporation acting as Colonial’s Receiver
(“FDIC” or “FDIC-R”). The case is before the Court on BB&T’s Motion to Dismiss (Doc.
# 34) Plaintiff Alabama Department of Revenue’s (“ADOR”) Amended Complaint (Doc. #
30), which alleges that BB&T assumed under the P&A Colonial’s tax liabilities to the State
of Alabama under Alabama’s Financial Institutions Excise Tax (“FIET”), Ala. Code §§ 4016-1, et seq. The issues having been fully briefed (Docs. # 34, 37, 41), and after careful
consideration of the relevant law, the Court finds that BB&T’s motion is due to be
GRANTED.

I. JURISDICTION AND VENUE
The Court exercises subject matter jurisdiction pursuant to 12 U.S.C. § 1821(d)(6)(A)
(allowing judicial determination of claim on deposit insurance fund) and § 1367
(supplemental jurisdiction). The parties do not contest personal jurisdiction or venue, and
the Court finds adequate allegations in support of both.
II. STANDARD OF REVIEW
A dispute over a breach-of-contract plaintiff’s status as a third-party beneficiary is a
dispute over standing. AT&T Mobility, LLC v. NASCAR, Inc., 494 F.3d 1356, 1359 (11th
Cir. 2007). As “‘a threshold jurisdictional question[,] [standing] must be addressed prior to
and independent of the merits of a party’s claims.’” Id. (quoting Dillard v. Baldwin Cnty.
Comm’rs, 225 F.3d 1271, 1275 (11th Cir. 2000)). “‘[A] dismissal for lack of standing has
the same effect as a dismissal for lack of subject matter jurisdiction under Fed. R. Civ. P.
12(b)(1).’” Stalley ex rel. U.S. v. Orlando Reg’l Healthcare Sys., Inc., 524 F.3d 1229, 1232
(11th Cir. 2008) (quoting Cone Corp v. Fla. Dep’t of Transp., 921 F.2d 1190, 1203 n.42
(11th Cir. 1991)).
A Rule 12(b)(1) motion directly challenges the district court’s subject matter
jurisdiction. Gilmore v. Day, 125 F. Supp. 2d 468, 470 (M.D. Ala. 2000). “Rule 12(b)(1)
motions to dismiss for lack of subject matter jurisdiction can be asserted on either facial or
factual grounds.” Carmichael v. Kellogg, Brown & Root Servs., Inc., 572 F.3d 1271, 1279
(11th Cir. 2009) (citing Morrison v. Amway Corp., 323 F.3d 920, 925 n.5 (11th Cir. 2003)).

2

“Facial challenges to subject matter jurisdiction are based solely on the allegations in the
complaint.” Id. “When considering such challenges, the court must, as with a Rule 12(b)(6)
motion, take the complaint’s allegations as true.” Id. On the other hand, a “factual attack”
challenges “subject matter jurisdiction in fact, irrespective of the pleadings.” Morrison, 323
F.3d at 925. In a factual attack, “matters outside the pleadings, such as testimony and
affidavits, are considered.” Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir.
2009) (quotation omitted). “The party commencing suit in federal court . . . has the burden
of establishing, by a preponderance of the evidence, facts supporting the existence of federal
jurisdiction.” Underwriters at Lloyd’s, London v. Osting-Schwinn, 613 F.3d 1079, 1085
(11th Cir. 2010).
This Court understands BB&T to be making a factual attack on the Court’s subject
matter jurisdiction. Although Count II of the Amended Complaint alleges that ADOR is a
third-party beneficiary to the P&A Agreement, BB&T counters that this is factually and
legally not the case. See, e.g., Flexfab, L.L.C. v. United States, 424 F.3d 1254, 1259 (Fed.
Cir. 2005) (stating that “[t]he underlying question of whether [the plaintiff] was a third-party
beneficiary under the contract is a mixed question of law and fact” (citation omitted)). In
considering this factual attack based upon standing and ADOR’s alleged status as a thirdparty beneficiary of the contract, the Court will consider the terms of the P&A Agreement
attached to BB&T’s first motion to dismiss.1

1

The P&A Agreement was attached to BB&T’s first Motion to Dismiss. (Doc. # 8.)
Even if this challenge is more properly treated as a facial attack, looking to the terms of the P&A
3

III. FACTUAL BACKGROUND
Accepting as true the allegations of the Amended Complaint and drawing all
reasonable inferences in ADOR’s favor, the Court finds the following facts:
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 Colonial’s Receiver. On the same day, the FDIC marshaled Colonial’s assets and then
entered into a P&A Agreement with BB&T as the assuming bank.
Meanwhile, ADOR had caught wind of what was afoot and sprung into action. That
same day, ADOR assessed a bevy of taxes allegedly owed to it by Colonial and four of its
affiliates, totaling approximately $158 million. ADOR submitted those claims to the FDIC
and they were disallowed, prompting this litigation. Of the $158 million, the Amended
Complaint seeks a portion: $12,757,095.33 in FIET tax assessments against Colonial
BancGroup, Inc.
IV. DISCUSSION
BB&T advances three arguments in favor of dismissal of ADOR’s claim against it:
(1) ADOR failed to plead that its liens were perfected; (2) as unperfected liens, they are
invalid against BB&T; and (3) ADOR is not a third-party beneficiary of the P&A Agreement

Agreement remains proper. Although not attached to ADOR’s Amended Complaint or to
BB&T’s second Motion to Dismiss, the P&A Agreement is incorporated by reference into
ADOR’s Amended Complaint, and, thus, can be considered by the Court in ruling upon BB&T’s
second Motion to Dismiss. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322
(2007).
4

and cannot recover its claims against BB&T. However, because the Court concludes that
ADOR is not an intended third-party beneficiary of the P&A Agreement and therefore lacks
standing to sue BB&T, the Court need not, and indeed must not because it lacks subject
matter jurisdiction, address BB&T’s first two issues.
A.

Federal Common Law Applies
The first issue to be determined is choice of law. The parties to the contract elected

for federal common law to govern the P&A Agreement. (P&A Agreement § 13.4.) As a
general matter, there is a strong presumption in favor of freely-negotiated contractual choice
of law provisions. See Lindo v. NCL (Bahamas), Ltd., 652 F.3d 1257, 1275 (11th Cir. 2011).
More specifically, it is fairly well-settled that a plaintiff claiming third-party beneficiary
status to a contract is bound to the contract’s choice of law provisions. See Pepsi-Cola
Bottling Co. of Pittsburg, Inc. v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005); Am.
Patriot Ins. Agency, Inc. v. Mut. Risk Mgmt., Ltd., 364 F.3d 884, 890 (7th Cir. 2004)
(“Insofar as the plaintiff’s third-party beneficiary claim is concerned, the plaintiff is indeed
bound by the choice of law . . . clause[ ] in the contract.” (citing cases)). Neither party has
argued against enforcement of the choice of law provision, and the Court would be hardpressed to think differently.2

2

Moreover, there is case law indicating that federal common law might apply even in the
absence of such a choice of law provision. See GECCMC 2005–C1 Plummer Street Office, L.P.
v. JPMorgan Chase Bank, N.A., 671 F.3d 1027, 1032 (9th Cir. 2012).
5

B.

ADOR Is Not an Intended Third-Party Beneficiary of the P&A
Under federal common law, the Court looks to general principles for interpreting

contracts to determine whether ADOR is a third-party beneficiary. Ellinger v. United States,
470 F.3d 1325, 1336 (11th Cir. 2006); Plummer, 671 F.3d at 1033. “[F]or one to be able to
avail himself of a promise in an agreement to which he is not a party, he must, at least, show
that it was intended for his direct benefit, in either all or part of its contemplated
performance.” 13 Williston on Contracts § 37:8 (4th ed.) (citing Robins Dry Dock & Repair
Co. v. Flint, 275 U.S. 303 (1927) (Holmes, J.)). The intent of the contracting parties is the
principal criterion by which courts determine whether a particular beneficiary has protected
and enforceable rights under an agreement. Id.; see also 9 Corbin on Contracts § 44.1 (Rev.
Ed. 2007).
To prove that one is an “intended” beneficiary with judicially enforceable rights (as
opposed to an “incidental” beneficiary without such rights), the third-party bears the burden
of proving that an objective reading of the contract expressly or impliedly reveals a clear
intention of the contracting parties to confer a direct benefit to the third party. Plummer, 671
F.3d at 1033 (quoting and citing Klamath Water Users Prot. Assoc. v. Patterson, 204 F.3d
1206, 1210 (9th Cir. 1999)); see also United States v. United Servs. Auto. Assoc., 968 F.2d
1000, 1001-02 (10th Cir. 1992) (applying Kansas law); Collins v. Morgan Stanley Dean
Witter, 224 F.3d 496, 499 & n.4 (5th Cir. 2000) (applying New York law).

6

In this case, ADOR’s burden of proving a clear intent is particularly heavy because
the contract includes a general disclaimer against any third-party beneficiaries. (P&A
Agreement § 13.5 (“Except as otherwise specifically provided in this Agreement, nothing
expressed or referred to in this Agreement is intended or shall be construed to give any
Person other than the Receiver, the Corporation and the Assuming Bank any legal or
equitable right, remedy or claim under or with respect to this Agreement . . . .”).) In
Plummer, the Ninth Circuit – construing a substantially identical P&A agreement –
considered the purported third-party beneficiary’s argument that § 2.1 of the P&A was carved
out of the general disclaimer through the “[e]xcept as otherwise specifically provided”
language therein. 671 F.3d at 1034. The Ninth Circuit rejected the argument, stating that the
carve-out “does not refer to section 2.1 in a clear enough matter to overcome the presumption
against third-party beneficiaries.” Id.
ADOR attempts to cast aside Plummer by arguing that § 2.1 of the P&A Agreement
in this case (on which ADOR also relies for its third-party beneficiary status) more
specifically provides for third-party beneficiaries than § 2.1 of the P&A agreement at issue
in Plummer. The Court has reviewed the provisions of both contracts, and they are nearly
identical in substance. The only difference between the two is that § 2.1 of the P&A
Agreement in the present case states that BB&T assumes “all of the following liabilities,”
(P&A Agreement § 2.1 (emphasis added)), and then lists the specific liabilities BB&T
assumes. The P&A agreement in Plummer referred to the assuming bank as assuming “all

7

of the liabilities,” (Case No. 2:10cv1615 (C.D. Cal.) (Doc. # 15-1)). The designation of
which liabilities BB&T assumed in § 2.1 does not materially affect the Court’s third-party
beneficiary analysis nor does it specifically provide for third-party rights in a clear enough
manner to overcome both the general disclaimer of § 13.5 and the presumption against
enforceable third-party beneficiary rights, especially with respect to contracts to which the
government is a party. See 9 Corbin on Contracts § 45.6 (since contracts involving the
government usually serve the public interest, third parties are presumed to be incidental
beneficiaries).
Finally, as articulated by the Ninth Circuit in Plummer, denying enforceable thirdparty beneficiary rights to ADOR comports with the Congressional objectives of FIRREA,
namely “[t]o provide funds from public and private sources to deal expeditiously with failed
depository institutions.” See FIRREA, Pub. L. No. 101-72, § 101(8) (1989). As articulated
in the Court’s first Memorandum Opinion and Order, “the speed and timing of the
transactions [are] important.” (Mem. Op. 7 n.3.) Potential assuming bank suitors, whom the
FDIC must court aggressively, might be scared off at the prospect of defending many
lawsuits from “any number of third parties who might claim a benefit from the Agreement’s
terms.” Plummer, 671 F.3d at 1035 (citing cases). The system contemplated by FIRREA,
which allows for assuming banks to assume only a portion of a failed banks assets and
liabilities, would become inoperative if assuming banks were not able to quickly grasp

8

exactly what assets and what liabilities they are assuming, and their attendant level of risk
and exposure to lawsuits.
Furthermore, FIRREA mandates that the FDIC-R “preserve and conserve the assets
and property of [the failed bank].” 12 U.S.C. § 1821(d)(2)(B)(iv). If the FDIC-R and BB&T
truly intended to bestow enforceable third-party beneficiary rights to the failed bank’s
creditors, it would be a relinquishment of FDIC-R’s statutory authority to prescribe
rulemaking for and to determine the validity of claims in the first instance prior to judicial
review. See 18 U.S.C. § 1821(d)(3)-(6). The Court refuses to construe the P&A Agreement
in such a way as to disturb the statutory framework prescribed by Congress for dealing with
failed banking institutions. In short, ADOR’s “recourse is not a suit against [BB&T] under
the P&A Agreement.” Plummer, 671 F.3d at 1036 (citing § 1821(d)).
Because ADOR, as an incidental beneficiary, has no enforceable rights against BB&T
under the P&A Agreement and lacks standing to sue BB&T under the P&A Agreement, the
Court must dismiss BB&T without prejudice pursuant to Fed. R. Civ. P. 12(b)(1).
V. CONCLUSION
In light of the foregoing, it is ORDERED that BB&T’s motion to dismiss is
GRANTED and ADOR’s claims against BB&T are DISMISSED without prejudice.
DONE this 9th day of July, 2012.
/s/ Mark E. Fuller
UNITED STATES DISTRICT JUDGE

9