Alabama One Credit Union v. Toppins et al

Filing 31

MEMORANDUM OF OPINION. Signed by Judge L Scott Coogler on 5/26/2017. (PSM)

FILED
2017 May-26 PM 03:19
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
WESTERN DIVISION
ALABAMA ONE CREDIT
UNION,
Plaintiff,
vs.
PAUL TOPPINS, et al.,
Defendants.

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7:16-cv-01382-LSC

Memorandum of Opinion
On April 18, 2017, United States Magistrate Judge T. Michael Putnam
entered a Report and Recommendation (Doc. 27), recommending that the abovestyled matter be remanded to the Circuit Court of Tuscaloosa County, Alabama.
The United States filed its objections on May 1, 2017. (Doc. 29.) Defendants Barry
V. Frederick, Brandi B. Frederick, and The Frederick Firm (collectively, the
“Frederick Defendants”) 1 filed their objections on May 2, 2017. (Doc. 30.) This
Court has considered the entire file in this action, together with the Report and
Recommendation, and has reached an independent conclusion that the Report and
1

Objections were purportedly filed on behalf of Barry V. Frederick and The Frederick Firm.
However, The Frederick Firm is not listed as a defendant on this Court’s docket sheet, and Barry
V. Frederick is listed as counsel for himself and for Brandi B. Frederick. Because all three are
named Defendants on the state court’s docket sheet, this Court treats the objections as if filed by
all three.
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Recommendation is due to be adopted and approved, and this matter is due to be
remanded to the Circuit Court of Tuscaloosa County.
I.

Background
As described in the Report and Recommendation, this action is related to the

conservatorship of Plaintiff Alabama One Credit Union (“Alabama One”), by the
Alabama

Credit

Union

Administration

(“ACUA”).

After

entering

conservatorship, Alabama One filed suit against Defendants—attorneys,
accountants, and appraisers who represented or otherwise provided services to
Alabama One—in Alabama state court, alleging claims for negligence and
professional malpractice. During the course of this litigation, Defendants sought to
discover various documents that Alabama One asserted were prohibited from
disclosure under state and federal law. With input from the parties, the state court
entered two orders on July 13, 2016, directing Alabama One to submit the
documents, which the parties refer to collectively as “Regulatory Information,” for
in camera review to determine whether the information was relevant or protected
from disclosure.
On August 23, 2016, the United States removed the action to this Court
pursuant to 28 U.S.C. § 1442(a)(1), which authorizes the federal government and
its agencies and employees to remove a proceeding “against or directed to” them
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that arises out of their official duties. The notice of removal states that the National
Credit Union Administration (“NCUA”), an independent federal agency, “is the
non-party subject of” the state court’s orders directing Alabama One to produce
the

“Regulatory

Information”

for

in

camera

inspection.

(Doc.

1.)

Contemporaneously with the removal, the United States moved to quash the
portion of the state court’s orders relating to the “Regulatory Information.” (Doc.
2.) After several hearings on these issues, the magistrate judge issued the Report
and Recommendation now before this Court. (Doc. 27.)
II.

Standard of Review

Upon the filing of objections to a magistrate judge’s proposed findings and
recommendations, this Court “make[s] a de novo determination of those portions
of the report or specified proposed findings or recommendations to which objection
is made.” 28 U.S.C. § 636(b)(1). This Court “may accept, reject, or modify” such
findings or recommendations “in whole or in part.” Id.
III. Discussion
A. Objections by the United States
The United States objects to the magistrate judge’s conclusion that this case
was “removed improvidently” and is due to be remanded to the state court for lack
of subject matter jurisdiction. The removal statute upon which the United States
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bases this Court’s jurisdiction provides that the federal government, or a federal
agency or officer, may remove an action that is “against or directed to” it. 28
U.S.C. § 1442(a)(1). It applies to “any proceeding” in which “a judicial order,
including a subpoena for testimony or documents, is sought or issued.” Id.
§ 1442(d)(1). The statute’s purpose “is to protect the Federal Government from
[state] interference with its ‘operations.’” Caver v. Cent. Ala. Elec. Coop., 845 F.3d
1135, 1142 (11th Cir. 2017) (quoting Watson v. Philip Morris Cos., 551 U.S. 142, 150
(2007)). Historically, § 1442 has served as a mechanism by which federal officials
faced with a civil or criminal proceeding arising out of the enforcement of their
federal duties may seek a federal forum in which to raise federal law as a defense to
the suit. See Magnin v. Teledyne Cont’l Motors, 91 F.3d 1424, 1427 (11th Cir. 1996)
(quoting Willingham v. Morgan, 395 U.S. 402, 405 (1969)); Florida v. Cohen, 887
F.2d 1451, 1453 (11th Cir. 1989) (quoting Murray v. Murray, 621 F.2d 103, 106 (5th
Cir. 1980)).
As relevant here, the United States argues that the “application” of the state
court’s July 13, 2016, discovery orders “is directed to the NCUA” because the
documents ordered to be produced for in camera inspection “belong to the
NCUA.” It objects to the magistrate judge’s finding that the NCUA is not the
“subject of” the state court’s orders. Few courts have interpreted the precise
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meaning of the “against or directed to” language, but the statute is clear that the
federal agency need not be a formal party to an action in order to remove it. See
§ 1442(d)(1) (including “a subpoena for testimony or documents” within the
definition of “civil action”); H.R. Rep. No 112-17, pt. 1, at 6 (2011), as reprinted in
2011 U.S.C.C.A.N. 420, 425 (“The bill clarifies that a civil action ‘commenced’ in
State court includes those brought ‘against’ a Federal officer (which covers suits)
as well as those ‘directed to’ a Federal officer (which presumably covers discovery
proceedings).”). In this case, however, the state court’s order is neither “against”
nor “directed to” the NCUA, even if the records that may be subject to in camera
inspection “belong to the NCUA” but are in Alabama One’s possession. The
order does not command the NCUA to take any action; rather, it directs Alabama
One to produce the documents to the court.
The NCUA’s regulations support this result. The regulations prohibit the
disclosure of NCUA records “[c]ontained in or related to examination, operating
or condition reports prepared by, or on behalf of, or for the use of NCUA or any
agency responsible for the regulation or supervision of financial institutions. This
includes all information, whether in formal or informal report form, the disclosure
of which would harm the financial security of credit unions or would interfere with
the relationship between NCUA and credit unions.” 12 C.F.R. § 792.11(a)(8).
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These records, when in the possession of a credit union like Alabama One, “remain
the property of NCUA.” Id. § 792.31. As such, the records cannot be disclosed
“except as expressly authorized by the NCUA or as ordered by a federal court after
the NCUA has had the opportunity to be heard.” Id. § 792.40(c). The regulations
instruct “persons who are not NCUA employees . . . but have custody of nonpublic
records”—which presumably includes Alabama One and its representatives—to,
upon receipt of a subpoena or discovery request, “promptly notify the NCUA” of
the request and “notify the issuing court” that federal regulations prohibit
disclosure. Id. § 792.40(b)(1). The target of the subpoena or request is directed to
“appear[] at the time and place stated in the subpoena” but “decline to produce
any records or give any testimony.” Id. § 792.40(b)(2). Therefore, although the
regulations give it the right to “advise the issuing court . . . that [the regulations]
appl[y] and, in addition, . . . intervene, attempt to have the subpoena quashed or
withdrawn, or register appropriate objections,” id., the NCUA does not act in
place of the target of the request.
Stated another way, the NCUA’s right to participate in an action in order to
protect its interests does not transform a request to the party possessing the
records into a proceeding “directed to” the NCUA. Thus, a court order
commanding Alabama One to produce nonpublic documents that are subject to
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§ 792.40 is not “directed to” the NCUA, even though it is the NCUA that
ultimately must authorize the production of such records. Rather, as the magistrate
judge concluded, the state court’s order targets Alabama One, which has the
ability, because it possesses the records, to produce them to the court—albeit not
without legal consequences. Alabama One’s obligations, under the NCUA’s
regulations, are to notify the NCUA and to refuse to disclose the documents.
The proper procedure in this situation is for the NCUA to first present its
arguments to the state court. 2 If the court, after hearing these arguments,
nonetheless orders the NCUA to take some action relative to the documents, then
such an order would be “directed to” the NCUA and removal under § 1442(a)(1)
proper. Under those circumstances, the NCUA undoubtedly has a right to have its
federal defense—the regulations prohibiting disclosure—heard by this Court.
Suggesting that the NCUA involve itself in the state court action is not, contrary to
the contentions of the United States, “requir[ing the NCUA] to win its case before
[the case] can be removed.” Obtaining an order “directed to” the NCUA does not
necessarily implicate the state court’s determination of the merits of the NCUA’s
arguments about whether the documents are indeed prohibited from disclosure.
2

Indeed, a formal appearance in the proceeding to claim privilege as to certain documents is
precisely the procedure that awarded the federal government “standing to maintain [an] appeal”
in Overby v. U.S. Fidelity & Guaranty Co., 224 F.2d 158, 161–62 (5th Cir. 1955), which the United
States cites as support for its contention that it is the “subject of” the state court’s orders.
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Nor does this procedure run afoul of the Supreme Court’s direction that § 1442
must be “liberally” construed. The United States argues that “[u]nder § 1442(a),
the test should be whether or not the United States or one of its officers has a
federal defense to the contested court action.” However, such a test ignores the
statute’s plain language that to be removable, the proceeding must be “against or
directed to” the United States. § 1442(a). Although the availability of a federal
defense is a prerequisite to § 1442 removal, Magnin, 91 F.3d at 1427, it does not
independently authorize the federal government to remove an action to assert the
defense on behalf of a party to the action, which is essentially what has occurred
here.
B. Objections by the Frederick Defendants
The Frederick Defendants argue that to the extent the Report and
Recommendation recommends remand of the counterclaims asserted in their
“Further Answer” to the complaint (Doc. 13), this Court should retain those
claims. However, the counterclaims are at present not properly before this Court
because this action was inappropriately removed.3 While it is procedurally possible
that this Court may exercise jurisdiction over these claims in the future, the
3

Even if removal had been proper under § 1442(a)(1), only the discovery proceeding, not the
entire action, would be before this Court. See § 1442(d)(1) (“If removal is sought for a
proceeding described in the previous sentence, and there is no other basis for removal, only that
proceeding may be removed to the district court.”).
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assertion of a counterclaim based on federal law does not provide an independent
basis for which the Frederick Defendants may invoke this Court’s jurisdiction.
Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831 (2002)
(“[F]ederal jurisdiction generally exists ‘only when a federal question is presented
on the face of the plaintiff’s properly pleaded complaint.’” (emphasis in original)).
The Frederick Defendants’ counterclaims are thus due to be remanded with the
action.
IV. Conclusion
For the reasons stated herein, the findings and recommendation of the
magistrate judge are due to be ADOPTED and APPROVED as the findings and
conclusions of this Court. This matter is due to be REMANDED to the Circuit
Court of Tuscaloosa County, Alabama, for further consideration. A separate order
consistent with this Opinion will be entered contemporaneously herewith.
DONE and ORDERED on May 26, 2017.

_____________________________
L. Scott Coogler
United States District Judge
186289

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