BHC INTERIM FUNDING II, L.P. et al v. FEDERAL DEPOSIT INSURANCE CORPORATION

Filing 19

MEMORANDUM OPINION granting 10 defendant's motion to dismiss. Signed by Judge Barbara Jacobs Rothstein on March 30, 2012. (lchhk1)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

BHC INTERIM FUNDING II, L.P., and
BHC INTERIM FUNDING III, L.P.,
Plaintiffs,
Civil Action 10-1952 (BJR)
v.
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver for
WATERFIELD BANK,
Defendant.
MEMORANDUM OPINION
Plaintiffs BHC Interim Funding II, L.P. and BHC Interim Funding III, L.P. (collectively,
“BHC”) bring this suit against the Federal Deposit Insurance Corporation as receiver for
Waterfield Bank. Defendant FDIC has moved to dismiss the complaint pursuant to Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Upon
consideration of the motion [Dkt. #10], and the opposition thereto, the Court concludes that the
motion must be granted as to one claim. The court dismisses the remaining claims without
prejudice for lack of subject matter jurisdiction.
I. STATUTORY BACKGROUND
“Passed to ‘enable the FDIC . . . to expeditiously wind up the affairs of literally hundreds
of failed financial institutions throughout the country,’” Am. Nat. Ins. Co. v. FDIC, 642 F.3d
1137, 1141 (D.C. Cir. 2011) (quoting Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C. Cir. 1995)),
“[t]he Financial Institutions Reform, Recovery and Enforcement Act of 1989 (‘FIRREA’) gives
the receivers of failed savings and loan institutions wide-ranging powers to consolidate and

liquidate those institutions,” Nashville Lodging Co. v. Resolution Trust Corp., 59 F.3d 236, 241
(D.C. Cir. 1995). Upon its appointment as receiver, the FDIC acquires “all rights, titles, powers,
and privileges of the insured depository institution,” 12 U.S.C. § 1821(d)(2)(A)(i), along with the
duty—limited in certain ways not relevant here—to “pay all valid obligations of the insured
depository institution,” 12 U.S.C. § 1821(d)(2)(H).
The FDIC pays those obligations through an administrative claims process. See 12
U.S.C. §§ 1821(d)(3)–(13). FIRREA requires the FDIC to both publish, 12 U.S.C. §
1821(d)(3)(B), and mail, id. § 1821(d)(3)(C), notice to the failed institution’s creditors, setting “a
date by which claims must be presented, not less than 90 days after publication,” Freeman, 56
F.3d at 1399. The FDIC has 180 days after a claim is filed to decide whether to pay it or
disallow it. 12 U.S.C. § 1821(d)(5)(A). If the FDIC denies the claim or fails to rule promptly,
the claimant may seek judicial review. Id. § 1821(d)(6)(A). But unless a claim is first presented
to the FDIC, no court has jurisdiction over it, see id. § 1821(d)(13)(D), because
“FIRREA is strict in its demand that claimants first obtain an administrative determination.”
Office & Prof’l Emps. Int’l Union, Local 2 v. FDIC, 962 F.2d 63, 65 (D.C. Cir. 1992).
II. FACTUAL BACKGROUND
When deciding a 12(b)(6) motion “a court construes the complaint liberally in the
plaintiff’s favor, accepting as true all of the factual allegations contained in the complaint, with
the benefit of all reasonable inferences derived from the facts alleged.” Aktieselskabet AF 21.
November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir. 2008) (citations, brackets, and
quotation marks omitted); see also Kassem v. Wash. Hosp. Ctr., 513 F.3d 251, 253–54 (D.C. Cir.
2008); Stewart v. Nat’l Educ. Ass’n, 471 F.3d 169, 173 (D.C. Cir. 2006). Courts may not

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consider “matters outside the pleadings” without converting the 12(b)(6) motion into “one for
summary judgment under Rule 56,” FED. R. CIV. P. 12(d), but documents attached to the
complaint or incorporated by reference therein are not outside of the pleadings. See Abhe &
Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007). Documents “appended to [a]
motion to dismiss” may also be considered without converting to summary judgment if they are
“referred to in the complaint,” “integral” to a claim, and their “authenticity is not disputed.”
Kaempe v. Myers, 367 F.3d 958, 965 (D.C. Cir. 2004). Bearing those standards in mind, the
Court summarizes the allegations underlying this complaint.
In 2008, BHC made two loans to Affinity Financial Corporation (“Affinity”), totaling
$14.5 million. Compl. ¶¶ 10–11. Each loan was secured by a first priority lien on the assets of
Affinity, id. ¶ 12, and guaranteed by Waterfield Financial Services (“Waterfield Financial”), a
wholly-owned subsidiary of Affinity. Id. ¶¶ 1, 13. The Waterfield Financial guarantees were
secured by a first priority lien on the company’s “[d]eposit [a]ccounts (as defined in the UCC but
excluding deposits made by customers of Waterfield Financial Services, Inc. . . . and held at
other banks),” as well as its “[g]eneral [i]ntangibles.” Id., Ex. A at 47–48 (Continuing
Unconditional Guarantee of Waterfield Financial (Apr. 28, 2008)), 57–58 (Continuing
Unconditional Guarantee of Waterfield Financial (Jan. 15, 2008)). BHC perfected its security
interest in those assets by filing U.C.C. financing statements with the Indiana Secretary of State.
Id. ¶ 14; id., Ex. A at 65 (U.C.C. Financing Statement (Apr. 28, 2008)); id. at 73 (U.C.C.
Financing Statement (Jan. 15, 2008)). In March 2010, Affinity defaulted on its loan and
Waterfield Financial defaulted on its guarantees. Id. ¶¶ 42–43.

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The primary asset of both Affinity and its subsidiary Waterfield Financial was a stream
of income from the business of selling financial products and services to the members of
“affinity groups” such as unions and other membership organizations. Waterfield Financial1
would enter into a licensing agreement with a group, then market products such as groupbranded checks and ATM cards and, most importantly, bank accounts with favorable interest
rates to that group’s members. Id. ¶ 16. Waterfield Financial would contract with banks to
accept the deposits of its customers, which were then held in single pooled account at each
participating bank. The participating banks would pay a fee to Waterfield Financial based on the
average balance in the pooled account. Id. ¶¶ 17–18. Banks holding such accounts would not,
however, interact directly with Waterfield Financial customers—all customer service, including
the processing of deposits and withdrawals and the associated record keeping, was performed by
another bank. That bank would send customers’ deposits to the other, larger banks in
accordance with Waterfield Financial’s instructions. Id. ¶ 19.
In early 2008, Affinity acquired Waterfield Bank, which assumed the customer service
and bookkeeping role described above and also maintained some customer deposits itself. Id.
¶ 21. Under the agreement governing their deposit accounts, customers gave Waterfield Bank
“the authority to determine whether it will retain [the customer’s] funds in a direct deposit
relationship” with the customer. Def.’s Mot. for Summ. J., Ex. 1 (Waterfield Bank, Deposit

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This role was first performed by Affinity itself, see Compl. ¶¶ 16–19, but in
approximately February 2007, before the loans that animate this case were made, Affinity
assigned all of its rights in the business to Waterfield Financial. Id. ¶ 20.
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Account Terms and Conditions (Sept. 2009)) (“Customer Agreement”), at 1.2 If Waterfield
Bank chose not to maintain the funds, it would “notify [Waterfield Financial],” which the
customer appointed as her “special attorney-in-fact and agent (‘Agent’) to place [the customer’s]
deposit in a sub-account at another financial institution (a ‘Participating Bank’).” Id. Each
customer authorized Waterfield Bank “to transfer [that customer’s] deposit to a Participating
Bank at the direction of [Waterfield Financial],” and further “authorize[d] and direct[ed] each
Participating Bank to act in accordance with instructions given by the Agent.” Id. The customer
agreed that, if her deposit was transferred, “the Participating Banks [would] pay a gross interest
amount to [Waterfield Bank], for the benefit of [Waterfield Financial], who, in turn, [would]
instruct [Waterfield Bank] to deduct its fee and deposit the remainder in [the customer’s]
account.” Id. Finally, each customer agreed that Waterfield Bank and Waterfield Financial
could “assign this Agreement to any successor or other person or entity . . . without [the
customer’s] prior knowledge or consent.” Id. at 2.
When Waterfield Financial guaranteed the loans that BHC made to Affinity, and gave as
security for that guarantee a lien in its general intangibles, its largest intangible asset was its
right to the fees described above. Compl. ¶ 22. Through February 2010, those fees produced
enough revenue to enable Affinity (the parent of Waterfield Financial) to make its monthly loan
payments to BHC of approximately $145,000. Id. ¶ 23.
In late February 2010, the Office of Thrift Supervision (“OTS”), the regulatory body that
then oversaw savings and loan associations, determined that Waterfield Bank was

2

The Court considers this document because the complaint incorporates it by reference,
Compl. ¶ 26 (referring to the “Waterfield Bank Deposit Account Terms and Conditions”), and
there is no dispute as to its authenticity. See Kaempe, 367 F.3d at 965.
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undercapitalized. OTS “threatened [Waterfield Financial] and its principals with unspecified
legal action if Affinity did not cause [Waterfield Financial] to immediately assign to [Waterfield
Bank]” the contracts underlying the pooled-account scheme and “all rights to the [pooled
accounts] held by [Waterfield Financial] as agent for its customers.” Id. ¶ 24. An assignment
agreement between Waterfield Financial and Waterfield Bank was completed by March 2, 2010.
See id., Ex. A at 8–15 (the “Assignment Agreement”). In its initial recitals, the assignment
agreement stated that:
[Waterfield Bank] has been, by letter dated February 26, 2010, directed (“the
Directive”) by the Office of Thrift Supervision, Department of the Treasury . . . to
accept the assignment of all deposit account agreements held by [Waterfield
Financial] and to ensure “that the account titles at the participating institutions are
changed from ‘[Waterfield Financial] as agent for its customers’ to ‘Waterfield
Bank as agent for its customers,[’]” pursuant to the Waterfield Bank Deposit
Account Terms and Conditions . . . .
[A]s a result of the Directive, [Waterfield Financial] desires to transfer to
[Waterfield Bank] (x) its full right, title and interest in and to all deposit accounts
opened by retail customers who appointed [Waterfield Financial] as their special
attorney-in-fact and agent . . . under the Waterfield Bank Deposit Account Terms
and Conditions . . . on all [Waterfield Financial] Banking Centers previously or
now owned and/or operated by [Waterfield Financial] (the “Agency
Relationships”), and (y) its authority to act as Agent for all of its retail customers
in connection with certain deposit accounts listed on Schedule A . . . (the
“Agency Deposits”) . . . .
Id. at 8. The “Assignment and Assumption” clause provided that:
Effective immediately upon execution of this Agreement by both of the parties
hereto and the receipt of all necessary third party consents, the receipt of which
from the OTS below is hereby acknowledged, [Waterfield Financial] hereby . . .
assigns . . . to [Waterfield Bank], its successors and assigns forever, all of
[Waterfield Financial’s] rights, title and interest . . . in and to all and any of
[Waterfield Financial’s] rights, costs and obligations under, pursuant to and
arising out of the Agency Relationships and the Agency Deposits, as fully and
entirely as the same would have been held and enjoyed by [Waterfield Financial]
as if this assignment had not been made . . . and [Waterfield Bank] covenants and
agrees to discharge, perform and comply with, and to be bound by, all the terms,
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conditions, provisions, obligations, covenants and duties of [Waterfield Financial]
in connection with all and any of [Waterfield Financial’s] rights and obligations
under, pursuant to and arising out of the Agency Relationships and the Agency
Deposits . . . .
Id. at 8–9. As part of the assignment agreement, Waterfield Financial “represent[ed] and
warrant[ed] that . . . it [had] all requisite corporate power and authority to execute and deliver
this Agreement . . . subject to its agreements with BHC Interim Funding II, LLC and BHC
Interim Funding III, LLC.” Id. at 9.
Shortly after this agreement was signed, the Office of Thrift Supervision took control of
Waterfield Bank and appointed the FDIC as receiver. The FDIC cancelled all of the pooled
deposit accounts that had formerly been controlled by Waterfield Financial and returned the
funds to individual customers. Compl. ¶ 37. BHC sent default notices to Affinity and
Waterfield Financial, stating that as of the date of the closing of Waterfield Bank, Affinity was
indebted to BHC for the full amount of each loan, plus interest and other fees and costs. Id. ¶ 42.
Neither Affinity nor Waterfield Financial has made any loan payments since that date. Id. ¶ 43.
BHC filed two claims with the FDIC, each for an “[a]mount due to claimant based on
indebtedness of Waterfield Financial Services, Inc. to claimant which was assumed by
Waterfield Bank pursuant to the terms of the Assignment Agreement.” Id., Ex. A at 5, 15. The
first claim was for $9,369,949.76, id. at 5, and the second for $5,486,986.30, id. at 15. The
FDIC denied the claims, on the grounds that they had not “been proven to the satisfaction of the
Receiver.” Compl. ¶ 37; id. at Ex. B. This suit followed.
The complaint includes five claims for relief. The first claim requests a declaratory
judgment that the assignment agreement between Waterfield Financial and Waterfield Bank was
void when signed, and therefore that the FDIC did not validly take title to “the deposits in those
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accounts” when it was appointed as receiver. The first claim also requests an award of damages
to BHC for the amount owed by Affinity. Compl. ¶¶ 47–52. The second claim alleges that the
assignment of contractual rights to Waterfield Bank was a fraudulent conveyance, and seeks an
award for the value of the contractual rights. Id. ¶¶ 54–60. The third claim alleges that, if the
assignment was valid, Waterfield Bank (and the FDIC as its receiver) assumed Waterfield
Financial’s obligations as a guarantor of BHC loans along with its contractual rights, and is
therefore liable to BHC for the outstanding loan balance. Id. ¶¶ 62–69. The fourth claim alleges
that BHC had a perfected security interest in the assigned contractual rights, that the FDIC
violated a statutory prohibition against “avoiding a legally enforceable or perfected security
interest in any of the assets of any depository institution,” 12 U.S.C. § 1821(e)(12), and that the
receiver is therefore liable to BHC for the value of its security interest. Compl. ¶¶ 71–78. The
final claim alleges that the FDIC unlawfully took BHC property without just compensation when
it cancelled the pooled deposit accounts. Id. ¶ 80.
III. JURISDICTION
“Federal courts are courts of limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of
Am., 511 U.S. 375, 377 (1994). Because “the inferior courts of the United States . . . are
creatures of statute and possess no jurisdiction except as afforded by congressional enactment,”
Owens v. Republic of Sudan, 531 F.3d 884, 887 (D.C. Cir. 2008), “the district courts may not
exercise jurisdiction absent a statutory basis.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545
U.S. 546, 552 (2005). Because no court may act beyond its authority, “subject matter
jurisdiction ‘is, of necessity, the first issue for an Article III court,’” Loughlin v. United States,
393 F.3d 155, 171 (D.C. Cir. 2004) (quoting Tuck v. Pan Am. Health Org., 668 F.2d 547, 549

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(D.C. Cir. 1981)), and federal courts “are obliged always to ascertain whether they have subject
matter jurisdiction over the litigation before them, even when the parties prefer to ignore the
question,” Reynolds v. Sheet Metal Workers, Local 102, 702 F.2d 221, 223 (D.C. Cir. 1981); see
also Athens Cmty. Hosp., Inc. v. Schweiker, 686 F.2d 989, 992 (D.C. Cir. 1982) (“It is axiomatic
that subject matter jurisdiction may not be waived, and that courts may raise the issue sua
sponte.”). The Court therefore begins its analysis by examining its authority to hear this suit.
BHC identifies FIRREA as the primary basis of subject matter jurisdiction over its
claims. It is clear that FIRREA “provides for administrative determination of ‘any claim against
a depository institution for which the Corporation is receiver’ and thereafter for adjudication in
district court.” Auction Co. of Am. v. FDIC, 141 F.3d 1198, 1200 (D.C. Cir. 1998) (quoting 12
U.S.C. § 1821(d)(6)(A)(i)). But several of BHC’s claims are instead arguably “relating to [an]
act or omission of . . . the [Federal Deposit Insurance] Corporation as receiver,” 12 U.S.C. §
1821(d)(13)(D)(ii), and there is disagreement among the circuits as to whether such claims must
be submitted for administrative determination before being brought in federal court. The D.C.
Circuit has not resolved this issue,3 although it has “construed the [administrative] claims
process broadly where either the failed depository institution or the FDIC-as-receiver might be
held legally responsible to pay or otherwise resolve the asserted claim.” Am. Nat. Ins. Co. v.
FDIC, 642 F.3d at 1143 (referring to Freeman, 56 F.3d at 1400–01; Office & Prof’l Emps. Int’l
Union, 962 F.2d at 67). Of the six circuits that have spoken to the question, five require
plaintiffs to submit for administrative determination claims based upon the FDIC’s conduct as

3

See Auction Co., 141 F.3d at 1201. The Ninth Circuit has incorrectly suggested that the
D.C. Circuit subjects such claims to FIRREA exhaustion. McCarthy v. FDIC, 348 F.3d 1075,
1080 (9th Cir. 2003).
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receiver. See Vill. of Oakwood v. State Bank & Trust Co., 539 F.3d 373, 387 (6th Cir. 2008);
McCarthy v. FDIC, 348 F.3d 1075, 1081 (9th Cir. 2003) (joining “the majority of courts in
holding that claimants . . . who challenge conduct by the FDIC as receiver[ ] must exhaust
administrative remedies before seeking judicial review”); Stamm v. Paul, 121 F.3d 635, 639–42
(11th Cir. 1997); Home Capital Collateral, Inc. v. FDIC, 96 F.3d 760, 763–64 (5th Cir. 1996);
Hudson United Bank v. Chase Manhattan Bank, 43 F.3d 848, 848–49 (3d Cir. 1994). Only the
Tenth Circuit does not. See Homeland Stores, Inc. v. Resolution Trust Corp., 17 F.3d 1269,
1272–75 (10th Cir. 1994). In analyzing its jurisdiction over claims against the FDIC for its
conduct as receiver, this Court adopts the majority rule that such claims must be exhausted.
Turning to the complaint in this case, it is clear that BHC presented its third claim to the
receiver as required by FIRREA. In that claim, BHC alleges that Waterfield Bank assumed
Waterfield Financial’s obligations as a guarantor of the loans from BHC to Affinity, and that the
FDIC as receiver for Waterfield Bank is therefore liable to BHC for the outstanding loan
balance. Compl. ¶¶ 62–69. BHC submitted to the FDIC two proofs of claim for an “[a]mount
due to claimant based on indebtedness of Waterfield Financial Services, Inc. to claimant which
was assumed by Waterfield Bank pursuant to the terms of the Assignment Agreement.” Compl.,
Ex. A at 5, 15. As BHC explained in a letter accompanying its claims, “because the Assignment
Agreement provides that all of WFS’ obligations under, pursuant to or arising out of the Agency
Relationships and the Agency Deposits are assumed by the Bank, the Bank has assumed the
obligations due to BHC and is responsible for satisfaction of such obligations which are more
fully set forth in the attached Proofs of Claims.” Id. at 4. The FDIC rejected that claim and
BHC brought a timely suit in this court, which therefore has jurisdiction to hear the claim.

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But BHC did not present its first, second, fourth, and fifth claims to the FDIC. Those
claims request a declaratory judgment that the assignment from Waterfield Financial to
Waterfield Bank was void ab initio;4 that BHC has a right to the assigned assets on the theory
that they were fraudulently conveyed; that BHC has a valid security interest in those same assets;
and, finally, that the FDIC effected an unconstitutional taking of property without just
compensation by emptying the pooled deposit accounts held at other banks and returning the
funds to customers. These claims are all distinct from the claim that BHC presented to the
FDIC. The third claim does not, as these new claims do, require the FDIC to assess the value of
the transferred contract rights. Nor does it require the FDIC to determine the scope and validity
of BHC’s security interest in those rights, as at least some of these new claims do. “Where . . . a
[FIRREA] complaint alleges entirely new legal theories that are different than those reflected in
the administrative proof of claim, the Court is without subject matter jurisdiction to consider the
new causes of action.” Jahn v. FDIC, 2011 WL 6250865, at *9 (D.D.C. Dec. 15, 2011)
(dismissing claims for civil conspiracy and conversion because only a claim for fraudulent
transfer was submitted to the receiver); see also McGlothin v. Resolution Trust Corp., 913 F.
Supp. 15, 18–19 (D.D.C. 1996) (dismissing claims for negligence and breach of contract because
only a claim for fraudulent inducement was submitted to the receiver); Aljaf Assocs. Ltd. P’ship
v. FDIC, 879 F. Supp. 515, 517–18 (E.D. Pa. 1995) (dismissing fraud claim because it was not

4

Claims for a declaratory judgment are at least subject to FIRREA’s exhaustion
requirement, see Tri-State Hotels, Inc. v. FDIC, 79 F.3d 707, 714–15 (8th Cir. 1996); Nat’l
Union Fire Ins. Co. v. City Savings, F.S.B., 28 F.3d 376, 392 (3rd Cir. 1994), if not barred
entirely. Auction Co. of Am., 141 F.3d at 1200 n.2 (noting that “it may well be that Congress
intended to entirely prevent parties from maintaining declaratory judgment actions against the
receiver”).
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among the claims submitted to the receiver); Brown Leasing Co. v. FDIC, 833 F. Supp. 672,
674–76 (N.D. Ill. 1993) (dismissing claims for conversion and breach of contract because only a
claim for breach of other agreements was submitted to the receiver); Coleman v. FDIC, 826 F.
Supp. 31, 32 (D. Mass. 1993) (“This Court . . . has no jurisdiction over claims and theories of
recovery in the Amended Complaint that were not asserted in the original Complaint,” which
was submitted to the receiver, because “no court may exercise jurisdiction over any claim
against the FDIC as receiver unless the claimant has first submitted its claim to the FDIC
administrative claim process.”); Hibyan v. FDIC, 812 F. Supp. 271, 275 (D. Mass. 1993)
(dismissing claims based on one contractual provision because only another contractual
provision was presented to the receiver as the basis for a claim).5 Because BHC’s first, second,
fourth, and fifth claims were not submitted to the administrative claims process, “no court shall
have jurisdiction over” them. See 12 U.S.C. § 1821(d)(13)(D). Accordingly, the Court
dismisses those claims for lack of subject matter jurisdiction and turns to the merits of the
remaining claim.
IV. MOTION TO DISMISS PLAINTIFF’S THIRD CLAIM
Under Rule 12(b)(6), a defendant may move to dismiss a complaint, or a claim therein,
for failure to state a claim upon which relief may be granted. FED. R. CIV. P. 12(b)(6). Such a
motion tests the legal sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C.

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BHC’s suggestion that the Court could find a jurisdictional basis in 28 U.S.C. §
1331 does not alter this conclusion. A district court’s federal question jurisdiction is often
limited by the requirement that a plaintiff first exhaust her administrative remedies. See, e.g.,
Califano v. Sanders, 430 U.S. 99, 104 n.3 (1977) (noting that section 205(h) of the Social
Security Act, 42 U.S.C. § 405(h) “has been held . . . to foreclose jurisdiction under the general
grant of federal-question jurisdiction, 28 U.S.C. § 1331” and to require claims to be first
exhausted at the administrative level).
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Cir. 2002). To survive it, the complaint must allege facts sufficient to at least “raise a right to
relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A
“pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a
cause of action will not do.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Twombly,
550 U.S. at 555).
In its third claim, BHC alleges that Waterfield Bank assumed Waterfield Financial’s
obligations as a guarantor of the loans from BHC to Affinity, and that the FDIC as receiver for
Waterfield Bank stands in the bank’s shoes and is therefore liable to BHC for the outstanding
loan balance. It grounds this claim in the assignment agreement, a contract between Waterfield
Financial and Waterfield Bank. The FDIC argues that this claim must fail because the
assignment agreement does not purport to transfer those obligations.
Under California law, which governs the assignment agreement, see Assignment
Agreement at 10, “[w]hether language in a contract is ambiguous is a question of law,” and
therefore appropriate for determination on a motion to dismiss. Producers Dairy Delivery Co. v.
Sentry Ins. Co., 718 P.2d 920, 925 (Cal. 1986). Where the terms of a contract “are plain and
unambiguous, the courts have a duty to enforce the contract as agreed upon by the parties.”
Travelers Ins. Co. v. Nat’l Union Fire Ins. Co., 255 Cal. Rptr. 727, 731 (Cal. Ct. App. 1989)
(quoting Hackenthal v. Nat’l Cas. Co., 234 Cal. Rptr. 853, 856 (Cal. Ct. App. 1987)). The
language of a contract is to be “construed in light of the objectives and fundamental purposes of
the parties to the agreement,” Roden v. AmerisourceBergen Corp., 113 Cal. Rptr. 3d 20, 46 (Cal.
Ct. App. 2010) (quoting Leo F. Piazza Paving Co. v. Found. Constructors, Inc., 177 Cal. Rptr.
268, 273 (Cal. Ct. App. 1981)), and each clause must be read in light of the others, see CAL. CIV.

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CODE § 1641 (West 2012) (“The whole of a contract is to be taken together, so as to give effect
to every part, if reasonably practicable, each clause helping to interpret the other.”).
By signing the assignment agreement, Waterfield Bank agreed to “discharge, perform
and comply with, and to be bound by, all the terms, conditions, provisions, obligations,
covenants and duties of [Waterfield Financial] in connection with all and any of [Waterfield
Financial’s] rights and obligations under, pursuant to and arising out of the Agency
Relationships and the Agency Deposits . . . .” Assignment Agreement at 9 (emphasis added).
The “Agency Relationships” and “Agency Deposits” were defined in the recitals, which
provided that:
[Waterfield Financial] desires to transfer to [Waterfield Bank] (x) its full right,
title and interest in and to all deposit accounts opened by retail customers who
appointed [Waterfield Financial] as their special attorney-in-fact and agent . . .
under the Waterfield Bank Deposit Account Terms and Conditions . . . on all
[Waterfield Financial] Banking Centers previously or now owned and/or operated
by [Waterfield Financial] (the “Agency Relationships”), and (y) its authority to
act as Agent for all of its retail customers in connection with certain deposit
accounts listed on Schedule A . . . (the “Agency Deposits”) . . . .
Id. at 8. The “Agency Relationships” are therefore constituted by the deposit agreements
between Waterfield Bank and its customers, while the “Agency Deposits” are the pooled deposit
accounts that Waterfield Financial established on behalf of those customers. BHC argues that
the Waterfield Financial Guarantees were “obligations . . . arising out of the Agency
Relationships and the Agency Deposits,” id. at 9, because “no such obligation would have
existed without those Agency Relationships.” Pls.’ Mem.’ in Opp. at 18. The Court understands
this somewhat puzzling formulation to assert that BHC would not have loaned money to
Affinity—and Waterfield Financial would have had no debt to guarantee—without the revenue
stream produced by the Agency Relationships. The guarantees, on this account, resulted from
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the Agency Relationships and therefore arose out of them. See BLACK’S LAW DICTIONARY 123
(9th ed. 2009) (defining “arise” as “1. To originate; to stem (from) . . . . 2. To result (from)
. . . .”).
Perhaps BHC would not have loaned money to Affinity without Waterfield Financial’s
guarantee, and perhaps that guarantee was only of value because of the income stream that
Waterfield Financial received from the Agency Relationships and Agency Deposits. But that
does not mean that the guarantee arose out of those Relationships and Deposits. If Waterfield
Financial had rented water coolers, and the bottled water company was only willing to do
business with Waterfield Financial because of its income stream, would we say that the water
cooler lease was an obligation that arose out of that income stream? Like that lease, the
guarantee was an obligation independent of the Agency Relationships and Agency Deposits and
the income that they produced. The language of the assignment agreement makes clear that the
only transfer made to Waterfield Bank was the contractual relationship between Waterfield
Financial and its customers; there is no reason to conclude that the guarantee of an unrelated loan
was transferred as well.
The assignment agreement clearly states that it was created to transfer the Agency
Relationships and the Agency Deposits from Waterfield Financial to Waterfield Bank.
Waterfield Financial, the Agreement recites, “desire[d] to transfer to [Waterfield Bank] (x) its
full right, title and interest in and to all deposit accounts opened by retail customers who
appointed [Waterfield Financial] as their special attorney-in-fact and agent . . . under the
Waterfield Bank Deposit Account Terms and Conditions . . . and (y) its authority to act as Agent
for all of its retail customers in connection with certain deposit accounts . . . .” Waterfield Bank,

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in turn, “desire[d] to accept the assignment of both the Agency Relationships and the Agency
Deposits.” Id. Moreover, the agreement makes it clear that the transfer was motivated by a
direction issued by the Office of Thrift Supervision, which would have had no interest in
Waterfield Bank—which was failing at the time the agreement was signed—further burdening
itself. Finally, the phrase “arising out of” does not occur in a vacuum. Rather, Waterfield Bank
agreed to assume the “rights and obligations under, pursuant to and arising out of the Agency
Relationships and the Agency Deposits.” Read in the context of the entire agreement, this
language was unambiguously intended simply to transfer those relationships and deposits in their
entirety—and not, as BHC argues, to transfer all of Waterfield Financial’s obligations that could
be causally linked to them. The Court therefore dismisses BHC’s third claim.
V. CONCLUSION
The issue of subject matter jurisdiction was not raised in the briefs or at oral argument.
If either party believes that there are authorities that should be brought to the Court’s attention,
the Court invites that party to brief its argument on a motion for reconsideration. But for the
reasons stated above, the FDIC’s motion to dismiss is hereby GRANTED as to BHC’s third
claim, and the remaining claims hereby DISMISSED without prejudice for lack of subject
matter jurisdiction. BHC may refile its claims after it has presented them to the receiver for
determination.
SO ORDERED this 30th day of March 2012.
Barbara Jacobs Rothstein
United States District Judge

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