Bhutani v. Barrington Bank and Trust et al

Filing 53

MEMORANDUM Opinion and Order. Signed by the Honorable Matthew F. Kennelly on 12/10/2012. (lw, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

BALDEV RAJ BHUTANI,
Plaintiff,
vs.
BARRINGTON BANK AND TRUST
COMPANY and FEDERAL DEPOSIT
INSURANCE CORPORATION,
Defendants.

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No. 12 C 5320

MEMORANDUM OPINION AND ORDER
MATTHEW F. KENNELLY, District Judge:
Baldev Bhutani filed suit in Illinois state court against the Federal Deposit
Insurance Corporation (FDIC), in its capacity as receiver for the failed Charter National
Bank and Trust (Charter Bank), and against Barrington Bank and Trust Company
(Barrington Bank), which acquired the assets and liabilities of Charter Bank. Bhutani
sought to recover funds he had deposited into a money market account at Charter
Bank. The FDIC removed the case to this Court pursuant to 28 U.S.C. § 1442 and then
moved to dismiss for lack of subject matter jurisdiction. Barrington Bank has also
moved to dismiss for lack of subject matter jurisdiction, and for failure to state a claim.
For the reasons stated below, the Court grants defendants’ motions.
Background
The Court takes the following facts from the allegations in Bhutani’s complaint
and the parties’ submissions on the motions to dismiss.

In August 2007, Bhutani – as manager of Avtar LLC –obtained a loan from
Charter Bank in the amount of $1,650,000, secured by a mortgage on real estate in
Gurnee, Illinois. The terms of the loan required Bhutani to sign as guarantor and to
open a money market account in his name. The loan further provided for a right to setoff from accounts held by Avtar LLC and required Bhutani’s guaranty to remain in place
until all mortgage obligations were satisfied. Pursuant to the agreement, Bhutani
deposited a total of $325,505.12 into his money market account from August 2007
through October 2009.
On May 17, 2011, Charter Bank served Bhutani with a state court complaint for
foreclosure alleging that Avtar LLC was behind in its interest payments on the loan. On
November 23, 2011, the court in foreclosure action entered a default judgment against
Avtar LLC. Approximately one month later, Charter Bank stated in court that the funds
in Bhutani’s money market account had been applied toward payments on the loan to
Avtar LLC. The Sheriff of Lake County conducted a foreclosure sale of the Gurnee
property, and Charter Bank purchased the property.
On February 10, 2012, the Office of the Comptroller of the Currency (OCC)
closed Charter Bank and appointed the FDIC as receiver.1 Bhutani alleges that on the
same day, the FDIC transferred Charter Bank’s assets and liabilities to Barrington Bank.
Bhutani filed a timely administrative claim with the FDIC as receiver in which he
asserted that Charter Bank had wrongfully set off funds in his money market account
against the Avtar LLC loan. He attached to his claim documents he had filed in the

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The FDIC operates in two separate capacities. In its corporate capacity, the FDIC insures the
deposits in banks and supervises and regulates their operation. 12 U.S.C. § 1821(f)(1). As
receiver, the FDIC acts as receiver for failed banks, liquidates their assets and liabilities, and
has the authority to repudiate their contracts. See id. §§ 1821(c)-(e).

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state court foreclosure case in January 2012 in which he alleged that Charter Bank had
denied his requests to withdraw funds in 2010 and 2011 claiming that the “funds were
all used up.” FDIC’s Opening Br., Ex. B. By letter dated April 11, 2012, the FDIC as
receiver informed Bhutani that his claim was disallowed. The FDIC’s notice further
stated:
Pursuant to 12 U.S.C. Section 1821(d)(6), if you do not agree with this
disallowance, you have the right to file a lawsuit on your claim . . . in the
United States District (or Territorial) Court for the District within which the
failed institution’s principal place of business was located or the United
States District Court for the District of Columbia within 60 days from the
date of this notice.
Id.., Ex. C. The letter explained that any failure to file a lawsuit pursuant to the statute
would make the disallowance final and would forever bar Bhutani’s claim.
Despite what the notice stated, Bhutani did not file suit in federal district court.
Rather, on or about May 4, 2012, he filed suit in Illinois state court seeking to obtain the
funds from the money market account. As indicated earlier, the FDIC then removed the
case to federal court. In his complaint, Bhutani alleges that defendants have refused
him access to his funds; they (more specifically Charter Bank) were not permitted to a
right of set-off from his money market account; and they have improperly refused to
account for how his funds were used.
Discussion
On a motion to dismiss for lack of subject matter jurisdiction, the Court accepts
the factual allegations in the complaint as true and draws reasonable inferences in favor
of the plaintiff. Rueth v. EPA, 13 F.3d 227, 229 (7th Cir. 1993). The Court is not
restricted to the jurisdictional contentions asserted in the complaint, however; it may use
other submitted evidence to determine whether it has subject matter jurisdiction.

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Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995). The party asserting jurisdiction
bears the burden of persuasion on that issue. United Phosphorus Ltd. v. Angus Chem.
Co., 322 F.3d 942, 946 (7th Cir. 2003).
The FDIC contends that the Court lacks subject matter jurisdiction pursuant to
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA),
specifically, 12 U.S.C. § 1821. FIRREA establishes an administrative procedure for
making claims against the FDIC when, as in this case, it is sued in its capacity as
receiver for a failed depository institution. Under this procedure, a person with a claim
against a seized depository institution or its receiver must first file a proof of claim with
the FDIC, which must adjudicate the claim within 180 days. See 12 U.S.C. §§
1821(d)(3) & (5). If the agency disallows the claim or fails to rule within 180 days, the
claimant has sixty days to file an action for de novo review in the appropriate federal
district court. Id. § 1821(d)(6)(A). The statute provides that such an action is to be filed
in the United States district court “within which the depository institution’s principal place
of business is located or the United States District Court for the District of Columbia.”
Id. § 1821(d)(6)(A). If the claimant fails to take action on the claim pursuant to these
requirements, the agency’s disallowance of the claim is final, and the claimant loses all
rights and remedies with respect to the claim. Id. § 1821(d)(6)(B); see Capitol Leasing
Co. v. FDIC, 999 F.2d 188, 193 (7th Cir. 1993) (affirming district court’s dismissal of
plaintiff’s claim for failure to follow the procedures mandated by 12 U.S.C. § 1821(d)(6)).
Bhutani did not comply with the procedure required by statute. He filed his
complaint challenging the FDIC’s disallowance determination in Illinois state court rather
than in one of the two appropriate federal district courts –the United States District Court

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for this district or the District of Columbia. And Bhutani did so despite the fact that the
FDIC gave him clear an unambiguous written notice that he had to file any suit
challenging its disallowance of the claim in one of those two federal district courts. See
Capitol Leasing Co., 999 F.2d at 193 (suggesting that there is no excuse for failure to
comply with FIRREA, particularly if the disallowance notice sets forth the procedure for
contesting the FDIC’s decision).
A plaintiff’s failure to follow the administrative claims process outlined in FIRREA
deprives a court of subject matter jurisdiction over the plaintiff’s claim. 12 U.S.C. §
1821(d)(6); Maher v. FDIC, 441 F.3d 522, 525 (7th Cir. 2006) (dismissing suit for lack of
subject matter jurisdiction when claimant did not meet time limits for filing suit in court
after administrative denial of claim). Bhutani filed his case in a court that lacked
jurisdiction to consider it. The jurisdiction of a federal court upon removal of a case
under 28 U.S.C. § 1442 is derivative of that of the state court from which the case was
removed. Edwards v. U.S. Dep't of Justice, 43 F.3d 312, 316 (7th Cir. 1994) (citing
Arizona v. Manypenny, 451 U.S. 232, 242 n. 17 (1981)). “Where the state court lacks
jurisdiction of the subject matter or of the parties, the federal court acquires none,
although in a like suit originally brought in federal court it would have had jurisdiction.”
Minnesota v. United States, 305 U.S. 382, 389 (1939). The Court therefore lacks
subject matter jurisdiction over Bhutani’s claim against the FDIC.
Bhutani’s failure to comply with FIRREA similarly deprives the Court of subject
matter jurisdiction over his claim against Barrington Bank. The Seventh Circuit has not
specifically addressed whether FIRREA applies to claims against purchasing banks, but
other circuits have found, and this Court agrees, that the statute’s administrative claim

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process applies to a claim asserted against a purchasing bank that is based on the
conduct of a failed bank. See Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1142 (D.C.
Cir. 2011) (“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.”); Vill. of Oakwood v. State Bank & Trust Co., 539 F.3d
373, 386 (6th Cir. 2008) (requiring compliance with FIRREA where claims against
purchasing bank were related to FDIC’s acts as receiver of the failed bank); Am. First
Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1263 n.3 (11th Cir. 1999) (noting
that holder of promissory note obtained from failed bank’s receiver “stands in the shoes
of the [failed bank] and acquires its protected status under FIRREA”).
Bhutani’s claim against Barrington Bank is based on Charter Bank’s alleged
failure to allow him to withdraw funds from his money market account and its application
of those funds to the Avtar LLC loan. Bhutani argues that prior to FDIC’s receivership,
Charter Bank stated in court that the funds in his money market account had been
applied toward payments on that loan. In filing his administrative claim with the FDIC as
receiver, Bhutani similarly alleged that Charter Bank refused him access to funds in his
money market account in both 2010 and 2011 because the “funds were all used up.”
FDIC’s Opening Br., Ex. B. In his complaint in the present case, Bhutani alleges that
defendants have not shown that Charter Bank was authorized to use his money market
funds to satisfy Avtar LLC’s loan payments. These allegations plainly rely on Charter
Bank’s alleged conduct, not Barrington Bank’s post-purchase actions. For this reason,
and because Bhutani did not meet the requirements of FIRREA in pursuing his claim in
court, the Court lacks subject matter jurisdiction over his claim against Barrington Bank.

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Conclusion
For the foregoing reasons, the Court grants defendants’ motions to dismiss
Bhutani’s complaint for lack of subject matter jurisdiction [docket nos. 6 & 22]. The
Court denies Barrington Bank’s motion to dismiss pursuant to Rule 12(b)(6) as moot.
The Court directs the Clerk to enter judgment dismissing this case for lack of subject
matter jurisdiction.

MATTHEW F. KENNELLY
United States District Judge
Date: December 10, 2012

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