Barrington Bank & Trust Company, N.A. v. The Federal Deposit Insurance Corporation, Receiver for Charter National Bank & Trust et al
Filing
51
MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, the Court has subject matter jurisdiction over the case, but the counterclaim is dismissed for failure to exhaust. By 05/04/2015, the parties shall file position papers as explained in the Opinion. Emailed notice(slb, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BARRINGTON BANK & TRUST
COMPANY, NATIONAL ASSOCIATION,
Plaintiff,
v.
THE FEDERAL DEPOSIT INSURANCE
CORPORATION, et al.,
Defendants.
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No. 14 C 06710
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
This case arises out of a dispute over rent allegedly owed by a failed financial
institution, Charter National Bank. The FDIC, as the receiver of Charter,
transferred many of the bank’s assets to Plaintiff Barrington Bank & Trust. Among
the transferred assets was a lease for one of Charter’s bank locations. The landlord
of that location claims that Barrington, as assignee of the lease, is responsible for
the past-due rent owed by Charter. Barrington filed this action under the
Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that it does not
owe the unpaid rent. R. 8, First Am. Compl.1
Shortly after this case was filed, the landlord of the property—Defendant
Chicago Title Land Trust Company—filed an action against Barrington in state
court, seeking eviction and damages for the amount due under the lease. R. 28-1,
State Court Compl. In responding to that suit, Barrington joined the FDIC as a
1Citations
to the docket are indicated as “R.” followed by the entry number.
third-party defendant, and then the FDIC removed the case to federal court. Id.; see
also Notice of Removal, Chicago Trust Co. v. Barrington Bank & Trust, N.A., 14-cv09570 (N.D. Ill. Dec. 12, 2014). The FDIC then moved to consolidate that case (the
one that had been in state court) with this declaratory-judgment action. R. 28, Mot.
Consolidate; R. 31, Dec. 22, 2014 Minute Entry. The other parties did not object.
Dec 22, 2014 Minute Entry. The cases were consolidated, and this Court determined
that Chicago Title’s eviction claims were compulsory counterclaims in the
declaratory-judgment action. Id. Chicago Title was directed to amend its responsive
pleading to the declaratory-judgment action to include these counterclaims; it has
not yet done so. Id.
Instead, Chicago Title now argues that the Court does not have subject
matter jurisdiction over either the declaratory-judgment action or the removed
eviction action. See generally R. 34 (Chicago Title’s Brief). Barrington and the FDIC
disagree, arguing that there is jurisdiction over both because the FDIC is a party
and because there are substantial federal questions. See generally R. 32 (FDIC’s
Brief); R. 35 (Barrington’s Brief). Barrington and the FDIC also argue that, under
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA), 12 U.S.C. § 1821 et seq., Chicago Title has failed to exhaust its claims
and that it lacks what the FDIC calls “standing” to enforce the contract between the
FDIC and Barrington. See FDIC’s Br. at 8-15. If this is the case, Chicago Title’s
claims must be dismissed for lack of jurisdiction. For the reasons discussed below,
2
the Court has subject-matter jurisdiction over both the declaratory judgment action
and the counterclaim, and the counterclaim is dismissed for failure to exhaust.
I. Background
On February 10, 2012, Charter National Bank failed. First Am. Compl. at 2.
The FDIC was appointed as the institution’s receiver, id., and was responsible for
managing the assets and liabilities of the failed bank, 12 U.S.C. § 1821(d). Acting as
Charter’s receiver, the FDIC transferred some of Charter’s assets and liabilities to
Barrington Bank & Trust under a Purchase and Assumption Agreement. First Am.
Compl. at 2. As part of this agreement, Barrington assumed Charter’s lease for a
building at 1400 Irving Park Road in Hanover Park, Illinois. Id. The assumption of
the lease occurred on June 8, 2012. Id. ¶ 23. The current landlord of this property is
Chicago Title Land Trust Company, as the trustee of a land trust. Id. at 2-3.
Defendants 1400 Irving Park Limited Partnership and Northwest Investors, Inc.
are directors of the Chicago Title land trust.2 Id. ¶¶ 4-5.
When Charter failed, the FDIC publicly announced the process by which
creditors of the failed institution could request payment. Id. ¶ 16. Anyone who
provided, among other things, a “leased space” to Charter had to submit a claim to
the FDIC by May 17, 2012. Id. Chicago Title did not file a claim within this
timeframe. R. 15, Chicago Title’s Answer ¶ 17. Now, Chicago Title claims that, at
the time it closed, Charter owed more than $1.3 million in unpaid rent. State Court
2For
convenience’s sake, Chicago Title, 1400 Irving Park, and Northwest Investors
will be referred to collectively as “Chicago Title.”
3
Compl. ¶ 14. Chicago Title believes that Barrington, as assignee of the lease, is
responsible for that unpaid rent. Id. ¶¶ 6-7, 9.
Although Barrington did assume the lease under the Purchase and
Assumption Agreement, the bank argues that it did not assume liability for the prefailure rent owed by Charter. First Am. Compl. ¶ 20. The agreement explicitly set
out which of Charter’s liabilities that Barrington took on, and that list does not
include unpaid rent. Id. ¶ 19. The agreement also says that the FDIC will indemnify
Barrington for losses arising from any Charter liabilities that Barrington did not
expressly assume. Id. ¶ 21. Based on these provisions, Barrington filed this suit,
seeking a declaration that it does not owe any unpaid rent owed by Charter. Id. at
Prayer for Relief.
Less than two months later (but after Chicago Title had been served with
summons in this case), Chicago Title filed an eviction action against Barrington in
state court seeking possession of the property and the unpaid rent. See State Court
Compl. (filed Oct. 10, 2014); see also R. 11, Chicago Title Summons (served Sept. 23,
2014). In answering the state-court complaint, Barrington named the FDIC as a
third-party defendant. R. 28-1, State Court Answer at 28-38. The FDIC quickly
removed the state-court action under 12 U.S.C. § 1819(b)(2)(B). Notice of Removal
at 1, Chicago Trust Co., 14-cv-09570. Once the state-court action was removed, the
FDIC moved to consolidate it with Barrington’s declaratory-judgment action. Mot.
Consolidate. No party objected. Dec. 22, 2014 Minute Entry. This Court granted the
4
motion to consolidate, finding that the removed eviction claim was a compulsory
counterclaim to Barrington’s declaratory-judgment action. Id.
Chicago Title was directed to amend its responsive pleading to include those
claims, but the deadline to amend the pleadings was suspended because Chicago
Title questioned the Court’s jurisdiction to hear both the declaratory-judgment
action and the removed eviction claim, id.; R. 43, Feb. 17, 2015 Minute Entry. The
parties were instructed to submit briefs on the issue. Dec. 22, 2014 Minute Entry.
In conjunction with the subject matter jurisdiction issue, the FDIC argued that no
court has jurisdiction to hear the removed claim because Chicago Title has failed to
exhaust under FIRREA. FDIC’s Br. at 13-15. It also argued that Chicago Title
lacked standing to challenge the Purchase and Assumption Agreement. Id. at 8-12.
Although Chicago Title had not yet amended its responsive pleading to include the
counterclaims, it was ordered to respond to the FDIC’s substantive arguments. Feb.
17, 2015 Minute Entry.
II. Subject Matter Jurisdiction
Chicago Title argues that the Court lacks subject matter jurisdiction over
both the original declaratory-judgment action and the state-court eviction action.
Chicago Title’s Br. at 3-8. Generally, “the party invoking federal jurisdiction bears
the burden of demonstrating its existence.” Hart v. FedEx Ground Package Sys.
Inc., 457 F.3d 675, 679 (7th Cir. 2006). In this case, FDIC and Barrington are those
parties. In evaluating a challenge to jurisdiction, “the district court may properly
look beyond the jurisdictional allegations of the complaint and view whatever
5
evidence has been submitted on the issue to determine whether in fact subject
matter jurisdiction exists.” Evers v. Astrue, 536 F.3d 651, 656-57 (7th Cir. 2008)
(internal alterations omitted) (quoting St. John’s United Church of Christ v. City of
Chicago, 502 F.3d 616, 625 (7th Cir. 2007)). The Court will address its jurisdiction
over each claim in turn.
A. Declaratory-Judgment Action
Federal courts have jurisdiction, known as federal-question jurisdiction, over
“all civil actions arising under the Constitution, laws, or treaties of the United
States.” 28 U.S.C. § 1331. A case arises under the laws of the United States within
the meaning of § 1331 only when the claim for relief depends in some way on federal
law as stated in a well-pleaded complaint, “unaided by anything alleged in
anticipation or avoidance of defenses which it is thought the defendant may
interpose.” Vorhees v. Naper Aero Club, Inc., 272 F.3d 398, 402 (7th Cir. 2001)
(quoting Taylor v. Anderson, 234 U.S. 74, 75-76 (1914)) (internal quotation marks
omitted). When the FDIC is a party to a civil lawsuit, the suit is “deemed to arise
under the laws of the United States” for purposes of § 1331.3 12 U.S.C.
§ 1819(b)(2)(A) (“[A]ll suits of a civil nature at common law or in equity to which the
[FDIC], in any capacity, is a party shall be deemed to arise under the laws of the
United States.”); see also Nat’l Union Fire Ins. Co. of Pittsburgh v. Baker &
McKenzie, 997 F.2d 305, 307 (7th Cir. 1993) (stating that the FDIC’s “presence as a
party conferred federal jurisdiction over the suit”).
3Subject
to exceptions that neither party argues are applicable here.
6
In its complaint, Barrington asserts that the Court has federal-question
jurisdiction over its declaratory judgment action because the FDIC is a party. First
Am. Compl. ¶¶ 8-10. Barrington named the FDIC as a defendant because it alleges
that the FDIC must indemnify it for all unassumed pre-failure claims. Id. at 4. On
the face of Barrington’s complaint, then, the Court has federal-question jurisdiction
over the declaratory-judgment action. See 12 U.S.C. § 1819(b)(2)(A). Chicago Title
argues that there is no actual controversy between the FDIC and Barrington
because the FDIC has agreed that it must indemnify Barrington. Chicago Title’s Br.
at 6. Because the FDIC and Barrington substantially agree, Chicago Title argues,
Barrington’s claim against the FDIC is moot and the FDIC cannot be considered for
jurisdictional purposes. Id. But this argument ignores the substantial interest that
the FDIC has in the outcome of this action.
A claim is “moot” when the parties “lack a legally cognizable interest in the
outcome.” Powell v. McCormack, 395 U.S. 486, 496 (1969); see also MedImmune, Inc.
v. Genentech, Inc., 549 U.S. 118, 126-27 (2007) (holding that, under the Declaratory
Judgment Act, “the phrase ‘case of actual controversy’ … refers to the type of ‘Cases’
and ‘Controversies’ that are justiciable under Article III”) (citation omitted). In the
context of an action under the Declaratory Judgment Act, “the test … is whether
there is a substantial controversy, between parties having adverse legal interests, of
sufficient immediacy and reality to warrant the issuance of a declaratory
judgment.” GNB Battery Tech., Inc. v. Gould, Inc., 65 F.3d 615, 620 (7th Cir. 1995)
(internal alterations and citation omitted). “[A]s long as the parties have a concrete
7
interest, however small, in the outcome of the litigation, the case is not moot.”
Killian v. Concert Health Plan, 742 F.3d 651, 660 (7th Cir. 2013) (quoting Knox v.
Serv. Emps. Int’l Union, Local 1000, 132 S.Ct. 2277, 2287 (2012)).
Here, the FDIC might not have a live dispute with Barrington, but there is
no question that there is a substantial controversy between the parties in which the
FDIC has a concrete interest. Barrington seeks a declaration that it does not owe
Chicago Title any rent that was not paid by its predecessor under the lease,
Charter. First Am. Compl. at Prayer for Relief. If Barrington is responsible for the
unpaid rent, it seeks a declaration that it is indemnified by the FDIC. The FDIC, as
the potential indemnitor of any claims against Barrington, has a significant stake in
the outcome of the case. Id. ¶ 21; R. 17, FDIC’s Answer ¶¶ 20-21 (admitting that
FDIC has agreed to indemnify Barrington). Any declaration that Barrington does or
does not owe nearly $1.3 million in rent would have a direct and actual impact on
the
FDIC.
Moreover,
Barrington’s
declaratory-judgment
action
seeks
an
interpretation of the Purchase and Assumption Agreement, a contract to which the
FDIC is a party.
That the FDIC’s interests are not adverse to Barrington’s interests does not
change the conclusion that the FDIC has a concrete interest in the outcome of the
litigation. Rather, it simply suggests that the parties should be realigned to better
reflect their actual legal interests. Realignment of parties “is proper when the court
finds that no actual, substantial controversy exists between the parties on one side
of the dispute and their named opponents.” Wolf v. Kennelly, 574 F.3d 406, 412 (7th
8
Cir. 2009) (quoting American Motorists Ins. Co. v .Trane Co., 657 F.2d 146, 149 (7th
Cir. 1981)). In evaluating whether parties should be realigned, “courts must focus
on the points of substantial antagonism, not agreement.” Id. (internal quotation
marks and citation omitted). Realignment “is a matter not determined by
mechanical rules, but rather by pragmatic review of the principal purpose of the
action and the controlling matter in dispute.” American Motorists, 657 F.3d at 151.
To that end, a court determining the alignment of the parties “may look beyond the
pleadings and consider the nature of the dispute in order to assess the parties’ real
interests.” Id. at 149.
Here, the FDIC’s interests are squarely adverse to Chicago Title’s.
Barrington is seeking a declaration that it does not owe any unpaid rent to Chicago
Title. First Am. Compl. at Prayer for Relief. Because the FDIC has agreed to
indemnify Barrington, see FDIC’s Answer ¶¶ 20-21, any declaration that Barrington
owes the unpaid rent would necessarily be a claim against the FDIC as well. Both
Barrington and the FDIC are therefore seeking to establish that Chicago Title is not
entitled to any rent, while Chicago Title argues the opposite. See Chicago Title’s
Answer ¶¶ 20, 22-23, 35-37. So, looking at the nature and principal purpose of the
dispute, it is clear that realignment is necessary to better reflect the actual
interests of the parties.
Because the FDIC is a proper party with a concrete and legally cognizable
interest in the outcome of this dispute, Barrington’s claim arises under the laws of
the United States. 12 U.S.C. § 1819(b)(2)(A); 28 U.S.C. § 1331. The Court therefore
9
has jurisdiction over Barrington’s declaratory judgment action.4 To better reflect the
actual interests of the parties, the FDIC is realigned as a plaintiff.
B. Eviction Action
Chicago Title next argues that the Court does not have jurisdiction over its
removed state-law eviction claim. Chicago Title’s Br. at 3-7. Chicago Title makes
several arguments centered around the FDIC’s participation and the removal
statute, 28 U.S.C. § 1441, but it is not necessary to consider these arguments.5 The
Court has already concluded that Chicago Title’s eviction claim is a compulsory
counterclaim,6 Dec. 22, 2014 Minute Entry, “and a compulsory counterclaim does
not require an independent grant of jurisdiction,” Leipzig v. AIG Life Ins. Co., 362
F.3d 406, 410 (7th Cir. 2004). Because there is subject matter jurisdiction over the
declaratory-judgment action, the Court has, by definition, supplemental jurisdiction
4Because
the FDIC is a proper party, the Court does not need to consider
Barrington’s arguments that there is federal-question jurisdiction independent of the
FDIC’s participation. See Barrington’s Br. at 10-12; R. 40, Barrington’s Resp. Br. at 6-8.
5Given the broad removal powers of the FDIC, however, see 12 U.S.C. § 1819(b)(2)(B)
(stating that the FDIC may “remove any action, suit, or proceeding from a State court to
the appropriate United States district court before the end of the 90-day period beginning
on the date the action, suit, or proceeding is filed against the [FDIC] or [the FDIC] is
substituted as a party”), it is likely that there is independent jurisdiction over the removed
claim anyway.
6A compulsory counterclaim is one that (1) exists at the time of the pleading;
(2) arises out of the same transaction or occurrence as the opposing party’s claim; and
(3) does not require for adjudication parties over whom the court may not acquire
jurisdiction. Burlington Northern R.R. Co. v. Strong, 907 F.2d 707, 710-11 (7th Cir. 1990);
Fed. R. Civ. P. 13(a). Here, Barrington is seeking a declaration that it does not owe prefailure rent under the lease and the purchase and assumption agreement, and Chicago
Title argues that Barrington does owe that same pre-failure rent. The claims clearly arise
from the same occurrence. The claim existed as soon as the rent was not paid (at the latest,
February 2012), and there is no argument that this claim requires parties over whom the
Court does not have jurisdiction. Chicago Title’s eviction claim is therefore a compulsory
counterclaim.
10
over the counterclaim as well.7 28 U.S.C. § 1367; see also Unique Concepts, Inc. v.
Manuel, 930 F.2d 573, 574 (7th Cir. 1991) (“A federal court has supplemental
jurisdiction over compulsory counterclaims.”).
To avoid this result, Chicago Title argues that federal courts do not have
jurisdiction over state-law eviction claims at all. Chicago Title’s Br. at 4. In support
of this argument, Chicago Title cites Kubiak v. Meltzer, which it believes stands for
the proposition that federal courts cannot hear state-law eviction claims. Id. (citing
2013 WL 1114203, at *1 (N.D. Ill. Mar. 15, 2013)). That is an incorrect reading of
what the opinion actually held. In Kubiak, the district court concluded that it could
not exercise federal-question jurisdiction over a state-law eviction claim because
“[a]n eviction does not arise under the Constitution, law, or treaties of the United
States.” 2013 WL 1114203 at *1. But that does not mean that a federal court could
never exercise jurisdiction over the claim. Federal courts exercise jurisdiction over
state-law causes of action all the time. See 28 U.S.C. §§ 1332, 1367. Kubiak simply
reinforces the understanding that eviction claims are state-law causes of action and
are subject to the ordinary federal-jurisdictional rules governing state-law claims.
Many of the other cases cited by Chicago Title similarly decline to exercise federal
7Chicago
Title argues that its eviction claim is not compulsory because there is no
jurisdiction over the declaratory judgment action. R. 46, Chicago Title’s Suppl. Br. at 8-9.
Because there is jurisdiction over that claim, as discussed above, this argument fails.
Chicago Title also conflates consolidation of the claims with compulsory counterclaims.
Chicago Title’s Br. at 7. Chicago Title argues that consolidating claims will not create
ancillary jurisdiction where there was none, id., but jurisdiction is not premised on the
consolidation of the claims. The Court has supplemental jurisdiction over the compulsory
counterclaim because it arises from the same transaction or occurrence as the claim over
which it has federal-question jurisdiction. Unique Concepts, Inc. v. Manuel, 930 F.2d 573,
574 (7th Cir. 1991).
11
jurisdiction over state-law eviction claims based on the particular circumstances of
the case. See, e.g., Seidel v. Wells Fargo Bank, N.A., 2012 WL 2571200, at *2 (D.
Mass. July 3, 2012) (refusing to enjoin a state-court eviction action under the
Younger abstention doctrine); DLJ Mortg. Capital, Inc. v. Rodis, 2011 WL 3841384,
at *1 (D. Nev. Aug. 29, 2011) (refusing to remove an eviction claim because defenses
or counterclaims could not be used to create federal-question jurisdiction); Blaser v.
Bentley, 2009 WL 2516260, at *1 (D. Utah Aug. 13, 2009) (same). They do not stand
for the proposition that there is some general ban against federal-court jurisdiction
over eviction claims.
Johnson v. Illinois Department of Public Aid does not compel a different
conclusion. 467 F.2d 1269 (7th Cir. 1972). In Johnson, public-aid recipients brought
a purported class action against the Illinois Department of Public Aid, arguing that
the imposition of additional rental charges violated their right to due process. Id. at
1271. The Seventh Circuit concluded that, because the claims of the named
plaintiffs were moot, there was “no present, actual controversy between the parties
for the purposes of a declaratory judgment.” Id. at 1273. The plaintiffs could not
justify further litigation “on the uncertain basis that some tenants might in the
future be evicted under the lease arrangement” involved in the suit. Id. Because the
potential future plaintiffs would be able to bring their constitutional claims in the
eviction proceedings, Johnson held that Illinois law “adequately provides the
remaining plaintiffs with procedural due process.” Id. Thus, it was in the context of
a due-process analysis that Johnson said that it saw “no reason for a tenant not to
12
raise the propriety of the additional charges in state court proceedings, if such
proceedings should occur.” Id. at 1274. Because Illinois state law provided adequate
process through its laws, there was no need for the federal courts to “resolve the
claimed federal constitutional questions.” Id. This does not suggest that federal
courts could not hear the eviction-related questions. In fact, Johnson stated that
although it is “better practice, in a case raising a federal constitutional or statutory
claim, to retain jurisdiction,” the uncertainty of the remaining plaintiffs’ claims
necessitated dismissal. Id. Had the claims been ripe, the district court could have
entertained them based on the constitutional claims.
To be sure, there are several cases, cited by Chicago Title, which suggest that
the summary nature of eviction proceedings may deprive federal courts of subjectmatter jurisdiction. See, e.g., CPG Fin. I, L.L.C. v. Shopro, Inc., 2006 WL 744275, at
*3 (W.D. Mo. Mar. 22, 2006); Glen 6 Assocs., Inc. v. Dedaj, 770 F. Supp. 225, 227-28
(S.D.N.Y. 1991). But the “[k]ey to these cases was the limited nature of eviction
proceedings under the laws of the states in which they arose.” MCC Mortg. LP v.
Office Depot, Inc., 685 F. Supp. 2d 939, 945 (D. Minn. 2010) (ignoring the
“summary” label and assessing the actual procedures available under Minnesota
law). For example, in Missouri, no formal pleadings are required, there is no
discovery or trial by jury, and the proceedings are expedited. CPG Finance, 2006
WL 744275 at *2; See Glen 6 Assocs., 770 F. Supp. at 227-28 (describing similar
procedures in New York). But Chicago Title does not point to any authority that
would suggest that the Illinois eviction proceedings have similar procedural
13
features. See Chicago Title’s Br. at 4; Chicago Title’s Suppl. Br. at 5-6. In Illinois,
parties may request a trial by jury, 735 ILCS 5/9-108; the parties can take
discovery, 735 ILCS 5/9-106 (“The defendant may … offer in evidence any matter in
defense of the action.”); 2 ILLINOIS REAL PROPERTY § 15:51 (stating that discovery in
eviction claims is subject to the ordinary rules of civil discovery); eviction actions
must be initiated with a complaint and the defendant must be issued a summons,
735 ILCS 5/9-106; and the parties can raise at least some related defenses and
counterclaims in their eviction action, see Johnson, 467 F.2d at 1273 (holding that
the Illinois eviction statute “has been held to allow equitable defenses such as civil
rights violations or unconscionable contracts to be raised”); see also Bd. of Dirs. of
Warren Blvd. Condo. Ass’n v. Milton, 927 N.E.2d 176, 176 (Ill. App. Ct. 2010)
(describing an eviction claim in which the defendants sought a jury trial and took
discovery). Moreover, federal courts have entertained Illinois eviction claims (when
they have established that there is jurisdiction of the state-law claim on some other
basis). See, e.g., BEM I, LLC v. Anthropologie, Inc., 301 F.3d 548, 551-54 (7th Cir.
2002) (finding diversity jurisdiction over an Illinois eviction claim); Republic Bank
of Chicago v. Desmond, 2014 WL 3905712, at *3 (N.D. Ill. Aug. 11, 2014) (exercising
jurisdiction over an Illinois eviction counterclaim); Woodmen of World Life Ins. Soc.
v. Great Atl. Pac. Tea Co., Inc., 561 F. Supp. 640, 641-42 (N.D. Ill. 1982) (refusing to
remand an Illinois eviction action because the court had diversity jurisdiction). The
Court may therefore exercise jurisdiction over the state-law eviction claim in the
same manner that it would exercise jurisdiction over any other state-law claim. In
14
this case, the eviction claim is a compulsory counterclaim, and the Court has
supplemental jurisdiction under 28 U.S.C. § 1367.
III. Exhaustion
Having determined that there is subject-matter jurisdiction over the
declaratory-judgment action and the compulsory counterclaim, it is time to turn to
the issue of exhaustion, specifically, whether Chicago Title has failed to exhaust its
claim to the rent. Although exhaustion may seem like an affirmative defense best
suited for a motion for judgment on the pleadings or a motion for summary
judgment, the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) converts the exhaustion question into a jurisdictional one. 12 U.S.C.
§ 1821(d)(13)(D). Under the FIRREA, “the FDIC has statutory authority to
administer claims against a depository institution for which the FDIC is receiver.”
Farnik v. FDIC, 707 F.3d 717, 721 (7th Cir. 2013). “Courts lack jurisdiction to hear
such claims unless plaintiffs first present them to the FDIC.” Id. (citing 12 U.S.C.
§ 1821(d)(13)(D)(ii)); see 12 U.S.C. § 1821(d)(6) (allowing review of the claims
process in the district courts, but only after presentation to the FDIC).8 Because
Chicago Title is now asserting that there is jurisdiction over the claim, Chicago
Title’s Resp. Br. at 7-9 (arguing that exhaustion under FIRREA is not required), it
bears the burden demonstrating that jurisdiction.9 Farnik, 707 F.3d at 721.
8Exhaustion
of administrative remedies is not always akin to a genuine
jurisdictional requirement (that is, jurisdiction in the sense of adjudicatory competence),
but Farnik explains why § 1821(d)(13)(D) truly is a jurisdictional requirement. 707 F.3d at
721 n.1.
9Because this is a challenge to jurisdiction, “the district court may properly look
beyond the jurisdictional allegations of the complaint and view whatever evidence has been
15
Chicago Title does not dispute that it failed to exhaust the administrative
procedures mandated by FIRREA. Chicago Title’s Answer ¶ 17. Instead, Chicago
Title argues that Barrington assumed the lease and all liabilities arising under the
lease. Chicago Title’s Resp. Br. at 7-9. If Barrington assumed the lease and its
liabilities, so the argument goes, the claim for past-due rent is not against Charter
(and the FDIC as Charter’s receiver), but against Barrington. This argument lacks
merit.
FIRREA is clear that courts cannot review claims “‘relating to any act or
omission’ of a failed bank or of the FDIC as receiver of a failed bank unless they are
first subjected to FIRREA’s administrative claims process.” Farnik, 707 F.3d at 722
(quoting 12 U.S.C. § 1821(d)(13)(D)(ii)). If Chicago Title’s claim for past-due rent
relates to the acts or omissions of the failed bank, then, it would fall under
FIRREA’s ambit. To resolve this issue, it is important to look at function, not form:
“[L]itigants cannot avoid FIRREA’s administrative requirements through strategic
pleading, so a claim asserted against a purchasing bank based on the conduct of a
failed bank must be exhausted under FIRREA.” Id. at 722-23 (quoting Benson v.
JPMorgan Chase Bank, N.A., 673 F.3d 1207, 1209 (9th Cir. 2012)). FIRREA’s
administrative exhaustion requirement “is based not on the entity named as
defendant but on the actor responsible for the alleged wrongdoing.” Id. at 723.
Here, the agreed-upon facts demonstrate that Chicago Title’s claim is
functionally against Charter (and the FDIC as receiver of the failed institution).
submitted on the issue to determine whether in fact subject matter jurisdiction exists.”
Evers, 536 F.3d at 656-57 (internal alterations and quotation marks omitted).
16
Chicago Title seeks unpaid rent for the period of January 2002 through February
2012. State Court Compl. ¶ 14. Charter failed in February 2012. Chicago Title’s
Answer ¶ 15 (admitting that Charter was closed on February 10, 2012). It was
Charter, therefore, that was delinquent on rent; Barrington had not yet entered the
picture. First Am. Compl. ¶ 23 (stating that Barrington did not assume the lease
until June 8, 2012). Because there is no question that the claim for rent is related to
an act or omission of Charter, not Barrington, the claim had to be exhausted under
FIRREA as a pre-condition to filing suit.
When Charter failed, the FDIC required all parties who had a claim against
the bank—including those who “leased space” to the institution—to follow their
normal billing procedures and send an invoice to the FDIC. First Am. Compl. ¶ 16;
Chicago Title’s Answer ¶ 16 (admitting that Barrington’s complaint accurately sets
out the FDIC’s public notice). All unpaid claims against Charter had to be filed on
or before May 17, 2012. First Am. Compl. ¶ 16. At the time Charter failed, Chicago
Title had leased space to Charter and had not yet been paid. It did not submit its
claim by May 17, 2012 as required by the public notice. Chicago Title’s Answer ¶ 17.
Therefore, under FIRREA, Chicago Title’s claim was disallowed.10 12 U.S.C.
§ 1821(d)(5)(C)(i) (“[C]laims filed after the date specified on the notice … shall be
disallowed and such disallowance shall be final.”). A claimant may appeal a
disallowed claim to the district court, 12 U.S.C. § 1821(d)(6), but Chicago Title does
not claim to have done so. So Chicago Title did not pursue its claim, which was
10Subject
to an exception for a party who did not have notice of the appointment of a
receiver. 12 U.S.C. § 1821(5)(C)(ii). Chicago Title does not claim that this exception applies.
17
based on the failed bank’s wrongdoing, in the required administrative process.
Because
its
claim
is
unexhausted,
the
Court
lacks
jurisdiction
under
§ 1821(d)(13)(D) and Chicago Title has “no further rights or remedies with respect
to such claim.” 12 U.S.C. § 1821(d)(6)(B)(ii).
Chicago Title argues that it was not necessary to bring the claim for unpaid
rent under the administrative claims procedures because Barrington assumed the
lease. Citing Federal Housing Finance Agency v. JP Morgan Chase & Co., Chicago
Title claims that a claim related to an assumed liability cannot be brought under
the administrative procedures of § 1821(d), and is therefore not subject to the
exhaustion requirements. 902 F. Supp. 2d 476, 501-02 (S.D.N.Y. 2012). Chicago
Title is correct that some courts have held that the term “claim” in § 1821(d) refers
only to claims that could be brought under the administrative procedures of the
FDIC, see Bank of New York v. First Millennium, Inc., 607 F.3d 905, 921 (2d Cir.
2010),11 but that is not the case here. In Federal Housing, the successor bank
assumed the failed bank’s liabilities on the same day that the bank closed. 902 F.
Supp. 2d at 500-01. Because the successor bank had already assumed the relevant
liabilities by the time the administrative claims process began, any claim based on
11It
is not clear that this narrower approach (narrower in the sense that fewer
disputes would come under the definition of a § 1821(d) “claim”) would be adopted by the
Seventh Circuit. Bank of New York, which established this approach, “specifically rejected”
the broad reading of § 1821(d)(13)(D) that was advanced by the Ninth Circuit in Benson.
Federal Housing, 202 F. Supp. 2d at 502. But Benson’s approach was favorably cited by the
Seventh Circuit in Farnik. 707 F.3d at 723. In any event, the Court need not decide
whether the narrower definition is correct, because Barrington did not assume any of
Charter’s liabilities until after the claims deadline had come and gone.
For the sake of completeness, it is worth noting that several courts have held that an
assuming bank stands in the shoes of the FDIC (or Resolution Trust Corporation) for the
purposes of enforcing the exhaustion requirement.
18
those liabilities would not “seek a determination of rights with respect to, the assets
of any depository institution for which the Corporation was a receiver.” Id. at 502
(quoting 12 U.S.C. § 1821(d)(13)(D)) (internal quotation marks and alterations
omitted). The liabilities had already passed to the successor bank. Therefore,
Federal Housing concluded, the claims could not have been brought under the
administrative procedures of § 1821(d). Id.
In this case, however, Barrington had not yet assumed the lease when the
administrative procedures were in place and when the claims deadline expired.
First Am. Compl. ¶ 23 (Barrington assumed the lease on June 8, 2012); see also
R. 8, Pl.’s Exh. D, Notice of Assumption (dated June 8, 2012). Therefore, at the time
that the administrative process was open, Chicago Title’s claim still involved the
“assets of any depository institution for which the Corporation was a receiver.” So it
could
have
been—and
was
required
to
have
been—brought
under
the
administrative procedures of § 1821(d). On May 17, 2012, when the administrative
period closed, the lease had not yet been assumed and Chicago Title’s claim based
on Charter’s unpaid rent was a claim against the FDIC. When Chicago Title failed
to submit its claims under the administrative procedures and then failed to appeal
the automatic disallowance, FIRREA extinguished any “further rights or remedies
with respect to such claim.” 12 U.S.C. § 1821(d)(6)(B)(ii). Allowing Barrington’s
subsequent assumption of the lease to revive Chicago Title’s claim based on
Charter’s wrongdoing “would encourage the very litigation that FIRREA aimed to
avoid.” Village of Oakwood v. State Bank and Trust Co., 539 F.3d 373, 386 (6th Cir.
19
2008); see also Farnik, 707 F.3d at 723 (joining its “sister circuits,” specifically the
Sixth Circuit’s holding in Village of Oakwood, and holding that “the FIRREA
administrative exhaustion requirement is based not on the entity named as
defendant but on the actor responsible for the alleged wrongdoing”). The fact that
Barrington later assumed the lease “does not extinguish the jurisdictional bar for
actions under FIRREA not first presented to the FDIC.” Westberg v. FDIC, 926 F.
Supp. 2d 61, 67 (D.D.C. 2013); see also Village of Oakwood, 539 F.3d at 386 (holding
that the claimants’ claims “are disallowed as a result of their failure to comply with
the administrative-claims process, they ‘have no further rights or remedies with
respect to such claim[s]’ despite the fact that they purport to bring them against
State Bank rather than the FDIC”) (quoting 12 U.S.C. § 1821(d)(6)(B)(ii)); American
First Fed., Inc. v. Lake Forest Park, 198 F.3d 1259, 1263 n.3 (11th Cir. 1999) (noting
that the acquiring bank “having purchased the note from the [Resources Trust
Corporation (RTC), a predecessor to the FDIC], stands in the shoes of the RTC and
acquires its protected status under FIRREA”). Chicago Title failed to exhaust its
claim under FIRREA. 12 U.S.C. § 1821(d)(13)(D).12
IV. Conclusion
For the reasons discussed above, the Court has federal-question jurisdiction
over Barrington’s declaratory-judgment action and supplemental jurisdiction over
the compulsory counterclaim,
and the FDIC is realigned as a plaintiff in the
declaratory judgment action. Although the Court has subject matter jurisdiction
12Because
there is no jurisdiction on exhaustion grounds, the Court need not address
the FDIC’s argument that Chicago Title lacks standing to interpret the Purchase and
Assumption Agreement. See FDIC’s Br. at 8-12.
20
over the counterclaim, it must nevertheless be dismissed for failure to exhaust
under FIRREA. The rationale against the counterclaim appears to be, not
surprisingly, applicable to Barrington’s declaratory-judgment claim, in that the
failure to exhaust would require entering a declaration that Barrington is not liable
for the rent. But the Court will give the parties a chance to weigh-in on this: by May
4, 2015, the parties shall file position papers on whether or not the failure to
exhaust also requires entry of judgment in favor of Barrington (and the re-aligned
FDIC) and against the Chicago Title defendants in the declaratory-judgment action.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: April 24, 2015
21
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