Builders Bank v. Federal Deposit Insurance Corporation

Filing 67

MEMORANDUM Opinion and Order: This Court grants FDIC's consolidated motion to dismiss the Complaints in 15 cv 6033 69 and 16 cv 9940 28 . Builders Bank's motion to strike is denied [101, 64]. Civil cases terminated. Civil case terminated. Signed by the Honorable Sharon Johnson Coleman on 3/30/2018. Mailed notice.(ym, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BUILDERS BANK,

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Plaintiff,
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v.
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FEDERAL DEPOSIT INSURANCE
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CORPORATION,
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Defendants.
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__________________________________________)
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BUILDERS BANK,
)
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Plaintiff,
)
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v.
)
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FEDERAL DEPOSIT INSURANCE
)
CORPORATION,
)
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Defendants.
)

Case No. 15 cv 6033
Judge Sharon Johnson Coleman

Case No. 16 cv 9940
Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER
Plaintiff, Builders Bank, filed two complaints (Case No. 15-cv-6033 and Case No. 16-cv9940) under the Administrative Procedures Act (“APA”), 5 U.S.C. § 701 et seq. Each complaint seeks
judicial review of the Report of Examination issued by Federal Deposit Insurance Corporation
(“FDIC”) assigning a composite CAMELS rating for the year. Defendant, FDIC, filed a
consolidated motion to dismiss both complaints for lack of subject matter jurisdiction and for failure
to state a claim. For the reasons stated below, the Court grants the motion.

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Background
The Complaint in the 2015 case, filed on July 9, 2015, seeks a judicial determination
correcting the FDIC’s allegedly erroneous assignment of a “4” composite CAMELS rating. Builders
Bank alleges that this rating imposed a higher insurance premium. Similarly, the Complaint in the
2016 case, filed on October 23, 2016, contends that the FDIC composite CAMELS rating was
flawed because it overstated Builders Bank’s risk profile.
The previously assigned district judge dismissed the 2015 case, finding that this Court lacked
jurisdiction pursuant to Rule 12(b)(1) because the assignment of CAMELS ratings is committed to
agency discretion by law. Builders Bank v. Federal Deposit Ins. Corp., No. 15 C 6033, Memorandum
Opinion and Order, at dkt. 26 (N.D. Ill. Apr. 25, 2016). The Seventh Circuit Court of Appeals
reversed, holding that “the presence of capital as one of six components in a CAMELS rating does
not necessarily mean that the rating as a whole is committed to agency discretion for the purpose of
[5 U.S.C.] § 701(a)(2).” Builders Bank v. Federal Deposit Ins. Corp., 846 F.3d 272, 276 (7th Cir. 2017).1 In
reaching its decision, the Seventh Circuit assumed that the authority to establish the minimum level
of necessary or appropriate capital for a particular banking institution is committed to the discretion
of the FDIC under § 701(a)(2). Id. (citing Frontier State Bank v. FDIC, 702 F.3d 588, 593-97 (10th Cir.
2012), which so holds). The Seventh Circuit directed this Court to address on remand, the issue of
whether Builders Bank is actually challenging the FDIC’s application of the CAMELS factors, or if it
is really seeking review of the capital determination. Id.
On March 29, 2017, FDIC terminated Builders Bank’s insurance under 12 U.S.C. § 1818(p)
as part of a voluntary dissolution plan. Dkt. 67-5, Case No. 15-cv-6033, FDIC Motion to Dismiss,
Ex. D. On March 31, 2017, the Illinois Department of Financial and Professional Regulation,
Division of Banking, granted Builders Bank permission to merge with and into Builders NAB LLC,
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The 2016 case was stayed pending resolution of that appeal. Both cases are now before this Court, following remand.

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an Illinois limited liability company (“LLC”). Dkt. 67-6, Case No. 15-cv-6033, FDIC Motion to
Dismiss, Ex. E. Builders Bank ceased operations as of April 11, 2017. Id.
Legal Standard
A motion brought pursuant to Federal Rule of Civil Procedure 12(b)(1) raises the
fundamental question of whether a federal district court has subject-matter jurisdiction over the
action before it. Fed.R.Civ.P. 12(b)(1); see, e.g., Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94–95,
118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). “The burden of proof on a 12(b)(1) issue is on the party
asserting jurisdiction.” United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th Cir.2003),
overruled on other grounds by Minn–Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (2012). Dismissal pursuant to
Rule 12(b)(1) for lack of subject-matter jurisdiction includes dismissal on the basis of the
justiciability doctrine of mootness, as mootness is an issue concerning the subject-matter jurisdiction
of the federal courts. See, e.g., Cnty. of L.A. v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 59 L.Ed.2d 642
(1979) (“But jurisdiction, properly acquired, may abate if the case becomes moot[.]”); Cornucopia Inst.
v. U.S. Dep't of Agric., 560 F.3d 673, 676 (7th Cir. 2009) (“It is well established that the federal courts
have no authority to rule where the case or controversy has been rendered moot.”). “If subject
matter jurisdiction is not evident on the face of the complaint, [then] the ... Rule 12(b)(1) [motion is]
analyzed [like] any other motion to dismiss, by assuming for the purposes of the motion that the
allegations in the complaint are true.” United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946
(7th Cir. 2003), overruled on other grounds by Minn–Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir.
2012). But “if the complaint is formally sufficient but the contention is that there is in fact no subject
matter jurisdiction, [then] the movant may use affidavits and other material to support the motion.”
Id. (emphasis in original).
A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its
merits. Fed. R. Civ. P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). When
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considering the motion, the Court accepts as true all well pleaded facts in the plaintiff’s complaint
and draws all reasonable inferences from those facts in the plaintiff’s favor. AnchorBank, FSB v.
Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive dismissal, the complaint must not only provide
the defendant with fair notice of a claim’s basis, but must also be facially plausible. Ashcroft v. Iqbal,
556 U.S. 662, 678, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555, 127 S.Ct. 1955, 167 L. Ed. 2d 929 (2007).
Discussion
FDIC moves to dismiss both complaints for several reasons. First, FDIC contends this
Court lacks subject matter jurisdiction because Builders Bank is not the real party in interest and the
equitable relief it seeks is moot. FDIC further argues that this Court lacks subject matter jurisdiction
based on Section 702 of the APA, barring suits for monetary damages. Next, FDIC argues that there
is no final agency action subject to judicial review because there is a statutorily created process for
appealing the ratings decision within the agency. Lastly, FDIC asserts that Builders Bank is really
challenging FDIC’s capital determination and not the CAMELS composite rating. FDIC urges this
Court to find that capital determinations are committed to FDIC discretion and therefore not
subject to judicial review, relying Frontier State Bank v. FDIC, 702 F.3d 588, 593-97 (10th Cir. 2012).
Outside organizations were granted leave to submit briefs as amici curiae, the New York
League of Independent Bankers filed one and the Clearing House Association L.L.C., the American
Bankers Association, and the Independent Community Bankers of America filed a second brief. The
amici curiae briefs were submitted in support of neither party; instead, they argue that this Court
should find that CAMELS ratings are not exempt from judicial review.
For the purpose of resolving the preliminary jurisdictional questions, this Court will assume
without deciding that CAMELS ratings are not exempt from judicial review. The hurdle here for
Builders Bank is that an action brought under the APA must seek relief “other than money
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damages.” 5 U.S.C. § 702. “A party seeks ‘money damages’ if he or she is seeking ‘substitute’ relief,
rather than ‘specific’ relief. In other words, ‘[money] [d]amages are given to the plaintiff to substitute
for a suffered loss, whereas specific remedies ‘are not substitute remedies at all, but attempt to give
the plaintiff the very thing to which he was entitled.’” Veluchamy v. F.D.I.C., 706 F.3d 810, 815 (7th
Cir. 2013) (internal citations omitted). Section 702 acts as a jurisdictional bar when a suit seeks only
money damages. Id.
Here, Builders Bank asserts that the relief it seeks is (1) to correct the CAMELS ratings the
FDIC assigned to Builders Bank, and (2) to refund the resulting excess assessment paid by Builders
Bank. Such relief appears on its face to satisfy Section 702. However, Builders Bank is no longer an
insured depository institution regulated by the FDIC. Since Builders Bank does not exist as a
banking institution insured by FDIC, a reexamination of the CAMELS rating by the Court would be
meaningless as a form of relief. A plaintiff may still be seeking “money damages” if the relief sought
is “merely a means to the end of satisfying a claim for the recovery of money.” Veluchamy, 706 F.3d
at 816 (quoting Dep't of Army v. Blue Fox, Inc., 525 U.S. 255, 260, 119 S.Ct. 687, 142 L.Ed.2d 718
(1999)). In Blue Fox, the Supreme Court unanimously found “the request for an equitable lien to be a
request for money damages because the lien’s ‘goal [was] to seize or attach money in the hands of
the Government as compensation for the loss resulting from the default of the prime contractor.’” Id. at
816 (emphasis in original) (quoting Blue Fox, 525 U.S. at 263, 119 S.Ct. 687)). Therefore, in this
instance the refund of any discovered overpayment of insurance premiums would be construed as
money damages substituting for the suffered loss.
Underscoring that the primary objective here is monetary relief is the fact that Builders Bank
no longer exists. Thus, as noted above review of Builders Bank’s CAMELS rating is meaningless.
Put another way, Builders Bank’s request for judicial review of the CAMELS ratings is moot. “A
case is moot when the issues presented are no longer ‘live’ or the parties lack a legally cognizable
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interest in the outcome.” Stotts v. Cmty. Unit Sch. Dist. No. 1, 230 F.3d 989, 990 (7th Cir. 2000)
(quoting Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 23 L.Ed.2d 491 (1969)). Builders
Bank argues that this issue is not moot because, as the Seventh Circuit found, “The effect of
CAMELS ratings on insurance premiums creates a concrete stake that makes the current dispute
justiciable.” Builders Bank, 846 F.3d at 275. Of course at the time of the Seventh Circuit’s decision,
Builders Bank had not dissolved as an entity and, thus, that court did not have an opportunity to
consider whether the claim remained justiciable. It is now apparent that the sole purpose of seeking
judicial review of the CAMELS ratings is to seek monetary relief, which is barred by Section 702.
Even if this Court were to conclude that the effect of CAMELS ratings on insurance
premiums still provided Builders Bank with a cognizable interest in the outcome of a review of the
composite ratings, a defunct corporation is not the real party in interest. See Old Ben Coal Co. v.
OWCP, 476 F.3d 418, 420 (7th Cir. 2007). Under Rule 17(a), “[e]very action shall be prosecuted in
the name of the real party in interest.” Fed.R.Civ.P. 17(a). Builders Bank claims that it can sue under
Rule 17(a)(1)(G) because it is a “a party authorized by statute;” namely, 805 ILCS 180/37-30(a)(5).
That provision of Illinois law allows “an action or proceeding pending by or against any constituent
organization that ceases to exist may be continued as if the merger had not occurred.” 805 ILCS
180/37-30(a)(5).
[Rule 17(a)] is a procedural rule requiring that the complaint be brought in the name
of the party to whom that claim belongs or the party who according to the governing
substantive law, is entitled to enforce the right. Under Rule 17 we are concerned only
with whether an action can be maintained in the plaintiff’s name, and that question is
resolved in this case by federal law.
Rawoof v. Texor Petroleum Co., 521 F.3d 750, 756 (7th Cir. 2008) (internal citations omitted). Here,
federal law governs the substantive claims and Builders Bank does not point to federal statutory
authority permitting it to maintain the suit in its name under Rule 17(a)(1)(G). Accordingly, this
Court finds that Builders Bank is not able to maintain the complaints at issue.
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This Court further notes that the Seventh Circuit pointed out other potential procedural
impediments to Builders Bank’s lawsuits, namely that the “[a]ssignment of a CAMELS rating does
not appear not be a final decision [by the agency],” and “the Bank failed to take advantage of the
opportunity to have the FDIC’s Supervision Appeals Review Committee review the rating.” Builders
Bank, 846 F.3d at 275. As the Seventh Circuit acknowledge, “the absence of a final decision would
be just another reason to dismiss the suit[.]” However, this Court need not address these or the
remainder of the parties’ arguments, having found the claims barred under Section 702 of the APA.
Lastly, Builders Bank filed a motion to strike portions of FDIC’s reply brief. Dkt. 101, Case
No. 15-cv-6033; Dkt. 64, Case No. 16-cv-9940. Since this Court decided the motion to dismiss
without reference to the arguments in sections I(D), II, or III(C) of FDIC’s reply brief, the motion
to strike is denied as moot.
Conclusion
Based on the foregoing discussion, this Court grants FDIC’s consolidated motion to dismiss
the Complaints in 15 cv 6033 [69] and 16 cv 9940 [28]. Builders Bank’s motion to strike is denied
[101, 64]. Civil cases terminated.
IT IS SO ORDERED.
ENTERED:

Dated: 3/30/2018
____________________________________
SHARON JOHNSON COLEMAN
United States District Judge

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