Lloyds of Kansas, LLC. v. Federal Deposit Insurance Corporation, et al.

Filing 8

MEMORANDUM AND ORDER denying Plaintiff's 3 Motion to Remand to State Court. Signed by District Judge Carlos Murguia on 6/28/2011. (jw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
LLOYDS OF KANSAS, LLC.,
Plaintiff,
v.
FEDERAL DEPOSIT INSURANCE
CORPORATION
as Receiver of
SECURITY SAVINGS BANK, F.S.B.,
and
OLD REPUBLIC NATIONAL TITLE
INSURANCE COMPANY, INC.,
Defendants.

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CIVIL ACTION
Case No. 11-4043-CM

MEMORANDUM AND ORDER
Plaintiff Lloyds of Kansas, L.L.C. brought this breach of contract action in Saline County
District Court against defendants Old Republic National Title Insurance Company, Inc. (Old
Republic) and Security Savings Bank, F.S.B. (SSB) in June of 2010. Defendant SSB
subsequently failed and the Federal Deposit Insurance Corporation (FDIC) was appointed as its
receiver in October of 2010. On December 20, 2010, defendant Old Republic filed a Motion to
Substitute the FDIC for SSB. The state court then entered an order substituting the FDIC for
Defendant SSB on April 13, 2011. Following its substitution, the FDIC filed a Notice of
Removal (Doc. 1) with this court on April 26, 2011.
Plaintiff has filed a Motion to Remand this case to state court (Doc. 3), alleging untimely
removal by the FDIC. The question presented by the motion is what event triggers the running of
the 90-day period for the FDIC to remove a case provided by 12 U.S.C. § 1819. This question is
unresolved in the Tenth Circuit.

“[T]he [FDIC] may, without bond or security, 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.” 12 U.S.C. § 1819(b)(2)(B) (West 2011) (emphasis added). More
narrowly stated, the issue is when and by what procedure the FDIC is substituted as a party
within the meaning of § 1819, which starts the 90-day period to remove a case.
This issue raises a question that indirectly involves the court’s jurisdiction. “Jurisdiction
is the power to declare the law, and when it ceases to exist, the only function remaining to the
court is that of announcing the fact and dismissing the case.” Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 94 (1998) (quoting Ex parte McCardle, 74 U.S. 506, 514 (1868)). 12 U.S.C.
§ 1819(b)(2)(A) provides that “all 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.”
This provision instantly establishes federal subject matter jurisdiction under 28 U.S.C. § 1331 to
any case where the FDIC is a party. This is especially important in the present case because the
substance of plaintiff’s claim contains no federal question and the parties lack complete diversity.
Without the presence of the FDIC, there would be no jurisdiction for this court to exercise.
Under a plain reading of § 1819(b)(2)(B), the FDIC is not substituted as a party, and thus
the 90-day period for removal does not begin, until the state court orders the FDIC substituted.
Before that time, this court would not have jurisdiction over the instant case. The Sixth Circuit
and a district court from the Ninth Circuit have adopted this approach. See Village of Oakwood v.
State Bank & Trust Co., 481 F.3d 364, 368 (6th Cir. 2007) (holding that the FDIC filing a motion
to intervene did not, on its own, create subject matter jurisdiction); J.E. Dunn Nw. Inc. v. Salpare

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Bay, LLC, No. CIV. 09-1068-KI, 2009 WL 3571354, at *4 (D. Or. Oct. 26, 2009) (remanding the
case to state court because the FDIC removed before it became a party by court order).
Plaintiff argues that the 90-day period for removal began on December 20, 2010 when
defendant Old Republic filed an unopposed motion to substitute the FDIC for SSB. To support
this argument, plaintiff relies almost exclusively on an unpublished district court opinion from the
Western District of Missouri. Gilmor v. Preferred Credit Corp., No. 10-0189-CV-W-ODS, 2010
WL 1693034, at *2 (W.D. Mo. Apr. 27, 2010) (holding that notice to the state court that the FDIC
has been appointed as receiver for a party is sufficient grounds for removal). The court in Gilmor
relied on the Resolution Trust Corporation (RTC) removal statute, 12 U.S.C. § 1441a(l)(3)(B), to
support its decision. Id. This statute states that “[t]he [RTC] shall be deemed substituted . . .
upon the filing . . . of such other pleading informing the court that the [RTC] has been appointed
conservator or receiver.” 12 U.S.C. § 1441a(l)(3)(B). However, the Gilmor court also noted that
regardless of whether the case was removable at the time the defendants removed it, jurisdiction
had since been conferred. 2010 WL 1693034, at *2.
Although similar in nature to the FDIC, the statutory rules set forth for the RTC are for
the RTC alone. Absent a “clearly expressed legislative intention to the contrary,” the language
of a statute itself is conclusive. Burlington N. R.R. Co. v. Okla. Tax Comm’n, 481 U.S. 454, 461
(1987). The only clearly expressed legislative intention in the most recent amendment to § 1819,
the FDIC Improvement Act of 1991, is for the “FDIC Removal Period [to be] Made Consistent
with [the] RTC period.” H.R. Res. 289, 102nd Cong. § 161(d) (1991) (enacted). This is not
sufficient evidence to justify a departure from a plain reading of § 1819 and apply the RTC
statute’s rules to the FDIC, as it merely changed the removal period from 30 to 90 days without
mentioning specific rules about substitution.
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Plaintiff also relies on a decision from the Seventh Circuit, which first made the
comparison between § 1441a and § 1819. Buczkowski v. FDIC, 415 F.3d 594, 597 (7th Cir.
2005) (holding that the 90-day period begins when the FDIC becomes a party through a specific
filing in court). Buczkowski is distinguishable from the present case. In Buczkowski, the FDIC
itself intervened in the suit and then sought to remove the case, and it was this filing that opened
the 90-day period. Id. at 595–96. In contrast, this case presents a situation where a co-defendant
has moved to substitute the FDIC. Buczkowski’s reasoning does not apply here because the
FDIC never appeared in state court for this case before April of 2011.
The adoption of the approach in Buczkowski and Gilmor would allow the FDIC itself or
some other party in a suit to determine whether and when there is federal subject matter
jurisdiction under § 1819. This effectively divests the state court of the authority to determine
whether substitution of the FDIC is appropriate in a given case. The court declines to adopt such
an approach absent clear Congressional authorization.
The FDIC’s removal was timely, and the court will not remand the case to state court.
IT IS THEREFORE ORDERED that Plaintiff’s Motion to Remand (Doc. 3) is denied.
Dated this 28th day of June 2011, at Kansas City, Kansas.
s/ Carlos Murguia
CARLOS MURGUIA
United States District Judge

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