Commercial Law Corporation, P.C. v. Federal Deposit Insurance Corporation

Filing 280

ORDER re 274 MOTION Enforce Security Interests filed by Commercial Law Corporation, P.C. (Evidentiary Hearing set for 12/3/2018 at 02:00 PM before District Judge Sean F. Cox) Signed by District Judge Sean F. Cox. (JMcC)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Commercial Law Corporation, P.C.,
a Michigan Professional Corporation,
Plaintiff,
v.

Case No. 10-13275
Sean F. Cox
United States District Court Judge

Federal Deposit Insurance Corporation,
as Receiver for Home Federal Savings
Bank,
Defendant.
___________________________________/

OPINION & ORDER
Plaintiff Commercial Law Corporation (“CLC”) filed this action against Defendant the
Federal Deposit Insurance Corporation (“FDIC”) in its capacity as receiver for a failed bank,
claiming $176,500.00 in unpaid attorney fees for legal services provided to the bank. In this
action, CLC asserted a breach of contract claim for the unpaid fees and also asserted a separate
“lien claim,” based on two liens to real property that the bank’s officers allegedly gave CLC
prior to its insolvency. After two appeals to the Sixth Circuit, the matter is back before this
Court on CLC’s Motion for Enforcement of Secured Interests. In this motion, CLC asserts that it
is a secured creditor, by virtue of the liens, and that the FDIC cannot satisfy the judgment it
received in this action, following the first appeal, by providing it a useless “receiver’s
certificate” for the amount of the judgment. CLC asks the Court to “allow it to enforce its
judgment against secured interest granted by Home Federal Savings Bank and its successor
FDIC.”

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This motion was fully briefed and the Court held a hearing on October 18, 2018. As
explained below, the Court concludes that the most efficient way of resolving this longstanding
and contentious case would be for the Court to determine the validity of the alleged liens at an
evidentiary hearing or bench trial. After doing so, the Court can proceed to determine any
remaining issues.
BACKGROUND
This contentious case, filed back in 2010 and originally assigned to the Honorable Denise
Page Hood, has a lengthy background. The Court includes here only those facts relevant to the
pending motion.
On November 6, 2009, Home Federal Savings Bank (“HFSB”) was closed by the
Office of Thrift Supervision and the FDIC was appointed as the bank’s receiver. Thereafter,
CLC submitted a timely administrative proof of claim to the FDIC seeking payment of $176,750
in attorney fees for services that had been performed for the bank. In June of 2010, the FDIC
disallowed CLC’s administrative claim in its entirety, prompting this litigation.
On August 18, 2010, Plaintiff CLC filed this action against the FDIC, as Receiver for
HFSB. The action was filed in federal court based upon federal-question jurisdiction under 12
U.S.C. § 1819(b)(2)(A). The action was originally assigned to Judge Hood.
CLC’s complaint alleges that CLC provided services to HFSB and that it is owed money
for unpaid legal work that was performed before the bank went into receivership. The complaint
notes that CLC made a claim to the FDIC for the claimed work but the claim was disallowed.
The complaint alleged that “[a]s security for the services rendered, the board of HFSB agreed to
allow CLC to place a charge on its real property” and that the “chairperson of the HFSB board

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executed an attorney lien on November 1, 2009 and CLC recorded the lien on January 26, 2010.”
(Compl. at ¶ 13-14). CLC attached a copy of the attorney liens as Exhibit G to its complaint.
The attorney liens state that CLC was claiming an attorney’s charging lien on the
ownership interest of HFSB in the real property identified in them, which are two properties: 1)
9108 Woodward Avenue in Detroit, Michigan (“the Woodward Property”); and 2) 13300 W.
Seven Mile Road Detroit, Michigan (the “Seven Mile Property”).
On November 9, 2011, Judge Hood disqualified herself from the case and its was
reassigned to this Court.
In an Opinion & Order issued on March 21, 2012, this Court struck CLC’s jury demand
as to the lien claim, ruling that claim is an equitable claim to be tried by the bench. (D.E. No.
112).
There were numerous discovery disputes that delayed the progression of this action. This
Court extended the dates contained in the Scheduling Order several times. Ultimately, the Court
set a final date of October 25, 2013 for the filing of dispositive motions.
On February 4, 2014, this Court issued an Opinion & Order wherein it granted summary
judgment in favor of the FDIC, concluding that its claims failed as a matter of law. On February
5, 2014, this Court issued an Amended Judgment in this action that stated:
For the reasons set forth in an Opinion & Order issued on February 4,
2014, IT IS ORDERED, ADJUDGED, AND DECREED that this action is
DISMISSED WITH PREJUDICE and the Court DECLARES that the attached
Attorney Liens, dated November 1, 2009, and filed with the Wayne County
Register of Deeds on January 26, 2010, at Liber 48322 Page 117-119, and at
Liber 48322 Page 120-122, are VOID AND DISCHARGED.
(D.E. No. 199).
CLC filed a timely appeal, appealing the February 4, 2014 Opinion & Order. (See D.E.
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No. 200). But CLC did not request that either this Court or the Sixth Circuit stay execution of
the judgment during the pendency of its appeal.
The FDIC asserts, but has not offered any evidence to substantiate, that it recorded the
Amended Judgment with the Wayne County Register of Deeds on February 10, 2014.
The FDIC further states that on June 23, 2014 – approximately four months after the
Amended Judgment was recorded – the FDIC transferred both the Woodward and Seven Mile
Properties to Liberty Bank and Trust Co. (Def.’s Br. at 10). The FDIC states that when the
HFSB was closed the FDIC had entered into a “Purchase and Assumption Agreement” through
which it sold some of the failed bank’s assets, including the two properties. But, because of the
liens CLC had recorded, the FDIC had been unable to consummate the sale and transfer. (Id.).
The FDIC states that after the Amended Judgment was recorded, it was finally able to do so after
waiting more than four years. The FDIC asserts that since that time both properties “have been
owned free and clear by Liberty, which is not now and never has been a party to this lawsuit.”
(Id.).
On January 27, 2015, the Sixth Circuit issued a decision, wherein it reversed this Court’s
grant of summary judgment, taking a more narrow view of the D’Oench doctrine than the Eighth
Circuit. Commercial Law Corp., P.C. v. F.D.I.C., 777 F.3d 324 (6th Cir. 2015). In its opinion,
the Sixth Circuit noted that CLC raised multiple issues, but concluded that “CLC adequately
develop[ed] only three issues.” Id. at 327.
In a footnote, the Sixth Circuit noted that CLC objected to other matters, including “the
district court’s order striking its jury demand for the lien claim,” and ruled that issue was
forfeited. Id. at 327 n.1. Thus, this Court’s order ruling that CLC has no right to a jury trial

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relating to its lien claim stands.
The Sixth Court found the following issues to be adequately developed such that it would
rule on them: 1) the applicability of D’Oench and § 1823(e)(1) to its claim for attorneys’ fees; 2)
the district court’s exclusion of the retainer agreement as a discovery sanction; and 3) the court’s
conclusion that CLC’s security interests were granted in contemplation of the bank’s insolvency.
In ruling in favor of CLC on the first issue, the Sixth Circuit referenced and discussed the
liens, stating:
With respect to CLC’s security interests in two bank properties, the FDIC
contends that CLC’s liens diminish the FDIC’s interest in those assets, and thus
bring this case under D’Oench. The district court agreed, relying on the Eighth
Circuit’s decision in North Arkansas Medical Center v. Barrett, 962 F.2d 780 (8th
Cir. 1992). That decision, we note, adopted a much broader reading of D’Oench
and §§ 1821(d)(9)(A) and 1823(e)(1) than we do. See N. Ark. Med. Ctr., 962 F.2d
at 787-89 (holding that the statutory documentation requirements apply to
security interests pledged by a failing financial institution as collateral for large
certificates of deposit).
Regardless, CLC has not attempted to enforce the attorney liens in this
case. The complaint seeks only “an order awarding it its attorney fees as
invoiced plus attorney fees and costs so wrongfully incurred in this matter.”
CLC’s appellate briefing on the security interests similarly focuses on the fees
claim; the matter appears as a sub-argument of the D’Oench issues pertaining to
CLC’s fees claim and informs the court that CLC “is only seeking compensat[ion]
for valuable services” it performed for the bank.
The existence of these disputed liens does not convert CLC’s
straightforward contract claim for fees into the sort of secret agreement affecting
bank assets and liabilities covered by D’Oench. CLC avers that the bank executed
the security interests in November 2009, toward the end of the period of disputed
legal services and just before the FDIC takeover. It therefore appears to present an
agreement separate from the fee-deferral. Further, as we understand it, the
alleged liens constitute a contingent remedy, available only if CLC prevails on
the merits of its fees claim and the FDIC then defaults. Even then, CLC would
need to demonstrate the legitimacy of the liens in the face of the FDIC’s fraud
allegations – something Erwin acknowledged during oral argument. Given the
uncertain procedural posture of the security-interest claim, the contingent nature
of the remedy, and the sparse briefing of these issues, we declined to address any
remaining statutory or D’Oench issues at this time.
Id. at 333-34 (emphasis added).
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As to the second issue, CLC’s challenge of this Court’s discovery sanction of striking the
1989 retainer agreement, the Sixth Circuit concluded that issue was moot and did not address it.
As to the third issue, CLC challenged this Court’s conclusion that CLC’s security
interests were granted in contemplation of the bank’s insolvency. In the facts section of the
opinion, the Sixth Circuit noted that CLC claimed that “five days before the FDIC takeover, the
bank granted it security interests in two bank properties” but “[i]nexplicably, CLC waited until
late January 2010 to record the attorney liens for these security interests.” Id. at 326. The Sixth
Circuit concluded that this was an issue for the factfinder to determine, stating:
Finally, we address the district court’s alternative conclusion holding the
attorney liens unenforceable under 12 U.S.C. § 1823(e)(12) because they “were
taken in contemplation of the Bank’s insolvency.” The court premised its ruling
on two facts: (I) Erwin’s alleged execution of the security interests five days
before the bank was put into receivership, and (ii) the bank’s understanding that
CLC would defer collecting fees until the bank’s financial condition improved.
The FDIC’s briefing adds nothing to this account, other than its assertion that Erin
may have backdated the lien documents. A reasonable factfinder may well agree
that this sequence of events demonstrates that the bank executed the security
interests in expectation of its demise. But, in the absence of additional evidence
demonstrating the parties’ actual or constructive knowledge of the bank’s
financial situation, the temporal proximity of the security interests to the FDIC
takeover does not suffice for ruling on this issue as a matter of law. Cf. Pearson
v. Durell, 77 F.2d 465, 566-68 (6th Cir. 1935) (granting judgment to bank’s
receiver, where the record established that a bank director retrieved funds from
the failing bank the day before its liquidation, at a time when the bank “had
neither the money nor any assets on which it could obtain money to meet its
obligations.”).
Id. at 334.
The Sixth Circuit reversed the judgment and remanded “for further proceedings
consistent with this opinion.” Id.
At a Status Conference held after the mandate issued, Counsel for both parties inquired
about filing additional dispositive motions. Due to the very late stage of this litigation, the Court
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issued an order on June 30, 2015, providing that any party who wishes to file a dispositive
motion must file a motion seeking leave to do so. Soon after, both parties sought leave to file
untimely dispositive motions. This Court denied leave to file both motions.
Thereafter, the parties agreed to a Joint Final Pretrial Order (Docket Entry No. 215).
After submitting the Joint Final Pretrial Order, the parties then filed a number of motions in
limine, that were decided by the Court. The parties also filed their trial materials, including
trial briefs, proposed voir dire, and proposed jury instructions. A jury trial was scheduled to
begin on Tuesday, March 15, 2016.
On March 3, 2016, the FDIC filed “FDIC-R’s Motion to Dismiss Case Pursuant to Fed.
R. Civ. P. 12(b)(1) and (h)(3).” (Docket Entry No. 248). In this motion, the FDIC asserted that
on March 3, 2016, the FDIC “tendered to the Plaintiff a receiver’s certificate” in the amount of
$176,750. The FDIC asserted that this Court should dismiss this case because the FDIC has
provided Commercial Law with all the relief that Commercial Law could obtain in this action.
On March 14, 2016, this Court held a Mandatory Trial Conference with the parties.
Later that same day, the Court issued a Judgment in favor of Commercial Law that stated
as follows:
As stipulated by the parties on the record this date, the Court hereby enters
Judgment in favor of Plaintiff Commercial Law Corporation, P.C. and against the
Federal Deposit Insurance Corporation, as Receiver for Home Federal Savings
Bank, in the amount of $176,750.00, with any interest, costs, and attorney fees to
be determined by the Court.
(D.E. No. 253). A footnote to it stated “[a]s set forth on the record this date, the Court notes that
the FDIC contends that the Judgment is satisfied by tendering a receiver’s certificate in the
amount of $176,750.00 to Plaintiff. Plaintiff disagrees. The parties also dispute whether

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Plaintiff may recover any interest, costs, or attorney fees under applicable law.” The Court
included that footnote in order to note the parties’ respective positions, and allow the parties to
file whatever motions they deemed appropriate as to those issues.
Thereafter, Commercial Law filed two different motions: 1) a Motion for Leave to
Recover Attorney Fees, Interest and Have Costs Taxed to Defendant FDIC (D.E. No. 254); and
2) Commercial Law’s Motion For Review Of Costs Denied By Clerk (D.E. No. 258).
On July 28, 2016, this Court issued an Opinion & Order (D.E. No. 262) wherein it denied
CLC’s request for attorney fees, but awarded CLC costs. CLC appealed.
In a decision issued on November 6, 2017, the Sixth Circuit noted that CLC had raised
“an array of arguments” on appeal. Commercial Law Corp. v. F.D.I.C., 716 F. App’x 383, 385
(6th Cir. 2017). But, once again, it did not address them all.
The Sixth Circuit first noted that CLC argued that the “receiver’s certificate” it got from
the FDIC did not satisfy the judgment but, because “CLC did not press this argument to
resolution in the district court,” it concluded that the issue was “not properly before us.” Id. 38586. Nevertheless, the court explained:
The FDIC had transferred HFSB’s assets to a third party, Liberty Bank and Trust
Co., and rejected CLC’s claim that it had a valid lien on HFSB, meaning that it
deemed CLC an unsecured creditor. In short, CLC has not been paid and if it is
actually an unsecured creditor it likely will not be paid. When a receiver issues a
“receiver’s certificate” to an unsecured creditor, it entitles that creditor to share in
the available fund pro rata with all other unsecured claims. If FDIC is correct and
CLC is an unsecured creditor, the “receiver’s certificate” would satisfy the
judgment even though CLC will likely not receive any of the $176,750 judgment.
CLC, however, contends that it is a secured creditor and, because receivers may
not issue “receiver’s certificates” to secured creditors, the “receiver’s certificate”
issued here does not satisfy the judgment.
Id. at 385-86.

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The Sixth Circuit then proceeded to address this Court’s denial of requested attorney fees
to CLC, affirmed this Court’s rulings, and affirmed the judgment of the district court. Id. at 387.
The court did note that there was a clerical error as to the amount of costs, in that CLC was
entitled to $30 more than reflected in total of costs awarded. It suggested the CLC file a motion
to correct the amount of costs, pursuant to Fed. R. Civ. P. 60(b).
The mandate issued on February 14, 2018. Thereafter, the parties agreed to the entry of
an Amended Judgment that included the correct amount of costs.
On May 29, 2018, CLC filed the pending “Motion for Enforcement of its Amended
Judgment Against Its Secured Interests On Property Of Home Federal Savings Bank Held In
Receivership By Defendant FDIC.” (D.E. No. 274). In it, CLC makes a variety of arguments.
In sum, CLC asserts that it is a secured creditor, by virtue of the liens, and that the FDIC cannot
satisfy the judgment it received in this action by tendering a receiver’s certificate. CLC asks the
Court to “allow it to enforce its judgment against secured interest granted by Home Federal
Savings Bank and its successor FDIC.” (Pl.’s Br. at 1).
In response, the FDIC asserts that the motion should be denied for three reasons: 1)
“CLC’s judgment has already been paid, in full,” through the FDIC’s issuance of receiver
certificates, and thus no collection remedies are available; 2) the liens no longer exist and the
attorney lien claim is now moot; and 3) even if the receiver’s certificate did not constitute
payment, and the liens still exist, CLC still could not enforce the liens because CLC “has not and
cannot prove the liens are valid, as expressly required by the Sixth Circuit’s mandate in this
case.” (Def.’s Br. at 2). As to that third argument, the FDIC’s brief further states that “the Sixth
Circuit was clear that (1) enforcement of the liens would only be available if and when CLC

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obtained a judgment and the FDIC-R failed to pay such judgment; and (2) even in that situation,
CLC would need to first demonstrate the validity of the liens.” (Id. at 12-13).
ANALYSIS
The bulk of CLC’s motion is devoted to its position that: 1) CLC has a secured claim, not
an unsecured claim, and therefore the FDIC cannot satisfy the judgment in this case via a
receiver’s certificate; and 2) it should be permitted to enforce its security interest in the two
properties.
In ruling on the first appeal, the Sixth Circuit stated that CLC’s disputed liens “constitute
a contingent remedy” that would be available “only if:” 1) “CLC prevails on the merits of its
fees claim” and 2) “the FDIC then defaults.” Commercial Law Corp., 777 F.3d at 333.
Moreover, “[e]ven then, CLC would need to demonstrate the legitimacy of the liens” especially
in light of the fraud allegations made by the FDIC. Id.
Following that first appeal, the FDIC and CLC stipulated to the entry of a judgment in
this action in favor of CLC in the amount of $176,500.00. That is the total amount of alleged
unpaid attorney fees that CLC sought in this case. Thus, CLC prevailed on its fees claim.
The next issue to determine is whether the FDIC defaulted, such that CLC could seek to
pursue the contingent remedy of enforcing the disputed liens in this case.
It appears undisputed that: 1) if CLC is an unsecured creditor, the “receiver’s certificate”
tendered by the FDIC to CLC would satisfy the judgment in this action, even though as a
practical matter it would likely receive no actual monetary payment; and 2) if CLC is a secured
creditor, the judgment cannot be satisfied by a receiver’s certificate. See Commercial Law
Corp., 716 F. App’x at 385; see also FDIC’s Br. (arguing repeatedly that the issuance of

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receiver’s certificate is considered full payment for an unsecured claim).
Thus, the issue becomes whether CLC’s claim for unpaid attorneys’ fees is a secured
claim, by virtue of having been granted valid liens to the two properties owned by the bank. But,
in light of the Sixth Circuit’s reversal of this Court’s grant of summary judgment, the issue of the
validity of the liens is an open question in this case.
This Court’s prior Opinion & Order that granted summary judgment in favor of the FDIC
concluded that CLC’s lien claim failed because the liens were taken in contemplation of the
bank’s insolvency, in violation of 12 U.S.C. § 1821(e)(12). (See 2/4/14 Opinion & Order at 2021). This Court further expressed that another basis for invalidating the liens may exist. (Id. at
22) (stating that “[b]ased on the evidence presented to date, Mr. Erwin may well have
fraudulently created and back-dated the lien documents at issue,” but concluding “that it would
not be appropriate to make a ruling on th[at] issue without holding an evidentiary hearing or
bench trial on the issue.”). On appeal, however, the Sixth Circuit concluded the issue should be
decided by the factfinder. See Commercial Law Corp., 777 F.3d at 334.
Accordingly, the Court concludes that the most efficient way of resolving this
longstanding and contentious case would be for the Court to determine the validity of the alleged
liens at an evidentiary hearing or bench trial. After doing so, and issuing its ruling, the Court can
proceed to determine any remaining issues in this case.
Accordingly, the Court ORDERS that CLC’s pending motion IS GRANTED only to the
extent that the Court shall hold an evidentiary hearing/bench trial, in order to determine the
validity of the alleged liens. IT IS FURTHER ORDERED that:
1)

The Court shall hold the evidentiary hearing/bench trial on December 3, 2018,

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beginning at 2:00 p.m., and continuing thereafter as needed;
2)

No later than November 15, 2018, each party shall file a Witness List,
identifying all witnesses that may be called to testify at the evidentiary hearing,
along with a description of the expected testimony from each witness, and an
estimate as to the amount of time for the testimony of each witness;

3)

No later than November 15, 2018, each party shall file an Exhibit List, that
identifies all proposed exhibits that may be introduced into evidence at the
evidentiary hearing. Plaintiff shall label its proposed exhibits with sequential
letters and Defendant shall label its proposed exhibits with sequential numbers;

4)

No later than November 16, 2018, each party shall deliver to chambers two (2)
copies of a binder that contains all of its proposed exhibits; and

5)

No later than November 15, 2018, each party shall file Proposed Findings of
Fact and Conclusions of Law.

IT IS FURTHER ORDERED that the Court DENIES all remaining issues raised in
CLC’s motion WITHOUT PREJUDICE. After the Court issues its ruling regarding the
validity of the liens, the Court will hold a Status Conference, in order to determine an
appropriate schedule for determining any remaining issues in this case.
IT IS SO ORDERED.
s/Sean F. Cox
Sean F. Cox
United States District Judge
Dated: October 29, 2018
I hereby certify that a copy of the foregoing document was served upon counsel of record on

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October 29, 2018, by electronic and/or ordinary mail.
s/Jennifer McCoy
Case Manager

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