Beal Bank Nevada v. The Business Bank of St. Louis

Filing 27

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that the motion of plaintiff Beal Bank Nevada to dismiss the counterclaims of defendant Beal Bank of St. Louis (Doc. 14 ) is sustained.. Signed by Magistrate Judge David D. Noce on 8/8/11. (KKS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
BEAL BANK NEVADA,

)
)
)
)
)
)
)
)
)

Plaintiff,
v.
THE BUSINESS BANK OF ST. LOUIS,
Defendant.

No. 4:11 CV 561 DDN

MEMORANDUM AND ORDER
This action is before the court on the motion of plaintiff Beal Bank
Nevada to dismiss the counterclaims of defendant The Business Bank of St.
Louis.

(Doc. 14.)

The parties have consented to the exercise of plenary

authority by the undersigned United States Magistrate Judge pursuant to
28 U.S.C. § 636(c).
2011.

(Doc. 13.)

Oral arguments were heard on July 27,

For the reasons set out below, the court grants the motion to

dismiss.
I.

BACKGROUND

On March 25, 2011, plaintiff Beal Bank Nevada (Beal Bank) commenced
this action seeking declaratory, monetary, and related relief against
defendant The Business Bank of St. Louis (BBSL), for BBSL’s failure to
remit payments owed to Beal Bank.

(Doc. 1.)

Prior to September 6, 2007, BSSL made a loan to Matthew J. and Toni
Ratteree in the principal amount of $4.9 million (the “Ratteree Loan”).
(Doc. 1 at ¶ 7; Doc. 11 at ¶ 7.)

On September 6, 2007, BBSL sold an

undivided 82% interest in the Ratteree Loan to Champion Bank. (Doc. 1-1;
Doc. 11-1.)

The terms of the sale were governed by a Participation

Agreement (the “Participation”).

(Id.)

Under the Participation, all

payments due to Champion were to be remitted by BBSL within ten business
days from their receipt.
Participation

also

(Participation, Doc. 1-1 at ¶ 2.)

contained

the

following

The

right-of-first-refusal

provision:
11. Assignability; Right to Repurchase. Without the prior
written consent of Originating Bank, Participating Bank may
not assign its obligation to fund disbursements or

expenditures in connection with the Loan or sell, pledge or
otherwise transfer its Participation in the Loan without first
offering to Originating Bank the right to repurchase the
Participation. Originating Bank shall have no obligation to
repurchase the Participation under any circumstances.
Participating Bank shall provide to Originating Bank a written
agreement from a third party to purchase the Participation,
and Originating Bank shall have fifteen (15) days from the
receipt of such agreement to notify Participating Bank that
Originating Bank will repurchase the Participation on the same
terms as set out in such agreement. Participating Bank shall
have the right, if Originating Bank does not notify
Participating Bank that it is exercising its right to
repurchase the Participation within such fifteen (15) day
period, to assign or transfer the Participation to such third
party.
(Participation, Doc. 1-1 at ¶ 11.)
On April 30, 2010, Champion was closed by the Missouri Division of
Finance as a “failed bank.”

(Doc. 1-2.)

The Federal Deposit Insurance

Corporation (FDIC) was named receiver pursuant to 12 U.S.C. § 1821.
(Id.) The FDIC then began liquidating certain of Champion’s assets,
including the Participation.

(Doc. 1 at ¶ 11; Doc. 11 at ¶¶ 12,13.)

On

May 20, 2010, BBSL offered to repurchase the Participation from the FDIC
for approximately 50% of its then-outstanding balance.

(Doc. 1-3)

On

September 22, 2010, the FDIC rejected BBSL’s offer and encouraged BBSL
to “make an additional offer that more closely resembles the value of the
Participation

interest.”1

(Id.)

The

FDIC

undertook

to

sell

the

Participation through a bidding process, and made BBSL aware of its
intention to do so.

(Doc. 1 at ¶ 13; Doc. 11 at ¶ 13.)

BBSL objected

to the sale of the Participation to the FDIC on at least three occasions:
(1) by letter dated September 27, 2010; (2) by letter dated October 15,
2010; and (3) in a phone conversation on October 12, 2010.

(Doc. 1-6;

Doc. 11 at ¶ 20.)
On December 3, 2010, the FDIC and Beal Bank executed an Assignment
and Assumption of Interests and Obligations (the “Assignment”), under
which the FDIC transferred all of the rights, title, and interests in the
Participation to Beal Bank, with Beal Bank assuming “all obligations

1

This letter was sent to BBSL from SitusServe, L.P., the Special
Servicer appointed by the FDIC to service the loan. (Doc. 1-3.)
- 2 -

arising from and after the date [t]hereof.”
1,2.)

(Doc 1-4; Doc. 1-2 at ¶¶

On January 11, 2011, the FDIC sent a letter to BBSL advising it

of the sale of the Participation to Beal Bank.

(Doc. 1-5; Doc. 11 at ¶

16.)
Since then, BBSL has not remitted to Beal Bank any of the payments
due under the Participation.

(Doc. 1 at ¶ 18; Doc. 11 at ¶ 18.)

On

January 17, 2011, BBSL wrote a letter to CLMG, Beal Bank’s authorized
servicer, stating its challenges to the purported Assignment.
7.)

(Doc. 1-

BBSL argued that FDIC repudiation requires payment of damages, and

also claimed tortuous interference with state contractual rights for the
breach of its right-of-first-refusal.

(Id.)

In a letter to CLMG dated

February 7, 2011, BBSL reasserted these allegations against CLMG and Beal
Bank.

(Doc. 1-7; Doc 11 at ¶ 21.) BBSL also raised these complaints with

the FDIC directly.

(Doc. 1-6; Doc. 11 at ¶ 20.)

In response, the FDIC

advised BBSL on at least two occasions of BBSL’s right to file an
administrative claim against it, as receiver, for any damages BBSL
believed the FDIC had caused.
administrative claim.

(Id.)

BBSL has not filed any such

(Doc. 1 at ¶ 22; Doc. 11 at ¶ 22.)

On March 25, 2011, Beal Bank commenced this action by filing a
judicial complaint seeking relief.

(Doc. 1.)

In Count I, Beal Bank

seeks a declaratory judgment that the FDIC had the power to sell the
Participation to Beal Bank and that the sale was valid.
In Count II, Beal Bank seeks a declaratory judgment that (a) any
claims BBSL may have arise from the FDIC’s sale of the Participation to
Beal Bank and relate to the independent, intervening acts or omissions
of the FDIC; (b) any such claim is cognizable, if at all, solely against
the FDIC; (c) BBSL is required to pursue any such claims through the
exclusive claims process provided for by the Financial Institutions
Reform, Recovery, and Enforcement Act (“FIRREA”), 12 U.S.C. §1821; (d)
BBSL has failed to invoke, pursue, and exhaust these processes; (e)
absent

BBSL’s

compliance

with

such

processes,

BBSL’s

claim

is

jurisdictionally barred under 12 U.S.C. § 1821(d)(13)(D); and (f) any
such claim cannot be used as a basis to deny payments to Beal Bank under
the Participation.

- 3 -

In Count III, Beal Bank seeks a declaratory judgment that BBSL has
no claim against Beal Bank related to any alleged violation of the
Participation occurring prior to the sale date.

In Count IV, Beal Bank

seeks an order (a) directing BBSL to perform under the Participation and
make payments when due to Beal Bank; and (b) directing BBSL to account
to Beal Bank for all amounts due under the Participation.

Finally, in

Count V, Beal Bank seeks an award of attorneys’ fees.
On May 20, 2011, defendant BBSL filed an Answer, Affirmative
Defenses, and Counterclaim.

(Doc. 11.)

In its answer and affirmative

defenses, BBSL denies that Beal Bank is entitled to any of the relief
sought, claims that Beal Bank is not a valid party to the Participation,
and asserts that it has performed all of its obligations under the
Participation and has at all times acted in good faith.

(Id.)

BBSL alleges that in September 2010, it raised its objections to the
FDIC, reiterating that under the terms of the Participation, the FDIC
could not transfer the Participation without first offering BBSL the
right to repurchase it, pursuant to BBSL’s right-of-first-refusal under
paragraph 11 of the Participation.

(Id. at ¶ 11.)

BBSL further alleges

that Beal Bank knew or should have known of the existence of its rightof-first-refusal and that both Beal Bank and the FDIC failed to comply
with the right-of-first-refusal in executing the transfer.

(Id. at ¶¶

12, 15.)
In Count I of its counterclaims, BBSL alleges that Beal Bank is in
breach of contract for the FDIC’s failure to comply with the right-offirst-refusal, and that Beal Bank assumed liability for this breach from
the FDIC under the terms of the Assignment.

(Doc. 11 at ¶¶ 17-19.) BBSL

seeks monetary damages in excess of $75,000.00 for damages caused by this
breach, as well as incidental damages, prejudgment interest, attorneys’
fees, and litigation costs.

(Doc. 11 at ¶¶ 10, 11.)

In Count II of its counterclaims, BBSL seeks (a) an order from this
court directing Beal Bank to disclose the price paid for the Assignment
of the Participation; (b) rescission of the Assignment and an order that
it be given the option to repurchase the Participation interest; and (c)
that it be awarded its costs, expenses, and attorneys’ fees.

- 4 -

(Id.)

II.

MOTION TO DISMISS

On June 10, 2011, plaintiff Beal Bank moved to dismiss defendant
BBSL’s counterclaims.

(Docs. 14, 15.)

First, Beal Bank argues that

dismissal of BBSL’s counterclaims is proper under Fed. R. Civ. P.
12(b)(1) for lack of subject matter jurisdiction, because BBSL failed to
exhaust its administrative remedies under FIRREA. (Doc. 15 at ¶¶ 3-7.)
Second, Beal Bank argues that dismissal of BBSL’s counterclaims is proper
under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which
relief can be granted, because FIRREA preempts BBSL’s contractual rightof-first-refusal and because, under Missouri law, Beal Bank could not
have breached a contract to which it was not a party at the time of
breach.

(Doc. 15 at ¶¶ 7-12.) Finally, Beal Bank argues that dismissal

of BBSL’s counterclaims is required by Fed. R. Civ. P. 12(b)(7) for
failure to join a necessary party because the FDIC is an absent necessary
party to the counterclaim.

(Doc. 15 at ¶¶ 13-15.)

The court dismisses BBSL’s counterclaims for lack of subject matter
jurisdiction and for lack of a necessary party.

The court does not reach

the second issue of whether the counterclaims state a claim upon which
relief can be granted.

III.
A.

DISCUSSION

Lack of Subject Matter Jurisdiction
Beal Bank argues that dismissal of defendant BBSL’s counterclaims

is required for lack of subject matter jurisdiction, because BBSL failed
to exhaust its administrative remedies under FIRREA.

12 U.S.C. §

1821(d). Beal Bank also argues that the relief sought by BBSL in Count
II of its counterclaims is prohibited by 12 U.S.C. § 1821(j).

(Doc. 15.)

BBSL concedes that it did not pursue any administrative remedies under
FIRREA, but contends that it was not required to do so in order to raise
its counterclaims.

(Doc. 21.)

1. FIRREA Exhaustion Requirement
FIRREA’s jurisdictional provision, 12 U.S.C. § 1821(d)(13)(D),
states:
Except as otherwise provided in this subsection, no court
shall have jurisdiction over —
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(i) any claim or action for payment from, or any action
seeking a determination of rights with respect to, the assets
of any depository institution for which the [FDIC] has been
appointed receiver, including assets which the [FDIC] may
acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such
institution or the [FDIC] as receiver.
12 U.S.C. § 1821 (d)(13)(D)(i),(ii).
“Under FIRREA, Congress established a comprehensive claims review
process for claims against the assets of failed banks held by the FDIC
as receiver.”

Tri-State Hotels, Inc. v. FDIC, 79 F.3d 707, 712 (8th Cir.

1996); see 12 U.S.C. § 1821(d)(3)-(13).

Claimants must initially submit

their claims to the FDIC for review through this process.
Hotels, 79 F.3d at 712.

Tri-State

The only exception to this jurisdictional bar

is found in 12 U.S.C. § 1821(d)(6)(a), which “provides that courts have
jurisdiction over claims that have first been presented to the FDIC under
its administrative review process.”

Id.

Aggrieved parties must fully exhaust the administrative process
before the court gains subject matter jurisdiction over the controversy.
Bueford v. RTC, 991 F.2d 481, 484 (8th Cir. 1993).

“Every court that has

considered the issue has found exhaustion of FIRREA’s administrative
remedies to be a jurisdictional prerequisite to suit in district court.”
Id.; see, e.g. Henderson v. Bank of New England, 986 F.2d 319, 321 (9th
Cir. 1993); Vill. of Oakwood v. State Bank & Trust Co., 539 F.3d 373,
385-86 (6th Cir. 2008).
The exhaustion requirement is equally applicable to actions brought
as counterclaims.

Am. First Fed., Inc. v. Lake Forest Park, Inc., 198

F.3d 1259, 1263 (11th Cir. 1999); RTC v. Midwest Fed. Sav. Bank of Minot,
36 F.3d 785, 791 (9th Cir. 1993).
The language of § 1821(d)(13)(D) “is quite broad and precludes
jurisdiction over ‘any claim or action’ seeking a determination with
respect to the assets of any depository institution.”

FDIC v. Updike

Bros., Inc., 814 F. Supp. 1035, 1039 (D. Wyo. 1993) (quoting 12 U.S.C.
§ 1821 (d)(13)(D)(i)); accord RTC v. Tri-State Realty Investors of K.C.,
Inc., 838 F. Supp. 1448, 1451 (D. Kan. 1993). The exhaustion requirement
extends to, among other things: (a) claims brought by non-creditors,
- 6 -

Updike Bros, 814 F. Supp. at 1039-40 (rejecting the argument that the
exhaustion requirement applies exclusively to creditors’ claims, and
applying exhaustion requirement to the counterclaims of a mortgagee);
Tri-State Hotels, 79 F.3d at 713-14 (debtor of a failed bank); Freeman
v. FDIC, 56 F.3d 1394, 1401 (D.C. Cir. 1995) (all FDIC claims, “whether
those claims and actions are by debtors, creditors, or others”); (b) to
claims related to the pre-receivership actions of failed institutions,
Tri-State Hotels, 79 F.3d at 713-14; (c) claims related to the direct
actions of the FDIC as receiver, Home Capital Collateral, Inc. v. FDIC,
96 F.3d 760, 763 (5th Cir. 1996) (includes all postreceivership acts or
omissions of the FDIC); McCarthy v. FDIC, 348 F.3d 1075, 1079 (9th Cir.
2003)(action against FDIC for breach of a fiduciary duty); and (d) to
many other types of claims that are wholly unrelated to repudiation, Rosa
v. RTC, 938 F.2d 383, 391-92 (3d Cir. 1991) (ERISA claim); RTC v. Ryan,
801 F.Supp 1545, 1557 (S.D. Miss. 1992) (claim under Federal Tort Claims
Act); Palumbo v. Roberti, 839 F. Supp. 80, 85 (D. Mass 1993) (claim based
on damage to neighboring real property).
To allow BBSL to circumvent the well established FIRREA process
“would encourage the very litigation that FIRREA aimed to avoid”
undercut clear congressionally mandated law.

and

Vill. of Oakwood, 539 F.3d

at 386.
2.

Applicability of Exhaustion Requirement to Claims Brought
Against Third Parties
“[C]ourts have consistently held that the plain language of §
1821(d)(13)(D) bars claims ‘relating’ to the acts of the receiver or
seeking the assets of the failed bank, even when those claims are
asserted against the third party purchaser of failed-bank assets from the
receiver.”

Aber-Shukofsky v. JPMorgan Chase & Co., 755 F. Supp. 2d 441,

449 (E.D.N.Y. 2010)(internal citations omitted); see also Vill. of
Oakwood, 539 F.3d at 386; diSibio v. Mission Nat’l Bank, 127 Fed. App’x.
950, 951 (9th Cir. 2005); Am. First Fed., Inc., 198 F.3d at 1263 n.3.
A claimant “cannot evade FIRREA’s mandatory exhaustion requirement simply
by asserting claims against . . . third party purchasers of the failed
bank’s assets.”

Aber-Shukofsky, 755 F. Supp. 2d at 448.

This is because

a third party purchaser or successor “stands in the shoes of the [FDIC]

- 7 -

and acquires its protected status under FIRREA.” Am. First Fed., Inc.,
198 F.3d at 1263 n.3; accord McCarthy v. Beal Bank, SSB, 192 Fed. App’x.
560, 2006 WL 2321208, at *1 (8th Cir. 2006) (per curiam); FDIC v.
Newhart, 892 F.2d 47, 50 (8th Cir. 1989).

As a result, if the claim is

barred as against the FDIC, “it is similarly barred” as against the
acquiring institution.

Id.; accord McCarthy, 348 F.3d at 1079.

FIRREA’s exhaustion requirement is thus equally applicable to claims
against Beal Bank, as a third party purchaser and successor in interest
of a failed bank’s assets, just as if they were brought directly against
the FDIC.
3. Applicability of Jurisdictional Bar to Rescission
Beal Bank argues that the remedies which BBSL seeks in Count II of
its counterclaims are tantamount to injunctive relief and thus expressly
prohibited by 12 U.S.C. § 1821(j).

BBSL contends that the relief it

seeks is of a merely declaratory nature, and that it is not prohibited
by FIRREA because it does not seek to restrain the FDIC.
12 U.S.C. § 1821(j) states that “no court may take any action . .
. to restrain or affect the exercise of powers or functions of the [FDIC]
as a conservator or a receiver.”

12 U.S.C. § 1821(j).

This absolute bar

to the court’s powers over the actions of the receiver applies to
equitable relief, including rescission, because, as the Eighth Circuit
has stated, “rescinding the agreements would act as an impermissible
restraint on the ability of the FDIC to exercise its powers as receiver.”
Tri-State Hotels, Inc., 79 F.3d at 715.

This holding is consistent with

the holdings of other circuits. See, e.g., Courtney v. Halleran, 485 F.3d
942, 948 (7th Cir. 2007); Sahni v. Am. Diversified Partners,

83 F.3d

1054, 1059 (9th Cir. 1996); Franklin Sav. Ass’n v. Office of Thrift
Supervision, 35 F.3d 1466, 1473 (10th Cir. 1994); Ward v. RTC, 996 F.2d
99, 104 (5th Cir. 1993); United Liberty Life Ins. Co. v. Ryan, 985 F.2d
1320, 1328-29 (6th Cir. 1993).
In Count II of its counterclaim BBSL seeks rescission of the
Assignment and an order that it be given the option to repurchase the
Participation.

While BBSL argues that such claims are valid because it

has no adequate remedy at law, this argument cannot overcome the explicit
statutory prohibition against such restrictive relief. “To hold that the
- 8 -

lack of an adequate alternative remedy renders § 1821(j)’s bar against
restraining orders inoperative would . . . be tantamount to rendering the
provision

entirely ineffective.”

Ward, 996 F.2d at 104 (internal

citation omitted); accord Gross v. Bell Sav. Bank PA SA, 974 F.2d 403,
407-08 (3d Cir. 1992).
Here, as in Ward, BBSL “[had] a method for relief, albeit one [it]
did not seek, i.e., monetary damages through the mandatory administrative
procedures set forth in FIRREA.”

Ward, 996 F.2d at 104.

Therefore, the

counterclaim for rescission is barred.
4. Preemption of State Contract Law
BBSL argues that the court has jurisdiction over its breach of
contract counterclaim, because FIRREA does not preempt state contract
law,

but

instead

provides

repudiate contract terms.

a

procedure

through

which

the

FDIC

can

BBSL argues that, as such, its claim is not

subject to the FIRREA process.

Beal Bank argues that, even if FIRREA

does not preempt state law, BBSL’s breach of contract counterclaim is
nonetheless subject to the FIRREA exhaustion requirement.
A breach of contract claim arising out of the actions of the FDIC
must first be brought through the administrative process required by
FIRREA before a court obtains jurisdiction.

See FDIC v. Shain, Schaffer

& Rafanello, 944 F.2d 129 (3d Cir. 1991) (holding that the court had no
jurisdiction to hear a claim for unpaid fees and a retaining lien against
a failed bank because “[a]lthough SS&R has a valid retaining lien under
New Jersey law, it cannot assert it against the FDIC because federal law
has displaced state remedies in this area.”);
1148, 1152 (1st Cir. 1992).

FIRREA applies even when the FDIC’s actions

“might violate some other provision of law.”
52 (2d Cir. 1994).

Marquis v. FDIC, 965 F.2d
Volges v. RTC, 32 F.3d 50,

Thus, the determination of the court’s jurisdiction

to hear claims related to the FDIC does not depend on whether the claim
is based on state law or federal law.

RPM Invs., Inc. v. RTC, 75 F.3d

618, 621 (11th Cir. 1996)(upholding FIRREA’s restrictions on court
jurisdiction in a breach of contract claim). Thus, while FIRREA does not
preempt the entire body of state contract law, it prescribes an exclusive
method of remedy for all claims related to the actions of the FDIC. The
failure to bring even a potentially valid state law claim in accordance
- 9 -

with the appropriate FIRREA administrative procedures is a bar to the
court’s jurisdiction.

See Centennial Assocs. Ltd. P’ship v. FDIC, 927

F. Supp. 806, 810-11 (D.N.J. 1996).
In

Waterview

Management

Co.

v.

Federal

Deposit

Insurance

Corporation, 105 F.3d 696 (D.C. Cir. 1997), a case cited by BBSL for the
proposition that FIRREA does not preempt a contractual right-of-firstrefusal (Doc. 21 at 7), the United States Court of Appeals for the
District of Columbia Circuit affirmed the district court’s holding that
“because of Waterview’s failure to exhaust its administrative remedies,
it lacked subject matter jurisdiction over Waterview’s [other] claims”.
Waterview Mgmt. Co. v. FDIC, 105 F.3d 696, 699 (D.C. Cir. 1997). This
holding demonstrates that the substantive issue of federal preemption
should

not

jurisdiction

be

decided

over

the

without
claim

the
through

court

having

exhaustion

subject
of

the

matter
FIRREA

administrative process.
Thus, the court does not have jurisdiction over BBSL’s breach of
contract counterclaim regardless of whether the state contract law is
preempted, due to BBSL’s failure to exhaust its administrative remedies
as required by FIRREA.
B.

Failure to Join the FDIC as a Necessary Party
Beal Bank also argues that dismissal of BBSL’s counterclaims is

required under Fed. R. Civ. P. 12(b)(7) for failure to join the FDIC as
a necessary party to the counterclaim.

BBSL contends that the FDIC is

not a necessary party, because the parties do not contest whether the
FDIC repudiated the right-of-first-refusal in the Participation, and
because the relief sought by BBSL does not include restraining the FDIC’s
powers or functions as a receiver.

1.

Whether the FDIC Repudiated the Right-of-First-Refusal

12 U.S.C. § 1821(e)(1) grants the FDIC the authority to repudiate
contracts “the performance of which [it] determines to be burdensome”
when such repudiation would “promote the orderly administration of the

- 10 -

[insured depository] institution’s affairs.”

12 U.S.C. § 1821(e)(1)(C).

Here the FDIC chose not to take a position as to whether its assignment
of the Participation to Beal Bank constituted repudiation under §
1821(e).

(Doc. 1-6.)

Courts have found that repudiation occurred where the FDIC, through
its acts, disavowed a contractual obligation.

In Lawson v. FDIC, 3 F.3d

11 (1st Cir. 1993), the court found that the FDIC “effectively repudiated
[the] contracts when it declined

either to pay . . . promised interest

itself or oblige anyone else to do so.”

Lawson v. FDIC, 3 F.3d at 15.

The court reasoned that “[t]he repudiation may have been informal but
there was certainly no ambiguity” and pointed out that the Lawsons had
received communications from the acquiring bank “describing the transfer”
and thus giving clear notice of the repudiation.

Id.

Notably, in Lawson

the FDIC was a party and actively denied that repudiation had taken
place.

However, the court held that the FDIC’s denial “[did] not alter

the substance of what it ha[d] done, namely, to refuse to maintain the
promised interest rate,” noting that the FDIC has good reason to find
acknowledgment of repudiation to be “unattractive.”

Id. at 15 n.7; see

also FDIC v. Widefield Homes, Inc., 916 F. Supp. 1074, 1077 (D. Colo.
1996),

(the

receiver

“effectively

repudiated

the

contract

when

it

declined to oblige [the purchasing institution] to pay the previously
promised interest rate”).
Similarly, in this case, the FDIC sold the Participation to Beal
Bank without honoring the right-of-first-refusal provision, and notified
BBSL of the sale by letter on January 11, 2011.

(Doc. 1-5.)

Any

agreement in the positions of Beal Bank and BBSL and the FDIC’s apparent
equivocal position are not a sufficient basis for the court to decide
whether repudiation occurred, without the FDIC present to represent its
interests and to participate in an ultimate grant of relief, if any.
In a very similar case in this court, Bank of Commerce v. Business
Bank of St. Louis, No. 4:11 CV 428 JCH, the court dismissed defendant
BBSL’s counterclaims for failure to join the FDIC as a necessary party.
The court held that the FDIC’s presence in the case was necessary in
order to accord complete relief and “determine, among other things,
whether the FDIC effectively repudiated the Participation Agreement under

- 11 -

FIRREA.” Bank of Commerce v. Business Bank of St. Louis, No. 4:11 CV 428
JCH (Doc. 21 therein).2
Therefore, whether the FDIC repudiated BBSL’s right-of-first-refusal
remains unresolved at this time.

2.

Effect of This Judicial Action on the FDIC

Beal Bank argues that because BBSL seeks to “unwind” the FDIC’s
Assignment of the Participation, the FDIC’s interests are central to
BBSL’s counterclaims, making them a necessary party.

BBSL contends that

its counterclaims do not implicate the FDIC’s powers or functions, and
that all possible liability or interest of the FDIC has been passed on
to Beal Bank by virtue of the Assignment.
BBSL’s arguments are unavailing.

Claims made against a third party

that allege liability arising out of a transaction with the FDIC are
“directly related to acts or omissions of the FDIC as the receiver.”
Vill. of Oakwood, 539 F.3d at 386.

An award in favor of BBSL of damages

or rescission of the sale would expose the FDIC to “potential liability
to the buyers” and “curtail the ability of the FDIC to fulfill its
statutory mandate because rescission would have a chilling effect on the
FDIC’s future sales.”
Moreover,

Sahni, 83 F.3d at 1057.

rescission

of

the

Participation directly to the FDIC.

Assignment

would

return

the

In sum, “[t]he FDIC-Receiver is a

necessary party because [BBSL’s] injuries depend on the independent
intervening sale by the FDIC-Receiver.”

Am. Nat. Ins. Co. v. JPMorgan

Chase & Co., 705 F. Supp. 2d 17, 21 (D.D.C. 2010) (FDIC was a necessary
party to a tortuous interference with contract claim brought against an
acquiring bank).
BBSL argued at the hearing that the court could order Beal Bank to
offer the option to repurchase directly to BBSL without involving the

2

This companion case also arose out of the FDIC’s sale of a
Participation Agreement between BBSL and Champion Bank, also without
honoring BBSL’s contractual right-of-first-refusal. The terms of that
Participation Agreement and right-of-first-refusal appear identical to
the terms in this case.
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However, this is not what a rescission would likely accomplish,3

FDIC.

and is not the relief sought in the counterclaim.4 Furthermore, any court
interference with the Assignment could expose the FDIC to potential
liability to Beal Bank.

Sahni, 83 F.3d at 1057.

When acting as

receiver, the FDIC “stands in the shoes” of the failed institution, FDIC
v. Miller, 781 F. Supp. 1271, 1274 n.1 (N.D. Ill. 1991); cf. FDIC v.
McSweeney, 976 F.3d 532, 538 (9th Cir. 1992), and becomes a necessary
party by virtue of its instrumental role in the sale of the failed
institution’s asset.
IV.

ORDER

For the reasons set forth above,
IT IS HEREBY ORDERED that the motion of plaintiff Beal Bank
Nevada to dismiss the counterclaims of defendant Beal Bank of St.
Louis (Doc. 14) is sustained.
/S/

David D. Noce

UNITED STATES MAGISTRATE JUDGE
Signed on August 8, 2011.

3

A rescission in this matter would likely require the transfer of
the Participation back to the FDIC, with the FDIC refunding the full
purchase price of the Participation to Beal Bank.
Black’s Law
Dictionary, at 1308 (7th ed. West Group)(rescission restores the parties
to their pre-contractual positions).
4

In Count II of its counterclaim, BBSL seeks an order from the
court rescinding the Assignment and ordering that BBSL be given the
option of repurchasing the Participation. (Doc. 11 at 11-12.) If such
a rescission were ordered by the court, a subsequent order directing that
BBSL be allowed to repurchase the Participation would have to be directed
to the FDIC, who would then be the holder of the Participation.
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