Greater Midwest Builders, Ltd. d/b/a Greater Missouri Builders v. Federal Deposit Insurance Corporation, as Receiver for Premier Bank Jefferson City MO

Filing 34

ORDER denying 12 FDIC-R's Motion to Dismiss for Failure to State a Claim; denying 16 CADC's Motion to Dismiss; and granting 29 CADC's motion for leave to add parties and file a counterclaim and third-party complaint. Signed on 6/22/12 by Chief District Judge Fernando J. Gaitan, Jr. (Enss, Rhonda)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION
GREATER MIDWEST BUILDERS, LTD., )
)
Plaintiff,
)
)
v.
)
)
)
FEDERAL DEPOSIT INSURANCE
)
CORP., ET AL.,
)
)
Defendants.
)
)
)

NO. 2:11-CV-4225-FJG

ORDER
Currently pending before the Court is the defendant, Federal Deposit Insurance
Corporation, as Receiver (“FDIC-R’s”) Motion to Dismiss for Failure to State a Claim
(Doc. # 12); Defendant CADC/RADC Venture 2011-1 LLC (“CADC’s”) Motion to Dismiss
(Doc. # 16) and Defendant CADC’s Motion for Leave to Add Parties and File a
Counterclaim and Third-Party Complaint (Doc.# 29).
I. BACKGROUND
Plaintiff entered into various loan transactions with Premier Bank in order to
facilitate the development of the Grover Crossing Subdivision in Wildwood, Missouri.
Three Standby Letters of Credit were executed on November 9, 2009. In connection
with the Standby Letters of Credit, and as part of a single transaction, plaintiff also
entered into Loan 3498 on September 7, 2005 and a second related loan, Loan 6544 on
July 28, 2008. In reliance upon Premier Bank’s issuance of the Standby Letters of
Credit, plaintiff entered into Letter of Credit Deposit Agreements with the City of

Wildwood. The Standby Letters of Credit served as various required deposits. On
October 15, 2010, Premier Bank was placed in receivership and the FDIC-R was
appointed receiver. On January 10, 2011 and February 16, 2011, the FDIC-R
disaffirmed the Standby Letters of Credit and repudiated Loan 3498. On May 16, 2011,
in accordance with 12 U.S.C. § 1821, plaintiff timely filed a Proof of Claim with the FDIC
alleging actual damages and setoff. On June 27, 2011, the FDIC mailed its Notice of
Disallowance to Plaintiff. In September 2011, the FDIC sold and/or assigned its interest
in the loans and/or security instruments to CADC. Plaintiff alleges that the FDIC-R’s
repudiation of the Letters of Credit and the Loan caused it to default on agreements with
the City of Wildwood and incur damages as a result of its default. Plaintiff also claims
that the repudiation made it impossible for plaintiff to develop the subdivision, meet its
obligations to the City of Wildwood and any obligations it may have under the loans. In
the Amended Complaint, plaintiff asserts three causes of action: Count I - Actual
Damages Resulting from Repudiation Under 12 U.S.C. § 1821(e)(3) against the FDIC;
Count II - Setoff against all defendants and Count III - Declaratory Judgment against all
defendants.
II. STANDARD
To survive a motion to dismiss under 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible on
its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678,129 S.Ct.1937,1949,173 L.Ed.2d 868
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955,
167 L.Ed.2d 929 (2007)). A pleading that merely pleads “labels and conclusions” or a
“formulaic recitation” of the elements of a cause of action, or “naked assertions”
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devoid of “further factual enhancement” will not suffice. Id. (quoting Twombly).
“Determining whether a complaint states a plausible claim for relief will . . . be a
context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679. Under Fed. R. Civ. P. 12(b)(6) we must
accept the plaintiff’s factual allegations as true and grant all reasonable inferences in
the plaintiff’s favor. Phipps v. FDIC, 417 F.3d 1006, 1010 (8th Cir. 2005).
III. DISCUSSION
A. FDIC’s Motion to Dismiss
The FDIC-R moves to dismiss plaintiff’s Amended Complaint because it
alleges that plaintiff cannot show that it suffered any damages as of the date of the
appointment of the FDIC-R and therefore, plaintiff is precluded from recovery by 12
U.S.C. § 1821(e)(3)(A).
12 U.S.C. § 1821(e)(3)(A) states in part:
(3) Claims for damages for repudiation
(A) In general
Except as otherwise provided in subparagraph (C) and paragraphs (4),(5), and
(6), the liability of the conservator or receiver for the disaffirmance or
repudiation of any contract pursuant to paragraph (1) shall be (I) limited to actual direct compensatory damages; and
(ii) determined as of (I) the date of the appointment of the conservator or receiver; or
(II) in the case of any contract or agreement referred to in paragraph (8),
the date of the disaffirmance or repudiation of such contract or
agreement.
(B) No liability for other damages
For purposes of subparagraph (A), the term “actual direct compensatory
damages” does not include 3

(I) punitive or exemplary damages;
(ii) damages for lost profits or opportunity; or
(iii) damages for pain and suffering.
FDIC-R states that plaintiff is not entitled to damages under FIRREA if no
amounts were due at the time of the FDIC-R’s appointment. FDIC-R argues that if
the trigger for payment of a standby letter of credit had not occurred prior to the
receiver’s appointment, then the repudiation of the letter of credit does not create any
“actual direct compensatory damages.” FDIC-R states that it was appointed receiver
on October 15, 2010 and that as of that date, no draw requests had been made on
the Letters of Credit. The FDIC-R states that because it repudiated the Letters of
Credit and Loan 3498 before any obligation for payment was triggered, plaintiff has
no damages. FDIC-R also argues that plaintiff is not entitled to setoff because it does
not have a valid claim against the FDIC-R.
In opposition, plaintiff argues that while no funds had been drawn on the
Letters of Credit at the time the FDIC was appointed, funds had been drawn on the
loans. Plaintiff states that $2,677,000.00 was drawn on one loan from October 2005
through October 2008 and at least $581,823.08 was drawn on Loan 6544 from
August 2008 through July 2009. In reply, FDIC states that in Credit Life Ins. Co. v.
FDIC, 870 F.Supp. 417, 426 (D.N.H.1993), the court held that no damages would be
due as long as the triggering event for payment of the letter of credit had not occurred
prior to the date the bank was declared insolvent. The FDIC-R states that because
plaintiff admits that no drafts were presented prior to October 15, 2010, no amounts
were due and plaintiff it is not entitled to damages.
The Court finds the facts of Credit Life to be distinguishable. In that case, the
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bank had issued a standby letter of credit for the account of New England States Re,
Ltd. and for the benefit of Credit Life Insurance Company. The Letter of Credit
secured N.E. States’s obligation to make payment on certain reinsurance obligations.
Credit Life agreed to satisfy any demand for funds first from a trust account and to
access the Letter of Credit only after all funds from the trust account were exhausted.
The Court in Credit Life stated that “if FDIC-Receiver had authority to disaffirm the
letter of credit, no damages would be due as long as the triggering event - the
exhaustion of the trust account and presentation of a sight draft - had not occurred
prior to the date the bank was declared insolvent.” Id. at 425-26. The Court found that
because no sum was owing at the time the bank was declared insolvent, Credit Life
was not entitled to damages. Id. at 426.
In FDIC v. Parkway Executive Office Center, No. Civ. A 96-121, 96-122, 1998
WL 18204 (E.D.Pa. Jan. 9,1998), the bank lent money to Parkway Executive Office
Center as part of a Construction Loan and Security Agreement. Parkway executed a
Note and this was also backed by a Guaranty. The bank was declared unsound and
the Resolution Trust Corporation was appointed as receiver. The RTC then
repudiated the undisbursed balance of the Construction Loan. The Court noted that
while the “repudiation frees the receiver from having to comply with the contract, it is
treated as a breach of contract that gives rise to an ordinary contract claim for
damages. . . . The damages for which the FDIC is liable, however, are limited
significantly under FIRREA.” Id. at *2. The Court noted:
Under § 1821 (e)(3)(A)(ii), damages caused by repudiation are
measured on the date the Receiver was appointed, not on the date of
repudiation. Damages caused by repudiation which are fixed and
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determined on the date of Receivership are recoverable. A recoverable
claim must represent an amount due and owing at the time of the
declaration of insolvency, although the specific amount of the claim may
be established later. The Court must first consider whether the
contractual right at issue vested prior to the appointment of the FDIC as
Receiver.
Id. at *2 (quoting Citibank, N.A. v. FDIC, 827 F.Supp. 789, 791 (D.D.C.1993),
modified in part on other grounds, 857 F.Supp. 976 (D.D.C.1994)). The Court stated
that in order to determine whether a right has vested on the date that a bank is
declared insolvent, courts first “look to whether the insolvent bank’s promise was
binding and enforceable under contract law at that time.” Id. at *3 (internal citations
and quotations omitted). In that case, the Court found that the Promissory Note, the
Note Modification Agreement and the Construction Loan and Security Agreement
imposed obligations on both parties, finding that the bank was obligated under the
Note to disburse funds and defendants were obligated to make payments of interest
and principal to repay the disbursements. Thus, the court found that “Defendants’
contractual right to funding vested prior to the appointment of the RTC as Receiver.”
Id. The next question the Court addressed was whether the damages were fixed and
certain “as of” the date of the appointment of the Receiver. The court noted that the
FDIC argued that the defendant’s claims were speculative on the date of the
insolvency, because they did not arise until the FDIC actually repudiated the loan
some months later. However, the Court rejected this argument, stating:
Although superficially such reasoning appears consistent with §
1821(e), this argument conflicts with the statutory intent of FIRREA to
allow claims for contracts in force prior to insolvency. [Plaintiff’s]
reasoning could be extended to deny any contractual claim arising from
repudiation. Such claims are always contingent on the date of
insolvency because a receiver cannot repudiate a contract until after it
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is appointed. . . . In this case, the contract right that gave rise to
Defendants’ claim was created before the FDIC was appointed
Receiver. So long as this right existed on January 11, 1990, the
damages that result from the repudiation of the obligation are
sufficiently fixed and certain. . . . The damages are simply calculated
“as of” the appointment date. . . . Any contrary interpretation would
permit recovery only when a contract had been breached before
receivership- a result clearly contrary to the plain language of the
statute, Congress’ intent, and the common law.
Id. at *3 (internal citations and quotations omitted).
The Court finds this reasoning applicable to the instant case. The Standby
Letters of Credit were executed on November 9, 2009 and as part of a single
transaction with the Standby Letters, plaintiff also entered into Loan 3498 on
September 7, 2005 and Loan 6544 on July 28, 2008. Plaintiff notes that
$2,677,000.00 was drawn on one loan from October 2005 through October 2008 and
at least $581,823.08 was drawn on Loan 6544 from August 2008 through July 2009.
As of the date that the FDIC was appointed, plaintiff was not in default on either loan
and had been making the required interest payments. Under these two loans, the
bank was obligated to disburse these funds and the plaintiff was obligated to make
interest payments. So, even though no funds had been drawn on the Letters of Credit
at the time the FDIC was appointed, the Court finds nonetheless that the “contractual
right at issue vested prior to the appointment of the FDIC as Receiver.” Id. at *2.
The Court also finds that the damages were fixed and certain “as of” the date of the
appointment of the receiver. Therefore, because the Court finds that the statute does
not bar plaintiff’s claims for damages pursuant to 12 U.S.C. § 1821(e)(3), the Court
hereby DENIES FDIC-R’s Motion to Dismiss (Doc. # 12).
B. CADC’s Motion to Dismiss
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For the same reasons which were raised in FDIC-R’s Motion to Dismiss,
Defendant CADC also moves to dismiss plaintiff’s Complaint. CADC argues that
plaintiff did not have any “actual direct compensatory damages” and because
plaintiff’s damages fail as a matter of law, there is no amount to setoff against CADC.
However, as was discussed above, the Court finds that the statute does not bar
plaintiff’s claim for damages. Accordingly, because plaintiff has stated a claim for
damages, the Court also finds that plaintiff may assert its claim for setoff of its
damages against any obligations it may have under the loans. Accordingly, the Court
hereby DENIES CADC’s Motion to Dismiss (Doc. # 16).
C. CADC’s Motion for Leave to Add Parties, File A Counterclaim and a
Third-Party Complaint
CADC moves for leave to add a counterclaim against plaintiff for breach of the
notes at issue as well as to add third parties and assert cross claims against those
parties for breach of the guaranties. CADC states that the third parties are principals
of Midwest Builders. Counsel for CADC states that counsel for Midwest Builders and
the FDIC do not oppose this motion. Accordingly, for good cause shown and with no
opposition indicated, the Court hereby GRANTS CADC’s Motion for Leave to Add
Parties, File a Counterclaim and a Third-Party Complaint (Doc. # 29). CADC shall file
its Counterclaim and Third-Party Complaint within five days of the date of this Order.
IV. CONCLUSION
For the reasons stated above, the Court hereby DENIES FDIC-R’s Motion to
Dismiss for Failure to State a Claim (Doc. # 12); DENIES CADC’s Motion to Dismiss
(Doc. # 16) and GRANTS CADC’s Motion for Leave to Add Parties and File a
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Counterclaim and Third-Party Complaint (Doc.# 29).

Date: June 22, 2012
Kansas City, Missouri

S/ FERNANDO J. GAITAN, JR.
Fernando J. Gaitan, Jr.
Chief United States District Judge

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