BERG et al v. JPMORGAN CHASE, NATIONAL ASSOCIATION

Filing 9

MEMORANDUM. SIGNED BY HONORABLE GERALD J. PAPPERT ON 3/2/2015. 3/3/2015 ENTERED AND COPIES E-MAILED.(amas)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JOHN G. BERG and
MAUREEN R. BERG
Plaintiffs,

CIVIL ACTION
NO. 14-04298

v.
JP MORGAN CHASE, NATIONAL
ASSOCIATION,
Defendant.
PAPPERT, J.

MARCH 2, 2015
MEMORADUM

Plaintiffs John G. Berg and Maureen R. Berg (“Bergs”) bring this Quiet Title Action
against JP Morgan Chase Bank, N.A.1 (“Chase”), alleging that a mortgage note against their
property was materially altered by an unauthorized endorsement and is therefore unenforceable.
Chase moves to dismiss the Bergs’ Complaint pursuant to Federal Rule of Civil Procedure
12(b)(1) for lack of subject matter jurisdiction. (Doc. No. 3.) For the reasons set forth below,
the Motion to Dismiss is granted.
Factual and Procedural Background
On March 30, 2007, Plaintiff John G. Berg borrowed $1,425,000.00 from Washington
Mutual Bank, FA (“Washington Mutual”) as set forth in a promissory note (“Note”). (Compl.
Ex. B, Doc. No. 1.) As security for the Note, the Bergs gave Washington Mutual a mortgage
against their property located in Newtown Square, Pennsylvania. (Id.)
Washington Mutual subsequently failed and entered into Federal Deposit Insurance
Corporation (“FDIC”) receivership on September 25, 2008. (Compl. ¶ 13.) That same day the
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Defendant JP Morgan Chase Bank, N. A., was improperly named as “JP Morgan Chase, National Association.”
The Court refers to the Defendant by its legal name.

FDIC transferred the Bergs’ loan, along with all of Washington Mutual’s other loans and loan
commitments, to Chase pursuant to the terms of a written Purchase and Assumption Agreement.
(Def.’s Aff. Supp. Mot. Dismiss, Ex. B, Doc. No. 4.)
At some point prior to September 25, 2008, Washington Mutual had endorsed the Note in
blank with a stamp bearing the name Cynthia A. Riley, Vice President, Washington Mutual
Bank, FA. (Compl. ¶¶ 11-13, Ex. B).
On August 16, 2012, Chase filed a mortgage foreclosure action against the Bergs in the
Delaware County Court of Common Pleas. (Compl. ¶¶ 1-2.) That action remains pending.
(Def.’s Aff. Supp. Mot. Dismiss ¶ 5.) Chase filed an Amended Complaint in that case on April
22, 2013 and attached the Note endorsed in blank. The Bergs first learned of the Note’s
alteration from the Amended Complaint. (Pl.’s Opp’n Mot. Dismiss 2, Doc. No. 6.) The Bergs
did not assert that the Note should be discharged due to the unauthorized endorsement when they
answered the Amended Complaint. (Def.’s Aff. Supp. Mot. Dismiss, Ex. E.)
The Bergs subsequently filed this separate Quiet Title Action in the Delaware County
Court of Common Pleas. In addition to alleging that the Note had been materially altered by the
unauthorized endorsement, the Bergs contend that Chase was aware of the alteration prior to
filing its mortgage foreclosure action. (Compl. ¶ ¶ 8, 9-13, 18, 22.)
Chase removed the Bergs’ suit to this Court and filed this motion to dismiss the
Complaint.2 Chase argues that the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (“FIRREA”) deprives the Court of subject matter jurisdiction. (Def.’s Mot. Dismiss
11-12.) The Bergs respond that FIRREA is inapplicable because they have not made a claim
against Washington Mutual’s assets and their claim does not seek monetary relief from
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Chase raises four additional arguments pursuant to Rule 12(b)(6) asserting that the Bergs failed to state a claim
upon which relief may be granted. Because the Court lacks subject matter jurisdiction, these arguments are not
addressed.
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Washington Mutual, the FDIC, or Chase. The Bergs also contend that they are exempt, as
debtors, from FIRREA’s requirements. (Pl.’s Opp’n Mot. Dismiss 7-9.)
Legal Standard
“At issue in a Rule 12(b)(1) motion is the court’s ‘very power to hear the case.’”
Petruska v. Gannon Univ., 462 F.3d 294, 302 (3d Cir. 2006) (quoting Mortensen v. First Fed.
Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)). Consequently, a court must grant a
motion to dismiss under Rule 12(b)(1) if it lacks subject matter jurisdiction to hear the claim. In
re Schering-Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 243 (3d Cir.
2012). In evaluating such a motion, a court must first determine whether the movant presents a
facial or factual challenge. Id. (citing Mortensen, 549 F.2d at 891). A facial attack “‘concerns
an alleged pleading deficiency’ whereas a factual attack concerns ‘the actual failure of [a
plaintiff’s] claim to comport [factually] with the jurisdictional prerequisites.’” See CNA v.
United States, 535 F.3d 132, 139 (3d Cir. 2008) (quoting U.S. ex rel. Atkinson v. Pa.
Shipbuilding Co., 473 F.3d 506, 514 (3d Cir. 2007))).
Chase presents a factual challenge. Accordingly, the Court is not “confined to the
allegations in [the…] complaint,” and the Court is “entitled to independently evaluate the
evidence to resolve disputes over jurisdictional facts.” S.R.P. ex rel. Abunabba v. United States,
676 F.3d 329, 332 (3d Cir. 2012).
Discussion
FIRREA, which was passed in response to the savings and loan crisis of the 1980s, grants
the FDIC the authority to act as a receiver or conservator for failed institutions. Tellado v.
IndyMac Mortg. Serv., 707 F.3d 275, 279 (3d Cir. 2013). The statute also creates an
administrative claims process for institutions in receivership, which necessarily limits judicial

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review of those claims. Id. (citing 12 U.S.C. § 1821(d)(3)-(13)). Because of the availability of
this administrative procedure, FIRREA bars any court from exercising jurisdiction over:
(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 for 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).
The Third Circuit has interpreted section 1821(d)(13)(D) to be a “statutory exhaustion
requirement.” Tellado, 707 F.3d at 279; Nat’l Union Fire Ins. Co. v. City Sav., F.S.B., 28 F.3d
376, 383 (3d Cir. 1994); Rosa v. Resolution Trust Corp., 938 F.2d 383, 391-92 (3d Cir. 1991).
The Bergs’ claim implicates clause (ii) because the factual allegations underlying that claim
relate exclusively to an act by Washington Mutual, the depository institution. Under section
1821(d)(13)(D)(ii), courts do not have jurisdiction over a claim relating to any act or omission of
the failed institution so long as the claim falls within the claims procedure outlined in section
1821(d). Rosa, 938 F.2d at 394-95. FIRREA’s jurisdictional bar applies equally to claims
brought against the purchasing bank if the claims are based on the conduct of the acquired
depository institution. Tellado, 707 F.3d at 280-81; see also In re Stewart et al. v. Chase Bank et
al., No. 12-1243, 2013 U.S. Dist. LEXIS 111516, at *38 (W.D. Pa Aug. 8, 2013) (holding that
because debtor’s claims “involve ‘acts and omissions’ of the failed institution [Washington
Mutual], a failure to bring those claims under the FIRREA bars the bankruptcy court and [the
district] court from exercising jurisdiction”).
In Tellado, the Third Circuit concluded that the plaintiff’s claim was “functionally, albeit
not formally, against” the failed institution. Tellado, 707 F.3d at 280. The plaintiff, a Spanish
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speaking individual, refinanced his mortgage with IndyMac Bank, FSB (“IndyMac”) prior to its
failure. Id. at 277. IndyMac’s closing agent and notary provided the plaintiff with English
versions of the relevant loan documents, including the notice of the right to cancel. Id. After
IndyMac entered FDIC receivership, the plaintiff’s loan was transferred to OneWest Bank FSB
(“OneWest”). Id. The plaintiff then sent a notice of cancellation to OneWest pursuant to
Pennsylvania’s Unfair Trade Practices and Consumer Protection Law because the statute
required that he receive a Spanish version of the notice of the right to cancel. Id. at 277-78.
OneWest refused to cancel the loan and the plaintiff filed suit. Id. at 278. The Third Circuit
concluded that even though the claim was formally brought against OneWest based on its refusal
to cancel the loan, “Tellado’s claim [was] not a claim of independent misconduct by OneWest;
rather, it relate[d] to an act or omission of the depository institution, IndyMac, and [was],
therefore, jurisdictionally barred under section 1821(d)(13)(D)(ii).” Id. at 280.
The facts underlying the Bergs’ claim are similar to those in Tellado. Though the Bergs
formally brought this claim against Chase, the purchasing bank, their claim is based entirely on
conduct by Washington Mutual, the depository institution. The alleged defect in the Note exists
only because the Note was endorsed in blank with a stamp bearing a Washington Mutual
employee’s name. Moreover, the Bergs specifically assert that the endorsement in blank was
affixed to the Note “sometime after March 30, 2007, which was the date on which John Berg
executed the Note . . . and prior to September 25, 2008, which was the date on which the Federal
Deposit Insurance Corporation (‘FDIC’) seized the banking assets of Washington Mutual Bank.”
(Compl. ¶ 13.) The Bergs do not allege any independent misconduct by Chase in support of their
claim.3 Absent Washington Mutual’s conduct, they would have no right to challenge the validity

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The Bergs contend that Chase had knowledge of the unauthorized endorsement in blank prior to filing the
Amended Complaint seeking to enforce the Note. (Compl. ¶ 22.) This allegation of knowledge initially appeared to
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of the Note and thus no claim. Because the Bergs’ claim is based entirely on an act of the
depository institution, Washington Mutual, section 1821(d)(13)(D)(ii) deprives the Court of
subject matter jurisdiction.
The Bergs do not contend that they have exhausted the requisite administrative remedies;
they argue instead that FIRREA is inapplicable to their claim. The Bergs contend that the Third
Circuit, in Rosa v. Resolution Trust Corp., held that FIRREA does not bar claims for nonmonetary relief because it “was intended to focus on claims ‘looking directly to payments from
or recovery of assets, or in some other respect determining rights with respect to assets.” (Pl.’s
Opp’n Mot. Dismiss 7-8.) Based on their interpretation of this case, the Bergs assert that
FIRREA does not apply because they have “not raised any objection to Chase’s claims of
ownership of the asset (the Note) in this action.” Id.
The Bergs’ reliance on the portion of Rosa cited in its Memorandum of Law is misplaced.
In Rosa, the Third Circuit analyzed the plaintiff’s claim for injunctive relief under clauses (i) and
(ii) of section 1821(d)(13)(D). Rosa, 938 F.2d at 394. The Court concluded that the statute’s
emphasis on asset was pertinent for its interpretation of clause (i). Id. (“We believe the emphasis
on ‘assets’ suggests that clause (i) addresses claims looking directly to payment from or recovery
of assets, or in some other respect determining rights with respect to assets.” (emphasis added)).
As discussed above, clause (i) is not implicated here.
The Third Circuit, however, did not reach the same conclusion with regard to clause (ii).
Rather, it held that a claim that relates to an act or omission of a failed institution is barred if the
claim is susceptible to resolution through the claims procedure. Id. The Court determined that it
“was at a loss to understand how [the receiver] would ‘determine,’ or ‘allow’ or ‘disallow,’ a
be a fraud claim. However, the Bergs clarified that “they seek no relief from Chase; they merely seek to remove a
cloud on their title.” (Pl’s Opp’n Mot. Dismiss 6.) Thus, the allegation as to what Chase knew and when it knew it
does not alter the fact that the Bergs’ claim is based exclusively on an act by Washington Mutual.
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claim seeking [the injunctive relief requested], or how it would ‘pay’ such a claim if allowed.”
Id. at 395. The Third Circuit accordingly held that the plaintiff’s claim for injunctive relief was
not susceptible to the claims procedure and, thus, not jurisdictionally barred by clause (ii). Id.
Rosa did not expressly limit the administrative exhaustion requirements to claims specifically
directed at the assets of the depository institution.
The Bergs also argue that FIRREA is inapplicable because their request for a discharge of
debt does not constitute a claim for damages against Washington Mutual, the FDIC or Chase.
(Pl.’s Opp’n Mot. Dismiss 8.) Rather, Plaintiffs characterize their claim as one seeking relief
from a “defect in the instrument acquired by Chase from FDIC, originating with [Washington
Mutual].” (Id.) This argument appears to be another version of the Bergs’ contention that their
claim is exempt from FIRREA’s jurisdictional bar because they seek equitable relief.
The nature of the claim, however, does not dictate the applicability of section
1821(d)(13)(D)(ii). If the claim is susceptible to resolution through the claims procedure, clause
(ii) divests the court of subject matter jurisdiction, regardless of the specific type of relief sought.
See Rosa, 938 F.2d at 395. Like the plaintiff in Tellado, the Bergs seek equitable relief against
the purchasing bank based exclusively on the failed institution’s conduct. Tellado, 707 F.3d at
278, 281 (concluding that Tellado’s equitable claim and his alternative claims for damages were
all jurisdictionally barred). Accordingly, the Bergs’ claim could be resolved through the claims
procedure and is thus jurisdictionally barred.
The Bergs additionally seem to contend that FIRREA is inapplicable because they are not
creditors of the depository institution. (Pl.’s Opp’n Mot. Dismiss 9.) While their position is not
entirely clear, they appear to argue that section 1821(d)(13)(D)’s jurisdictional bar could not
have been intended to deprive the Court of jurisdiction for actions brought by non-creditors

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because under sections 1821(d)(3)(B) and (C) only creditors are given notice to submit claims to
the receiver.
The jurisdictional bar in section 1821(d)(13)(D) applies to debtors and creditors of failed
institutions. The Third Circuit rejected “the suggestion that the broad bar to jurisdiction
indicated by the plain language of § 1821(d)(13)(D) should be strained and limited by referring
to the administrative claims procedure of § 1821(d)(3), (d)(5), and (d)(6)” and concluded that the
“class of actions addressed by the jurisdictional bar is [not] necessarily identical to the class of
actions addressed by the administrative claims procedure.” Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. City Sav., F.S.B., 28 F.3d 376, 386 (3d Cir. 1994). Indeed, the Third Circuit in
Praxis Properties Inc. v. Colonial Savings Bank, S.L.A. applied FIRREA’s exhaustion
requirements to debtors, like the Bergs, who raised claims regarding a mortgage note. In Praxis,
the bank lent Praxis Properties $1.8 million, which Praxis secured by giving the bank a mortgage
on property it owned. Praxis Properties, Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49, 52 (3d
Cir. 1991). Subsequently, Praxis negotiated with the bank for the release of the note. The bank
failed and the Resolution Trust Corporation (“RTC”) was appointed as receiver before the note
was released. Id. Praxis then demanded that the RTC release the note. Id. RTC refused and
Praxis brought an action in state court. Id. The Third Circuit determined, before proceeding to
the merits of that case, that the district court had subject matter jurisdiction because Praxis had
exhausted its administrative remedies. Id. at 64. Thus, the Third Circuit assumed, without
specifically holding, that a debtor of the failed institution must also exhaust the administrative
remedies prior to filing suit. Subsequently, courts have applied this jurisdictional bar to debtors.
See, e.g., Tellado, 707 F.3d 275; Duraney v. F.D.I.C., 388 F. App’x 102, 103-04 (3d Cir. 2010)
(concluding that an appeal brought by a debtor in mortgage foreclosure action was

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jurisdictionally barred by section 1821(d)(13)(D) because the debtor failed to exhaust the
administrative remedies); In re Stewart et al., 2013 U.S. Dist. LEXIS 111516, at *39 (“Because
Debtors failed to pursue their claims by way of the administrative claims process with the FDIC
to exhaustion, the bankruptcy court and this court lack jurisdiction to hear their claims and those
claims were properly dismissed for lack of subject-matter jurisdiction.” (emphasis added)); see
also Burroughs v. Colony First Fed. Savs. & Loan Ass’n, 858 F. Supp. 58, 61 (W.D. Pa. 1994)
(analyzing the Third Circuit’s decision in Praxis and holding that the jurisdictional bar under
section 1821(d)(13)(D) applies equally to debtors of the failed institution). Thus, the Bergs’
status as debtors does not insulate them from the requirement that they exhaust their
administrative remedies.
The Bergs failed to exhaust their administrative remedies as required by section 1821(d).
That failure bars both this Court and the Pennsylvania Courts of Common Pleas from exercising
subject matter jurisdiction over this action. 12 U.S.C. § 1821(d)(13)(D) (“…no court shall have
jurisdiction over…”); F.D.I.C. v. Shain, Schaffer & Rafanello, 944 F.2d 129, 131 (3d Cir. 1991)
(“FIRREA’s claims procedure in section 1821(d) is exclusive.”). Since no court may exercise
subject matter jurisdiction over their Quiet Title Action, the Complaint must be dismissed.
Wujick v. Dale & Dale, Inc., 43 F.3d 790, 794 (3d Cir. 1994) (“Since the state court also lacked
subject matter jurisdiction for the same reason, a remand by the district court would be a vacuous
act. We will therefore direct the district court to dismiss the claims against RTC.”). The
Complaint is accordingly dismissed.
An appropriate Order follows.

/s/ Gerald J. Pappert
GERALD J. PAPPERT, J
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