Palmetto State Bank v. Johnson
ORDER AND OPINION denying Defendant's Motion to Amend Answer, Dismiss Counterclaims and Defendant, and Remand 11 . Signed by Honorable J Michelle Childs on 9/12/2017.(asni, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
Palmetto State Bank,
Federal Deposit Insurance Corporation as )
Receiver for Allendale County Bank,
Civil Action No.: 1:16-cv-03800-JMC
ORDER AND OPINION
This matter is before the court pursuant to Defendant Akeya Johnson’s (“Defendant”)
Motion to Amend Answer, Dismiss Counterclaims and Defendant, and Remand. (ECF No. 11.)
Plaintiff Palmetto State Bank (“Plaintiff”) and Counter-Defendant Federal Deposit Insurance
Corporation (“FDIC-R”) oppose Defendant’s Motion. (ECF Nos. 17, 20.) For the reasons set
forth below, the court DENIES Defendant’s Motion to Amend Answer, Dismiss Counterclaims
and Defendant, and Remand (ECF No. 11).
FACTUAL AND PROCEDURAL BACKGROUND
On April 25, 2014, the South Carolina Commissioner of Banking declared Allendale
County Bank (“ACB”) insolvent and appointed FDIC-R as its Receiver. (ECF No. 1-2.) The
FDIC-R as Receiver for ACB succeeded to all rights, titles, powers and privileges of ACB pursuant
to 12 U.S.C. § 1821(d)(2)(A). (ECF No. 1 at 2.) Also on April 25, 2014, pursuant to a Purchase
and Assumption Agreement between the FDIC-R and Plaintiff, Plaintiff purchased certain assets
of the failed ACB, including the subject loan, while the FDIC-R retained certain liabilities. (ECF
No. 20 at 1.)
On March 7, 2016, Plaintiff filed a Complaint against Defendant in the Allendale County
Magistrate’s Court, seeking recovery for the amounts owed under Loan Number XXXXXXX41.
(ECF No. 1-4.)
On June 8, 2016, Defendant filed her Answer and Counterclaims seeking judgment against
Plaintiff in an amount in excess of ten thousand dollars ($10,000) and, consequently seeking
removal of the matter to the state circuit court based on the amount in controversy exceeding the
jurisdictional limit of the Magistrate’s Court. (ECF No. 2.) Plaintiff timely replied. (ECF No. 20
at 2.) As a result, the matter was transferred to the Allendale County Court of Common Pleas,
Case No. 2016-CP-03-00143 (“State Court Action”). See id.
Subsequently, based upon the FDIC-R’s indemnification obligation to Plaintiff in relation
to Defendant’s claims and its interest in the disposition of the receivership assets, FDIC-R filed on
August 11, 2016, its Motion to Join or, Alternatively, to Intervene in the State Court Action. (ECF
No. 4.) Pursuant to the Consent Order Joining and Substituting FDIC-R, filed October 3, 2016 in
the State Court Action, FDIC-R was joined to the action and substituted as the proper defendant
to Defendant’s counterclaims. (ECF No. 4-1.)
On December 2, 2016, FDIC-R removed the action to this court pursuant to 12 U.S.C. §
1819 (b)(2)(A) (any civil suit in which the FDIC, in any capacity, is a party is “deemed to arise
under the laws of the United States”) and 12 U.S.C. § 1819(b)(2)(B) (“. . . the Corporation may. .
. 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 . . . Corporation is substituted
as a party”). (ECF No. 1.)
On January 2, 2017, Defendant filed a Motion to Amend Answer, Dismiss Counterclaims
and FDIC-R, and Remand, asserting FDIC-R is no longer a party in interest, due to Defendant
dismissing all counterclaims in her proposed amended Answer. (ECF No. 11.)
On January 17, 2017, Plaintiff filed an Opposition to Defendant’s Motion to Amend
Answer, Dismiss Counterclaims and Defendant, and Remand, asserting (1) Defendant has waived
her right to seek dismissal of FDIC-R, (2) FDIC-R is a proper and necessary party regardless of
whether Defendant labels her allegations as counterclaims or affirmative defenses, (3) even if
FDIC-R is dismissed as a party, federal jurisdiction still exists, and (4) strong public policy
concerns require the denial of the Motion. (ECF No. 17.)
On January 17, 2017, FDIC-R filed its Opposition to Defendant’s Motion to Amend
Answer, Dismiss Counterclaims and Defendant, and Remand, asserting (1) FDIC-R is a real party
in interest and must remain a party to the action, and (2) even if FDIC-R is dismissed as a party,
federal jurisdiction still exists. (ECF No. 20.)
Federal courts are courts of limited jurisdiction. A defendant is permitted to remove a case
to federal court if the court would have original jurisdiction over the matter. 28 U.S.C. § 1441(a)
(2012). A federal district court has “original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. Any civil suit in which the
FDIC, in any capacity, is a party is “deemed to arise under the laws of the United States.” 12
U.S.C. § 1819(b)(2)(A); see also Bullion Servs, Inc., v. Valley State Bank, 50 F.3d 705, 707 (9th
Cir. 1995). Additionally, when the FDIC is a party, the entire action is deemed to arise under the
laws of the United States. See Fed. Deposit Ins. Corp., 58 F.3d 1041, 1045 (4th Cir. 1995).
Further, the FDIC has a statutory right in each case in which it is a party to remove a case
from state court to federal court pursuant to the Financial Institution Reform, Recovery and
Enforcement Act of 1989, Pub. L. No. 101-73, § 209, 103 State. 1983 et seq. Specifically, the
FDIC has 90 days from the date it is substituted as a party to remove the action from state court to
the appropriate United States district court. 12 U.S.C. § 1819(b)(2)(B).
The first dispute in this matter is whether Defendant has waived her right to seek dismissal
of FDIC-R by amending her Answer to dismiss her counterclaims. Defendant consented to FDICR’s joinder through the Consent Order filed on October 3, 2016. (ECF No. 4-1.) South Carolina
courts treat consent orders as agreements between the parties that are made “under the sanction of
the court.” Johnson v. Johnson, 310 S.C. 44, 47 (Ct. App. 1992) (citing Jones & Parker v. Webb,
8 S.C. 202 (1876)). However, since a consent order is an agreement of the parties, it can be
rescinded by mutual consent in a subsequent court action. Id. The Consent Order was filed with
the agreement of all parties, and Defendant may not unilaterally seek to modify that agreement by
attempting to dismiss FDIC-R. See Johnson, 301 S.C. at 47; see also Black v. Black, No. 2007UP-462, 2007 WL 8392132, at *4 (S.C. Ct. App. Oct. 11, 2007) (finding that respondent/appellant
was bound by his own agreement embodied in the trial court’s consent order).
Moreover, it is “well established that a party to a consent judgment waives any objections
to matters within the scope of the judgment.” See Zarrin v. Beit-Dashtoo, No. 95-2734, 1996 WL
283320, at *1 (4th Cir. May 30, 1996); see also Thonen v. Jenkins, 455 F.2d 977, 977 (4th Cir.
1927) (“defendants cannot appeal from an order entered with their consent unless they establish
facts to nullify their consent”) (internal citations omitted).
Defendant asserts that objecting to the FDIC-R’s Motion to Join or, Alternatively, to
Intervene, would have been a moot point because at the time of FDIC-R’s Motion, Defendant’s
counterclaims necessitated that FDIC-R intervene to protect Plaintiff.
(ECF No. 21 at 2.)
However, Defendant contends that FDIC-R’s involvement in the matter prompted Defendant to
revisit her counterclaims against Plaintiff, and, ultimately, to file her Motion to Amend and
Dismiss. See id. Defendant now believes “FDIC has done what it set out to do; Plaintiff is
protected.” Id. However, as discussed in further detail below, FDIC-R is a necessary party and
Defendant has not established any viable facts to nullify her consent. Thus, the court finds that
Defendant has waived her right to amend her Answer to seek dismissal of FDIC-R.
The second dispute in this matter is whether FDIC-R is a necessary party, thereby
determining whether this matter should be remanded to state court on account of the absence of
federal question jurisdiction. Under Federal Rule of Civil Procedure 19(a), a party must be joined
if “that person claims an interest relating to the subject of the action and is so situated that disposing
of the action in the person’s absence may (i) as a practical matter impair or impede the person’s
ability to protect the interest; or (ii) leave an existing party subject to a substantial risk of incurring
. . . inconsistent obligations because of the interest.” The court finds that regardless of whether
Defendant labels her allegations as counterclaims or defenses, FDIC-R is still a necessary and
proper party. Pursuant to the Purchase Agreement, FDIC-R must indemnify Plaintiff against any
liabilities incurred prior to its appointment as receiver for ACB. (ECF No. 17-1.) While Defendant
eliminates her counterclaims in her proposed amended Answer, Defendant bases her affirmative
defenses on the alleged acts and omissions of ACB, all of which occurred before FDIC-R was
appointed receiver. (ECF No. 11-1.)
Under the terms of the Purchase Agreement, FDIC-R is required to indemnify Plaintiff and
assume its defense with respect to Defendant’s allegations, regardless of whether they are labeled
as affirmative defenses or counterclaims. (ECF No. 17-1) (providing that FDIC-R must indemnify
Plaintiff against all losses incurred in connection with claims based on liabilities of ACB.)
Whether FDIC-R must take part in this case is a matter of contract between Plaintiff and FDIC-R,
and Defendant may not amend her Answer to invalidate this obligation by styling her claims as
defenses. See Dent v. Beazer Materials & Servs., Inc., 993 F. Supp. 923, 941 (D.S.C. 1995)
(“South Carolina courts construe indemnification contracts in accordance with general rules of
construction for contracts.”) (citing Campbell v. Beacon Mfg. Co., Inc., 313 S.C. 451, 453-54 (Ct.
App. 1993); Fed. Pac. Elec. v. Carolina Prod. Enterprises, 298 S.C. 23, 26 (Ct. App. 1989)).
Under Federal Rule of Civil Procedure 8(c)(2), where a party mistakenly designates a
counterclaim as a defense, “the court must, if justice requires, treat the pleading as though it were
correctly designated.” Counterclaims seek affirmative relief, while affirmative defenses merely
attempt to defeat a cause of action. See JPMorgan Chase Bank, N.A. v. E.-W. Logistics, L.L.C., 9
N.E.3d 104, 119 (Ill. App. Ct. 2014). The affirmative defenses in the proposed amended Answer
seek affirmative relief because they seek an affirmative recovery and a financial recovery by
reducing the amount Defendant owes. (ECF No. 11-1.) Defendant pleads setoff as her Fifth
Affirmative Defense. (ECF No. 11-1 at 2.) The defense of setoff “has the nature and effect of an
independent action by the defendant against the plaintiff,” and may be raised as a counterclaim.
Buchweiser v. Estate of Laberer, 695 S.W.2d 125, 129 (Mo. 1985); see also TVI, Inc. v. Infosoft
Techs., Inc., No. 4:06 CV-697 (JCH), 2007 WL 3565208, at *5 (E.D. Mo. Nov. 15, 2007) (finding
that the defendant had raised setoff as a counterclaim where the Defendant’s Second Answer and
Counterclaim showed a clear intent to plead setoff as a counterclaim and the defendant’s actions
throughout the litigation did not suggest that it raised a setoff claim simply to avoid a cause of
Defendant is not simply seeking to defeat Plaintiff’s cause of action. Rather, she is seeking
an affirmative recovery – the reduction of her debt. Specifically, Defendant asks that her debt be
reduced by the amounts due caused by “Plaintiff, assignor or its predecessor in interest.” (ECF
No. 11-1 at 2) (emphasis added). The Consent Order specifies that Defendant’s counterclaims
were premised solely on actions by ACB, which do not constitute claims that were assumed by or
transferred to Plaintiff. (ECF No. 4-1.) The same is true with Defendant’s affirmative defenses;
they all involve alleged actions committed solely by ACB, and do not constitute liabilities that
Plaintiff assumed pursuant to the Purchase Agreement. (ECF No. 11-1.) Therefore, Defendant’s
set-off claim is not viable against Plaintiff. See Nashville Lodging Co. v. RTC, 59 F.3d 236, 247
(D.C. Cir. 1995) (holding that a borrower cannot reduce its loan obligation to a receiver’s assignee
based on failed bank’s liabilities that are retained by the receiver); see also Fed. Deposit Ins. Corp.
v. Robuck Co., Inc., 473 F. Supp. 323, 327 (D.S.C. 1979) (citing Fed. Deposit Ins. Corp. v. Vogel,
437 F. Supp. 660 (E.D. Wis. 1977) (dismissing defendant’s set-off and counterclaim against
assuming bank as any such action must be alleged against the failed bank’s receiver, the FDIC)).
The court does not find it necessary to address Plaintiff and FDIC-R’s arguments, or
Defendant’s opposition to these arguments, that federal jurisdiction still exists even if FDIC-R is
dismissed as a party because, as discussed above, FDIC-R is a necessary party to this action and
thus, the court retains jurisdiction over this matter.
Based on the aforementioned reasons, Defendant’s Motion to Amend Answer, Dismiss
Counterclaims and Defendant, and Remand (ECF No. 11) is DENIED.
IT IS SO ORDERED.
United States District Judge
September 12, 2017
Columbia, South Carolina
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