Stommel v. LNV Corporation

Filing 29

MEMORANDUM DECISION AND ORDER denying 11 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Dale A. Kimball on 4/3/14 (alt)

______________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

CHRISTINA STOMMEL,
Plaintiff,

MEMORANDUM DECISION
AND ORDER

vs.
Case No. 2:13CV821DAK
LNV CORPORATION,
Judge Dale A. Kimball
Defendant.

This matter is before the court on Defendant LNV Corporation’s Motion to Dismiss
Plaintiff Christina Stommel’s Complaint under Federal Rule of Civil Procedure 12(b)(1) for lack
of subject matter jurisdiction.1 On March 5, 2014, the court held a hearing on the motion. At the
hearing, Plaintiff was represented by David M. Bennion and Zack L. Winzeler, and Defendant
was represented by R. Willis Orton. The court has carefully considered the pleadings, and
memoranda submitted by the parties as well as the law and facts relating to the motions. Now
being fully advised, the court renders the following Memorandum Decision and Order.
BACKGROUND
Plaintiff Christina Stommel filed this action in defense of Defendant LNV’s threatened
foreclosure of her primary residence. On October 15, 2008, Stommel purchased the residence
from Matthew Phair. Phair had encumbered the property with three deeds of trust in Phair’s

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Defendant also moved for dismissal for failure to state a claim for relief under Federal
Rule of Civil Procedure 12(b)(6) but withdrew that basis at oral argument on the motion.

name as grantor and borrower. The first two deeds of trust, both dated December 30, 2005, were
Phair’s first and second mortgages to Lehman Brothers Bank FSB. The third Deed of Trust was
a Commercial Deed of Trust, dated March 28, 2008, from Phair to America West Bank.
Prior to closing, Select Title Agency, the title and escrow agency responsible for closing
the transaction between Phair and Stommel, contacted Lehman Brothers and America West Bank
to obtain payoff figures for the deeds of trust. America West sent an email to Select Title stating
that no payoff was required on the America West Deed of Trust because America West had only
recorded the Deed of Trust against the property out of an abundance of caution. In connection
with commercial loans that America West made to Phair’s commercial development company,
Cortland Ridge Development, America West required Phair to execute the America West Deed
of Trust. The America West Deed of Trust was not to provide America West with collateral for
the commercial loans to Cortland Ridge but, instead, was to prevent Phair from further
encumbering the property which was his primary residence. America West promised in writing
to reconvey the America West Deed of Trust as soon as it received evidence that the sale from
Phair to Stommel was complete.
After the sale of the property was complete, Select Title sent the HUD-1 Settlement
Statement for the transaction to America West as evidence that the sale had been finalized.
Despite this evidence, America West did not record a reconveyance of the America West Deed of
Trust before America West went into receivership.
A few moths later, on May 1, 2009, the Utah Department of Financial Institutions closed
America West and the Federal Deposit Insurance Corporation (“FDIC”) took over as America
West’s receiver. On April 29, 2010, the FDIC assigned the America West Deed of Trust on
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Stommel’s property to Defendant LNV.
Almost three years later, on April 8, 2013, LNV sent Stommel a letter threatening to
foreclose the America West Deed of Trust unless Stommel paid over $300,000 that LNV claimed
was still owing on loans America West made to Phair’s company, Cortland Ridge. Stommel
refused to pay LNV’s demand, and LNV threatened to foreclose its lien on the property to satisfy
the debt. In August 2013, Stommel sued LNV in state court in Utah. LNV then removed the
case to this court.
Stommel’s Complaint alleges three causes of action. First, Stommel alleges a claim for
promissory estoppel requiring LNV to reconvey the America West Deed of Trust, to release any
right, title or interest in Stommel’s property, and to pay damages. Second, Stommel seeks
declaratory judgment that LNV is bound by America West’s promises to reconvey the America
West Deed of Trust, that Stommel reasonably relied on America West’s promises to her
detriment, and that the America West Deed of Trust is invalid and unenforceable based on the
unfulfilled promises and representations of America West. Third, Stommel alleges a claim for
injunctive relief requesting the court to enjoin LNV from foreclosing on the America West Deed
of Trust.
DISCUSSION
Motion to Dismiss
LNV moves to dismiss Stommel’s Complaint, arguing that this court lacks subject matter
jurisdiction because Stommel failed to exhaust the administrative process under FIRREA before
filing suit. LNV further argues that Stommel’s equitable claims should be dismissed under the
anti-injunction provision of FIRREA, 12 U.S.C. § 1821(j).
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1. FIRREA Administrative Process
LNV argues that this court lacks subject matter jurisdiction over Stommel’s claims
because Stommel failed to present her claims against America West to the FDIC when America
West went into receivership. See 12 U.S.C. § 1821(d)(13)(D). Stommel’s Complaint alleges
that America West failed to release the Deed of Trust once it received evidence that the sale
between Phair and Stommel closed. LNV argues that Stommel’s causes of action relate
exclusively to America West’s actions, not LNV’s actions. As such, LNV asserts that Stommel
was required to present her claims to the FDIC for determination through the FIRREA
administrative process because the FIRREA administrative process is the exclusive way for an
aggrieved person to make a claim against a failed bank. See 12 U.S.C. § 1821(d)(3)-(5).
The Tenth Circuit recognizes the “long settled rules of judicial administration that no one
is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative
remedy has been exhausted.” Dry Creek Lodge, Inc. v. United States, 515 F.2d 926, 933 n.7 (10th
Cir. 1975). FIRREA provides an administrative review of claims certain parties may have
against the receiver of a failed institution. 12 U.S.C. § 1821(d)(3)-(5). For the covered claims
and parties, participation in this claim process is mandatory and a prerequisite to judicial review.
12 U.S.C. § 1821(d)(13)(D)
Stommel argues that FIRREA’s jurisdictional bar has no application to her lawsuit to
defend her primary residence from LNV’s threatened foreclosure. In Homeland Stores, Inc. v.
Resolution Trust Corp., 17 F.3d 1269 (10th Cir. 1994), the Tenth Circuit analyzed which claims
are potentially subject to FIRREA’s jurisdictional bar in 12 U.S.C. § 1821(d)(13)(D). Homeland,
17 F.3d at 1273. The Homeland court acknowledged that “[s]tanding alone, this language
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appears very broad,” however, the “claims” barred by § 1821(d)(13)(D) “parallel those
contemplated under FIRREA’s administrative claims process laid out in the greater part of §
1821(d).” Id. The court found that “much of § 1821(d) indicates that in requiring administrative
review–and in the meantime forbidding federal court jurisdiction–of ‘claims,’ Congress had in
mind creditor and related claims arising before an institution enters receivership.” Id. at 1274.
The court found that the term “claim” excluded claims “arising from management actions of the
RTC after taking over a depository institution.” Id.
Stommel’s claims do not fall within the definition of “claims” set forth in Homeland. She
is not and has never been a creditor of America West. See Colman v. Wendover Funding Inc.,
1996 WL 316460, *3 (10th Cir. June 12, 1996) (unpublished) (holding that debtors’ claims were
not jurisdictionally barred by § 1821(d)(13)(D)). While LNV focuses on whether or not America
West timely released the Deed of Trust, Stommel’s claims in this action are a defense of LNV’s
threatened foreclosure of her primary residence. Therefore, her claims did not arise until LNV
threatened to foreclose her home in April 2013, long after America West failed and the FDIC
was named receiver.
Under the Tenth Circuit’s view of FIRREA, FIRREA does not apply to claims made in
defense of LNV’s threatened foreclosure which occurred long after the FDIC took over America
West. Another district court recently discussed this very issue in Nat’l Credit Union Admin. Bd.
v. JPMorgan Chase Bank, N.A., 2013 WL 4736374 (D. Kan. Sept. 3, 2013). In Nat’l Credit
Union, the plaintiff brought suit against JPMorgan Chase as successor-in-interest to Washington
Mutual Bank, a failed institution. Id. at *1. The court relied on the reasoning from another
district court, stating: “[FIRREA’s] administrative procedures were designed to permit a claimant
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to ‘seek a determination of rights with respect to the assets of any depository institution for which
the corporation has been appointed receiver.’ But the assets–and-liabilities–at issue here have
passed . . . to JPMorgan, and FIRREA’s claims procedure includes no provision for impleading
the purchaser of a failed bank’s assets and liabilities. Thus, the claims . . . here could not be
brought under the administrative procedures of § 1821(d), making FIRREA’s exhaustion
requirement inapplicable.” Id. at *3.
Here, like Nat’l Credit Union, the America West Deed of Trust passed from the FDIC to
LNV in April 2012, nearly four years ago. FIRREA does not apply to Stommel’s claims against
LNV because the America West Deed of Trust is no longer an asset of a failed institution. As
recognized in Nat’l Credit Union, FIRREA’s claims procedure includes no provision for
impleading the purchaser of a failed bank’s assets and liabilities. Stommel’s claims arose based
on LNV’s attempts to assert greater rights in the America West Deed of Trust than America West
claimed. LNV cannot acquire greater rights in a Deed of Trust than the original bank had in the
instrument. LNV merely acquired America West’s interest in the Deed of Trust. FIRREA
cannot address such actions taken by a purchaser of a failed bank’s assets. Therefore, FIRREA’s
jurisdictional bar does not apply to Stommel’s claims against LNV’s threatened foreclosure.
In addition, the fact that Stommel pursued the action against LNV is irrelevant. In Bolduc
v. Beal Bank SSB, 167 F.3d 667 (1st Cir. 1999), the borrowers filed a preemptive lawsuit to
enjoin the defendant bank from foreclosing upon their properties. Id. at 669-70. The defendant
bank had purchased the mortgage at issue from the FDIC as receiver of a failed bank. Id. at 670.
The First Circuit stated that “the FIRREA exhaustion requirement applies to claims against the
bank and not to claims by the bank against those indebted to it.” Id. at 671. The court found that
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debtors need not submit their defenses to FIRREA’s claims administrative process and “who
happens to be the plaintiff is not controlling.” Id. Because Bolduc’s suit was about defenses to
foreclosure, and not a claim seeking payment from the defendant bank or disputing ownership of
the assets, FIRREA’s jurisdictional bar did not apply. Id. at 672. Several other court have also
found that affirmative defenses to actions filed by the receiver do not fall within FIRREA’s
jurisdictional bar. See, e.g., Resolution Trust Corp. v. Love, 36 F.3d 972, 977 (10th Cir. 1994).
As in Bolduc, Stommel’s claims against LNV are defensive in nature even though
Stommel preemptively raised the claims to prevent LNV’s threatened foreclosure of her property.
It makes no difference that Stommel is pursuing these defenses as a plaintiff. Stommel’s
defensive claims are not subject to FIRREA’s jurisdictional bar. LNV argues that Stommel’s
promissory estoppel claim seeks money damages. However, seeking attendant money damages
does not convert her claim into something other than a defense to a foreclosure. She is seeking
damages in relation to LNV’s actions, not America West’s actions.
Moreover, LNV’s interpretation of FIRREA would deprive Stommel of her due process
rights. LNV argues in its motion that Stommel was required to present her claims to the FDIC no
later than August 5, 2009, and her failure to do so divests this court of jurisdiction. Thus, LNV is
arguing that Stommel is too late to seek administrative review and, without such administrative
review, this court cannot review her claim. Such an argument runs afoul of an individual’s due
process right to be heard when their property rights are under threat.
The Tenth Circuit, in Homeland, recognized that if it found Homeland’s claims
jurisdictionally barred under FIRREA, “Homeland would have neither an administrative nor a
judicial forum for the claims.” 17 F.3d at 1274 n.5. The court further stated that such a
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construction of FIRREA”raises constitutional problems” because “Homeland would not only be
denied timely judicial review, but all review.” Id.
In this case, Stommel stands to lose her primary residence as a result of LNV’s recent
threats to foreclose. LNV’s position that Stommel has no available forum to assert defenses to
the threatened foreclosure is directly contrary to the Tenth Circuit’s construction of FIRREA in
Homeland.
Finally, as an unrelated third party, Stommel cannot be said to have had notice of the
FDIC’s receivership of America West. LNV argues that Stommel had 90 days after America
West entered receivership to file her claims with the FDIC. However, the notice posted on
America West’s webpage makes it clear that it pertains to claims of America West’s creditors.
Even if Stommel had received notice of the FDIC’s receivership of America West and the
administrative claims process, she would have had nothing to file in August 2009 because her
claims in defense of LNV’s threatened foreclosure did not accrue until 2013 when LNV
threatened foreclosure. America West never threatened foreclosure. Therefore, the court
concludes there is no basis for dismissing Stommel’s claims against LNV.
2. Anti-Injunction Provision
Even if Stommel’s claims were not barred for failure to exhaust administrative remedies,
LNV argues that her claims would be barred by the anti-injunction provisions of FIRREA, 12
U.S.C. § 1821(j). FIRREA’s anti-injunction provision 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.” The anti-injunction provision of § 1821(j) evidences “an intent by Congress to
prohibit any interference with the [FDIC] as a receiver–either directly or indirectly.” See
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Pyramid Construction Co. v. Wind River Petroleum, Inc., 866 F. Supp. 513, 519 (D. Utah 1994).
In Pyramid, the court found that the rescission of a sale of real property and order
requiring the RTC to sell the property to another party would violate the anti-injunction
provision. Id. In addition to Pyramid, LNV relies on Dittmer Properties, L.P. v. FDIC, in which
the Eighth Circuit dismissed a plaintiff’s claims against a third-party purchaser, finding that the
anti-injunction prohibition in § 1821 applied to assets sold by the FDIC to a remote third party
purchaser as well as to assets held by the FDIC. 708 F.3d 1011, 1017 (8th Cir. 2013).
However, the court finds that these cases are factually distinguishable. The claims for
rescission and resale addressed in Pyramid are significantly different than Stommel’s claims in
this case. Stommel alleges, and this court must assume as true, that the America West Trust
Deed was worthless when the FDIC took over America West and acquired the Trust Deed. The
fact that the FDIC took over America West did not change the value of the Trust Deed. The
America West Trust Deed is worth whatever it was worth when the FDIC acquired it. In
addition, the fact that LNV purchased the Trust Deed from the FDIC does not change its value.
LNV did not acquire greater rights in the Trust Deed than America West had. LNV acquired
America West’s interest in the Trust Deed. Stommel’s claims do not seek to undo or alter any
action by the FDIC, they merely ask this court to declare the value of the Trust Deed.
LNV argues that a declaration by this court that the Trust Deed is worthless could have a
chilling effect on the FDIC’s ability to transfer assets to third parties. However, unlike a specific
piece of property that is individually transferred or sold, the transfer in this case was a bundle of
mortgages. LNV acquired that bundle of mortgages knowing that some were valuable and some
were not. The court does not believe that a determination that the Trust Deed at issue in this case

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is worthless would have a chilling effect on the FDIC’s ability to transfer bundles of trust deeds
to third parties.
Moreover, Stommel’s claims focus on LNV’s actions not the actions of the FDIC.
Assuming the facts as alleged in the Complaint, LNV acquired the Trust Deed from the FDIC,
learned that America West, its predecessor-in-interest, intended to release the Trust Deed but
failed to do so, and then threatened to foreclose on the property based on a Trust Deed its
predecessor-in-interest agreed to release. Stommel is not alleging that the FDIC had any
knowledge of the circumstances relating to the specific Trust Deed at issue in this case or did
anything other than bundle it with other Trust Deeds and transfer it to LNV.
Therefore, the court concludes that the claims at issue in this case do not implicate the
Anti-Injunction provisions of FIRREA. Accordingly, the court finds no basis for dismissing
Stommel’s claims.
CONCLUSION
For the reasons stated above, Defendant LNV Corporation’s Motion to Dismiss is
DENIED.
DATED this 3rd day of April, 2014.
BY THE COURT:

DALE A. KIMBALL
United States District Judge

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