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Triad Bank v. First-Citizens Bank & Trust Company

United States District Court, D. Colorado

March 30, 2015

TRIAD BANK, a Missouri chartered bank, Plaintiff,
FIRST-CITIZENS BANK & TRUST COMPANY, a North Carolina chartered commercial bank, Defendants

Order Filed: August 18, 2014

Page 1259

For Triad Bank, a Missouri chartered bank, Plaintiff: Geraldine A. Brimmer, Holland & Hart, LLP-Boulder, Boulder, CO; Joseph Ernest Martineau, Lewis Rice & Fingersh, L.C.-St Louis, St Louis, MO.

For First-Citizens Bank & Trust Company, a North Carolina chartered commercial bank, Defendant: Aaron David Goldhamer,Stuart N. Bennett, Jones & Keller, PC-Denver, Denver, CO; Stuart N. Bennett, Jones & Keller, PC-Denver, Denver, CO.

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RAYMOND P. MOORE, United States District Judge.

This diversity matter involves a contract dispute between two banks regarding the interpretation of several loan participation agreements. Defendant First-Citizens Bank & Trust Company (" First-Citizens" ) has moved to dismiss Plaintiff Triad Bank's (" Triad" ) Second Amended Complaint (ECF No. 57, the " Complaint" ) pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). This matter is before the Court on U.S. Magistrate Judge Boyd N. Boland's recommendation (ECF No. 73, the " Recommendation" ) that this Court grant First-Citizens' motion and dismiss the case for lack of federal subject matter jurisdiction based on the jurisdictional bar contained in the Financial Institutions Reform, Recovery, and Enforcement Act (" FIRREA" ), 12 U.S.C. § 1821(d)(13)(D). Each party has filed timely objections (ECF Nos. 74, 75, 76, 77) to the Recommendation (together the " Objections" ). For the reasons stated below, the Court (1) ADOPTS the Recommendation; (2) GRANTS First-Citizens' motion to dismiss; and (3) OVERRULES the parties' Objections.


A. Review of the Magistrate Judge's Recommendation

When a magistrate judge issues a recommendation on a dispositive matter, Federal Rule of Civil Procedure 72(b)(3) requires that the district court judge " determine de novo any part of the magistrate judge's [recommendation] that has been

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properly objected to." In conducting his review, " [t]he district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions." Fed.R.Civ.P. 72(b)(3). An objection to a recommendation is proper if it is filed timely in accordance with the Federal Rules of Civil Procedure and specific enough to enable the " district judge to focus attention on those issues -- factual and legal -- that are at the heart of the parties' dispute." United States v. 2121 E. 30th St., 73 F.3d 1057, 1059 (10th Cir. 1996) (quoting Thomas v. Arn, 474 U.S. 140, 147, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985)). In the absence of a timely and specific objection, " the district court may review a magistrate's report under any standard it deems appropriate." Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir. 1991) (citations omitted); see also Fed.R.Civ.P. 72 Advisory Committee's Note (" When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation." ).

B. Rule 12(b)(1) Motion

On a motion to dismiss pursuant to Rule 12(b)(1), the Court tests whether it has subject matter jurisdiction to properly hear the case before it. The party invoking the court's jurisdiction bears the burden to establish that federal jurisdiction exists, and " since the courts of the United States are courts of limited jurisdiction, there is a presumption against its existence." Basso v. Utah Power & Light Co., 495 F.2d 906, 909 (10th Cir. 1974). As articulated by the Tenth Circuit, Rule 12(b)(1) motions generally take two forms:

First, a facial attack on the complaint's allegations as to subject matter jurisdiction questions the sufficiency of the complaint. Ohio Nat'l Life Ins. Co. v. U.S., 922 F.2d 320, 325 (6th Cir. 1990) . . . . Second, a party may go beyond allegations contained in the complaint and challenge the facts upon which subject matter jurisdiction depends. Id. When reviewing a factual attack on subject matter jurisdiction, a district court may not presume the truthfulness of the complaint's factual allegations. Id. A court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1). Id.

Holt v. U.S., 46 F.3d 1000, 1002-03 (10th Cir. 1995). " When reviewing a factual attack on a complaint supported by affidavits and other documents . . . the Court makes its own factual findings and need not convert the motion to one brought pursuant to Fed.R.Civ.P. 56." Amazing Technologies, LLC v. Blacklodge Studios, LLC, No. 10-cv-03077-WJM-KLM, 2012 WL 683512, at *1 (D. Colo. Mar. 2, 2012); Michelson v. Enrich Int'l Inc., 6 F.App'x 712, 716 (10th Cir. 2001) (" Where the resolution of the jurisdictional question is not intertwined with the merits of plaintiff's case, a district court may consider evidence outside the pleadings and resolve factual disputes without converting a Rule 12(b)(1) motion into a Rule 56 motion." ); Holt, 46 F.3d at 1003.

I agree with the Magistrate Judge's characterization of First-Citizens' motion to dismiss as a factual challenge. (ECF No. 73 at 7). Thus, it is proper for this Court to consider additional evidence offered by First-Citizens in support of their Rule 12(b)(1) motion, and also any additional evidence offered by Triad in opposition thereto. See Kosicki v. Nationstar Mortgage, LLC, 947 F.Supp.2d 546, 553 (W.D. Penn. 2013) (finding defendants asserted a " factual attack under Rule 12(b)(1) by alleging that FIRREA bars this Court from adjudicating the claims

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asserted by Plaintiffs" ); Holt, 46 F.3d at 1002-03 (same).


Triad filed its Second Amended Complaint (ECF No. 57, the " Complaint" ) on November 4, 2013 seeking contract damages and a declaratory judgment against First-Citizens relating to three loan participation agreements (the " Loan Participation Agreements" ). Triad was a participant in real estate loans in which Colorado Capital Bank (" CCB" ) was the lead or agent bank. (ECF No. 57 at ¶ ¶ 1, 4, 10, 11, 15, 28, 29). CCB later failed, and the Federal Deposit Insurance Corporation (the " FDIC" ) took over as receiver of CCB on July 8, 2011. ( Id. at ¶ 4). Under a " Purchase and Assumption Agreement" entered into between First-Citizens and the FDIC " immediately" after the FDIC was appointed receiver, First-Citizens acquired most assets and assumed CCB's obligations, including the Loan Participation Agreements at issue in this proceeding and the real estate loans underlying those participation agreements. ( Id. ).

In Count I of the Complaint, Triad seeks damages arising from First-Citizens' alleged breach of what Triad has labeled an " assumed agreement" to fund a subordinated real estate loan to a borrower. (ECF No. 68 at 2.) Triad and CCB originally entered into a Loan Participation Agreement relating to a real estate project financing valued at $2,700,000, for which Triad had agreed to purchase a $2,000,000 participation interest. (ECF No. 57 at ¶ ¶ 10-11.) The original borrower was unable to complete the project and the lending agreement was terminated at a point when only $1,855,000 of the loan had been funded. ( Id. at ¶ 13.) After the original borrower defaulted or was in peril of defaulting, CCB arranged for a second borrower to take over and complete the underlying real estate project. ( Id. at ¶ ¶ 13-14.) The second borrower required additional funds to complete the project and CCB agreed to provide an additional loan of $1,245,000 to the second borrower on a subordinated basis (the " Subordinated Loan Commitment" ) for which Triad did not purchase a participation interest. ( Id. ¶ 14.) Concurrently with the execution of the Subordinated Loan Agreement, CCB and Triad entered into a new Loan Participation Agreement (the " Maxwell Participation Agreement" ) to cover the outstanding $1,855,000 loan that would become the obligation of the second borrower. ( Id. at ¶ ¶ 14-15.) The Maxwell Participation Agreement made reference to the Subordinated Loan Commitment. (Id.) Neither CCB nor First-Citizens ever funded the subordinated loan, the second borrower was unable to complete the underlying real estate project, and Triad alleges that it is still owed $1,150,000 on its participation interest under the Maxwell Participation Agreement. ( Id. ¶ ¶ 21-26.) Although Triad only has a participation interest (by virtue of the Maxwell Participation Agreement) in the initial loan and not the subordinate loan, Triad alleges that First-Citizens breached the Maxwell Participation Agreement by failing to fund the Subordinated Loan Commitment. ( Id. ¶ 25.)

Triad filed its initial complaint in this action against CCB prior to CCB being placed into receivership with the FDIC (ECF No. 1) seeking a declaratory judgment of Triad's right to payments with regards to the Maxwell Participation Agreement from CCB. Count I of the Complaint seeks contract damages against First-Citizens relating to the same Maxwell Participation Agreement that was at issue in Triad's first complaint against CCB. Triad has not alleged that it attempted to pursue this claim through the

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administrative claims process outlined in FIRREA.

In Count II, Triad seeks a declaratory judgment pursuant to 28 U.S.C. § 2201 relating to all of the Loan Participation Agreements between First-Citizens and Triad.[1] Triad alleges that under the Loan Participation Agreements, it is entitled to receive its pro rata share of funds received by First-Citizens through a " Shared-Loss Agreement" between First-Citizens and the FDIC.

The Shared-Loss Agreement was entered into between First-Citizens and the FDIC in conjunction with the Purchase and Assumption Agreement whereby First-Citizens acquired the CCB assets at issue, which in turn was executed on the same day that CCB was placed in receivership with the FDIC. ( See ECF Nos. 65-2 at 1, 57 at ¶ 4.) Triad alleges that the Shared- Loss Agreement allows First-Citizens to recover from the FDIC 80% of any losses incurred on the assumed CCB loan portfolio, including losses incurred on the loans underlying the subject Loan Participation Agreements. ( Id. ¶ 32.) Paragraph 8 of the Loan Participation Agreements each provide that Triad is entitled to its pro rata share of any payment related to the loans " from any source whatever." ( Id. ¶ 33.) Triad claims that payments made to First-Citizens from the FDIC pursuant to the Shared-Loss Agreement would be considered a payment received " from any source whatever," and that Triad is therefore entitled to a pro rata share of those payments under the applicable Loan Participation Agreements. ( Id. ¶ 34.) Triad alleges, upon " information and belief," that First-Citizens has received approximately $721,850.00 from the FDIC in shared loss recoveries related to the loans underlying the Loan Participation Agreements and that Triad is entitled to its pro rata share of this recovery. ( Id. ¶ ¶ 36-37.) Triad has not alleged that it attempted to pursue this claim through the administrative claims process outlined in FIRREA.

On December 20, 2013, First-Citizens moved to dismiss the Complaint on two grounds. (ECF No. 65). First-Citizens argued that this Court lacks jurisdiction in light of FIRREA's jurisdictional bar. First-Citizens also asserted that Count II of the Complaint should be dismissed pursuant to Rule 12(b)(6), Fed. R. Civ. P., for failure to state a claim upon which relief can be granted. Following a Response (ECF No. 68), a Reply (ECF No. 69), and a Surreply (ECF No. 72), Magistrate Judge Boyd N. Boland issued his Recommendation (ECF No. 73) that the Complaint be dismissed for lack of subject matter jurisdiction based on the jurisdictional bar of FIRREA.

Both Triad and First-Citizens filed objections and responses to the Recommendation. Triad objected to the Recommendation's application of FIRREA as " overly-broad" and argued that the jurisdictional bar did not apply in this case. (ECF Nos. 74, 77.) First-Citizens objected to the Recommendation's failure to address Triad's Rule 12(b)(6) motion with respect to Count II and urges this Court to grant that aspect of its motion to dismiss as an additional and alternative ground for dismissal with respect to Count II.

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The Court will review the matter de novo.


Section 1821 (d)(13)(D) of FIRREA provides that no court shall have jurisdiction over:

(i) any claim or action for payment from, or any actions seeking a determination of rights with respect to, the assets of any depositary 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). The only exception is found in Section 1821(d)(6)(A), which provides that federal courts have jurisdiction over claims that have first been presented to the FDIC under its administrative review process. Read together, these provisions mandate that " Federal courts may exercise jurisdiction only after a claimant has completed the administrative claims process." In re George Love Farming, LC, 420 F.App'x 788, 791 (10th Cir. 2011). " Universally, the federal courts have broadly applied the exhaustion requirement to an extensive variety of claims." FDIC v. Updike Bros., Inc., 814 F.Supp. 1035, 1039 (D. Wyo. 1993) (listing cases providing various contexts where § 1821(d)(13)(D) was applied to bar federal suits). When determining whether the jurisdictional bar of Section 1821(d) should apply, courts have admonished that " [t]he determining factor in these cases is not the identity of the defendant or when the complained-of acts occurred, but rather, the nature of the claim: are plaintiffs challenging independent acts of a third party or are they seeking a determination of rights with respect to an asset of a failed bank?" Westberg v. FDIC et al., 926 F.Supp.2d 61, 69 (D.D.C. 2013); see also Tri-State Hotels, Inc. v. FDIC, 79 F.3d 707, 713 n.9 (8th Cir. 1996) (When applying the jurisdictional bar of § 1821(d), " courts should look to the underlying substance of the challenged events. If plaintiff brings an action against the assets of the failed institution, then FIRREA's exhaustion requirement is applicable, regardless of how plaintiff styles its claim." ).

" The primary purpose behind FIRREA's exhaustion scheme is to allow [the receiver] to perform its statutory function of promptly determining claims so as to quickly and efficiently resolve claims against a failed institution without resorting to litigation." Rosa v. Resolution Trust Corp., 938 F.2d 383, 396 (3d Cir. 1991) (citing H.R.Rep. No. 101-54(I), 101st Cong., 1st Sess., 418-19 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 214-15). Courts have interpreted Congress' intent that " the 'exhaustion requirement' was a key linchpin in achieving the legislative goal of resolving the 'bulk of claims against failed financial institutions expeditiously and fairly' through the administrative process 'without unduly burdening the District Courts.'" Feise v. Resolution Trust Corp. 815 F.Supp. 344, 348 (E.D. Cal. 1993) (quoting H.R.Rep. No. 101-54(I), 101st Cong., 1st Sess., 419 (1989), reprinted in 1989 U.S.C.C.A.N. 86, 215).

Although the statutory language of Section 1821(d)(13)(D) does not explicitly refer to claims against institutions that purchase the assets of a failed financial institution from the FDIC, courts have interpreted the statute to find that the acquiring institution essentially stands in the shoes of the FDIC as receiver when determining whether the exhaustion requirement applies. See Westberg, 926 F.Supp.2d at 67 (" The fact that a third party purchases an asset from the FDIC does not extinguish the jurisdictional bar for actions under

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FIRREA not first presented to the FDIC." ); Vill. of Oakwood v. State Bank & Trust Co., 539 F.3d 373, 386 (6th Cir. 2008) (concluding that to allow claimants to circumvent the provisions of FIRREA's jurisdictional bar by " bringing claims against the assuming bank would encourage the very litigation that FIRREA aimed to avoid" ) (citations and alterations omitted); Am. First Fed., Inc. v. Lake Forest Park, Inc., 198 F.3d 1259, 1263 n. 3 (11th Cir. 1999) (finding that the acquiring bank, " having purchased the note from the RTC, stands in the shoes of the RTC and acquires its protected status under FIRREA" ); SunSouth Bank v. First NBC Bank, No. 13-cv-379-WKW, 2014 WL 3767548, at *4 (M.D.Ala. July 31, 2014) (" Successors-in-interest to the FDIC which purchase the assets of failed banks stand in the shoes of the FDIC, and may assert as a defense that a party has failed to exhaust administrative remedies pursuant to FIRREA." ) (citations omitted).

A. The Subordinated Loan Commitment

With respect to Triad's breach of contract claim relating to First-Citizens' alleged failure to fund the Subordinated Loan Commitment, First-Citizens argues that this Court lacks jurisdiction to decide this matter due to Triad's failure to exhaust all administrative remedies under FIRREA. First-Citizens argues that Triad's ability to litigate these issues through an FDIC administrative claim is supported by the fact that its claim against First-Citizens is based on the " same core allegations" contained in Triad's original complaint that was filed against CCB (ECF No. 1) and is merely a recasting of that original claim. First-Citizens argues that because the claim existed during the time that the assets were under FDIC receivership, it surely could have been brought before the FDIC for resolution and is thus barred by Section 1821(d)(13)(D). First- Citizens relies primarily on Westberg v. FDIC, 926 F.Supp.2d 61, for the proposition that claims against a party that purchases an asset from the FDIC relating to the purchased asset are barred.

Triad responds that the statutory language of Section 1821(d)(13)(D), and case law applying its jurisdictional bar broadly to federal lawsuits, does not apply in the present context because FIRREA's jurisdictional bar is not applicable to claims against successor banks--such as the present claims against First-Citizens--for their own acts or omissions even if related to an asset transferred to them by the FDIC. Triad argues that First-Citizens' jurisdictional argument disregards the independent obligations of First-Citizens with respect to the Loan Participation Agreements and the independent action taken by First-Citizens in refusing to fund the Subordinated Loan Commitment. Triad argues that its claim therefore has nothing to do with CCB's breach by failing to fund the subordinated loan, but rather that Triad seeks to recover for First-Citizens' assumption of that same obligation and First-Citizens' independent breach when it refused to fund the subordinated loan. (ECF No. 68 at 7-8.) Triad primarily relies on American National Insurance Co. v. FDIC, 642 F.3d 1137, 395 U.S.App.D.C. 316 (D.C. Cir. 2011), and SunSouth Bank v. First NBC Bank, 2014 WL 3767548, in support of this argument.

Neither party offers Tenth Circuit law in support of their arguments, and the Magistrate Judge does not rely on any Tenth Circuit decisions in the Recommendation. However, to the extent Triad asserts that this matter involves post receivership conduct, the Tenth Circuit ...

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