180 F.3d 1124 (10th Cir. 1999), 97-3220, Franklin Sav. Corp. v. United States

Docket Nº:97-3220.
Citation:180 F.3d 1124
Party Name:FRANKLIN SAVINGS CORPORATION; Franklin Savings Association, Plaintiffs-Appellants, v. UNITED STATES of America; Federal Deposit Insurance Corporation, as successor-in-interest to the Resolution Trust Corporation, Defendants-Appellees.
Case Date:May 04, 1999
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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180 F.3d 1124 (10th Cir. 1999)

FRANKLIN SAVINGS CORPORATION; Franklin Savings Association,



UNITED STATES of America; Federal Deposit Insurance

Corporation, as successor-in-interest to the

Resolution Trust Corporation,


No. 97-3220.

United States Court of Appeals, Tenth Circuit

May 4, 1999

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[Copyrighted Material Omitted]

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R. Pete Smith, (Jonathan A. Margolies with him on the brief), McDowell, Rice, Smith & Gaar, Kansas City, Missouri, for Appellants.

Michael S. Raab, Attorney, Appellate Staff, Civil Division, U.S. Department of Justice, Washington, D.C. (Mark B. Stern, Attorney, Appellate Staff, Civil Division, U.S. Department of Justice, with him on the brief) for Appellees.

Before BALDOCK, KELLY, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

This appeal concerns the breadth of the discretionary-function exception to the waiver of sovereign immunity under the Federal Tort Claims Act (FTCA). Plaintiffs, who owned most of the stock of the Franklin Savings Association (FSA or the Association), sued the United States and the Resolution Trust Corporation 1 (RTC), seeking damages allegedly caused by the RTC's conduct as FSA's conservator. Before any discovery, the district court dismissed the suit under Federal Rule of Civil Procedure 12(b)(6) on the basis that plaintiffs' claims fell within the FTCA's discretionary-function exception. This court has jurisdiction of plaintiffs' appeal under 28 U.S.C. § 1291.

Plaintiffs primarily argue that their claims arise not from the RTC's performance of a discretionary function, but from its violation of specific, mandatory duties while managing FSA. Those duties include a specific dictate in the order creating the

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conservatorship that the RTC conserve and not liquidate the Association. Plaintiffs argue that the RTC nonetheless intentionally effected a de facto liquidation of FSA under the guise of conserving it. They thus allege that the RTC acted in subjective bad faith while performing acts which, viewed objectively, fall within the scope of a discretionary function. This poses the question whether such allegations should bar dismissal under the discretionary-function exception. Because this court concludes that the exception's purpose compels dismissal of any claim whose ultimate resolution would require judicial scrutiny of an official's good faith or subjective decisionmaking, we AFFIRM.


This is the third appeal to this court and the seventh published opinion involving disputes over the conservation and liquidation of the long-gone but not forgotten Franklin Savings Association. See Franklin Sav. Ass'n v. Office of Thrift Supervision, 740 F.Supp. 1535 (denying summary judgment), 742 F.Supp. 1089 (D.Kan.1990) (granting judgment after trial), rev'd, 934 F.2d 1127 (10th Cir.1991) [Franklin I ]; Franklin Sav. Ass'n v. Office of Thrift Supervision, 821 F.Supp. 1414 (D.Kan.1993), aff'd, 35 F.3d 1466 (10th Cir.1994) [Franklin II ]; Franklin Savings Corp. v. United States, 970 F.Supp. 855 (D.Kan.1997) (decision now on appeal) [Franklin III ]. This court has distilled the following summary of the litigation from Franklin II. See 35 F.3d at 1468.

In 1990 the Director of the Office of Thrift Supervision (OTS) determined that FSA was "in an unsafe and unsound condition to transact business" and appointed the RTC as its conservator. 2 FSA and its parent, Franklin Savings Corporation (FSC), filed suit under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to remove the conservator. See 12 U.S.C. § 1464(d)(2)(E) (1989) (authorizing appointment and judicial review); see generally 12 U.S.C. §§ 1461-1470 (1989). While the district court held the appointment arbitrary and capricious, this court reversed, holding that review of the decision to appoint a conservator is limited to the administrative record and that said record supported the decision. See Franklin I, 742 F.Supp. at 1126, rev'd, 934 F.2d at 1149. In 1992, after the first suit had been dismissed, the OTS changed the RTC's role from conservator to receiver. See 57 Fed.Reg. 41,969 (1992). FSA and FSC again sued. In 1994 this court affirmed the dismissal of that suit on the ground the decision to appoint a receiver is not subject to judicial review. See Franklin II, 821 F.Supp. at 1418-24, aff'd, 35 F.3d at 1469-71.

The present action, meanwhile, arose from plaintiffs' 1993 filing of an adversary complaint against the RTC in bankruptcy court, in a proceeding concerning the estate of FSC. See Franklin III, 970 F.Supp. at 860. The complaint sought damages under the FTCA based on the RTC's acts as conservator. See id. The district court withdrew the reference from the bankruptcy court, and plaintiffs amended their complaint to name the FDIC, the RTC's successor-in-interest. 3 See id. The government moved to dismiss all claims for lack of subject-matter jurisdiction. The court granted the motion, and this appeal followed. 4

On appeal, plaintiffs primarily challenge the dismissal of their FTCA claim. They

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premise that claim on the RTC's conduct in 1990-92, while it was acting under an order appointing it "as conservator ... not for the purpose of liquidation." Plaintiffs argue that the RTC disregarded that specific mandate, ignored various narrower mandates in its own manuals governing conservatorships, and breached its fiduciary duties as a conservator by intentionally effecting a de facto liquidation of the Association.

Plaintiffs specifically decry four sets of transactions from which they infer the RTC's sub rosa intent to liquidate the Association. Three of these involve allegedly precipitate, all-or-nothing sales of asset portfolios in saturated markets. The fourth involves an omission: before issuing reports on FSA's capital, the RTC did not exercise its statutory power to repudiate burdensome, high-interest bonds issued by FSA. The capital reports, which reflected asset write-downs that had decreased FSA's equity, caused the bond trustee to defease the bonds, triggering large losses for FSA. Plaintiffs argue that the RTC engaged in such conduct in order to deplete FSA's capital and thereby retrospectively justify the OTS's appointment of a conservator. They allege that the RTC caused FSA to lose some $500 million in potential profits, thus ensuring the Association's future liquidation rather than its conservation and eventual return to plaintiffs' control.


Plaintiffs' complaint included two damage claims pertinent to this appeal: one against the United States under the FTCA, and one against the FDIC at common law. 5 On appeal, the plaintiffs assert three ways the government has waived sovereign immunity: (1) under the Bankruptcy Code, 11 U.S.C. § 106; (2) under the FTCA, because the discretionary-function exception does not apply; and (3) under the RTC's and FDIC's sue-and-be-sued clauses. 6

A. Plaintiffs Have Waived Reliance on Bankruptcy Code § 106

Plaintiffs' first argument is easily dispatched, for their complaint did not allege

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Bankruptcy Code § 106 as a basis for subject-matter jurisdiction, and they never sought leave to amend their complaint to do so, or in any way asked the district court to assume jurisdiction under that provision. Plaintiffs address this problem by invoking the long-established rule that defects in subject-matter jurisdiction can never be waived and may be raised at any time on appeal. See Mansfield, Coldwater & Lake Mich. Ry. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L.Ed. 462 (1884); Fed.R.Civ.P. 12(h)(3); and, e.g., Laughlin v. Kmart Corp., 50 F.3d 871, 873 (10th Cir.1995). This court, however, has held that "our responsibility to ensure even sua sponte that we have subject matter jurisdiction before considering a case differs from our discretion to eschew untimely raised legal theories which may support that jurisdiction." Daigle v. Shell Oil Co., 972 F.2d 1527, 1539 (10th Cir.1992); see also United States ex rel. Ramseyer v. Century Healthcare Corp., 90 F.3d 1514, 1518 n. 2 (10th Cir.1996) (declining to consider sua sponte a basis for jurisdiction not argued below or on appeal).

Plaintiffs attempt to distinguish Daigle. They acknowledge that this court refused to consider a waived argument supporting jurisdiction of Daigle's suit. They argue, however, that we did so because the argument involved disputed factual issues on which the district court had made no findings. Plaintiffs assert that their bankruptcy argument, by contrast, presents "a pristine legal question."

Plaintiffs misread Daigle. This court held that we have no duty to consider waived arguments supporting subject-matter jurisdiction. See 972 F.2d at 1539. We then noted our discretion to ignore a waiver, in any case, if "presented with a strictly legal question the proper resolution of which is beyond doubt." Id. 7 In declining to apply that exception, this court saw no need to "delve into an in depth analysis" of the jurisdictional issue, instead simply noting that Daigle's new arguments "[did] not go unchallenged." Id. at 1540. 8 The same is true here: plaintiffs argue plausibly that the government waives its discretionary-function immunity by filing a claim in bankruptcy against the victim's estate. The government argues plausibly to the contrary. Plaintiffs may have shown that the legal question they raise is "pristine," but they have not shown, as they must, that its "proper resolution ... is beyond doubt." Id. at 1539. This court thus declines to overlook their waiver.

B. The Discretionary-Function Exception to the FTCA's Waiver of Sovereign Immunity

1. Standard of Review

The government moved to...

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