398 F.3d 735 (6th Cir. 2005), 02-2330, In re Lewis

Docket Nº:02-2330.
Citation:398 F.3d 735
Party Name:In re Kay Lorraine LEWIS, Debtor. Superior Bank, FSB, Appellant, v. James W. Boyd, Chapter 7 Bankruptcy Trustee, Appellee.
Case Date:February 16, 2005
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

Page 735

398 F.3d 735 (6th Cir. 2005)

In re Kay Lorraine LEWIS, Debtor.

Superior Bank, FSB, Appellant,


James W. Boyd, Chapter 7 Bankruptcy Trustee, Appellee.

No. 02-2330.

United States Court of Appeals, Sixth Circuit

February 16, 2005

        Argued: Sept. 16, 2004

Page 736

[Copyrighted Material Omitted]

Page 737

[Copyrighted Material Omitted]

Page 738


        Walter J. Russell, Russell & Batchelor, Grand Rapids, Michigan, for Appellant.

        Kelly M. Hagan, Zimmerman, Kuhn, Darling, Boyd, Taylor & Quandt, Traverse City, Michigan, for Appellee.

         ON BRIEF:

        Walter J. Russell, Stephen C. Bransdorfer, Russell & Batchelor, Grand Rapids, Michigan, for Appellant.

        Kelly M. Hagan, Zimmerman, Kuhn, Darling, Boyd, Taylor & Quandt, Traverse City, Michigan, for Appellee.

        Before: GUY and SUTTON, Circuit Judges; CARR, Chief District Judge. [*]

        OPINION GUY, in which SUTTON, J., joined. CARR, C.J., (pp. 748-51), delivered a separate concurring opinion.


        RALPH B. GUY, JR., Circuit Judge.

        Defendant, Superior Bank FSB (Superior Bank), appeals from the grant of summary judgment in favor of the trustee, James W. Boyd, avoiding Superior Bank's mortgage on the debtor's real property as a preferential transfer pursuant to 11 U.S.C. § 547. Superior Bank argued that its mortgage was equitably subrogated to a prior recorded mortgage. After the appeal was filed in this Court, Superior Bank challenged the subject matter jurisdiction of the bankruptcy court pursuant to the Financial Institution Reform, Recovery and Enforcement Act (FIRREA). 12 U.S.C. § 1821(d) (13) (D) and § 1821(j). After review of the record, the applicable law, and the arguments presented on appeal, we find that the bankruptcy court retained jurisdiction and affirm the grant of summary judgment.


        In December 1998, the debtor, Kay Lorraine Lewis, purchased residential property in Mancelona, Michigan, with funds borrowed from Empire National Bank. Empire National Bank's mortgage was recorded on December 17, 1998.

        Debtor thereafter quitclaimed the property to her son, Ronald Bigger, and her son's fiancee, Jessica DePeel. When the debtor wanted to secure refinancing from Superior Bank to repay the Empire National Bank note, Bigger and DePeel quitclaimed the property to the debtor, Bigger, and DePeel. On September 9, 1999, the debtor executed a note to Superior Bank; and the debtor, Bigger, and DePeel executed a mortgage on the property to secure the note. Superior Bank did not record the mortgage until April 17, 2000.

        On May 4, 2000, less than a month after the mortgage was recorded, debtor filed for Chapter 7 bankruptcy and listed Superior Bank as a secured creditor. Superior Bank filed a motion for relief from automatic stay on the mortgaged property, which was subsequently withdrawn on October 27, 2000. On November 11, 2000, the trustee filed the complaint in this adversary action to avoid Superior Bank's mortgage.

Page 739

        A little more than six months later, on July 27, 2001, Superior Bank was placed in receivership pursuant to the provisions of FIRREA. 1 On November 15, 2001, the bankruptcy court granted partial summary judgment in favor of the trustee and avoided Superior Bank's mortgage. 2 After that judgment was affirmed by the district court on appeal, Superior Bank filed a notice of appeal in this Court.

        Subsequently, the trustee filed in the bankruptcy court a notice of intent to sell the property. On March 4, 2003, Superior Bank filed objections and, nearly two years after the FDIC was appointed as receiver, asserted for the first time that the bankruptcy court lacked jurisdiction pursuant to FIRREA. After overruling Superior Bank's objections, the bankruptcy court concluded that it could not rule on Superior Bank's jurisdictional challenge because it was, in effect, a collateral attack on the judgment that was pending on appeal before this Court. Superior Bank then filed a motion to dismiss for lack of jurisdiction in this Court. We denied the motion without prejudice and directed the parties to brief the jurisdictional issue in this appeal. 3


        A. Subject Matter Jurisdiction

         The existence of subject matter jurisdiction may be raised at any time, by any party, or even sua sponte by the court itself. Cmty. Health Plan of Ohio v. Mosser, 347 F.3d 619, 622 (6th Cir. 2003). Therefore, we will decide whether the bankruptcy court had subject matter jurisdiction even though this issue was not raised until after the appeal was filed.

        The FDIC, as receiver, has never appeared in this case. After oral argument, we provided an opportunity for the FDIC to state its position on Superior Bank's jurisdictional arguments. In its brief response, the FDIC opined that the bankruptcy court lacked jurisdiction under § 1821(d) (13) (D). The application of FIRREA to an action pending at the time a receiver is appointed presents an issue of first impression in this circuit.

        FIRREA was enacted during the savings and loan insolvency crisis to enable the FDIC and the Resolution Trust Company (RTC) to efficiently and expeditiously wind up the affairs of hundreds of failed financial institutions. See Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C.Cir. 1995). Section 1821 of FIRREA establishes an administrative process for handling claims made against the assets of a failed bank that has been placed under receivership. Before addressing the jurisdictional issues presented in this case, we will briefly review the administrative claims process under FIRREA.

Page 740

        Section 1821(d) (3) (A) states that the FDIC "may, as receiver, determine claims in accordance with the requirements of this subsection and regulations prescribed under paragraph (4)." 12 U.S.C. § 1821(d) (3) (A). The FDIC must publish and mail a notice to the bank's creditors to present their claims by a specified date, which cannot be less than 90 days after publication of the notice. 12 U.S.C. § 1821(d) (3) (B) and (C).

        If a claim is filed with the FDIC as receiver, the FDIC has 180 days to allow or disallow the claim and to notify the claimant of that determination. 12 U.S.C. § 1821(d) (5) (A) (i). Claims filed after the date specified in the notice must be disallowed unless "the claimant did not receive notice of the appointment of the receiver in time to file such claim before such date." 12 U.S.C. § 1821(d) (5) (C) (ii) (I). In such a case, the FDIC may consider the claim provided the claim is "filed in time to permit payment." 12 U.S.C. § 1821(d) (5) (C) (ii) (II).

        If the FDIC disallows a claim or fails to either allow or disallow the claim within the 180-day period, a claimant may, within 60 days, request further administrative review or file suit on such claim in the district court located in the failed bank's principal place of business or the District of Columbia. 12 U.S.C. § 1821(d) (6) (A). Alternatively, a claimant can continue an action commenced before the appointment of the receiver. Id. If the claimant does not seek either administrative review or judicial determination within that 60-day period, the claim is deemed disallowed and the disallowance "shall be final, and the claimant shall have no further rights or remedies with respect to such claim." 12 U.S.C. § 1821(d) (6) (B) (ii).

        1. 12 U.S.C. § 1821(j)

         Superior Bank argues that 12 U.S.C. § 1821(j) barred the bankruptcy court from avoiding the mortgage. Section 1821(j) provides:

(j) Limitation on court action

Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.

        In Freeman, 56 F.3d at 1394, the plaintiffs brought an action against the FDIC as receiver for Madison National Bank seeking injunctive and declaratory relief to prevent foreclosure on their home. The D.C. Circuit held that § 1821(j) barred the district court from granting the requested equitable relief. The court noted that in pursuing foreclosure, the FDIC was exercising its statutory authority to collect all obligations and money due to Madison National Bank and proceed to realize upon that failed institution's assets. 12 U.S.C. § 1821(d) (2) (B). Thus, § 1821(j) barred the court from restraining the foreclosure and rescinding the underlying loan because that would restrain or affect the FDIC's exercise of its powers or functions as Madison National Bank's receiver. See also United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1329 (6th Cir. 1993), where we reached the same result when a party challenged in a declaratory action the receiver's acts in transferring assets of the failed institution.

        In this case, there is no evidence that the FDIC has sought to exercise any of its powers vis-a-vis the debtor's property. On this record, therefore, we cannot say that the bankruptcy court's avoidance of Superior Bank's mortgage pursuant to the Bankruptcy Code restrained or affected the FDIC's exercise of its powers or functions as Superior Bank's receiver in contravention of § 1821(j).

Page 741

        2. 12 U.S.C. § 1821(d) (13) (D)

         Superior Bank also argues that the bankruptcy court lacked jurisdiction to avoid its mortgage pursuant to 12 U.S.C. § 1821(d) (13) (D), which provides:

(D) Limitation on judicial review

Except as otherwise provided in this subsection, no court shall have jurisdiction over--

        (i) any claim or action for payment from, or any action seeking a determination of rights with respect to,...

To continue reading