Village of Oakwood v. State Bank and Trust Co.

• Decision Date: 22 March 2007
• Docket Number: No. 06-3117.,06-3117.
• Citation: 481 F.3d 364
• Parties: VILLAGE OF OAKWOOD; Baughman Tile Company; Gene A. Baughman; Mary Ann Baughman; Gary C. Grant, Trustee; Gary C. Grant Insurance Agency, Inc., Plaintiffs-Appellants, v. STATE BANK AND TRUST COMPANY, Defendant-Appellee, Federal Deposit Insurance Corporation, Intervenor-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

481 F.3d 364

VILLAGE OF OAKWOOD; Baughman Tile Company; Gene A. Baughman; Mary Ann Baughman; Gary C. Grant, Trustee; Gary C. Grant Insurance Agency, Inc., Plaintiffs-Appellants, v. STATE BANK AND TRUST COMPANY, Defendant-Appellee Federal Deposit Insurance Corporation, Intervenor-Appellee.

No. 06-3117.

United States Court of Appeals, Sixth Circuit.

Argued: October 25, 2006.

Decided and Filed: March 22, 2007.

ARGUED:

John C. Deal, Winkler & Winkler, Columbus, Ohio, for Appellants. Stephen A. Rothschild, Shumaker, Loop & Kendrick, Toledo, Ohio, Jaclyn C. Taner, Federal Deposit Insurance Corp., Arlington, Virginia, for Appellees.

ON BRIEF:

John C. Deal, Winkler & Winkler, Columbus, Ohio, for Appellants. Stephen A. Rothschild, James H. O'Doherty, Shumaker, Loop & Kendrick, Toledo, Ohio, Jaclyn C. Taner, Federal Deposit Insurance Corp., Arlington, Virginia, for Appellees.

Before MARTIN and COOK, Circuit Judges; TARNOW, District Judge.^*

OPINION

COOK, Circuit Judge.

This case requires us to decide whether intervention by the Federal Deposit Insurance Corporation (FDIC) in a suit between nondiverse parties raising state law claims can create federal jurisdiction, even though it had not been a party in state court prior to removal. Holding that it cannot, we reverse.

I

The day after Oakwood Deposit Bank Company (Oakwood) was placed in federal receivership, the FDIC, as receiver, entered into a purchase and assumption agreement for State Bank and Trust (State Bank) to take over Oakwood's insured deposits and some of its assets. Using the best information available at the time, the FDIC set at four million dollars the premium State Bank would pay for these assets (mostly loans) and liabilities (deposits). Two weeks later, the FDIC returned half of the four million dollar premium to State Bank because it had overvalued some of the assets transferred to State Bank. Further investigation of Oakwood's records disclosed that insured deposits were nearly sixty million dollars more than previously thought. These additional deposits were liabilities of the receivership, not State Bank.

Village of Oakwood and a handful of individuals and businesses with deposits exceeding the FDIC's insurance limit, collectively the "uninsured depositors," filed suit in an Ohio court. Though the complaint alleged that the FDIC breached its fiduciary duty by not using the four million dollar premium to cover their losses, it named State Bank, rather than the FDIC, as defendant and alleged four Ohio causes of action: successor liability (State Bank being the successor of Oakwood), aiding and abetting the FDIC's breach of its fiduciary duty, equitable constructive trust, and "contract."

The FDIC initially sought to intervene in the Ohio Court of Common Pleas, but then opted to remove the case to federal court before the Ohio court ruled on its motion to intervene. When the uninsured depositors responded with a motion to remand the case to the state court, the district court granted it, then reversed that decision upon the request of the FDIC to reconsider. Having been granted leave to intervene, the FDIC then moved for summary judgment, presumably on behalf of State Bank, and the district court granted its motion.¹ Village of Oakwood v. State Bank & Trust Co., 410 F.Supp.2d 670 (N.D.Ohio 2006). The uninsured depositors timely appealed.

II

We review de novo the existence of subject matter jurisdiction and the denial of a motion to remand, Palkow v. CSX Transp., Inc., 431 F.3d 543, 548 (6th Cir. 2005), cognizant of our continuing obligation to ensure that we have subject matter jurisdiction over the case under review, see Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 29 S.Ct. 42, 53 L.Ed. 126 (1908); Capron v. Van Noorden, 6 U.S. (2 Cranch) 126, 2 L.Ed. 229 (1804), even if the parties fail to properly present the issue. United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1325 (6th Cir.1993). In the absence of jurisdiction, the court's only function is to announce the lack of jurisdiction and dismiss or remand the case. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (citing Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264 (1869)). Because this requirement "springs from the nature and limits of the judicial power of the United States, [it] is inflexible and without exception." Id. at 94-95, 118 S.Ct. 1003 (citing Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L.Ed. 462 (1884)).

We analyze the "statutory prerequisites for federal jurisdiction ... claim by claim." Exxon Mobil Corp. v. Allapattah Servs., 545 U.S. 546, 125 S.Ct. 2611, 2618, 162 L.Ed.2d 502 (2005). Because the only claims in this action arise under Ohio law between nondiverse parties, and none of them fall within the original jurisdiction of the district court, the only conceivable basis for jurisdiction is the presence of the FDIC. Both State Bank and the FDIC itself urge us to view FDIC's intervention as sufficient to confer jurisdiction over this case.

III

Intervention cannot, as a general rule, create jurisdiction where none exists. Intervention "presuppose[s] an action duly brought"; it cannot "cure [the] vice in the original suit" and must "abide the fate of that suit." United States ex rel. Tex. Portland Cement Co. v. McCord, 233 U.S. 157, 163-64, 34 S.Ct. 550, 58 L.Ed. 893 (1914). As such, a court requires an already-existing suit within its jurisdiction as a prerequisite to the "ancillary proceeding" of intervention. Horn v. Eltra Corp., 686 F.2d 439, 440 (6th Cir.1982); see also Kelly v. Carr, 691 F.2d 800, 806 (6th Cir.1980) ("[I]ntervention presumes a valid lawsuit in a court of competent jurisdiction."). See generally 7C Wright, Miller & Kane, Federal Practice and Procedure § 1917 (3d ed.1998). In the absence of jurisdiction over the existing suit, a district court simply has no power to decide a motion to intervene; its only option is to dismiss.

This uncontroversial procedural premise finds explicit support from nearly every other circuit. See, e.g., Pianta v. H.M. Reich Co., 77 F.2d 888, 890 (2d Cir.1935); Fuller v. Volk, 351 F.2d 323, 328 (3d Cir. 1965); Houston Gen. Ins. Co. v. Moore, 193 F.3d 838, 840 (4th Cir.1999); Arkoma Assocs. v. Carden, 904 F.2d 5, 7 (5th Cir. 1990); Hofheimer v. McIntee, 179 F.2d 789, 792 (7th Cir.1950); Porter v. Knickrehm, 457 F.3d 794, 799-800 (8th Cir. 2006); Benavidez v. Eu, 34 F.3d 825, 829 (9th Cir.1994); Nat'l Ass'n of State Util. Consumer Advocates v. FCC, 457 F.3d 1238, 1250 (11th Cir.2006); Aeronautical Radio, Inc. v. FCC, 983 F.2d 275, 283 (D.C.Cir.1993).

We have, however, recognized a narrow exception to this general rule. In a case where the intervening party brings separate claims, and the district court has an independent basis to exercise jurisdiction over those claims, that scenario calls for the district court to dismiss the original claims in the action for lack of subject matter jurisdiction while retaining jurisdiction over the intervenor's claims only. Kelly, 691 F.2d at 806; Horn, 686 F.2d at 440-41; see also Montcalm Publ'g Corp. v. Virginia, 199 F.3d 168, 172 n. * (4th Cir. 1999); GTE Cal. v. FCC, 39 F.3d 940, 947 (9th Cir.1994). In Kelly, the Michigan Attorney General sued Carr for violating various securities laws, and the Commodity Futures Trading Commission (CFTC) intervened as a plaintiff to enforce the Federal Commodity Exchange Act against Carr. While the district court had no jurisdiction over Attorney General Kelley's claims against Carr (for reasons unimportant here), it had jurisdiction over the CFTC's claims against Carr. And though required to dismiss Kelley's claims, the court recognized the futility of dismissing the CFTC's claims only "to require the parties to begin again merely to arrive at the same place." Kelly, 691 F.2d at 806.

IV

Against this general backdrop, the FDIC and State Bank claim that 12 U.S.C. § 1819(b)(2) grants the federal courts jurisdiction over this case. Passed as part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), § 1819(b)(2) deems suits to which the FDIC is a party to arise under federal law and specifies how and when the FDIC may remove cases to federal court. Section 1819(b)(2)(A) provides that "all suits of a civil nature at common law or in equity to which the Corporation [FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United States."² Thus, if the FDIC is a party to an action within the meaning of § 1819, the district court has federal-question jurisdiction under 28 U.S.C. § 1331. Section 1819(b)(2)(B) allows the FDIC to "remove any action, suit, or proceeding from a State court to the appropriate United States district court" where "the action, suit, or proceeding is filed against the Corporation or the Corporation is substituted as a party." This subsection tracks the language of 28 U.S.C. § 1441, which grants defendants the power to remove. It does not create jurisdiction, but rather allows the FDIC to remove cases where the district court would have original jurisdiction, typically under § 1331 and § 1819(b)(2)(A).

Under § 1819(b)(2), if a case or controversy includes any claim to which the FDIC is a party, the district court has jurisdiction over the entire case or controversy. 28 U.S.C. § 1367(a). Even if a claim arises under state law between a bank and nondiverse plaintiffs, the district court could still exercise jurisdiction if the FDIC, in its capacity as receiver, is substituted as a party for that bank under Fed. R.Civ.P. 25(c). The Eighth Circuit recently held that the FDIC's substitution for a failed bank "clearly establishes federal court jurisdiction." Phipps v. FDIC, 417 F.3d 1006, 1009 n. 2 (8th Cir.2005); see also Buczkowski v. FDIC, 415 F.3d 594, 596 (7th Cir.2005) (explaining removal jurisdiction in the context of Rule 25). In Phipps, the failed bank's interest had...