708 F.3d 234 (D.C. Cir. 2013), 11-5317, MBIA Ins. Corp. v. F.D.I.C.

Docket Nº:11-5317.
Citation:708 F.3d 234
Opinion Judge:ROGERS, Circuit Judge:
Party Name:MBIA INSURANCE CORPORATION, Appellant v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as conservator and receiver of IndyMac Federal Bank, F.S.B., Appellee.
Attorney:Howard R. Hawkins Jr. argued the cause for appellant. With him on the briefs were Jason Jurgens, David F. Williams, and Geoffrey Gettinger. J. Scott Watson, Counsel, Federal Deposit Insurance Corporation, argued the cause for appellee. With him on the brief were Colleen J. Boles, Assistant Genera...
Judge Panel:Before: HENDERSON and ROGERS, Circuit Judges and SENTELLE, Senior Circuit Judge.
Case Date:March 08, 2013
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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708 F.3d 234 (D.C. Cir. 2013)

MBIA INSURANCE CORPORATION, Appellant

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as conservator and receiver of IndyMac Federal Bank, F.S.B., Appellee.

No. 11-5317.

United States Court of Appeals, District of Columbia Circuit

March 8, 2013

Argued Nov. 14, 2012.

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Appeal from the United States District Court for the District of Columbia (No. 1:09-cv-01011).

Howard R. Hawkins Jr. argued the cause for appellant. With him on the briefs were Jason Jurgens, David F. Williams, and Geoffrey Gettinger.

J. Scott Watson, Counsel, Federal Deposit Insurance Corporation, argued the cause for appellee. With him on the brief were Colleen J. Boles, Assistant General Counsel, Lawrence H. Richmond, Senior Counsel, and William R. Stein and Scott H. Christensen. Thomas L. Holzman and Daniel H. Kurtenbach, Counsel, Federal Deposit Insurance Corporation, entered appearances.

Before: HENDERSON and ROGERS, Circuit Judges and SENTELLE, Senior Circuit Judge.

OPINION

ROGERS, Circuit Judge:

The issue in this appeal is whether payments made by the MBIA Insurance Corporation (" MBIA" ) to investors in mortgage securitizations of a failed bank (IndyMac Bank, F.S.B.) constitute " administrative expenses" entitled to priority under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (" FIRREA" ), Pub.L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989), 12 U.S.C. § 1821(d)(11)(A). MBIA sued as the third party beneficiary of the Pooling and Servicing Agreements (" PSAs" ) of the failed bank. It alleged that the Federal Deposit Insurance Corporation (" FDIC" ) as conservator of the successor bank had " approved," 12 U.S.C. § 1821(d)(20), the PSAs and then breached its " Put Back" obligations under those agreements, resulting in investor claims on MBIA-issued insurance policies. The district court rejected MBIA's priority claim, and MBIA now contends that the district court erred in relying on a narrow definition of " approved" as requiring a written sanction when other broader dictionary definitions exist under which the FDIC Conservator arguably " approved" the PSAs when it

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executed the Purchase and Assumption Agreement (" P & A" ) and partially performed its servicing obligations pursuant to the PSAs. For the following reasons, we affirm.

I.

In the wake of IndyMac Bank's financial collapse, a new federally chartered bank, IndyMac Federal, assumed various contractual agreements to which the failed bank had been a party, including the three PSAs that are the basis for MBIA's claims. According to MBIA, the FDIC Conservator of IndyMac Federal breached its seller-and-servicer obligations under the PSAs, causing damages to MBIA. To assess MBIA's contention that its damages constitute " administrative expenses" entitled to priority under 12 U.S.C. § 1821(d)(11)(A) because the FDIC had " approved" the PSAs within the meaning of § 1821(d)(20), we set forth the relevant statutory framework before turning to MBIA's allegations, which, upon de novo review of the dismissal of MBIA's amended complaint, see Barr v. Clinton, 370 F.3d 1196, 1201 (D.C.Cir.2004), we must accept as true, Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C.Cir.2005).

A.

FIRREA was enacted in 1989 in the wake of the savings and loan crisis " to enable the FDIC ... to expeditiously wind up the affairs of literally hundreds of failed financial institutions throughout the country." Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C.Cir.1995). Congress authorized the takeover of failing federally regulated financial institutions, vesting authority in the FDIC as receiver to liquidate the remaining assets of the failed institution, see 12 U.S.C. § 1821(d)(2)(E), and as conservator to " carry on the business of the institution and preserve and conserve the assets and property," see id. § 1821(d)(2)(D)(ii). Upon appointment, the FDIC steps into the shoes of the failed institution and succeeds to " title to the books, records, and assets" of that entity, as well as to " all rights, titles, powers, and privileges" of the institution. Id. § 1821(d)(2)(A). In so doing it has " extraordinary powers," Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. City Sav., F.S.B., 28 F.3d 376, 388 (3d Cir.1994), including authority to " disaffirm or repudiate any contract" of the failed institution that is " burdensome" and whose repudiation " will promote the orderly administration of the institution's affairs," subject to recovery of only " actual direct compensatory damages." See 12 U.S.C. § 1821(e)(1)-(3).

In addition, in 1993 Congress adopted the National Depositor Preference Amendment to the Federal Deposit Insurance Act. Pub.L. 103-66, § 3001(a), 107 Stat. 312, 336-37. This required, as relevant, that in the distribution of the assets of a failed institution depositors be paid before general creditors could collect on their claims.1 As codified at 12 U.S.C. § 1821(d)(11), the depositor preference provision provides, in relevant part:

amounts realized from the liquidation or other resolution of any insured depository institution by any receiver appointed for such institution shall be distributed to pay claims (other than secured claims to the extent of any such security) in the following order of priority:

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(i) Administrative expenses of the receiver.

(ii) Any deposit liability of the institution.

(iii) Any other general or senior liability of the institution (which is not a liability described in clause (iv) or (v)).

(iv) Any obligation subordinated to depositors or general creditors....

(v) Any obligation to shareholders....

Id. § 1821(d)(11)(A). Of particular relevance here, Congress also provided:

Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator. Nothing in this paragraph shall be construed to limit the power of a receiver or conservator to exercise any rights under contract or law, including to terminate, breach, cancel, or otherwise discontinue such agreement.

Id. § 1821(d)(20) (emphasis added). And if, pursuant to a contract for services of the failed institution, the conservator or receiver " accepts performance" before deciding to repudiate that contract, the payment to the counterparty under the contract for the services performed is " treated as an administrative expense of the conservatorship or receivership." Id. § 1821(e)(7)(B). B.

According to MBIA's amended complaint, IndyMac Bank was heavily involved in the creation and promotion of residential mortgage loan securitizations prior to its insolvency in July 2008. Am. Compl. ¶ ¶ 23-25. Between 2002 and 2006, it sponsored residential mortgage securitizations valued at approximately $98.6 billion. Id. ¶ 24. To create a securitization, IndyMac Bank sold portfolios of mortgage loans to trusts managed by an outside banking institution, which, upon pooling the loans, would divide the cash flows from the pools and issue securities to investors. Id. ¶ 26. In order to increase marketability, lower interest costs, and mitigate risk to investors, many securitizations included the purchase of a financial guaranty policy from an insurer, such as MBIA. Id. ¶ 29. Throughout 2006 and 2007, IndyMac Bank contracted with MBIA to provide financial guaranty insurance policies for the three IndyMac Bank securitization transactions at issue: INDS 2006-H4, INDS 2007-1, and INDS 2007-2. Id. ¶ 32. For each securitization, MBIA and IndyMac Bank entered into an Insurance and Indemnity Agreement, pursuant to which MBIA issued insurance policies guaranteeing investors in the securitized mortgages the promised cash flows in the event of defaults and other losses in the mortgage loans underlying the investors' securities. Id. ¶ ¶ 32, 36, 38. In addition to representations and warranties by IndyMac Bank regarding its underwriting guidelines and practices for the loans in the securitized mortgage pools, id. ¶ 39, the Insurance and Indemnity Agreements incorporated by reference, for the benefit of MBIA, the representations and warranties contained in the PSAs for each securitization between IndyMac Bank and the trusts managed by the outside banking institution, thereby making MBIA a third-party beneficiary of the PSAs. Id. ¶ ¶ 40-44. Among other obligations, the PSAs set forth " Seller" and " Servicer" obligations of IndyMac Bank with respect to the loans upon which the securitizations were based, including a

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" Put Back" process.2

On July 11, 2008, the Office of Thrift Supervision (" OTS" ) appointed the FDIC to act as receiver for IndyMac Bank because it was " likely to be unable to pay its obligations or meet its depositors' demands in the normal course of business," " in an unsafe and unsound condition to transact business due to its lack of capital and its illiquid condition," and had " no reasonable prospect of becoming adequately capitalized." OTS Order No. 2008-24, Pass-Through Receivership Of A Federal Savings Association Into A De Novo Federal Savings Association That is Placed Into Conservatorship With the FDIC, July 11, 2008 at 2 (" OTS 2008 Order" ); Am. Compl. ¶ 46. From the third quarter of 2007 to the first quarter of 2008, IndyMac Bank had suffered losses amounting to approximately $842 million and was projected to report another $354 million loss for the second quarter of 2008. OTS 2008 Order at 2. The OTS Director had determined that " OTS must act immediately in order to prevent...

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