Douglas Cnty. v. Hamilton State Bank, A16A1708

• Decision Date: 16 March 2017
• Docket Number: A16A1708
• Citation: 340 Ga.App. 801,798 S.E.2d 509
• Parties: DOUGLAS COUNTY v. HAMILTON STATE BANK.
• Court: Georgia Court of Appeals

340 Ga.App. 801

798 S.E.2d 509

DOUGLAS COUNTY

v.HAMILTON STATE BANK.

A16A1708

Court of Appeals of Georgia.

March 16, 2017

T. Bart Gary, Neil Louis Wilcove, Atlanta, Kenneth Ray Bernard Jr., Douglasville, Michael McDonnell Hill, Macon, for Appellant.

Curtis James Romig, Aiten Musaeva McPherson, Atlanta, for Appellee.

Self, Judge.

In May 2014, Douglas County sued Hamilton State Bank ("Hamilton") to recover under a series of performance bonds issued by Hamilton's predecessor, Douglas County Bank. Hamilton moved to dismiss the County's complaint, alleging that the County's action was barred due to its failure to exhaust administrative remedies as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). See 12 USC § 1821 (d) (13) (D) ; OCGA § 9-11-12 (b) (1). Following a hearing, the State Court of Douglas County granted Hamilton's motion and dismissed the County's action for lack of subject matter jurisdiction. The County appeals and, for the reasons that follow, we affirm.

A motion pursuant to OCGA § 9-11-12 (b) (1) asserts the defense of "lack of jurisdiction over the subject matter...." "When a defendant challenges a plaintiff's standing by bringing a ... 12 (b) (1) motion, the plaintiff bears the burden to establish that jurisdiction exists." McCabe v. Daimler Ag , No. 1:12-CV-2494-MHC, 2015 WL 11199196, *2, 2015U.S. Dist. LEXIS 182877 (II), *6 (N.D. Ga. 2015).¹ "A motion to dismiss for lack of subject matter jurisdiction under OCGA § 9-11-12 (b) (1) can allege either a facial challenge, in which the court accepts as true the allegations on the face of the complaint ... or a factual challenge, which requires consideration of evidence beyond the face of the complaint...." (Citations, punctuation, and footnote omitted.) Bobick v. Community & Southern Bank , 321 Ga.App. 855, 860 (3), n. 4, 743 S.E.2d 518 (2013).² On appeal, we review "de novo a trial court's grant of a motion to dismiss" due to lack of subject matter jurisdiction. Id. at 856, 743 S.E.2d 518. We also "construe the pleadings in the light most favorable to the nonmoving party with any doubts resolved in that party's favor." Id.

So viewed, the record demonstrates that a Douglas County ordinance required subdivision developers to obtain bonds to protect the County in the event the developers were unable to complete their work. Relevant to this case, two developers—Anneewakee Falls, LLC and Windermere Development, Inc.—secured a series of maintenance and performance bonds³ from Douglas County Bank in 2011 and 2012, listing the Bank as surety. Some of the bonds were set to expire in August 2012, others in February 2013. Prior to the expiration date of each bond, the County contacted the Bank to demand that work by the developers be completed to satisfy the bonds or that the Bank either issue payment on the bonds or extend the terms of the bonds. It does not appear from the record that the Bank responded to the County.

On April 26, 2013, the Georgia Department of Banking and Finance closed the Bank and named the Federal Deposit Insurance Corporation ("FDIC") as the receiver, which transferred the Bank's assets and liabilities to Hamilton on the same date via a Purchase and Assumption Agreement ("Agreement"). The Agreement defined certain terms, including "Assets," "Credit Documents," and "Loans." In particular, a "Loan" is defined as "all of the following owed to or held by the Failed Bank as of the Bank Closing Date:

(a) loans ..., participation agreements, interests in participations, overdrafts of customers ..., revolving commercial lines of credit, home equity lines of credit, Commitments, United States and/or State-guaranteed student loans and lease financing contracts; [and]

(b) all Liens, rights (including rights of set-off), remedies, powers, privileges, demands, claims, priorities, equities and benefits owned or held by, or accruing or to accrue to or for the benefit of, the holder of the obligations or instruments referred to in clause (a) above, including but not limited to those arising under or based upon Credit Documents, ... standby letters of credit, ... payment bonds and performance bonds at any time...."

Section 2.1 of the Agreement identifies the "Liabilities Assumed by [Hamilton]" and provides that Hamilton "expressly assumes ... and agrees to pay, perform and discharge[ ] all of the following liabilities of the Failed Bank ...: (g) liabilities for any acceptance or commercial letter of credit ...; [and] (h) liabilities for any 'standby letters of credit' as defined in 12 CFR § 337.2 (a) issued on the behalf of any Obligor of a Loan acquired hereunder by [Hamilton], but excluding any other standby letters of credit...."⁴ (Punctuation omitted.) To help offset Hamilton's losses as a result of assuming the Bank's liabilities, the FDIC paid Hamilton approximately $21 million and entered into a loss-sharing agreement in which the FDIC agreed to reimburse Hamilton up to 80% of any losses Hamilton suffered related to the Bank's assets and liabilities.

After the transfer, the County contacted the FDIC concerning the status of the bonds; the FDIC indicated that it would retain four bonds not at issue in this case and that the County should contact Hamilton to determine how Hamilton intended to proceed on the remaining bonds.⁵ In December 2013, the County demanded payment on the bonds from Hamilton; Hamilton refused, asserting that the bonds had expired prior to the transfer from Douglas County Bank and that the bonds "were not a Hamilton liability."

This action followed, and Hamilton moved for summary judgment on the issue of expiration of the bonds. The trial court denied Hamilton's motion in a brief order, finding that genuine issues of material fact precluded summary judgment in Hamilton's favor.⁶

Hamilton then filed a motion to dismiss the County's complaint for lack of subject matter jurisdiction, alleging that the County failed to exhaust administrative remedies with the FDIC pursuant to 12 USC § 1821 (d) (13) (D), which provides that

[e]xcept 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, the assets of any depository 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.

(Punctuation omitted.) The trial court determined that the bonds "at issue were all part of the [Agreement]"; that "[t]he bonds at issue became assets of the FDIC at the time of receivership"; that "[t]hose assets were then sold to [Hamilton]"; and that "the exhaustion of administrative remedies requirement was not met...." As a result, the trial court concluded that its jurisdiction "must cede to the administrative process." See Bobick , 321 Ga.App. at 863 (3), 743 S.E.2d 518 ("[I]f a claim ... falls within 12 USC § 1821 (d) (13) (D), courts are divested of subject matter jurisdiction if the claimant failed to exhaust [its] administrative remedies before the FDIC."). Accordingly, the trial court dismissed the County's action.⁷

1. In its first enumeration of error, the County contends that the trial court erred in determining that the performance bonds first issued by Douglas County Bank were "assets" rather than "liabilities."⁸ We agree.

Although FIRREA does not include a definition of the term "asset," it may be generally defined as "[a]n item that is owned and has value." Black's Law Dictionary (7th ed. 1999), p. 112. In contrast, a "liability" is "[a] financial or pecuniary obligation; DEBT...." Id. at 925. Of particular relevance to this case, authorities in other jurisdictions have concluded that a performance bond is similar to a standby letter of credit, which is a liability. See, e.g., Murphy v. Fed. Deposit Ins. Corp. , 38 F.3d 1490, 1500 (9th Cir. 1994) ("A letter of credit is not an asset of the bank[;] [i]t is a liability. A standby letter of credit is a contingent liability."); Arbest Constr. Co. v. First Nat. Bank & Trust , 777 F.2d 581, 585 (II) (10th Cir. 1985) (standby letter of credit payable "only if the account party fails to pay or perform[;] [t]he standby letter of credit is therefore quite similar to a surety bond."); Guangzhou Consortium Display Prod. Co. v. PNC Bank , 924 F.Supp.2d 800, 805 (III) (E.D. Ky. 2013) ("A standby letter of credit is a security device, which operates like a surety or performance bond. [...] A standby letter of credit is used secondarily in a nonsales transaction 'as a guarantee against default on contractual obligations.' "). Compare Kaysville City v. Fed. Deposit Ins. Corp. , 557 Fed.Appx. 719, 722 (II) (A) (10th Cir. 2014) (where neither municipality nor developer surrendered any assets to the bank, note at issue was not a hard asset but a contingent liability under 12 USC § 1813 (1) (1) ).

We find the logic of these authorities persuasive and therefore find that, in view of Douglas County Bank's obligation to submit payment to the County in the event of default by the developers, the performance bonds at issue in this case are "liabilities" rather than "assets." Accordingly, we conclude that the trial court erred when it characterized the bonds as "assets."

2. Next, the County argues that the trial court erroneously applied FIRREA's administrative exhaustion requirement. In particular, the County asserts that the exhaustion requirement does not apply to "liabilities" under the plain language of subpart (i) of § 1821 (d) (13) (D) or to the enforcement of liabilities that have been expressly assumed by a successor bank. While we agree that subpart (i) does not apply to the County's claim, we conclude that the County could not proceed on its claims against Hamilton without first exhausting its administrative remedies with the FDIC under the plain language of subpart (ii).

(a) In ...