Columbian Fin. Corp. v. Stork

• Decision Date: 26 January 2016
• Docket Number: No. 14–3274.,14–3274.
• Citation: 811 F.3d 390
• Parties: COLUMBIAN FINANCIAL CORPORATION; the Columbian Bank & Trust Company, Plaintiffs–Appellants, v. Judi M. STORK; Deryl K. Schuster; Office of the State Bank Commissioner of Kansas; Edwin G. Splichal; J. Thomas Thull, Defendants–Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

811 F.3d 390

COLUMBIAN FINANCIAL CORPORATION; the Columbian Bank & Trust Company, Plaintiffs–Appellants,
v.
Judi M. STORK; Deryl K. Schuster; Office of the State Bank Commissioner of Kansas; Edwin G. Splichal; J. Thomas Thull, Defendants–Appellees.

No. 14–3274.

United States Court of Appeals, Tenth Circuit.

Jan. 26, 2016.

811 F.3d 392

Matthew J. Limoli, (John M. Edgar and Michael D. Pospisil with him on the briefs), Edgar Law Firm, LLC, Kansas City, MO, for Plaintiffs–Appellants.

Jay D. Befort, General Counsel, Special Assistant Attorney General (Dustin L. Kirk, Staff Attorney, Special Assistant Attorney General, with him on the brief), Office of the State Bank Commissioner, Topeka, KS, for Defendants–Appellees.

811 F.3d 393

Before GORSUCH, EBEL, and BACHARACH, Circuit Judges.

BACHARACH, Circuit Judge.

Amidst the 2007–2008 financial crisis, the Office of the State Bank Commissioner of Kansas declared The Columbian Bank and Trust Company insolvent, seized the bank's assets, and appointed the Federal Deposit Insurance Corporation as receiver. The FDIC then sold many of the bank's assets. Columbian Financial Corporation, the bank's sole shareholder, sued the state bank commission and four commission officials (Ms. Judi Stork, Mr. Deryl Schuster, Mr. Edwin Splichal, and Mr. J. Thomas Thull) under 42 U.S.C. § 1983.¹ In the complaint, Columbian Financial alleges denial of due process from the seizure of bank assets, seeking equitable remedies and damages.²

The district court dismissed the complaint. On the equitable claims, the district court ordered dismissal without prejudice under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 756, 760, 27 L.Ed.2d 669 (1971). On the claims for damages, the court ordered dismissal, concluding that (1) Eleventh Amendment immunity applied to all of the claims against the state bank commission and the official-capacity claims against Ms. Stork and Mr. Schuster and (2) Ms. Stork and Mr. Schuster, in their official capacities, were not considered "persons" for purposes of § 1983. The district court ruled that Mr. Splichal had absolute immunity and that all of the commission officials enjoyed qualified immunity in their individual capacities. This appeal followed, with the parties raising two issues.

The first issue is whether the district court properly abstained under Younger. Younger requires federal courts to refrain from ruling when it could interfere with ongoing state proceedings. Sprint Commc'ns, Inc. v. Jacobs, ––– U.S. ––––, 134 S.Ct. 584, 591, 187 L.Ed.2d 505 (2013). Though a state court proceeding was ongoing when the federal complaint was filed, the state proceeding terminated while this appeal was pending. In light of this change of circumstances, we vacate the dismissal without prejudice on the equitable claims and remand for further proceedings.

The second issue is whether Ms. Stork and Mr. Thull are entitled to qualified immunity on the claims for damages. Columbian Financial alleged violation of a clearly established right to procedural due process when commission officials seized the bank's assets and placed them under FDIC receivership without a predeprivation hearing or a prompt postdeprivation hearing. In our view, Ms. Stork and Mr. Thull enjoy qualified immunity on this claim because the alleged conduct would not have violated a clearly established constitutional right. Thus, we agree with the district court's decision to dismiss the claims for damages against Ms. Stork and Mr. Thull.

I. The bank was declared insolvent, its assets were seized, and the FDIC was appointed as receiver.

Because this appeal involves a ruling on a motion to dismiss, we take the following facts from the complaint unless otherwise

811 F.3d 394

noted. See Brown v. Montoya, 662 F.3d 1152, 1162–63 (10th Cir.2011).

Like many financial institutions, The Columbian Bank and Trust Company experienced financial difficulties during the 2007–2008 financial crisis. These difficulties led the FDIC to conduct an onsite examination of the bank and downgrade its supervisory rating; months later, the bank entered into a consent agreement with the FDIC and the state bank commission.

The consent agreement stated that the FDIC and the state bank commission "had reason to believe that the [b]ank had engaged in unsafe and unsound banking practices," and the FDIC and the state bank commission ordered the bank to "cease and desist" from those practices. Appellant's App'x at 72. The order stiffened regulatory oversight of the bank, requiring written liquidity analyses, projections on sources of liquidity and uses of funds, and review and amendment of the bank's management policies. The bank's analyses, projections, and policy amendments were to be submitted to the state bank commission and the FDIC for review and comment. The bank complied with these requirements.

Notwithstanding the bank's compliance, the state bank commission declared the bank insolvent, seized the bank's assets, and appointed the FDIC as receiver. The same day, the FDIC sold many of the bank's assets to a third party in a prearranged sale.

Columbian Financial and the bank did not obtain a hearing until after the state commission seized the bank's assets and appointed the FDIC as the receiver. But Columbian Financial and the bank petitioned a Kansas trial court for review of the commission's actions.

About eighteen months later, the Kansas trial court remanded the petition to the bank commission for a postseizure hearing. Roughly two more years elapsed before the bank commission issued a decision, granting summary judgment against Columbian Financial and the bank. They then filed a new petition for judicial review in the Kansas courts. The trial court dismissed the action as moot, and Columbian Financial and the bank appealed. Columbian Bank & Trust Co. v. Splichal, No. 110,256–57, 329 P.3d 557, 2014 WL 3732013 (Kan.Ct.App. July 25, 2014) (unpublished). Before the Kansas Court of Appeals issued a decision, Columbian Financial filed this suit in federal court for deprivation of due process. The federal district court ordered dismissal, relying in part on Younger abstention and qualified immunity.

This appeal followed. While our appeal was pending, the state-court appeal terminated in favor of the state bank commission. Columbian Bank & Trust Co. v. Splichal, No. 110,256–57, 329 P.3d 557 (Kan.Ct.App. July 25, 2014) (unpublished), rev. denied (Kan. June 29, 2015).

II. In light of a change in circumstances, we vacate the district court's dismissal of the equitable claims.

We engage in de novo review of the district court's decision to abstain under Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 756, 760, 27 L.Ed.2d 669 (1971). Brown ex rel. Brown v. Day, 555 F.3d 882, 887 (10th Cir.2009). Under Younger, federal courts must abstain from exercising jurisdiction when three conditions are satisfied:

1. There is an ongoing state proceeding.

2. The state court provides an adequate forum for the claims raised in the federal complaint.

3. The state proceedings "involve important state interests, matters

811 F.3d 395

which traditionally look to state law for their resolution or implicate separately articulated state policies."

Amanatullah v. Colo. Bd. of Med. Exam'rs, 187 F.3d 1160, 1163 (10th Cir.1999) (quoting Taylor v. Jaquez, 126 F.3d 1294, 1297 (10th Cir.1997) ). If these three conditions are met, abstention under Younger is mandatory. Taylor v. Jaquez, 126 F.3d 1294, 1297 (10th Cir.1997).

The parties disagree only on the first Younger prong: whether there is an ongoing state proceeding. Under our precedent, we ask both whether there is an ongoing state proceeding and whether this proceeding is the type afforded Younger deference. Brown, 555 F.3d at 888. The parties agree that

• the state proceeding was ongoing when Columbian Financial filed its federal complaint and

• the state proceeding has terminated.

Thus, if Columbian Financial were to refile its federal complaint, Younger would no longer present a jurisdictional hurdle.

The termination of the state proceeding might render the Younger issue moot. But we need not decide this issue.³ Regardless of whether the Younger issue is moot, Columbian Financial could now prosecute the equitable claims in federal court in light of the termination of the state administrative proceedings. For example, if we were to affirm the dismissal, Columbian Financial could refile because the dismissal was without prejudice. And if we were to reverse the dismissal, Columbian Financial could renew the equitable claims already filed.

In these circumstances, we vacate dismissal of the equitable claims and remand these claims to the district court so that it can reconsider them without the need to abstain now that the state proceedings have ended. See Citizens Potawatomi Nation v. Freeman, 113 F.3d 1245, 1997 WL 235624, at *1–2 (10th Cir.1997) (unpublished table decision). Thus, we vacate the district court's order dismissing Columbian Financial's equitable claims on Younger grounds and remand these claims for further...