LNV Corp. v. Outsource Servs. Mgmt., LLC
| Decision Date | 28 August 2017 |
| Docket Number | No. 16-2412,16-2412 |
| Citation | 869 F.3d 662 |
| Parties | LNV CORPORATION, Plaintiff-Appellee, v. OUTSOURCE SERVICES MANAGEMENT, LLC, a Nevada limited liability company, doing business as Presidium Asset Solutions; BF-Negev, LLC, a Minnesota limited liability company, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Robert A. Ackermann, CLMG Corporation, Plano, TX, Katherine Nicole Arnold, James Kevin Langdon, II, Dorsey & Whitney, Eric John Magnuson, Robins & Kaplan, Minneapolis, MN, Daniel J. Carrigan, Baker & Donelson, Washington, DC for Plaintiff-Appellee.
Mae J. Beeler, Aaron R. Hartman, Monroe & Moxness, Minneapolis, MN for Defendants-Appellants.
Before SMITH, Chief Judge, COLLOTON and KELLY, Circuit Judges.
LNV Corporation sued Outsource Services Management, LLC (OSM) to recover its share of the sale proceeds of a promissory note. OSM counterclaimed alleging that LNV owed OSM millions of dollars for loan advances that it paid for LNV's benefit. OSM also asserted, as a defense to LNV's suit, that LNV's prior breach of contract excused OSM's alleged breach. Additionally, LNV sued BF-Negev, LLC to recover its share of the sale of collateral under a separate agreement. BF-Negev, an OSM subsidiary, asserted that it was withholding LNV's share as a setoff against what LNV owed OSM. On summary judgment, the district court1 held that (1) it lacked jurisdiction over OSM's counterclaim because OSM did not pursue an available and necessary administrative relief procedure before filing suit; (2) the OSM-LNV contract required OSM to pay LNV its net share of the sale despite LNV's prior breach; and (3) BF-Negev was not entitled to withhold LNV's share of the collateral. For the reasons given below, we affirm.
In 2007, Marshall Financial Group, LLC funded a construction loan for a condominium complex in Florida (the "Lake Austin Loan") for $140 million. Columbian Bank & Trust Company of Topeka, Kansas ("Columbian") purchased a $6 million participation interest in the Lake Austin Loan. Columbian thus acquired a 4.28571429% stake in the financing investment. Columbian's participation interest was governed by a participation agreement (the "Lake Austin Agreement"). In the Lake Austin Agreement, Columbian agreed to fund its proportionate share of advances to the borrower and to reimburse Marshall for its share of expenses. Marshall in turn agreed to pay Columbian its share of loan collections.
Columbian paid its share of the first 23 advances to the borrower; these advances came to just under $3 million, or 2.12424110%, of the $140 million loan. In August 2008, though, Columbian became insolvent and went into FDIC receivership. The receiver set November 25, 2008, as the deadline to file claims related to Columbian's or the receiver's actions. See 12 U.S.C. § 1821(d)(3)(B).
In September 2008, soon after Columbian went into receivership, Marshall made another advance to the borrower and asked Columbian to pay its 4.28571429% share. Neither Columbian nor the FDIC receiver did so. To satisfy the shortfall, Marshall allowed the other loan participants to fund Columbian's share in exchange for a pro-rata share of Columbian's unfunded participation interest. (The Lake Austin Agreement provided for this arrangement and noted that by allowing Marshall to pick up Columbian's remaining interest, Marshall was not giving up the right to seek payment from Columbian.) Marshall made 19 more advances to the borrower. Neither Columbian nor the receiver funded any of them. Marshall, for its part, did not file a claim with the receiver challenging the lack of payment before the November deadline.
In September 2009, after the final advance to the borrower, the receiver sold Columbian's interest in the Lake Austin Agreement to LNV Corporation. Around the same time, OSM became lead lender and servicer of the Lake Austin Loan. LNV refused to pay its (formerly Columbian's) 4.28571429% share of the prior advances and of the expenses OSM had incurred.
In June 2013, OSM sold the note on the Lake Austin Loan for $30 million. Citing LNV and its predecessor's failure to fund its share of advances and expenses, OSM refused to disburse any of the sale receipts to LNV.
In 2007, BankFirst funded a $30 million loan to finance a different Florida development (the "Bahia Loan"). Through a series of assignments, LNV succeeded to a 3.33333333% participation interest in the Bahia Loan, BF-Negev—an OSM subsidiary—succeeded to the role of lead lender, and OSM succeeded to the role of loan servicer. LNV's interest in the Bahia Loan, like its interest in the Lake Austin Loan, was governed by a participation agreement (the "Bahia Agreement"). After the borrower defaulted, BF-Negev foreclosed on and sold the collateral. LNV was entitled to approximately $65,000 of the proceeds, but BF-Negev withheld LNV's share as a setoff against what LNV owed OSM under the Lake Austin Agreement.
In 2013, LNV sued OSM and BF-Negev asserting various legal theories to recover its alleged unpaid share under the two participation agreements. OSM and BF-Negev answered in part that (1) OSM's breach of the Lake Austin Agreement, if any, is excused by LNV's prior material breach; and (2) BF-Negev is entitled to set off LNV's share of the Bahia Loan proceeds by the amount LNV owes under the Lake Austin Agreement. OSM also counterclaimed, alleging that as a result of LNV's breach of the Lake Austin Agreement, LNV owed OSM money—not the other way around. According to OSM, LNV remains responsible for funding its (and Columbian's) original 4.28571429% interest under the Lake Austin Agreement. If LNV is held responsible for that full interest, then LNV owes OSM several million dollars. If, on the other hand, LNV is responsible for only 2.12424110%, then OSM owes LNV approximately $344,500.00 under that agreement.
The district court held, on summary judgment, that (1) it was statutorily barred from exercising jurisdiction over OSM's counterclaim, which effectively meant that LNV owned a 2.12424110% participation interest, rather than a 4.28571429% interest, in the Lake Austin Loan; (2) OSM was not excused from performing under the Lake Austin Agreement; and (3) BF-Negev was not entitled to set off LNV's proceeds under the Bahia Agreement against LNV's debt under the Lake Austin Agreement. OSM and BF-Negev appeal.
We review the district court's summary judgment ruling and its statutory interpretation de novo. Liles v. C.S. McCrossan, Inc. , 851 F.3d 810, 817 (8th Cir. 2017) (summary judgment); Haug v. Bank of Am., N.A. , 317 F.3d 832, 835 (8th Cir. 2003) (statutory interpretation).
The district court held that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA or "the Act") barred the court from exercising jurisdiction over OSM's counterclaim. FIRREA governs the handling of failed banks put into FDIC receivership. See 12 U.S.C. § 1821. Though it is "not a model of statutory clarity," Bueford v. Resolution Tr. Corp. , 991 F.2d 481, 486 (8th Cir. 1993), the Act defines the powers and duties of the FDIC acting as receiver for a failed bank, see 12 U.S.C. § 1821(d). The Act requires the receiver to "pay all valid obligations" of the failed bank in accordance with certain terms. Id. § 1821(d)(2)(H).2 Highly relevant to this case, the Act establishes an administrative claims process to facilitate the receiver's duty to pay valid obligations.
The administrative claims process requires the receiver to promptly notify, and then twice re-notify, the failed bank's creditors to present their claims by a date certain. Id. § 1821(d)(3)(B). That deadline must be at least 90 days after notice is first given. Id. § 1821(d)(3)(B)(I). Then, within 180 days of presentation, the receiver must notify the claimant whether the claim will be allowed or disallowed. Id. § 1821(d)(5)(A)(I). The receiver must allow any timely claim proved to the receiver's satisfaction. Id. § 1821(d)(5)(B). If the receiver disallows a claim, then it must state why and inform the claimant of "the procedures available for obtaining agency review of the determination to disallow the claim or judicial determination of the claim." Id. § 1821(d)(5)(A)(iv)(II). Claims filed after the deadline must be disallowed unless (1) the claimant did not get notice of the receiver's appointment in time to file its claim before the deadline, and (2) there is still time to permit payment of the claim. Id. § 1821(d)(5)(C). The FDIC has interpreted this exception to apply to claimants on notice of the receiver's appointment but whose claims did not exist as of the deadline. Heno v. FDIC , 20 F.3d 1204, 1209 (1st Cir. 1994).
The Act provides two paths for seeking review of disallowed claims: "[T]he claimant may request administrative review of the claim ... or file suit on such claim" in federal court. 12 U.S.C. § 1821(d)(6)(A). If the claimant takes neither path within the allowed time, "the claim shall be deemed to be disallowed ..., such disallowance shall be final, and the claimant shall have no further rights or remedies with respect to such claim." Id. § 1821(d)(6)(B). Indeed, the judicial-review path in § 1821(d) is the only way to obtain judicial review of a claim; except as provided in subsection (d)(6), no court shall have jurisdiction over a claim. Id. § 1821(d)(13)(D). In other words, "exhaustion of FIRREA's administrative remedies [is] a jurisdictional prerequisite to suit in district court." Bueford , 991 F.2d at 484.
Against this backdrop, the district court held that (1) because the receiver did not disaffirm or repudiate the Lake Austin Agreement, see 12 U.S.C. § 1821(e), the receiver remained responsible for performing Columbian's obligations under it; (2) the receiver failed to perform Columbian's obligations; (3) OSM's counterclaim against LNV...
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