Federal Deposit Ins. Corp. v. Shain, Schaffer & Rafanello

• Decision Date: 12 August 1991
• Docket Number: No. 91-5059,91-5059
• Citation: 944 F.2d 129
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Mountain Ridge State Bank, In Receivership, v. SHAIN, SCHAFFER & RAFANELLO, Appellant. . Submitted Under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 129

944 F.2d 129

60 USLW 2161

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Mountain Ridge State Bank, In Receivership, v. SHAIN, SCHAFFER & RAFANELLO, Appellant.

No. 91-5059.

United States Court of Appeals Third Circuit.

Submitted Under Third Circuit Rule 12(6)

Aug. 12, 1991.

Decided Sept. 4, 1991.

Roger J. Foss, Cassidy, Foss & San Filippo, Red Bank, N.J., for appellee.

Jeffrey A. Donner, Shain, Schaffer & Rafanello, Parsippany, N.J., for appellant.

Before COWEN and NYGAARD, Circuit Judges, and POLLAK, District Judge ^*.

OPINION OF THE COURT

COWEN, Circuit Judge.

This appeal raises the question whether a law firm, Shain, Schaffer & Rafanello ("SS & R"), may, in lieu of pursuing the claims procedure established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") at 12 U.S.C. § 1821(d), assert a retaining lien against the legal files of its former client. The client, Mountain Ridge State Bank ("MRSB"), was a federally-insured bank chartered under New Jersey law. On October 5, 1990, the Federal Deposit Insurance Corporation (the "FDIC") became receiver of MRSB, at which time MRSB owed SS & R over $76,000 in unpaid legal fees and disbursements. After the FDIC took over MRSB, it discharged SS & R and requested that SS & R forward all legal files to new counsel. SS & R refused, insisting that it would only turn over the files when it was paid the outstanding fees and disbursements.

The FDIC brought suit in the United States District Court for the District of New Jersey to compel SS & R to turn over the files. The district court ordered SS & R to turn them over because it concluded that the only remedy that a party with a claim to a failed bank's assets had was to file a claim under the FIRREA procedure. This court declined to stay the district court's order pending appeal; accordingly, SS & R has now turned over its MRSB files to FDIC.

SS & R appeals the district court's order on the grounds that it had a valid state law retaining lien which should have entitled it to immediate payment in full before relinquishing the files. Recognizing that return of the files at this late stage would be futile, SS & R seeks preferred administrative status for its claim for fees. Because we conclude that we lack the power to grant SS & R the relief it seeks and that even a valid state law lien cannot be used to circumvent the claims procedure established under FIRREA, we will affirm.

I.

For many years, SS & R was the general and litigation counsel for MRSB. On October 5, 1990, the New Jersey Commissioner of Banking (the "Commissioner") seized the business and property of MRSB, finding that it was in an unsafe and unsound condition, pursuant to N.J.Stat.Ann. § 17:9A-269. On that same date, the Commissioner offered the FDIC the position of receiver. The FDIC accepted that offer and was appointed receiver under N.J.Stat.Ann. § 17:9A-272(D) and 12 U.S.C. § 1821(c)(3)(A).

One of the FDIC's first acts as receiver was to terminate SS & R's representation of MRSB on all matters. The FDIC requested that SS & R turn over all files involving MRSB as plaintiff or defendant to successor counsel. SS & R refused and asserted a retaining lien over the files because MRSB owed it over $76,000. SS & R stated that it would only turn over the files when it was paid the attorneys fees and disbursements that MRSB owed it as of October 5, 1990.

On October 23, 1990, lawyers from SS & R and the FDIC met to discuss the problem. In the course of that meeting, SS & R was informed of the administrative claims procedure under FIRREA. Although SS & R filed a claim with the FDIC pursuant to the FIRREA procedure shortly after that meeting, SS & R continued to refuse to relinquish the files. ¹ On November 8, 1990, the FDIC acknowledged receipt of SS & R's FIRREA claim and made a written demand for the files.

When SS & R persisted in its refusal, the FDIC filed this action on January 17, 1991 seeking an order requiring SS & R to turn over the files. On January 18, 1991, the district court granted that relief and ordered SS & R to surrender them on or before January 25, 1991. On January 25th, SS & R moved for reconsideration of the January 18th order and sought to vacate the earlier order or to condition any turn-over on the FDIC's payment, irrevocable commitment to pay, or arrangement to secure payment of the outstanding fees. SS & R's motion was denied, but the district court temporarily stayed its order. On January 28th, SS & R filed this appeal and sought a stay of the January 18th order. When we denied the motion to stay on January 29th, SS & R turned over the files.

In this appeal, SS & R seeks preferred administrative status for its claim for fees. We have jurisdiction to review the January 18th order under 28 U.S.C. § 1292(a)(1). Under 12 U.S.C. § 1821(d)(13)(D), we have no jurisdiction to resolve SS & R's claim for fees.

II.

A.

It is not disputed that SS & R has a valid retaining lien in MRSB's files under New Jersey law. See Brauer v. Hotel Assocs., Inc., 40 N.J. 415, 192 A.2d 831 (1963). In Brauer, the New Jersey Supreme Court recognized that:

The common law retaining lien attaches to all papers, books, documents, securities, moneys, and property of the client which comes into the possession of the attorney in the course of, and with reference to, his professional employment. It is a general lien which gives an attorney the right to retain possession of his client's property until the entire balance due him for legal services, as well as for costs and disbursements, is paid.

Brauer, 40 N.J. at 419, 192 A.2d 831. Since the files in question contain attorney work product, and they came into SS & R's possession in the course of SS & R's representation of MRSB, it is clear that under New Jersey common law, SS & R has a valid retaining lien over the files.

The FDIC claims, however, that even a valid retaining lien under state law does not entitle SS & R to avoid the statutory claims procedure established by Congress at 12 U.S.C. § 1821(d). SS & R, on the other hand, assumes that a valid state law lien is all it needs for a summary determination in its favor. SS & R explains that its claim for fees is not covered by the FIRREA claims procedure because it is an administrative expense of managing an estate in receivership. SS & R therefore reasons that it is entitled to immediate payment for the services it rendered. In addition, SS & R complains that the district court deprived it of due process when it ordered SS & R to turn over the files without securing payment of the outstanding amounts.

B.

The recent savings and loan crisis prompted Congress to enact broad revisions in federal banking law to enhance certain powers of the FDIC and to eliminate impediments to the efficient resolution of failed financial institutions. To that end, Congress passed FIRREA in 1989. FIRREA eliminated several obstacles to the efficient administration of failed financial institutions. See 12 U.S.C. § 1825(b) (no involuntary liens against the property of the receiver); 12 U.S.C. § 1821(d)(12) (mandatory 90-day stay of pending litigation)- ; 12 U.S.C. §§ 1829 and 1822 (no bonds required of the FDIC).

Under FIRREA, the FDIC is authorized to act as receiver of failed state banking institutions. 12 U.S.C. § 1821(c)(3). In its capacity as receiver, the FDIC may resolve claims against the failed institution. Id. While the receiver may prescribe regulations regarding the allowance or disallowance of claims by the receiver, the receiver must follow the statutorily prescribed procedures for the determination of claims. 12 U.S.C. § 1821(d)(4) and (5).

Section 1821(d) mandates that all claims against the receiver's assets be promptly identified, quantified and substantiated. See 12 U.S.C. § 1821(d). A claimant begins by filing its claim with the receiver under 12 U.S.C. § 1821(d)(5)(D). Alternatively, a claimant may seek a determination of its claim outside the routine claims process, if the claimant alleges either (i) a legally valid and enforceable or perfected security interest in assets of the failed institution or (ii) that irreparable injury will occur if the routine claims procedure is followed. 12 U.S.C. § 1821(d)(8).

Within 60 days after the 180-day period following the claim's submission, or within 60 days of the date of any notice of disallowance, a claimant may seek administrative or judicial review of the FDIC's disallowance or inaction in a district court or territorial court of the United States for the district within which the depository institution's principal place of business is located, or in the United States District Court for the District of Columbia. See 12 U.S.C. § 1821(d)(6). Alternatively, a claimant may seek an administrative review of the FDIC's determination, which administrative review is in turn subject to judicial review. See 12 U.S.C. § 1821(d)(7).

FIRREA's claims procedure in section 1821(d) is exclusive. Congress expressly withdrew jurisdiction from all courts over any claim to a failed bank's assets that are made outside the procedure set forth in section 1821. See 12 U.S.C. §§ 1821(d)(6) and 1821(d)(13)(D). ² See also Rosa v. Resolution Trust Corp., 938 F.2d 383, 391 (3d Cir.1991); Resolution Trust Corp. v. Elman, 761 F.Supp. 245 (S.D.N.Y.1991); Re First City Nat'l Bank & Trust Co., 759 F.Supp. 1048, 1050 (S.D.N.Y.1991). Recently, we observed that the jurisdictional bar of section 1821(d)(13)(D) reaches "(1) claims for payment from the assets of [the failed bank], (2) actions for payment from those assets and (3) actions for a determination of rights with respect to those assets." Rosa, 938 F.2d at 393.

Given the fact that SS & R seeks a determination that its claim should be accorded preferred administrative status, we must conclude that we lack jurisdiction to grant SS & R the relief it seeks, since SS & R requests a determination of rights with respect to MRSB's assets. We...