Franklin Sav. Corp. v. U.S.

Decision Date17 June 1997
Docket NumberCivil Action No. 95-2100-GTV.
PartiesFRANKLIN SAVINGS CORPORATION and Franklin Savings Association, Plaintiffs, v. UNITED STATES of America and Federal Deposit Insurance Corporation as successor-in-interest to the Resolution Trust Corporation, Defendants.
CourtU.S. District Court — District of Kansas

Jonathan A. Margolies, McDowell, Rice, Smith & Gaar, Kansas City, MO, for Plaintiffs.

Janice M. Karlin, Office of the U.S. Attorney, Kansas City, MO, Jeffrey Axelrad, Paul J. Boudreaux, Lisa Goldfluss, John T. Stemplewicz, Frank W. Hunger, U.S. Department of Justice, Civil Division, Washington, DC, for Defendants.

MEMORANDUM AND ORDER

VAN BEBBER, Chief Judge.

Plaintiffs bring this action pursuant to the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b) & 2671-2680, and the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq., seeking to recover $820 million in damages arising out of the government's allegedly negligent management and operation of Franklin Savings Association. The case comes before the court on defendants' motion to dismiss (Doc. 59)1 plaintiffs' second amended complaint pursuant to Fed. R.Civ.P. 12(b)(1) and 12(b)(6). For the reasons set forth below, defendants' motion is granted.

I. Background

The court need not provide an exhaustive explanation of the events culminating in this lawsuit. Several prior decisions have recounted the saga of Franklin Savings in thorough detail. See Franklin Sav. Ass'n v. Office of Thrift Supervision, 742 F.Supp. 1089 (D.Kan.1990), rev'd, 934 F.2d 1127 (10th Cir.1991) (Franklin I), cert. denied, 503 U.S. 937, 112 S.Ct. 1475, 117 L.Ed.2d 619 (1992); Franklin Sav. Ass'n v. Office of Thrift Supervision, 35 F.3d 1466 (10th Cir.1994) (Franklin II); In re Franklin Sav. Corp., Bankr.No. 91-41518-11, 1994 WL 114652 (Bankr.D.Kan. Jan.18, 1994). This court, therefore, will offer only a brief overview of the case.

Prior to its seizure and liquidation by federal regulators, Franklin Savings Association ("FSA") functioned as a state chartered stock savings and loan association. Approximately 94% of FSA's stock is owned by its holding company, Franklin Savings Corporation ("FSC"), a corporation organized and existing under Kansas law.

In 1990, the director of the Office of Thrift Supervision determined that FSA was in an unsafe and unsound condition to transact business and appointed the Resolution Trust Corporation ("RTC") as conservator of the thrift. FSA and FSC subsequently filed a lawsuit under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1461 et seq., seeking to remove the conservator. Although the district court ruled in favor of FSA and FSC, the Tenth Circuit reversed, holding that the administrative record supported the office of Thrift Supervision's decision to appoint a conservator. Franklin I, 934 F.2d at 1150-51.

In September 1992, the director of the Office of Thrift Supervision converted the RTC's role with respect to FSA from conservator to receiver and ordered the RTC to liquidate the savings association. Once again, both FSA and FSC commenced a lawsuit challenging the agency's actions. The Tenth Circuit, affirming the district court's dismissal of the case, held that the Office of Thrift Supervision's imposition of a receivership is not subject to judicial review. Franklin II, 35 F.3d at 1469-71.

The instant action has its genesis in a complaint that FSA and FSC initiated in January 1993 in a bankruptcy court adversary proceeding. The matter arose there because FSC had filed for Chapter 11 relief in bankruptcy court eighteen months earlier.2 In the original adversary complaint, plaintiffs sought damages under the FTCA for negligence, breach of fiduciary duty, and conversion by the RTC while acting as conservator of FSA. In March 1995, this court approved the recommendation of the bankruptcy court that the bankruptcy reference be withdrawn and plaintiffs' adversary complaint be transferred to the district court.3

After the case was transferred to this court, plaintiffs made several amendments to their complaint. Specifically, they (1) named the Federal Deposit Insurance Corporation ("FDIC"), which is the successor-in-interest to the RTC, as a defendant; (2) asserted an APA claim alleging that the RTC, as conservator, had acted in excess of its statutory authority; and (3) added a breach of duty claim against defendants based on the RTC's alleged nongovernmental activity in commerce while acting as FSA's conservator.

Defendants have filed a series of motions to dismiss. The court now turns to those motions.

II. Standards Governing Motions to Dismiss
A. Generally

A party seeking to invoke the jurisdiction of a federal court must demonstrate that the case rests within the court's jurisdiction. United States v. Bustillos, 31 F.3d 931, 933 (10th Cir.1994). The burden of proof on this issue depends upon the procedure used to resolve the matter. See FDIC v. Oaklawn Apartments, 959 F.2d 170, 174 (10th Cir. 1992).

Defendants' motion to dismiss for lack of subject matter jurisdiction attacks the facial validity of plaintiffs' complaint. Ordinarily, the court would analyze such a motion under Rule 12(b)(1). "However, a court is required to convert a Rule 12(b)(1) motion to dismiss into a Rule 12(b)(6) motion or a Rule 56 summary judgment motion when resolution of the jurisdictional question is intertwined with the merits of the case." Holt v. United States, 46 F.3d 1000, 1003 (10th Cir.1995). A jurisdictional question is considered intertwined with the merits of the case if the court's subject matter jurisdiction is dependent upon the same statute that provides the substantive claim in the case. Id.

In the instant action, defendants contend that explicit provisions contained in the APA and FTCA preclude the court from entertaining plaintiffs' claims. Because plaintiffs predicate their suit on these two statutes, the jurisdictional question before the court is intertwined with the merits of the case. The court, therefore, will analyze defendants' motion pursuant to Rule 12(b)(6).4

B. Rule 12(b)(6)

A court may not grant a motion to dismiss for failure to state a claim unless it appears that the plaintiff can prove no set of facts that would entitle it to relief. Jacobs, Visconsi & Jacobs, Co. v. City of Lawrence, 927 F.2d 1111, 1115 (10th Cir.1991). In considering such a motion, the court must assume the truth of all well-pleaded facts in the plaintiff's complaint and view them in the light most favorable to the plaintiff. Zinermon v. Burch, 494 U.S. 113, 118, 110 S.Ct. 975, 979, 108 L.Ed.2d 100 (1990). The court also must construe the pleadings liberally and indulge all reasonable inferences in favor of the plaintiff. Lafoy v. HMO Colorado, 988 F.2d 97, 98 (10th Cir.1993); Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir.1984); Fed. R.Civ.P. 8(a). The issue in reviewing the sufficiency of a complaint is not whether the plaintiff ultimately will prevail, but whether it is entitled to offer evidence to support its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974).

III. Discussion

Before reaching the merits of plaintiffs' claims, the court must address two procedural matters.

A. Administrative Remedies

Defendants first contend that FSA may not pursue this lawsuit in-as-much as it has not exhausted its administrative remedies. The court agrees. Although Congress waived the government's sovereign immunity for certain tort-based actions when it enacted the FTCA, Congress imposed certain conditions on that waiver. One such condition is that litigants wishing to bring a tort claim against the United States first must file an administrative claim with the appropriate federal agency. 28 U.S.C. § 2675(a). The administrative claim is a jurisdictional prerequisite that the court has no power to waive. Nero v. Cherokee Nation, 892 F.2d 1457, 1463 (10th Cir.1989). If there are multiple claimants, each must file a proper claim unless another claimant is legally entitled to assert such a claim on its behalf. Muth v. United States, 1 F.3d 246, 249 (4th Cir.1993).

FSA argues that it filed no administrative claim because such a claim would have been futile. The fact that pursuing an administrative remedy would be a futile endeavor, however, is irrelevant. Nero, 892 F.2d at 1463; accord Industrial Constructors Corp. v. United States Bureau of Reclamation, 15 F.3d 963, 967-68 (10th Cir.1994). Moreover, FSC proffers no evidence that it is authorized to assert a claim on behalf of FSA. See 28 C.F.R. § 14.2(a) (1996) (agent filing administrative claim on principal's behalf must accompany claim with evidence of its authority). Because FSA did not file an administrative claim and because there is no evidence that FSC is authorized to act on behalf of FSA, FSA's FTCA claim must be dismissed.

B. Standing

Defendants next argue that although FSC filed an administrative claim, it has no standing to sue for harm allegedly inflicted upon FSA. In support of this assertion, defendants cite the general principle that shareholders do not have standing to redress injuries to the corporation in which they hold stock. See K-B Trucking Co. v. Riss Int'l Corp., 763 F.2d 1148, 1154 n. 7 (10th Cir. 1985) (citations omitted). This rule, however, has no application in the case at bar. Kansas law, which applies here because FSC was incorporated in Kansas, see Burks v. Lasker, 441 U.S. 471, 477-78, 99 S.Ct. 1831, 1836-37, 60 L.Ed.2d 404 (1979), dictates that FSC may pursue this case in a derivative capacity.

1. Derivative Action

As an owner of approximately 94% of FSA's stock, FSC may maintain a derivative action on the theory that FSA has sustained a direct injury and is unable to ameliorate the wrong. The derivative action developed in equity to enable shareholders to sue in the corporation's...

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