Brech v. Cu Mortgage Direct LLC, CIV. 10-4123-KES

CourtUnited States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
Writing for the CourtKAREN E. SCHREIER
Decision Date07 February 2011
Docket NumberCIV. 10-4123-KES

LEON C. BRECH, Plaintiff,
DOES 1-50, Defendants.

CIV. 10-4123-KES


Dated: February 7, 2011


Plaintiff, Leon C. Brech, 1 filed a pro se action against defendants, CU Mortgage Direct, LLC, OneWest Bank, the Federal Deposit Insurance Corporation (FDIC), and John Does 1-50, alleging a breach of contract claim and violations of various federal laws relating to the banking industry. The FDIC moves to dismiss or, in the alternative, for summary judgment. CU Mortgage moves for summary judgment or, in the alternative, to dismiss or for judgment on the pleadings. Brech resists the motions. The motions are granted.

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The FDIC and CU Mortgage filed statements of material fact in support of their motions. Brech did not respond to these statements as required by the local rules, 2 but rather argues the facts in his briefs opposing the dispostive motions. The court adopts the FDIC's and CU Mortgage's statements of material fact to the extent that Brech does not argue opposing facts. In the light most favorable to Brech, the nonmoving party, the undisputed, pertinent facts are as follows:

On or around July 28, 2005, Leon and Rhonda Brech executed and delivered an adjustable rate promissory note in the amount of $202,432 plus interest (Note) payable to CU Mortgage. The Note provided that the Brechs would make monthly installment payments consisting of principal and interest until the Note was fully paid. To secure payment for the Note, the Brechs executed and delivered a mortgage to CU Mortgage for Lot 6B in Block 6 of Berry Addition to the city of Sioux Falls, Minnehaha County, South Dakota (Mortgage). The Mortgage was filed in the Minnehaha County Office of the Register of Deeds on August 2, 2005.

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On October 9, 2008, CU Mortgage assigned the Mortgage to IndyMac. The assignment was recorded in the Minnehaha County Office of the Register of Deeds on October 9, 2008.

The Brechs were unable to make the Note's required payments and were in default. IndyMac brought suit against the Brechs for foreclosure of the Note and Mortgage in the Second Judicial Circuit of Minnehaha County, South Dakota. See IndyMac Fed. Bank FSB v. Leon Brech, Rhonda Brech & Michael D. Harris, Tr. of the Brech Family Trust, Civ. 08-4408 (S.D. 2d Cir. 2008) (Civ. 084408). IndyMac moved for summary judgment and Judge Stuart Tiede entered judgment in favor of IndyMac on July 10, 2009, foreclosed on the Mortgage, and authorized the Minnehaha County Sheriff to sell the property at a public auction. Docket 12-2 at 3-4. Judge Tiede found that the Brechs owed IndyMac $220,206.65, consisting of the Note's principal, accrued interest, and other miscellaneous costs. Docket 12-2 at 3. A sheriff's sale was later conducted and the property was sold.

On July 11, 2008, the federal Office of Thrift Supervision (OTS) closed IndyMac. Under 12 U.S.C. § 1821(c), the FDIC can accept an appointment as a receiver for any insured depository institution. The FDIC was appointed receiver in a "pass-through receivership" (FDIC-Receiver I). In this type of receivership, the failed institution is closed, the FDIC is appointed receiver, and a new, interim institution is created, for which the FDIC is appointed

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conservator. After FDIC-Receiver I was appointed, OTS authorized the creation of IndyMac Federal and appointed the FDIC as conservator (FDIC-Conservator).

Pursuant to a purchase-and-assumption agreement, FDIC-Receiver I transferred the bulk of IndyMac's assets and deposit liability to FDIC-Conservator. The transfer did not include any defensive litigation involving IndyMac.

On March 19, 2009, OTS closed IndyMac Federal and appointed the FDIC as receiver for IndyMac Federal (FDIC-Receiver II). Also on March 19, 2009, FDIC-Receiver II agreed to transfer substantially all of IndyMac Federal's assets and certain liabilities to OneWest.

On November 18, 2009, the FDIC published a notice of worthless determination stating that IndyMac's assets were insufficient to make any distributions on general unsecured creditors' claims; thus, such claims had no value. See Determination of Insufficient Assets to Satisfy Claims Against Financial Institution in Receivership, 74 Fed. Reg. 59540 (Nov. 18, 2009). The FDIC also notified Brech of this determination by letter after Brech filed this action. See Docket 1-2 at 45-47.

On December 1, 2009, Brech filed a complaint in the Circuit Court of Minnehaha County, South Dakota against IndyMac and Does 1-50. See Leon C. Brech v. CU Mortgage Direct, LLC, OneWest Bank, & FDIC, Civ. 09-5330

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(S.D. 2d Cir. 2009). On May 28, 2010, Brech filed an Amended Complaint to Clarify the Claim against CU Mortgage, OneWest, the FDIC, and Does 1-50. The FDIC removed the entire action to this court.

I. The FDIC's Motion

Brech appears to argue that the FDIC and IndyMac breached their contract with Congress when IndyMac went bankrupt and that the Note was fully discharged by Uniform Commercial Code § 3-603 when Brechs filed their Addendum to Mortgage. The FDIC moves to dismiss Brech's claims against it under Rule 12(b)(1) or, in the alternative, for summary judgment under Rule 56(c). "[B]ecause jurisdiction is a threshold question, judicial economy demands that the issue be decided at the outset...." Osborn v. United States, 918 F.2d 724, 729 (8th Cir. 1990); see also City of Kan. City, Mo. v. Yarco Co., 625 F.3d 1038, 1040 (8th Cir. 2010) (reasoning that "[f]ederal courts have an independent duty to determine subject matter jurisdiction" and that issue "must be resolved before reaching the merits of a suit." (citations omitted)). Accordingly, the court will first review the FDIC's motion to dismiss under Rule 12(b)(1).

A. Standard of Review

Federal Rule of Civil Procedure 12(b)(1) provides that the court may dismiss an action for lack of subject matter jurisdiction. Rule 12(b)(1) " 'is rooted in the unique nature of the jurisdictional question.' " Osborn, 918 F.2d

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at 729 (quoting Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981)). Accordingly, in determining a Rule 12(b)(1) motion, the court may look to evidence outside the pleadings. Id. Reviewing outside evidence under Rule 12(b)(1) does not convert the motion into a Rule 56(c) summary judgment motion like reviewing outside evidence does in the context of a Rule 12(b)(6) motion to dismiss. Deuser v. Vecera, 139 F.3d 1190, 1192 n.3 (8th Cir. 1998).

The plaintiff bears the burden to establish that jurisdiction exists. V S Ltd. P'ship v. Dep't of Hous. & Urban Dev., 235 F.3d 1109, 1112 (8th Cir. 2000) (citing Nucor Corp. v. Neb. Pub. Power Dist., 891 F.2d 1343, 1346 (8th Cir. 1989)), and " 'no presumptive truthfulness attaches to the plaintiff's allegations....' " Osborn, 918 F.2d at 730 (quoting Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977)). If the court finds that jurisdiction is not present, it must dismiss the case. Fed. R. Civ. P. 12(h)(3); Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583-84 (1999) (citations omitted).

B. Discussion

The FDIC raises numerous arguments to support its motion: (1) the FDIC's no value determination means that there is no possibility that Brech can recover on his claim; (2) Brech did not exhaust his administrative remedies; (3) because no effective relief can be granted to Brech, the court lacks jurisdiction; (4) Brech's claims should be dismissed on mootness

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because no relief can be granted; and (5) 12 U.S.C. § 1821(j) precludes Brech's claims. The court has consolidated the FDIC's arguments into two broad categories, administrative remedies and mootness.

1. Administrative Remedies

Because Brech chose to bring suit against the FDIC, his claims are now controlled by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73; 103 Stat. 529. FIRREA has a mandatory administrative claims process.

Under this process, all claims against a federally-insured failed institution when the FDIC is receiver must be submitted to the FDIC by the claims bar date before they can be asserted in a court action. See generally 12 U.S.C. §§ 1821(d)(3)-(13) (describing how the FDIC receives and handles administrative claims). Under the claims process, the FDIC has 180 days to review and grant or deny all filed claims. 12 U.S.C. § 1821(d)(5)(A)(I). If the FDIC denies a claim in whole or in part, only then can the claimant seek relief in a district court. See 12 U.S.C. §§ 1821(d)(3)-(13).

The administrative claims process is mandatory: "The language of FIRREA clearly indicates that unless administrative procedures are complied with, no court shall have jurisdiction to evaluate a claim brought against a failed banking institution for whom the [FDIC] has been appointed receiver." Bueford v. Resolution Trust Corp., 991 F.2d 481, 485 (8th Cir. 1993) (stating

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that all courts that have addressed this issue have similarly held); see also McMillian v. FDIC, 81 F.3d 1041, 1045 (11th Cir. 1996) ("FIRREA makes exhaustion of the FDIC's...

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