Columbian Fin. Corp. v. Bowman

• Decision Date: 12 April 2019
• Docket Number: No. 18-3121,18-3121
• Parties: COLUMBIAN FINANCIAL CORPORATION, Plaintiff - Appellant, v. MICHELLE W. BOWMAN, in her official capacity as Bank Commissioner of Kansas; DEPUTY BANK COMMISSIONER OF KANSAS, Defendants - Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

COLUMBIAN FINANCIAL CORPORATION, Plaintiff - Appellant, v. MICHELLE W. BOWMAN, in her official capacity as Bank Commissioner of Kansas;

DEPUTY BANK COMMISSIONER OF KANSAS, Defendants - Appellees.

No. 18-3121

UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

April 12, 2019

(D.C. No. 2:14-CV-02168-SAC-KGS)

(D. Kan.)

ORDER AND JUDGMENT^*

Before BRISCOE, McKAY, and HOLMES, Circuit Judges.

In this § 1983 action, Plaintiff Columbian Financial Corporation alleges that it was denied procedural and substantive due process when Defendants, the Bank Commissioner of Kansas and the Deputy Bank Commissioner of Kansas, declared the Columbian Bank and Trust Company insolvent in 2008. Defendants moved for summary judgment, or in the alternative for judgment on the pleadings. Defendants argued that res judicata barred Plaintiff's suit because Plaintiff previously sought judicial review of Defendants' actionsin Kansas state court. The district court agreed and granted Defendants' motion. Plaintiff timely appealed. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we affirm.

I

We discussed the underlying facts in a prior appeal.

Like many financial institutions, The Columbian Bank and Trust Company [(the "Bank")] experienced financial difficulties during the 2007-2008 financial crisis. These difficulties led the FDIC to conduct an onsite examination of the [B]ank and downgrade its supervisory rating; months later, the [B]ank 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 [B]ank to "cease and desist" from those practices. The order stiffened regulatory oversight of the [B]ank, requiring written liquidity analyses, projections on sources of liquidity and uses of funds, and review and amendment of the [B]ank's management policies. The [B]ank's analyses, projections, and policy amendments were to be submitted to the state bank commission and the FDIC for review and comment. The [B]ank complied with these requirements.

Notwithstanding the [B]ank's compliance, the state bank commission declared the [B]ank insolvent [in August 2008], seized the [B]ank's assets, and appointed the FDIC as receiver. The same day, the FDIC sold many of the [B]ank's assets to a third party in a prearranged sale.

Columbian Fin. Corp. v. Stork (Columbian I), 811 F.3d 390, 394 (10th Cir. 2016) (citation omitted). Defendants' seizure of the Bank begat over a decade of litigation in state and federal courts.

A. Judicial Review in Kansas State Court

The Bank and its sole shareholder, Plaintiff Columbian Financial Corporation, sought judicial review of the seizure in state district court in September 2008. One of their arguments was that the "Commissioner . . . intentionally deprived [them] of due process of law as required by the Fourteenth Amendment to the United States Constitution by seizing the [Bank] without any notice or any hearing on whether the [Bank] was insufficiently capitalized or otherwise insolvent, and without following the procedures" required by state law. App. Vol. II at 450.

The state district court agreed, finding that "[s]ome substantive post-deprivation review is required in order to constitutionally ground the decision" to seize a bank. Id. at 540 (citing Mathews v. Eldridge, 424 U.S. 319 (1976)). Accordingly, the state district court remanded the case to the Office of the State Bank Commissioner for a post-seizure hearing. The Bank Commissioner presided over the hearing and, in April 2012, granted summary judgment in favor of the Office of the State Bank Commissioner after finding that it acted lawfully in declaring the Bank insolvent and appointing the FDIC as receiver.

The Bank and Plaintiff again sought judicial review. They argued that (1) "[t]he Commissioner's actions, or the statute or rule and regulation on which the Commissioner's actions are based, violated the Due Process Clause on its face or as applied by allowing the Commissioner to seize a solvent, adequately capitalized bank;" and (2) "[t]he Commissioner violate[d] the Due Process Clause by failing to provide a timely and adequate hearing for the deprivation of [Plaintiff's] liberty or property." App.Vol. III at 598. The Commissioner moved to dismiss the petition for judicial review as moot. The state district court agreed, finding that it "lack[ed] jurisdiction to issue an opinion" "[b]ecause [it could not] . . . provide the [Plaintiff] with any relief." Id. at 617.

Plaintiff appealed from the state district court's order dismissing the petition for judicial review. In the Kansas Court of Appeals, Plaintiff argued that the state "district court's ruling, denying judicial review of the Commissioner's seizure order, leaves the Commissioner with unfettered and unchecked discretion to deprive citizens of property, in derogation of the fundamental and bedrock princip[les] underlying due process of law." Id. at 631. Plaintiff raised, as one of its "Issues to be Decided on Appeal," the question of whether the Commissioner's seizure of the Bank, based on a "novel interpretation" of state law, "den[ied] [Plaintiff] due process of law in violation of [the] Fourteenth Amendment to the United States Constitution." Id. at 633.

In its briefing before the Kansas Court of Appeals, Plaintiff argued that the Commissioner denied it notice of the seizure by relying on "a novel interpretation of its own regulation in the course of a civil enforcement action." Id. at 651. Plaintiff maintained that this "grant[ed] to the Commissioner unfettered and unchecked discretion on the proper interpretation of the statute and . . . violate[d] due process." Id. at 652 (quotation marks omitted). Plaintiff also argued that the state courts had jurisdiction over its petition for judicial review because the lack of "judicial review of a state bank closure . . . would create serious constitutional implications as it would deny banks and their shareholders their fundamental right to due process." Id. at 661.

The Kansas Court of Appeals "affirm[ed] the district court's denial of relief because the Bank and [Plaintiff] . . . failed to meet their burden of proving the invalidity of the Commissioner's action under the Kansas Judicial Review Act." Columbian Bank & Tr. Co. v. Splichal, 329 P.3d 557, 2014 WL 3732013, at *1 (Kan. Ct. App. 2014) (per curiam) (unpublished table decision). Reviewing Plaintiff's due process arguments de novo, the Kansas Court of Appeals held that post-seizure process "was necessary to provide due process to" Plaintiff. Id. at *9. The court explained that, "[c]learly, [Plaintiff] should be entitled to notice and an opportunity to be heard, which was provided to them when they received review from the Commissioner and the Kansas courts under the KJRA." Id. The court further noted that "it was the [first state] district court's remand of the judicial review action [to the Commission] which led to the substantive post-deprivation review that is required to constitutionally ground the Commissioner's decision to close the Bank, to seize its assets, and to appoint a receiver." Id. at *13 (citing Mathews, 424 U.S. 319).

The Supreme Court of Kansas denied Plaintiff's petition for review in June 2015. Plaintiff did not file a petition for a writ of certiorari in the United States Supreme Court.

B. Section 1983 Action in Federal Court

While Plaintiff's appeal was pending in the Kansas Court of Appeals, Plaintiff filed this § 1983 action in the United States District Court for the District of Kansas. Plaintiff sought equitable relief for alleged violations of its procedural and substantive due process rights. Defendants moved to dismiss. In response, "the district court ordered dismissal [of the equitable claims] without prejudice under Younger v. Harris, 401 U.S.37 (1971)," because state court review of Plaintiff's petition for judicial review was ongoing. Columbian I, 811 F.3d at 393 (parallel citation omitted). Plaintiff appealed, but "the state proceeding terminated while th[e] appeal was pending." Id. Therefore, "we vacate[d] dismissal of the equitable claims and remand[ed] these claims to the district court so that it c[ould] reconsider them without the need to abstain now that the state proceedings ha[d] ended." Id. at 395.

On remand, Plaintiff filed its First Amended Complaint, which is the operative pleading in this appeal. Plaintiff again alleged violations of its procedural and substantive due process rights by the Bank Commissioner of Kansas and the Deputy Bank Commissioner of Kansas, acting in their official capacities. Plaintiff sought "an injunction requiring Defendants to provide [Plaintiff] a hearing before a neutral judge or magistrate at which it may pursue injunctive relief sufficient to remedy the injuries [Plaintiff] has suffered arising from the issuance of the Declaration [of insolvency], the seizure of the Bank, and the appointment of the FDIC as receiver." App. Vol. I at 34. Defendants again moved to dismiss. The district court granted Defendants' motion to dismiss, finding that Plaintiff's claims were barred by sovereign immunity. Columbian Fin. Corp. v. Stork (Columbian II), 216 F. Supp. 3d 1267, 1275 (D. Kan. 2016).

Plaintiff appealed for a second time. We again reversed after concluding that Ex parte Young, 209 U.S. 123 (1908), applied. We reasoned that Plaintiff had alleged an ongoing "violation of its due process rights . . . because it [claimed that it] still has not received a meaningful hearing." Columbian Fin. Corp. v. Stork (Columbian III), 702 F. App'x 717, 720 (10th Cir. 2017). We noted that Plaintiff "seeks a hearing before animpartial hearing officer after sufficient opportunity for discovery." Id. (footnotes omitted). We ultimately concluded that Plaintiff had "identif[ied] injuries that could be redressed by its...