Columbian Fin. Corp. v. Stork, Case No. 14-2168-SAC

• Court: United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
• Writing for the Court: Sam A. Crow, U.S. District Senior Judge
• Parties: COLUMBIAN FINANCIAL CORPORATION, THE COLUMBIAN BANK & TRUST CO., Plaintiffs, v. JUDI M. STORK, DERYL K. SCHUSTER, OFFICE OF THE STATE BANK COMMISSIONER OF KANSAS, EDWIN G. SPLICHAL, and J. THOMAS THULL, Defendants.
• Decision Date: 18 November 2014
• Docket Number: Case No. 14-2168-SAC

COLUMBIAN FINANCIAL CORPORATION, THE COLUMBIAN BANK
& TRUST CO., Plaintiffs,
v.
JUDI M. STORK, DERYL K. SCHUSTER,
OFFICE OF THE STATE BANK COMMISSIONER OF KANSAS, EDWIN G. SPLICHAL,
and J. THOMAS THULL, Defendants.

Case No. 14-2168-SAC

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

November 18, 2014

MEMORANDUM AND ORDER

This 42 USC § 1983 case alleging due process violations comes before the Court on Defendants' motion to dismiss.

I. Motion to Dismiss Standard

Defendants move to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6).

Defendants contend the complaint is jurisdictionally deficient. Rule 12(b)(1) of the Federal Rules of Civil Procedure authorizes a court to dismiss a claim for lack of subject matter jurisdiction. Federal courts are courts of limited jurisdiction, so may exercise jurisdiction only when specifically authorized to do so. Castaneda v. I.N.S., 23 F.3d 1576, 1580 (10th Cir.

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1994). Upon a defendant's Rule 12(b)(1) motion to dismiss, the plaintiff bears the burden of proving jurisdiction.

Defendants also allege factual insufficiency. Under Rule 12(b)(6), the Court assesses whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted. Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991). The Supreme Court recently clarified the requirement of facial plausibility:

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim for relief that is plausible on its face." Id. [Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)] at 570. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the Defendant is liable for the misconduct alleged. Id. at 556 [127 S.Ct. 1955]. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a Defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a Defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. at 557 [127 S.Ct. 1955].

Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. "[C]ourts should look to the specific allegations in the complaint to determine whether they plausibly support a legal claim for relief." Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215 n. 2 (10th Cir. 2007).

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II. Uncontested Facts

The facts are uncontested. Plaintiff Columbian Financial Corporation ("CFC") is a Kansas for-profit corporation and was the sole shareholder of Columbian Bank and Trust Company. Plaintiff The Columbian Bank and Trust Company ("Bank") was a state-chartered bank with its primary business location at 701 Kansas Avenue, Topeka, Kansas. It was organized under the laws of Kansas, was based in Topeka, and operated through nine branch offices in Kansas and Missouri.

Defendant Judi Stork is the Deputy Bank Commissioner of Kansas and is sued in her official capacity as well as in her individual capacity. Ms. Stork served as Acting Bank Commissioner from June 19, 2010, to January 6, 2011, and from November 2, 2013, to March 18, 2014. When not serving as Acting Bank Commissioner, she served as Deputy Bank Commissioner at all times relevant to this lawsuit. Defendant Deryl K. Schuster is the current State Bank Commissioner of Kansas and is sued in his official capacity in that position. He served as Acting Bank Commissioner from March 19, 2014 to April 6, 2014 then as Bank Commissioner from April 6, 2014 to the present. Defendant Edwin G. Splichal served as Bank Commissioner from January 7, 2011, to November 1, 2013, and is sued in his individual capacity. Defendant J. Thomas Thull served as Bank Commissioner from March 1, 2007, to June 18, 2010, and is sued in his individual capacity.

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Defendant Kansas Office of the State Bank Commissioner ("OSBC") is a self-funded regulatory agency.

As a state-chartered bank with federally-insured deposits, the Bank was subject to supervision by both the OSBC and the Federal Deposit Insurance Corporation ("FDIC"). In January of 2008, an FDIC examiner conducted an on-site evaluation of the Bank. On April 30, 2008, the FDIC issued its Report of Examination, which downgraded the Bank from its previous ratings in all six of the relevant components.

On July 15, 2008, the Bank stipulated and consented to the issuance of a cease and desist order with the OSBC and FDIC. Dk.15-2 pp. 3-31. On August 22, 2008, Commissioner Thull, acting in his official capacity, issued a Declaration of Insolvency and Tender of Receivership (the "Declaration") finding the Bank insolvent. The Declaration made no reference to the cease and desist order, but stated that Commissioner Thull was immediately taking charge of the Bank and all of its properties and assets on behalf of the State of Kansas pursuant to K.S.A. § 9-1903, § 9-1905, and § 77-536.

The latter statute permits a state agency to use emergency proceedings in a situation involving an immediate danger to the public health, safety or welfare requiring immediate state agency action. K.S.A. § 77-536. K.S.A. § 9-1903 allows a Commissioner taking charge of a bank to appoint a special deputy to manage the affairs of the bank "for such period

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of time as deemed reasonable and necessary by the commissioner before returning charge of the bank . . . to the board of directors." K.S.A. § 9-1905 requires a Commissioner taking charge of a bank to "ascertain its actual condition as soon as possible by making a thorough investigation into its affairs and condition," and provides that "if the commissioner shall be satisfied that such bank . . . cannot sufficiently recapitalize, resume business or liquidate its indebtedness . . . the commissioner forthwith shall appoint a receiver." The Declaration stated that Mr. Thull was satisfied that the Bank could not resume business and appointed the FDIC as the Bank's receiver. The FDIC sold a substantial portion of the Bank's assets in a prearranged sale the same day as the seizure.

The Declaration notified the Bank that it could petition for judicial review of the OSBC's actions pursuant to the Kansas Judicial Review Act (KJRA), K.S.A. § 77-601 et seq. The Bank and CFC timely filed a petition for review in the District Court of Shawnee County, Kansas on September 22, 2008. In response, the OSBC argued the Bank was not entitled to review because no remedy could be had against the OSBC or the Commissioner. The district court apparently did not agree, as it reached the merits of Plaintiffs' due process claim, stating:

"It seems clear that bank seizures, given their exigency, have long been excused from any notice or pre-hearing seizure requirement (Fahey v. Mallonee, 332 U.S. 245, 91 L.Ed.2030 (1947)). However, such is not necessarily the case post-seizure. Some substantive post-deprivation review is required in order to constitutionally ground the

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decision. Mathews v. Eldridge, 424 U.S. 319, 47 L.Ed.2d 18 (1976). A bank seizure is not excepted."

Columbian Bank and Trust Co. v. Splichal, 329 P.3d 557, 2014 WL 3732013, p. 9 (Kan. App. 2014) (quoting the district court decision). On March 29, 2010, the Shawnee County District Court remanded the matter to the Commissioner to conduct post-deprivation proceedings under K.S.A. § 77-536.

On remand, the OSBC initiated administrative proceedings to which both the Bank and CFC were parties. Both parties stated uncontested facts and filed motions for summary judgment. On April 18, 2012, then-Commissioner Splichal issued a decision in favor of the State Bank Commissioner on the parties' cross-motions for summary judgment.¹ That decision specifically stated that the Bank and CFC had the right to petition for judicial review.

The Bank and CFC filed two such petitions. The OSBC responded by filing motions to dismiss, arguing the Bank and CFC were not entitled to judicial review because no remedy was available. The Shawnee County District Court agreed so dismissed the petitions as moot on January 30, 2013.²

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Both parties appealed that decision to the Kansas Court of Appeals (KCOA), which affirmed after consolidating the judicial review actions. The KCOA found that both CFC and the Bank had standing, that the FDIC as receiver did not need to be a party, and that the issues were not moot. But it affirmed the denial of relief because the Bank and CFC had not met their burden of proving the invalidity of the Commissioner's action under the KJRA. Columbian Bank and Trust Co. v. Splichal, 2014 WL 3732013, 1 (2014).

The KCOA noted that the judicial review action did not seek to recover assets of an estate but sought a declaratory judgment on the Commissioner's authority to close a bank, seize its assets, and appoint a receiver. The KCOA addressed the due process issue, finding that banks and owners of a FSLIC-insured savings and loan association have a constitutional right to be free from unlawful deprivations of their property, but that no pre-deprivation hearing was necessary. It held that CFC and the Bank had received sufficient notice and opportunity to be heard post-deprivation by the Commissioner's review under the KAPA and the court's review under the KJRA. Id., 2014 WL 3732013, at 9.

The KCOA further found that the Commissioner did not need to postpone its action to protect the public until after the bank was actually unable to meet a customer's demand for withdrawal of funds. Instead, the

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statute permits the Commissioner to reasonably consider future demands that will be made on a bank in order to prevent imminent harm to depositors and to the public. The KCOA found substantial evidence in support of the Commissioner's conclusion that the Bank was insolvent....