Columbian Fin. Corp. v. Stork

• Decision Date: 18 October 2016
• Docket Number: Case No. 14–2168–SAC
• Citation: 216 F.Supp.3d 1267
• Parties: COLUMBIAN FINANCIAL CORPORATION, Plaintiff v. Judi M. STORK, et. al, Defendants.
• Court: U.S. District Court — District of Kansas

216 F.Supp.3d 1267

COLUMBIAN FINANCIAL CORPORATION, Plaintiff

v.Judi M. STORK, et. al, Defendants.

Case No. 14–2168–SAC

United States District Court, D. Kansas.

Signed October 18, 2016

Filed October 19, 2016

John M. Edgar, Matthew J. Limoli, Michael D. Pospisil, Edgar Law Firm, LLC, Kansas City, MO, for Plaintiff.

Dustin L. Kirk, Jay Douglas Befort, Jay Philip Van Blaricum, Office of the State Bank Commissioner, Topeka, KS, for Defendants.

MEMORANDUM AND ORDER

Sam A. Crow, U.S. District Senior Judge

The case comes before the court on a motion to dismiss (Dk. 69) filed by the defendants Judi M. Stork and Deryl K. Schuster ("defendants") who remain in this case only in their official capacity. The plaintiff Columbian Financial Corporation ("CFC"), as the sole shareholder of Columbian Bank and Trust Company ("Bank"), brought this action with the Bank against the Office of the Kansas State Bank Commissioner ("OSBC") and its four commission officials under 42 U.S.C. § 1983 alleging "denial of due process" from the OSCB declaring the Bank insolvent and seizing the Bank's assets. Columbian Financial Corp. v. Stork , 811 F.3d 390, 393 (10th Cir. 2016). The district court dismissed the complaint, and the plaintiff CFC appealed two issues: the propriety of staying consideration of the equitable claims under Younger v. Harris , 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), and the qualified immunity of the defendants Stork and Mr. J. Thomas Thull on the claims for damages. The Tenth Circuit affirmed the qualified immunity ruling, but it vacated the dismissal without prejudice ruling as to the equitable claims and remanded for further proceedings. The Circuit's ruling on the equitable claims was due to the state proceedings having terminated during the pendency of the appeal which vitiated the grounds for abstention under Younger . 811 F.3d at 393–95.

On remand, CFC has amended its complaint to now allege three counts of relief under § 1983. Count one alleges denial of procedural due process in the seizing of the Bank and its assets without providing CFC with a hearing at a meaningful time and in a meaningful manner or with a post-seizure hearing, then and now, at which appropriate relief could be granted. Count two alleges denial of procedural due process in the seizing of the bank pursuant to state statutes that were unconstitutionally vague in failing to provide fair notice of what alleged conditions in the Bank would justify a finding of insolvency and seizure. Count three alleges denial of substantive due process in the seizing of the Bank with incomplete or insufficient evidence and, therefore, without a rational basis under the law. CFC's prayer asks for judgment in its favor and:

b. an injunction requiring Defendants to provide CFC a hearing before a neutral judge or magistrate at which it may pursue injunctive relief sufficient to remedy the injuries CFC has suffered arising from the issuance of the Declaration, the seizure of the Bank, and the appointment of FDIC as receiver;

c. the award of attorneys' fees and costs as provided for under 42 U.S.C. § 1988(b) ;

d. the award of such other relief as this Court may deem just and proper.

(Dk. 66, p. 17).

Background

Rather than restate the uncontested facts appearing in this court's prior order and the Tenth Circuit's opinion, the court will offer only a summary sufficient for the context of this ruling. In July of 2008, the state-chartered Bank with federal-insured deposits consented to the entry of an "Order to Cease and Desist" which required the Bank to cease and desist from engaging in the listed "unsafe or unsound banking practices and violations" and to modify its operations and policies in numerous areas and to report these changes. (Dk. 70–1). CFC has alleged that the Bank complied with this order revising its policies and submitting the required reports and analyses which demonstrated the Bank's financial strength and liquidity. On August 22, 2008, without additional notice or a prior hearing, then-Bank Commissioner J. Thomas Thull issued a Declaration of Insolvency and Tender of Receivership ("Declaration") finding the Bank insolvent. The Declaration gave the Commissioner immediate charge of the Bank and all of its properties and assets pursuant to state statute. In execution of this authority, Commissioner Thull declared that he was satisfied the Bank could not resume business and thereby appointed the FDIC as its receiver. On the same day as this seizure, the FDIC followed through with a pre-arranged sale of a substantial portion of the Bank's assets.

The Declaration notified the Bank it could seek judicial review of the OSBC's actions under the Kansas Judicial Review Act, K.S.A. § 77–602 et seq. A timely petition for review was filed. Eighteen months later, the state district court remanded the matter to the OSBC for a post-seizure proceeding under K.S.A. § 77–536. Around two years later, the OSBC issued its decision granting summary judgment against CFC and the Bank who then filed a new petition for judicial review. The district court dismissed this action as moot, and CFC and the Bank appealed. Before the Kansas Court of Appeals decided that appeal, CFC filed this federal § 1983 alleging denial of due process. This court dismissed the action based on Younger abstention and qualified immunity. The plaintiffs then appealed this action to the Tenth Circuit, and in the meantime, the Kansas Court of Appeals issued its decision deciding the appeal in favor of the OSBC. Columbian Bank & Trust Co. v. Splichal , No. 110.256–57, 2014 WL 3732013 (Kan. Ct. App. Jul. 25, 2014) (unpub.), rev. denied , 302 Kan. No. 1 (Kan. Jun. 29, 2015). In January of 2016, the Tenth Circuit handed down its decision and affirmed the qualified immunity rulings and dismissal of the damage claims. Columbian Financial Corp. , 811 F.3d 390 (10th Cir. 2016). Specifically, the panel found that "the seizure of the bank's assets and the appointment of the FDIC as receiver without a prior hearing did not violate a clearly established right." 811 F.3d at 396. The panel likewise concluded that "the delay in a postdeprivation hearing did not violate a clearly established constitutional right." Id. at 402. But because the state proceedings had now terminated, the Tenth Circuit vacated the dismissal and remanded the equitable claims because there was no longer a need to abstain under Younger . Id. at 395.

Standards Governing Motion to Dismiss

A court may dismiss a complaint under Rule 12(b)(1) for lack of subject matter jurisdiction. "Federal courts are courts of limited jurisdiction." Montoya v. Chao , 296 F.3d 952, 955 (10th Cir. 2002). The burden is with the plaintiff to establish subject matter jurisdiction. Rule 12(b)(1) motions generally will take either of two forms: one, a facial attack on the sufficiency of the complaint's allegations as to subject matter jurisdiction; or two, a factual attack that goes beyond complaint's allegations and challenges the facts upon which subject matter jurisdiction depends. Holt v. United States , 46 F.3d 1000, 1002 (10th Cir. 1995). With a facial attack, the "district court must accept the allegations in the complaint as true." Id. With a factual attack, "the district court may not presume the truthfulness of the complaint's factual allegations," but it "has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts under Rule 12(b)(1)." Id. ; see Los Alamos Study Group v. U.S. Dept. of Energy , 692 F.3d 1057, 1064 (10th Cir. 2012).

In deciding a Rule 12(b)(6) motion, a court accepts as true "all well-pleaded factual allegations in a complaint and view[s] these allegations in the light most favorable to the plaintiff." Smith v. United States , 561 F.3d 1090, 1098 (10th Cir. 2009), cert. denied , 558 U.S. 1148, 130 S.Ct. 1142, 175 L.Ed.2d 973 (2010). This duty to accept a complaint's allegations as true is tempered by the principle that "mere ‘labels and conclusions,’ and ‘a formulaic recitation of the elements of a cause of action’ will not suffice; a plaintiff must offer specific factual allegations to support each claim." Kansas Penn Gaming, LLC v. Collins , 656 F.3d 1210, 1214 (10th Cir. 2011) (quoting Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). To withstand a motion to dismiss, " ‘a complaint must contain enough allegations of fact, taken as true, to state a claim to relief that is plausible on its face.’ " Al–Owhali v. Holder , 687 F.3d 1236, 1239 (10th Cir. 2012) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "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." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). It follows then that if the "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. " ‘A claim has facial plausibility when the [pleaded] factual content... allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ " Rosenfield v. HSBC Bank, USA , 681 F.3d 1172, 1178 (10th Cir. 2012).

Eleventh Amendment

The defendants seek dismissal arguing the plaintiff's action is not seeking prospective relief for an ongoing violation but rather is pursuing "backward-looking relief against the Declaration" of Insolvency and seizure of assets. (Dk. 70, p. 12). The defendants deny they are engaged in any ongoing violation of federal law, as any alleged violations happened in the distant past and the bank that was the subject of those proceedings and whose assets were seized no longer exists. The defendants assert that CFC's requested relief would...