FDIC v. Grillo

• Decision Date: 27 February 1992
• Docket Number: No. C-91-431-L.,C-91-431-L.
• Citation: 788 F. Supp. 641
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION v. Paul A. GRILLO, et al.
• Court: U.S. District Court — District of New Hampshire

788 F. Supp. 641

FEDERAL DEPOSIT INSURANCE CORPORATION v. Paul A. GRILLO, et al.

No. C-91-431-L.

United States District Court, D. New Hampshire.

February 27, 1992.

Ralph F. Holmes for FDIC.

Richard B. McNamara for Daniel S. Day.

George A. Collins for Robert Ferraro.

ORDER

LOUGHLIN, Senior District Judge.

This order addresses the Federal Deposit Insurance Corporation's (FDIC) motion to dismiss for lack of subject matter jurisdiction filed in Berlandi v. FDIC, 91-321-L.

Background

Plaintiffs, Susan Berlandi and Robert Ferraro, brought suit in Hillsborough County Superior Court on July 29, 1991 against among others, the Hillsborough Bank & Trust Company. On August 30, 1991, due to the bank's insolvency, the FDIC was appointed receiver for the bank. FDIC removed the case to this court pursuant to 12 U.S.C. § 1819(b)(2)(B) and 28 U.S.C. § 1446. Another case involving the same parties (FDIC v. Paul A. Grillo et al., 91-431-L) was also removed to this court and has been consolidated with the instant case as of December 6, 1991. (See Order of Consolidation doc. no. 10.)

The facts pertinent to the consolidated cases are as follows. On or about March 22, 1989, BFG Development Corporation, Inc. (BFG) obtained a $175,000 open end credit loan from defendant bank in order to develop a tract of real estate. Plaintiffs Berlandi and Ferraro and defendant Grillo are shareholders, officers and directors of BFG. Defendant Grillo signed the promissory note evidencing the loan on behalf of the corporation. Apparently plaintiffs and Grillo signed individual personal guarantees to secure the note. Plaintiffs contend that they did not sign the guarantees. Instead, plaintiffs allege that defendant Grillo, with the aid of defendant Daniel Day, an employee and agent of defendant bank, fraudulently executed the personal guarantees. The loan was further secured by the assignment of a note and mortgage held by Berlandi, Grillo and Ferraro. The BFG note is in default and defendant bank has made demands against the personal guarantees.

Plaintiff's attorney, Paul W. Hodes, withdrew from the case on Nov. 6, 1991. Attorney George Collins has filed an appearance as of December 23, 1991 for Ferraro. Berlandi is now appearing pro se. The instant motion is dated October 1, 1991 and was filed on October 2, 1991, shortly before Attorney Hodes withdrew.

Discussion

At the outset, it is noted that plaintiffs have not filed a response to defendant's motion to dismiss. Taking into account that plaintiff's counsel withdrew shortly after the filing of the instant motion and since the motion involves the court's jurisdiction, the matter will be fully examined.

At issue in this motion to dismiss are provisions of the Financial Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub.L. 101-73 which creates a comprehensive system for processing claims against failed financial institutions. The FIRREA provisions relevant to the instant matter are codified in 12 U.S.C. § 1821(d).

The FDIC contends that 12 U.S.C. § 1821(d)(5)(A)(i) read in conjunction with subsection (d)(13)(D) prevents the court from acquiring subject matter jurisdiction over the matter until plaintiffs have complied with the administrative claims procedure established by subsection (d)(5). 12 U.S.C. § 1821(d)(5)(A)(i) provides that:

Before the end of the 180-day period beginning on the date any claim against a depository institution is filed with the Corporation as receiver, the Corporation shall determine whether to allow or disallow the claim and shall notify the claimant of any determination with respect to such claim.

12 U.S.C. § 1821(d)(13)(D) provides:

Limitation on judicial review.

Except as otherwise provided in this subsection, no court shall have jurisdiction over —

(i) any claim or action for payment from, or any action seeking determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or

(ii) any claim relating to any act or omission of such institution or the Corporation as receiver.

When reading these two paragraphs in isolation from the other paragraphs of subsection (d), the FDIC would appear to be correct, i.e., district courts do not have subject matter jurisdiction until a party bringing a claim against a failed institution for which the FDIC has been appointed receiver has first exhausted its administrative remedies pursuant to paragraphs (d)(5) and (d)(6). In essence, FDIC's interpretation suggests that use of the administrative claims resolution procedure found in paragraphs (d)(5) and (6) is a mandatory requirement that must be satisfied before any court may have jurisdiction over a claim against the FDIC as receiver. However, the exception language that begins paragraph (d)(13)(D), "except as otherwise provided in this subsection, ..." creates a flaw in the FDIC's interpretation of paragraph (d)(13)(D).

Before further elaborating on why the FDIC's interpretation is problematic, the Court will review the Congressional scheme for claims resolution as set forth in subsection (d) in order to provide a framework from which the flaw in the FDIC's reasoning will be readily apparent.

The FDIC is authorized to review claims pursuant to 12 U.S.C. § 1821(d)(3). As receiver, the FDIC must give prompt notice to the depository institution's creditors, giving the creditors a deadline date in which to file claims with proof no earlier than ninety days after the notice publication. 12 U.S.C. § 1821(d)(3)(B)(i). Once a claim is filed with the FDIC as receiver, the FDIC has 180 days from the time of filing to either allow or disallow the claim and give notice of the determination to the claimants. 12 U.S.C. § 1821(d)(5)(A)(i). If the FDIC disallows a claim, no court may review that determination. 12 U.S.C. § 1821(d)(5)(E). However, with the exception of an optional stay pursuant to 12 U.S.C. § 1821(d)(12), the filing of a claim with the FDIC does not prejudice the claimant's right to continue any action filed before appointment of the FDIC as receiver. 12 U.S.C. § 1821(d)(5)(F)(ii). Within sixty days after the running of the 180-day period in paragraph (d)(5)(A)(i), or notice of disallowance, whichever is shorter, the claimant may: seek administrative review of the claim pursuant to paragraph (d)(7); file suit in a United States District Court; or, continue an action filed before appointment of a receiver. 12 U.S.C. § 1821(d)(6)(A). If the claimant requests and the FDIC agrees to pursue the administrative review procedure, the FDIC must consider the claim after an opportunity for a hearing on the record. The FDIC's final determination is subject to judicial review pursuant to Title 5 ch. 7 of the Administrative Procedures Act. 12 U.S.C. § 1821(d)(7)(A). The claimant may also choose, subject to the approval of all parties, alternative dispute resolution processes that must be established by the FDIC. 12 U.S.C. § 1821(d)(7)(B).

By alleging the existence of a valid and enforceable or perfected security interest as well as irreparable injury, a claimant may seek to have the claims dispute resolved by following an expedited claims determination procedure that shortens the claims determination procedure to 90 days. 12 U.S.C. § 1821(d)(8). The time allotted to seek review of the disallowance of a claim is also reduced from 60 days to 30 days. Id. Regardless of which claims resolution procedure claimant chooses, court jurisdiction over the claims is limited to the express grant of jurisdiction found in the provisions of subsection (d). 12 U.S.C. § 1821(d)(13)(D).

A review of the statutory claims resolution scheme, reveals that at least two paragraphs ((d)(5)(F)(ii) and (d)(12)) of the subsection conflict with the apparent meaning of paragraph (d)(13)(D) while one paragraph seems to reinforce paragraph (d)(13)(D)'s apparent meaning. Paragraph (d)(5)(F)(ii) provides that "subject to paragraph (12), the filing of a claim with the receiver shall not prejudice any right of the claimant to continue any action which was filed before the appointment of the receiver." 12 U.S.C. § 1821(d)(5)(F)(ii). Paragraph (d)(12) entitled "Suspension of legal actions" states that:

after appointment of a conservator or receiver for an insured depository institution, the conservator or receiver may request a stay for a period not to exceed —

(i) 45 days, in the case of any conservator; and (ii) 90 days, in the case of any receiver, in any judicial action or proceeding to which such institution is or becomes a party.

12 U.S.C. § 1821(d)(12).

Paragraph (d)(5)(E) states that no court may review the FDIC's decision to disallow a claim. This paragraph appears to confirm FDIC's interpretation of paragraph (d)(13)(D).

Read together, paragraphs (d)(5)(F)(ii) and (d)(13)(D) directly contradict each other. Paragraph (d)(5)(F)(ii) does not allow a claim filed with the receiver to affect a court action while paragraph (d)(13)(D) states that courts do not have jurisdiction over claims against assets obtained by the FDIC as receiver or claims concerning acts or omissions of the FDIC as receiver except as provided in subsection (d). Without subject matter jurisdiction, the court would not be able to grant the FDIC a stay pursuant to paragraph (d)(12). This would render paragraph (d)(12) a nullity. A number of courts, including this court, have confronted this apparent internal inconsistency each reaching different conclusions.

The first element needed to resolve this apparent conflict is the exception language found in paragraph (d)(13)(D). The next key to resolving this problem lies in the timing in which a lawsuit is brought relative to the time at which the FDIC is appointed receiver. The final key to resolving the dilemma created by the language of the statute is found by analyzing Congress' intent to create a multi-faceted...