Goldstein v. Fed. Deposit Ins. Corp.
| Decision Date | 08 January 2014 |
| Docket Number | Civil Action No. ELH-11-1604 |
| Parties | CHARLES R. GOLDSTEIN, Chapter 7 Trustee for K Capital Corporation, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver of K Bank, Defendant. |
| Court | U.S. District Court — District of Maryland |
For the second time, this Court is faced with a motion to dismiss brought by the Federal Deposit Insurance Corporation ("FDIC"), defendant, as receiver for K Bank, in connection with litigation initiated by Charles R. Goldstein (the "Trustee"), plaintiff, the Chapter 7 Trustee for K Capital Corporation ("K Capital").1 K Bank went into receivership on November 7, 2010. The next day, November 8, 2010, K Capital, a "bank holding company" that wholly owned K Bank, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. See Complaint (ECF 1) ¶¶ 1, 6; see also In re K Capital Corp., Case No. 10-35540 (Bankr. D. Md.).2 Thereafter, the Trustee filed this suit against the FDIC, as receiver for K Bank, seeking damages of at least $20 million and other relief stemming from an alleged improper "scheme" ofcoordinated lending by K Capital and K Bank. See, e.g., Complaint ¶¶ 6-10, Counts One and Two.3
The scheme purportedly enabled K Bank to exceed its lending limitations, by permitting K Bank to extend financing to borrowers at extraordinarily high aggregate loan-to-value ratios of between 95% and over 100%—ratios that K Bank could not have achieved on its own under its charter and within "standard underwriting policies" and "regulatory constraints" applicable to K Bank as a "regulated banking institution." Complaint ¶¶ 7-9. According to the Trustee, K Bank and K Capital agreed to share the recoveries from the loans.
As discussed, infra, the FDIC moved to dismiss the five-count Complaint on September 30, 2011, pursuant to Fed. R. Civ. P. 12(b)(6). See ECF 9 (Motion to Dismiss). In a Memorandum Opinion and accompanying Order of May 16, 2012, I dismissed two counts but denied the FDIC's motion as to the remaining three counts. See ECF 18, 19; see also Goldstein v. F.D.I.C., 2012 WL 1819284 (D. Md. May 16, 2012). Thereafter, the parties engaged in extensive and contentious discovery, involving production by the FDIC of hundreds of thousands of documents.
The FDIC has now filed a second Motion to Dismiss, pursuant to Rules 12(b)(1), 12(c), 12(h)(2)(B), and 12(h)(3) of the Federal Rules of Civil Procedure. See ECF 131 at 1. The Motion is based on a formal determination made in June 2013 by the FDIC, the "No Value Determination," which concluded that the K Bank receivership has no assets from which to satisfy any claims of general unsecured creditors. See ECF 131-1 ¶ 1. According to the FDIC, due to that determination, dismissal of the Trustee's Complaint is warranted pursuant to the prudential mootness doctrine and because, absent any actual case or controversy, the Court lackssubject matter jurisdiction. In addition, it contends that the equitable claim for an accounting is barred by 12 U.S.C. § 1821(j) and is otherwise moot. The Trustee opposes the FDIC's Motion, arguing, inter alia, that because it has asserted claims for "administrative expenses" and "deposit liabilities" that take priority over claims of general unsecured creditors, its claims survive the No Value Determination. See ECF 136 ¶¶ 42-50.
The Motion has been fully briefed, and no hearing is necessary to resolve it. See Local Rule 105.6.4 For the reasons that follow, I will grant the Motion.
Under the alleged lending "scheme," K Bank would typically lend a borrower between 80% and 90% of the value of real estate used as collateral to secure the loan, and would obtain a first-priority lien on the real estate collateral. Complaint ¶ 13. Simultaneously, K Capital would extend a further loan to the borrower in an amount between 5% and 15% of the value of the collateral, and would receive a second-priority lien on the collateral. Id. ¶ 14. K Bank then serviced both loans "on a single loan system." Opp. ¶ 9; see Complaint ¶ 16.
The "scheme was fraught with risk" because the borrowers' collateral was so highly leveraged. Complaint ¶ 9. According to the Trustee, the risk fell "disproportionately on K Capital" because, if a borrower defaulted (and the Trustee alleges that the "majority" of the borrowers defaulted), K Capital's junior lien position meant that K Capital would recover nothing unless and until K Bank was repaid in full. Id. ¶ 9; see id. ¶¶ 10-23. Moreover, thefinancing extended by K Capital "was not made with economic terms commensurate with the risk." Id. ¶ 18. The Trustee contends that the scheme was made possible because although K Capital and K Bank were "nominally independent" of each other, they were "consolidated on an accounting and tax basis," id. ¶ 8, and the "boards of K Capital and K Bank were populated by the same individuals who made decisions for both entities, despite conflicting interests." Id. ¶ 18. "On information and belief," the Trustee contends that, at the time the loans were made, K Bank and K Capital agreed to "share the proceeds of payments" from each pair of loans or from collateral pari passu, i.e., in proportion to each entity's contribution to the total amount loaned to the borrower, at the time any proceeds were received. Id. ¶ 19. But, when the borrowers defaulted, "K Capital and its creditors were forced to absorb the loss of loans that primarily were issued for the benefit of K Bank." Opp. ¶ 10.
The Maryland Office of the Commissioner of Financial Regulation closed K Bank on November 7, 2010, and the FDIC was appointed as K Bank's receiver. The FDIC and Manufacturers and Traders Trust Company, Buffalo, New York ("M&T Bank"), entered into a Purchase and Assumption Agreement (the "P&A Agreement"), by which M&T Bank acquired most of the assets of K Bank, including the joint loans. Opp. ¶ ll.6 According to the Trustee, the joint loans were acquired at '"Book Value,'" which was defined in the P&A Agreement "as the dollar amount of the Accounting Records of the Failed Bank at Bank Closing." Id. The Trustee complains that the "FDIC has not provided any consideration or distribution to the K Capital Estate for its share of the Joint Loans sold to M&T Bank." Id. ¶ 12.
In February 2011, the Trustee filed a claim in the K Bank receivership with respect to approximately 90 improper "joint loans" with various borrowers. The claim was latersupplemented. In April 2011, the FDIC-Receiver disallowed the claim. FDIC Mem. ¶ 7. This suit followed in June 2011, pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 189 (1989) (codified in Title 12 of the United States Code).
Based on these allegations, the Trustee, in the exercise of his duty to administer the estate of K Capital for the benefit of its creditors, see Complaint ¶ 5, asserted five claims against the FDIC in its capacity as receiver for K Bank: unjust enrichment (Count One); promissory estoppel (Count Two); declaratory judgment (Count Three); constructive trust (Count Four); and accounting (Count Five). All of the counts are founded on Maryland common law, and are premised on the proposition that each pair of loans issued by the two entities as part of the alleged "scheme" should be treated as a de facto "joint loan," Complaint ¶ 11, and that the K Capital bankruptcy estate is entitled to recover from any proceeds of the subject loans received by the FDIC or K Bank in proportion to the amount of funding provided by K Capital for each "joint loan."7
As noted, the FDIC filed an earlier motion to dismiss on September 30, 2011. See ECF 9. Relying on Rule 12(b)(6), the FDIC argued, inter alia, that the Trustee's claims were barredby the D'Oench, Duhme doctrine8 and its statutory counterparts, 12 U.S.C. §§ 1821(d)(9)(A) and 1823(e); that his claims were barred by FIRREA's "anti-injunction" provision, 12 U.S.C. § 1821(j), and by the equitable doctrines of unclean hands and pari delicto; and that his claims were facially implausible. See ECF 18 at 5, 14, 27, 32-33. In a Memorandum Opinion of May 16, 2012 (ECF 18), I dismissed the Trustee's claims for declaratory judgment (Count Three) and a constructive trust (Count Four), on the ground that they are barred by 12 U.S.C. § 1821(j). But, I otherwise denied the FDIC's motion. See id. at 33; accord ECF 19 (Order of May 16, 2012).
The FDIC has moved for judgment on the pleadings, pursuant to Fed. R. Civ. P. 12(c). Under Rule 12(h)(2)(B), a defendant may assert "failure to state a claim upon which relief can be granted" in a Rule 12(c) motion. And, a Rule 12(c) motion "for judgment on the pleadings" may be filed "[a]fter the pleadings are closed," so long as it is "early enough not to delay trial."
Courts apply "the same standard for Rule 12(c) motions as for motions made pursuant to Rule 12(b)(6)," alleging failure to state a claim. Burbach Broadcasting Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir. 2002); see Occupy Columbia v. Haley, F.3d 2013 WL 6570949, at *4 (4th Cir. Dec. 16, 2013). Both Bell Atl Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), make clear that, in order to survive a motion under Rule 12(b)(6) (and thus Rule 12(c)), a complaint must contain facts sufficient to "state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570; see Iqbal, 556 U.S. at 684 (); see also Simmons v. United Mortg. & Loan Inv., 634 F.3d 754, 768 (4th Cir. 2011); Andrew v. Clark, 561 F.3d 261, 266 (4th Cir. 2009); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). Thus, the defendant's motion will be granted if the "well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct." Iqbal, 556 U.S. at 679 (citation...
To continue reading
Request your trial