Goldstein v. Fed. Deposit Ins. Corp.

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
PartiesCHARLES R. GOLDSTEIN, Chapter 7 Trustee for K Capital Corporation, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver of K Bank, Defendant.
Docket NumberCivil Action No. ELH-11-1604
Decision Date16 May 2012

Chapter 7 Trustee for K Capital Corporation, Plaintiff,
Receiver of K Bank, Defendant.

Civil Action No. ELH-11-1604


Date: May 16, 2012


Charles R. Goldstein (the "Trustee"), plaintiff, is the Chapter 7 Trustee in Bankruptcy for K Capital Corporation ("K Capital"), a Maryland corporation that, in November 2010, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. See Complaint ¶ 1 (ECF 1); see also In re K Capital Corp., Case No. 10-35540 (Bankr. D. Md.). K Capital is a "bank holding company" that wholly owned a Maryland bank, K Bank, as its subsidiary. Complaint at 1 & ¶ 6. K Bank is now under the receivership of the Federal Deposit Insurance Corporation ("FDIC"), defendant. Id. ¶ 2.

The Trustee filed suit1 against the FDIC, in its capacity as receiver, seeking damages of at least $20 million and other relief stemming from an alleged "scheme" of coordinated lending by K Capital and K Bank. The scheme purportedly was designed to permit 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.

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The FDIC has filed a Motion to Dismiss (ECF 9), pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Motion has been fully briefed,2 and no hearing is necessary to resolve it. See Local Rule 105.6. For the reasons that follow, I will grant the Motion in part and deny it in part.

Factual Background

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. Id. ¶ 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 would act as the servicer for both loans. Id. ¶ 16.

The "scheme was fraught with risk" because the borrowers' collateral was so highly leveraged. Id. ¶ 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 until and unless K Bank was repaid in full. Id. ¶ 9; see id. ¶¶ 10-23. Moreover, the financing 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 the two entities 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

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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.

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 id. ¶ 5, asserts five claims against the FDIC in its capacity as receiver for K Bank: unjust enrichment (Count I); promissory estoppel (Count II); declaratory judgment (Count III); constructive trust (Count IV); and accounting (Count V). All of the counts arise under 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."3

This suit is, in some sense, a dispute by proxy. The Trustee stands in the shoes of K Capital, while the FDIC stands in the shoes of K Bank. Asserting the alleged rights of K Capital, the Trustee has lodged various claims against the FDIC, as receiver for K Bank.

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A. Standard of Review

Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The purpose of the Rule is to provide the defendant with "fair notice" of the claim and the "grounds" for entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 n.3 (2007) (citation omitted). To be sure, the plaintiff need not include "detailed factual allegations in order to satisfy" Rule 8(a)(2). Id. at 555. But, the Rule demands more than bald accusations or mere speculation. Id. Thus, a complaint that provides no more than "labels and conclusions," or "a formulaic recitation of the elements of a cause of action," is insufficient under the Rule. Id.

A defendant may "'test the sufficiency of a complaint'" by way of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010) (citation omitted). A Rule 12(b)(6) motion constitutes an assertion by the defendant that, even if the facts that the plaintiff alleges are true, the complaint fails, as a matter of law, "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Ordinarily, a motion pursuant to Rule 12(b)(6) "does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (internal quotation marks omitted). But, "in the relatively rare circumstances where facts sufficient to rule on an affirmative defense are alleged in the complaint," the court may resolve the applicability of a defense by way of a Rule 12(b)(6) motion. Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007). "This principle only applies, however, if all facts necessary to the affirmative defense 'clearly appear[ ] on the face of

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the complaint.'" Id. (quoting Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993)) (emphasis in Goodman).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus, a Rule 12(b)(6) 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 omitted). "A court decides whether this standard is met by separating the legal conclusions from the factual allegations, assuming the truth of only the factual allegations, and then determining whether those allegations allow the court to reasonably infer" that the plaintiff is entitled to relief. A Society Without A Name v. Virginia, 655 F.3d 342, 346 (4th Cir. 2011). Dismissal "is inappropriate unless, accepting as true the well-pled facts in the complaint and viewing them in the light most favorable to the plaintiff, the plaintiff is unable to 'state a claim to relief.'" Brockington v. Boykins, 637 F.3d 503, 505-06 (4th Cir. 2011) (citation omitted).

B. The D'Oench, Duhme Doctrine and 12 U.S.C. § 1823(e)

The FDIC's primary argument is that the Trustee's claims are barred by the federal common law D'Oench, Duhme doctrine and its statutory counterparts, 12 U.S.C. §§ 1821(d)(9)(A) and 1823(e). The D'Oench, Duhme doctrine takes its name from the Supreme Court's decision in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942). That case involved a promissory note, originally held by a bank, that was acquired by the FDIC "in connection with the assumption of the [original bank's] deposit liabilities by another bank." Id. at 454. When the FDIC sued to collect on the note, the maker of the note contended that it had "sold the [original] bank certain bonds which later defaulted," and that the promissory note had been "executed to

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enable the bank to carry the note[ ] and not show any past due bonds" on its books. Id. Thus, the receipt for the note contained an alleged proviso: "'This note is given with the understanding it will not be called for payment.'" Id. at 454 (quoting receipt). The Supreme Court held that the purported agreement that the promissory note would not be repaid was unenforceable against the FDIC, pursuant to "a general policy" of federal common law "to protect the institution of banking from such secret agreements." Id. at 458. It said: "'Public policy requires that a person who, for the accommodation of the bank executes an instrument which is in the form of a binding obligation, should be estopped from...

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