Hale House Center, Inc. v. FDIC

• Decision Date: 17 March 1992
• Docket Number: No. 91 Civ. 0445(PNL).,91 Civ. 0445(PNL).
• Citation: 788 F. Supp. 1309
• Parties: HALE HOUSE CENTER, INC., Canaan Baptist Church of Christ, Canaan Housing Development Fund, Inc., Canaan Baptist Housing Development & Preservation Fund, Harlem Interfaith Counseling Service, Harlem Churches for Community Improvement, 1389 Construction Corp. and DeLoren Richards, Plaintiffs, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, the Comptroller of the Currency of the United States of America, and Freedom National Bank, N.A., Defendants.
• Court: U.S. District Court — Southern District of New York

788 F. Supp. 1309

HALE HOUSE CENTER, INC., Canaan Baptist Church of Christ, Canaan Housing Development Fund, Inc., Canaan Baptist Housing Development & Preservation Fund, Harlem Interfaith Counseling Service, Harlem Churches for Community Improvement, 1389 Construction Corp. and DeLoren Richards, Plaintiffs, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, the Comptroller of the Currency of the United States of America, and Freedom National Bank, N.A., Defendants.

No. 91 Civ. 0445(PNL).

United States District Court, S.D. New York.

March 17, 1992.

Pope Billups & Sneed, New York City (Benjamin Sneed, of counsel), for plaintiffs.

Otto G. Obermaier, U.S. Atty., S.D. New York, New York City (Katherine A. Staton, Asst. U.S. Atty., of counsel), for defendant The Comptroller of the Currency of the U.S.

William A. Meltzer, New York City, Thomas A. Schulz, Asst. Gen. Counsel, Robert G. Clark, Senior Counsel, Thomas L. Holzman, Counsel, F.D.I.C., Washington, D.C., for defendant F.D.I.C.

LEVAL, District Judge.

Defendants Federal Deposit Insurance Corporation ("FDIC") and the Comptroller of the Currency of the United States (the "Comptroller") move to dismiss the Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).

BACKGROUND

The plaintiffs, Hale House Center, Inc., Canaan Baptist Church of Christ, Canaan Housing Development Fund, Inc., Canaan Baptist Housing Development & Preservation Fund, Interfaith Counseling Service, Harlem Churches for Community Improvement, DeLoren Richards and 1389 Construction Corporation, allegedly had deposits in Freedom National Bank ("Freedom") exceeding $100,000. In November of 1990, the Comptroller declared Freedom insolvent and appointed the FDIC as receiver for Freedom to wind up its affairs. Subsequently, plaintiffs were informed by the FDIC that they would not be able to recover the full amount of their deposits in excess of the $100,000 insured by the FDIC.

In the First Count of the Complaint, plaintiffs allege that Freedom induced the public to deposit money with it by advertising that it was an FDIC member and that money deposited with Freedom would be "insured and guaranteed" up to $100,000. Complaint ¶ 4. Plaintiffs contend that those advertisements did not state that a depositor was not insured by the FDIC for deposits in excess of $100,000, regardless of the number of accounts that depositor might have at Freedom or the aggregate size of that depositor's deposits. Complaint ¶¶ 5, 6. Plaintiffs contend that Freedom and FDIC had a duty to inform the public that deposits in excess of $100,000 were not insured by the FDIC. Complaint ¶ 10. Plaintiffs contend that due to the failure of Freedom and the FDIC to perform this duty, plaintiffs maintained accounts at Freedom in excess of $100,000 in the mistaken belief that their deposits were insured in full by the FDIC. Plaintiffs allege that consequently, they lost money and suffered irreparable harm when Freedom became defunct. Complaint ¶¶ 7, 8. The failure of Freedom and FDIC to inform plaintiffs of the limits of FDIC insurance coverage is alleged to constitute "fraud and deceit." Complaint ¶ 13.

In the Second Cause of Action, plaintiffs contend that the Comptroller, together with the FDIC and Freedom, failed to warn plaintiffs of Freedom's impending closure and thus deprived them of the opportunity to withdraw their deposits while Freedom was still solvent. Complaint ¶ 14. Plaintiffs conclude by contending that the refund of less than 100% of their deposits at Freedom would "amount to fraud, and a travesty of justice and to a denial to the said plaintiffs and others of the equal protection of the law under Article 3 sic, of the United States Constitution." Complaint ¶ 16.

After the Comptroller and the FDIC moved to dismiss, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.L.No. 102-242, which included a provision for the full reimbursement of certain organizations (primarily charitable) that had banked with Freedom. At a conference on January 14, 1992, counsel for plaintiffs advised the court that the case is now moot as to all named plaintiffs except 1389 Construction Corporation, a commercial corporation that was not affected by the Comprehensive Deposit Insurance Reform and Taxpayer Protection Act of 1991.

The FDIC's and Comptroller's motions will therefore be considered with respect to the complaint of 1389 Construction Corporation.¹ The actions of the other named plaintiffs are hereby dismissed as moot.

DISCUSSION

I. The Comptroller's Motion to Dismiss

The Comptroller is the chief officer of the Office of the Comptroller of the Currency ("OCC"), a bureau within the Treasury Department charged with the administration of the National Bank Act, 12 U.S.C. §§ 1, 2. Among the Comptroller's duties,

is the obligation to assure the continued viability of national banks where possible, and the orderly and fair liquidation of any national bank which falls into insolvency. The Comptroller is to protect the interests of the United States, direct and indirect, general and specific, and is to secure an equitable distribution of bank assets to the creditors of a failed bank.

United States v. Lemaire, 826 F.2d 387, 390 (5th Cir.), reh'g denied en banc, 831 F.2d 1062 (5th Cir.1987), cert. denied, 485 U.S. 960, 108 S.Ct. 1223, 99 L.Ed.2d 423 (1988). In the event that the Comptroller becomes "satisfied of the insolvency of a national bank", he or she may appoint the FDIC as receiver to wind up the bank's affairs. 12 U.S.C. §§ 191, 1821(c)(2)(A)(ii). Once the FDIC is appointed as receiver, it has broad discretionary powers to resolve the insolvency. 12 U.S.C. §§ 1821(c)(2)(C)-(c)(3)(C).

Ostensibly misapprehending the role of the Comptroller (and the OCC) in the banking system, the Complaint makes allegations of facts that do not comport with what the Comptroller actually does when a bank is declared defunct. For example, the Comptroller is alleged to be "in control of the winding up proceedings regarding FREEDOM," Complaint ¶ 15, while in reality the Comptroller plays no active role in winding up a bank's affairs after it has been put into receivership. The Comptroller contends that the only claims in the Complaint that could conceivably pertain to the Comptroller are those arising from his failure to give notice to the depositors that Freedom would likely be closed. Although they have not amended the Complaint, plaintiffs' memorandum in opposition to the Comptroller's motion concedes the Comptroller's point: "the action against the Comptroller is directed to the declaration of insolvency and revocation of the bank's charter, without in any way making the plaintiffs ... aware of the pending demise of Freedom." Plaintiffs' Memorandum In Opposition to Comptroller's Motion ("P. Opp. Comptroller") at 2. The Comptroller's motion to dismiss will therefore be considered only with respect to that allegedly wrongful act. Plaintiffs apparently concede the propriety of dismissing the Complaint to the extent that its allegations exceed this.

A. Comptroller's Motion to Dismiss for Lack of Subject Matter Jurisdiction

Under the doctrine of sovereign immunity, "it is axiomatic that the United States may not be sued without its consent and the existence of consent is a prerequisite for jurisdiction." United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965, 77 L.Ed.2d 580 (1983). The United States' sovereign immunity cannot be circumvented by naming officers and employees of the United States as defendants. See Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 688, 69 S.Ct. 1457, 1460, 93 L.Ed. 1628, reh'g denied, 338 U.S. 840, 70 S.Ct. 31, 94 L.Ed. 514 (1949). Insofar as the Complaint seeks "monetary damages against the Comptroller for acts or omissions in carrying out his official duties, this is a suit against the United States, which may not be maintained absent consent by the Government." Huntington Towers, Ltd. v. Franklin National Bank, 559 F.2d 863, 869-870 (2d Cir.1977), cert. denied, 434 U.S. 1012, 98 S.Ct. 726, 54 L.Ed.2d 756 (1978).

The Comptroller contends that the only potential statutory waiver of sovereign immunity for the type of claim asserted in the Complaint against the Comptroller is the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 1346(b), 2671 et seq. The FTCA is the exclusive remedy (and thus the sole basis for subject matter jurisdiction) for tort claims against a federal agency or instrumentality. Edelman v. Federal Housing Administration, 382 F.2d 594, 596 (2d Cir.1967). The Comptroller argues that for several reasons plaintiffs have no claims under the FTCA, and that this court therefore does not have subject matter jurisdiction over plaintiffs' claim against him.

1. Plaintiffs' noncompliance with FTCA requirements.

The Comptroller contends that plaintiffs have failed to follow the procedures mandated by the FTCA and that their claim against him is therefore barred. See Keene Corp. v. United States, 700 F.2d 836, 841 (2d Cir.), cert. denied, 464 U.S. 864, 104 S.Ct. 195, 78 L.Ed.2d 171 (1983) (FTCA must be strictly construed). First, under the FTCA, claims based on the alleged tortious actions of a federal agency may be brought only against the United States and not against the agency in its own name. 28 U.S.C. § 2679. Second, in order to maintain a tort action against the United States, a party must first file an administrative claim with the appropriate federal agency. 28 U.S.C. § 2675(a). The Comptroller contends that because plaintiffs have satisfied neither of these prerequisites, their claims against him must be dismissed. See Johnson v. United States, 788 F.2d 845, 848 (2d. Cir.), cert. denied, 479 U.S. 914, 107 S.Ct. 315, 93 L.Ed.2d 288 (1986).

2. The applicability of the FTCA's discretionary function and fraud exceptions.

The Comptroller contends that even if plaintiffs had met the procedural requirements of the FTCA, pl...