Heno v. F.D.I.C.

• Decision Date: 05 January 1993
• Docket Number: No. 92-1936,92-1936
• Parties: Floyd V. HENO, Plaintiff, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 429

996 F.2d 429

Floyd V. HENO, Plaintiff, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant, Appellee.

No. 92-1936.

United States Court of Appeals First Circuit.

Heard Jan. 5, 1993.

Decided June 10, 1993.

Robert G. Wilson IV with whom Robert G. Wilson III and Law Offices of Robert G. Wilson III, Boston, MA, were on brief, for plaintiff, appellant.

Robert R. Pierce with whom Russell F. Conn and Conn, Kavanaugh, Rosenthal & Peisch, Boston, MA, were on brief, for defendant, appellee.

Before BREYER, Chief Judge, CAMPBELL, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Plaintiff Floyd Heno and two of his daughters appeal a district court order dismissing their claims for compensatory and injunctive relief against the Federal Deposit Insurance Corporation ("FDIC"). ¹ We affirm the district court's dismissal, 815 F.Supp. 507, of the claim for injunctive relief pursuant to Federal Rule of Civil Procedure 12(b)(6), but vacate its Rule 12(b)(1) order dismissing the claim for compensatory relief due to lack of jurisdiction, and remand the latter claim for further proceedings.

I BACKGROUND

We review a Rule 12(b)(6) dismissal de novo, crediting all allegations in the complaint and drawing all reasonable inferences favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Rumford Pharmacy, Inc. v. East Providence, 970 F.2d 996, 997 (1st Cir.1992). Similarly, a Rule 12(b)(1) dismissal is reviewed de novo where, as here, only the legal sufficiency of the undisputed jurisdictional facts is at issue. See Eaton v. Dorchester Dev., Inc., 692 F.2d 727, 732 (11th Cir.1982); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977).

The complaint alleges that plaintiff Heno sold Balcol Corporation a 104-acre parcel of undeveloped real estate in 1986, for which Balcol gave Heno a promissory note secured by a first mortgage. In September 1987, Balcol began to develop the property, known as the "Prospect Heights" residential subdivision, and obtained construction financing through Home National Bank of Milford ("Bank"). Heno agreed to subordinate his first mortgage to the Bank's construction loan mortgage. Balcol and the Bank agreed to release $19,125 from the lot-sale proceeds By April 1990, Balcol and Prospect Heights were experiencing financial difficulties, and the three principal parties entered into a recapitalization agreement. Heno agreed to accept $5,000 (rather than $19,125) per lot for releasing his second mortgage on the next nine lots sold by Balcol. In return, Balcol and the Bank agreed: (1) to transfer two additional lots to Heno (Lots 82 and 111), free and clear of the Bank's first mortgage liens, at the time Heno released his second mortgage on the ninth lot; and (2) to deposit the net proceeds from the nine lots in escrow with the Bank. The escrow monies were to be used exclusively for the immediate completion of roadwork at the project and to defray Balcol's first mortgage interest payments to the Bank.

in return for the release of Heno's second mortgage lien as each lot was sold.

Although Balcol conveyed Lots 82 and 111 to Heno on May 2, 1990, the Bank did not release its first mortgage liens on the lots. During April and May 1990, seven of the nine original lots were sold by the Bank after Heno released his second mortgage liens. By June 1, 1990, more than $232,000 had been deposited in escrow with the Bank pursuant to the recapitalization agreement among Heno, Balcol, and the Bank. Ultimately, the eighth and ninth lots were sold, and the net proceeds, approximating $90,000, were deposited with FDIC. ² The complaint alleges, hence we must assume, that $125,000 was to have been devoted to roadwork at the project. ³

On June 1, 1990, the Bank was declared insolvent and FDIC was appointed receiver. At an unspecified later date, FDIC applied the escrow funds to the principal due on Balcol's first mortgage loan account with the Bank, contrary to the express terms of the recapitalization agreement. Heno's counsel thereafter held discussions with FDIC, and was informed by Balcol that FDIC would determine, after obtaining an appraisal of the Prospect Heights project, whether to release the Bank's first mortgage liens on the two additional lots at issue on appeal (lots 82 and 111). On December 13, 1990, ⁴ and again on February 19, 1991, Heno submitted written requests for action by the FDIC, but to no avail. ⁵ Subsequently, FDIC foreclosed on the Prospect Heights subdivision, including Lots 82 and 111. The escrow funds were neither redeposited nor applied to the agreed purposes.

On October 18, 1991, Heno brought the present action to enjoin FDIC's sale of Lots 82 and 111 and to compel it to redeposit the escrow monies previously misapplied to Balcol's first mortgage with the Bank. The complaint demanded an equitable accounting of the escrow monies, and compensatory relief for the loss occasioned by FDIC's refusal to release the Bank's first mortgage liens on Lots 82 and 111. FDIC moved to dismiss the claim for compensatory relief pursuant to Fed.R.Civ. 12(b)(1), and the claim for injunctive

                relief pursuant to Fed.R.Civ.P. 12(b)(6).   The district court ruled that it lacked jurisdiction to consider the claim for compensatory relief by virtue of 12 U.S.C. § 1821(d)(13)(D)(i), and that injunctive relief was precluded by 12 U.S.C. § 1821(j)
                

II DISCUSSION

Heno advances two contentions on appeal. First, he contends that neither subsection 1821(j), nor subsection 1821(d) (mandating that holders of "claims" against the assets of failed financial institutions lodge a timely administrative claim with FDIC as a prerequisite to judicial review), applies to "non-creditors"--like Heno--who assert claims for relief against FDIC in its own right, as distinguished from claims to assets of the insolvent financial institution itself. ⁶ Second, even if he were to be considered a "creditor" attempting to recover "assets" of the failed Bank, Heno contends that his claim for compensatory relief should not have been dismissed for failure to comply with the administrative claim procedure established under subsection 1821(d). With respect to the claim for compensatory relief, we agree.

The Financial Institutions Reform and Recovery Act ("FIRREA") regulates the filing, determination, and payment of claims against the assets of failed financial institutions after FDIC has been appointed receiver. The "task of interpretation begins with the text of the statute itself, and statutory language must be accorded its ordinary meaning." Telematics Int'l, Inc. v. NEMLC Leasing Corp., 967 F.2d 703, 706 (1st Cir.1992) (interpreting FIRREA § 1821(j)) (citations omitted). Subsections 1821(d)(3)(B) and (C) require FDIC to publish and mail notice of liquidation to "any creditor shown on the institution's books" and to provide at least ninety days for the filing of "claims." 12 U.S.C. § 1821(d)(3)(B) & (C). As FDIC points out, anyone with a "claim" against the assets of the failed institution must submit an administrative claim to FDIC within the prescribed statutory period. Id. § 1821(d)(5)(C). "[P]articipation in the administrative claims review process [is] mandatory for all parties asserting claims against failed institutions...." Marquis v. Federal Deposit Ins. Corp., 965 F.2d 1148, 1151 (1st Cir.1992). Failure to participate in the administrative claim process is a "jurisdictional bar" to judicial review. Id.; see also 12 U.S.C. § 1821(d)(13)(D); Federal Deposit Ins. Corp. v. Shain, Schaffer & Rafanello, 944 F.2d 129, 132 (3d Cir.1991) ("Congress expressly withdrew jurisdiction from all courts over any claim to a failed bank's assets that are [sic] made outside the procedure set forth in section 1821."). The subsection 1821(d) bar date for filing administrative claims in the present case was September 6, 1990. As the district court correctly found, Heno asserted no timely administrative claim under subsection 1821(d).

In contrast to subsection 1821(d), however, subsection 1821(e) expressly empowers the FDIC, as receiver, to repudiate contracts made by the failed financial institution prior to FDIC's appointment, where FDIC determines--in its "discretion," but within a "reasonable period" after its appointment--that repudiation of the failed financial institution's contract would "promote the orderly administration" of the failed institution's affairs. 12 U.S.C. § 1821(e)(1). ⁷ Although repudiation FIRREA's language, structure, and context indicate that subsections 1821(d) and (e) govern very different types of "claims". The administrative claim allowance procedure established under subsection 1821(d) is inapposite to direct claims for FDIC's repudiation of a contract entered into by the failed financial institution prior to the receivership. ⁹ Subsection 1821(d) governs only claims against assets of the failed financial institution. Subsection 1821(e) authorizes claims for compensatory relief for direct loss occasioned by FDIC's repudiation of a pre-receivership contract entered into by the failed financial institution. Cf. Homeland Stores, Inc. v. Resolution Trust Corp., No. 91-1304-PFK, 1992 WL 403092, 1992 U.S. Dist. LEXIS 20331 (D.Kan. Dec. 4, 1992). ¹⁰ Thus, unless Heno's claim is "against the assets" of Moreover, as further evidence of FIRREA's dichotomous treatment of "claims," the discordance between the applicable "timing" elements in subsections 1821(d) and (e) is noteworthy. In contrast to the fixed bar dates applicable under subsection 1821(d), FIRREA expressly allows FDIC a "reasonable period following [its] appointment" within which to repudiate preexisting contracts of the failed institution. 12 U.S.C. § 1821(e)(2). Of course, subsection 1821(e)(2)'s more pliant "reasonable time" prescription will vary in accordance with the factual circumstances in the particular case, see Monument Square Assocs. v. Resolution...