In re Franklin Savings Corp.

• Decision Date: 07 October 2004
• Docket Number: No. 03-3239.,03-3239.
• Citation: 385 F.3d 1279
• Parties: In re: FRANKLIN SAVINGS CORPORATION, Debtor. Franklin Savings Corporation; Franklin Savings Association, Plaintiffs-Appellants, v. United States of America; Federal Deposit Insurance Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

385 F.3d 1279

In re: FRANKLIN SAVINGS CORPORATION, Debtor.

Franklin Savings Corporation; Franklin Savings Association, Plaintiffs-Appellants, v. United States of America; Federal Deposit Insurance Corporation, Defendants-Appellees.

No. 03-3239.

United States Court of Appeals, Tenth Circuit.

October 7, 2004.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Appeal from the United States Bankruptcy Court for the District of Kansas, John T. Flannagan, J.

Jonathan A. Margolies of McDowell, Rice, Smith & Buchanan, Kansas City, MO, for Plaintiffs-Appellants.

Peter D. Keisler, Assistant Attorney General, Eric F. Melgren, United States Attorney, and Christopher Allman, Assistant United States Attorney, Kansas City, KS, and Mark B. Stern and Dana J. Martin, Attorneys, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, for Defendants-Appellees.

Before TACHA, Chief Judge, MURPHY, Circuit Judge, and CAUTHRON,^* Chief District Judge.

MURPHY, Circuit Judge.

Franklin Savings Association (FSA), formerly a state chartered savings and loan association, and its parent, debtor Franklin Savings Corporation (FSC), a Kansas corporation, (collectively, Franklin), appeal the dismissal of their adversary complaint against the United States and the Federal Deposit Insurance Corporation (FDIC). This is the latest in a long string of lawsuits Franklin has brought against the government asserting claims in connection with the government's seizure, conservation and liquidation of FSA by the Resolution Trust Corporation (RTC) and its successor-in-interest, the FDIC.¹ The bankruptcy court granted the government's motion to dismiss, finding the claims were barred by the doctrine of claim preclusion. The district court affirmed. We conclude Franklin's claims are time-barred and, therefore, affirm the dismissal.²

I. BACKGROUND

The complete history of Franklin's litigation against the government is set forth in numerous published opinions, see n. 1, supra, and we briefly describe only the factual background necessary to resolve this appeal. The RTC was appointed conservator of FSA in 1990. The RTC's function was converted from conservator to receiver in 1992, and the RTC liquidated FSA. The FSC, which owns 94% of FSA's stock, then filed for Chapter 11 bankruptcy protection.

A. The Franklin III Litigation

In 1993, Franklin filed an adversary complaint against the RTC in bankruptcy court seeking damages under the Federal Tort Claims Act (FTCA) for negligence, breach of fiduciary duty, and conversion by the RTC while acting as conservator of FSA. See Franklin III, 180 F.3d at 1127; Franklin Sav. Corp. v. United States, 970 F.Supp. 855, 860 (D.Kan.1997). Franklin claimed that the RTC, while acting as a conservator, negligently failed to protect the assets and economic viability of FSA, in violation of certain directives and in breach of its fiduciary duty. See Franklin III, 180 F.3d at 1131. The district court withdrew the reference from the bankruptcy court, and Franklin amended its complaint to name the FDIC as the RTC's successor-in-interest. Id. at 1127.

The government moved to dismiss all claims for lack of subject matter jurisdiction, asserting the discretionary function exception to the FTCA's waiver of sovereign immunity applied.³ Because resolution of the jurisdictional issue of whether the discretionary function exception applied was so intertwined with the merits of the case, the district court treated the government's motion to dismiss as one for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Id. at 1129. The district court granted the motion to dismiss.

On appeal to this court, Franklin argued for the first time that the government had waived its discretionary-function immunity under Bankruptcy Code § 106, 11 U.S.C. § 106, when it filed a claim in bankruptcy against FSC's estate. Franklin III, 180 F.3d at 1129. This court held that Franklin had waived reliance on Bankruptcy Code § 106 by failing to assert that jurisdictional basis in its complaint, seeking leave to amend its complaint to do so, or in any way raising it in the district court. Id. at 1128-29.

This court affirmed the dismissal of Franklin's claims, holding that they were barred by the discretionary function exception because all of Franklin's allegations against the government involved discretionary conduct. Id. at 1133-39. The Supreme Court denied Franklin's petition for certiorari review. Franklin Sav. Corp. v. United States, 528 U.S. 964, 120 S.Ct. 398, 145 L.Ed.2d 310 (1999).

B. The Franklin IV Complaint

1. Franklin Refiles Franklin III

Three months after the Supreme Court denied review of Franklin III, Franklin filed another adversary complaint, Franklin IV. The new complaint, at issue herein, "is virtually identical to [the] complaint filed in Franklin III with respect to the actual parties, allegations, and legal claims." Franklin Sav. Corp. v. United States (In re Franklin Sav. Corp.), 296 B.R. 521, 524 (Bankr.D.Kan.2002) (comparing claims in Franklin IV with those in Franklin III).

The same plaintiffs have filed suit — FSA and FSC. The same defendants have been named, the United States and the FDIC as successor-in-interest to the RTC. The factual allegations are exactly the same, restated from the second amended complaint in Franklin III virtually verbatim. Each of the claims the district court dismissed in the prior action are restated in the instant complaint, also verbatim.... As in the prior action, the plaintiffs seek money damages in the amount of $820 million.

Id.

Franklin does not dispute the bankruptcy court's characterization of the two suits. Indeed, its position is that it has simply refiled its Franklin III action in Franklin IV, and it concedes that all of the causes of action in both Franklin III and Franklin IV sound in tort. See Aplt. Opening Br. at 10, 30; Aplt.App. at 178.

2. Franklin Bases Franklin IV on Bankruptcy Code § 106

Franklin IV does, however, posit a new legal basis for Franklin's contention that the government has waived sovereign immunity: Bankruptcy Code § 106(b) and (c), the theory we deemed waived in Franklin III. Franklin asserts that Bankruptcy Code § 106 constitutes a complete waiver of sovereign immunity separate and apart from the FTCA's waiver of immunity, and that this waiver permits tort claims against the United States which would otherwise not be permitted under the discretionary function exception of FTCA § 2680(a).

Bankruptcy Code § 106, as amended in 1994, provides a waiver of sovereign immunity when the government files a proof of claim against a debtor in a bankruptcy proceeding. Section 106(b) waives sovereign immunity with respect to counterclaims of the debtor's estate "that arose out of the same transaction or occurrence" as the proof of claim. 11 U.S.C. § 106(b).⁴ Section 106(c) waives sovereign immunity with respect to counterclaims of the debtor's estate that did not arise out of the same transaction or occurrence as the proof of claim, but only to the extent that the claims offset the government's claim. Id. § 106(c).⁵ The government does not dispute that it filed proofs of claim in FSC's bankruptcy proceeding or that the conditions of § 106(b) and (c) are met.

3. The Bankruptcy Court Dismisses Franklin IV under the Doctrine of Claim Preclusion

The bankruptcy court granted the government's motion to dismiss on the basis of res judicata, or claim preclusion. In re Franklin Sav. Corp., 296 B.R. at 523, 531. It ruled that Franklin was relitigating the same claims against the same parties as in Franklin III, and that all of the claims in Franklin IV had been raised, or could have been raised, in Franklin III. Id. at 527-28. The bankruptcy court rejected Franklin's argument that it could reassert its claims because the claims in Franklin III had not been decided on the merits, but had been dismissed for lack of jurisdiction. Id. at 526-27. The court also ruled that Bankruptcy Code § 106's waiver of sovereign immunity did not abrogate the discretionary function exception to the FTCA. Id. at 528-29. The district court affirmed, and this appeal followed.

II. ANALYSIS

Franklin argues on appeal that Franklin III was dismissed for lack of jurisdiction, rather than on the merits, and, therefore, the doctrine of claim preclusion does not bar the reassertion of its claims. We do not reach this issue, however, because it is clear that all of the claims in Franklin IV are time-barred. Even if Franklin III was dismissed without prejudice, the "dismissal of an earlier suit ... without prejudice does not authorize a subsequent suit brought outside of the otherwise binding period of limitations." Stein v. Reynolds Sec., Inc., 667 F.2d 33, 34 (11th Cir.1982); see also Lambert v. United States, 44 F.3d 296, 298 (5th Cir.1995) (same, applying 28 U.S.C. § 2401(b)).

Moreover, as we explain below, the statute of limitations issue is jurisdictional in this case, and must be decided before the claim preclusion issue.⁶ Jurisdictional issues must be addressed first and, if they are resolved against jurisdiction, the case is at an end. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). In contrast, "[r]es judicata is not a jurisdictional bar; it is an affirmative defense," and, thus, would not defeat subject matter jurisdiction of this or the district court. Kenmen Eng'g v. City of Union, 314 F.3d 468, 479 (10th Cir.2002).

A. The FTCA and its Time Limitations Govern Franklin's Claims

1. The Exclusive Avenue for Franklin's Claim is the FTCA

We must begin our analysis by making clear what Franklin does not acknowledge: its claims are governed by the FTCA, which provides the exclusive avenue to assert a claim sounding in tort against the United States. 28 U.S.C.A. § 2679(a) (providing that the FTCA remedy is "exclusive" for all "claims which are cognizable under section 1346(b)"). Franklin seems to argue that it is...