In re Imperial Credit Industries, Inc.

• Citation: 527 F.3d 959
• Decision Date: 04 June 2008
• Docket Number: No. 05-56073.,No. 06-56763.,05-56073.,06-56763.
• Parties: In re IMPERIAL CREDIT INDUSTRIES, INC., a California corporation, Debtor. Edward M. Wolkowitz, as Trustee for Imperial Credit Industries, Inc., Plaintiff-Appellant, v. Federal Deposit Insurance Corporation, in its corporate capacity, Defendant-Appellee. In the Matter of Imperial Credit Industries, Inc., a California corporation, Debtor. Imperial Credit Industries, Inc., Plaintiff, and Edward M. Wolkowitz, as Trustee for Imperial Credit Industries, Inc., Plaintiff-counter-defendant-Appellant, v. FDIC, in its capacity as receiver for Southern Pacific Bank, Defendant-Appellee. Federal Deposit Insurance Corporation, in its corporate capacity, Defendant-counter-claimant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

527 F.3d 959

In re IMPERIAL CREDIT INDUSTRIES, INC., a California corporation, Debtor.

Edward M. Wolkowitz, as Trustee for Imperial Credit Industries, Inc., Plaintiff-Appellant, v. Federal Deposit Insurance Corporation, in its corporate capacity, Defendant-Appellee.

In the Matter of Imperial Credit Industries, Inc., a California corporation, Debtor.

Imperial Credit Industries, Inc., Plaintiff, and Edward M. Wolkowitz, as Trustee for Imperial Credit Industries, Inc., Plaintiff-counter-defendant-Appellant, v. FDIC, in its capacity as receiver for Southern Pacific Bank, Defendant-Appellee.

Federal Deposit Insurance Corporation, in its corporate capacity, Defendant-counter-claimant-Appellee.

No. 05-56073.

No. 06-56763.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 6, 2008.

Filed June 4, 2008.

Michael H. Strub, Jr., Jeffrey M. Reisner, Irell & Manella LLP, Los Angeles, CA, for the plaintiff-appellant.

Jaclyn C. Taner, Jennifer M. Barozie, and J. Scott Watson, Federal Deposit Insurance Corporation, Legal Division, Arlington, VA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California; James V. Selna, District Judge, Presiding. D.C. No. CV-03-08627-JVS.

Before: CYNTHIA HOLCOMB HALL, SUSAN P. GRABER, and MARSHA S. BERZON, Circuit Judges.

HALL, Circuit Judge:

These companion cases concern the undercapitalization and eventual insolvency of a federally insured bank, Southern Pacific Bank (SPB), and its holding company, Imperial Credit Industries (Imperial). In February 2002, the Federal Deposit Insurance Corporation (FDIC) notified SPB that it was under-capitalized and required it to submit a capital restoration plan. SPB submitted a capital plan as well as a guaranty from Imperial that SPB would perform under the plan. SPB failed to implement its capital plan, and the FDIC demanded that Imperial pay its $18,375,800 obligation under the guaranty. Imperial, by that point in Chapter 11, asserted a number of defenses to its obligation under the performance guaranty. The district court rejected all of these defenses and granted partial summary judgment in favor of the FDIC, ruling that section 365(o) of the Bankruptcy Code required Imperial to cure its deficit to the FDIC as a condition of remaining in Chapter 11. On appeal from that order, Imperial's Trustee, Edward M. Wolkowitz (Wolkowitz or the Trustee), challenges not only whether the performance guaranty binds Imperial with respect to SPB's capital plan, but also whether Imperial's liability under the guaranty was properly calculated and whether the performance guaranty may be avoided as a fraudulent conveyance. We affirm the district court's conclusion that Imperial is bound by the performance guaranty and its calculation of Imperial's liability, but reverse and remand the fraudulent conveyance claim for further proceedings.

While the above appeal was pending, Imperial converted to Chapter 7 to avoid the district court's order that it immediately cure its deficit pursuant to 11 U.S.C. § 365(o). The FDIC filed a counterclaim for declaratory relief in the district court, seeking a determination of the priority of Imperial's obligation under the performance guaranty. The district court granted summary judgment in favor of the FDIC, holding that the FDIC's claim was entitled to administrative priority status under 11 U.S.C. § 507(a)(2). The Trustee appeals that decision as well, arguing that the FDIC's claim is entitled only to ninth priority under 11 U.S.C. § 507(a)(9). We agree and, therefore, reverse the district court's grant of summary judgment in favor of the FDIC on this issue.

I. FACTS AND PROCEDURAL HISTORY

In February 2002, the FDIC issued a Prompt Corrective Action notice informing SPB that it was undercapitalized and requiring SPB to submit a capital restoration plan by March 1, 2002, to avoid further restrictions on its activities.¹ On March 1, 2002, SPB filed a capital restoration plan (the March 1 capital plan or March 1 plan), which called for it to raise approximately $55 million in new capital through the sale of common equity by June 30, 2002. Pursuant to federal law, on February 27, 2002, SPB's holding company, Imperial, executed a corresponding guaranty that SPB would perform under the plan.² The performance guaranty was attached as an exhibit to SPB's March 1 capital restoration plan.

The text of the performance guaranty begins with several recitals, including the following:

On February 1, 2002, [SPB]'s Board of Directors received a Prompt Corrective Action notification letter from the [FDIC] which, among other things, requires [SPB] to file a written capital restoration plan (the `Capital Plan') with the regional office of the [FDIC] by March 1, 2002....

The Guaranty set forth below has been duly adopted at the regular meeting of the Board of Directors of [Imperial] held on February 27, 2002 and is intended to comply fully with Section 38 of the Federal Deposit Insurance Act and the implementing regulations thereto.

After these recitals, the document sets forth the substantive terms of the performance guaranty, by which Imperial commits itself to:

absolutely, unconditionally and irrevocably guarantee[ ] the performance of [SPB] under the terms of the Capital Plan and ... pay the sum demanded to [SPB] or as directed by the [FDIC] in immediately available funds promptly after receipt by [Imperial] of such demand; provided, that the aggregate liability of [Imperial] under this Guaranty shall be the lesser of an amount equal to five percent (5%) of [SPB]'s total assets as of December 31, 2001 or the amount which is necessary or would have been necessary to restore the relevant capital measures of [SPB] to the levels required to be `adequately' capitalized, as those measures and levels are defined at the time that [SPB] initially fails to comply with its approved Capital Plan....

The FDIC did not approve the March 1 plan. SPB submitted revised capital restoration plans on April 12, 2002, and May 9, 2002, which the FDIC rejected as well. On May 24, SPB submitted an amendment to the May 9 plan (the May 24 capital plan or May 24 plan), which proposed a capital infusion of approximately $55 million by July 22, 2002, this time through private placement and/or the sale of assets. Unlike the March 1 plan, the plans submitted on April 12, May 9, and May 24 did not include as an attachment any performance guaranty by Imperial. Nonetheless, the FDIC approved the May 24 plan.

SPB failed to implement its capital restoration plan by the July 22, 2002, deadline. On July 25, 2002, the FDIC issued a second Prompt Corrective Action notice, informing SPB that it would be subject to the restrictions imposed on a "significantly undercapitalized institution" under 12 U.S.C. § 1831o(f). Both Imperial and SPB attempted to achieve a recapitalization of SPB — with Imperial transferring $5 million in cash to SPB on March 31, 2002, and July 31, 2002 — but on February 7, 2003, the California Department of Financial Institutions declared SPB insolvent and appointed the FDIC as receiver. On July 17, 2003, Imperial filed a voluntary petition under Chapter 11 of the Bankruptcy Code, seeking to liquidate its assets.

On September 4, 2003, the FDIC notified Imperial that it had failed to comply with its performance guaranty and demanded $18,375,800 under the contract. On November 6, 2003, Imperial filed an adversary action against the FDIC in the Bankruptcy Court for the Central District of California, seeking to avoid the alleged obligation. The case was transferred to the District Court for the Central District of California, and on March 25, 2004, Imperial filed its Second Amended Complaint, asserting eight causes of action against the FDIC. The FDIC moved to dismiss all the claims except the claims for declaratory relief and judgment. The district court denied the FDIC's motion with respect to Imperial's equitable subordination claim and allowed Imperial to replead its fraudulent inducement and conveyance claims, but otherwise granted the FDIC's motion.³ Imperial amended its complaint and repled its fraudulent conveyance claim on November 12, 2004, but the district court once again granted the FDIC's motion to dismiss that claim, ruling that Imperial had failed to plead actual fraud.

On December 13, 2004, the FDIC moved for an order requiring Imperial to pay its obligation under the performance guaranty pursuant to 11 U.S.C. § 365(o), which provides that Chapter 11 debtors must "immediately cure" any deficit owed to a Federal depository institutions regulatory agency under a capital maintenance commitment. The court ruled on the FDIC's motion on February 15, 2005. It held that if Imperial had guaranteed SPB's capital restoration plan, it was required to cure any capital deficit of SPB as a condition of remaining in Chapter 11. However, the court delayed a final ruling on the FDIC's motion because Imperial was entitled to present "obligor" defenses to the contractual obligation, which had not been fully briefed. The court found that five of Imperial's claims from its Second Amended Complaint were "obligor" defenses, and granted it leave to present those. Two of Imperial's claims — its equitable subordination and fraudulent conveyance claims — were "trustee" defenses; the court held that Imperial could not bring those claims until it obtained Chapter 11 trustee status by curing its deficit. Imperial's fraudulent conveyance claim was moot regardless of its status as a "trustee defense," though, because that claim had been dismissed on separate grounds.

On April 4, 2004, the FDIC moved for partial summary judgment to enforce Imperial's deficit. On June 15, 2005, the district court granted the motion, rejecting all five of Imperial's "obligor" defenses. The court then entered an appealable final partial judgment for the FDIC pursuant to Federal Rule of Civil Procedure 54(b) on ...