Jones v. Fed. Deposit Ins. Corp.

Decision Date10 December 2012
Docket NumberCIVIL ACTION NO. 5:12-CV-176 (MTT)
PartiesJOHN JONES, Plaintiff, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for McIntosh State Bank, Defendant.
CourtU.S. District Court — Middle District of Georgia

Before the Court is the Defendant's second Motion to Dismiss. (Doc. 7). For the following reasons, the Motion is GRANTED in part. Ruling on the remainder of the motion is POSTPONED, and the parties are ORDERED to file additional briefs as outlined below.


The Plaintiff filed this lawsuit against McIntosh State Bank June 17, 2011, in the Superior Court of Butts County, Georgia, the same day the FDIC was appointed receiver. (Docs. 1-1; 1-2 at 4). He claims his bookkeeper forged his name on the endorsement line of 17 checks made payable to him and then cashed the checks at McIntosh State Bank, where he is an account holder. The fraudulently endorsed checks were drawn on an Ace Hardware commercial account at another bank. McIntosh paid the bookkeeper when she presented the checks even though she was not authorized to endorse or negotiate checks on the Plaintiff's behalf. This payment on the presented checks, the Plaintiff contends, constitutes conversion pursuant to O.C.G.A. § 11-3-420.The Plaintiff also asserts that the bank's actions give rise to common law negligence and breach of contract claims.

The FDIC was substituted as the Defendant in place of the bank on May 8, 2012. The FDIC then removed the action to this Court on May 15, 2012. (Doc. 1). Shortly thereafter, it filed its first Motion to Dismiss. (Doc. 3). The Plaintiff amended his Complaint to plead additional facts. (Doc. 5). The Defendant then withdrew its first Motion to Dismiss on June 25, 2012, and filed a new Motion to Dismiss addressing the Plaintiff's additional allegations. (Doc. 7). This Court then ordered the parties to brief the issue of whether the case was properly removed in light of the state-law exception to federal jurisdiction over claims against the FDIC. See 12 U.S.C. § 1819(b)(2)(D). (Doc. 9).

The parties complied with the Order, but the Court still did not feel sufficiently informed to decide the jurisdictional question. In the hope of facilitating an answer, the Court postponed ruling on the Defendant's second Motion to Dismiss and ordered the Plaintiff to recast his Complaint. The Court also ordered the Defendant to file an Answer to the Plaintiff's second Amended Complaint and to raise any federal defenses it intended to assert. (Doc. 12). The Court then provided the Plaintiff additional time to move to remand this case to Butts County and, given the Court's sua sponte powers, presented the Defendant an opportunity to argue the colorability of any federal defenses asserted in its Answer. The Plaintiff filed his second Amended Complaint (Doc. 13) and the Defendant answered (Doc. 14). Neither party addressed subject matter jurisdiction.

A. Federal Jurisdiction

The threshold question the Court must address is whether it has jurisdiction to hear this case. Generally, civil suits in which the FDIC is a party are deemed to arise under the laws of the United States. 12 U.S.C. § 1819(b)(2)(A). Thus, the FDIC may in most cases remove to federal court any suit filed against it in state court within 90 days of the FDIC's substitution as a party. 12 U.S.C. § 1819(b)(2)(B). However, there is a narrow exception to this rule: The action does not arise under federal law when (i) the FDIC is acting as a receiver of a state chartered bank and is not the plaintiff in the action; (ii) the action involves only the preclosing rights against the state bank or obligations owing to its depositors, creditors, or stockholders; and (iii) only the interpretation of state law is necessary. 12 U.S.C. § 1819(b)(2)(D)(i-iii). If the three elements of this exception are met, then no federal question exists, and the federal district court cannot exercise jurisdiction over the lawsuit.

In this case, subparts (i) and (ii) of the state law exception are not in dispute. What must be decided is the applicability of subpart (iii) - whether only the interpretation of state law is necessary to resolve this lawsuit. In most civil actions this would be determined by examining the Complaint: The "well pleaded complaint" rule demands that the basis for federal jurisdiction appear on the face of the plaintiff's complaint. Lazuka v. Federal Deposit Ins. Corp., 931 F.2d 1530, 1534 (11th Cir. 1991) (superseded by statute on other grounds) (citing Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10, 103 S. Ct. 2841, 2846-47 (1983)). Assertionof a federal question as a defense would be insufficient. Id. (citing Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152, 29 S. Ct. 42, 43 (1908)). Yet in some circumstances, Congress may by statute overcome the general rule that a federal question is raised only if it appears in the complaint. This is the case with 12 U.S.C. § 1819, which allows the FDIC to remain in federal court if it raises one or more federal questions as an element of its defense to the state law claims. Id. at 1535. The practical effect of this is that the FDIC may remove to federal court nearly every case in which it is a party. Id.

Yet despite this broad removal authority, it is not enough for the FDIC to simply state a federal defense in its Answer. The defense must also be "colorable" and not frivolous or meritless. Diaz v. McAllen State Bank, 975 F.2d 1145, 1149 (5th Cir. 1992); Reding v. Federal Deposit Ins. Corp., 942 F.2d 1254, 1258 (8th Cir. 1991); Capizzi v. Federal Deposit Ins. Corp., 937 F.2d 8, 10 (1st Cir. 1991). This requires district courts to determine what the FDIC's defenses are and to gauge their likely significance. Capizzi, 937 F.2d at 11. The trick for courts is to decide whether the federal defense presents a colorable issue for decision without expressing opinion on the merits of the case. Diaz, 975 F.2d at 1150. That is because the FDIC cannot bypass the state law exception in subpart (iii) by merely asserting a defense based on federal law. The FDIC's defense must genuinely raise a disputable issue under federal law. Reding, 942 F.2d at 1258. Otherwise, the rule would eviscerate the exception. Here, the Defendant has asserted four federal defenses. This Court must determine their colorability.

The Defendant first states that the Plaintiff's Complaint is barred in whole or in part because the agreement the Plaintiff alludes to in his breach of contract claim mustcomply with 12 U.S.C. § 1823(e) and 12 U.S.C. § 1821(d)(9)(A). The statutes provide that there can be no valid claim against assets held by the FDIC as receiver if the claim is based on an agreement (1) not executed in writing at the time the depository institution acquired the asset, (2) not approved by the institution's board of directors or loan committee, and (3) not kept continuously as an official record. These statutes codify the D'Oench, Duhme1 doctrine, the general effect of which is this:

In a suit over the enforcement of an agreement originally executed between an insured depository institution and a private party, a private party may not enforce against a federal deposit insurer any obligation not specifically memorialized in a written document such that the agency would be aware of the obligation when conducting an examination of the institution's records.

Murphy v. F.D.I.C., 208 F.3d 959, 963 (11th Cir. 2000). In this case, the Plaintiff has asserted a breach of contract claim, alleging that "under the terms of Plaintiff's agreement with McIntosh, McIntosh agreed to accept and pay only those checks bearing the signatures of authorized persons." (Doc. 13, ¶ 14). It is not clear what particular agreement this refers to, or whether it was written or oral. And there certainly is not enough information to determine whether the agreement satisfies each of the statutory requirements of 12 U.S.C. § 1823(e) and § 1821(d)(9)(A). But without more information, the alleged existence of some agreement at the very least allows the Defendant to legitimately raise these statutes as a colorable defense to the Plaintiff's breach of contract claim. Whether the Defendant could ultimately prevail on the meritsof this defense need not be decided at this stage. For jurisdictional purposes, however, the Defendant has asserted a colorable federal defense here.

The Defendant next argues that the Plaintiff's Complaint is barred in whole or in part because the Defendant is not subject to penalties pursuant to 12 U.S.C. § 1825(b)(3). The statute states that when acting as a receiver, the FDIC "shall not be liable for any amounts in the nature of penalties or fines, including those arising from the failure of any person to pay any real property, personal property, probate, or recording tax or any recording or filing fees when due." There is some question whether this statute applies outside the context of state or local government efforts to tax or fine the FDIC. See, e.g., Hennessy v. F.D.I.C., 58 F.3d 908, 924 n.11 (3d Cir. 1995) (rejecting the argument that § 1825(b)(3) exempts the FDIC from ERISA penalties because when "[r]ead as a whole ...§ 1825 appears to concern exemptions from taxes"). However, for the purposes of this jurisdictional question, the Court will assume the statute may be applied to deflect any penalties asserted against the FDIC as receiver. Other courts have done so as well, and have found § 1825(b)(3) a colorable defense when raised in response to a plaintiff seeking punitive damages. See Holmes v. F.D.I.C., 2011 WL 1750227 at *4 (E.D. Wis.) (noting that courts "have interpreted this provision as codifying the federal common law rule that punitive damages against instrumentalities of the United States must be expressly authorized by Congress").

In this case, however, the Plaintiff has not sought punitive relief. The Plaintiff asks that "he be awarded damages...

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