Kim S. Westberg v. Fed. Deposit Ins. Corp..

• Decision Date: 04 January 2011
• Docket Number: Civil Action No. 09–1690 (RMU).
• Citation: 759 F.Supp.2d 38
• Parties: Kim S. WESTBERG et al., Plaintiffs,v.FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Silver State Bank, et al., Defendants.
• Court: U.S. District Court — District of Columbia

759 F.Supp.2d 38

Kim S. WESTBERG et al., Plaintiffs,

v.FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Silver State Bank, et al., Defendants.

Civil Action No. 09–1690 (RMU).

United States District Court, District of Columbia.

Jan. 4, 2011.

Derek Lawrence Shaffer, Cooper & Kirk, PLLC, Washington, DC, Christopher A. LaVoy, Patricia A. Premeau, LaVoy & Chernoff, PC, Phoenix, AZ, for Plaintiffs.Jaime Walker Luse, John Bucher Isbister, Tydings & Rosenberg LLP, Baltimore, MD, Craig Benson Young, Kutak Rock LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

Granting the FDIC's Motion to Dismiss and Denying Multibank's Motion to Dismiss

RICARDO M. URBINA, District Judge.

I. INTRODUCTION

This action arises from the repudiation of a construction loan by the Federal Deposit Insurance Corporation (“FDIC”), acting as receiver for the original lender, Silver State Bank. The plaintiffs seek a declaratory judgment against the FDIC and its successor in interest, MULTIBANK 2009–1 RES–ADC VENTURE, LLC (“Multibank”), declaring that the FDIC's repudiation of the loan discharged the plaintiffs' obligation to repay funds previously disbursed by Silver State Bank and voided an existing lien against their property. The plaintiffs also seek to recover damages they allegedly suffered as a result of the FDIC's repudiation of the loan.

Before the court are motions to dismiss the plaintiffs' amended complaint filed by the FDIC and Multibank. For the reasons discussed below, the court grants the FDIC's motion to dismiss and denies Multibank's motion to dismiss.

II. FACTUAL & PROCEDURAL BACKGROUND ¹

The plaintiffs are the owners of real property located in Maricopa County, Arizona. Am. Compl. ¶ 7. In or around May of 2008, they obtained a residential construction loan commitment from Silver State Bank in the principal amount of $1,318,000 for the purpose of constructing a home on the property. Id. ¶ 8. In connection with the loan commitment, the plaintiffs executed a Residential Construction Loan Agreement, dated May 20, 2008 (“the Agreement”), a Promissory Note, dated May 20, 2008 (“the Note”) and a Deed of Trust, recorded on May 28, 2009, which secured payment of the Note by creating a lien against the property. Id. ¶ 9. The Agreement contemplated that the plaintiffs would submit periodic draw requests to Silver State Bank to finance the construction of their home. Id., Ex. 2 ¶ 7.

Following the execution of these loan instruments, the plaintiffs submitted a draw request and received a disbursement in the amount of $171,510.95. Id. ¶ 13. The plaintiffs used these funds to pay costs incurred in connection with the construction of the home. Id. In or around September 2008, the plaintiffs submitted a second draw request to Silver State Bank, but the draw request was denied. Id. ¶ 14. The plaintiffs received no further disbursements from Silver State Bank. Id.

In September 2008, the FDIC notified the plaintiffs that Silver State Bank had been closed and that the FDIC had been appointed as receiver. Id. ¶ 15. Thereafter, in April 2009, the FDIC notified the plaintiffs that the FDIC, as receiver for Silver State Bank, had elected to repudiate the Agreement. Id. ¶ 17 & Ex. 5. The FDIC further notified the plaintiffs that they were required to notify the FDIC of any claims they may have against the receivership estate arising from the repudiation of the Agreement and that their failure to file such a notice would result in the disallowance of the claim. Id., Ex. 5.

The plaintiffs subsequently submitted a Proof of Claim form to the FDIC, seeking compensation for costs resulting from the construction delay caused by the FDIC's repudiation of the Agreement. Id. ¶ 18 & Ex. 6 (“Proof of Claim”). By letter dated July 6, 2009, the FDIC notified the plaintiffs that their claim for alleged damages had been denied. Id. ¶ 19 & Ex. 7.

After repudiating the Agreement, the FDIC issued a statement to the plaintiffs directing them to repay the funds previously disbursed by Silver State Bank. Id. ¶ 20. The FDIC did not release the plaintiffs from their obligations under the Note or release the Deed of Trust recorded against the plaintiffs' property. Id.

On September 3, 2009, the plaintiffs filed a complaint against the FDIC seeking a declaratory judgment that the FDIC's repudiation of the Agreement released the plaintiffs from all of their obligations under the Note and Deed of Trust. Compl. ¶ 24. The complaint also included a claim for damages the plaintiffs' allegedly suffered as a result of the FDIC's repudiation of the Agreement. Id. ¶¶ 25–26.

On November 9, 2009, the FDIC moved to dismiss the plaintiffs' complaint. See generally FDIC's Mot. to Dismiss Compl. After the motion to dismiss was fully briefed, the FDIC sold the plaintiffs' loan to Multibank through a Loan Contribution and Sale Agreement (the “Sale Agreement”). Am. Compl. ¶ 23 & Ex. 8. After purchasing the loan from the FDIC, Multibank demanded that the plaintiffs satisfy their obligations under the Note. Id. ¶ 23.

In light of the sale of the loan to Multibank, the plaintiffs filed an amended complaint on July 19, 2010. See generally Am. Compl. In Count I of the amended complaint, the plaintiffs seek a declaratory judgment against the FDIC and Multibank stating that the FDIC's repudiation of the Agreement released the plaintiffs from all of their obligations under the Note and Deed of Trust. Id. ¶ 28. In Count II, the plaintiffs seek to recover damages from the FDIC for harm they allegedly suffered as a result of the FDIC's repudiation of the Agreement. Id. ¶¶ 29–30. The FDIC filed a motion to dismiss the amended complaint on August 25, 2010, see generally FDIC Mot., and on August 27, 2010, Multibank joined in the FDIC's motion, see generally Multibank Mot. The FDIC and Multibank seek dismissal of Count I under Federal Rule of Civil Procedure 12(b)(1) and the FDIC seeks dismissal of Count II under Federal Rule of Civil Procedure 12(b)(6). See generally FDIC Mot.; Multibank Mot. With these motions now ripe for adjudication, the court turns to the applicable legal standards and the parties' arguments.

III. ANALYSIS

A. The Court Grants the FDIC's Motion to Dismiss and Denies Multibank's Motion to Dismiss Count I of the Amended Complaint

1. Legal Standard for a 12(b)(1) Motion to Dismiss

Federal courts are courts of limited jurisdiction and the law presumes that “a cause lies outside this limited jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C.Cir.2004) (noting that “[a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction”).

Because “subject-matter jurisdiction is an ‘Art[icle] III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.’ ” Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir.2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982)). On a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing by a preponderance of the evidence that the court has subject matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).

Because subject matter jurisdiction focuses on the court's power to hear the claim, however, the court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim. See Macharia v. United States, 334 F.3d 61, 64, 69 (D.C.Cir.2003); Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13 (D.D.C.2001). Thus, the court is not limited to the allegations contained in the complaint. Hohri v. United States, 782 F.2d 227, 241 (D.C.Cir.1986), vacated on other grounds, 482 U.S. 64, 107 S.Ct. 2246, 96 L.Ed.2d 51 (1987). Instead, “where necessary, the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C.Cir.1992) (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.1981)).

2. The Court Lacks Subject Matter Jurisdiction Over Count I as Against the FDIC

The FDIC contends that it relinquished any legally cognizable interest it had in the loan when it sold the loan to Multibank. FDIC Mot. at 6–7. Because it relinquished its interest in the loan, the FDIC argues that the plaintiffs' claim for declaratory relief against it is moot and that the court therefore lacks subject matter jurisdiction over that claim.² Id. at 7. The plaintiffs respond that, notwithstanding the sale of the loan to Multibank, the FDIC retained substantial rights and obligations related to the loan. Pls.' Opp'n to FDIC Mot. (“Pls.' FDIC Opp'n”) at 5. The plaintiffs argue that as a result of the FDIC's “continuing entanglement” in the loan, the FDIC has a legally cognizable interest in the outcome of their claim for declaratory relief and is appropriately included as a party to that claim. Id. at 6.

Article III's case-or-controversy requirement prohibits courts from issuing advisory opinions or decisions based on hypothetical facts or abstract issues. Flast v. Cohen, 392 U.S. 83, 96, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). “The doctrine of mootness is a logical corollary of the ‘case or controversy’ requirement[.]” Better Gov't Ass'n v. Dep't of State, 780 F.2d 86, 90 (D.C.Cir.1986). In cases where challenged conduct ceases and “there is no reasonable expectation that the wrong will be repeated ... it becomes impossible for the court to grant any effectual relief whatever to the prevailing party ... [and] any...