Phx. Bond & Indem. Co. v. FDIC as Receiver for Wash. Fed. Bank for Sav.

• Decision Date: 20 July 2020
• Docket Number: No. 18 C 6897,18 C 6897
• Court: U.S. District Court — Northern District of Illinois
• Parties: PHOENIX BOND & INDEMNITY COMPANY, Plaintiff, v. FDIC as RECEIVER for WASHINGTON FEDERAL BANK FOR SAVINGS, Defendant.

PHOENIX BOND & INDEMNITY COMPANY, Plaintiff, v. FDIC as RECEIVER for WASHINGTON FEDERAL BANK FOR SAVINGS, Defendant.

No. 18 C 6897

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

July 20, 2020

Judge Sara L. Ellis

OPINION AND ORDER

The Federal Deposit Insurance Company in its capacity as receiver for Washington Federal Bank for Savings ("FDIC-R") removed a state court action to this Court pursuant to 12 U.S.C. § 1819(b)(2) after the state court ordered the Cook County Clerk to issue a tax deed to Phoenix Bond & Indemnity Company ("Phoenix Bond"). The FDIC-R contends that Phoenix Bond violated the Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), 12 U.S.C. § 1825(b), by attempting to take title to property over which the FDIC-R held a mortgage. The FDIC-R challenges the state court's order because it did not consent to the order or resulting tax deed. In its counterclaim, the FDIC-R seeks a declaration that the tax deed is void ab initio and of no legal effect. The parties have filed cross-motions for summary judgment. Phoenix Bond argues that the Tax Injunction Act ("TIA"), 28 U.S.C. § 1341, bars this Court's jurisdiction over the FDIC-R's claims. In the alternative, Phoenix Bond moves the Court to find that the tax deed is voidable, requiring the FDIC-R to pay redemption amounts under Section 22-80(b) of the Illinois Property Tax Code. See 35 Ill. Comp. Stat. 200/22-80(b). The FDIC-R moves the Court to enter a declaration that the tax deed is void pursuant to Section 22- 80(a), which would instead require the County to refund Phoenix Bond. Because the TIA is a jurisdictional bar that prevents the Court from hearing the FDIC-R's claims, the Court remands this case for lack of subject matter jurisdiction and terminates as moot the parties' motions for summary judgment [32, 35].

BACKGROUND¹

On February 26, 2010, Washington Federal Bank for Savings ("Washington Federal") made a loan to Indomitable LLC and Metropolitan Bank and Trust Company. The loan was secured by a mortgage on the property known as 2120 N. Lockwood Avenue, Chicago, Illinois ("the Property"). Washington Federal recorded its mortgage on the property on April 23, 2010. On August 15, 2015, Phoenix Bond purchased the delinquent Cook County real estate taxes on the Property for $9,223.32. The Office of the Comptroller of Currency closed Washington Federal on December 15, 2017, and appointed the FDIC as receiver. Upon this appointment, the FDIC-R became the successor of all rights, titles, powers, and privileges of the assets of Washington Federal. Accordingly, the FDIC-R holds the mortgage on the Property.

On December 17, 2017, Phoenix Bond filed a petition for a tax deed in the Circuit Court of Cook County, Illinois. On May 11, 2018, the FDIC-R sent Phoenix Bond a letter informing Phoenix Bond of the following: (1) the Property was subject to a mortgage held by the FDIC-R; (2) 12 U.S.C. § 1825(b) prohibited the foreclosure of any involuntary lien or the transfer of title without the FDIC-R's consent; and (3) Phoenix Bond's continued efforts to take title to theProperty would violate FIRREA. Phoenix Bond subsequently applied for issuance of a tax deed in the state court proceeding, and the state court entered an order directing the Cook County Clerk to issue a tax deed on August 14, 2018. The FDIC-R did not consent to the issuance of a tax deed or entry of an order. The FDIC-R subsequently intervened and removed the action on October 12, 2018.

LEGAL STANDARD

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56. To determine whether a genuine issue of fact exists, the Court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56 & advisory committee's notes. The party seeking summary judgment bears the initial burden of proving that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the non-moving party cannot rest on mere pleadings alone but must use the evidentiary tools listed above to identify specific material facts that demonstrate a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). Although a bare contention that an issue of fact exists does not create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the Court must construe all facts in a light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The same standard applies when considering cross-motions for summary judgment. Int'l Bhd. of Elec. Workers, Local 176 v. Balmoral Racing Club, Inc., 293 F.3d 402, 404 (7th Cir. 2002). Therefore, when considering Phoenix Bond's motion for summary judgment, the Court views all evidence in the light most favorable to the FDIC-R, and whenconsidering the FDIC-R's motion for summary judgment, the Court views all evidence in the light most favorable to Phoenix Bond. Id.

ANALYSIS

"Federal courts are courts of limited jurisdiction," Healy v. Metro. Pier & Exposition Auth., 804 F.3d 836, 845 (7th Cir. 2015), and a litigant may raise lack of subject matter jurisdiction at any time, Kontrick v. Ryan, 540 U.S. 443, 455 (2004).² The TIA imposes one such limitation. The TIA provides that "district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. The TIA deprives federal courts of subject matter jurisdiction in "cases in which state taxpayers seek federal-court orders enabling them to avoid paying state taxes." Hibbs v. Winn, 542 U.S. 88, 107 (2004). In other words, "if the relief sought would diminish or encumber state tax revenue, then the Act bars federal jurisdiction over claims seeking such relief." Scott Air Force Base Props., LLC v. Cty. of St. Clair, 548 F.3d 516, 520 (7th Cir. 2008). Under the TIA, district courts do not have jurisdiction to hear suits seeking injunctive or declaratory relief from state, municipal, or local taxes. See id. (citing California v. Grace Brethren Church, 457 U.S. 393, 411 (1982)). "Congress' intent in enacting the Tax Injunction Act was to prevent federal-court interferencewith the assessment and collection of state taxes." Grace Brethren Church, 457 U.S. at 411; see also A.F. Moore & Assocs., Inc. v. Pappas, 948 F.3d 889, 893 (7th Cir. 2020) ("We construe the Tax Injunction Act's limitations restrictively because the Act is meant to dramatically curtail federal-court review of state and local taxation.").

To determine whether the TIA applies, the Court first examines the relief that the FDIC-R seeks. In its counterclaim, the "FDIC-R seeks a declaration that the tax deed [issued to Phoenix Bond] is void ab initio." Doc. 26 ¶ 24. Under Illinois law, "[a]ny order of court vacating an order directing the county clerk to issue a tax deed based upon a finding that . . . the tax sale was otherwise void, shall declare the tax sale to be a sale in error pursuant to Section 21-310 of this Act." 35 Ill. Comp. Stat. 200/22-80(a). And, as a result, the county collector must refund certain amounts to the tax deed grantee, including taxes and special assessments paid. See id. In other words, if the Court issues a declaration stating that the tax deed is void, the sale was in error and Cook County must refund the amount Phoenix Bond paid at the tax sale, as well as any subsequent taxes and interest. Thus, if this Court were to grant the relief that the FDIC-R seeks, the indirect result would be a tax refund from the County, which the TIA prohibits. Compare Wright v. Pappas, 256 F.3d 635, 637-38 (7th Cir. 2001) (TIA barred suit where tax purchaser sought to undo tax sale because he was "seeking in effect a tax refund"), with Johnson v. Orr, 551 F.3d 564, 571-72 (7th Cir. 2008) (TIA did not bar the plaintiff's claims where he sought a tax deed, as it would not "reduce the flow of tax revenue to Illinois"). The Court's relief would impermissibly reduce the flow of tax revenue. See Hibbs, 542 U.S. at 106. The FDIC-R acknowledges as much, stating that "Phoenix Bond is entitled to a refund of the amount it paid at the tax sale, plus all subsequent taxes paid, interest, and other costs from the county collector." Doc. 32 at 2. Therefore, the TIA prevents the Court from ordering the relief sought.

The Seventh Circuit's decision in RTC is instructive here. See RTC Commercial Assets Tr. 1995-NP3-1 v. Phoenix Bond & Indem. Co., 169 F.3d 448 (7th Cir. 1999). There, Phoenix Bond purchased tax certificates for property in which RTC Trust³ held interests. Id. at 451. Phoenix Bond petitioned for a tax deed for the property represented by its tax certificates. Id. RTC responded by initiating an action against Phoenix Bond in federal court seeking, in part, a declaratory judgment under FIRREA that the tax liens were invalid and Phoenix Bond did not have a valid interest in the property. Id. The court concluded that the TIA barred federal jurisdiction and noted that "the contingent nature of the tax certificates [was] crucial." Id. at 455. The court explained that "Illinois offers certificate purchasers a guarantee against legal flaws in the tax sale, by making available to the purchaser an action in state court for a declaration of a sale in error and by obligating the County Clerk to refund the amount paid for the certificate upon such a declaration." Id.

Here, if the Court were to declare the tax deed void, it would lead to the same impermissible result. There would be a sale in error, and the County Clerk would be obligated to refund Phoenix Bond certain monies....