Quintero Cmty. Ass'n Inc. v. Fed. Deposit Ins. Corp.

• Decision Date: 08 July 2015
• Docket Number: No. 14–2266.,14–2266.
• Citation: 792 F.3d 1002
• Parties: QUINTERO COMMUNITY ASSOCIATION INC., et al., Plaintiffs–Appellants v. FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for Hillcrest Bank, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

792 F.3d 1002

QUINTERO COMMUNITY ASSOCIATION INC., et al., Plaintiffs–Appellants

v.FEDERAL DEPOSIT INSURANCE CORPORATION as Receiver for Hillcrest Bank, et al., Defendants–Appellees.

No. 14–2266.

United States Court of Appeals, Eighth Circuit.

Submitted: Feb. 10, 2015.

Filed: July 8, 2015.

Rehearing and Rehearing En Banc Denied Sept. 9, 2015.

Linus L. Baker, Stilwell, KS, argued, for appellants.

Thomas R. Larson, Lewis, Rice & Fingersh, L.C., Kansas City, MO, argued (Scott A. Wissell, on the brief), for appellees Robert Campbell, et al.

Jerome A. Madden, Fed. Deposit Ins. Corp., Arlington, VA, argued (Colleen J. Boles, Asst. Gen. Counsel, Kathryn R. Norcross, Senior Counsel, on the brief), for appellee FDIC.

Before LOKEN, SMITH, and COLLOTON, Circuit Judges.

Opinion

LOKEN, Circuit Judge.

Appellants are investors who suffered losses when an Arizona golf course and residential development failed, allegedly due to the fraud and mismanagement of the developer, Gary McClung. Unable to recover from the insolvent McClung, appellants filed this action in state court against the development's principal lender, Hillcrest Bank, and its directors, officers, and sole shareholder, asserting numerous claims. The Kansas Banking Commissioner closed Hillcrest Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. Some months later, the FDIC removed the case to federal court under 12 U.S.C. § 1819(b)(2)(B). The district court¹ denied appellants' timely motion to remand. Subsequently, the court dismissed fourteen of the sixteen counts for failure to state a claim, dismissed the FDIC because Hillcrest Bank's bankruptcy rendered appellants' claims against the Bank prudentially moot, and granted summary judgment to the remaining defendants on appellants' remaining count. Appellants appeal the denial of their motion to remand, the dismissal of fourteen counts for failure to state a claim, the grant of summary judgment on the final count, and the district court's refusal to permit an amendment to add an additional tort claim for spoliation. We affirm.

I. Background

McClung's failed development was a golf course and residential subdivision in Peoria, Arizona, named Quintero Golf and Country Club (Quintero). Appellant Quintero Community Association (QCA) was the homeowners association for the subdivision and a property owner in Quintero. The remaining appellants are individuals who between 1999 and 2008 invested in Quintero by purchasing “Revenue Producing Membership Collateral Certificates” or by loaning money to McClung. In March 2005, Hillcrest Bank loaned McClung $31 million to finance Quintero's construction and issued a number of irrevocable standby letters of credit naming QCA as beneficiary. As beneficiary, QCA had the right to demand payment of a letter of credit in the event Quintero failed to complete the particular improvement specified in the letter of credit by a certain date.

Appellants' Omnibus Petition alleged that, by late 2006, McClung was unable to pay development contractors on time, and many had ceased working. Appellants alleged that defendants knew of McClung's financial distress but loaned him money anyway, contrary to sound banking practices, thereby “prolong[ing his] financial life” to appellants' detriment. They further alleged that defendants “concocted a scheme with McClung” to conceal his insolvency from appellants, banking regulators, and the Arizona Department of Real Estate (ADRE). The alleged scheme included “jimm[ying]” the Bank's books to make the Quintero project look to be in better financial health than it was, thereby assisting McClung's fraudulent communications to appellants, and allowing McClung to “sen[d] back” letters of credit in March 2007 contrary to their terms and ADRE requirements. On March 31, 2010, the ADRE suspended Quintero's public report due to McClung's failure to complete required infrastructure. See Ariz. Admin. Code § R4–28–B1203(E). As a result, appellants lost some or all of their investments.

In May 2010, appellants filed suit against Hillcrest Bank in Missouri state court. On October 22, 2010, the Kansas Banking Commissioner determined the Bank was “critically undercapitalized” and appointed the FDIC as receiver. In preparation for litigation, some Hillcrest Bank directors had caused Bank records to be copied onto digital storage media and sent to lawyers at the Bryan Cave law firm for review. The FDIC accepted appointment as receiver and demanded return of the copied files. Bryan Cave complied.

In January 2011, appellants filed a separate action in state court against Hillcrest Bank officers and directors and its holding company, Hillcrest Bancshares (the “Director Defendants”). The state court consolidated the two cases. On February 28, Hillcrest Bank filed a motion to substitute the FDIC as defendant. The state court granted the motion on March 1, but on May 7, appellants moved to vacate the substitution order because the Bank's motion was not properly served on the FDIC. The state court granted the motion and vacated its order of substitution on May 12.

Counsel for the FDIC entered an appearance in state court on May 24, filed a motion to substitute as a party for Hillcrest Bank on May 27, and filed a pleading opposing appellants' motion for default judgment against Hillcrest Bank on June 6. The state court granted the FDIC's motion for substitution on June 9. The FDIC removed the case to federal court under 12 U.S.C. § 1819(b)(2)(B) on September 6. Appellants moved to remand, arguing the FDIC failed to remove the action “before the end of the 90–day period beginning on the date ... the Corporation is substituted as a party” in state court. 12 U.S.C. § 1819(b)(2)(B). The district court denied the motion to remand on December 6, 2011. Its subsequent rulings on the merits of appellants' claims were entered in January 2013 and in April and May of 2014.

II. Denial of the Motion To Remand

Plaintiffs first argue the district court erred in denying their motion to remand because the FDIC's removal was untimely, and therefore the court lacked subject matter jurisdiction over the removed action. The state court granted the FDIC's motion to substitute as a party on June 9, 2011, and the FDIC removed the case to federal district court on September 6, ninety days later.² The FDIC contends that the removal is timely applying the plain meaning of § 1819(b)(2)(B). Plaintiffs argue, however, that the FDIC was “substituted as a party” for purposes of § 1819(b)(2)(B) prior to June 9 and thus the ninety-day removal window closed before September 6. Relying on FDIC v. North Savannah Properties, LLC, 686 F.3d 1254, 1259 (11th Cir.2012), appellants argue that the FDIC is substituted as a party, and the removal period begins to run, when the FDIC takes “some affirmative action beyond its appointment as receiver.” Here, they contend, the FDIC took the requisite “affirmative action” when it filed an entry of appearance on May 24, 2011, a motion for substitution on May 27, and an opposition to default judgment on June 6.

We need not decide whether removal was untimely, because even if the district court erred in failing to remand, that error would not be grounds to reverse at this stage of the litigation. In Caterpillar Inc. v. Lewis, 519 U.S. 61, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996), the Supreme Court considered whether the absence of complete diversity at the time of removal, required by 28 U.S.C. § 1441(b), necessitated vacating the district court's subsequent judgment, when complete diversity existed when final judgment was entered. Though grant of plaintiff's timely motion to remand “would have kept the case in state court,” the Court concluded that, once “a diversity case has been tried in federal court ... considerations of finality, efficiency, and economy become overwhelming.” Caterpillar, 519 U.S. at 75, 117 S.Ct. 467. Accordingly, the Court held, “a district court's error in failing to remand a case improperly removed is not fatal to the ensuing adjudication if federal jurisdictional requirements are met at the time judgment is entered.” Id. at 64, 117 S.Ct. 467 ; see Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 573–75, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004).

The “timeliness of removal is a procedural defect—not a jurisdictional one.” Moore v. N. Am. Sports, Inc., 623 F.3d 1325, 1329 (11th Cir.2010). Here, when the FDIC became a substituted party, 12 U.S.C. § 1819(b)(2)(A) gave the district court subject matter jurisdiction, both at the time of removal and when final judgment was ultimately entered. Although federal jurisdiction in Caterpillar was based on diversity of citizenship, its rule has been applied to cases in which removal based on federal question jurisdiction was untimely, a motion to remand was denied, and the case proceeded to final judgment in federal court. See Wagner v. Campbell, 779 F.3d 761, 765 (8th Cir.2015) (“we take careful note that jurisdiction would have existed in the district court from the inception of this 42 U.S.C. § 1983 suit”); Paluch v. Rambo, 453 Fed.Appx. 129, 132 (3d Cir.2011). We construe Caterpillar as a “categorical rule” that applies whether the case proceeded to final judgment after trial, or by summary judgment. Buffets, Inc. v. Leischow, 732 F.3d 889, 897–98 (8th Cir.2013).

In this case, multiple claims and a complex factual background resulted in nearly four years of litigation after the district court denied appellants' motion to remand based on a procedural defect. “To wipe out the adjudication postjudgment, and return to state court a case ... satisfying all federal jurisdictional requirements, would impose an exorbitant cost on our dual court system, a cost incompatible with the fair and unprotracted administration of justice.” Caterpillar, 519 U.S. at 77, 117 S.Ct. 467. To do so here would be particularly unwarranted, as Congress intended § 1819(b)(2) “to afford the FDIC every possibility of having a federal...