Rodriguez v. Fed. Deposit Ins. Corp. (In re United W. Bancorp, Inc.)

• Decision Date: 16 September 2016
• Docket Number: Case No. 12-13815 TBM,Adv. Pro. No. 14-1191 TBM
• Citation: 558 B.R. 409
• Parties: In re: United Western Bancorp, Inc., Debtor. Simon E. Rodriguez, in his capacity as Chapter 7 Trustee for the bankruptcy estate of United Western Bancorp, Inc., Plaintiff, v. Federal Deposit Insurance Corporation, in its capacity as Receiver of United Western Bank, Defendant.
• Court: U.S. Bankruptcy Court — District of Colorado

558 B.R. 409

In re: United Western Bancorp, Inc., Debtor.Simon E. Rodriguez, in his capacity as Chapter 7 Trustee for the bankruptcy estate of United Western Bancorp, Inc., Plaintiff,

v.Federal Deposit Insurance Corporation, in its capacity as Receiver of United Western Bank, Defendant.

Case No. 12-13815 TBM

Adv. Pro. No. 14-1191 TBM

United States Bankruptcy Court, D. Colorado.

Signed September 16, 2016

Mark E. Haynes, Kimberley Haines Tyson, Denver, CO, for Plaintiff.

John F. Young, Denver, CO, for Defendant.

OPINION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

Thomas B. McNamara

, United States Bankruptcy Judge

Everyone wants a tax refund—especially a tax refund of $4,081,335. That is the amount that the Internal Revenue Service agreed should be returned (the “Tax Refund”) based upon the offset of net operating losses and past income from the operations of United Western Bank (the “Bank”), a failed Colorado financial institution currently in receivership under the watchful eye of the Federal Deposit Insurance Corporation (the “FDIC”). But, even though the Tax Refund indisputably stems from the Bank's business loss carrybacks, entitlement to the Tax Refund is complicated by virtue of how the Bank filed its federal income tax returns. Prior to being closed by the Office of Thrift Supervision, the Bank joined with its parent bank holding company, United Western Bancorp, Inc. (“UW Bancorp”), and certain other affiliated entities to form a consolidated group for federal income tax purposes. As the parent bank holding company, UW Bancorp filed consolidated federal income returns for the entire corporate group pursuant to a tax allocation agreement. The bank holding company corporate structure and federal income tax consolidation utilized by UW Bancorp and its subsidiaries are common in the banking industry—but also inadvertently created the legal conundrum posed by this case.

Closure of the Bank by federal regulators ultimately caused its parent, UW Bancorp, to fail too. UW Bancorp filed for protection under Chapter 11 of the Bankruptcy Code. Later, this Court converted the bankruptcy reorganization case to a Chapter 7 liquidation and Simon E. Rodriguez was appointed as the Chapter 7 Trustee (the “Trustee”) for UW Bancorp. After learning of the anticipated Tax Refund, the Trustee (acting on behalf of the UW Bancorp estate) filed this adversary proceeding against the FDIC (acting as receiver of the Bank). The Trustee claims that the Tax Refund is property of the UW Bancorp bankruptcy estate. The FDIC counters that the Tax Refund belongs to the Bank. Both sides contend that the underlying facts are undisputed and the contest can be decided as a matter of law. Given the competing claims to the Tax Refund, the IRS recently deposited the $4,081,335 Tax Refund into the Registry of this Court where it waits pending final adjudication of the legal dispute. Ultimately, the case boils down to this simple-sounding binary question: Which party (the Trustee or the FDIC) is entitled to the Tax Refund?

I. Jurisdiction and Venue.

A. Nature of the Case.

On April 16, 2014, the Trustee initiated this adversary proceeding by filing his “Complaint Asserting Objection to Claim and Counterclaims for Declaratory Relief and Recovery of Assets of the Estate.” (Docket No. 1, the “Complaint.”) The Trustee purports to act “in his capacity as Trustee for the bankruptcy estate of United Western Bancorp, Inc.,” while suing the FDIC “in its capacity as Receiver for United Western Bank.” (Id. at 1.) The fundamental claim asserted in the Complaint is for declaratory judgment under Section 541

¹of the Bankruptcy Code and 28 U.S.C. § 2201. Noting the “actual, real and immediate controversy” concerning entitlement to the Tax Refund, the Trustee requests that this Court enter a declaratory judgment determining that the Tax Refund is property of the bankruptcy estate of UW Bancorp. (Id. at 4-5.) From this premise, the Trustee added two subsidiary causes of action. First, the Trustee demands that the Tax Refund be turned over to him under Section 542, because the Tax Refund is property of the estate. Second, the Trustee objects to the FDIC's proof of claim against UW Bancorp under Section 502(b) because the proof of claim had asserted that the FDIC (not the Trustee) was entitled to the Tax Refund. The Trustee asserts that the FDIC's proof of claim should be disallowed “except to the extent that it presents a non-priority, general unsecured pre-petition claim” against UW Bancorp. (Id. at 5.) So, although three claims are asserted by the Trustee in the Complaint, all of which are uniquely based on the Bankruptcy Code, they all depend on whether or not the Tax Refund is property of the estate of UW Bancorp.

The FDIC contested the Complaint through its “Answer and Counterclaim.” (Docket No. 25, the “Answer.”) In addition to denying the Trustee's claims and asserting various affirmative defenses, the FDIC stated a counterclaim. (Id. at 20.) But the FDIC's counterclaim is merely the mirror-image of the Trustee's declaratory judgment cause of action. The FDIC asserts that the Tax Refund is its property (as receiver for the Bank) and should be turned over to the FDIC. (Id. )

B. Jurisdiction and Venue.

Based upon the nature of the Complaint, this Court would appear to have jurisdiction to enter final judgment on all of the claims advanced by the Trustee and the FDIC's counterclaim pursuant to 28 U.S.C. § 1334(b)

. Furthermore, all of the Trustee's claims are core proceedings under 28 U.S.C. § 157(b)(2)(A) (“matters concerning administration of the estate”), (b)(2)(B) (“allowance or disallowance of claims against the estate”), (b)(2)(C) (“counterclaims by the estate”), (b)(2)(E) (“orders to turn over property of the estate”), and (b)(2)(O) (“other proceedings affecting liquidation of the assets of the estate”).

But, there was an initial jurisdictional hiccup. The FDIC is an independent agency of the United States government. 12 U.S.C. §§ 1811(a)

(establishment of FDIC) and 1819 (the FDIC “shall be an agency of the United States”). The FDIC has two main missions: (1) to act as an insurer or regulator of banks and savings associations; and (2) when appointed as a receiver, to liquidate failed banks and savings associations. Id. ; 12 U.S.C. §§ 1811(b), 1814 -1822, and 1828. And, as an agency of the United States government, the FDIC enjoys special statutory protections and privileges including federal jurisdiction in the district courts. 12 U.S.C. § 1819(b). Relying primarily on 12 U.S.C. §§ 1819(b) and 1821(d), the FDIC initially asserted its special status and challenged this Court's subject matter jurisdiction to adjudicate the claims and counterclaims and enter final judgment. (Docket No. 25 at 1, 2, and 15.)

Thus, the FDIC's defenses raised complicated jurisdictional issues involving constitutional law and statutory interpretation. Most courts considering such matters have determined that bankruptcy courts do have jurisdiction to fully and finally adjudicate the types of claims asserted by the Trustee. See Zucker v. FDIC (In re BankUnited Fin. Corp.) , 727 F.3d 1100, 1104 n. 5 (11th Cir.2013)

(“Section 1821(d)(13)(D)... does not preclude the Bankruptcy Court from determining the threshold question of whether tax refunds are an asset of the bankruptcy estate.”); Giuliano v. FDIC (In re Downey Fin. Corp.) , 499 B.R. 439 (Bankr.D.Del.2013), aff'd

Cantor v. FDIC (In re Downey Fin. Corp.) , 593 Fed.Appx. 123 (3rd Cir.2015) (unpublished) (bankruptcy court entered final judgment on Chapter 7 trustee's claims against FDIC related to disputed tax refund; appellate court held: “The Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. § 157.”). And, filing a proof of claim (as the FDIC did) ordinarily submits the claimant to the “equitable jurisdiction of the Bankruptcy Court”—at least with respect to issues concerning adjudication of the proof of claim. Langenkamp v. Culp , 498 U.S. 42, 44, 111 S.Ct. 330, 112 L.Ed.2d 343 (1991) ; see also

Granfinanciera, S.A. v. Nordberg , 492 U.S. 33, 58, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989).

Fortunately, the Court need not delve too deeply into the jurisdictional abyss since the FDIC changed its position. On December 18, 2015, the FDIC filed a “Statement of Position” wherein the FDIC stated unequivocally that the FDIC “withdraws its jurisdictional reservations” and “consents to entry of final orders or judgment by the Bankruptcy Court in this adversary proceeding.” (Docket No. 53.) The FDIC also withdrew its affirmative defenses based upon its jurisdictional arguments. (Id. ) The FDIC's express, knowing, and voluntary consent to final adjudication by this Court is sufficient for this Court to exercise jurisdiction and issue a final judgment. Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1947, 191 L.Ed.2d 911 (2015)

(“Adjudication based upon litigant consent has been a consistent feature of the federal court system since its inception.”).

Based upon the Court's own jurisdictional assessment coupled with the FDIC's express consent, the Court determines that it has jurisdiction to enter final judgment on all of the claims advanced by the Trustee and the FDIC's counterclaim pursuant to 28 U.S.C. § 1334(b)

. All of the Trustee's claims are core proceedings under 28 U.S.C. § 157(b)(2). Further, venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

II. Procedural Background.

A. The Main Case.

UW Bancorp filed for protection under Chapter 11 of the Bankruptcy Code on March 2, 2012 in the case captioned: In re United Western Bancorp, Inc. , Case No. 12–13815 (Bankr.D.Colo.) (the “Main Case”). (Main Case Docket No. 1.) A little over a year later, on April 15, 2013, the Court entered its “Order Converting Case Under Chapter 11 to Case Under Chapter 7.” (Main Case Docket No. 290.) Promptly after the conversion, Simon E. Rodriguez was appointed as the Chapter 7 Trustee and has remained in that role continuously...