Summerhaze Co. v. Fed. Deposit Ins. Corp.

• Decision Date: 08 July 2014
• Docket Number: No. 20120461.,20120461.
• Citation: 764 Utah Adv. Rep. 44,332 P.3d 908
• Court: Utah Supreme Court
• Parties: SUMMERHAZE COMPANY, L.C.; Antion Financial, L.C.; Durbano Properties, L.C.; Durbano Development, L.C.; Durbano Law Firm, P.C.; and Douglas M. Durbano, Petitioners and Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for America West Bank, Respondent and Appellee.

332 P.3d 908

764 Utah Adv. Rep. 44

SUMMERHAZE COMPANY, L.C.; Antion Financial, L.C.; Durbano Properties, L.C.; Durbano Development, L.C.; Durbano Law Firm, P.C.; and Douglas M. Durbano, Petitioners and Appellants,

v.FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for America West Bank, Respondent and Appellee.

No. 20120461.

Supreme Court of Utah.

July 8, 2014.

George W. Pratt, Jessica P. Wilde, Salt Lake City, L. Miles LeBaron, Layton, for appellants.

George W. Pratt, Jessica P. Wilde, Salt Lake City, Douglas M. Durbano, L. Miles LeBaron, Layton, for appellant Douglas M. Durbano.

Brent D. Wride, Salt Lake City, for appellee.

Associate Chief Justice NEHRING, opinion of the Court:

INTRODUCTION

¶ 1 Plaintiffs Summerhaze Company, L.C.; Antion Financial, L.C.; Mr. Douglas M. Durbano; Durbano Development, L.C.; Durbano Law Firm, P.C.; and, Durbano Properties, L.C. (collectively Plaintiffs) appeal from the entry of summary judgment in favor of the Federal Deposit Insurance Corporation (FDIC), successor to America West Bank, L.C. (Bank). We are asked to decide whether the district court erred when it concluded that it lacked subject matter jurisdiction over the Plaintiffs' claims after determining that Plaintiffs failed to exhaust the administrative claims review process made available to them by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Additionally, Plaintiffs claim that the district court's dismissal for lack of subject matter jurisdiction denied them due process of the law under both the United States and Utah Constitutions. We affirm.

BACKGROUND

¶ 2 Mr. Durbano was the chief executive officer of the Bank. Mr. Durbano was also the owner or manager of the other plaintiffs in this appeal: Summerhaze Company, L.C. (Summerhaze); Antion Financial, L.C. (Antion); Durbano Properties, L.C.; Durbano Development, L.C.; and, Durbano Law Firm, P.C. In 1985, Mr. Durbano hired Anna S. Padlo to work for him at his various companies. Then, in 2001, Mr. Durbano hired Ms. Padlo to work at the Bank. Between 2001 and 2007, Ms. Padlo embezzled over $550,000 from the Bank. ¹ Plaintiffs filed a complaint against the Bank on February 10, 2009. They alleged (1) improper acceptance of unauthorized signatures, (2) negligence, and (3) liability under a theory of respondeat superior.

¶ 3 The Bank was insured by BancInsure, Inc. under a Financial Institution Bond (Bond). The Bond was an indemnity policy. Under its terms, the Bank would be indemnified in the event of losses occasioned by employee dishonesty, forgery or alteration of negotiable instruments, unauthorized signatures and endorsements, and claims expenses, among other things. The maximum coverage under the Bond was $2,000,000. Plaintiffs filed their complaint “in order to trigger the bond coverage of [the Bank's] bonding company, BancInsure, Inc.” After receiving the complaint, the Bank tendered the defense of the claim to BancInsure, under the terms of the Bond.² The Bank filed an answer to the complaint on April 6, 2009.

¶ 4 On January 9, 2009, before the Plaintiffs filed their complaint, the Bank filed a declaratory judgment action against BancInsure seeking to establish that the Bank was entitled to coverage under the Bond for the losses claimed by the Plaintiffs.³ On March 23, 2009, the Bank and BancInsure agreed to stay the declaratory judgment action because coverage under the Bond would become an issue only if the Plaintiffs proved the damages alleged in their complaint against the Bank.

¶ 5 On May 1, 2009, the Utah Department of Financial Institutions (UDFI) closed the Bank and appointed the FDIC as receiver, because the UDFI determined the Bank had failed and was operating in an unsafe manner.⁴ On May 6, 2009, the FDIC mailed notice of the Bank's receivership to all of the Bank's recorded creditors. The FDIC published notice of the Bank's receivership on May 7 and again on June 8 and July 8, 2009. The notices were published in the two most prominent newspapers in Utah, the Deseret News and The Salt Lake Tribune. Both the mailed and published notices indicated that all claims against the Bank, along with proof of the claims, had to be submitted to the FDIC for administrative claims review by August 5, 2009. Mr. Durbano, Durbano Development, and Durbano Law Firm were listed as creditors of the Bank and were mailed direct notice of the August 5, 2009 claims deadline. Jones Waldo Holbrook & McDonough and LeBaron & Jensen, P.C.—as counsel of record for Plaintiffs on the February 10, 2009 complaint—were also listed as creditors and received direct mailed notice from the FDIC.

¶ 6 On October 8, 2009, sixty-five days after the administrative claims review deadline, Plaintiffs filed a proof of claim with the FDIC “out of an abundance of caution.” On December 3, 2009, the FDIC disallowed the claims because they were not filed by the deadline. On December 18, 2009, the district court issued a Notice of Intent to Dismiss Plaintiffs' claims for failure to prosecute. On January 10, 2010, Plaintiffs notified the Bank and the FDIC that they intended to proceed with their suit to recover the alleged damages. On January 21, 2010, Plaintiffs filed their Notice of Intent to Prosecute. With the case revived and apparently moving forward, the district court entered a scheduling order and the parties exchanged initial disclosures. On October 1, 2010, the FDIC informed Plaintiffs—in a letter that accompanied its initial disclosures—that it was pursuing a motion to dismiss.

¶ 7 Several weeks later, the FDIC filed a motion to dismiss alleging that the district court lacked subject matter jurisdiction because the Plaintiffs had failed to comply with FIRREA. The district court granted the FDIC's motion to dismiss and ruled that the court was deprived of subject matter jurisdiction because the Plaintiffs failed to file a timely proof of claim, as mandated by FIRREA. Plaintiffs filed a timely notice of appeal. We have jurisdiction under Utah Code section 78A–3–102(3)(j).

STANDARD OF REVIEW

¶ 8 The primary issue before us is whether the district court erred when it determined that it lacked subject matter jurisdiction. “Whether a district court has subject matter jurisdiction is a question of law” and we review the district court's determination for correctness.⁵ The district court concluded it lacked subject matter jurisdiction based on its reading of FIRREA. We review the district court's interpretation of a statute for correctness and give no deference to the district court's conclusions of law.⁶ Plaintiffs also argue that the dismissal of their claims was a violation of due process. “Constitutional issues, including questions regarding due process, are questions of law,” and we review the lower court's conclusions for correctness.⁷

ANALYSIS

¶ 9 Plaintiffs present three general challenges to the district court's determination that it lacked subject matter jurisdiction based on FIRREA. First, Plaintiffs contend that FIRREA is not applicable to their claims against the FDIC or the Bank. Second, Plaintiffs argue that even if FIRREA is applicable, they were not required to file a proof of claim with the FDIC because the FDIC did not “trigger” the administrative claims review process. Third, Plaintiffs argue that the dismissal of their complaint denied them due process under the law.

¶ 10 Our decision regarding the subject matter jurisdiction of the district court depends on the requirements of FIRREA. We begin with a review of FIRREA. We conclude that exhaustion of administrative remedies under FIRREA is a prerequisite to the exercise of a district court's subject matter jurisdiction. We then address each of the Plaintiffs' arguments.

I. FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES THROUGH FIRREA'S CLAIMS PROCESS DEPRIVES THE DISTRICT COURT OF SUBJECT MATTER JURISDICTION

A. Overview of FIRREA

¶ 11 FIRREA was passed in response to the financial crisis of the 1980s. ⁸ The purpose of FIRREA was to “revamp[ ] the deposit insurance fund system in order to strengthen the country's financial system.” ⁹ FIRREA abolished the Federal Savings and Loan Insurance Corporation and created the Resolution Trust Corporation (RTC).¹⁰ FIRREA assigned the functions of handling failed financial institutions to the FDIC and RTC. ¹¹ FIRREA gave the FDIC “the authority to act as receiver or conservator for failed institutions”; ¹² and “[a]s a receiver, the FDIC succeeds to ‘all rights, titles, powers, and privileges' of the failed bank.” ¹³ The goal of FIRREA is to expeditiously wind up the affairs of and dispose of the bulk of claims against failed financial institutions. ¹⁴

¶ 12 To aid in the winding up of and disposal of claims against a failed financial institution, FIRREA created an administrative claims review process for institutions in receivership.¹⁵ The process allows a receiver to settle claims against the institution in receivership and liquidate its assets. ¹⁶ After being named, the receiver must promptly publish notice to the institution's creditors, informing them that claims against the bank must be presented by a deadline, which is at least ninety days from the publication notice.¹⁷ The receiver must also publish notice again at one month and two months after the initial publication.¹⁸ The receiver is also required to review and pay any claim received on or before the published deadline, provided that the claim is proven to be legitimate to the satisfaction of the receiver.¹⁹ The receiver has no discretion regarding claims filed after the published deadline and must disallowand deny any late-filed claims.²⁰

¶ 13 The disallowance of late-filed claims is generally final, subject to one exception: if the claimant did not receive notice of the receivership in time to file a claim by the deadline and the claim is filed in time to permit payment of the claim, it may be paid.²¹ The receiver is required to decide the legitimacy of any claim within 180 days of...