Tellado v. IndyMac Mortgage Services , 707 F.3d 275 ( 2013 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 11-2708 AND 11-3249
JOSE TELLADO; MARIA TELLADO
v.
INDYMAC MORTGAGE SERVICES, a division of One
West Bank, FSB;
HOME FUNDING GROUP, LLC
IndyMac Mortgage Services,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D. C. No. 2-09-cv-05022)
District Judge: Honorable Petrese B. Tucker
Argued on September 10, 2012
Before: SCIRICA, ROTH and BARRY, Circuit Judges
(Opinion filed: February 11, 2013)
Martin C. Bryce, Jr., Esquire (Argued)
Damian L. DiNicola, Esquire
Ballard Spahr
1735 Market Street
51st Floor
Philadelphia, PA 19103
Counsel for Appellant
Justin K. Miller, Esquire
C. Paul Scheuritzel, Esquire
Larsson & Scheuritzel
1500 Market Street
Centre Square West, Suite 3510
Philadelphia, PA 19102
Counsel for Appellant
Andrew J. Soven, Esquire
Reed Smith
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103
Scott M. Michelman, Esquire (Argued)
Public Citizen Litigation Group
1600 20th Street, N. W.
Washington, D. C. 20009
Margaret E. Robinson, Esquire
Irwin L. Trauss, Esquire
Philadelphia Legal Assistance
42 South 15th Street
Suite 500
Philadelphia, PA 19102
Counsel for Appellees
OPINION
ROTH, Circuit Judge:
This appeal is from the District Court’s order to cancel
a mortgage loan made by IndyMac Bank, FSB, to Jose and
Maria Tellado. After IndyMac failed and was placed into
receivership, with the Federal Deposit Insurance Corporation
(FDIC) as its receiver, the mortgage loan was purchased from
the FDIC by OneWest Bank, FSB. OneWest challenges the
District Court’s August 8, 2011, order directing OneWest to
cancel the loan and refund to the Tellados all payments made
2
under the mortgage loan agreement. OneWest also
challenges the $10,000 penalty that the District Court levied
against OneWest for failing to comply with the District
Court’s order to produce its Chief Executive Officer (CEO) at
trial. For the reasons that follow, we will reverse both the
District Court’s August 8, 2011, order and the penalty order.
penalty order.
I. FACTS
In June 2007, Jose Tellado heard a Spanish-language
radio advertisement for mortgage refinancing services. When
he called the number provided, he reached Carlos Enrique
and spoke with him exclusively in Spanish to arrange a
refinancing of their existing mortgage on their home at 519
Morris Street in Philadelphia, Pennsylvania. Enrique helped
Tellado and his wife, Maria, with the submission of a loan
application and arranged for a closing agent to visit the
Tellados’ home. Philip Bloom, a closing agent and notary
acting as a representative of IndyMac, conducted the closing
at the Tellados’ home. The relevant loan documents which he
provided to them, including the notice of the right to cancel,
were in English. Oral communications between Bloom and
the Tellados, who speak primarily Spanish, were conducted
through Marcelina Fuster, the Tellados’ daughter, who served
as an interpreter. She translated Bloom’s verbal instructions
and his explanations of the loan documents.
The lender on the mortgage was IndyMac, a federally
chartered savings bank. IndyMac subsequently failed, and on
July 11, 2008, it was entered into FDIC receivership. On
March 18, 2009, the FDIC transferred the Tellados’ loan, in
addition to other loans formerly owned by IndyMac, to
OneWest under a Master Purchase Agreement (MPA).
Pursuant to the MPA, OneWest assumed only certain
liabilities.
On August 5, 2009, the Tellados sent a notice of
cancellation to IndyMac Mortgage Services, a division of
OneWest, stating that they sought to cancel the loan pursuant
to Pennsylvania’s Unfair Trade Practices and Consumer
Protection Law (UTPCPL), 73 P.S. § 201-7. In the notice,
they explained that the basis for their cancellation was that
3
they had received all documents related to the mortgage,
including the notice of the right to cancel, in English while all
prior oral discussions relating to the transaction had been
conducted in Spanish. They notified OneWest of their intent
to file suit if they did not receive a response within ten days.
When OneWest did not respond, the Tellados filed suit in
Pennsylvania state court on August 24, 2009. 1 On October
27, 2009, they filed an amended complaint seeking a
determination that the loan was void and that OneWest had
forfeited the right to any further payment or, in the
alternative, seeking triple damages based on the amount of
the payments they had made on the loan or on the amount of
the security interest retained in their home. On November 2,
2009, OneWest removed the case to the District Court. 2
OneWest then filed a motion to dismiss under Rule
12(b)(6), a motion for summary judgment, and a motion to
dismiss for lack of subject matter jurisdiction. The District
Court denied all of these requests for relief. On November 3,
2010, the District Court scheduled the case for a bench trial
beginning on November 8. In the scheduling order, the
District Court also ordered the CEO of OneWest to appear at
the trial.
After the bench trial, the District Court ruled in the
Tellados’ favor. The court found that the loan transaction,
from the initial contact through the loan closing, was
conducted in Spanish. The court, therefore, held that the
UTPCPL, 73 P.S. § 201-7, governed the transaction because
the Tellados had purchased mortgage refinancing services for
a price in excess of twenty-five dollars. Under 73 P.S. § 201-
7, the Tellados could cancel the transaction within three days
of receiving a valid notice of the right to cancel in the same
1
The named defendant in the suit was formally IndyMac
Mortgage Services, the division of OneWest that legally held
the Tellados’ mortgage.
2
OneWest also responded to the Tellados in a letter dated
October 15, 2009, denying their request to rescind the
mortgage, and on November 3, 2009, it sent them a notice of
its intention to foreclose.
4
language as that principally used in the oral sales
presentation. Because IndyMac had not provided notice in
Spanish, the language of the loan transaction, the District
Court held that IndyMac had failed to provide proper notice
and the three-day cancellation period had never begun to run.
The District Court found that the written cancellation the
Tellados provided to OneWest on August 9, 2009, was
effective and binding. The District Court ordered OneWest to
refund to the Tellados all payments that had been made on the
mortgage, terminate its security interest in the Tellados’
home, and return any negotiable instrument executed in
connection with the transaction. The court also permitted the
Tellados to keep the principal that had originally been lent to
them by IndyMac.
Subsequently, without further notice or hearing, the
District Court on December 1, 2010, imposed a $10,000
penalty on OneWest under Rule 16(f)(1)(C) because
OneWest’s CEO had not appeared at trial as provided for in
the court’s scheduling order. 3 OneWest appealed. It
argues that the District Court erred in multiple ways in
finding for the Tellados after trial and in denying OneWest’s
motions to dismiss and for summary judgment. OneWest
also contends that the District Court erred in imposing a
$10,000 penalty because OneWest had failed to follow the
order requiring the presence of its CEO at trial.
II. DISCUSSION
We have appellate jurisdiction over this appeal of the
District Court’s final order under 28 U.S.C. § 1291. “On the
appeal of a bench trial, we review a district court’s findings of
3
OneWest filed a Motion to Alter, Amend or Otherwise
Clarify the December 1, 2010, Order and to Stay Enforcement
of the Sanction on December 29, 2010. On June 17, 2011,
the District Court entered an order stating that the penalty was
to be borne solely by OneWest and not by its CEO. It also
denied OneWest’s request to stay the penalty. OneWest
appealed the December 1, 2010, order on June 22, 2011, and
paid the penalty on June 27, 2011. OneWest also appealed
the penalty in its August 18, 2011, appeal of the District
Court’s August 8, 2011, order.
5
fact for clear error and its conclusions of law de novo.”
McCutcheon v. America’s Servicing Co., 560 F.3d 143, 147
(3d Cir. 2009).
A. Subject Matter Jurisdiction
OneWest argues that the District Court lacked subject
matter jurisdiction over the Tellados’ claim based on the
Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (FIRREA). Whether subject matter jurisdiction
exists is “a legal question over which we exercise plenary
review.” Nat. Union Fire Ins. Co. of Pittsburgh v. City
Savings, F.S.B., 28 F.3d 376, 383 (3d Cir. 1994).
FIRREA, which was passed in response to the savings
and loan crisis of the 1980s, gives the FDIC the authority to
act as receiver or conservator for failed institutions. Benson v.
JPMorgan Chase Bank, N.A., 673 F.3d 1207, 1211 (9th Cir.
2012). The statute also creates an administrative claims
process for institutions in receivership and limits judicial
review of certain claims. See 12 U.S.C. § 1821(d)(3)-(13).
Section 1821(d)(13)(D) provides:
Except as otherwise provided in this subsection, no
court shall have jurisdiction over—
(i) any claim or action for payment from, or any action
seeking a determination of rights with respect to, the
assets of any depository institution for which the
[FDIC] has been appointed receiver, including assets
which the [FDIC] may acquire from itself as such
receiver; or
(ii) any claim relating to any act or omission of such
institution or the [FDIC] as receiver.
12 U.S.C. § 1821(d)(13)(D). We have interpreted section
1821(d)(13)(D) to be a “statutory exhaustion requirement: in
order to obtain jurisdiction to bring a claim in federal court,
one must exhaust administrative remedies by submitting the
claim to the receiver in accordance with the administrative
scheme for adjudicating claims detailed in § 1821(d).” Nat.
Union Fire Ins. Co. of Pittsburgh, 28 F.3d at 383; see also
6
Rosa v. Resolution Trust Corp., 938 F.2d 383, 391 (3d Cir.
1991).
The District Court determined that it had subject
matter jurisdiction over the Tellados’ claim against OneWest
without directly addressing whether the jurisdictional bar in
section 1821(d)(13)(D) applied. 4 OneWest argues that
section 1821(d)(13)(D) precluded the District Court from
exercising jurisdiction over this claim because the claim is
predicated upon an act or omission of IndyMac, specifically
IndyMac’s failure at closing to provide notice in Spanish of
the right to cancel, and because the Tellados failed to exhaust
their administrative remedies under FIRREA.
We agree. Under section 1821(d)(13)(D)(ii), courts do
not have jurisdiction over a “claim relating to any act or
omission of such institution or the [FDIC] as receiver.” 12
U.S.C. § 1821(d)(13)(D)(ii). We have interpreted “such
institution” in section 1821(d)(13)(D)(ii) to refer back to the
“depository institution for which the [FDIC] has been
appointed receiver” which is identified in section
1821(d)(13)(D)(i). Rosa, 938 F.2d at 392. Here, the
Tellados’ claim against the purchasing bank, OneWest,
relates to an omission of the depository institution, IndyMac.
We have not previously addressed whether FIRREA’s
jurisdictional bar applies to claims against a purchasing bank
based on the conduct of the depository institution or receiver,
but several other circuits have concluded that it does apply.
See Benson, 673 F.3d at 1214; Am. Nat’l Ins. Co. v. FDIC,
642 F.3d 1137, 1144 (D.C. Cir. 2011); Vill. of Oakwood v.
State Bank & Trust Co., 539 F.3d 373, 386-87 (6th Cir.
2008).
In Benson, the Ninth Circuit Court of Appeals
determined that claims brought against a purchasing bank,
based on the failed bank’s alleged malfeasance in connection
with a Ponzi scheme, were jurisdictionally barred under
section 1821(d)(13)(D) because “[t]he bulk of plaintiffs’
4
The District Court made an oral ruling from the bench that it
did have jurisdiction and, on November 30, 2010, denied as
moot OneWest’s motion to dismiss for a lack of subject
matter jurisdiction.
7
claims plainly qualify as ‘functionally, albeit not formally’
against a failed bank.” 673 F.3d at 1215 (citing Am. Nat’l Ins.
Co., 642 F.3d at 1144 (“Where a claim is functionally, albeit
not formally, against a depository institution for which the
FDIC is receiver, it is a ‘claim’ within the meaning of
FIRREA’s administrative claims process.”)). The court
further noted that “[c]laims of independent misconduct by an
institution that purchases a failed bank are not covered by
FIRREA’s exhaustion requirement” but found that the
plaintiffs had not adequately pled a claim based on the
assuming bank’s independent, post-purchase conduct. Id. at
1215-17.
As in Benson, the Tellados’ claim is functionally,
albeit not formally, against IndyMac. The Tellados
characterize their claim as a claim against OneWest for its
own misconduct, pointing to OneWest’s failure to cancel the
loan in response to the Tellados’ August 2009 notice of
cancellation. However, as the District Court correctly held,
the Tellados’ notice of cancellation was valid only because
IndyMac had failed to provide proper notice of the right to
cancel and as a result the cancellation period had not begun to
run. Without IndyMac’s wrongdoing, the Tellados would
have no right to cancel and therefore no claim. Thus, the
Tellados’ claim is not a claim of independent misconduct by
OneWest; rather, it relates to an act or omission of the
depository institution, IndyMac, and is, therefore,
jurisdictionally barred under section 1821(d)(13)(D)(ii).
The Tellados contend, however, that their claim is
based on OneWest’s failure to honor their August 2009
cancellation demand. Thus, they claim, it is not susceptible
of resolution through FIRREA’s administrative process and is
not a claim within the meaning of section 1821(d)(13)(D)(ii).
The Tellados attempt to bolster this argument with the fact
that the deadline to present an administrative claim under
FIRREA could have expired as early as October 2008, before
their August 2009 cancellation demand.
However, as already established, their claim is wholly
dependent upon IndyMac’s wrongdoing. In Village of
Oakwood, the Sixth Circuit Court of Appeals, holding that
claims asserted against the assuming bank but “directly
8
related to acts or omission of the FDIC as receiver of
Oakwood” were jurisdictionally barred, reasoned that
“permit[ting] claimants to avoid [the] provisions of (d)(6) and
(d)(13) by bringing claims against the assuming bank . . .
would encourage the very litigation that FIRREA aimed to
avoid.” 539 F.3d at 386 (internal quotation marks omitted).
The D.C. Circuit Court of Appeals similarly cautioned in
American National Insurance Company that “plaintiffs
cannot circumvent FIRREA’s jurisdictional bar by drafting
their complaint strategically.” 642 F.3d at 1144. The fact that
the deadline for bringing a claim through the administrative
process may have passed does not convert the Tellados’ claim
into a claim “not susceptible of resolution through the claims
procedure.” Because the Tellados’ claim is functionally
against IndyMac, it is a claim within the meaning of
FIRREA’s administrative process. The Tellados cannot
bypass the requirements of FIRREA by bringing the claim
against OneWest.
For these reasons, the entirety of the Tellados’ claim is
jurisdictionally barred under section 1821(d)(13)(D), and the
District Court did not have subject matter jurisdiction over it. 5
B. Penalty Order
1. Jurisdiction
Because we find the District Court lacked subject
matter jurisdiction over the underlying matter, we must now
determine whether the District Court also lacked jurisdiction
to impose the $10,000 penalty against OneWest for failing to
comply with the order to produce its CEO at trial. “A final
determination of lack of subject-matter jurisdiction of a case
in a federal court . . . does not automatically wipe out all
proceedings had in the district court at a time when the
district court operated under the misapprehension that it had
5
Because we find section 1821(d)(13)(D) bars jurisdiction
here, we will not go on to determine if the MPA preempts
Pennsylvania law or if the Home Owners’ Loan Act and its
implementing regulations, 12 C.F.R. §§ 560.2(a) and (b),
preempt the Tellados’ claim.
9
jurisdiction.” Willy v. Coastal Corp., 503 U.S. 131, 137
(1992); see also In re Orthopedic “Bone Screw” Prod. Liab.
Litig., 132 F.3d 152, 156 (3d Cir. 1997) (“[D]espite the
inability of a court to decide the merits of a case over which it
lacks jurisdiction, a court does have the inherent authority
both over its docket and over the persons appearing before
it.”).
Sanctions have been upheld in the absence of subject
matter jurisdiction when the sanctions order is collateral to
the merits. See Willy, 503 U.S. at 138 (upholding Rule 11
sanctions in a case in which the district court was later found
to lack subject matter jurisdiction because the sanctions order
did not “raise the issue of a district court adjudicating the
merits of a ‘case or controversy’ over which it lacks
jurisdiction”); In re Orthopedic “Bone Screw” Prod. Liab.
Litig., 132 F.3d at 157 (vacating a sanctions order dismissing
the case with prejudice when the district court was later
determined to lack subject matter jurisdiction because the
dismissal with prejudice had “the effect of adjudicating the
merits of the case” but upholding a $500 monetary sanction
against a litigant for failure to appear at a hearing). However,
a civil contempt order would fall in the absence of subject
matter jurisdiction. See U.S. Catholic Conference v. Abortion
Rights Mobilization, Inc., 487 U.S. 72, 80 (1988) (holding
that a civil contempt order for refusal to comply with a
subpoena would fall if the district court lacked subject matter
jurisdiction). In Willy, the Supreme Court distinguished
between a civil contempt order and a Rule 11 sanction, noting
that “[c]ivil contempt is designed to force the contemnor to
comply with an order of the court” whereas “Rule 11 is
designed to punish a party who has already violated the
court’s rules.” Willy, 503 U.S. at 139. On that basis, the
Court reasoned that a civil contempt order “should fall with a
showing that the court was without authority to enter the
decree,” but a Rule 11 sanction, grounded in “[t]he interest in
having the rules of procedure obeyed,” should not. Id.Here, the penalty order for defying the District Court’s
order requiring the presence of OneWest’s CEO at trial is
collateral to the merits of the underlying action. Additionally,
although issued under Rule 16(f)(1)(C), the penalty order is
analogous to the Rule 11 sanctions in Willy because it was
10
designed to punish OneWest for its past violation of the order
requiring the CEO’s presence at trial. See Olcott v. Delaware
Flood Co., 76 F.3d 1538, 1553 (10th Cir. 1996) (finding
sanctions pursuant to Rules 16(f) and 37(b) analogous to Rule
11 sanctions in Willy and thus enforceable in the absence of
subject matter jurisdiction). Issued after the conclusion of the
trial, the penalty order could not effectively coerce
compliance with an order requiring the CEO’s presence at
trial and thus is unlike a civil contempt order.
For these reasons, we find that the penalty order does
not fall away based on the District Court’s lack of subject
matter jurisdiction over the underlying matter.
2. Due Process
OneWest challenges the penalty order on several other
grounds. We address OneWest’s argument that the penalty
order violates due process.
We review sanctions orders for abuses of discretion,
but “when the procedure the district court uses in imposing
sanctions raises due process issues of fair notice and the right
to be heard . . ., our review is plenary.” Martin v. Brown, 63
F.3d 1252, 1262 (3d Cir. 1995). “A finding of contempt,
even under the auspices of Rule 16, must satisfy due process
requirements. . . . Due process requires that a potential
contemnor be given notice and a hearing regardless of
whether the contempt is civil or criminal in nature.” Newton
v. A.C. & S., Inc., 918 F.2d 1121, 1127 (3d Cir. 1990)
(internal citations omitted). In Newton, we held that “a court
may not find a party or counsel in civil contempt for settling a
case after a deadline fixed by the court without affording
them their due process rights of adequate notice and a prior
hearing.” Id. at 1129.
Here, the District Court imposed the $10,000 penalty
without providing the parties notice or a hearing on the issue.
The District Court heard argument regarding OneWest’s
failure to comply with the order requiring the CEO’s presence
at trial but did not issue the penalty order at that time or give
notice of a possible penalty then or at any time prior to
issuing the order. Nor was there a separate hearing on the
11
issue of the penalty. Accordingly, the District Court violated
due process requirements by not giving OneWest notice or
the opportunity to be heard.
We conclude that the penalty must be reversed on this
basis. Normally, we would vacate the order and remand the
case to the District Court for further consideration of the
penalty. However, we see nothing in the facts of this case
that would justify a penalty. Therefore, the penalty order
cannot stand.
III. CONCLUSION
For the foregoing reasons, we will reverse the District
Court’s Order of August 8, 2011, and the penalty order.
12