Seaway Bank & Trust Company v. J&A Series I, LLC ( 2020 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 19-2268 & 19-2425
SEAWAY BANK & TRUST COMPANY,
Plaintiff-Appellee,
v.
J&A SERIES I, LLC, SERIES C, et al.,
Defendants-Appellants.
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:17-cv-07213 — Charles R. Norgle, Judge.
ARGUED DECEMBER 6, 2019 — DECIDED JUNE 18, 2020
Before ROVNER, BRENNAN, and ST. EVE, Circuit Judges.
ROVNER, Circuit Judge. J&A Series I, LLC, Series C (“J&A
Series”), J&A Investment Group, LLC (“J&A Investment”), and
Adam Ackerman (collectively “J&A Parties”) appeal from the
district court’s dismissal of the petition they filed under 735
ILCS 5/2-1401. We affirm.
2 Nos. 19-2268 & 19-2425
I.
In October of 2012, Seaway Bank & Trust Co. (“Seaway”)
filed an action in the Circuit Court of Cook County against the
J&A Parties and others to collect on two loans issued by its
predecessor in interest. The debts were guaranteed by
Ackerman and secured by a mortgage on a Chicago property.
In August of 2013, the court entered a judgment of foreclosure.
By early 2014, the court had approved the sale of the mort-
gaged property and entered a deficiency judgment against
Ackerman in the amount of $116,381.
In January of 2017, the Illinois Department of Financial and
Professional Regulation, Division of Banking, closed Seaway.
The Federal Deposit Insurance Corporation (“FDIC”) was
appointed as receiver and set a claims bar date of May 3, 2017.
Although the FDIC published notice of the bar date, the J&A
Parties filed no timely claims with the FDIC. Instead, several
months after the bar date, on September 8, 2017, the J&A
Parties filed a Petition to Quash Service (“Petition”) against the
FDIC in the state-court lawsuit that Seaway had filed in 2012.
The Petition, which was filed pursuant to section 2-1401 of the
Illinois Code of Civil Procedure, asserted that Seaway’s 2012
service of process had been defective in several ways.1 The J&A
1
The J&A Parties asserted that: (1) the summonses did not name J&A
Investment or Ackerman; (2) the summonses spelled J&A Series’ name with
an Arabic numeral “1" instead of a Roman numeral “I;” (3) service of
process on J&A Series should have been made upon the Illinois Secretary
of State instead of the registered agent because the limited liability company
had been dissolved; and (4) the affidavit of service did not contain the full
name of J&A Series. These purported defects are not relevant to the
(continued...)
Nos. 19-2268 & 19-2425 3
Parties requested that: (1) the state court quash service of
process as to the J&A Parties; (2) vacate as void all orders that
had been entered against them; (3) find that lack of personal
jurisdiction over the J&A Parties was apparent on the face of
the record; and (4) award any further relief that the court
deemed just. Although they did not expressly seek return of
the property, they argued below that, once the relief sought in
the Petition was granted, they were entitled to restitution in the
form of the return of the title and possession of the property
from the current title holder.2 The FDIC, which had been
named as a party in the Petition, removed the proceeding to
the District Court in the Northern District of Illinois. See 12
U.S.C. § 1819(b)(2)(B) (providing for removal from a state court
to the appropriate federal district court of any action, suit, or
proceeding filed against the FDIC); 28 U.S.C. § 1441 (providing
for removal of civil actions).
The FDIC then sent to each of the J&A Parties a “Notice to
Discovered Claimant to Present Proof of Claim” (“Notice”).
Contemporaneously, the FDIC moved in the district court to
stay the proceedings in order to allow the J&A Parties to
exhaust the mandatory claims process required by the Finan-
cial Institutions Reform, Recovery, and Enforcement Act of
1989 (“FIRREA”). See 12 U.S.C. § 1821(d), subsections (3)
through (13) (setting forth the authority of the FDIC as receiver
to determine claims and the procedures for doing so). The
1
(...continued)
resolution of this appeal.
2
After the foreclosure, the property was sold to a third party.
4 Nos. 19-2268 & 19-2425
Notices advised the recipients that, because the claims bar date
had passed, they were required to submit a proof of claim, and
also prove to the FDIC’s satisfaction that the late-filed claim
exception applied. The court granted the stay but the J&A
Parties did not submit any claims to the FDIC by the Novem-
ber 2018 submission deadline set in the Notices.3
The FDIC then moved to dismiss the proceeding on the
ground that the J&A Parties failed to exhaust the mandatory
FIRREA claims process, and therefore the district court lacked
subject matter jurisdiction over the action. See
12 U.S.C. § 1821(d)(13)(D). The J&A Parties opposed the
motion, arguing that it was unripe for adjudication and that it
sought improper relief. Specifically, the J&A Parties asserted
that FIRREA’s jurisdiction-stripping provision applied only to
claims seeking payment from a failed bank, and that the J&A
Parties’ Petition did not seek payment. Rather, it sought to
quash service and vacate void orders from the original litiga-
tion. Only if the court granted that non-monetary relief, the
J&A Parties argued, could they then pursue restitution in the
form of “possessory relief,” or the return of their property.
They would seek monetary relief only if the property could not
be restored to them, they contended. In essence, the J&A
Parties contended that the FDIC’s motion was not ripe for
adjudication because they were not yet seeking the return of
the property or monetary relief, but also that they were
automatically entitled to the return of their property or
monetary relief should their Petition be granted.
3
The three Notices were sent in late August and early September 2018, and
listed submission deadline dates in late November 2018.
Nos. 19-2268 & 19-2425 5
In reply, the FDIC pointed out that section 1821(d)(13)(D)
is not limited to claims for monetary relief, but bars courts
from reviewing “any claim or any action seeking a determina-
tion of rights with respect to the assets of any depository
institution for which the FDIC-R has been appointed receiver,”
as well as “any claim relating to any act or omission of such
institution or the Corporation as receiver.” All such claims, the
FDIC argued, are first subject to the mandatory administrative
claims process. The district court granted the FDIC’s motion,
finding that it lacked subject matter jurisdiction over the
section 2-1401 Petition because the J&A Parties had failed to
exhaust administrative remedies. The J&A Parties appeal.
II.
On appeal, the J&A Parties challenge the district court’s
conclusion that it lacked jurisdiction over the section 2-1401
Petition. We review de novo the district court’s order dismissing
the J&A Parties’ Petition for lack of subject matter jurisdiction.
Miller v. F.D.I.C., 738 F.3d 836, 840 (7th Cir. 2013). We may
affirm a dismissal for lack of subject matter jurisdiction on any
ground supported by the record. Kowalski v. Boliker, 893 F.3d
987, 994 (7th Cir. 2018). FIRREA, which was enacted in
response to the savings and loan crisis of the 1980s, facilitates
the expeditious and efficient resolution of claims against failed
banks. Miller, 738 F.3d at 840.
To achieve this purpose, FIRREA allows, and
in certain situations requires, the FDIC to
take over failed banks and empowers it as
receiver to allow or disallow claims asserted
against them. … To ensure that claims are
6 Nos. 19-2268 & 19-2425
resolved quickly and efficiently, FIRREA
establishes strict administrative prerequisites
and deadlines that claimants must follow to
lodge their claims and challenge any denials.
… FIRREA bars claimants from taking claims
directly to court without first going through
an administrative determination.
Miller, 738 F.3d at 840 (citations and quotation marks omitted).
The J&A Parties contend that they were not properly served
with process in the underlying foreclosure action in the Circuit
Court of Cook County. As a result, they continue, the Circuit
Court lacked personal jurisdiction over them, and so all orders
entered in that action are void. The Petition asked only that the
court quash service, void the orders, and declare that the lack
of personal jurisdiction was apparent from the face of the
record. The J&A Parties assert that, because the Petition did not
seek financial restitution and asserted no claim for monetary
relief from the FDIC, the jurisdiction-stripping provisions of
section 1821(d)(13)(D) were not implicated, and the Petition
should not have been dismissed.
In the district court, the FDIC argued for dismissal under
either subsection (i) or (ii) of 1821(d)(13)(D). The district court
focused largely on subsection (i) because of the J&A Parties’
argument that they were not seeking monetary relief. The
FDIC now asks us to focus on subsection (ii). Section
1821(d)(13)(D) provides, in its entirety:
Limitation on judicial review
Nos. 19-2268 & 19-2425 7
Except as otherwise provided in this subsec-
tion, 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 Corporation has
been appointed receiver, including assets
which the Corporation may acquire from
itself as such receiver; or
(ii) any claim relating to any act or omission
of such institution or the Corporation as
receiver.
12 U.S.C. § 1821(d)(13)(D).4 To the extent that subsection (i) is
limited to claims for payment (an issue we need not address
here), subsection (ii) is not so constrained. Under the facts
presented here, we find subsection (ii) to be the better fit for
addressing the relief sought in the Petition.
Under subsection (ii), “[c]ourts lack authority to review
FIRREA claims ‘relating to any act or omission’ of a failed bank
or of the FDIC as receiver of a failed bank unless they are first
subjected to FIRREA's administrative claims process.” Farnik
v. F.D.I.C., 707 F.3d 717, 722 (7th Cir. 2013). That is precisely the
nature of the J&A Parties’ claim here. Under Illinois law, “a
plaintiff has a nondelegable duty to (1) assure the clerk issued
4
The “[e]xcept as otherwise provided” clause refers back to section
1821(d)(6). That section allows claimants to seek judicial review of their
claims after first exhausting the administrative process. Miller, 738 F.3d at
844–45; Westberg v. F.D.I.C., 741 F.3d 1301, 1303 (D.C. Cir. 2014).
8 Nos. 19-2268 & 19-2425
the summons, (2) deliver the summons to the process server
for service, and (3) see the process server made a prompt and
proper return.” Smith v. Menold Constr., Inc., 811 N.E.2d 357,
362 (Ill. App. Ct. 2004). See also John Isfan Constr., Inc. v.
Longwood Towers, LLC, 52 N.E.3d 510, 517–18 (Ill. App. Ct. 2016)
(when a limited liability company has been dissolved, “a
plaintiff is required to serve process upon the Secretary of
State, and it must also serve copies at the company's last
registered office as well as the address that the plaintiff
believes is most likely to result in actual notice. 805 ILCS
180/1–50(c)”). The J&A Parties asserted in their Petition that
Seaway, the failed bank for which FDIC serves as receiver,
failed to fulfill its duties with respect to service of process in
the foreclosure action. See note 1, supra. That failure, in turn,
resulted in the entry of void orders, they contend, orders that
wrongfully deprived them of their property. Because the J&A
Parties’ claims relate to an act or omission of the failed bank,
they were required to exhaust the FIRREA administrative
claims process. Because they did not do so within the time
permitted, the court lacked authority to consider their claims.
In response to this direct application of the statute, the J&A
Parties contend that subsection (ii) is not implicated because it
applies only to “claims” and they assert that their Petition does
not present a “claim.”5 They relatedly argue that a “claim” in
5
The J&A Parties concede that section 2-1401 petitions “are essentially
complaints inviting responsive pleadings.” People v. Vincent, 871 N.E.2d 17,
23 (Ill. 2007). Section 2–1401 authorizes a trial court to vacate or modify a
final order or judgment in civil and criminal proceedings. People v. Daniels,
83 N.E.3d 4, 7 (Ill. App. Ct. 2017). “A proceeding under section 2–1401
(continued...)
Nos. 19-2268 & 19-2425 9
the context of the statute must be limited to demands for
monetary relief, an assertion contradicted by the broad
language of the statute, as we have already noted. And they
revive their argument that dismissal was premature because
their ultimate claim for restitution in the form of possessory
relief will not ripen unless and until a court quashes service
and declares the orders in the underlying litigation void.
The statute does not define the word “claim,” but several
courts have addressed the meaning of that term. As used in
FIRREA, the word “claim” is “a term-of-art that refers only to
claims that are resolvable through the FIRREA administrative
process.” Willner v. Dimon, 849 F.3d 93, 106 (4th Cir. 2017)
(quoting American Nat’l Ins. Co. v. F.D.I.C., 642 F.3d 1137, 1142
(D.C. Cir. 2011)). See also Hudson United Bank v. Chase
Manhattan Bank of Conn., N.A., 43 F.3d 843, 848–49 (3d Cir.
1994) (“Logic dictates that the claims barred by paragraph
(13)(D) must coincide with those that may be filed under the
administrative procedures of paragraph (5).”). Moreover,
claims under subsection (ii) are not limited to monetary relief
but may include declaratory or other relief. See Westberg, 741
F.3d at 1305 n.1. See also Willner, 849 F.3d at 107 (collecting
cases).
The J&A Parties contend that their claims seeking to quash
service and vacate as void all orders entered against them are
not resolvable in the FIRREA administrative process because
5
(...continued)
constitutes an independent and separate action from the original action[.]”
Warren County Soil & Water Conservation Dist. v. Walters, 32 N.E.3d 1099,
1105 (Ill. 2015).
10 Nos. 19-2268 & 19-2425
only an Illinois court may void the orders. But the J&A Parties
make clear that their ultimate goal is not simply to void state
court orders; rather, they argue that once service is quashed
and the orders voided, they are automatically entitled to
restitution. In opposing the motion to dismiss filed by the FDIC
below, the J&A Parties insisted that they were entitled to
restitution in the form of possessory relief once the court
granted the Petition:
Restitution is the right of an aggrieved party.
Ordering restitution is the obligation of a court
responsible for an erroneous judgment. As
such, if this Court should gran Petitioners’
petition to quash and vacate the void orders
against them, then it must order restitution.
… Here, the subject property must be re-
stored to Petitioners to achieve a return to the
status quo ante.
R.16, at 6–7 (emphasis in original). In fact, they sought a
declaration that the lack of personal jurisdiction was apparent
from the face of the record because section 2-1401(e) protects
bona fide third-party purchasers of real property from chal-
lenges to their rights under section 2-1401(f) unless the lack of
jurisdiction was apparent on the face of the record. See 735
ILCS 5/2-1401(e)-(f). This makes clear the nature of the relief
that the J&A Parties were seeking. The J&A Parties further
argued that they would not be entitled to monetary relief
unless the property could not be restored to them, at which
point the proceeds from the sale of the property would be the
appropriate relief. All of this demonstrates that the goal of the
Petition was not simply to quash service or void orders in the
Nos. 19-2268 & 19-2425 11
abstract; the J&A Parties wanted their property back in the
form of possession or financial compensation. Critically, they
contended that they were entitled to that relief because of an
“act or omission” of the failed bank for which the FDIC serves
as receiver. Farnik, 707 F.3d at 722.
Moreover, contrary to their assertion, the relief that the J&A
Parties seek is within the power of the FDIC to provide
through the mandatory administrative claims process and
therefore meets the definition of a claim. The FDIC notes that
it could have allowed an unsecured claim, for example, in the
amount of the value of the property. The FDIC could also have
entered into an agreed order to vacate the original judgment.
If the J&A Parties had timely made this claim for the return of
the property and the FDIC had disallowed it or offered
inadequate relief, the J&A Parties would have been entitled
under the statute to bring the matter to the district court for de
novo review. Farnik, 707 F.3d at 721; 12 U.S.C. § 1821(d)(6)(A).
By attempting to bypass the mandatory claims process
altogether, the J&A Parties waived any argument that the FDIC
could not provide adequate relief. Willner, 849 F.3d at 109 (by
not timely submitting a claim to the FIRREA claims process,
claimants waived their argument about how the FDIC would
have resolved it); Westberg, 741 F.3d at 1308 n.3 (claimants may
not circumvent FIRREA’s exhaustion requirement by declining
to pursue the remedies available to them and later arguing that
such remedies are ineffective).
In their quest for restitution, the J&A Parties sought to
avoid the mandatory administrative claims process through
artful pleading. See Farnik, 707 F.3d at 722–23 (in applying
section 1821(d)(13)(D)(ii), the court focuses “on the substance
12 Nos. 19-2268 & 19-2425
of a claim rather than its form”). But “[l]itigants cannot avoid
FIRREA’s administrative requirements through strategic
pleading.” Benson v. JPMorgan Chase Bank, N.A., 673 F.3d 1207,
1209 (9th Cir. 2012). Because the FDIC, through the administra-
tive claims process, had the power to remedy the wrong that
the J&A Parties claim to have suffered, the district court
correctly concluded that it was without jurisdiction to entertain
the Petition.
Before we conclude, we must address one final issue. After
stating in its briefs that the district court had jurisdiction to
resolve this matter, the J&A Parties asserted for the first time
at oral argument that the district court lacked jurisdiction over
the matter under the Rooker-Feldman doctrine, and that remand
to the state court was appropriate. See Rooker v. Fidelity Trust
Co., 263 U.S. 413 (1923); District of Columbia Court of Appeals v.
Feldman, 460 U.S. 462 (1983). Because the Rooker-Feldman bar is
jurisdictional, this objection may not be waived. Lennon v. City
of Carmel, Ind., 865 F.3d 503, 506 (7th Cir. 2017).
Recall that the FDIC removed the case to the district court
under 12 U.S.C. § 1819(b)(2)(B), which allows removal to
federal court of any suit (with an exception that does not apply
here) filed against the FDIC. Section 1819(b)(2)(A) provides
(with the same inapplicable exception) that “all suits of a civil
nature at common law or in equity to which the [FDIC], in any
capacity, is a party shall be deemed to arise under the laws of
the United States.” See also F.D.I.C. v. RLI Ins. Co., 784 F.3d
1104, 1108 (7th Cir. 2015) (noting that the “district court had
subject-matter jurisdiction over the suit under 12 U.S.C.
§ 1819(b)(2)(A), which provides that civil suits to which FDIC
is a party arise under the laws of the United States”);
Nos. 19-2268 & 19-2425 13
Buczkowski v. F.D.I.C., 415 F.3d 594, 595 (7th Cir. 2005) (noting
that, with certain exceptions, all suits against the FDIC in any
of its capacities “shall be deemed to arise under the laws of the
United States” and hence may be removed under 28 U.S.C.
§ 1441(b)). See also 28 U.S.C. § 1331 (“The district courts shall
have original jurisdiction of all civil actions arising under the
Constitution, laws, or treaties of the United States.”). The
district court was thus well within its authority to determine
whether exhaustion under FIRREA’s administrative claims
process was required. Having concluded that it was, and
having determined that the J&A Parties failed timely to
exhaust their claims, dismissal for lack of subject-matter
jurisdiction under section 1821(d)(13)(D)(ii) was appropriate.
Remand to the state court would have been improper because
section 1821(d)(13)(D) provides that, in the absence of exhaus-
tion of that process, “no court shall have jurisdiction over” a
claim. Miller, 738 F.3d at 844–45. That includes state courts. Cf.
Mains v. Citibank, NA, 852 F.3d 669, 678–79 (7th Cir. 2017)
(finding a claim barred by both Rooker-Feldman and section
1821(d)(13)(D)).
AFFIRMED.