Mark Waldron v. Fdic , 935 F.3d 844 ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MARK D. WALDRON, Chapter 7 No. 18-35375
Trustee for Venture Financial Group,
Inc., D.C. No.
Plaintiff-Appellee, 3:16-cv-05907-
RBL
v.
FEDERAL DEPOSIT INSURANCE OPINION
CORPORATION, in its capacity as
Receiver of Venture Bank,
Defendant-Appellant.
Appeal from the United States District Court
for the Western District of Washington
Ronald B. Leighton, District Judge, Presiding
Argued and Submitted June 10, 2019
Anchorage, Alaska
Filed August 28, 2019
Before: A. Wallace Tashima, William A. Fletcher,
and Marsha S. Berzon, Circuit Judges.
Per Curiam Opinion
2 WALDRON V. FDIC
SUMMARY *
Bankruptcy
The panel reversed the district court’s judgment
affirming the bankruptcy court’s decision after a bench trial
in favor of the chapter 7 trustee for the bankruptcy estate of
a failed bank’s parent company, on a claim for recovery as a
preferential transfer of tax refunds obtained by the FDIC,
receiver of the failed bank.
Agreeing with other circuits, the panel held that the
FDIC’s appeal was timely filed within 60 days of entry of
the district court’s judgment because, even though acting
solely as a receiver, the FDIC was a United States agency
under Federal Rule of Appellate Procedure 4(a)(1)(B)(ii).
Reversing and remanding, the panel held that the
Financial Institutions Reform, Recovery, and Enforcement
Act divested the bankruptcy court of jurisdiction because the
bankruptcy trustee did not exhaust required administrative
remedies before filing the preference action. The panel held
that the Parker exhaustion exception did not apply because
the preference action did not arise incident to the FDIC’s
collection efforts against the debtor. Declining to expand the
Parker exception, the panel held that, because the trustee
failed to exhaust, the bankruptcy court lacked subject matter
jurisdiction over his claims.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
WALDRON V. FDIC 3
COUNSEL
Joseph Brooks (argued), Counsel; Katheryn R. Norcross,
Senior Counsel; Colleen J. Boles, Assistant General
Counsel; Federal Deposit Insurance Corporation, Arlington,
Virginia; for Defendant-Appellant.
Andrew H. Morton (argued) and Dillon E. Jackson, Foster
Pepper PLLC, Seattle, Washington, for Plaintiff-Appellee.
OPINION
PER CURIAM:
The Federal Deposit Insurance Corporation (“FDIC”)
obtained approximately $8.4 million in tax refunds as part of
its receivership over a failed bank. The bank’s parent
company declared bankruptcy. Mark Waldron, the
bankruptcy estate’s trustee, contended that the tax refunds
should be considered part of the bankruptcy estate, and the
bankruptcy court agreed. But Waldron did not exhaust the
administrative claims process as required by the Financial
Institutions Reform, Recovery, and Enforcement Act of
1989 (“FIRREA”). We hold that because of the failure to
exhaust, the bankruptcy court did not have subject-matter
jurisdiction over this dispute.
I
Venture Bank (“the Bank”) is a wholly owned subsidiary
of Venture Financial Group, Inc. (“VFG”). For each tax year
before 2009, VFG filed consolidated federal tax returns on
behalf of both entities, in accordance with a 1993 tax
allocation agreement (“TAA”) between VFG and the Bank.
The TAA set forth guidelines for how the consolidated tax
4 WALDRON V. FDIC
returns would be handled, specifying that, “[f]or each
taxable period, each subsidiary of the Affiliated Group shall
compute its separate tax liability as if it had filed a separate
tax return and shall pay such amount to the Parent.” It further
provides that “in the case of a refund, the Parent shall make
payment to each member for its share of the refund.” The
TAA has remained in place and unchanged since its
execution.
In September 2009, Washington State banking
regulators closed the Bank and placed it into federal
receivership; the FDIC was appointed as the Bank’s
receiver. In July 2011, the FDIC submitted a request to the
IRS to allow the FDIC to serve as an alternative agent for the
Bank’s affiliated group, per Treasury Regulation
§ 301.6402-7(c). The FDIC sought to file amended tax
returns carrying back losses incurred by the Bank and
claiming refunds not previously pursued. The FDIC notified
VFG of this request. Although VFG objected to “the FDIC
being [its] agent with the IRS,” 1 the IRS granted the FDIC’s
request to act as an alternative agent. Between August 2011
and September 2013, the FDIC filed a series of amended tax
returns to recover refunds owed to the Bank.
In October 2013, VFG filed for chapter 7 bankruptcy.
Mark Waldron was selected as the chapter 7 trustee. In
response to the bankruptcy petition, the FDIC filed a
protective proof of claim, declaring that the pending tax
refunds were property of the FDIC, not VFG or its
1
VFG did not object to the filing of the amended returns. VFG’s
letter to the IRS indicated that it planned to file an amended 2009 tax
return itself, and acknowledged that “[m]ost of that refund will go to
FDIC as Receiver of Venture Bank, and we have no objection to their
portion of the refund being paid directly to the FDIC.”
WALDRON V. FDIC 5
bankruptcy estate, but stating a claim for payments from the
estate should the VFG or the bankruptcy estate be
determined to be owner of the refunds. The FDIC did not file
a claim for any amount beyond the tax refunds.
Ultimately, the IRS accepted the FDIC’s refund requests
and paid the refunds with interest. The IRS paid some of the
refunds before VFG filed for bankruptcy, and some after. In
total, the FDIC received $8,471,982.36 in tax refunds from
the IRS. 2
In August 2014, Waldron filed this preference action in
bankruptcy court against the FDIC, seeking to recover the
tax refunds obtained by the FDIC as a preferential transfer.
The FDIC moved to dismiss the complaint, arguing, among
other things, that the bankruptcy court lacked jurisdiction
over Waldron’s claims because he had failed to exhaust the
administrative claims process as required by FIRREA, Pub.
L. No. 101-73, 103 Stat. 183. The bankruptcy court denied
the motion.
After a bench trial, the bankruptcy court issued a
decision. The court first reiterated its conclusion that it had
subject-matter jurisdiction despite Waldron’s failure to
exhaust administrative remedies, then interpreted the 1993
TAA to “establish[] a creditor-debtor relationship between
VFG and the Bank.” According to the bankruptcy court,
“[a]ny tax refunds received were the property of VFG, and
the Bank merely held a claim for payment against VFG for
its share of the funds.” In so ruling, the bankruptcy court
2
At the FDIC’s request, the IRS separately paid $164,485.79 to the
VFG, representing its share of the refunds requested in the amended tax
returns for 2004 and 2005, with interest. These funds are not in dispute.
6 WALDRON V. FDIC
rejected the FDIC’s argument that the “Bob Richards rule”
applies in this case. See In re Bob Richards Chrysler-
Plymouth Corp., Inc., 473 F.2d 262, 265 (9th Cir. 1973) 3
(establishing the default rule that, absent an agreement to the
contrary, tax refunds belong to the entity whose losses
formed the basis for the refunds). Thus, the court held, the
bankruptcy estate was entitled to the refunds as a voidable
preference.
The FDIC appealed the bankruptcy court’s decision to
the U.S. District Court for the Western District of
Washington. The district court affirmed the bankruptcy
court’s decision and entered final judgment on March 20,
2018. Forty-two days later, on May 1, 2018, the FDIC filed
its notice of appeal.
II
We first discuss whether this appeal is timely under
Federal Rule of Appellate Procedure 4. Concluding that it is,
we next address whether the bankruptcy court had subject
matter jurisdiction in this case. We hold that FIRREA does
divest the bankruptcy court of subject matter jurisdiction
over this dispute.
3
The United States Supreme Court recently granted certiorari on the
validity of this rule. See Rodriguez v. FDIC, No. 18-1269, 2019 WL
1470793 (U.S. June 28, 2019) (granting certiorari on the issue of whether
courts should determine ownership of a tax refund paid to an affiliated
group based on the federal common law Bob Richards default rule, as
three circuits hold, or based only on the law of the relevant state, as four
circuits hold).
WALDRON V. FDIC 7
A
Federal Rule of Appellate Procedure 4(a) provides that,
generally, in a civil case, “the notice of appeal . . . must be
filed with the district clerk within 30 days after entry of the
judgment or order appealed from.” Fed. R. App. P.
4(a)(1)(A). But “if one of the parties is . . . a United States
agency,” then the notice of appeal “may be filed by any party
within 60 days . . .” Id. r. 4(a)(1)(B)(ii).
Waldron contends that when acting solely as a receiver,
the FDIC does not qualify as a “United States agency” within
the meaning of Rule 4, so the FDIC’s notice of appeal, filed
42 days after final judgment, is untimely. This argument
fails.
Every circuit that has considered Waldron’s argument
has rejected it. See Diaz v. McAllen State Bank, 975 F.2d
1145, 1147 (5th Cir. 1992) (the FDIC acting as a receiver is
a United States agency under Rule 4); RSB Ventures, Inc. v.
FDIC, 514 F. App’x 853, 856 (11th Cir. 2013) (per curiam)
(same); Helm v. Resolution Tr. Corp., 18 F.3d 446, 448 (7th
Cir. 1994) (per curiam) (same). Diaz relied on 12 U.S.C.
§ 1819(b)(1), which provides that “[t]he [FDIC], in any
capacity, shall be an agency of the United States for purposes
of section 1345 of Title 28, 4 without regard to whether the
Corporation commenced the action.” 975 F.2d at 1147 n.1
(quoting 12 U.S.C. § 1819(b)(1)).
Our own precedent supports the same conclusion. In re
Hoag Ranches outlined parameters for determining whether
4
Section 1345 provides original jurisdiction to district courts in civil
cases commenced by the United States or a U.S. agency or officer.
28 U.S.C. § 1345.
8 WALDRON V. FDIC
a litigant is a “United States agency” under Rule 4, as “[t]he
term ‘agency’ is not defined in the Federal Rules of
Appellate Procedure[.]” 846 F.2d 1225, 1227 (9th Cir.
1988). Hoag identified six factors relevant to this
determination:
(1) the extent to which the alleged agency
performs a governmental function; (2) the
scope of government involvement in the
organization’s management; (3) whether its
operations are financed by the government;
(4) whether persons other than the
government have a proprietary interest in the
alleged agency and whether the
government’s interest is merely custodial or
incidental; (5) whether the organization is
referred to as an agency in other statutes; and
(6) whether the organization is treated as an
arm of the government for other purposes,
such as amenability to suit under the Federal
Tort Claims Act.
Id. at 1227–28.
All six of the Hoag factors suggest that the FDIC is a
“United States agency” under Rule 4 when acting as a
receiver for a failed bank. First, an FDIC receivership does
perform a government function—it “reduc[es] the losses
borne by federal taxpayers when federally insured financial
institutions . . . fail.” Sahni v. Am. Diversified Partners,
83 F.3d 1054, 1058 (9th Cir. 1996). Second, the federal
government maintains direct involvement in an FDIC
receivership. The FDIC’s board members, who oversee the
FDIC in all capacities (including its receiverships), are
appointed by the President with the advice and consent of
WALDRON V. FDIC 9
the Senate. 12 U.S.C. § 1812(a)(1); see also id. §§ 2, 5491.
Third, although the operations of the FDIC as receiver are
financed by the assets of the failed bank, those funds are
essentially government funds, as the FDIC is the successor
to any assets not paid out to the failed bank’s creditors. See
id. § 1821(d)(2)(A). Fourth, no entity other than the FDIC
has a proprietary interest in an FDIC receivership. See id.
Fifth, the FDIC as receiver is referred to as a federal agency
throughout its enabling act. See, e.g., id. §§ 1813(q),
1819(b). Sixth and finally, the FDIC is considered a federal
agency under other statutes, including the Federal Tort
Claims Act. Id. §§ 1819(b)(1), 1822(f)(1)(A); FDIC v. Craft,
157 F.3d 697, 706–07 (9th Cir. 1998).
“We recognize that procedural rules are best applied
uniformly, and we decline to create a circuit split unless
there is a compelling reason to do so.” Kelton Arms Condo.
Owners Ass’n, Inc. v. Homestead Ins. Co., 346 F.3d 1190,
1192 (9th Cir. 2003). Under Hoag and in accord with the
analysis employed by the Fifth, Seventh, and Eleventh
circuits, see, e.g., Diaz, 975 F.2d at 1147, we conclude that
the FDIC is a “United States agency” for purposes of Rule
4, even when acting as a receiver. The FDIC’s notice of
appeal was timely filed.
B
We turn to whether FIRREA divested the bankruptcy
court of jurisdiction over Waldron’s claim. Some
background as to the purpose and reach of FIRREA helps to
set the stage for this inquiry.
FIRREA was enacted in 1989 “in an effort to prevent the
collapse of the [savings and loan] industry.” Washington
Mut. Inc. v. United States, 636 F.3d 1207, 1211 (9th Cir.
2011). “The statute grants the FDIC, as receiver, broad
10 WALDRON V. FDIC
powers to determine claims asserted against failed banks.”
Henderson v. Bank of New Eng., 986 F.2d 319, 320 (9th Cir.
1993). Additionally, FIRREA “provides detailed procedures
to allow the FDIC to consider certain claims against the
receivership estate.” Benson v. JPMorgan Chase Bank,
N.A., 673 F.3d 1207, 1211 (9th Cir. 2012) (citing 12 U.S.C.
§ 1821(d)(3)–(10)).
FIRREA “requires that a plaintiff exhaust these
administrative remedies . . . before filing certain claims,” id.,by stripping courts of jurisdiction over claims initially
brought outside of section 1821’s administrative procedures.
It 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). FIRREA provides for judicial
review after exhaustion. See 12 U.S.C. § 1821(d)(6)(A) (if a
claimant has exhausted a claim via FIRREA’s administrative
process, “the claimant may . . . file suit on such claim . . .
and [the district] court shall have jurisdiction to hear such
claim”).
WALDRON V. FDIC 11
This court recognized an exception to FIRREA’s
exhaustion requirement in In re Parker N. Am. Corp.,
24 F.3d 1145 (9th Cir. 1994). Parker held that “the FIRREA
claims process does not apply to actions filed in bankruptcy
court to recover preferential transfers, at least where the
[FDIC] has filed a proof of claim that exceeds the amount
sought to be recovered by the debtor.” Id. at 1155 (emphasis
added). The FDIC argues that Parker’s exhaustion exception
is not applicable here, so the bankruptcy court lacked subject
matter jurisdiction. We agree.
Parker offered varied rationales in support of its
exception to FIRREA’s exhaustion requirement. Among
those rationales are legislative history indicating that
FIRREA’s claims process was designed for creditors and not
debtors of the FDIC, id. at 1153; the expertise of bankruptcy
courts in determining preference actions, id.; and the fact
that some preference actions amount to affirmative defenses
in certain bankruptcy proceedings, id. at 1155. This court
backed off from Parker’s first rationale in McCarthy v.
FDIC, which held that FIRREA’s jurisdictional bar “is not
limited to creditors, but applies as well to debtors with
claims . . . that affect the assets of a failed institution.”
348 F.3d 1075, 1080 (9th Cir. 2003).
Despite some uncertainty about the scope of Parker’s
exception stemming from the opinion’s multiple rationales,
the question before the Parker panel, as enunciated by
McCarthy, was narrow: “whether the bankruptcy court had
jurisdiction over the preference action against an institution
for which [a predecessor to the FDIC] had filed a proof of
claim that exceeded the amount sought to be recovered by
the debtor.” Id. at 1078 (emphasis added). The caveat to
Parker’s actual holding—that it may only apply “where the
[FDIC] has filed a proof of claim that exceeds the amount
12 WALDRON V. FDIC
sought to be recovered by the debtor”—reflects the limited
question before the court in Parker. 24 F.3d at 1155.
Notably, McCarthy viewed Parker’s holding as confined to
the precise issue raised in that case, disavowing as
inapplicable outside of bankruptcy the extensive discussion
in Parker regarding the FIRREA exhaustion requirement’s
applicability to creditors only. See McCarthy, 348 F.3d
at 1078–79; Parker, 24 F.3d at 1152–54.
The upshot is that Parker’s precedential effect is much
narrower than the rest of the opinion might suggest. Parker’s
actual holding is that if the FDIC is attempting to collect
from a debtor during bankruptcy proceedings an amount
greater than the amount that the debtor seeks to recover from
FDIC as a preferential transfer, then there is no “claim”
against FDIC within the meaning of subsection (D)(i). See
24 F.3d at 1155. Instead, in that circumstance, the debtor’s
preference action is, for purposes of subsection (D)(i), a
partial affirmative defense rather than a claim. Id. Such a
preference action is a partial affirmative defense because it
“arises incident to the [FDIC’s] collection efforts” in
bankruptcy and is an “attempt[] to defend [the debtor] from
personal liability” on the FDIC’s proof of claim. Id. at 1153,
1155. Creating an exception to FDIC’s jurisdictional bar
under these narrow circumstances is justified to avoid
“requiring presentment and proof to the [FDIC] of all
potential affirmative defenses that might be asserted in
response to unknown and unasserted claims or actions by the
[FDIC].” Id. (quoting Resolution Tr. Corp. v. Midwest Fed.
Sav. Bank, 4 F.3d 1490, 1496–97 (9th Cir. 1993)).
Parker illustrates how a preference action can function
as a partial affirmative defense. A bank lent Parker North
American Corporation (“PNA”) $10 million as part of a sale-
and-leaseback agreement. PNA repaid the bank $4.65
WALDRON V. FDIC 13
million before defaulting. PNA then filed for bankruptcy and
sought to recover the $4.65 million as a preferential transfer.
In response, the Resolution Trust Corporation (“RTC”) (a
predecessor to the FDIC), in its capacity as receiver for the
bank, filed proofs of claim against PNA “for the balance of
the $10 million and for other sums arising from the sale and
leaseback transaction,” amounting to a total of
approximately $14 million. Id. at 1148. Once RTC initiated
collection efforts, PNA’s preference action was converted
into a partial affirmative defense. As the concurrence noted,
“[a]lthough PNA initiated the preference action, and
therefore at one time may have appeared to be using that
action as something more than an affirmative defense,
subsequent events have made it clear that the preference
action will lead at most to a setoff” rather than an affirmative
recovery of funds. Id. at 1156 (B. Fletcher, J., concurring).
Here, in contrast, Waldron’s claim seeking to recover the
tax refund from the FDIC is not an affirmative defense.
Unlike in Parker, the FDIC never initiated collection efforts
against VFG, nor has it asserted any non-contingent claim
against the bankruptcy estate. Instead, it is the FDIC that is
attempting to avoid liability to VFG’s bankruptcy estate,
which is affirmatively seeking to recover the refund from the
FDIC. Although the FDIC filed a proof of claim, that claim
equals the amount sought to be recovered by Waldron and
functions solely as a protective measure in the event that it
is determined that the refund belongs to VFG’s bankruptcy
estate. The present case is thus quite different from Parker
because it does not involve “a preference action which arises
incident to the [FDIC]’s collection efforts against the
debtor.” Id. at 1153.
14 WALDRON V. FDIC
As Parker’s narrow holding does not apply here, we
consider whether to expand its exception to FIRREA to
cover the present circumstances. We decline to do so.
We note, first, that the Parker exception is a judicially
created one, inconsistent with the language of FIRREA
creating an exhaustion requirement. McCarthy so noted,
observing that “‘we do not think [Parker’s] construction of
the § 1821(d)(13)(D) jurisdictional bar quite squares with
the statutory text.’” 348 F.3d at 1079 (quoting Freeman v.
FDIC, 56 F.3d 1394, 1401 (D.C. Cir.1995). The statute’s
text, again, specifies:
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).
Parker discussed only subsection (D)(i), while both
subsections (D)(i) and (D)(ii) are applicable in this case.
24 F.3d at 1154. In Parker, PNA’s preference action did not
fall under (D)(ii) because it did not relate to an “act or
omission” of the bank or the RTC as receiver. In contrast,
WALDRON V. FDIC 15
Waldon’s preference action does fall under (D)(ii) because
it relates to the FDIC’s act of filing amended tax returns.
The double application of the FIRREA exhaustion
requirement in this case reinforces rather than detracts from
the evident tension between Parker and FIRREA’s firm
exhaustion provision. It is certainly not a reason to expand
Parker to cover circumstances in which the proof of claim
does not exceed the amount the debtor seeks to recover in a
preference action.
That reluctance is reinforced by the fact that Parker’s
other surviving rationale 5—in addition to the consideration
that the preference action in Parker was a partial affirmative
defense to a collection claim filed in the bankruptcy—was
the special expertise of bankruptcy courts. Parker observed:
“Bankruptcy courts have expertise in determining
preference actions, which involve legal matters unique to the
Code. 6 The [FDIC], on the other hand, has no special skill in
determining bankruptcy questions and, in fact, would be
under no obligation to apply bankruptcy law to a debtor’s
preference complaint.” 24 F.3d at 1153. So recognizing,
Parker sought to “harmonize the [Bankruptcy] Code and
FIRREA and permit bankruptcy courts to determine matters
5
As noted, McCarthy did not accept Parker’s suggestion that
FIRREA’s jurisdictional bar applies only to creditors and not debtors of
the FDIC. 348 F.3d at 1080.
6
To establish a preference action, the transfer must be “to or for the
benefit of a creditor,” for an “antecedent debt,” “made while the debtor
was insolvent” and within ninety days of filing for bankruptcy, and it
must enable the creditor to receive more than its proportionate share of
the debtor’s assets. 11 U.S.C. § 547(b).
16 WALDRON V. FDIC
in which they, and not the [FDIC], have specific expertise.”
Id. at 1155–56.
Parker’s emphasis on bankruptcy court expertise has
little salience here. In Parker, no matter how the court ruled
on the preference petition, the RTC had a remaining claim
against PNA’s bankruptcy estate concerning the single
transaction involved in the preference action. That claim
needed to be addressed by the bankruptcy court in any event.
And the context of that claim—an ordinary commercial
transaction—was one that routinely arises in bankruptcy
preference actions.
The bankruptcy context is of little significance in this
case. The FDIC’s contingent proof of claim here was entirely
predicated on the success of the VFG estate’s assertion of
ownership of the tax refunds obtained as a result of the
FDIC’s filings with the IRS. No issue requiring
interpretation of the preference provisions of the bankruptcy
code or determination of any claim in bankruptcy will arise
if Waldron’s assertion of ownership fails. Resolving that
ownership question involves applying fairly arcane
questions of federal tax law concerning the concept of
consolidated filing groups, intertwined with a federal default
ownership rule that can be overridden pursuant to state
contract law. See Bob Richards, 473 F.2d 262. As no
bankruptcy law or rule or bankruptcy claim-related
determination will be relevant in resolving the critical
ownership dispute, that dispute is not a matter as to which
“bankruptcy courts . . . have specific expertise.” See Parker,
24 F.3d at 1155–56.
In sum, we conclude that although Parker’s reasoning
may be wide-ranging, its holding is not applicable and its
other extant rationale—bankruptcy court expertise—is not
here pertinent. Waldron needed to exhaust the administrative
WALDRON V. FDIC 17
remedies provided under FIRREA with regard to its
assertion of ownership of the tax refunds before going to
court. Because Waldron failed to exhaust, the bankruptcy
court lacked subject-matter jurisdiction over Waldron’s
claims.
III
The bankruptcy court erred when it decided that it had
subject matter jurisdiction in this case, and the district court
erred when it affirmed that decision. REVERSED and
REMANDED for proceedings consistent with this opinion.