Deutsche Bank National Trust Co. v. Federal Deposit Insurance , 744 F.3d 1124 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DEUTSCHE BANK NATIONAL TRUST No. 11-56339
COMPANY, as Trustee for certain
residential mortgage-backed D.C. No.
securitization trusts sponsored by 2:09-cv-03852-
IndyMac Bank, F.S.B., GAF-FFM
Plaintiff-Appellant,
v. OPINION
FEDERAL DEPOSIT INSURANCE
CORPORATION, as Receiver of
IndyMac Bank, F.S.B.; Federal
Deposit Insurance Corporation, as
Conservator and Receiver of
IndyMac Federal Bank F.S.B.;
Federal Deposit Insurance
Corporation, in its corporate
capacity; and Federal Deposit
Insurance Corporation; FEDERAL
DEPOSIT INSURANCE CORPORATION
AS RECEIVER FOR INDYMAC BANK,
FSB; DEFENDANT FEDERAL DEPOSIT
INSURANCE CORPORATION AS
RECEIVER FOR INDYMAC BANK FSB,
Defendants-Appellees.
2 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
Appeal from the United States District Court
for the Central District of California
Gary A. Feess, District Judge, Presiding
Argued and Submitted
April 9, 2013—Pasadena, California
Filed March 11, 2014
Before: Ferdinand F. Fernandez, Johnnie B. Rawlinson,
and Jay S. Bybee, Circuit Judges.
Opinion by Judge Rawlinson
SUMMARY*
Mootness
In an interlocutory appeal, the panel affirmed the district
court’s dismissal of Deutsche Bank National Trust Co.’s
claims against the Federal Deposit Insurance Corporation on
prudential mootness grounds.
The panel held that the scope of the appeal was limited to
the question of law—prudential mootness—certified by the
district court. The panel held that because Deutsche Bank
was a quintessential creditor, its claims were third-tier general
unsecured liabilities under 12 U.S.C. § 1821(d)(11)(A)(iii),
and the district court properly held that Deutsche Bank’s
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 3
claims were prudentially moot, as there were insufficient
funds to satisfy general unsecured liabilities.
COUNSEL
Thomas M. Peterson (argued) and Jami Wintz McKeon,
Morgan, Lewis & Bockius LLP, San Francisco, California;
Allyson N. Ho and William S.W. Chang, Morgan, Lewis &
Bockius LLP, Houston, Texas; and Gregory T. Parks and
Maire E. Donovan, Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania, for Appellant.
Colleen J. Boles, Assistant General Counsel, Lawrence H.
Richmond, Senior Counsel, J. Scott Watson (argued),
Minodora D. Vancea, Counsel, Federal Deposit Insurance
Corporation, Arlington, Virginia, for Appellee.
4 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
OPINION
RAWLINSON, Circuit Judge:
In this interlocutory appeal, Appellant Deutsche Bank
National Trust Co. (Deutsche Bank) challenges the district
court’s dismissal of its claims against the Federal Deposit
Insurance Corporation (FDIC).
The dispositive issue is whether Deutsche Bank’s claims
are general unsecured claims under 12 U.S.C. § 1821(d)(11)
and thereby prudentially mooted by the lack of sufficient
funds in the estate to pay unsecured claims. Deutsche Bank
maintains that it possesses superpriority claims and that
12 U.S.C. § 1821(d)(11) is inapplicable because the FDIC
exceeded its statutory authority by splitting the governing
agreements and transferring the servicing rights without
Deutsche Bank’s consent. Assuming that the FDIC breached
the governing agreements, we nevertheless affirm the district
court’s dismissal of Deutsche Bank’s claims because the
purported breach did not transform Deutsche Bank’s general
unsecured claims into superpriority claims.
I. BACKGROUND
A. Deutsche Bank’s Lawsuit Against The FDIC
According to its Complaint, Deutsche Bank served in the
capacity as trustee for more than 240 mortgage securitization
trusts created by IndyMac. Prior to its failure in July, 2008,
IndyMac functioned as a mortgage securitizer, acquiring
mortgage loans that it sold to the Trusts. According to
Deutsche Bank, the Trusts subsequently sold residential
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 5
mortgage-backed securities “supported by the cash flows on
the underlying mortgage loans.”
IndyMac’s success in attracting investors to purchase the
mortgage-backed securities depended on IndyMac’s
representations and promises that a single entity (IndyMac)
would perform the interrelated services necessary to protect,
preserve, and service the Trust assets. The mortgage-backed
securities transactions were governed by agreements that
established and regulated the Trusts and the related
relationships among the parties with interests in the Trusts.
Among the Governing Agreements were Pooling and
Servicing Agreements (PSAs), Sale and Servicing
Agreements, Indentures, and Trust Agreements. Pursuant to
the Governing Agreements, IndyMac was required, inter alia,
to: enforce the loan obligations; collect payments from the
borrowers; administer the documents related to the mortgage
loans; provide notification concerning missing or defective
loan documentation; provide notification of mortgages that
did not comply with IndyMac’s representations; cure
breaches of representations or warranties adversely affecting
the Trust’s beneficiaries; and modify seriously delinquent
loans. In return, IndyMac received the loans’ purchase prices
and “monthly fees and income from the Trusts based on the
aggregate outstanding principal balance of the mortgage loans
in each Trust. . . .”
On July 11, 2008, the Office of Thrift Supervision closed
IndyMac, appointed the FDIC as receiver created a new
savings bank, IndyMac Federal, and appointed the FDIC as
conservator (FDIC-C) of IndyMac Federal. Another federal
savings bank, OneWest Bank, was formed as a thrift holding
company to purchase IndyMac Federal’s assets and liabilities.
As receiver and conservator, the FDIC “succeeded to all
6 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
rights, titles, powers, and privileges of IndyMac Federal,
including those arising under the Governing Agreements or
otherwise related to the Trusts.” As IndyMac Federal’s
conservator, the FDIC administered the Trusts and serviced
the mortgages based on servicing rights established by the
Governing Agreements. In that capacity, the FDIC sold
certain assets and rights of IndyMac Federal to OneWest for
approximately $13.9 billion.
Deutsche Bank alleged that
[t]he sale to OneWest included many valuable
rights that IndyMac held under the Governing
Agreements or that were otherwise related to
the Trusts, but improperly excluded certain of
IndyMac’s obligations to the Trusts and the
Trustee under those same Governing
Agreements without making alternate
arrangements to assure the performance of
those excluded obligations. Specifically, the
sale to OneWest included what the FDIC
characterized as the “servicing rights” under
the Governing Agreements, including
IndyMac’s right to service the mortgage loans
in the Trusts and the corresponding right to
receive the servicing fees and income
provided in the Governing Agreements. The
sale, however, excluded certain obligations
imposed on IndyMac under the same
Governing Agreements, including . . . “any
repurchase obligations for breaches of loan
level representations, any indemnities relating
to origination activities or securities laws or
any seller indemnity.”
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 7
According to Deutsche Bank, the FDIC exceeded its
statutory authority “[i]n attempting to sell, and thereby reap
the benefits of, the Governing Agreements without assuming
and assigning (or otherwise performing) the related
obligations . . .” Deutsche Bank averred that “[i]n the sale to
OneWest, the FDIC purported to split unitary contracts and
divide rights and obligations that [were] not severable.”
Deutsche Bank also alleged that the FDIC, as receiver,
breached several representations and warranties and failed to
comply with the Governing Agreements, particularly in
servicing the mortgage loans. Deutsche Bank averred that the
FDIC’s conduct resulted in approximately $6 billion to $8
billion in damages to the Trusts and Trustee.
Deutsche Bank asserted causes of action against the FDIC
for pre-failure breach of contract as IndyMac Federal’s
receiver and conservator, (Count One); post-failure breach of
contract as conservator, (Count Two); breach of contract for
sale to OneWest as conservator, receiver, and in its corporate
capacity, (Count Three); repudiation of certain trusts as
receiver, (Count Four); breach of the duty of good faith and
fair dealing as receiver and conservator, (Count Five); breach
of fiduciary duty as receiver and conservator, (Count Six);
unconstitutional taking via the sale to OneWest and the
splitting of obligations, (Count Seven); unconstitutional
taking of right to appoint a successor servicer, (Count Eight);
due process violations premised on the sale to OneWest, the
splitting of obligations and the right to appoint a successor
servicer, (Counts Nine and Ten); and constructive trust
(Count Eleven).
8 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
B. Legal and Statutory Framework
Because Deutsche Bank’s claims depend on whether it is
a general unsecured creditor under the distribution priorities
set forth in 12 U.S.C. § 1821(d)(11), discussion of the
applicable statutory framework, as interpreted in our
precedent, sets the stage for our resolution of this case.1
“Congress passed FIRREA in 1989 in response to the
crisis in the nation’s banking and savings and loan industries.
The statute allows the FDIC to act as receiver or conservator
of a failed institution for the protection of depositors and
creditors.” Sharpe v. FDIC, 126 F.3d 1147, 1154 (9th Cir.
1997) (citation omitted). “Congress granted the FDIC broad
powers in conserving and disposing of the assets of the failed
institution. To enable the FDIC to move quickly and without
undue interruption to preserve and consolidate the assets of
the failed institution, Congress enacted a broad limit on the
power of courts to interfere with the FDIC’s efforts. . . .” Id.
(citation and internal quotation marks omitted).
Pursuant to 12 U.S.C. § 1821(d)(2)(H), “[t]he [FDIC], as
conservator or receiver, shall pay all valid obligations of the
insured depository institution in accordance with the
prescriptions and limitations of this chapter.” The FDIC has
the additional task under 12 U.S.C. § 1821(d)(13)(E) of
“maximiz[ing] the net present value return from the sale or
disposition of such assets” and “minimiz[ing] the amount of
any loss realized in the resolution of cases[.]” However,
under 12 U.S.C. § 1821(e), the FDIC also has the authority to
1
The statutory provisions of this case are part and parcel of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)
codified in Title 12 of the United States Code.
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 9
repudiate “any contract or lease . . . the performance of which
the conservator or receiver, in the conservator’s or receiver’s
discretion, determines to be burdensome . . .” 12 U.S.C.
§ 1821(e)(1)(B). If the FDIC decides to repudiate a contract
under this provision, “the liability of the conservator or
receiver for the disaffirmance or repudiation . . . shall be – (i)
limited to actual direct compensatory damages . . .” Id.
§ 1821(e)(3)(A)(i).
As a corollary to FIRREA, in 1993 Congress adopted the
National Depositor Preference Amendment to the Federal
Deposit Insurance Act. This legislation provided “that in the
distribution of the assets of a failed institution depositors be
paid before general creditors could collect on their claims.”
MBIA Ins. Corp. v. FDIC, 708 F.3d 234, 236 (D.C. Cir. 2013)
(footnote reference omitted). This preference amendment
establishing the distribution priority framework for failed
institutions was codified in 12 U.S.C. § 1821(d)(11). See id.
The codified distribution priority framework sets forth the
following hierarchy of claims:
Subject to section 1815(e)(2)(C) of this title,
amounts realized from the liquidation or other
resolution of any insured depository
institution by any receiver appointed for such
institution shall be distributed to pay claims
(other than secured claims to the extent of any
such security) in the following order of
priority:
(i) Administrative expenses of the receiver.
(ii) Any deposit liability of the institution.
10 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
(iii) Any other general or senior liability of
the institution (which is not a liability
described in clause (iv) or (v)).
(iv) Any obligation subordinated to depositors
or general creditors (which is not an
obligation described in clause (v)).
(v) Any obligation to shareholders or
members arising as a result of their status as
shareholders or members (including any
depository institution holding company or any
shareholder or creditor of such company).
12 U.S.C. § 1821(d)(11)(A).
The dispositive issue in this appeal is whether Deutsche
Bank’s claims constitute third-tier general liabilitities under
12 U.S.C. § 1821(d)(11)(A)(iii) rather than claims payable
outside the strictures of § 1821(d). Deutsche Bank maintains
that because the FDIC exceeded its statutory authority and
breached the agreements without properly repudiating them,
the distribution scheme delineated in § 1821(d)(11) does not
apply, and thus its claims are payable without regard to these
provisions. Deutsche Bank’s argument is primarily premised
on its interpretation of three cases: Sharpe; Battista v. FDIC,
195 F.3d 1113 (9th Cir. 1999); and McCarthy v. FDIC,
348 F.3d 1075 (9th Cir. 2003).
1. Sharpe v. FDIC
In Sharpe, Whitney and Mona Sharpe entered into a
settlement agreement with Pioneer Bank to resolve a real
estate foreclosure action. See Sharpe, 126 F.3d at 1150. The
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 11
Sharpes and Pioneer agreed that Pioneer would remit
$510,000 by wire transfer to the Sharpes when the Sharpes
provided the requisite note, deed of trust, and reconveyance
documents. See id. at 1150–51. In direct contravention of the
settlement agreement’s wire transfer requirement, Pioneer
sent the Sharpes two cashier’s checks. See id. at 1151.
Before the Sharpes could deposit the checks, state regulators
seized Pioneer, and the FDIC was appointed as Pioneer’s
receiver. See id. As receiver, the FDIC “step[ped] into the
shoes” of Pioneer. Id. at 1152. The FDIC took possession of
the reconveyance documents provided by the Sharpes and
recorded them, but informed the Sharpes that it would not
honor the cashier’s checks. See id. at 1151.
The Sharpes sued the FDIC for enforcement of the
settlement agreement. See id. However, the district court
held that FIRREA precluded judicial review of the Sharpes’
claims because they were “effectively depositors, and
therefore creditors of Pioneer” subject to FIRREA’s
exhaustion requirements. Id. On appeal, the Sharpes asserted
that “the district court failed to accept the breach of contract
nature of their cause of action and improperly applied
FIRREA requirements as if the Sharpes were creditors of
Pioneer. . . .” Id. at 1152. The FDIC maintained that
dismissal was warranted on jurisdictional grounds because
the Sharpes were creditors as holders of Pioneer’s cashier’s
checks and that 12 U.S.C. § 1821(j) deprived the district court
of jurisdiction over the Sharpes’ claims for equitable relief.
See id.2
2
12 U.S.C. § 1821(j) provides:
Except as provided in this section, no court may take
any action, except at the request of the Board of
12 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
In analyzing whether the Sharpes’ claims were covered by
FIRREA’s administrative claims process, we opined that the
settlement agreement governed the Sharpes’ relationship with
Pioneer, and that the Sharpes were “neither creditors nor
depositors under the agreement.” Id. at 1152–53. Instead,
“[t]hey [were] parties to a contract they fully performed.” Id.
at 1153. Applying basic contract interpretation principles, we
determined that “[t]he FDIC failed to perform its obligations
under the contract,” and “that this failure to perform the
express terms of the settlement agreement [was] a
breach. . . .” Id. (citations omitted). Because Pioneer issued
a cashier’s check in lieu of the contractually agreed upon wire
transfer, it breached the settlement agreement. See id. “[T]he
bank’s tender by cashier’s check and the FDIC’s subsequent
refusal to honor the checks constitute[d] material breaches of
the settlement agreement.” Id. “Had the FDIC honored the
cashier’s checks, the Sharpes would have suffered no
damages as a result of the breach; the failure to honor the
checks gives rise to a cause of action for breach of contract
with a remedy.” Id.
We held “that the FDIC did not act within its statutorily
granted powers in breaching the Sharpes’ settlement
agreement because recording of the reconveyance of the
debtor’s deed of trust for which it did not pay full
consideration cannot be considered a statutorily authorized
function of the FDIC.” Id. at 1155. Therefore, the Sharpes’
claims for rescission and declaratory relief were not barred by
12 U.S.C. § 1821(j). See id.
Directors [of the FDIC] by regulation or order, to
restrain or affect the exercise of powers or functions of
the Corporation as a conservator or a receiver.
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 13
We also rejected the FDIC’s argument that “the Sharpes’
cause of action constitute[d] an administrative claim subject
to the exhaustion requirement. . . .” Id. We observed that
“Section 1821(d) sets forth an administrative claims process,
which requires that creditors submit claims to the FDIC for
administrative resolution. If the Sharpes [were] considered
creditors, they [would be] subject to that claims process.” Id.
at 1156 (footnote reference and internal quotation marks
omitted). However, we concluded that the Sharpes were not
required to submit to the FDIC administrative process
because they did not become creditors of the FDIC by
accepting the cashier’s check. See id. We reasoned that
“[b]ut for the FDIC’s breach, the full cash amount specified
in the settlement agreement would have been wired to the
Sharpes. It is only as a consequence of the FDIC’s breach
that the FDIC can construe the Sharpes as creditors of the
FDIC. . . .” Id.
Notably, we observed that “[b]ecause the FDIC did not
repudiate the agreement pursuant to § 1821(e), we need not
decide here whether claims against the FDIC regarding
contract repudiation under § 1821(e) are subject to the
exhaustion requirement.” Id. at 1157 n.7 (citations omitted).
We held:
The Sharpes [were] a party to a
pre-receivership contract breached by the
FDIC, and they retain[ed] the rights
accompanying that contract notwithstanding
the appointment of the FDIC as receiver. The
Sharpes cannot be considered creditors of the
FDIC, and we hold that their claim is not a
14 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
“claim” for the purposes of the FIRREA
exhaustion requirement.
Id. at 1157.
2. Battista v. FDIC
In Battista, former employees of an insolvent bank sued
the FDIC based on the FDIC’s repudiation of their
employment contracts. See Battista, 195 F.3d at 1115. In the
context of resolving the case, we considered whether claims
for damages based on repudiated contracts under 12 U.S.C.
§ 1821(e) were subject to the payment priorities established
by 12 U.S.C. § 1821(d). See id. at 1116. Battista argued that
in FIRREA, Congress established two types of claims: (1)
claims approved by the FDIC pursuant to § 1821(d) that are
satisfied by the remittance of receiver’s certificates from the
assets of the failed financial institution, and (2) claims for
damages due to repudiation under § 1821(e) that are payable
solely in cash. See id. at 1117. We disagreed, holding that
Ҥ 1821(e) is better interpreted as being subject to the various
provisions of § 1821(d).” Id. We observed that “little in
§ 1821 indicates that Congress intended to establish two
distinct types of non-depositor claims, beyond the fact that
Congress provided for damages for repudiation in subsection
(e), while discussing the claims payment process in
subsection (d).” Id. “[I]f Congress had wished to depart
from the § 1821(d) regime for claims for damages under
§ 1821(e), presumably it would have said so. . . .” Id. “[T]he
distribution priority in § 1821(d)(11)(A), which was added to
§ 1821 in 1993, makes little sense if parties injured by
repudiations under § 1821(e) are treated separately from
parties with claims under § 1821(d). . . .” Id. at 1118. We
pointed out that in its regulations, “the FDIC interpreted
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 15
§ 1821(d)(11)’s priority scheme as including claims for
damages arising from contract repudiation under § 1821(e),
but not entitled to the same priority as administrative claims.”
Id. at 1119; see also 12 C.F.R. § 360.4 (defining
administrative expenses); 58 Fed. Reg. 43,069, 43,070
(1993) (clarifying that administrative expenses generally do
not include claims arising from contract repudiation).
We also distinguished Sharpe, expressly clarifying that
Sharpe did not exempt claimants whose contracts had been
repudiated from the claims administration process set forth in
§ 1821(d). See Battista, 195 F.3d at 1119.
3. McCarthy v. FDIC
In McCarthy, we considered the dismissal of an action
challenging the way the FDIC handled a loan the plaintiff was
negotiating with a bank after the bank failed and the FDIC
was appointed as receiver. See McCarthy, 348 F.3d at 1076.
The plaintiff alleged that he was forced to accept a new loan
on a “take-it-or-leave-basis and that he would not have
executed this loan had he known of [the bank’s] closure and
the FDIC’s receivership. . . .” Id. at 1077 (internal quotation
marks omitted). The district court held that it lacked subject
matter jurisdiction because the plaintiff failed to satisfy
FIRREA’s exhaustion requirements. See id. Relying on
Sharpe, the plaintiff asserted that FIRREA’s exhaustion
requirements were inapplicable because he was a debtor, not
a creditor, of the insolvent bank and because his claims were
premised on the FDIC’s post-receivership conduct. See id. at
1076–77.
We rejected the plaintiff’s argument premised on Sharpe,
explaining that Sharpe was not controlling because that case
16 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
was decided in a different context, where the Sharpes were
neither creditors nor debtors of the failed institution. See id.
at 1077. We noted that “[t]he text of § 1821(d)(13)(D)
plainly states that any claim or action that asserts a right to
assets of a failed institution is subject to exhaustion. There is
no limitation to creditors, or exclusion of debtors, and that is
controlling.” Id. at 1077 (emphases in the original). We
emphasized that “Sharpe was an unusual case,” and that in
Sharpe “we had no occasion to decide whether a debtor’s
claim or action, like a creditor’s, must be exhausted, for the
Sharpes were not debtors and our decision turned on the
claimants’ being aggrieved parties to a contract that the FDIC
had not repudiated.” Id. at 1078.
We concluded:
[W]e see no reason why the plain meaning of
the statute should not govern this case. . . .
And, regardless of whether he is a creditor or
a debtor making claim to the bank’s assets,
requiring exhaustion furthers the purpose of
FIRREA to ensure that the assets of a failed
institution are distributed fairly and promptly
among those with valid claims against the
institution and promptly to wind up the affairs
of failed banks.
Id. at 1079 (citation and internal quotation marks omitted).
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 17
C. The District Court’s Application of Sharpe To The
FDIC’s Motion To Dismiss Deutsche Bank’s
Claims
In its initial order, the district court denied in part and
granted in part the FDIC’s motion to dismiss Deutsche
Bank’s claims. The district court held that, because the FDIC
exceeded its statutory authority in splitting the Pooling and
Servicing Agreements without Deutsche Bank’s consent, our
discussion in Sharpe mandated rejection of the FDIC’s
arguments that prudential mootness precluded Deutsche
Bank’s claims and that Deutsche Bank’s claims were subject
to the priority scheme set forth in 12 U.S.C. § 1821(d)(11).
See Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d
1142, 1159–60, 1170 (C.D. Cal. 2011) (Deutsche Bank I).
The district court determined that, because Deutsche Bank
alleged that the FDIC breached the contracts, rather than
repudiating them, Sharpe “makes clear that damages resulting
from the FDIC’s breach of a contract are not subject to the
§ 1821(d)(11) distribution priority scheme. . . .” Id. at 1159.
Applying Sharpe, the district court opined that
§ 1821(d)(11)’s priority scheme was inapplicable because “a
claim against the FDIC for post-seizure breach of contract
does not constitute a claim under FIRREA . . .” Id. at
1159–60. The district court delineated that, at this stage in
the litigation, it was unnecessary to discern “whether
damages will ultimately be payable from the receivership or
from FDIC-C’s own funds. Even if the damages will come
from the receivership, Deutsche Bank’s claim will take
priority over the categories identified in § 1821(d)(11), and
there is accordingly a possibility of recovery. . . .” Id. at
1160. The district court denied the FDIC’s motion to dismiss
Deutsche Bank’s claim and held that “Deutsche Bank may
18 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
proceed with its breach of contract claim arising out of the
sale of assets to OneWest Bank.” Id.3
D. The District Court’s Order Granting
Reconsideration
The district court subsequently granted the FDIC’s
motion for reconsideration of the prudential mootness issue.
See Deutsche Bank Nat’l Trust Co. v. FDIC, 854 F. Supp. 2d
756, 759 (C.D. Cal. 2011) (Deutsche Bank II). Reconsidering
its prior ruling, the district court analyzed whether Battista
and McCarthy undermined its holding, based on Sharpe, “that
if a claim for post-receivership breach of a pre-receivership
contract does not qualify as a claim within the meaning of
FIRREA’s exhaustion requirement, it likewise did not qualify
as a claim subject to the § 1821(d)(11) distribution priority.”
3
The district court dismissed Deutsche Bank’s breach of contract claims
premised on the FDIC’s splitting of the benefits and burdens of the PSAs.
The district court reasoned that, because portions of the agreements
constituted qualified financial contracts, the FDIC was entitled to split the
servicing functions from the liabilities. See Deutsche Bank I, 784 F. Supp.
2d at 1153–55. However, the district court allowed breach of contract
claims to proceed that were based on the FDIC’s failure to obtain
Deutsche Bank’s consent before transferring the servicing functions. See
id. at 1155. These claims were allowed to proceed against the FDIC in its
capacity as a receiver, with leave to amend to state claims against the
FDIC in its corporate capacity. See id. at 1162, 1170. These claims
encompassed the constructive trust claim. See id. at 1163, 1170. The
district court granted the FDIC’s motion to dismiss Deutsche Bank’s
breach of fiduciary duty, takings, and due process claims. See id. at
1169–70. The district court denied the FDIC’s motion to dismiss
Deutsche Bank’s claims based on breach of the implied covenant of good
faith and fair dealing. See id. at 1162–63. As discussed below, we only
address in this opinion the sole claim certified for interlocutory appeal –
whether Deutsche Bank’s claims are subject to the statutory priority
payment scheme.
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 19
Id. at 761 (citation and internal quotation marks omitted).
Although the district court concluded that Battista did not
impact its prior ruling, see id. at 761–62, the district court
held that McCarthy compelled dismissal of Deutsche Bank’s
claims as prudentially moot. See id. at 764–67.
The district court observed that “[t]he decision in Sharpe
did not squarely address the issue presented here: whether a
claim for post-receivership breach of a pre-receivership
contract qualifies as a general unsecured liability under the
§ 1821(d)(11) distribution priority, or whether it falls outside
of that scheme altogether. . . .” Id. at 764. According to the
district court, McCarthy “undercuts Sharpe’s reasoning”
because “[b]y holding that a debtor can have a claim subject
to exhaustion, McCarthy eliminates that key step in Sharpe’s
logic.” Id. (internal quotation marks omitted). “McCarthy,
however, did not – and could not – overrule Sharpe.” Id. As
a result, the district court interpreted McCarthy as
“distinguish[ing] Sharpe and limit[ing] its holding that a
claimant need not exhaust administrative remedies to claims
arising out of a breach of contract in the circumstances
present in Sharpe. . . .” Id. at 765 (citation and internal
quotation marks omitted). The district court determined
that Deutsche Bank’s claims were not covered by Sharpe’s
exception because “Deutsche Bank had not fully
performed its obligations, but rather had continuing
obligations to pay servicing fees over time. Thus, its claims
for post-receivership breach of pre-receivership contracts are
subject to the § 1821(d)(11) distribution priority.” Id. at 766.
The district court held that, because Deutsche Bank’s breach
of contract claims were “third-tier general unsecured
claims[,] Deutsche Bank . . . cannot recover anything on those
claims given IndyMac’s deep insolvency. . . .” Id. at 767.
Finding prudential mootness, the district court dismissed
20 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
Deutsche Bank’s claims with prejudice “except for the second
cause of action . . . for post-failure breach of contract to the
extent that it is based on the alleged breach of contracts that
[FDIC as Receiver] executed or approved, which would be
entitled to a priority right of payment under 12 U.S.C.
§ 1821(d)(20) . . .” Id. (internal quotation marks omitted).
The district court also sua sponte certified “the prudential
mootness issue for interlocutory appeal by Deutsche Bank.”
Id. at 768 (citation omitted). The district court “conclude[d]
that the question whether claims for post-receivership breach
of a pre-receivership contract are subject to the § 1821(d)(11)
distribution priority constitute[d] a controlling question of
law worthy of certification.” Id. The district court certified
for interlocutory appeal “the following controlling question
of law: whether Deutsche Bank’s claims for postfailure
breach by [FDIC as Receiver] of contracts executed by a
failed bank are payable only as third-tier general unsecured
claims under the § 1821(d)(11) distribution priority. . . .” Id.
at 770.
We granted “[t]he petition for permission to appeal
pursuant to 28 U.S.C. § 1292(b),” and limited the appeal “to
the specific question of law certified by the district court . . .”
II. STANDARDS OF REVIEW
We review de novo whether Deutsche Bank’s claims are
prudentially moot. See Hunt v. Imperial Merch. Servs.,
560 F.3d 1137, 1141 (9th Cir. 2009). “We also review de
novo a district court’s interpretation and construction of a
federal statute.” Holmes v. Merck & Co., Inc., 697 F.3d
1080, 1082 (9th Cir. 2012) (citation omitted).
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 21
III. DISCUSSION
A. Permissible Scope of the Appeal
In addition to challenging the district court’s holding
concerning prudential mootness, Deutsche Bank contends
that the district court erred in holding that the PSAs
constituted qualified financial contracts that could be severed
pursuant to 12 U.S.C. § 1821(e)(9), thereby negating
Deutsche Bank’s related breach of contract and constructive
trust claims. The FDIC counters that this issue was not
included in the question of law certified by the district court.
“[A]n appellate court’s interlocutory jurisdiction under
28 U.S.C. § 1292(b) permits it to address any issue fairly
included within the certified order because it is the order that
is appealable, and not the controlling question identified by
the district court. . . .” Nevada v. Bank of Am. Corp.,
672 F.3d 661, 673 (9th Cir. 2012) (citation and internal
quotation marks omitted) (emphasis in the original).
In this appeal, the dispositive issue, and the only issue
certified in the district court’s order, concerns prudential
mootness. Encapsulated within that issue is whether Deutsche
Bank’s claims constitute third-tier general unsecured claims
under 12 U.S.C. § 1821(d)(11). Although we have authority
to review issues fairly included within the certified order,
review of issues not included in the certified order would
obliterate the distinction between interlocutory appeals and
appeals after final judgment and would encourage
circumvention of the conventional appeals process. Perhaps
in recognition of that risk, “[c]ommentators and courts have
consistently observed that the scope of the issues open to the
court of appeals [under § 1292(b)] is closely limited to the
22 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
order appealed from and the court of appeals will not consider
matters that were ruled upon in other orders.” United States
v. Stanley, 483 U.S. 669, 677 (1987) (citations, alterations,
and internal quotation marks omitted); see also Swint v.
Chambers Cnty. Comm’n, 514 U.S. 35, 46, 50 (1995) (noting
that the authority to review interlocutory appeals is
“circumscribed” and that the rule should not be interpreted to
“parlay” interlocutory orders into “multi-issue interlocutory
appeal tickets”); Durkin v. Shea & Gould, 92 F.3d 1510, 1514
(9th Cir. 1996) (“[A]ppellate review is limited to the certified
order; issues presented by other, noncertified orders could not
be considered simultaneously[.]”) (citation, alteration, and
footnote reference omitted). In keeping with the letter and
spirit of § 1292(b), our precedent, and Supreme Court
guidance, we limit the scope of this appeal to the certified
order and decline to reach any issues that are not
encompassed within the certified order issued by the district
court. See Reese v. BP Exploration (Alaska) Inc., 643 F.3d
681, 689 (9th Cir. 2011) (similarly declining to review
uncertified issues). Accordingly, we review only the district
court’s determination of prudential mootness. Appeal of the
balance of the district court’s rulings must await final
judgment.
B. Prudential Mootness Based On FIRREA’s
Distribution Priorities
The doctrine of prudential mootness permits a court to
“dismiss an appeal not technically moot if circumstances
have changed since the beginning of litigation that forestall
any occasion for meaningful relief. . . .” Hunt, 560 F.3d at
1142 (citations, alteration, and internal quotation marks
omitted). Although we have not extensively applied the
prudential mootness doctrine per se, we have concluded that
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 23
claims against a receiver are moot if those claims cannot be
satisfied due to a lack of post-receivership assets. For
example, in Henrichs v. Valley View Dev., 474 F.3d 609, 615
(9th Cir. 2007), we determined that “a claim for damages
against the FDIC stemming from the FDIC’s alleged breach
of the FDIC Settlement Agreement” was moot because “[t]he
receivership distributed all of the failed bank’s assets” and no
assets remained to satisfy the alleged breach of contract
claims.
The district court’s dismissal of Deutsche Bank’s third-
tier general unsecured claims as prudentially moot is legally
sound. Pursuant to 12 U.S.C. § 1821(d)(11)(A)(iii), claims
that are “general or senior liabilit[ies] of the institution”
constitute third-tier claims that do not receive payment until
claims for administrative expenses and claims from the
institution’s depositors have been satisfied. Notably,
12 U.S.C. § 1821(d)(11) does not contain statutory exceptions
for a particular species of general liability. Rather,
§ 1821(d)(11)(A)(iii) provides that “[a]ny other general or
senior liability” constitutes a third-tier priority claim.
12 U.S.C. § 1821(d)(11)(A)(iii) (emphasis added). This plain
language in the statute reflects clear Congressional intent to
not carve out an exception for general unsecured claims based
on breaches of non-repudiated contracts. See United States
v. Havelock, 664 F.3d 1284, 1292 (9th Cir. 2012) (en banc)
(“[W]e are not in the business of rewriting the law, but that of
interpreting Congress’s words when it enacted the
statute. . . .”) (citation omitted).
Relying on Sharpe, Deutsche Bank posits that FIRREA
does not protect the FDIC when it exceeds its statutory
authority by breaching pre-receivership contracts. The import
of Deutsche Bank’s argument is that if FIRREA does not
24 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
apply to protect the FDIC from breach of contract claims,
FIRREA similarly cannot cabin Deutsche Bank’s claims
through the application of § 1821(d)(11). However, this
rationale derived from Sharpe does not apply to the facts of
this case. As we recognized in McCarthy, “Sharpe was an
unusual case. . . .” 348 F.3d at 1078. Given that we have
limited Sharpe’s reach even in the administrative exhaustion
context, see id., it would be illogical for us to expand Sharpe
to more substantive provisions, such as 12 U.S.C.
§ 1821(d)(11), that were not at issue or addressed in Sharpe.
See Sharpe, 126 F.3d at 1152 (describing the case as
involving 12 U.S.C. § 1821(i) and administrative exhaustion).
Although the panel in Sharpe wrote that “FIRREA does not
permit the FDIC to breach contracts at will,” it did not hold
or even imply that breach of contract claims are categorically
exempt from the distribution priorities set forth in 12 U.S.C.
§ 1821(d)(11). Id. at 1155. Rather, the panel simply
concluded that, because the plaintiffs were not creditors or
depositors, their claims were not subject to FIRREA’s
administrative exhaustion requirements. See id. at 1156–57.
Given Sharpe’s limitations, we are not swayed by Deutsche
Bank’s expansive interpretation of Sharpe.4
4
Deutsche Bank’s reliance on County of Sonoma v. Federal Housing
Finance Agency, 710 F.3d 987 (9th Cir. 2013) is misplaced. In that case,
we considered whether the Federal Housing Finance Agency acted within
its authority when it precluded Freddie Mac and Fannie Mae from
purchasing mortgages for properties that were encumbered by property-
assessed clean energy liens. See id. at 988–89. Although we cited Sharpe
for the proposition that judicial review is not barred when an agency acts
beyond its statutory powers, we did not address FIRREA’s provisions or
the issue raised in this appeal concerning application of the priority
scheme delineated in 12 U.S.C. § 1821(d)(11). See id. at 992.
 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 25
Even if applicable to Deutsche Bank’s claims, Sharpe
militates against Deutsche Bank’s assertion of a superpriority
claim. In Sharpe, we determined that the FDIC could have
invoked FIRREA’s administrative exhaustion requirements
if the plaintiffs had been creditors. See id. at 1156 (“Section
1821(d) sets forth an administrative claims process, which
requires that creditors submit claims to the FDIC for
administrative resolution. If the Sharpes [were] considered
creditors, they [would be] subject to that claims process.”)
(footnote reference and internal quotation marks omitted).
We reasoned that the plaintiffs were not creditors because
“[b]ut for the FDIC’s breach, the full cash amount specified
in the settlement agreement would have been wired to the
Sharpes. It is only as a consequence of the FDIC’s breach
that the FDIC can construe the Sharpes as creditors of the
FDIC. . . .” Id.
In McCarthy, we recognized the dichotomy between
creditor and non-creditor claimants and opined that Sharpe
was of limited utility in deciding whether a debtor’s claim
must be exhausted, because the facts in Sharpe did not
include either classification of claimant. See McCarthy,
348 F.3d at 1078 (observing that in Sharpe “we had no
occasion to decide whether a debtor’s claim or action, like a
creditor’s, must be exhausted, for the Sharpes were not
debtors and our decision turned on the claimants’ being
aggrieved parties to a contract that the FDIC had not
repudiated”). Unlike in Sharpe, Deutsche Bank’s agreements
with IndyMac established a creditor relationship between
Deutsche Bank and the FDIC as IndyMac’s successor, prior
to the FDIC’s alleged post-receivership breach of contract.
Indeed, the allegations of the complaint reflect the extensive
nature of Deutsche Bank’s creditor status. Deutsche Bank’s
Sharpe-inspired argument that the FDIC cannot utilize
26 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
FIRREA’s priority framework due to FDIC’s breach is thus
undermined by Deutsche Bank’s status as a creditor. See
Sharpe, 126 F.3d at 1156 (“If the Sharpes [were] considered
creditors, they [would be] subject to that claims process
[under § 1821(d)].”)5 Therefore, Sharpe’s limited exception
for non-creditor claims premised on the FDIC’s breach of
contract does not alter the classification of Deutsche Bank’s
claims as general liabilities under the priority framework set
forth in 12 U.S.C. § 1821(d)(11).6
5
It is also arguable that Sharpe is distinguishable because the plaintiffs
in Sharpe, unlike Deutsche Bank, fully performed the underlying contract.
See Sharpe, 126 F.3d at 1153 (“As such, the settlement agreement
governs, and the Sharpes are neither creditors nor depositors under the
agreement. They are parties to a contract they fully performed.”).
6
In concluding that 12 U.S.C. § 1821(d) applies to Deutsche Bank’s
claims, we are also persuaded by the D.C. Circuit’s recent decision in
MBIA Ins. Corp., addressing a somewhat analogous situation. In that
case, MBIA Insurance Corp. (MBIA) entered into similar PSAs with
IndyMac prior to IndyMac’s insolvency. See MBIA Ins. Corp., 708 F.3d
at 235–36. MBIA argued that “the FDIC Conservator of IndyMac Federal
breached its seller-and-servicer obligations under the PSAs, causing
damages to MBIA. . . .” Id. at 236. MBIA asserted that its claims
constituted administrative expenses under 12 U.S.C. § 1821(d)(11)(A)
“because the FDIC had approved the PSAs . . .” Id. (internal quotation
marks omitted). In rejecting MBIA’s administrative priorities contention,
the D.C. Circuit observed:
Section 1821(d)(11) establishes an order of priority
among claimants of the failed bank, placing recovery of
administrative expenses first, followed by depositors’
claims, and only thereafter general creditors’ claims.
MBIA’s interpretation would put general creditors
before depositors simply by virtue of the fact that the
contracts to which they were a party or beneficiary
were liabilities transferred to the FDIC Conservator by
the commonly-used mechanism of a purchase and
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 27
We, therefore, hold that Sharpe was limited to its
particular facts and does not bar application of the statutory
priority distribution framework to Deutsche Bank’s general
unsecured claims.7
assumption agreement, and were not repudiated.
Specifically, MBIA’s broad interpretation of ‘approved’
would place general creditor claims related to the failed
bank’s pre-failure misrepresentations above depositors,
which are hardly the types of claims that could ever be
classified as administrative expenses. The FDIC
regulation on administrative expenses tracks Congress’s
purpose that administrative expenses be a narrowly
drawn category, limited to ordinary and necessary
expenses of the failed institution but only those that the
receiver determines are necessary to maintain services
and facilities to effect an orderly resolution of the
institution. . . .
Id. at 243–44 (citations, alterations, footnote references, and internal
quotation marks omitted) (emphasis in the original). The D.C. Circuit
held that “[t]he district court therefore properly rejected MBIA’s broad
interpretation of ‘approved’ in § 1821(d)(20) and dismissed MBIA’s
damages claims . . . as prudentially moot in light of the FDIC’s No Value
Determination.” Id. at 245 (citation omitted). “Where it is so unlikely
that the court’s grant of remedy will actually relieve the injury, the
doctrine of prudential mootness permits the court in its discretion to stay
its hand, and to withhold relief it has the power to grant by dismissing the
claim for lack of subject matter jurisdiction . . .” Id. (citation and internal
quotation marks omitted).
7
Deutsche Bank’s argument premised on a constructive trust theory
does not warrant reversal of the district court’s dismissal for prudential
mootness. Deutsche Bank’s constructive trust argument relies on Sharpe’s
observation that 12 U.S.C. § 1821(j) does not bar equitable relief when the
FDIC has exceeded its statutory authority. See Sharpe, 126 F.3d at 1155.
However, Sharpe does not establish Deutsche Bank’s entitlement to a
constructive trust or to other equitable relief. Under the facts as pled by
Deutsche Bank, it is a creditor seeking payment of sums due under a
28 DEUTSCHE BANK NAT’L TRUST CO. V. FDIC
In sum, Sharpe and Battista do not support Deutsche
Bank’s attempt to avoid the priority distribution scheme of
12 U.S.C. § 1821(d), as neither case addressed application of
the priority distribution scheme to a creditor like Deutsche
Bank. Because Deutsche Bank’s overly broad assertion of a
superpriority claim is not supported by any controlling
precedent, Deutsche Bank’s claims must be evaluated under
the statutory priority framework. Applying the provisions of
12 U.S.C. § 1821(d), we agree with the district court that
Deutsche Bank’s third-tier unsecured claims are prudentially
moot because Deutsche Bank cannot recoup any sums owed
from an insolvent IndyMac.
IV. CONCLUSION
Although the FDIC arguably breached the contracts at
issue rather than repudiating them, Sharpe does not support
Deutsche Bank’s broad assertion that it is entitled to a
superpriority claim in contravention of the explicit hierarchy
of payment set forth in 12 U.S.C. § 1821(d)(11). Adopting
Deutsche Bank’s interpretation of 12 U.S.C. § 1821(d)(11)
would disadvantage other equally deserving creditors who are
constrained by the statutory payment priority framework.
Because Deutsche Bank is a quintessential creditor, its claims
are third-tier general unsecured liabilities under 12 U.S.C.
§ 1821(d)(11)(A)(iii), and the district court properly held that
Deutsche Bank’s claims were prudentially moot, as there
were insufficient funds to satisfy general unsecured liabilities.
See Henrichs, 474 F.3d at 615; see also Deutsche Bank II,
contract. As a creditor, Deutsche Bank is subject to the statutory priority
distribution scheme and administrative exhaustion requirement contained
in 12 U.S.C. §§ 1821(d)(11) and 1821(j), respectively. See MBIA Ins.
Corp., 708 F.3d at 243–45; see also McCarthy, 348 F.3d at 1076.
DEUTSCHE BANK NAT’L TRUST CO. V. FDIC 29
854 F. Supp. 2d at 760 (“The FDIC has made a determination
that the assets of IndyMac and IndyMac Federal are
insufficient to make any distribution on general unsecured
claims and therefore, such claims, asserted or unasserted, will
recover nothing and have no value. . . .”) (citation, footnote
reference, and internal quotation marks omitted).
AFFIRMED.