Bank of America, National Association v. Federal Deposit Insurance Corporation ( 2012 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
BANK OF AMERICA, N. A.,
As Indenture Trustee, Custodian, and
Collateral Agent for OCALA FUNDING,
LLC,
Plaintiff and Counterclaim
Defendant,
v. Civil Action No. 10-CV-1681 (BJR)
FEDERAL DEPOSIT INSURANCE MEMORANDUM OPINION ON
CORPORATION, in its capacity as the CROSS MOTIONS TO DISMISS
Receiver for COLONIAL BANK, and in its
capacity as the Receiver for PLATINUM
COMMUNITY BANK,
Defendant and Counterclaim
Plaintiff.
I. INTRODUCTION ................................................................................................................................ 2
II. SUMMARY OF THE CASE ................................................................................................................ 3
A. Overview of TBW’s Operation ......................................................................................................... 4
B. Factual Background Common to All Claims .................................................................................... 6
D. Factual Allegations Specific to BOA’s Claims Against the FDIC ................................................... 9
E. Factual Allegations Specific to the FDIC’s Counterclaims Against BOA ..................................... 12
III. PROCEDURAL HISTORY............................................................................................................ 14
IV. DISCUSSION ................................................................................................................................. 15
A. Standards of Review ....................................................................................................................... 15
B. The FDIC’s Motion to Dismiss the Amended Complaint .............................................................. 18
1. Whether This Court Has Subject Matter Jurisdiction over BOA’s Claims................................. 18
a. Whether BOA Exhausted the Administrative Remedies under FIRREA on behalf of Ocala. 19
b. Whether BOA Has Standing to Bring Claims on Behalf of DB and BNP.............................. 27
i. Whether DB and BNP Have Article III Standing ............................................................... 28
ii. Whether BOA Can Pursue the Claims on Behalf of DB and BNP ..................................... 30
c. Whether Counts IX, X, and XI Have Been Administratively Exhausted under FIRREA ...... 32
1
2. Whether the Amended Complaint States a Claim for Fraudulent Transfer ................................ 33
3. Whether the Amended Complaint Pleads Fraud with the Requisite Specificity......................... 39
C. BOA’s Motion to Dismiss the FDIC’s Counterclaims .................................................................. 42
1. Whether the Counterclaims are Barred by the Exculpatory Clauses .......................................... 44
2. Whether the Counterclaims State a Claim for Breach of the Custodial Agreement ................... 49
a. Counterclaim 1 ........................................................................................................................ 49
b. Counterclaim 2 ........................................................................................................................ 51
c. Counterclaim 3 ........................................................................................................................ 52
d. Counterclaim 4 ........................................................................................................................ 53
e. Counterclaim 5 ........................................................................................................................ 54
3. Whether the Breach of Bailment Counterclaims Fail as a Matter of Law .................................. 55
a. Whether the Bailee Letters Are Enforceable Contracts between Colonial and BOA ............. 57
b. Whether the Breach of Bailment Counterclaims State a Claim for Relief.............................. 65
4. Whether the Tort Counterclaims Fail As a Matter of Law ......................................................... 68
a. Whether the Economic Loss Doctrine Bars the Tort Claims .................................................. 69
b. Whether the Custodial Agreement Limits BOA’s Tort Liability............................................ 70
V. CONCLUSION ................................................................................................................................... 71
______________________________________________________________________________
I. INTRODUCTION
Before the Court are two motions to dismiss. First, Defendant and Counterclaimant
Federal Deposit Insurance Corporation (the “FDIC”), in its capacity as the Receiver for both
Colonial Bank (“Colonial”) and Platinum Community Bank (“Platinum”), moves to dismiss the
First Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6). (Dkt.
No. 26.). Second, Plaintiff and Counterclaim-Defendant Bank of America, N.A., (“BOA”)
moves to dismiss the FDIC’s Counterclaims pursuant to Rule 12(b)(6). (Dkt. No. 36.). Having
considered the parties’ arguments, pleadings, and the relevant case law, the court is fully advised.
For the reasons set forth below:
2
IT IS HEREBY ORDERED that each motion is GRANTED in part and DENIED in
part.
II. SUMMARY OF THE CASE
This dispute is the result of a multi-billion dollar fraudulent scheme that left the financial
sector reeling. The scheme was orchestrated by Lee Farkas, the former chairman of Taylor, Bean
& Whitaker Mortgage Corp. (“TBW”), with the aid of several bank employees from Colonial
and Platinum. 1 It stemmed from TBW’s loan origination business, which started with humble
roots in 1982, but grew at a frenetic pace as the United States’ housing bubble grew. When the
housing market began to crumble, so did TBW’s finances. In 2002, Farkas and his co-
conspirators hid TBW’s financial decline through a complex scheme that evolved over several
stages. Initially, they disguised overdrafts on TBW’s bank accounts held at Colonial by
“sweeping” funds from other accounts into the overdrawn accounts. As TBW’s deficit grew to
well over $100 million, Farkas and his co-conspirators initiated more sophisticated measures,
including selling sham mortgage loans, multi-pledging collateral, and overstating the actual
value of TBW’s and its subsidiaries’ assets. In the final stage of the scheme, Farkas and his co-
conspirators attempted to fraudulently obtain $553 million from the Troubled Asset Relief
Program. The scheme was eventually uncovered in August 2009. Farkas is now serving a 30-
year sentence after being convicted in April 2011 of 14 counts of conspiracy and bank, wire, and
securities fraud. A handful of other executives from TBW and Colonial have also been sentenced
to prison for their roles in the fraud.
TBW’s loan origination business operated through a complex web of financial
agreements between multiple financial institutions. When TBW collapsed, these institutions were
left behind in the wreckage. Many of these institutions turned to the courts to determine liability
1
The FDIC disputes whether Platinum employees were involved in the fraud.
3
for the multi-billion dollar losses caused by the fraud. This is one such case. In this case, BOA,
acting in its capacity as the Indenture Trustee, Custodian, and Collateral Agent for one of TBW’s
subsidiaries, Ocala Funding, LLC (“Ocala”), seeks to recover approximately $1.7 billion from
the FDIC as the Receiver for the now defunct Colonial and Platinum banks. The FDIC, in turn,
has countersued. It seeks to recover $900 million from BOA for allegedly breaching its duties as
the Custodian and Bailee for Colonial.
A. Overview of TBW’s Operation
As previously stated, TBW operated through a complex web of financial arrangements
with a number of financial institutions who operated in a number of different capacities. Before
delving into the minutiae of these financing arrangements, it is helpful to understand the
interplay between the various entities implicated in this lawsuit.
The process started with TBW originating a mortgage loan for an individual homebuyer.
TBW funded the loan through a series of funding agreements it had with Colonial. Under these
agreements, Colonial advanced funds to TBW in exchange for a 99% ownership interest in the
loan; TBW retained a 1% ownership interest. At this point, Colonial and/or TBW sent the loan to
BOA to be held for the benefit of Colonial and TBW (in their respective ownership interests). In
this way, BOA acted as custodian and bailee of the loan for both Colonial and TBW.
Next, TBW’s subsidiary, Ocala, purchased Colonial’s 99% ownership interest in the
loan, thereby effectively paying Colonial back the amounts Colonial had extended to fund the
loan. Ocala raised the money needed to purchase Colonial’s 99% ownership interest by selling
short-term notes to outside investors, to wit, Deutsche Bank (“DB”) and BNP Paribas (“BNP”).
TBW then notified BOA of Ocala’s purchase of the loans and BOA would send the sale proceeds
to Colonial from an account that Ocala maintained at BOA. At this point, BOA’s relationship to
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the loan changed. BOA still held the loan, but now it retained the loan as the indenture trustee,
custodian, and collateral agent for Ocala and Ocala’s outside investors (i.e., DB and BNP). BOA
held the loan in a collateral account that Ocala maintained at BOA.
Next, TBW arranged for Ocala to sell the loan to Freddie Mac. The proceeds from that
sale were placed in Ocala’s collateral account at BOA and were either used to pay back DB and
BNP or to purchase more loans from Colonial. Finally, BOA would send the loan to a Freddie
Mac custodial account at Colonial. The transaction was then complete.
The fractures in TBW’s operation were not discovered until TBW collapsed in August
2009. At that point, the participants realized that TBW had been manipulating the system. BOA
alleges that Farkas and employees at Colonial and Platinum fraudulently diverted virtually all of
Ocala’s assets, the result of which was that Ocala was unable to make payments to its outside
investors, and DB and BNP ultimately lost approximately $1.7 billion. BOA seeks to recover this
loss from the FDIC as the Receiver for both Colonial and Platinum. The FDIC, in turn, alleges
that at some point in 2008, TBW began to manipulate its operation such that thousands of loans
were pledged as collateral to Ocala, Colonial, and Freddie Mac at the same time. The FDIC
alleges that Colonial was unaware of this “multi-pledging scheme” and ultimately lost a total of
$900 million. The FDIC claims that BOA was complicit in the “multi-pledging” and seeks to
recover the $900 million loss from BOA.
With this background in mind, the Court now turns to the detailed factual allegations
asserted by both BOA and the FDIC.
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B. Factual Background Common to All Claims 2
TBW was the largest independent (i.e., non-depository owned) mortgage originator 3 and
servicer 4 in the United States when it filed for Chapter 11 bankruptcy protection on August 24,
2009. (Dkt. No. 25 Answer to First Amended Complaint, Affirmative Defenses, and
Counterclaims, at ¶ 9; Dkt. No. 20 First Amended Complaint at ¶ 27; Final Reconciliation
Report of Debtor Taylor, Bean & Whitaker Mortgage Corp. (the “FRR”) 5 at p. 9, ¶ 1, In re
Taylor, Bean & Whitaker Mortg. Corp, No. 3:09-bk-07047-JAF (Bankr. M.D. Fla. filed Aug. 24,
2009), ECF No. 1644.). TBW provided mortgage financing to individual borrowers through a
network of independent mortgage brokers and community banks. (FRR at p. 13, ¶ 18.). Its
ultimate objective was to sell these mortgages to investors in the secondary market, typically
Freddie Mac, and retain the right to service the mortgages for the investors. (Id.; Dkt. No. 20 at ¶
31-32.).
In 2002 through 2009, TBW experienced tremendous growth in the number of loans it
originated. For example, in 2004, TBW originated a total of 59,129 loans representing a dollar
value in excess of $9.5 billion. (FRR at p. 14, ¶ 20.). By early 2009, TBW originated
approximately 14,500 new loans representing a dollar value in excess of $2.7 billion every
month. (Id.; Dkt. No. 20 at ¶¶ 29-30.).
2
Except when noted by the Court, these facts are not in dispute.
3
A “mortgage originator” is an institution that works with a borrower to complete a mortgage transaction.
See http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm.
4
A “mortgage servicer” is responsible for the day-to-day management of the mortgage loan account. See
http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm. A mortgage servicer may be a borrower’s lender, but
often the beneficial rights of principal and interest on mortgages are sold to investors such as Freddie Mac, Fannie
Mae, and private investors. Id.
5
BOA submitted the Final Reconciliation Report to this Court during the October 2, 2012 hearing (without
objection from the FDIC) and both parties referenced the Report throughout the hearing. Accordingly, the Court will
take judicial notice of the Report. See Miles v. State of California, 320 F.3d 986, 987 n. 1 (9th Cir. 2003) (district
court taking judicial notice of related state court proceedings).
6
TBW required significant financing in order to fund its loans at the time of closing and
then hold onto them until they could be sold to Freddie Mac. (FRR at p. 14, ¶ 22.). This is where
Colonial came in. Colonial was key to TBW’s financing needs, serving as TBW’s primary
source of funding through a number of different funding arrangements. (Dkt. No. 20 at ¶¶ 18 and
44.) In particular, Colonial provided funding through various mortgage participation 6 agreements
that the parties refer to as the “COLB Facilities.” (Id. at ¶ 43.). Under the terms of the COLB
Facilities, Colonial purchased from TBW a 99% participation interest in each loan that TBW
originated; TBW retained a 1% participation interest in the loan. (See Dkt. No. 25 at ¶ 11; FRR
at p.15, ¶ 24; Dkt. No. 20 at ¶ 43.). The parties refer to these loans as the “Participated Mortgage
Loans.” (Dkt. No. 25 at ¶ 11.).
As the United States’ housing market began to show signs of weakness and TBW’s
sources of credit dried up, TBW sought additional sources of funding with which to originate and
fund mortgages. (Id. at ¶ 13.). To that end, TBW created Ocala in 2005. (Id. at ¶ 14; FRR at pp.
53-54, ¶¶ 103-104.). TBW controlled Ocala and, as a practical matter, was fully responsible for
all of Ocala’s business activities. (Dkt. No. 20 at ¶ 53; FRR at p. 53, ¶ 103.).
TBW created Ocala to function as a conduit through which TBW could obtain funding
from outside investors. (Dkt. No. 25 at ¶ 15; FRR at pp. 53-54, ¶ 104; Dkt. No. 20 at ¶ 49.).
Ocala funded its operations by issuing short-term liquidity notes (the “Ocala Notes”) that were
supposed to be secured at all times by Participated Mortgage Loans that Ocala owned and/or the
cash proceeds of the sale of these Loans to Freddie Mac. (Dkt. No. 25 at ¶¶ 15-19; Dkt. No. 20 at
¶¶ 50-51; FRR at p. 53-54, ¶ 104.). At the time of TBW’s collapse, DB and BNP were the only
6
A “mortgage participation” is a mortgage or pool of mortgages that is divided into units that are sold to one
or more investors, each of whom participates in receiving payments of principal and interest. See
http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea10.shtm.
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holders of Ocala Notes. DB owned $1.2 billion of the Notes; BNP owned $480.7 million. (Dkt.
No. 20 at ¶ 52; Dkt. No. 25 at ¶ 19.).
TBW arranged for Ocala to purchase Colonial’s 99% participation interest in each
Participated Mortgage Loan that TBW funded through the Colonial COLB Facilities. (Dkt. No.
20 at ¶ 60; Dkt. No. 25 at ¶16.). By arranging for Ocala to purchase Colonial’s 99% interest,
TBW effectively paid back Colonial, which, in turn, freed up more funding for TBW to use from
the COLB Facilities. (Dkt. No. 25 at ¶ 16.). Once Ocala owned the Loans, TBW arranged for the
Loans to be sold to Freddie Mac. (Id. at ¶ 17.). TBW would cause the proceeds from the Freddie
Mac sale to either be applied to the balance outstanding on the Ocala Notes or to cause Ocala to
buy more Participated Mortgage Loans from Colonial. Id.BOA had several distinct but related roles in the above-described arrangement. First,
TBW and Colonial needed a custodian to hold the Participated Mortgage Loans pending Ocala’s
purchase of Colonial’s interest in the Loans. To that end, in July 2008, Colonial, TBW, and BOA
entered into a contract entitled “Custodial Agreement.” (Dkt. No. 25 at ¶ 22.). The provisions of
the Custodial Agreement are set forth in greater detail herein at Section IV.D., but generally
under this Agreement, BOA agreed to accept the Participated Mortgage Loans, hold them for the
benefit of Colonial and TBW (to the extent of each entities’ participation interest in the Loans),
and either return the Loans to Colonial or remit payment to Colonial once the Loans were sold to
Ocala. (Id. at ¶¶ 22-23.). BOA was paid a fee for these services. (Id. at ¶ 34.).
BOA asserts that the Custodial Agreement is the only agreement that governed this
transfer of Loans. (Dkt. No. 36, BOA’s Reply in support of its Motion to Dismiss, at 22.). The
FDIC asserts that Colonial transmitted the Loans to BOA via bailee letters (the “Bailee
Letter(s)”) and that the Bailee Letters either modified the Custodial Agreement or constituted
8
new, independent agreements between Colonial and BOA. (Dkt. No. 41, the FDIC’s Opp. to
BOA’s Motion to Dismiss, at 10.). It is pursuant to these agreements that the FDIC brings its
Counterclaims.
BOA also agreed to act as the Indenture Trustee, Custodian and Collateral Agent for the
Ocala Facility. (Dkt. No. 20 at ¶ 10.). This agreement is reflected in a set of agreements that the
parties refer to as the “Ocala Facility Documents.” (Id. at ¶¶ 53-54.). Three of these agreements
are particularly relevant to this dispute, each dated June 30, 2008: (1) the Security Agreement,
(2) the Purchase Agreement, and (3) the Base Indenture. The provisions of these agreements are
discussed in detail herein at Section IV.C., but generally under these agreements, BOA agreed to
administer and regulate the flow of mortgages and cash in and out of Ocala, certify the solvency
of Ocala prior to its issuance of Ocala Notes, and, upon certain events of default, shut down
Ocala and take other specific actions. BOA was paid a fee for these services. 7
D. Factual Allegations Specific to BOA’s Claims Against the FDIC
When TBW collapsed in August 2009, the parties discovered that the value of the
collateral backing the Ocala Notes was grossly overstated. (Dkt. No. 20 at ¶ 1.). When the dust
finally settled, Ocala owed DB and BNP approximately $1.7 billion, but the value of the
mortgage loans backing the Ocala Notes coupled with Ocala’s cash on deposit was less than
$200 million. (Id.; FRR at p. 63, ¶ 119.). BOA, in its capacity as Indenture Trustee, Custodian,
and Collateral Agent under the Ocala Facility Documents, seeks to recover the amounts owed on
the Ocala Notes from the FDIC as the Receiver for Colonial and Platinum. (Dkt. No. 20 at ¶ 1.).
The substance of BOA’s claims is that Colonial and Platinum were parties to TBW’s fraudulent
7
BOA’s role as the Custodian for TBW and Colonial, as well as its role as the Indenture Trustee, Collateral
Agent, and Custodian under the Ocala Facility Documents is also the subject of a pending case in the Southern
District of New York. See BNP Paribas Mortgage Corporation v. Bank of America, N.A., 778 F. Supp. 2d 375(S.D.N.Y. 2011).
9
scheme that resulted in the loss of billions of dollars belonging to Ocala. (Dkt. No. 35, BOA’s
Opp. to the FDIC’s Motion to Dismiss, at 1; Dkt. No. 20 at ¶¶ 1, 64-68, 106.).
Specifically, BOA alleges that when TBW began to experience significant liquidity
problems in 2002, TBW and Colonial conspired to cover the cash shortfalls in TBW’s master
bank account (the “Master Account”) by “sweeping” money from other TBW accounts at
Colonial into the Master Account. (Dkt. No. 20 at ¶ 65a.). This gave the false appearance that the
Master Account was not overdrawn. (Id.). The day after the funds were swept into the Master
Account, TBW and Colonial swept the same funds back out of the Account. (Id.). BOA asserts
that TBW and Colonial continued to disguise the Master Account’s growing deficit by creating
false mortgage loan data to give the impression that Colonial had purchased ownership interest in
certain of TBW’s loans. (Id. at ¶ 65b.). BOA claims that Colonial knew that this data included
loans that either did not exist or that TBW had already committed or sold to outside investors
(i.e., Freddie Mac). (Id.). BOA alleges that during this same time, “billions of dollars” were
transferred from Ocala accounts to a TBW account at Colonial for the purpose of purchasing
mortgages. (Id. at ¶ 68.). However, BOA alleges, some of the funds were not actually used to
purchase mortgages, or were used to purchase “sham” mortgages, and therefore, the transfers,
were in fact, a theft of Ocala’s assets. (Id.). Finally, BOA claims that TBW, Colonial, and
Platinum diverted $50 million from Ocala to an escrow account at Platinum as part of their effort
to fraudulently obtain TARP funds. (Id. at ¶ 74.).
BOA maintains that TBW and the banks concealed the above-described fraudulent
diversions from BOA and Ocala’s investors by, among other things, providing BOA with
falsified collateral lists that misrepresented the status of loans in which Ocala allegedly held a
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security interest. (Id. at ¶ 65i.). According to BOA, these falsified collateral lists misrepresented
the ownership status of loans allegedly held by Ocala by more than $1 billion. (Id.).
BOA asserts that the combined effect of the above-described fraudulent activities was
that TBW, Colonial and Platinum fraudulently diverted virtually all of Ocala’s assets, leaving it
unable to pay its obligations when the fraud was uncovered. (Dkt. No. 20 at ¶ 1.). In bringing this
action, BOA seeks to recover Ocala’s losses from Colonial and Platinum for the benefit of Ocala,
Ocala’s investors (i.e., DB and BNP), and BOA itself. BOA maintains that it is entitled to bring
such claims and, indeed, is obligated to bring the claims as Indenture Trustee, Custodian, and
Collateral Agent under the Ocala Facility Documents. (Dkt. No. 20 at ¶¶ 8-10; Dkt. No. 35 at 8.).
According to BOA, it is pursuant to these obligations that BOA commenced suit in the
United States District Court for the Southern District of Florida against Colonial to recover
mortgages and other assets allegedly belonging to Ocala. (Id. at ¶¶ 102, 104.). The Eleventh
Circuit dismissed the case, stating that BOA had to proceed through the statutory administrative
claims process created by Congress for distressed financial institutions. (See Dkt. No. 35 at 9
(citing Bank of Am. N.A. v. Colonial Bank, 604 F.3d 1239, 1241 (2010)).). Therefore, on
November 19, 2009 and December 9, 2009, BOA filed proofs of claim with the FDIC (as the
Receiver for Colonial and Platinum), seeking allowance of general unsecured claims against
Colonial and Platinum, respectively, for the losses suffered by Ocala and its investors (i.e., DB
and BNP). (Id. at ¶¶ 123-124 and 137-138.).
The parties dispute on whose behalf BOA filed the proofs of claim. BOA asserts that it
filed the claims on behalf of Ocala, Ocala’s investors (i.e., DB and BNP) and itself. (See Dkt.
No. 35 at 16.). The FDIC counters that the claims were only filed on behalf of DB and BNP. (See
Dkt. No. 26, the FDIC’s Motion to Dismiss, at 9.). On August 4, 2010, the FDIC disallowed the
11
claim against Colonial. (Dkt. No. 20 at ¶ 130.). Similarly, on August 5, 2010, the FDIC
disallowed the claim against Platinum. (Id. at 144.). BOA filed the present action seeking a de
novo review of the FDIC’s denial of the receivership claims (Counts I through IV). (Id. at ¶ 10.).
BOA also alleges claims for fraud (Count V), civil conspiracy (Count VI), unjust enrichment
(Count VII), conversion (Count VIII), and actual and constructive fraudulent transfer (Counts IX
and X). (Id. at ¶¶ 169-234.).
E. Factual Allegations Specific to the FDIC’s Counterclaims Against BOA
The FDIC concedes that Colonial employees were involved in aspects of TBW’s
fraudulent scheme. (Dkt. No. 41 at 4.). However, it claims that these employees were not
involved in any wrongful actions with respect to Ocala. (Id.). Instead, the FDIC maintains that
Ocala’s inability to pay back the Ocala Notes was due to a facet of TBW’s scheme of which
Colonial was unaware, and that TBW was only able to pull off because BOA breached its
obligations to Colonial. (Dkt. No. 25 at ¶¶ 1-8.).
The FDIC alleges that in July 2008, Colonial, TBW, and BOA entered into the Custodial
Agreement. (Id. at ¶ 22.). The stated purpose of the Custodial Agreement was to govern the
transfer of the Participated Mortgage Loans from TBW to Colonial pursuant to the mortgage
participation agreement under the Colonial COLB Facilities. (See Custodial Agreement at
Recitals attached as Ex. A to Dkt. No. 36-1, Declaration of Kristin Linsley Myles (the “Myles
Decl.”). Under the Agreement, BOA “agreed to act on behalf of [Colonial] and [TBW]…as
[Colonial’s] and [TBW’s] agent and bailee (to the extent of their respective ownership interests
in Participated Mortgage Loans) for purposes of holding the [documents] related to the
Participated Mortgage Loans…”. (Id.). The FDIC also asserts that Colonial routinely transferred
the Participated Mortgage Loans and associated documents to BOA under cover of a standard
12
bailee letter (the “Bailee Letters”), utilizing the letter as a Loan Transmittal Sheet. (Dkt. No. 25
at ¶ 31; see also a copy of a Bailee Letter attached as Ex. B to Dkt. No. 36-1, Myles Dec.).
The FDIC claims that the Custodial Agreement and Bailee Letters, together and
separately, establish that BOA was Colonial’s agent and bailee, placing certain obligations on
BOA. (Dkt. No. 25 at ¶¶ 24-25.). Among other things, BOA was obliged to hold the Participated
Mortgage Loans for Colonial’s exclusive use and benefit and for the purpose of perfecting
Colonial’s ownership in the Loans until Colonial was paid for their sale. (Id.). The FDIC alleges
that BOA breached these obligations in the following manner.
The FDIC claims that at some point beginning around June 2008, TBW started notifying
BOA that Ocala had “purchased” certain Participated Mortgage Loans from the Colonial COLB
Facilities, but would never instruct BOA to pay Colonial for the Loans that Ocala allegedly
purchased. (Id. at ¶ 43.). 8 Instead, BOA would receive the Loans from TBW and enter them into
its collateral management system as collateral for DB and BNP without first paying Colonial.
(Id.). Next, BOA would assist Ocala in selling the Loans to Freddie Mac. (Id.). The FDIC asserts
that BOA would accomplish this by falsifying Freddie Mac Form 996E forms entitled
“Warehouse Lender Release of Security Interest,” on which BOA would state that it was the
“Warehouse Lender,” that TBW was the “Seller,” and that there were no other encumbrances on
the Loans. (Id. at ¶ 44.).
The FDIC claims that after Freddie Mac paid Ocala for the Loans, TBW would instruct
BOA to forward the sales proceeds to Colonial. (Id. at ¶ 45.). However, the sales proceeds were
not used to pay Colonial for the Loans that were just sold to Freddie Mac; instead, the FDIC
alleges, TBW directed BOA to pay Colonial for Loans that had been shipped to BOA earlier and
8
If Ocala was operating as it was supposed to, TBW’s notification of the purchase should have been
accompanied by a corresponding request that BOA transfer the sales proceeds to Colonial. (FRR at ¶ 117a.).
13
that had already been sold by Ocala to Freddie Mac in the intervening time. (Id.). In effect, the
new sales proceeds were used to pay Colonial for its prior sales to Ocala. Thus, Ocala was never
current on the amount that it owed Colonial. The FDIC asserts that a substantial number of these
Loans were listed as collateral under the Colonial COLB Facilities even though Colonial was not
paid for the Loans at the time of Ocala’s “purchase” of the Loans. (Id.). The FDIC asserts that
the net effect of this course of conduct was that thousands of Participated Mortgage Loans were
sold to Freddie Mac but remained listed in BOA’s system as collateral for the Ocala Notes. (Id.
at ¶¶ 45-49).
The FDIC asserts that the above-described process was unknown to Colonial at the time
because Colonial still typically received payment for the Loans within the appropriate amount of
time under the Bailee Letters. (Id. at 46.). However, when TBW collapsed in August 2009, the
process described above came to an abrupt halt. (Id.). At that time, Colonial, DB/BNP, and
Freddie Mac each believed that they owned the same 4,205 Participated Mortgage Loans, and
Colonial and Freddie Mac believed that they owned an additional 603 Loans. (Dkt. No. 25 at ¶
48.). In other words, according to the FDIC, in August 2009, BOA was obligated to Colonial for
4,808 Participated Mortgage Loans with a total value of $900 million. (Id. at ¶ 49.). The FDIC
filed sixteen Counterclaims alleging breach of contract, bailment, fiduciary duties, and common
law bailment with respect to these 4,808 Participated Mortgage Loans. (Id. at ¶¶ 67-154.).
III. PROCEDURAL HISTORY
BOA commenced this action on October 1, 2010. (Dkt. No. 1.). The FDIC moved to
dismiss the Complaint on March 14, 2011. (Dkt. No. 16.). In response, BOA moved to amend
the Complaint pursuant to 12 U.S.C. § 1821(d)(6)(A)(ii), which the Court granted on April 11,
14
2011. (Dkt. Nos. 19-20; Minute Entry dated April 11, 2011.). The FDIC filed the present motion
to dismiss, and also filed an Answer and Counterclaims. (Dkt. Nos. 25 and 36.).
On October 24, 2011, BOA moved to dismiss the FDIC’s Counterclaims pursuant to Rule
12(b)(6), claiming that each Counterclaim fails as a matter of law. (Dkt. No. 37.). The case was
reassigned to this District Court Judge on January 27, 2012. (Dkt. No. 42.). Thereafter, BOA
filed a motion before the Judicial Panel on Multidistrict Litigation to transfer this case to the
Southern District of New York. In Re Ocala Funding, LLC, ___ F. Supp. 2d ___, 2012 WL
2089209 (US. Jud. Pan. Mult. Lit. June 8, 2012). On March 20, 2012, this Court stayed the case
pending the Panel’s resolution of the motion. (Minute Entry dated March 20, 2012.). On June 18,
2012, the parties notified the Court that the Panel denied BOA’s motion to transfer the case, and
the Court lifted the stay. (Minute Entry dated June 18, 2012.).
The Court heard oral arguments on the cross motions to dismiss on October 2, 2012.
(Minute Entry dated October 2, 2012.). The motions are now ripe for review.
IV. DISCUSSION
A. Standards of Review
1. The Standard of Review for 12(b)(1) Motions
The FDIC moves to dismiss the Amended Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(1). When a party files a motion to dismiss for lack of subject matter jurisdiction
under Rule 12(b)(1), “the plaintiff[ ] bear[s] the burden of proving by a preponderance of the
evidence that the Court has subject matter jurisdiction.” Biton v. Palestinian Interim Self-Gov’t
Auth., 310 F. Supp. 2d 172, 176 (D.D.C. 2004). Because subject matter jurisdiction focuses on a
court’s power to hear the plaintiff’s claim, a Rule 12(b)(1) motion imposes on the court an
affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority.
15
Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). For
this reason, BOA’s “‘factual allegations in the complaint…will bear closer scrutiny in resolving
[the] 12(b)(1) motion’ than in resolving [the] 12(b)(6) motion for failure to state a claim.” Id. at
13-14 (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure §
1350 (2d ed. 1987) (alternation in original)).
In deciding the Rule 12(b)(1) motion, this Court need not limit itself to the allegations of
the Amended Complaint. See Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986, vacated
on other grounds, 482 U.S. 64 (1987). Rather, this Court may “consider such materials outside
the pleadings as it deems appropriate to resolve the question whether it has jurisdiction in the
case.” Scolaro v. D.C. Board of Elections and Ethics, 104 F. Supp. 2d 18, 22 (D.D.C. 2000)
(citing Herbert v. Nat’l Acad. of Scis, 974 F.2d 192, 197 (D.C. Cir. 1992); see also Venetian
Casino Resort, L.L.C. v. E.E.O.C., 409 F.3d 359, 366 (D.C. Cir. 2005) (“given the present
posture of this case—a dismissal under Rule 12(b)(1) on ripeness grounds—the court may
consider materials outside the pleadings”).
2. The Standard of Review for 12(b)(6) Motions
The FDIC and BOA both move to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6). To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007)) (internal quotes omitted)). This Court must construe the operative pleading in the light
most favorable to the pleader and must accept as true all reasonable factual inferences drawn
from well-pleaded factual allegations. Aktieselskabet AF 21 November 2001 v. Fame Jeans Inc.,
525 F.3d 8, 15 (D.C. Cir. 2008). This Court need not, however, “accept inferences drawn by
16
[pleaders] if such inferences are unsupported by the facts set out in the [operative pleading]. Nor
must the [C]ourt accept legal conclusions cast in the form of factual allegations.” Kowal v. MCI
Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).
If the well-pleaded facts do not permit the Court, drawing on its judicial experience and
common sense, to infer more than the “mere possibility of misconduct,” then the operative
pleading has not shown that the pleader is entitled to relief. Iqbal, 556 U.S. at 679 (citing Fed. R.
Civ. P. 8 (a)(2)). “The plausibility standard is not akin to a ‘probability requirement,’ but it asks
for more than a sheer possibility that [the movant] has acted unlawfully.” Id. at 678 (citation
omitted). “Where a complaint pleads facts that are merely consistent with [the movant’s]
liability, it stops short of the line between possibility and plausibility of entitlement to relief.”
Ashcroft, 556 U.S. at 678 (internal citation and quotation marks omitted).
In addition, because this Court’s review of the Rule 12(b)(6) motions is based upon
consideration of the allegations contained in the operative pleadings, the Court will not consider
extraneous documents, except under limited circumstances. See generally Hinton v. Corr. Corp.
of Am., 624 F. Supp. 2d 45, 46 (D.D.C. 2009). For instance, this Court may consider documents
attached to the Amended Complaint and/or Counterclaims, Stewart v. Nat’l Educ. Ass’n, 471
F.3d 169, 173 (D.C. Cir. 2006), or referred to in the Amended Complaint and/or Counterclaims
if the documents are central to the claims and the parties do not dispute the documents’
authenticity, Kaempe v. Myers, 367 F.3d 958, 965 (D.C. Cir. 2004). Here BOA and the FDIC
refer the Court to a number of documents that are central to their respective claims, the
authenticity of which is not contested. Accordingly, the Court has considered these documents
in resolving these motions.
17
B. The FDIC’s Motion to Dismiss the Amended Complaint
The FDIC and BOA each move to dismiss their counterparts’ claims in their entirety. The
Court will address the FDIC’s motion first. The FDIC moves to dismiss the Amended Complaint
pursuant to Federal Rule 12(b)(1) for failure to exhaust administrative remedies under the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) and for lack
of standing. (See Dkt. No. 26, at 2-3.). The FDIC also asserts, again pursuant to FIRREA, that
this Court lacks subject matter jurisdiction over the three equitable claims (Counts II, IV, and
VII). (Id. at 4.).
In the alternative, the FDIC seeks to dismiss Counts V (Fraud), IX (Actual Fraudulent
Transfer), and X (Constructive Fraudulent Transfer) for failure to state a claim upon which relief
can be granted. (Id.). The FDIC contends that the Amended Complaint does not allege several of
the material elements necessary to state a claim for actual and/or constructive fraudulent transfer,
and does not assert factual allegations sufficient to establish entitlement to relief. (Id.) The FDIC
also alleges that the fraud claim does not meet the heightened pleading requirements of Federal
Rule 9(b). (Id.). The Court addresses each argument in turn.
1. Whether This Court Has Subject Matter Jurisdiction over BOA’s Claims
Federal courts are courts of limited jurisdiction and have subject matter jurisdiction only
to the extent that it is conferred by statute or the Constitution. See Kokkonen v. Guardian Life
Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also Gen. Motors Corp. v. Envtl. Prot. Agency,
363 F.3d 442, 448 (D.C. Cir. 2004) (noting that “[a]s a court of limited jurisdiction, we begin,
and end, with an examination of our jurisdiction”). The claimant bears the burden of establishing
by a preponderance of the evidence that a court has jurisdiction; failure to do so is fatal to the
claim. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); Kokkonen, 511 U.S. at 377. A
18
court must dismiss a complaint for lack of subject matter jurisdiction where “it appears beyond
doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him
to relief.” Bobreski v. U.S. E.P.A., 284 F. Supp. 2d 67, 72 (D.D.C. 2003) (quoting Empagran S.A.
v. F. Hoffman-LaRoche, Ltd., 315 F.3d 338, 343 (D.C. Cir. 2003)). A court may consider
relevant materials outside the pleadings to determine whether it has jurisdiction. Wilson v.
District of Columbia, 269 F.R.D. 8, 11 (D.D.C. 2010).
The FDIC contends that this Court does not have subject matter jurisdiction over the
claims asserted in the Amended Complaint for the following three reasons. First, to the extent
that BOA seeks to recover damages allegedly incurred by Ocala, this Court is without
jurisdiction because Ocala has not exhausted its administrative remedies under FIRREA. Second,
to the extent that BOA seeks to recover damages allegedly incurred by DB and BNP, this Court
is without jurisdiction because DB’s and BNP’s injuries are derivative of Ocala’s injuries and, as
such, cannot confer Article III standing. Third, the FDIC argues that Counts VI (Civil
Conspiracy), IX (Actual Fraudulent Transfer) and X (Constructive Fraudulent Transfer) have not
been exhausted under FIRREA. 9
a. Whether BOA Exhausted the Administrative Remedies under
FIRREA on behalf of Ocala
In enacting FIRREA, Congress created a comprehensive statutory scheme under which it
granted the FDIC the authority to act as the Receiver for a failed financial institution. The “core
purpose" of FIRREA is to “ensure that the assets of a failed institution are distributed fairly and
promptly among those with valid claims against the institution.” Freeman v. FDIC, 56 F.3d
9
The FDIC also contends that this Court does not have subject matter jurisdiction over the three equitable
claims (Counts II, IV and VII) pursuant to FIRREA. BOA did not dispute this claim in its opposition to the FDIC’s
motion. Accordingly, the Court deems the argument conceded and will grant the FDIC’s motion to dismiss as to
Counts II, IV and VII. See Bancoult v. McNamara, 227 F.Supp.2d 144, 149 (D.D.C.2002) (“if the opposing party
files a responsive memorandum, but fails to address certain arguments made by the moving party, the court may
treat those arguments as conceded”); accord Day v. D.C. Dep't of Consumer & Regulatory Affairs, 191 F.Supp.2d
154, 159 (D.D.C.2002).
19
1394, 1401 (D.C. Cir. 1995). Congress intended to grant the FDIC the “power to take all actions
necessary to resolve problems posed by financial institutions in default” in an “expeditious
manner.” H.R. Rep. No. 101-54(I) at 322, 330, as reprinted in 1989 U.S.C.C.A.N. 86, 118, 126.
To that end, Congress created a statutory procedure for the orderly and efficient processing of
claims against failed financial institutions. This administrative claims process, set forth in 12
U.S.C. §§ 1821(d)(3) through (13), centralizes the initial consideration and resolution of claims
by requiring that all claims be submitted to the Receiver by the “claims bar date,” a date certain
established by the Receiver. Once a timely administrative claim is submitted, the Receiver has
180 days to determine whether to approve or disallow the claim. Id. § 1821(d)(5)(A)(i). The
Receiver may disallow any portion of a timely claim that is not proven to the Receiver’s
satisfaction. Id. §§ 1821(d)(5)(C), 1821(d)(5)(D). Section 1821(d)(6)(A) also establishes that a
claimant can file a new suit, or continue a pre-existing suit, on a claim within 60 days after the
earlier of (i) the Receiver’s initial determination of a claim, or (ii) termination of the 180-day
period in which the Receiver may determine the claim. In such a suit, the court performs a de
novo judicial determination of the claim. Id. §§ 1821(d)(5)(A)7(E).
The administrative claims process is mandatory. Thus, in Section 1821(d)(13)(D),
Congress withdrew jurisdiction from all courts to hear claims against the FDIC as Receiver,
except as granted elsewhere in Section 1821(d). See Freeman, 56 F.3d at 1399-1400. The
jurisdictional bar provision and the claims procedures work together to impose a “statutory
exhaustion requirement” that is “explicitly jurisdictional.” Rosa v. RTC, 938 F.2d 383, 395 (3d
Cir. 1991), cert. denied, 502 U.S. 981 (1991); see Freeman, 56 F.3d at 1400 (“Section
1821(d)(13)(D) thus acts as a jurisdictional bar to claims or actions by parties who have not
exhausted their § 1821(d) administrative remedies.”). This Circuit recognizes that
20
“[j]urisdictional provisions in federal statutes are [] strictly construed.” Hardin v. City Title &
Escrow Co., 797 F.2d 1037, 1040 (D.C. Cir. 1986); Freeman, 56 F.3d at 1400 (strictly applying
Sections 1821(d)(6) and (13)(D) to dismiss claims for lack of jurisdiction); see Office & Prof’l
Emps. Int’l Union, Local 2 v. FDIC, 962 F.2d 63, 66 (D.C. Cir. 1992) (“FIRREA…preclude[s]
suit on a claim that was not first presented to the Receiver.”); see also, Brady Dev. Co. v. RTC,
14 F.3d 998, 1007 (4th Cir. 1994) (“The administrative prerequisite to suit set forth [FIRREA]
has been strictly construed and is considered an absolute and unwaivable jurisdictional
requirement….”) (internal quotation marks and brackets omitted).
In the suit at hand, BOA purports to assert claims on behalf of Ocala. The FDIC moves to
dismiss these claims, arguing that neither Ocala, nor BOA on Ocala’s behalf, filed an
administrative claim with the FDIC, as is required to confer jurisdiction upon this Court. The
FDIC asserts that while BOA contends that it filed administrative claims on behalf of Ocala (i.e.,
the November 19 and December 19, 2009 proofs of claim referenced above in Section II.D.), the
claims themselves reveal that they were actually filed on behalf of DB, BNP, and BOA. In
support of its argument, the FDIC points to the cover page for each proof of claim on which
“claimant” is identified as “BOA as Trustee (as defined in Exhibit A hereto).” (Dkt. No. 20 at
Exs. A and C.). Exhibit A, in turn, states that the claim is submitted “on behalf of the Secured
Parties, as defined in the [Ocala Facility Documents].” (Id.). The FDIC asserts that Ocala is not
included in the definition of “Secured Parties” under the Ocala Facility Documents. Rather,
Ocala is listed as the “Issuer.” (Id.). The FDIC also maintains that the proofs of claim do not
allege damages to Ocala. Instead, the claims only seek recovery for losses allegedly incurred by
the Secured Parties. Therefore, the FDIC concludes, the proofs of claim cannot reasonably be
read as asserting a claim on behalf of Ocala.
21
BOA counters that it filed the proofs of claim as a “representative” of Ocala, thereby
exhausting Ocala’s administrative remedies. BOA asserts that the proofs of claim expressly state
that Ocala had granted BOA a security interest in all of Ocala’s assets and that BOA was
pursuing the claims with the receivership to vindicate BOA’s security interest. According to
BOA, this representative status is expressly recognized in the definition of “Secured Parties.”
BOA further asserts that the FDIC had abundant notice not only of the nature of the claims
asserted by BOA, but also of the specific relationships among the various Ocala parties and the
representative capacity in which BOA was filing the proofs of claim.
BOA also maintains that courts take a “lenient” view in determining whether a claim
constitutes notice under FIRREA. According to BOA, neither FIRREA nor the FDIC regulations
define the precise form in which a claim must be presented in order to satisfy the administrative
exhaustion requirement. (Dkt. No. 35, at 13 (citing FDIC v. Lacentra Trucking, Inc., 157 F.3d
1292, 1304 (11th Cir. 1998); Branch v. FDIC, 833 F. Supp. 56, 59 (D. Mass. 1996).). In light of
this absence of statutory definition, BOA argues, the D.C. Circuit has construed the term “claim”
liberally and used broad latitude in determining whether the claimant has adequately presented a
claim in the administrative process. (Id. at 14 (citing Branch, 833 F. Supp. at 60 (“an
administrative claim is sufficient if it provides the government with notice of the general nature
of the claim and with sufficient information to allow it to investigate and determine whether
settlement of the claim is appropriate”)).). Given this “flexible” standard for reviewing claims,
BOA argues, the FDIC had enough notice of Ocala’s potential claims to satisfy the FIRREA’s
exhaustion requirement. (Id.).
The Court disagrees. A careful reading of the proofs of claim shows that BOA filed the
claims on its own behalf and that of DB and BNP—not Ocala. BOA submitted the claims on a
22
standard “proof of claim” form that is available at the FDIC’s website. (Dkt. No. 35 at 13 fn. 3.).
In the section of the form left blank for the name of the debtee, BOA entered “Bank of America,
National Association, as Trustee (as defined in Exhibit A hereto).” 10 (Dkt. No. 20, Ex. A at 1.).
On the section of the form that requests information on whose behalf the claim is filed, BOA
entered: “the Trustee for the [S]ecured [P]arties on the Ocala Funding, LLC Short Term and
Subordinate Notes.” (Id.) (emphasis added.). BOA again reiterated that it submitted the claims
on behalf of itself and the Secured Parties in a footnote to the proof of claim: “The tax ID
number shown is for [BOA]. Many of the claims described in this proof of claim, however, are
made by [BOA] in its capacity as Trustee on behalf of the [S]ecured [P]arties with respect to the
Ocala Funding, LLC Short Term and Subordinate Notes.” (Id. at 1 fn. 1) (emphasis added).
Exhibit A, which is attached to each proof of claim, describes the nature and basis of each
claim in more detail. (Dkt. No. 20, Exs. A and C.). In the first paragraph of Exhibit A, BOA
explains that it is the “indenture trustee, collateral agent and custodian” with respect to the Ocala
Notes. (Id. at Ex. A and C to FAC, Ex. A at ¶ 1.). BOA then states that it is acting “on behalf of
the Secured Parties, as defined in the [Ocala Facility Documents]…” and further states that it
submits “Exhibit A to its proof of claim…on behalf of the Secured Parties.” (Ex. A and C to
FAC, Ex. A at ¶ 2) (emphasis added). Finally, BOA states that it filed the receivership claims in
order “to preserve its rights and the rights of the [S]ecured [P]arties on whose behalf it is
making the claims set forth in this proof of claim.” (Id. at ¶ 17) (emphasis added).
The Ocala Facility Documents, in turn, define “Secured Parties” as “…each Swap
Counterparty, the Indenture Trustee, the Collateral Agent, the Series 2005-I Depository, the
Series 2008-I Depository, the holders of the Short Term Notes, the holders of the Term Notes,
10
Cynthia A. Grim, Senior Vice President for BOA, is listed as the “person making the claim.” (Dkt. No. 20,
Ex. A.).
23
the holders of the Subordinated Notes, the holders of the Extended Notes and the holders of the
Non-Called Notes (such Persons, collectively the ‘Secured Parties and each a ‘Secured Party’).”
(See Dkt. No. 39, Ex. B the Security Agreement at fourth WHEREAS clause; see also Dkt. No.
39 Ex. C Schedule I to the Base Indenture Agreement, at p. 31 (using the same definition for the
term “Secured Parties”).). On the other hand, the Facility Documents list Ocala as the “Issuer”
under the agreements. Therefore, by stating that it is submitting the receivership claims as the
“Trustee for the Secured Parties” and that is acting “on behalf of the Secured Parties,” BOA, by
definition, is not acting on behalf of Ocala.
Nevertheless, BOA argues that, read as a whole, the proofs of claim clearly indicate that
it seeks to recover for “losses incurred by the Ocala [F]acility itself, including losses incurred by
all investors in the Ocala [F]acility and by BOA itself.” (Dkt. No. 35 at 18) (emphasis in
original). According to BOA, “[b]y bringing claims ‘on the Ocala Funding, LLC Short Term and
Subordinate Notes,’ see Exs. A & C at 1, and pursuant to the security interest granted to it by
Ocala in Ocala’s assets, see id. at ¶ 3, BOA necessarily sought an administrative remedy for
Ocala and all parties with interest in the Ocala assets, including Ocala’s investors and BOA
itself.” (Id.) (emphasis in original).
The Court is not persuaded. A common sense reading of the proofs of claim shows that
they were filed on behalf of entities other than Ocala. Nowhere in the claims does BOA state that
it is acting on behalf of Ocala. Instead, the claims repeatedly state that they are being made for,
or on behalf of, BOA and the Secured Parties (i.e., DB and BNP). Indeed, in every instance
where the claims mention Ocala’s alleged property, it is clear that BOA seeks to recover the
property for itself and DB and BNP and not for the benefit of Ocala. (See, e.g., Dkt. No. 20, Exs.
A and C, Ex. A at ¶ 5(i)-(ii) (asserting a claim to all Ocala property to which the “Trustee has a
24
security interest” and to which “the Trustee is entitled to be paid in full before other creditors of
Colonial Bank”).). In short, regardless of BOA’s right under the Ocala Facility Documents to
exhaust Ocala’s administrative remedies, BOA failed to do so.
Nor is the Court persuaded that it must apply a lenient standard in determining whether
the proofs of claim were sufficient to exhaust Ocala’s administrative remedies. The cases on
which BOA relies for this proposition are inapposite and contrary to the law of this Circuit. For
instance, the first case on which BOA relies, Office & Prof’l Emps. Inter’l Union v. FDIC, 962
F.2d 63 (D.C. Cir. 1992), stands only for the proposition that a representative can make an
administrative claim on behalf of another and that such claim will be sufficient to exhaust the
administrative remedies of the represented entity. The FDIC has not argued that BOA cannot
make an administrative claim on behalf of Ocala; rather, the FDIC argues that BOA failed to
make such a claim. Lacentra Trucking, Inc., is equally inapplicable. In that case, the plaintiff
never filed an administrative claim and was absolved by the court of doing so by the Receiver’s
decision to litigate. FDIC v. Lacentra Trucking, Inc., 157 F.3d 1292 (11th Cir. 1998). That is not
the case here. Finally, the third case on which BOA relies, Branch v. FDIC, is no longer good
law. 833 F. Supp. 56 (D. Mass. 1993). Branch takes the position that statutory limitations on
federal court jurisdiction “are to be construed narrowly,” citing Heno v. FDIC, 996 F.2d 429, 435
(1st Cir. 1993) withdrawn and substituted on reh’g by 20 F.3d 1204 (1st Cir. 1994) for this
proposition. See Branch, at 60. However, in a subsequent ruling, the First Circuit withdrew the
opinion upon which Branch relied, and replaced it with an opinion which does not include the
language cited in Branch. See Heno v. FDIC, 20 F.3d 1204 at 1205.
Next BOA argues that even if the proofs of claim were not sufficient to place the FDIC
on notice that BOA was bringing a claim on behalf of Ocala, its pre-receivership suit against
25
Colonial filed in the Southern District of Florida was sufficient to place the FDIC on notice of
the claim. This argument is unavailing. The FIRREA administrative exhaustion requirement
applies to all claimants, even those that filed pre-receivership suits against failed financial
institutions. See, e.g., Marquis v. FDIC, 965 F.2d 1148, 1151 (1st Cir. 1992) (“FIRREA makes
participation in the administrative claims review process mandatory for all parties asserting
claims against failed institutions, regardless of whether a lawsuit to enforce those claims was
initiated prior to the appointment of a receiver”); Brady Development Co., Inc. v. RTC, 14 F.3d
998, 1002 (4th Cir. 1994) (“litigants who have an action pending in court against a [financial
institution] that is subsequently placed in receivership…must avail themselves of FIRREA’s
administrative process in order to continue the action”); Intercontinental Travel Mktg., Inc. v.
FDIC, 45 F.3d 1278, 1283 (9th Cir. 1994) (citing Carney v. Resolution Trust Corp., 19 F.3d 950,
955-56 (5th Cir. 1994) (the FIRREA “neither creates a separate scheme for cases pending at the
time of the FDIC’s appointment as receiver, nor allows claimants to pursue administrative and
judicial remedies simultaneously”)). 11
Finally, BOA alleges that “repeated communications” between the FDIC and BOA were
sufficient to place the FDIC on notice of Ocala’s claim. This argument is without merit. A
claimant may not exhaust its administrative remedies through communications outside of its
proof of claim. See, e.g., Brady Dev. Co., 14 F.3d at 1003 (noting that Congress sought to ensure
that all claims undergo the administrative claims process); Henderson v. Bank of New England,
986 F.2d 319, 320-21 (9th Cir. 1993) (holding that FIRREA strips all courts of jurisdiction over
claims made outside the administrative process of FIRREA); RTC v. Elman, 949 F.2d 624, 627
11
BOA’s argument is also unavailing because BOA did not sue on behalf of Ocala in the Florida case.
Rather, BOA sued in its own name and, despite references to both Ocala and “certain secured parties,” BOA
demanded that the property at issue be returned to BOA and that BOA be awarded damages.
26
(2d Cir. 1991) (holding that a claimant must first present its case to the RTC under the
administrative procedures erected by FIRREA before seeking relief in federal court).
Again, BOA cites to three inapposite cases in support of its theory: Plymouth Mills, Inc.
v. FDIC, 876 F. Supp. 439 (E.D.N.Y. 1995); Heno, 20 F.3d at 1205; and Hachikan v. FDIC, 914
F. Supp. 14 (D. Mass. 1996). Heno and Plymouth Mills both dealt with cases in which the
claimants’ claims came into existence after the claims bar date. In Heno, the First Circuit
approved the FDIC’s having permitted late filing by certain claimants whose claims had not
come into existence until after the bar date had passed. 20 F.3d at 1209. In Plymouth Mills, the
claimant had timely filed a proof of claim with respect to some claims, but later attempted to
supplement the claim with a letter detailing claims that allegedly occurred after the bar date. 876
F. Supp. at 441. Thus Heno and Plymouth Mills are inapplicable; BOA does not contend that
Ocala’s claims came into existence after the relevant claims bar dates. Likewise, Hachikan is
also inapplicable. In Hachikan, the claimant did not file a formal proof of claim, but did file a
detailed letter setting forth his claims. 914 F. Supp. at 16. The Hachikan court determined that
the letter was sufficient notice of a claim. Here, BOA did not submit a claim on behalf of Ocala.
Accordingly, based on the foregoing, to the extent that the Amended Complaint purports to state
claims on behalf of Ocala, those claims are dismissed.
b. Whether BOA Has Standing to Bring Claims on Behalf of DB
and BNP
Next, the FDIC moves to dismiss the claims that BOA asserts on behalf of DB and BNP.
It argues that this Court does not have jurisdiction over those claims because: (1) DB and BNP
do not have Article III standing to bring the claims, and (2) BOA did not allege a basis for
bringing such claims on behalf of DB and BNP. (Dkt. No. 26 at 12-13.).
27
i. Whether DB and BNP Have Article III Standing
As the party invoking federal jurisdiction, BOA bears the burden of establishing standing.
Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); City of Waukesha v. Envtl. Prot.
Agency, 320 F.3d 228, 233 (D.C. Cir. 2003) (per curiam). In Lujan, the Supreme Court set forth
the test for Article III standing. Sierra Club v. Envtl. Prot. Agency, 292 F.3d 895, 898 (D.C. Cir.
2002) (citing Lujan, 504 U.S. at 560). First, DB and BNP must have suffered an injury-in-fact,
defined as a harm that is concrete and actual or imminent, not conjectural or hypothetical. Byrd
v. Envtl. Prot. Agency, 174 F.3d 239, 243 (D.C. Cir. 1999) (citing Steel Co., 523 U.S. 83, 103
(1998).). Second, the injury must be fairly traceable to Colonial’s or Platinum’s alleged conduct.
Id. Finally, it must be likely that the requested relief will redress the alleged injury. Id.This Circuit has made clear that no standing exists if the plaintiff’s allegations are “purely
speculative[, which is] the ultimate label for injuries too implausible to support standing.” Tozzi
v. Dep’t of Health & Human Servs., 271 F.3d 301, 307 (D.C. Cir. 2001). Nor does standing exist
where a court “would have to accept a number of very speculative inferences and assumptions in
any endeavor to connect the alleged injury with [the challenged conduct].” Winpisinger v.
Watson, 628 F.2d 133, 139 (D.C. Cir. 1980). However, a court must also be cognizant of the fact
that a motion to dismiss is brought during the initial stages of a case, before discovery has
commenced, thus general factual allegations of injury resulting from the defendant’s alleged
conduct will suffice to support standing. Sierra Club, 292 F.3d at 898–99.
The parties dispute whether DB and BNP suffered an “injury-in-fact” that is “fairly
traceable” to Colonial’s and Platinum’s actions. Focusing on the derivative nature of DB and
BNP’s claims, the FDIC asserts that BOA does not, and indeed, cannot, allege that DB and BNP
were directly harmed by Colonial and/or Platinum. Rather, any injury suffered by DB and BNP
28
is indistinguishable from harm sustained by Ocala, and thus too remote to confer standing. (See
Dkt. No. 26 at 12 (citing Assoc. Gen’l Contractors of Calif., Inc. v. Calif. State Council of
Carpenters, 459 U.S. 519, 532, fn. 25 (1983)).).
BOA counters that the “notion that a financial loss of nearly $1.75 billion does not
constitute [an] ‘injury-in-fact’ is absurd.” (Dkt. No. 35 at 24.). According to BOA, the injury in
fact requirement consistently has been described as a minimalist threshold and that a “massive
financial loss” of the sort suffered by DB and BNP necessarily meets this threshold. (Id. (citing
Shaffer v. Defense Intelligence Agency, 601 F. Supp. 2d 16, 23 (D.D.C. 2009).). Moreover, BOA
argues, the Amended Complaint is replete with examples of how DB and BNP’s injuries are
directly traceable to Colonial’s and/or Platinum’s fraudulent activities. (Dkt. No. 35 at 24.).
The Court concludes that BOA has alleged factual allegations sufficient to state a
plausible injury-in-fact to DB and BNP that is fairly traceable to Colonial and Platinum’s
actions. (See, e.g., Dkt. No. 20 at ¶ 2 (“TBW’s, Colonial’s, and Platinum’s fraud on the Trustee,
Ocala Funding, and the holders of beneficial interests in Ocala Funding…”) (emphasis added);
Id. at ¶ 64 (alleging that “TBW and Colonial engaged in a scheme to defraud various entities and
individuals, including investors in Ocala Funding”) (emphasis added); Id. at ¶¶ 66-68, 74, 78
(describing specific fraudulent transfers from Ocala to Colonial and Platinum); Id. at ¶¶ 1,3
(asserting that DB and BNP lost approximately $1.7 billion as a result of TBW’s, Colonial’s, and
Platinum’s action).). The standing requirement is meant to ensure that a plaintiff has a “personal
stake in the outcome of the controversy as to warrant…federal-court jurisdiction and to justify” a
court-imposed remedy. Warth v. Seldin, 422 U.S. 490, 498 (1975); Russell-Murray Hospice, Inc.
v. Sebelius, 724 F. Supp. 2d 43, 53 (D.D.C. 2010) (citing Simon v. E. Ky. Welfare Rights Org.,
426 U.S. 26, 38 (1976). BOA claims that Colonial and Platinum misappropriated the very assets
29
that secured DB’s and BNP’s investment in the Ocala Notes. As a result, DB and BNP are out
nearly $2 billion. Clearly, DB and BNP have a personal stake in whether the Ocala assets can be
recovered from the banks. If the assets can be recovered, DB and BNP stand to recoup at least a
portion of their losses. In addition, BOA has sufficiently alleged that the injury would not have
occurred but for the banks’ challenged conduct. See Duke Power Company v. Carolina
Environmental Study Group, Inc., 438 U.S. 59, 74-75 (1978) (a plaintiff establishes sufficient
causal connection between injury and challenged action if he can make a reasonable showing
that the alleged injury would not have occurred “but for” the defendant’s challenged conduct).
Accordingly, the Court concludes that DB and BNP have standing to assert their claims. 12
ii. Whether BOA Can Pursue the Claims on Behalf of DB
and BNP
Having concluded that DB and BNP have Article III standing to bring their claims, the
Court now must determine whether BOA has standing to bring the claims on their behalf. The
FDIC argues that the Amended Complaint does not allege the basis for BOA’s “derivative
standing on behalf of [DB and BNP],” and, therefore, to the extent that BOA seeks recovery on
their behalf, the Complaint must be dismissed for lack of subject matter jurisdiction. (See Dkt.
No. 26 at 19.). 13 BOA counters that the Ocala Facility Documents, specifically the Indenture
Agreement and the Security Agreement, unquestionably give it the right to pursue the claims on
behalf of DB and BNP. 14
12
Given that DB and BNP are seeking recovery for their damages—not Ocala’s—it is not necessary for the
Court to determine whether prudential standing requirements have been met.
13
The FDIC raises the same argument with respect to Ocala. However, given that the Court has already
concluded that the claims filed on behalf of Ocala must be dismissed, supra at Section IV.C.(1), it need not address
this argument.
14
Because the FDIC has framed BOA’s authority to bring suit on behalf of DB and BNP as an issue of
subject matter jurisdiction, the Court may consider materials outside the pleadings, including the relevant contract
provisions, to determine whether it has jurisdiction. Coalition for Underground Expansion v. Mineta, 333 F.3d 193,
198 (D.C. Cir. 2003).
30
The Court finds BOA’s position to be correct. Section 3.1 of the Indenture Agreement
expressly states that Ocala granted BOA a security interest in all of Ocala’s collateral for the
benefit of DB and BNP:
Section 3.1 Security Interest. (a) Pursuant to the Security Agreement, in order
to secure [Ocala’s] Obligations, [Ocala] has pledged, assigned, conveyed,
delivered, transferred and set over to [BOA], for the benefit of the [Secured
Parties], and has granted to [BOA] for the benefit of the Secured Parties, a
security interest in all of [Ocala’s] right, title and interest in and to all of the
Collateral assigned to [BOA] pursuant to the Security Agreement.
(See the Indenture Agreement at § 3.1; see also, Security Agreement at § 4.01.). Section 6.02 of
the Security Agreement states that in the event of a default by Ocala:
[BOA] shall have, with respect to the Assigned Collateral…, in addition to any
other rights and remedies which may be available to it at law or in equity or
pursuant to this [Security] Agreement…all rights and remedies of a secured
party under any applicable version of the Uniform Commercial Code…relating
to the Assigned Collateral…
(Security Agreement at § 6.02, second paragraph.). Section 9.2 of the Indenture Agreement
requires that in the event of a default, BOA “shall” exercise the rights and remedies available to
it under the Security Agreement. Finally, section 9.10 of the Indenture Agreement authorizes
BOA to:
file such proofs of claim…as may be necessary or advisable in order to have
the claims of [BOA] allowed in any judicial proceedings relative to [Ocala]…,
its creditors or its property, and shall be entitled and empowered to collect,
receive and distribute and money or other property payable or deliverable on
any such claim.
(Id. at § 6.).
These provisions make it clear that BOA has a security interest in the very claims being
pursued in this suit. This is sufficient to confer standing on BOA to pursue the present claims on
behalf of DB and BNP. See, e.g., Sprint Commc’ns Co. v. APCC Services, Inc., 554 U.S. 269,
285 (2008) (upholding the long tradition of conferring Article III standing on assignees of
31
claims, even if the party seeking recovery must turn it over to another upon collection); W.R.
Huff Asset Management Co., LLC v. Deloitte & Touch, LLP, 549 F.3d 100, 107 (2d Cir. 2008)
(the assignment of the right to pursue a claim confers standing).
c. Whether Counts IX, X, and XI Have Been Administratively
Exhausted under FIRREA
Next, the FDIC argues that this Court lacks subject matter jurisdiction over BOA’s claims
against Colonial and Platinum for civil conspiracy and actual and constructive transfer (Counts
IX, X and XI) because these claims were not raised in proofs of claim. (Dkt. No. 26 at 14.). BOA
concedes that it did not previously raise these claims, but alleges that the proofs of claim were
sufficient to place the FDIC on notice of the potential that BOA would bring such claims. BOA
argues that not only are the conspiracy and fraudulent transfer claims based on “essentially the
same facts and legal theories as those specifically named in the proof[s] of claim, but they seek
the same monetary relief.” (Dkt. No. 35 at 31.). BOA also points out that the proofs of claim
include a catch-all provision that asserts “all other statutory or common law claims that [B]OA
may have” against Colonial or Platinum in addition to the specific claims raised in the proofs of
claim. (Dkt. No. 20, Exs. A and C at Ex. A.).
Where a complaint alleges entirely new legal theories that are different from those
reflected in the administrative proof of claim, the district court is without subject matter
jurisdiction. See Jahn v. FDIC, 828 F. Supp. 2d 305, 317 (D.D.C. 2011). However, such is not
the case here. The proofs of claim in this case detail the facts underlying the civil conspiracy and
fraudulent transfer claims. They include allegations of cooperation between Colonial, Platinum,
and TBW in furtherance of the fraud, thereby laying the foundation for a claim that the banks
and TBW conspired to deprive Ocala of its assets and DB and BNP of their investment. (See e.g.
Dkt. No. 20, Exs. A and C, Ex. A at ¶¶ 4(c)-(e).). The proofs of claim also contain allegations
32
that Colonial and Platinum fraudulently caused funds owed to DB and BNP to be diverted into
accounts maintained by Colonial and/or Platinum. (Id.). These allegations are sufficient to place
the FDIC on notice of potential civil conspiracy and fraudulent transfer claims.
2. Whether the Amended Complaint States a Claim for Fraudulent Transfer
Next, the FDIC argues that even if this Court does not dismiss the fraudulent transfer
claims for lack of exhaustion, Counts IX and X must still be dismissed pursuant to Rule 12(b)(6).
Count IX asserts that TBW, Colonial, and Platinum, acting in concert, made fraudulent transfers
from Ocala accounts at BOA to accounts at Colonial and Platinum with the actual intent to
“hinder, delay, and defraud” Ocala and its investors (i.e., DB and BNP). (Dkt. No. 20 at ¶¶ 220-
222.). BOA asserts that the transfers were made in furtherance of the conspiracy described herein
and that neither Ocala nor DB and BNP received reasonably equivalent value in exchange for the
transfers. (Id. at ¶¶ 223, 225.) Count X asserts the same allegations, in addition to claiming that
TBW, Colonial, and Platinum knew that Ocala was insolvent at the time the transfers were made,
or became insolvent as a result of the transfers. (Id. at ¶¶ 233-234.). BOA brings both Counts IX
and X pursuant to the District’s Uniform Fraudulent Transfer Act (“UFTA”) as codified in D.C.
Code §§ 28-3101-3111 (2001), and seeks to recover the fraudulent transfers on behalf of DB and
BNP. 15, 16 (Dkt No. 20 at ¶¶ 219 and 228.).
The FDIC moves to dismiss the claims, arguing that the Amended Complaint does not
allege many of the necessary elements for fraudulent transfer claims, thereby running afoul of
the pleading requirements under Iqbal and Twombly. The FDIC maintains that BOA failed to
plead facts sufficient to support its contention that the funds transferred from Ocala originated at
15
BOA also brings the claims on behalf of Ocala, but as discussed supra, this Court has determined that
Ocala’s claims are barred.
16
UFTA superseded a District of Columbia statute known as the Uniform Fraudulent Conveyance Act of
1995 (the “UFCA”). The parties dispute whether DC’s UFTA statute should govern this dispute or Florida’s statue,
but also concede that the point is moot as the statutes are identical.
33
and were the property of Ocala, nor did BOA identify the allegedly fraudulent transfers with
sufficient specificity. This alone, the FDIC argues, warrants dismissal of the claims.
However, the FDIC also contends that dismissal of each claim is warranted for the
following reasons. It claims that Count IX (actual fraudulent transfer) must be dismissed because
BOA failed to meet the heightened pleading requirements of Rule 9(b). In particular, the FDIC
asserts that the Amended Complaint does not contain any allegation that BOA was Ocala’s
creditor, that Ocala made a transfer with the intent to avoid payment of a debt owed to BOA, or
that Colonial and Platinum received the transfers. As for the constructive fraudulent transfer
claim (Count X), the FDIC urges this Court to dismiss the claim because the Amended
Complaint does not allege that BOA was Ocala’s creditor, that Colonial and/or Platinum were
the transferees, that Ocala did not receive “reasonably equivalent value,” or that the transfers left
Ocala with insufficient capital or unable to paid its debts.
The main thrust of BOA’s response to the FDIC’s arguments is that the FDIC has
mischaracterized the fraudulent transfer claims, namely suggesting that the claims are only
brought on BOA’s behalf. BOA points out that it is not relying solely on its position as a creditor
of Ocala in its own capacity; rather, the claims were also brought on behalf of DB and BNP as
the investors in Ocala. BOA maintains that once the claims are properly characterized, it
becomes apparent that the FDIC’s motion to dismiss Counts IX and X must be denied. The Court
agrees.
In order to state a claim for actual fraudulent transfer under UFTA, a plaintiff must plead
that: (1) the debtor (here, Ocala) made a transfer; (2) the plaintiff (i.e., BOA) was a creditor of
the debtor (Ocala); and (3) the debtor (Ocala) made the transfer with actual intent to hinder,
delay, or defraud any creditor of the debtor (Ocala). See Bertram v. WFI Stadium, Inc., 41 A.3d
341239, 1244 (D.C. 2012) (citing D.C. Code § 28-3104(a)(1)). In order to establish liability for a
constructively fraudulent transfer, a plaintiff must plead and prove that: (1) the debtor (Ocala)
made a transfer; (2) the plaintiff (BOA) was a creditor of the debtor (Ocala); (3) the debtor
(Ocala) did not receive reasonably equivalent value in exchange for the transfer and was
insolvent or became insolvent as a result of the transfer. D.C. Code § 28-1305(a).
The Amended Complaint asserts the following factual allegations in support of Counts IX
and X: (1) TBW was Ocala’s owner and controlled all major decisions and actions for Ocala
(Dkt. No. 20 at ¶¶ 55-56); (2) all of Ocala’s activities were “directed by TBW” and “in concert
with Colonial” (Id. at ¶ 62); (3) at all relevant times Platinum was controlled by and acted at the
direction of TBW (Id. at ¶ 84); (4) TBW and Colonial “engaged in a scheme to
defraud…investors in Ocala []” (Id. at ¶ 64); (5) TBW, in concert with Colonial, conspired to
divert funds from Ocala (Id. at ¶ 63); (6) TBW and Colonial “misappropriate[d] over $1 billion
in collateral from Ocala” which caused Ocala to “experience[] significant shortfalls in the
amount of collateral it possessed to back its obligations to DP and BNP” (Id. at ¶¶ 64, 65(h)); (7)
TBW and Colonial also engaged in sham mortgage loan sales in order to disguise TBW’s cash
shortfalls from regulators, auditors, third-party lenders and Ocala’s creditors (Id. at ¶ 65(g); 85);
(8) TBW and Colonial concealed their fraudulent activities from BOA by providing it with
falsified collateral lists that misrepresented the status of the Participated Mortgage Loans in
which Ocala should have had a security interest (Id. at ¶ 65(i)); and (9) the fraudulent activities
described above could not have been accomplished without the active participation of each of
TBW, Colonial, and Platinum. (Id. at ¶ 83.).
The Amended Complaint further alleges that the following specific transfers occurred in
furtherance of the fraudulent scheme: (1) between June 30, 2008 and August 3, 2009,
35
approximately $675 million was transferred from Ocala accounts at BOA to a TBW account at
Colonial known as the Custodial Funds Clearing Account (Id. at ¶ 66); (2) during this same time,
approximately $451 million was transferred from Ocala accounts at BOA to a TBW maintained
account at Colonial known as the Master Advance Account (Id. at ¶ 67); (3) also during this time
period, “billions of dollars” were transferred from Ocala to a TBW account at Colonial referred
to as the Investor Funding Account and some of the funds were not used to “purchase
mortgages” and therefore “constituted a theft of Ocala assets” (Id. at ¶ 68); (4) on March 30,
2009, TBW, Colonial and Platinum caused $25 million to be wired from the Ocala Funding
Collateral Account (#722493.4) at BOA to an unnamed account (Account #0030270065) at
Platinum (Id. at ¶¶ 74-75); (5) on April 3, 2009, these same entities caused another $25 million
to be transferred from the Ocala account at BOA to the same unnamed account at Platinum (Id.
at ¶¶ 74, 76); Account #0030270065 was an escrow account set up at Platinum by TBW and
Colonial as part of their fraudulent scheme to obtain TARP funds (Id. at ¶ 77); (6) on October 3,
2008, another $12,239,697.21 was wired from the Ocala Funding Collateral Account at BOA to
Platinum; the funds from this deposit were used to purchase mortgages for the benefit of TBW
(Id. at ¶ 78).
These allegations are more than sufficient to plausibly state a claim for both actual and
constructive fraudulent transfer. Only two of the FDIC’s arguments for dismissal warrant
discussion. First, the FDIC contends that Counts IX and X are deficient because BOA does not
allege any facts that indicate that the purported transfers from Ocala were for the benefit of
Colonial and Platinum. Instead, the FDIC argues, the Amended Complaint alleges that the funds
were transferred to TBW accounts held at Colonial and Platinum. Because TBW and not
36
Colonial or Platinum controlled the accounts, the FDIC argues, liability cannot be imposed on
the banks.
The FDIC fails to cite any authority in support of its position. However, the Court’s own
research shows that a majority of courts interpreting state UTFA statutes have declined to impose
liability for fraudulent transfers on third parties who did not receive the assets in question.
Magten Asset Mgmt. Corp. v. Paul Hastings Janofsky & Walker LLP, No. 04-1256-JJF 2007 WL
129003, *3 (D. Del. Jan. 12, 2007) (interpreting Montana’s UTFA statute); see also GATX Corp.
v. Addington, __ F. Supp. 2d __, No. 11-122-DLB, 2012 WL 1621363, *8 (E.D. Ky. May 9,
2012) (noting that district courts interpreting state UFTA statues in Delaware, Arizona, Indiana,
Maine and Texas have concluded that liability cannot attach to non-transferees); Mack v.
Newton, 737 F.2d 1343, 1358 (5th Cir. 1984) (recognizing that holding nontransferee liable for
fraudulent transfer is inconsistent with purpose of fraudulent transfer statutes which is to
“preserve the assets of the bankrupt” and not “to render civilly liable all persons who may have
contributed in some way to the dissipation of those assets”); Robinson v. Watts Detective Agency,
Inc., 685 F.2d 729, 737 (1st Cir. 1982) (finding no liability because neither defendant received
any of the fraudulently transferred property); Jackson v. Star Sprinkler Corp. of Fla., 575 F.2d
1223, 1234 (8th Cir. 1978) (holding that “recovery under the Bankruptcy Act does not extend to
permit a judgment against ‘conspirators’ who did not receive the property transferred”).
The FDIC does not cite and this Court is unable to locate a case in which a court
interpreting the District’s UFTA statute has addressed this issue. However, BOA has provided no
reason for this Court to deviate from the consistent conclusion of the other states that non-
transferees may not be liable for aiding and abetting a fraudulent conveyance. 17 The Court has
reviewed the Amended Complaint and agrees with the FDIC that BOA never alleged that either
17
Indeed, BOA failed to respond to this argument in its opposition to the FDIC’s motion.
37
Colonial or Platinum received the transfers. (See, e.g., Dkt. No. 20 ¶¶ 36-38, 66-68 (alleging that
the funds were transferred to TBW owned accounts at Colonial); 74-77 (alleging funds were
deposited at Platinum but failing to allege that the funds were in Platinum’s control); 78 (alleging
funds were deposited at Platinum and used for TBW’s benefit).).
However, at oral argument, BOA referred the Court to the Final Reconciliation Report
filed by the Chief Restructuring Officer in the TBW bankruptcy. The Report indicates that
Colonial and Platinum indeed had control of and benefited from the transfers. (See FRR at p. 82,
Table 10.). The Report also indicates that some of the TBW accounts at Colonial were under the
banks’ control. (Id. at p. 56 (stating that while the accounts were in TBW’s name, TBW did not
have signature authority over them).). In light of this, the Court finds that BOA has alleged
sufficient factual allegations to state a plausible claim that Colonial and/or Platinum benefited
from the alleged fraudulent transfers. The parties may revisit this issue if discovery proves
otherwise.
Second, the FDIC argues that the fraudulent transfer claims are deficient because BOA
does not allege that Ocala intended to defraud its creditors or even caused the transfers to
happen; rather, BOA alleges that TBW directed the transfers. This argument is without merit.
Courts have routinely held that, where the transferee controls the disposition of the debtor’s
property, as TBW did here, the fraudulent intent of the transferee may be imputed to the debtor.
See, e.g., In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir. 1994); Schoenmann v. FDIC, No. 10-
03989 CRB, 2011 WL 1522364, *6 (D. Cal. Apr. 21, 2011); In re Chase & Sanborn Corp., 51
B.R. 739, 740-41 (S.D. Fla. 1985) (“The extensive and often circuitous movement of funds
among the several entities controlled by [the debtor’s principal], to his personal benefit…and to
the injury of this debtor, …[establish an] actual[] intent to hinder, delay and defraud this debtor’s
38
creditors.”) Here, BOA alleges that TBW was the entity in control of Ocala and exclusively
controlled its actions. Such allegations are sufficient to state a plausible claim that TBW’s
fraudulent intent may be imputed to Ocala.
Based on the foregoing, the Court concludes that BOA has alleged facts sufficient to state
plausible claims for both actual and constructive fraudulent transfer. Accordingly, the FDIC’s
motion to dismiss Counts IX and X is denied.
3. Whether the Amended Complaint Pleads Fraud with the Requisite Specificity
The FDIC next argues that Count V must be dismissed because BOA failed to meet the
heightened pleading requirements of Fed. R. Civ. P. 9(b). “In alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P.
9(b). To state a claim for fraud, a plaintiff must allege the following elements with particularity:
“(1) a false representation, (2) made in reference to a material fact, (3) with knowledge of its
falsity, (4) with the intent to deceive, and (5) an action that is taken in reliance upon the
representation.” In re Estate of McKinney, 953 A.2d 336, 342 (D.C. 2008) (citation omitted).
Motions to dismiss for failure to plead fraud with sufficient particularity are evaluated in light of
the overall purposes of Rule 9(b), which is to “ensure that defendants have adequate notice of the
charges against them to prepare a defense[,]” United States ex rel. McCready v. Columbia/HCA
Healthcare Corp., 251 F. Supp. 2d 114, 116 (D.D.C. 2003), to discourage “suits brought solely
for their nuisance value” or as “frivolous accusations of moral turpitude[,]” United States ex rel.
Joseph v. Cannon, 642 F.2d 1373, 1385 (D.C. Cir. 1981), and to “‘protect reputations of ...
professionals from scurrilous and baseless allegations of fraud,’” id. at 1385 n. 103 (alteration in
original) (quoting Felton v. Walston & Co., Inc., 508 F.2d 577, 581 (2d Cir. 1974)).
39
“[A]lthough Rule 9(b) does not require plaintiffs to allege every fact pertaining to every
instance of fraud when a scheme spans several years, defendants must be able to ‘defend against
the charge and not just deny that they have done anything wrong.’” United States ex rel.
Williams v. Martin-Baker Aircraft Co., Ltd., 389 F.3d 1251, 1259 (D.C. Cir. 2004) (quoting
United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1052 (9th Cir. 2001));
accord McCready, 251 F. Supp. 2d at 116 (reasoning that a court “‘should hesitate to dismiss a
complaint under Rule 9(b) if the court is satisfied (1) that the defendant has been made aware of
the particular circumstances for which she will have to prepare a defense at trial, and (2) that
plaintiff has substantial prediscovery evidence of those facts’” (quoting Harrison v.
Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.1999))).
In Count V, BOA alleges that Colonial actively concealed its own financial condition, as
well as the financial condition of TBW and Ocala, and that these misrepresentations allowed the
fraudulent scheme to continue undetected for at least seven years. (Dkt. No. 20 at ¶¶ 170, 172.).
BOA maintains that in its capacity as Indenture Trustee, Custodian, and Collateral Agent under
the Ocala Facility Documents, it reasonably relied on Colonial’s misstatements and omissions to
its own financial detriment and to the financial detriment of DB and BNP. (Id. at ¶¶ 64-65, 171,
176.). According to BOA, but for Colonial’s acts, Ocala would not have issued the Ocala Notes,
thereby allowing TBW and Colonial to steal the proceeds from the Notes, and leaving DB and
BNP to bear the loss. (Id. at ¶ 176.).
The factual allegations set forth in the Amended Complaint that support Count V are as
follows: (1) TBW and Colonial conspired to divert funds from Ocala to cover the monetary
shortfalls TBW was experiencing (Dkt. No. 20 at ¶ 63); (2) executives at Colonial have admitted
that from late 2003 through August 2009, TBW and Colonial engaged in a scheme to defraud
40
Ocala (Id. at ¶ 64); (3) this scheme defrauded third party lenders and creditors of billions of
dollars, including Ocala (Id. at ¶ 65(g)); (4) Colonial provided materially false information to the
FDIC and other regulators in order to conceal evidence of its fraudulent activity (Id. at ¶ 70); (5)
Colonial, with its co-conspirators, diverted $50 million from an Ocala account at BOA (Id. at ¶
74); (6) in March and April 0f 2009, Colonial and its co-conspirators used $12,239,697.21 of
Ocala funds to purchase assets for the benefit of TBW (Id. at ¶ 78); and (7) Colonial made
numerous misrepresentations to regulators, including materially false filings with the Securities
and Exchange Commission that concealed the theft of Ocala’s assets (Id. at ¶ 82).
In further support of its claim for fraud against Colonial, BOA incorporates by reference
the June 15, 2010 indictment of Farkas (TBW’s former chairman), the Government’s June 16,
2010 Motion for Pre-Trial Detention of Farkas, and the Statements of Facts from the criminal
proceedings involving Catherine Kissick (the former Senior Vice President of Colonial) and
Teresa Kelly (the former Operations Supervisor in Colonial’s Mortgage Warehouse Lending
Division). (Dkt. No. 20 at ¶ 64 fn. 6.). BOA asserts that these documents make clear that
Colonial executives knew that in April 2005, Ocala funded $200 million in ineligible loans for
TBW and were also aware that the same funds were being “shipped” back and forth in order to
give the appearance that debt was being eliminated. (Id. at ¶ 90(b), (e).).
The Court concludes that BOA has pled the fraud claim with sufficient particularity to
survive the FDIC’s motion to dismiss. The underlying basis of this claim is a massive fraud that
TBW and Colonial employees admit to endeavoring to hide for years. BOA claims that it does
not have all of the documents necessary to fully set forth the claims (many, it asserts, are in the
possession of the FDIC). (Id. at ¶ 2.). It may be that after discovery, BOA will not be able to
substantiate this claim. However, at this stage of the proceedings, BOA has sufficiently pled the
41
claim so as to give the FDIC adequate notice of the charges against it in order to prepare a
defense, thereby satisfying the purpose of Rule 9(b). See McCready, 251 F. Supp. 2d at 116.
Accordingly, the FDIC’s motion as to Count V is denied.
C. BOA’s Motion to Dismiss the FDIC’s Counterclaims
The FDIC claims that 4,808 Participated Mortgage Loans were purchased by Ocala off of
the Colonial COLB, but that Colonial never received payment for its 99% ownership interest in
those Loans. (Id. at ¶ 39.). These 4,808 Loans are the subject matter of the FDIC’s
Counterclaims against BOA. (Id.).
As discussed previously at Section II.A., Ocala was intended to function in the following
manner: Colonial would send its Participated Mortgage Loans to BOA (in BOA’s capacity as the
Custodian of the Loans under the Custodial Agreement); the Ocala Facility would purchase
Colonial’s ownership interest in the Loans from the COLB Facilities; after BOA sent Colonial
the purchase amount for its ownership interest in the Loans from Ocala’s collateral account at
BOA, Ocala would be the owner of the Loans; the Loans would then be applied as collateral for
the Ocala Notes; next, Ocala would sell the Loans to Freddie Mac; after Freddie Mac purchased
the Loans, the purchase funds (from Freddie Mac) would be sent back to Ocala’s collateral
account at BOA and would serve as either collateral for the Ocala Notes or as capital with which
Ocala could purchase more Loans from the Colonial COLB Facilities. (Dkt. No. 25 at ¶ 40.).
The FDIC alleges that in certain instances commencing around December 2008, the
payments were not made to Colonial (as outlined above); instead, BOA would receive the Loans
from Colonial, and upon instructions from TBW, would pledge them as collateral and sell them
to Freddie Mac, all without payment to Colonial. (Id. at ¶ 43.). The FDIC further asserts that in
transmitting the Loans to Freddie Mac in these instances, BOA would sign a document (the
42
“Form 996Es”) stating that it had the exclusive right to sell them, thus denying the existence of
Colonial’s ownership interest. (Id. at ¶ 44.).
The FDIC asserts that although Colonial eventually received payment for the Loans
(other than the 4,808 Loans) in these instances, it was not paid until after BOA had effectively
stripped Colonial of its ownership interest in the Loans. (Id. at ¶ 45.). The FDIC further claims
that Colonial was unaware of BOA’s actions because it typically received payment for the Loans
within an appropriate period of time. (Id. at ¶ 46.). However, BOA’s conduct was revealed when
Colonial closed on August 14, 2009 and 4,808 Loans had been purchased by Ocala off of the
COLB Facilities, for which Colonial was never paid. (Id. at ¶ 47.).
The FDIC asserts sixteen Counterclaims. (See Dkt. No. 25.). The first five causes of
action are based on BOA’s alleged breach of the Custodial Agreement between it, Colonial and
TBW (Counts 1 through 5). (Id. ¶¶ at 46–92.) The next seven claims are based on BOA’s alleged
violation of the terms of the Bailee Letters that were used to transfer the Participated Mortgage
Loans from Colonial to BOA (Counts 6 through 12). (Id. at ¶¶ 93-103.). The FDIC’s final four
Counterclaims sound in tort (Counts 13 through 16). (Id. at ¶¶ 134-154.). The FDIC alleges that
BOA breached its duty of care as Colonial’s agent, as well as its fiduciary duties of care and
loyalty, by pledging the Loans as collateral for the Ocala Notes and then selling them to Freddie
Mac without first ensuring that Colonial was paid. The FDIC also asserts that BOA breached its
duty of care under a common law bailment by encumbering the loans, executing the Form
996Es, and selling the Loans to Freddie Mac, again without first ensuring that Colonial was paid.
BOA moves to dismiss each of the FDIC’s Counterclaims. First, it argues that the claims
for breach of the Custodial Agreement and Bailee Letters must be dismissed pursuant to
exculpatory clauses in the Custodial Agreement. Second, BOA argues that each of the claims for
43
breach of the Custodial Agreement are independently subject to dismissal because the FDIC
failed to allege violations of any specific contract provisions. Next, BOA argues that the claims
based on breach of bailment fail because they are based on Bailee Letter provisions that are
inconsistent with the Custodial Agreement. Lastly, BOA argues that the tort claims fail as a
matter of law because: (1) the Custodial Agreement expressly limits BOA’s liability; (2) the
Custodial Agreement shelters BOA from liability for claims based on something other than the
Custodial Agreement; (3) the Economic Loss Doctrine bars each of the tort claims as a matter of
law; (4) the Custodial Agreement expressly limits BOA’s liability to acts of gross negligence;
and (5) the Custodial Agreement expressly disclaims any fiduciary duty. The Court will address
each of BOA’s arguments in turn.
1. Whether the Counterclaims are Barred by the Exculpatory Clauses
The Custodial Agreement between BOA, TBW, and Colonial contains the following two
provisions:
[10.]A. Limitation of Liability. Neither [BOA] nor any of its directors,
officers, employees or agents…shall be liable for any action taken or omitted
to be taken by it or them under or in connection with this Agreement or the
Participated Mortgage Loans, except for its or their own gross negligence or
willful misconduct, breach of this Agreement by [BOA] that constitutes bad
faith or a material breach that is not cured within 10 days of notice from the
other parties or if such breach is a of [SIC] a nature that is not unable [SIC]
within such 10-day period and [BOA] is diligently and in good faith working
on curing same, then within 30 days of such notice or within such other
reasonable period, or other malfeasance by [BOA] hereunder. The duties of
[BOA] hereunder shall be mechanical and administrative in nature and
nothing in this Agreement or any of the Participated Mortgage Loans, express
or implied, is intended to or shall be so construed as to impose upon [BOA]
any obligations in respect of this Agreement or any of the Participated
Mortgage Loans except as expressly set forth herein. Subject to the foregoing,
in performing its functions and duties hereunder on behalf of [Colonial] and/or
[TBW], [BOA] shall not (a) be responsible in any manner to [Colonial] or the
[TBW] for the effectiveness, enforceability, genuineness, validity, due
execution, collectability, priority or sufficiency of this Agreement or any of the
Participated Mortgage Loans, or for any recital, representation, warranty,
44
document, certificate, report or statement herein or therein made or furnished
under or in connection with this Agreement or the Participated Mortgage
Loans, or for the sufficiency of the Collateral or the validity, perfection or
priority of any security agreement on the part of [TBW], or the financial
condition of [TBW] or the existence or possible existence of any event of
default under any such loan or security agreement or any other document or
agreement of [TBW] or [Colonial]. [BOA] shall act as the agent of [Colonial]
and [TBW] in performing its obligations as Custodian hereunder and with
respect to the Participated Mortgage Loans and nothing herein contained shall
be deeded to create a fiduciary relationship among or between [BOA], [TBW]
or [Colonial].
...
11. LIMITATION ON OBLIGATIONS OF CUSTODIAN. [BOA]
agrees to act in accordance with any direction given it pursuant to this
Agreement in good faith in the performance of any obligations and duties
required pursuant to this Agreement and shall incur no liability to [Colonial]
or [TBW] for any acts or omissions on the part of [BOA] except as may result
from [BOA’s] gross negligence or willful misconduct occurring in connection
with the performance of the duties, responsibilities and obligations to be
performed by [BOA] under this Agreement. [BOA] shall also be entitled to rely
upon any notice, document, correspondence, request or directive received by it
from [Colonial] or [TBW], as the case may be, which [BOA] believes to be
genuine and to have been signed or presented by the proper and duly
authorized officer or representative thereof, and shall not be obligated to
inquire as to the authority or power of any Person so executing or presenting
such documents or as to the truthfulness of any statement set forth therein.
[BOA] shall have no duties or responsibilities to [TBW] or [Colonial] except
as expressly provided in this Agreement or by law or by any other agreements
to which [BOA] is a party, and [BOA] shall not be obligated to recognize, nor
have any liability or responsibility to, [Colonial] or [TBW] under any
instrument to which [BOA] is not a party.
(Custodial Agreement at ¶¶ 10A, 11, attached as Ex. A Myles Decl., Dkt. No. 36-2) (emphasis
added).
BOA argues that the above language forms an exculpatory provision that precludes the
FDIC’s claims for breach of the Custodial Agreement and/or Bailee Letters. (Dkt. No. 43 at 2.).
BOA contends that the exculpatory language limits BOA’s liability to instances of gross
negligence, willful misconduct, material breach, bad faith, or “other malfeasance,” and precludes
45
liability for “material breach” unless the parties have given BOA notice of the breach and an
opportunity to cure, all of which, BOA asserts, the FDIC failed to plead in its Counterclaims.
(Dkt. No. 43 at 3 (citing the Custodial Agreement at ¶ 10A). BOA concedes that the language in
paragraph 10A “is more specific” than that of paragraph 11, but argues that both paragraphs
preclude liability “under the circumstances” alleged in the Counterclaims. (Id. at 3.). According
to BOA, the exculpatory language “could not be clearer or less equivocal.” (Dkt. No. 36 at 14.).
Under Florida law, 18 exculpatory clauses are disfavored and strictly construed against the
party claiming to be relieved from liability. Murphy v. Young Men’s Christian Ass’n of Lake
Wales, Inc., 974 So. 2d 565, 567-68 (Fla. Dist. Ct. App. 2008); see also, Hackett v. Grand Seas
Resort Owner’s Ass’n Inc., 93 So. 3d 378, 380 (Fla. Dist. Ct. App. 2012) (noting that exculpatory
clauses are disfavored). “Such clauses are enforceable only where and to the extent that the
intention to be relieved was made clear and unequivocal in the contract, and the wording must be
so clear and understandable that an ordinary and knowledgeable party will know what he is
contracting away.” Murphy, 974 So. 2d at 568 (quoting Southworth & McGill, P.A. v. S. Bell Tel.
and Tel. Co., 580 So. 2d 628, 634 (Fla. Dist. Ct. App. 1991)); see also, Dynair Tech of Fla. v.
Cayman Airways Ltd, 558 So. 2d 30, 32 (Fla. Dist. Ct. App. 1989) (holding that exculpatory
clauses had “no force and effect” because they contradicted each other).
The FDIC argues that the exculpatory language in question here is anything but clear.
Indeed, according to the FDIC, the exculpatory language is unenforceable because the language
contained in both paragraphs 10A and 11 is unclear and contradictory, thereby making it
impossible for this Court to ascertain the parties’ intent. The FDIC also points to other alleged
contradictions between provisions in the Custodial Agreement. For instance, the FDIC alleges,
18
The parties agree that Florida law governs the Counterclaims for purposes of this motion. (See the
Custodial Agreement at § 17A).).
46
on the one hand, the Custodial Agreement requires BOA to “exercise reasonable care in the
custody and preservation” of Colonial’s loans, but on the other hand, it purports to release BOA
for its failure to exercise such care with respect to the Loans. (Dkt. No. 41 at 8 (citing the
Custodial Agreement at ¶¶ 4D, 11).).
The Court finds that, viewing the facts in the light most favorable to the FDIC as it is
required to do, the exculpatory language in the Custodial Agreement is simply too ambiguous to
be “so clear and understandable that an ordinary and knowledgeable person will know what he is
contracting away.” Murphy, 974 So. 2d at 568. First, the Court does not find—as BOA urges it to
do—that paragraph 10A shelters BOA from liability except for actions constituting gross
negligence, willful misconduct, and bad faith, or for an uncured material breach. Paragraph 10A
actually opens BOA up to far greater liability:
[BOA]…shall [not] be liable for any action taken or omitted to be taken by
it…in connection with this Agreement or the Participated Mortgage Loans,
expect for [BOA’s]… own gross negligence or willful misconduct, breach of
this Agreement…that constitutes bad faith or a material breach that is not
cured within 10 days of notice…, or other malfeasance by [BOA] hereunder.
(Custodial Agreement at ¶ 10A.) (emphasis added). The term “other malfeasance” as used in
paragraph 10A is undefined and is simply too broad to constitute “clear and unequivocal” notice
of what Colonial contracted away when it entered into the Custodial Agreement. Under Florida
law, “malfeasance” means the commission of some act that is unlawful. See, e.g., Bent v.
Ballantyne, 368 So. 2d 351, 353 (Fla. 1979) (defining malfeasance as the “commission of some
act which is positively unlawful,” citing Black’s Law Dictionary 1109 (rev. 4th ed. 1968));
Thompson v. Napotnik, 923 So. 2d 537, 540 (Fla. Dist. Ct. App. 2006) (defining malfeasance in
the context of recall petitions); Moultrie v. Davis, 498 So. 2d 993, 995 (Fla. Dist. Ct. App. 1986)
(same). Whatever its meaning, the term “malfeasance” is certainly broad enough to include the
47
allegations brought in the FDIC’s Counterclaims. In fact, it is difficult to imagine a more broadly
defined scope of liability.
In addition, there is the nonsensical sentence in paragraph 10A (and repeated in section D
of the same paragraph):
a material breach that is not cured within 10 days of notice from the other
parties or if such breach is a of a [SIC] nature that is not unable [SIC] within
such 10-day period and Custodian is diligently and in good faith working on
curing same, then within 30 days of such notice or within such other
reasonable period….
(Custodial Agreement, ¶ 10A.) (emphasis added). It is clear that the sentence, “if such breach is a
of a nature that is not unable within such 10-day period,” contains several clerical errors. The
clerical errors render the sentence unintelligible. This is significant because the sentence is meant
to set forth one of the exceptions to the limitation on BOA’s liability, a limitation that is
meaningless due to its unintelligibility.
Likewise, the exculpatory language in paragraph 11 is ambiguous. BOA argues that
paragraph 11 limits its liability to breaches for gross negligence and/or willful misconduct, but a
careful reading of paragraph 11 shows that it actually opens the door to much greater liability.
The last sentence of paragraph 11 states:
“[BOA] shall have no duties or responsibilities to [TBW] or [Colonial] except
as expressly provided in this Agreement or by law or by other agreements to
which [BOA] is a party….”
(Custodial Agreement, ¶ 11.) (emphasis added). By imposing on BOA any duties or
responsibilities provided “by law or by other agreements to which [BOA] is a party,” this
sentence can reasonably be interpreted as leaving BOA’s liability open to limitless possibilities.
The question before the Court is whether the language attempting to limit BOA’s liability
is “so clear and understandable that an ordinary and knowledgeable person will know what he is
48
contracting away.” Cain v. Banka, 932 So. 2d 575, 578 (Fla. Dist. Ct. App. 2006). That is not the
case here. Accordingly, the Court determines that the exculpatory language in paragraphs 10A
and 11 is ambiguous and, therefore, unenforceable. 19
2. Whether the Counterclaims State a Claim for Breach of the Custodial
Agreement
Having determined that the FDIC’s Counterclaims based on BOA’s alleged breach of the
Custodial Agreement are not barred by the Agreement’s exculpatory provisions, the Court must
now determine whether Counts 1 through 5 allege factual allegations sufficient to survive BOA’s
motion to dismiss for failure to state a claim.
a. Counterclaim 1
Count 1 pertains to BOA’s alleged obligations under paragraph 4B of the Custodial
Agreement. Paragraph 4B provides as follows:
[4]B. Possession of Mortgage Files. Following [BOA’s] receipt of each
Mortgage File…, [BOA] shall retain possession and custody thereof solely for
the exclusive use and benefit of [Colonial] and [TBW] (to the extent of their
respective ownership interests in the Participated Mortgage Loans) as the
agent and bailee of [Colonial] and [TBW], and for purposes of perfecting
[Colonial’s] and [TBW’s] ownership interest in the Participated Mortgage
Loans and the related Mortgage File as contemplated by the Uniform
Commercial Code of the State of Florida or other jurisdiction or such other
applicable jurisdiction in effect and adopted thereby (it being understood that
[BOA] has no responsibility to ensure such perfection or compliance with state
law)…[BOA] shall segregate and maintain continuous custody of all mortgage
documents constituting the Mortgage File in secure and fire-resistant facilities
in accordance with customary standards for such custody.
(Custodial Agreement at ¶ 4B.) (emphasis added.). The FDIC alleges that, pursuant to this
provision, BOA was obligated to hold the Participated Mortgage Loans for the exclusive use and
benefit of Colonial and for the purpose of perfecting Colonial’s ownership interest in said Loans.
19
The court also notes that the Custodial Agreement required BOA to carry “errors and omissions insurance,”
something that appears to further contradict BOA’s suggestion that the parties intended to substantially limit BOA’s
liability exposure. (See the Custodial Agreement at ¶ 15.).
49
(Dkt. No. 25 at ¶ 68.). The FDIC claims that BOA breached this obligation with respect to the
4,808 Participated Mortgage Loans because it failed to hold the Loans for Colonial’s exclusive
use, and engaged in acts that were inconsistent with “the purposes of perfecting Colonial’s
ownership interests in these [Loans].” (Id. at ¶ 69.).
BOA argues that Count 1 must be dismissed because the claim improperly relies on the
premise that BOA owed an exclusive duty to Colonial, when in fact, it owed a duty to both
Colonial and TBW. (See Dkt. No. 36 at 16.). According to BOA, the Counterclaims allege that it
collateralized and sold the Loans “upon instructions from TBW.” (Id. (citing Dkt. No. 25 at ¶
43.). BOA asserts that because it owed the same duties to Colonial and TBW under paragraph
4B, it cannot have breached “its duties to the one by acting on instructions from the other.” (Id.).
As such, BOA argues Count 1 must be dismissed.20
In response, the FDIC contends that the fact that BOA owed duties to TBW under the
Custodial Agreement in addition to those it owed to Colonial is irrelevant as to whether BOA
breached its obligations to Colonial. According to the FDIC, BOA mischaracterizes Count 1. The
FDIC asserts that it does not claim that BOA breached its duties to Colonial by following TBW’s
instructions; rather, it alleges that Colonial should have received payment for the 4,808 loans
before BOA collateralized the Loans and sold them to Freddie Mac. (See Dkt. No. 41 at 22
(citing Dkt. No. 25 at ¶ 42).).
The Court agrees. Count 1 must be read in context with the rest of the Counterclaims,
which unequivocally allege that BOA failed to ensure that Colonial received payment for the
4,808 Loans before they were pledged as collateral for the Ocala Notes and ultimately sold to
20
BOA also argues that paragraph 11 of the Custodial agreement absolves it of liability for any action it takes
pursuant to “any direction given it pursuant to [the Agreement].” (Id. at 17 (citing the Custodial Agreement at ¶ 11.).
As this Court has already determined that the exculpatory provisions in paragraph 11 are unenforceable, this
argument is unavailing.
50
Freddie Mac. (See Dkt. No. 25 at ¶¶ 36, 39, 43-49.). While not the most artfully pled allegation,
Count 1 need not be read as BOA would have the Court read it (i.e., that BOA owed an exclusive
duty to Colonial), a claim that would not be supported by paragraph 4B. Count 1 is more
logically read to assert that BOA was obligated to hold the Loans for the exclusive use and
benefit of Colonial with respect to Colonial’s 99% ownership interest in the Loans. Indeed,
paragraph 4B states as much: “[BOA] shall retain possession and custody thereof solely for the
exclusive use and benefit of [Colonial] and [TBW] (to the extent of their respective ownership
interests in the Participated Mortgage Loans)….” (Custodial Agreement at ¶ 4B) (emphasis
added). This Court is obligated to view the allegations in the Counterclaims in the light most
favorable to the FDIC. Given this standard, and in light of the remaining allegations in the
Counterclaims, the Court concludes that Count 1 states a plausible claim upon which relief may
be granted. Therefore, BOA’s motion to dismiss Count 1 is denied.
b. Counterclaim 2
Again citing paragraph 4B of the Custodial Agreement, Count 2 alleges that BOA was
obligated to segregate and maintain continuous custody of any mortgages documents associated
with a Participated Mortgage Loan that was transferred to BOA. (Dkt. No. 25 at ¶ 73.). The
FDIC alleges that BOA failed to meet this obligation. (Id. at ¶ 74.). BOA argues that Count 2
must be dismissed because paragraph 4B simply instructs it on how to store the mortgage
documents during the time that they are in its custody. (Dkt. No. 36 at 17-18 (noting that
paragraph 4B requires BOA to store the documents in “secure and fire-resistant facilities in
accordance with customary standards for such custody.). BOA accuses the FDIC of reading into
this provision a requirement that does not exist—namely, that BOA maintain custody of the
documents “in perpetuity.” (Id. at 18.).
51
In response, the FDIC argues that the Counterclaims allege that BOA was required to
segregate the loans in order to “protect Colonial’s ownership interest and that BOA failed to
perform as promised.” Count 2, itself, makes no such allegation. However, the claim
incorporates the allegations contained in Count 1, which do make such an allegation. (Dkt. No.
25 at ¶ 72.). And, as this Court determined above, paragraph 4B plausibly supports such
assertions. Accordingly, BOA’s motion to dismiss is denied as to Count 2.
c. Counterclaim 3
In Count 3, the FDIC alleges that paragraph 4D of the Custodial Agreement obligated
BOA to exercise reasonable care in the custody and preservation of the items that it received
from Colonial, and that BOA failed to fulfill this obligation with respect to the Participated
Mortgage Loans. (Dkt. No. 25 at ¶¶ 78-79.). Paragraph 4D of the Custodial Agreement reads as
follows:
D. Care of Collateral. [BOA] shall exercise reasonable care in the
custody and preservation of the Collateral in its possession to the extent
required by statutes and in any event shall be deemed to have exercised
reasonable care if it (i) takes such action for that purpose as [Colonial] shall
reasonably request in writing (but no omission to comply with any request of
[Colonial] shall of itself be deemed a failure to exercise reasonable care), or
(ii) exercises at least the same degree of care as it would exercise with respect
to a like transaction in which it alone is interested.
(Custodial Agreement at ¶ 4D) (emphasis added). BOA argues that Count 3 must be dismissed
because paragraph 4D only requires it to exercise reasonable care “to the extent required by
applicable statute,” and the FDIC does not allege that BOA failed to comply with “any statutory
duty of care.” (Dkt. No. 36 at 19.). In other words, BOA argues, because the FDIC’s claims rest
on a provision that can be breached only be violating a statute, the FDIC must identify what
statute it allegedly breached.
52
The FDIC counters that it is not required to reference a specific statute in its pleadings in
order to survive a motion to dismiss. Citing Skinner v. Switzer, 131 S. Ct. 1289 (2011), the FDIC
argues that the Federal Rules of Civil Procedure do not require that a complaint pin a plaintiff’s
claim to relief to a precise legal theory. (Dkt. No. 41 at 25.). The Court finds Skinner v. Switzer
inapplicable. The FDIC gives no indication whatsoever of which statute BOA allegedly ran
afoul. In the absence of a statute, the Court must dismiss the claim. If the FDIC does have a
statute on which it relies for this claim, it may move to amend the Counterclaims. In the
meantime, Count 3 is dismissed for failure to state a claim upon which relief may be granted.
d. Counterclaim 4
Citing paragraph 7A of the Custodial Agreement, the FDIC alleges in Count 4 that BOA
breached its duty to return to Colonial any Participated Mortgage Loan that was not purchased
within six business days of BOA’s receipt of the Loan. BOA argues that this claim must be
dismissed because it had no duty to act under paragraph 7A unless and until instructed to do so
by TBW.
Paragraph 7A states:
7. RELEASE OF COLLATERAL
A. Release of Collateral to [TBW] or its Designee. [BOA]
shall…upon receipt from [TBW] of a Request for Release of Documents and
Receipt release any Collateral specified in such request and [BOA] shall
thereupon cause delivery of the same to [TBW] or its designee. Any such
Request for Release of Documents and Receipt shall be subject to the prior
approval of [Colonial], at its sole and absolute discretion. In the event that a
Participated Mortgage Loan is not purchased by Ocala within 6 Business Days
from receipt of the related Mortgage file, [TBW] shall request, and [BOA]
shall deliver, such Mortgage File to [Colonial].
(Custodial Agreement at ¶ 7A.) (emphasis added). As BOA correctly points out, the FDIC did
not allege in the Counterclaims that TBW ever issued a request for a release of an outstanding
53
Participated Mortgage Loan. Apparently conceding this point, the FDIC attempts to avoid the
ramifications of this failure by arguing that the word “and” in the last sentence of paragraph 7A
created an independent requirement on the part of BOA to deliver the Loans, regardless of
whether TBW first requested them. The FDIC argues that “[t]his independent obligation is
sensible because [BOA], the entity in possession of the [L]oans and [Ocala’s] bank accounts,
was in the best position to know whether a [L]oan had been purchased within six days.” (Dkt.
No. 41 at 26.). At a minimum, the FDIC argues, paragraph 7A is ambiguous and, as such, Count
4 cannot be resolved on a motion to dismiss. (Id.).
The Court agrees as to the ambiguity of Count 4. While the FDIC’s reading of paragraph
7A may be a stretch, in deciding a motion to dismiss, this Court is required to evaluate all
inferences derived from the allegations contained in the Counterclaims in the light most
favorable to the FDIC. In doing so, this Court concludes that Count 4 survives BOA’s motion to
dismiss.
e. Counterclaim 5
In Count 5, the FDIC alleges that under paragraph 17K of the Custodian Agreement,
BOA represented and warranted that it did not have at the time of execution, and would not hold
during the existence of the Agreement, any interest adverse to Colonial, by way of security or
otherwise, in the Participated Mortgage Loans. (Dkt. No. 25 at ¶ 88.). Paragraph 17K states:
K. No Adverse Interest. By execution of this Agreement, [BOA]
represents and warrants that it currently holds, and during the existence of this
Agreement shall hold, no interest adverse to [Colonial] or [TBW], by way of
security or otherwise, in any Participated Mortgage Loan, and hereby waives
and releases any such interest which it may have in any Participated Mortgage
Loan as of the date hereof.
(Custodial Agreement at ¶ 17k.). The FDIC maintains that BOA breached this warranty and
argues that the Court need look no further than the Amended Complaint—in which BOA asserts
54
a security interest in some of the Participated Mortgage Loans—to see evidence of the breach.
(Id. at ¶¶ 89-90.).
BOA counters that paragraph 17K only applies to BOA’s interests in its own capacity.
(Dkt. No. 36 at 20.). BOA disavows that it brought the underlying action in its own capacity;
rather, it filed suit “in its capacity as the representative of the Ocala Facility.” (Id. at 21.).
Furthermore, the “Custodial Agreement contemplated ‘that BOA would obtain security and
possessory interests in the loans on behalf of Ocala’s Secured Parties.’” (Id.).
The FDIC responds that paragraph 17K is not clearly and unambiguously limited to BOA
in its own capacity. (Dkt. No. 41 at 27.). The “clear purpose” of the Custodial Agreement was to
ensure that Colonial’s ownership interest in the Loans was protected. The Agreement, the FDIC
argues, contemplated that BOA would obtain a security interest on behalf of the Ocala Facility
after Colonial received payment for its interest in the Loans. Because BOA failed to remit
payment, Colonial’s interest was not satisfied, and the requirements of paragraph 17K continue
to apply. (Id. at 28.).
The Court agrees. At a minimum, paragraph 17K is ambiguous. Furthermore, as
discussed previously at Sections II.B.-D., it is not entirely clear that BOA does not seek relief for
damages it allegedly incurred in its own capacity. As such, Count 5 will not be dismissed.
3. Whether the Breach of Bailment Counterclaims Fail as a Matter of Law
Next, BOA moves, in the alternative, to dismiss the breach of bailment Counterclaims
(Counts 6 through 12) pursuant to Rule 12(b)(6) for failure to state a claim upon which relief
may be granted. Counts 6 through 12 pertain to Colonial’s use of a standard financing form
known as a “bailee letter” (the “Bailee Letter(s)”) when it transferred Participated Mortgage
55
Loans to BOA under the Custodial Agreement. 21 (See Dkt. No. 25 at ¶ 31.). The FDIC maintains
that the Bailee Letters either created a new agreement between Colonial and BOA that
superseded the Custodial Agreement or the Letters modified the Agreement. Either way, the
FDIC argues, BOA was obligated to abide by the terms of the Bailee Letters. (Id. at ¶ 32-33.).
The provisions of the Bailee Letters are as follows:
Pursuant to the terms and conditions set forth below, [Colonial] hereby
deliver[s] to [BOA], as Custodian for [Ocala], with this letter, the [Participated
Mortgage Loans]…By taking physical possession of this Bailee Letter, the
[Participated Mortgage Loans] and other loans documents, [BOA] hereby
agrees and is bound:
i. to hold in trust, as bailee for Colonial [], the
[Loans]…, subject to the direction and control of Colonial until
[BOA’s] status as bailee is terminated…;
ii. to not release or deliver…the [Loans]…to
[TBW]…which release, delivery or other action could cause the
security interest of [Colonial] to become unperfected or which
could otherwise jeopardize the perfected security interest and/or
title and ownership interest of [Colonial] in the Loan(s);
…
iv. to return the [Loans] immediately to
Colonial [] upon receipt of a written or telephonic request by
Colonial…;
v. not to honor request or instructions from
[TBW] relating to any [Loans]…;
vi. immediately upon [Ocala’s] acceptance or
rejection of the Loan(s) for purchase, and in any event within
forty-five (45) days after the date of delivery of this Bailee Letter
to either (A) remit the [sales proceeds] to Colonial or (b) [SIC]
return the [Loans] to Colonial;
…
By your acceptance of the enclosed [Loans], you are bound by the terms,
provisions and conditions of this Bailee Letter. We request that you
acknowledge receipt of this Bailee Letter and the enclosed [Loans] by signing
in the space provided at the bottom of this Bailee Letter and returning it to
21
The parties do not explain why it was Colonial rather than TBW who transferred the loans, as the Custodial
Agreement contemplated.
56
Colonial…(but your failure to do so in no way compromises the terms,
provisions and conditions of this Bailee Letter or nullifies your agreements
resulting from your acceptance of the enclosed [Loans], as set forth in this
Bailee Letter.
(Dkt. No. 36, Myles Decl., at Ex. B; Dkt. No. 25 at ¶ 33.). The FDIC claims that the 4,808
Participated Mortgage Loans that are the subject of its Counterclaims were transferred to BOA
pursuant to the above-listed terms of the Bailee Letters, yet Colonial never received payment for
its ownership interest in those Loans. (Id. at ¶ 39.). As such, the FDIC asserts, BOA breached the
terms of the bailment between the parties.
BOA argues that Counts 6 through 12 must be dismissed because: (1) to the extent that
the FDIC argues that the Bailee Letters modified, amended or superseded the Custodial
Agreement, that argument fails as a matter of black-letter contract law; or (2) to the extent that
the FDIC argues that the Custodial Agreement and Bailee Letters can be harmonized, that
argument similarly fails because the Letters contradict material terms of the Custodial
Agreement. (See Dkt. No. 36 at 22-23.).
a. Whether the Bailee Letters Are Enforceable Contracts between
Colonial and BOA
BOA argues that the provisions of the Bailee Letters upon which the FDIC relies for its
breach of bailment claims are inconsistent with the Custodial Agreement, and therefore each
claim must be dismissed. BOA contends that the “broad structure and terms” of the Bailee
Letters are inconsistent with Custodial Agreement because they read as though BOA’s custodial
duties were owed only to Colonial, and not divided with a duty to TBW (as provided for in the
Custodial Agreement). As an example of this, BOA points to the provisions of the Bailee Letters
that require BOA to “hold in trust, as bailee for Colonial [], the Loans]…” and prohibit BOA
from releasing the Loans to TBW if “doing so would jeopardize the security interest of
57
[Colonial],” and further prohibit BOA from “honor[ing] requests or instructions from [TBW]
relating to any [Loans]….” (See Dkt. No. 36 at 29 (quoting the Bailee Letter at ¶ 2(i),(ii), and
(v).).
BOA argues that these terms directly contradict the Custodial Agreement, which require
BOA to act as the Custodial Agent and Bailee for both Colonial and TBW, referring the Court to
the provisions of the Custodial Agreement that state that BOA is appointed as “Custodian…by
each [Colonial] and [TBW] as its agent and bailee hereunder,” and further state that BOA “shall
retain possession and custody [of the Loans] solely for the exclusive use and benefit of
[Colonial] and [TBW],” and authorize BOA to act on the instructions of both Colonial and TBW.
(Id. at 28-29 (quoting the Custodial Agreement, ¶¶ 2, 4B and 7).).
According to BOA, these inconsistencies render the Bailee Letters unenforceable, noting
that it is “hornbook law” that a party cannot unilaterally supersede or amend an agreement. BOA
claims that Florida courts have rejected similar tactics by parties who attempted to modify
governing contracts with unilateral form letters. (Id. (citing Gulf Power Co. v. Coalsales II,
L.L.C., 661 F. Supp. 2d 1270, 1279 (N.D. Fla. 2009) and Newkirk Constr. Corp. v. Gulf Cnty.,
366 So. 2d 813, 815 (Fla. Dist. Ct. App. 1979).). BOA maintains that a recent district court
decision from the Ninth Circuit, FDIC v. First Am. Title Ins. Co., No. SACV 10–0713 DOC
(MLGx), 2011 WL 3737435 (C.D. Cal. Aug. 24, 2011), is directly on point. First American
involved a loan transaction in which IndyMac Bank was the lender and First American Title
Insurance Company (“First American”) was the closing agent. Id. at *1. The FDIC, as receiver
for IndyMac Bank, sought to enforce negotiated Closing Instructions between the parties, and
First American argued that a pre-printed Funding Letter that First American included with the
closing documents served to modify the Closing Instructions. Id. In granting summary judgment
58
for the FDIC, the district court held that the Funding Letter did not modify the Closing
Instructions for several reasons. First, the court noted that nothing in the Funding Letter
purported to modify the Instructions. Id. at *5-6 (stating that “[i]f First American were truly
modifying [the] Closing Instructions, it would have specified exactly what provisions to which it
did not agree and would have indicated so on the Closing Instructions document itself”)
(emphasis in original). Second, the court noted that the Funding Letter was not supported by
additional consideration to IndyMac for First American’s purported release from the Closing
Instructions. Id. at *6. Lastly, the court rejected First American’s argument that merely by
funding the loan, IndyMac performed under the Funding Letter and had thereby accepted its
terms. Id. at *7.
BOA argues that the same is true in this case. It asserts that the Bailee Letters, like the
Funding Letter in First American, make no mention of any intent, much less “specific intent,” to
modify the Custodial Agreement. (Dkt. No. 36 at 26.). Nor do the Bailee Letters offer any sort of
additional consideration for the reduction of BOA’s or TBW’s rights under the Custodial
Agreement. In addition, BOA argues, the FDIC does not allege in the Counterclaims that BOA
ever signed, acknowledged, or even read the Bailee Letters. Therefore, BOA argues, this Court
cannot enforce the terms of the Bailee Letters over the negotiated terms of the Custodial
Agreement because to hold otherwise “would afford too little recognition to the other documents
and the overall character of the transaction.” (Id. at 27 (quoting Pioneer Commercial Funding
Corp. v. Am. Fin. Mortg. Corp., 579 Pa. 275, 296 (Pa. 2004).). Finally, BOA argues that the
Custodial Agreement contains an integration clause that prohibits unilateral amendments to the
Agreement. (Id. at 24 (citing the Custodial Agreement at ¶ 17C).).
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In response, the FDIC argues that the Counterclaims allege factual allegations sufficient
to state a claim that bailments existed between Colonial and BOA and that these bailments,
established pursuant to the terms of the Bailee Letters, represent new, independent agreements
between Colonial and BOA that are separate from the Custodial Agreement. (See Dkt. No. 41 at
10.). The FDIC maintains that the fact that BOA did not sign the Bailee Letters is not fatal to the
enforceability of the agreements because Florida does not require a countersignature on a bailee
letter in order to create a bailment. (Id. at 10 (citing Fla. Stat. Ann. § 679.3131, comment 9; 4
James J. White, Robert S. Summers, & Robert A. Hillman, Uniform Commercial Code § 31-8
(6th ed.).). Instead, the FDIC argues, acceptance of the collateral documents constitutes assent to
the terms of the bailee letter. Id. (citing Goldman Sachs Mortg. Co. v. Natixis Real Estate
Capital, Inc., No. 0602359/2007, 2008 WL 1999522 (Trial Order) (N.Y. Sup. Ct. Apr. 30, 2008)
(“The standard practice in the [mortgage warehouse lending industry] is not to require a
countersignature on the bailee letter…[the] acceptance of the collateral documents constitutes
assent to the terms of the bailee letter…”).). Here, BOA accepted the terms of the Bailee Letters
when it accepted the Loans under cover of the Letters, held them in trust, and then remitted
payment to Colonial (until the alleged breach) once the Loans were sold to Ocala. (Id. at 13
(citing Counterclaims, ¶¶ 31, 36 and 42).).
What is more, the FDIC argues, the Bailee Letters expressly stated that acceptance of the
Loans transmitted under the Bailee Letter constituted acceptance, and failing to countersign the
Letter “in no way…nullifies [BOA’s] agreements resulting from [BOA’s] acceptance of the
enclosed Note(s)…” (Id. at 12 (citing Bailee Letter at p. 2).). The FDIC claims that this provision
of the Bailee Letters is consistent with the use of bailee letters in the mortgage warehouse
lending industry as a whole and is reflected in Florida’s statutes, which allow a mortgage
60
warehouse lender who transfers mortgage notes to a custodian pursuant to a bailee letter to retain
its perfected security interest in the notes, as long as the lender instructed the bailee to hold the
collateral for the benefit of the lender. (Id. at 13 (citing Fla. Stat. Ann. § 679.3131(8), n. 9
(“Requiring [lenders] to obtain authenticated acknowledgments …would be unduly burdensome
and disruptive of established practices”)).).
In the alternative, the FDIC argues that the Bailee Letters operated to modify the terms of
the Custodial Agreement, and BOA’s acceptance of the Bailee Letters in the ordinary course of
business without objection formed either “(i) an ‘agreement in writing’ that overrides the
integration clause in the Custodial Agreement or (ii) an amendment of the Custodial Agreement
through course of performance.” (Dkt. No. 41 at 28.).
The Court concludes that the FDIC has alleged facts sufficient to state a plausible claim
for breach of bailment. To create a bailment under Florida law, there must be: (1) the delivery of
a bailor’s property to a bailee; (2) acceptance of the property by the bailee; and (3) an agreement,
either express or implied, to use the property for a particular purpose and later redeliver it to the
bailor. See Monroe Sys. for Bus., Inc. v. Intertrans Corp., 650 So. 2d 72, 75-76 (Fla. Dist. Ct.
App. 1994); 46 Am. Jur. Proof of Facts 3d 361 (1998). Here, the FDIC alleges that: (1) Colonial
delivered the Loans in question to BOA under cover of a Bailee Letter (Dkt. No. 25 at ¶ 31); (2)
BOA accepted the Loans (Id. at ¶ 43); and (3) BOA agreed to hold the Loans, and within 45 days
of delivery, to either remit payment for the Loans or return the Loans to Colonial (Id. at ¶ 33.).
These factual allegations are sufficient to state a plausible claim that a separate, independent
contract for bailment existed between the parties.
Moreover, the Court is not persuaded that the terms of the Bailee Letters materially
conflict with the terms of the Custodial Agreement. The Custodial Agreement unequivocally
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states that BOA’s duties with respect to TBW and Colonial are limited to the extent of each of
TBW’s and Colonial’s respective ownership interests in the Loans. See, e.g., the Custodial
Agreement at Fifth WHEREAS Clause (stating that BOA is authorized to act as TBW’s and
Colonial’s custodial agent and bailee “to the extent of their respective ownership interests in
[the] Participated Mortgage Loans”) (emphasis added); see also Id. at ¶ 4B (“…the Custodian
shall retain possession and custody thereof solely for the exclusive use and benefit of [Colonial]
and [TBW] (to the extent of their respective ownership interests in the Participated Mortgage
Loans) as the agent and bailee of [Colonial] and [TBW], and for purposes of perfecting
[Colonial’s] and [TBW’s] ownership interest in the [Loans]….”) (emphasis added). 22 Similarly,
the Bailee Letters acknowledge that Colonial has only a “participation” interest in the Loans.
(See Bailee Letter, Introductory paragraph “[Colonial] owns a participation interest in the
Loan(s) and the proceeds thereof…”). Accordingly, the Bailee Letters can be read to affect only
Colonial’s participation interest in the Loans, thereby leaving unaffected TBW’s interest in the
Loans and BOA’s obligations thereto under the Custodial Agreement.
What is more, the Custodial Agreement gives Colonial the power to direct BOA’s actions
towards the Loans on behalf of TBW. (See Custodial Agreement at ¶ 2 “[TBW] hereby
irrevocably appoints [Colonial] as its attorney in fact and agent…to take any action and give any
direction hereunder on behalf of [TBW] with respect to [TBW’s] interest in any [Loan], and
[BOA] shall be entitled to rely on [Colonial’s] directions and instructions on behalf of itself and
[TBW]”). As such, Colonial’s use of the Bailee Letters can be read as entirely consistent with the
terms of the Custodial Agreement. At a minimum, these provisions create an ambiguity that
cannot be resolved on a motion to dismiss. See Novoneuron Inc. v. Addiction Research Inst., Inc.,
22
It is undisputed that at the time the Loans were transferred to BOA pursuant to the Custodial Agreement,
Colonial had a 99% participation interest in the Loans and TBW retained a 1% interest. (Dkt. No. 20 at ¶ 43; Dkt.
No. 25 at ¶ 11.).
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326 F. App’x 505, 508-509 (11th Cir. 2009) (trial court erred in granting motion to dismiss for
failure to state a claim when disputed contract was susceptible to two different interpretations,
each one of which was reasonably inferred from the terms of the contract).
Nor is the Court persuaded by BOA’s argument that Paragraph 17C of the Custodial
Agreement bars the creation of a separate agreement. Paragraph 17C states:
Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof
including any prior custody agreements. The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof. This Agreement may not be modified or amended
other than by an agreement in writing.
(Custodial Agreement, ¶ 17C.) (emphasis added.). The plain language of this provision precludes
only agreements made prior to, or contemporaneously with, the Custodial Agreement. Because
the Bailee Letters were issued after the parties executed the Custodial Agreement, the first
sentence of paragraph 17C is inapplicable to the present situation. Nor does the last sentence of
paragraph 17C, which refers to “modified or amended,” necessarily bar the creation of an
entirely new agreement. On the briefing before it, the Court is not persuaded that there was a
meeting of the minds that this last sentence was meant to exclude an entirely new agreement
between the parties in perpetuity.
Likewise, BOA’s argument that the Bailee Letters did not create a binding agreement
because they were not signed by BOA is unavailing. A countersignature on a bailee letter is not
required to form a contract. See, e.g., Goldman Sachs Mortg. Co., 2008 WL 1999522 (a bailee’s
failure to countersign a bailee letter does not make bailment unenforceable as a matter of law);
Fla. Stat. Ann. § 679.3131, comment 9; 4 White, Summers, & Hillman, supra § 31-8. Instead,
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acceptance can be conveyed through performance or implied from the circumstances. See 8A
Am. Jur. 2d Bailments § 38 (2012); 8 C.J.S. Bailments § 25 (2012) (“If the contract is in writing,
its enforceability is not affected by the fact that it is not signed[.]”). “A contract may be binding
on a party despite the absence of a party’s signature. The object of a signature is to show
mutuality or assent, but these facts may be shown in other ways, for example, by the acts or
conduct of the parties.” Gateway Cable T.V., Inc. v. Vikoa Constr. Corp., 253 So. 2d 461, 463
(Fla. Dist. Ct. App. 1971). Indeed, the Bailee Letters themselves provide that BOA became
“bound by the terms, provisions and conditions of the Bailee Letter” by its “acceptance of the
[Participated Mortgage Loans].” (Dkt. No. 36, Myles Decl., Ex. B at p. 2.).
Moreover, the cases cited by BOA do not support its motion. First, their applicability to
the present situation is limited because they do not involve the use of bailee letters in the
mortgage warehouse lending industry which, the FDIC correctly points out, receives special
statutory treatment because of the nature of the industry. See, e.g., Fla. Stat. Ann. § 679.3131(8),
n. 9 (noting that “[r]equiring [lenders] to obtain authenticated acknowledgments …would be
unduly burdensome and disruptive of established practices” in the warehouse lending industry).).
The cases are distinguishable in other ways as well. For example, BOA’s reliance on First
American is misplaced. First, importantly, First American was decided on summary judgment.
2011 WL 3737435 at *2. The decision is replete with references to the fact that there was “no
evidence” to support First American’s position that the agreement in question had been amended.
Id. at *4. Here, the FDIC is not required to produce such evidence in order to defeat BOA’s
motion to dismiss. Second, the question in First American was whether the existing contract
between the parties—the closing instructions—had been modified by a later agreement—the
funding letter. Id. Here, the FDIC maintains that the Bailee Letters represent new, independent
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contracts between Colonial and BOA that are separate and distinct from the Custodial
Agreement. As such, the First American court’s conclusion that the funding letter did not clearly
evidence the parties’ intent to modify the closing instructions is inapplicable to the present
situation. Likewise, Gulf Power Co. v. Coalsales II, LLC, 661 F. Supp. 2d 1270 (N.D. Fla. 2009)
and Newkirk Constr. Corp. v. Gulf Cnty., 366 So. 2d 813 (Fla. Dist. Ct. App. 1979) are
distinguishable on the same grounds.
BOA refers this Court to a Pennsylvania case for the proposition that a bailee letter
cannot supersede an existing agreement. (Dkt. No. 36 at 26-27 (citing Pioneer Commercial
Funding Corp. v. Am. Fin. Mortg. Corp., 579 Pa. 275 (Pa. 2004).). However, the Pioneer court
merely made a passing reference to this issue and specifically limited its finding to “the
circumstances presented” in that case. Pioneer, 579 Pa. at 296 (reversing and remanding for
entry of judgment notwithstanding a jury verdict in favor of bank). And again, the issue was
decided after the parties had the benefit of discovery. Id.
Therefore, construing the Counterclaims in the FDIC’s favor as this Court must do in
deciding BOA’s Rule 12(b)(6) Motion, this Court concludes that the FDIC has plausibly alleged
the existence of a new contract pursuant to the Bailee Letters. See Sierra Equity Grp., Inc. v.
White Oak Equity Partners, LLC, 650 F. Supp. 2d 1213, 1228 (S.D. Fla. 2009) (noting that
whether the contract was accepted is a question of fact that cannot be resolved on a motion to
dismiss).
b. Whether the Breach of Bailment Counterclaims State a Claim for Relief
Next, BOA argues that even if the Bailee Letters constitute valid, enforceable agreements
between the parties, the individual bailment Counterclaims fail to state a claim upon which relief
may be granted. BOA moves to dismiss Counts 6 and 7, alleging that the provisions of the Bailee
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Letters on which the FDIC bases these claims are inconsistent with the terms of the Custodial
Agreement, and therefore, unenforceable. This argument fails for the reasons discussed in the
previous section. BOA’s motion to dismiss Counts 6 and 7 is denied.
In Counts 8 and 9, the FDIC alleges that, under the terms of the Bailee Letters, BOA was
obligated to either remit to Colonial the proceeds for the sale of the Participated Mortgage Loans
or to return the Loans to Colonial within 45 days of the initiation of the bailment. (See Dkt. No.
25 at ¶¶ 107, 112, and 113.). The FDIC alleges that more than 45 days have passed since the
4,808 Participated Mortgage Loans were transferred to BOA, and BOA has not returned the
Loans, nor has it remitted the proceeds for the 4,808 Loans to Colonial, an amount that the FDIC
alleges is approximately $898,873,958. (Id. at ¶ 108.). The FDIC alleges that this failure
constitutes a breach of the bailment. (Id. at ¶ 109.).
In moving to dismiss Counts 8 and 9, BOA mischaracterizes the claims as a demand that
BOA “pay” the sale proceeds. (Dkt. No. 36 at 31-32.). It argues that neither the Custodial
Agreement nor the Bailee Letters require BOA to “pay” for the Loans. The FDIC makes no such
claim. To the contrary, the FDIC alleges that BOA breached the bailment by failing to either
“remit”, i.e., transmit, the sale proceeds to Colonial or return the Loans (with Colonial’s
ownership interest intact) within the 45 day timeframe. (Dkt. No. 25 at ¶ 108.). The FDIC alleges
that BOA’s failure to comply with this obligation under the Bailee Letters has damaged Colonial
in the amount of nearly $1 billion. These allegations are sufficient to state a claim for relief.
BOA also maintains that it returned the Loans to Colonial. (Dkt. No. 36 at 32-33.). This
argument borders on farcical. As the FDIC correctly maintains, BOA did not “return” the Loans
to Colonial in Colonial’s capacity as owner of the Loans, but sent them to Colonial’s Trust
Department in Colonial’s capacity as custodian for Freddie Mac. What is more, BOA returned
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“qualitatively different [L]oans,” that are now “owned by Freddie Mac.” (Dkt. No. 41 at 36; Dkt.
No. 25 at ¶ 38.). Again, the FDIC has alleged factual allegations that are sufficient to state a
claim for relief. Accordingly, BOA’s motion to dismiss Counts 8 and 9 is denied.
In Count 10, the FDIC alleges that BOA breached the bailment agreement by failing to
subordinate its alleged interest in the Participated Mortgage Loans to Colonial’s interest. (Dkt.
No. 25 at ¶¶ 118-120.). The FDIC alleges that, “based in part on the allegations of BOA’s
Amended Complaint, BOA has asserted alleged interest of its own which BOA claims to be
superior to, rather than subordinate to, Colonial’s interest in the Participated Mortgage Loans.”
(Id. at ¶ 119.). The FDIC asserts that by bringing these claims, BOA has breached the bailment.
(Id. at ¶ 120.).
BOA counters that it does not assert any interest in the Loans on its own behalf. (Dkt. No.
36 at 34.). Rather, it brings these claims in its representative capacity on behalf of Ocala, DB,
and BNP. (Id.). Contrary to BOA’s assertion, the record is not clear that BOA is not asserting
any interest of its own in the Loans. For instance, in its opposition to the FDIC’s motion to
dismiss the Amended Complaint, BOA argues that it seeks to recover for losses incurred by
Ocala, “including losses incurred by all investors in the Ocala facility and by BOA itself.” (Dkt.
No. 35 at 18) (emphasis in original). BOA states further that it “sought an administrative remedy
for Ocala and all parties with interests in Ocala assets, including Ocala’s investors and BOA
itself.” (Id.) (emphasis in original). In addition, the proofs of claim state “[t]he tax ID number
shown is for [BOA]. Many of the claims described in this proof of claim, however, are made by
[BOA] in its capacity as Trustee on behalf of the secured parties with respect to [Ocala Notes].”
(Dkt. No. 20 at Ex. A, n. 1.) (emphasis added). This statement indicates that at least some of the
claims in the proofs of claim were brought by BOA on behalf of its own purported interest in the
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Loans. Accordingly, the FDIC has stated a plausible claim that BOA breached the bailment by
failing to subordinate its interest in the Loans to that of Colonial. Count 10 will not be dismissed.
In Counts 11 and 12, the FDIC alleges that BOA exercised its alleged rights with respect
to the Participated Mortgage Loans without first receiving written authorization to do so from
Colonial and, instead, acted pursuant to instructions from TBW. (Dkt. No. 25 at ¶¶ 123-126 and
130-131.). The FDIC asserts that these actions breached the terms of the bailment. (Id. at ¶¶ 127
and 132.). BOA counters that the requirement to seek written authorization from Colonial before
acting and the prohibition from following TBW’s instructions are inconsistent with the terms of
the Custodial Agreement and therefore cannot be the basis for a claim for relief. This argument
fails for the reasons discussed above at Section IV.D.3.a. BOA’s motion to dismiss Counts 11
and 12 is denied.
4. Whether the Tort Counterclaims Fail As a Matter of Law
The final four Counterclaims against BOA sound in tort. The FDIC alleges that BOA
breached its duty of care as Colonial’s agent, as well as its fiduciary duties of care and loyalty to
Colonial, by pledging the Participated Mortgage Loans as collateral for the Ocala Notes and then
selling them to Freddie Mac without first ensuring that Colonial was paid. (See Dkt. No. 25 at ¶¶
135-137, 140-142, and 145-147.). The FDIC also asserts that BOA breached its duty of care
under a common law bailment by encumbering the loans and selling them to Freddie Mac. (Id. at
¶¶ 150-153.). BOA argues that these claims must be dismissed for two reasons: (1) the economic
loss doctrine bars the tort claims, and (2) the Custodial Agreement limits or precludes BOA’s tort
liability.
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a. Whether the Economic Loss Doctrine Bars the Tort Claims
“The economic loss rule is a judicially created doctrine that sets forth the circumstances
under which a tort action is prohibited if the only damages suffered are economic losses.” Indem.
Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 536 (Fla. 2004). One of the
circumstances in which the economic loss doctrine applies is “when the parties are in contractual
privity and one party seeks to recover damages in tort for matters arising out of the contract.” Id.The economic loss doctrine “is designed to prevent parties to a contract from circumventing the
allocation of losses set forth in the contract by bringing an action for economic loss in tort.” Id.Any recovery in tort “requires proof of facts that are distinct from breach of contract.” Invo Fla.,
Inc. v. Somerset Venturer, Inc., 751 So. 2d 1263, 1265 (Fla. Dist. Ct. App. 2000); accord
Electronic Sec. Sys. Corp. v. S. Bell Tel. and Tel. Co., 482 So. 2d 518, 519 (Fla. Dist. Ct. App.
1986).
BOA argues that the only loss asserted by the FDIC is the loss of the 4,808 Participated
Mortgage Loans, for which Colonial should have been paid a Takeout Amount of $898,873,958.
BOA maintains that because Colonial was entitled to this Takeout Amount only by virtue of the
written agreements between the parties, the alleged damages fall squarely within the definition of
economic losses barred by the economic loss rule. (See Dkt. No. 36 at 38-39.). The FDIC
counters that this argument is not ripe for review at this stage in the litigation because BOA has
moved to dismiss the FDIC’s breach of contract claims and Federal Rule of Civil Procedure
8(d)(3) expressly permits a party to plead claims in the alternative, even if the claims are
inconsistent. (See Dkt. No. 41 at 39.)
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The Court agrees. At this early stage of the litigation, the Court finds that the tort claims
are adequately pled and not barred by the economic loss doctrine. To the extent that discovery or
further case development show that the duties allegedly breached by BOA are in fact based on or
inextricably intertwined with valid written agreements between Colonial and BOA, the Court
will revisit the issue. Bd. of Trs. of the City of Lake Worth Emps.’ Ret. Sys. v. Merrill Lynch
Pierce Fenner & Smith, Inc., No. 3:10–cv–845–J–32MCR, 2011 WL 2144658 at *4 (M.D. Fla.
May 31, 2011); see also Scott v. District of Columbia, 101 F.3d 748, 753 (D.C. Cir. 1996)
(stating that plaintiff can properly plead alternative theories of liability, regardless of whether
such theories are inconsistent with one another); Robinson v. District of Columbia, 736 F. Supp.
2d 254, 262 (D.D.C. 2010) (“Federal Rule of Civil Procedure 8(d)(3) permits a plaintiff to plead
inconsistent claims in support of alternative theories of recovery…”).
b. Whether the Custodial Agreement Limits BOA’s Tort Liability
BOA’s final argument is that the Custodial Agreement precludes tort liability for BOA.
(See Dkt. No. 36 at 40.). As discussed supra, BOA contends that the Custodial Agreement
expressly limits BOA’s liability to breaches committed through “gross negligence or willful
misconduct.” (Id. citing the Custodial Agreement at ¶¶ 10A, 11.). BOA argues that the FDIC
seeks to do an “end-run” around this contractual limitation by alleging breaches of non-
contractual tort duties, none of which amount to gross negligence or willful misconduct. (Id.).
Therefore, BOA argues, the tort claims must be dismissed as a matter of law.
BOA’s argument fails for two reasons. First, as discussed in Section IV.D.1., supra, the
exculpatory clauses in the Custodial Agreement are simply too ambiguous to effectively limit
BOA’s liability. Second, the claims in Counterclaim 13 through Counterclaim 16 relate to the
bailment relationship created by the Bailee Letters, not the Custodial Agreement. As discussed in
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Section IV.D.3.a., supra, the FDIC has plausibly stated that the Bailee Letters created a new
agreement between Colonial and BOA that is independent of the Custodial Agreement.
Accordingly, BOA’s motion to dismiss Counterclaims 13 through 16 is denied.
V. CONCLUSION
A. As to the FDIC’s Rule 12(b)(1) Motion to Dismiss, the Court Finds and Rules as
Follows:
1. BOA did not oppose the portion of the FDIC’s Rule 12 (b)(1) Motion seeking
dismissal of the equitable relief claims (Counts II, IV, and VII) for lack of subject matter
jurisdiction. Accordingly, the Court treats this portion of the Motion as conceded and hereby
GRANTS it as to Counts II, IV and VII;
2. BOA failed to exhaust Ocala’s administrative remedies under FIRREA.
Accordingly, this Court lacks subject matter jurisdiction over any portion of the remaining
claims that seek relief on behalf of Ocala. Accordingly, the Court GRANTS the FDIC’s Rule
12(b)(1) Motion to the extent that the Amended Complaint states claims on behalf of Ocala;
3. BOA has standing under the Ocala Facility Documents to bring claims on behalf
of itself and Ocala’s investors. Accordingly, this Court has subject matter jurisdiction over the
remaining claims to the extent that BOA seeks relief on behalf of itself and on behalf of DB and
BNP. The Court DENIES the FDIC’s Rule 12(b)(1) Motion to the extent that it seeks to dismiss
such claims on grounds of lack of standing;
4. The proofs of claim alleged sufficient factual allegations to administratively
exhaust BOA’s claims for civil conspiracy and actual and constructive transfer. Accordingly, this
Court has subject matter jurisdiction over Counts IX, X, and XI and DENIES the FDIC’s Rule
12(b)(1) Motion as to these Counts;
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B. As to the FDIC’s Rule 12(b)(6) Motion to Dismiss, the Court Finds and Rules as
Follows:
1. BOA pled fraud (Count V) with the requisite specificity under Fed. R. Civ. P.
9(b). Accordingly, the FDIC’s Rule 12(b)(6) Motion is DENIED as to Count V;
2. BOA alleged sufficient facts to state a plausible claim for fraudulent transfer
(Counts IX and X). Accordingly, the FDIC’s Rule 12(b)(6) motion is DENIED as to Counts IX
and X;
C. As to BOA’s Rule 12(b)(6) Motion to Dismiss, the Court Finds and Rules as Follows:
1. The FDIC alleged facts sufficient to state claims for breach of the Custodial
Agreement (Counterclaims 1 – 2, and 4). These Counterclaims are not barred by the exculpatory
clauses contained in the Custodial Agreement and otherwise sufficiently allege claims for relief.
Accordingly, BOA’s Rule 12(b)(6) Motion is DENIED as to Counterclaims 1 – 2, and 4;
2. The FDIC failed to allege which statute BOA allegedly ran afoul of in
administering its obligations under the Custodial Agreement. As such, Counterclaim 3 fails to
state a claim upon which relief may be granted. Accordingly, BOA’s Rule 12(b)(6) Motion is
GRANTED as to Counterclaim 3;
3. The FDIC alleged facts sufficient to state claims for breach of bailment
(Counterclaims 6 – 12). Accordingly, BOA’s Rule 12(b)(6) Motion is DENIED as to
Counterclaims 6 – 12;
4. The FDIC alleged facts sufficient to state claims for tort liability against BOA
(Counterclaims 13 – 16). Neither the Economic Loss Doctrine nor the exculpatory clauses in the
Custodial Agreement bar such claims. Accordingly, BOA’s Rule 12(b)(6) Motion is DENIED as
to Counterclaims 13 – 16.
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An appropriate Order accompanies this Memorandum Opinion.
Dated this 10th day of December, 2012.
A
Barbara Jacobs Rothstein
U.S. District Court Judge
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