SunSouth Bank v. First NBC Bank

Case: 16-12380 Date Filed: 01/30/2017 Page: 1 of 7
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 16-12380
Non-Argument Calendar
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D.C. Docket No. 1:13-cv-00379-WKW-TFM
SUNSOUTH BANK,
Plaintiff-Appellant,
versus
FIRST NBC BANK,
HCB FINANCIAL CORP,
Defendants-Appellees.
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Appeal from the United States District Court
for the Middle District of Alabama
________________________
(January 30, 2017)
Before ED CARNES, Chief Judge, MARTIN and ANDERSON, Circuit Judges.
PER CURIAM:
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SunSouth Bank filed a lawsuit against First NBC Bank and HCB Financial
Corporation, alleging that they breached a contract that SunSouth had signed with
a bank that was their predecessor in interest. The district court found that it lacked
jurisdiction because SunSouth had failed to exhaust its administrative remedies and
dismissed the case. SunSouth now appeals.
I.
This case involves three loans from Central Progressive Bank to Mississippi
Investors VI, LLC. We will refer to the first as “Loan 1.” That loan was secured
by certain property in Mississippi that Mississippi Investors owned. However,
Central Progressive’s security interest in the collateral property was subordinate to
a security interest held by another company called Double A Firewood, Inc. We
will refer to the other two loans as “Loans 2 and 3.” Those loans were secured by
property known as “Villages D and E”; no security interest in that property was
superior to Central Progressive’s interest.
SunSouth’s claims stem from a Participation Agreement through which it
purchased an interest in Loans 2 and 3. Under the Agreement, SunSouth would
receive a pro rata share of all principal and interest payments, and it would be
repaid first if Mississippi Investors defaulted or Central Progressive foreclosed on
Villages D and E. The Agreement provided that it was governed by the law of the
state where Central Progressive was located, which was Louisiana.
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Mississippi Investors ultimately defaulted on all three loans, as well as its
loan from Double A Firewood. Because Double A Firewood had the superior
interest in the property securing Loan 1, if it foreclosed on that property Central
Progressive’s interest would be extinguished. Responding to that possibility,
Central Progressive planned to purchase Double A Firewood’s loan before the
foreclosure sale. But Central Progressive wanted help financing the purchase, so it
gave SunSouth an ultimatum: if SunSouth did not help fund the purchase of the
loan, SunSouth’s rights in the original Participation Agreement would be
“terminated.” SunSouth refused to contribute, and Central Progressive purchased
the Double A Firewood loan by itself. The property securing all three loans was
then auctioned off at a foreclosure sale. 1 Central Progressive was the sole bidder
and ended up owning all of the underlying property in addition to the loans.
In the wake of those events, SunSouth and Central Progressive spent months
disputing Central Progressive’s obligations under the Participation Agreement.
Before the dispute could be resolved, however, Central Progressive failed and the
FDIC was appointed its receiver. As receiver the FDIC completed a Purchase and
Assumption Agreement (P&A Agreement) with First NBC; that Agreement
transferred all of Central Progressive’s assets to First NBC. According to
1
SunSouth claims that the foreclosure sale had nothing to do the Participation
Agreement. But the foreclosure sale’s Trustee Deed expressly conveys “Villages D and E,”
which were the collateral for the loans implicated in the Participation Agreement (Loans 2 and
3), in addition to conveying the property securing Loan 1.
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SunSouth’s complaint, First NBC was able to resell the collateral for Loans 2 and
3, but First NBC refused to pass on any of the proceeds of the sales to SunSouth
despite SunSouth’s participation interest in the loans. First NBC then assigned its
rights in Loans 2 and 3 to HCB.
SunSouth brought this lawsuit against First NBC and HCB, alleging that
they owed it a portion of the funds that First NBC had collected because they were
bound by the Participation Agreement between SunSouth and Central Progressive.
The district court dismissed the case, finding that it lacked jurisdiction under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 because
SunSouth had not exhausted its administrative remedies.
II.
SunSouth contends that the Act’s administrative exhaustion requirement
does not apply to its breach of contract claims against First NBC and HCB. We
review de novo a district court’s dismissal for failure to exhaust administrative
remedies under the Act. Damiano v. FDIC, 104 F.3d 328, 332 (11th Cir. 1997).
The Act provides that “no court shall have jurisdiction over . . . [a]ny claim
relating to any act or omission of” a failed bank for which the FDIC has been
appointed receiver. 12 U.S.C. § 1821(d)(13)(D); Am. First Fed., Inc. v. Lake
Forest Park, Inc., 198 F.3d 1259, 1263 (11th Cir. 1999). However, the courts have
jurisdiction to review a plaintiff’s case after it has exhausted its administrative
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remedies under the Act. Id. (citing 12 U.S.C. § 1821(d)(6)). The applicability of
§ 1821(d)(13)(D)’s exhaustion requirement turns on “the actor responsible for the
alleged wrongdoing” — it does not depend on which party the plaintiff happened
to bring the case against. Westberg v. FDIC, 741 F.3d 1301, 1306 (D.C. Cir.
2014). Put another way, “[w]here a claim is functionally, albeit not formally,
against a depository institution for which the FDIC is a receiver, it is a ‘claim’
within the meaning of [the Act’s] administrative claims process,” so the exhaustion
requirement applies. Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1144 (D.C. Cir.
2011).
SunSouth argues that this case is distinguishable from Westberg, in which
the D.C. Circuit held that the exhaustion requirement applied, 741 F.3d at 1307–
08, and is similar to American National Insurance, in which the D.C. Circuit held
that the requirement did not apply, 642 F.3d at 1144–45. But putting aside any
factual difference or similarities, both of those cases stand for the same
proposition: plaintiffs cannot circumvent the exhaustion requirement by
strategically selecting defendants. Westberg, 741 F.3d at 1306; Am. Nat’l Ins.,
642 F.3d at 1144.
In that respect, we find the Eighth Circuit’s decision in Tri-State Hotels, Inc.
v. FDIC, 79 F.3d 707 (8th Cir. 1996), to be instructive. In that case the plaintiff
contended that the FDIC had not honored preexisting loan obligations and had not
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remedied breaches of contract by two failed banks. Id. at 713. The court held that
the exhaustion requirement applied because “the genesis of [the plaintiff’s] claim is
the prereceivership misconduct by the failed banks.” Id. at 713–14. It recognized
that permitting plaintiffs to recast breach of contract claims against a failed bank as
failure to cure claims against the successors in interest — as the Tri-State Hotels
plaintiff tried to do — would allow strategic plaintiffs to avoid the exhaustion
requirement at will. Id. at 713 n.9. Widespread circumvention of the requirement
would, in turn, undermine the purpose of the Act’s administrative process, which is
to “dispose of the bulk of claims against failed financial institutions expeditiously
and fairly.” Id. (quoting H.R. Rep. No. 101–54(I) at 419–20 (1989)).
Likewise, in this case the genesis of SunSouth’s claims is the alleged
prereceivership misconduct by the failed bank. SunSouth’s claims arose when
Central Progressive informed SunSouth that Central Progressive would no longer
honor the Participation Agreement because SunSouth refused to help purchase the
Double A Firewood loan. Under Louisiana law Central Progressive’s statement
was an “anticipatory breach” that provided SunSouth with an immediate cause of
action for breach of contract.2 B & G Crane Serv., Inc. v. Aetna Cas. & Sur. Co.,
586 So. 2d 710, 712 (Ct. App. La. 1991). Allowing SunSouth to circumvent the
exhaustion requirement by claiming that First NBC and HCB failed to cure Central
2
In addition, Central Progressive’s failure to pay out any portion of the loans’ collateral’s
sale price at the foreclosure sale likely breached the Participation Agreement.
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Progressive’s breach would defeat the purpose of the requirement. See Tri-State
Hotels, 79 F.3d at 713 n.9. We decline SunSouth’s invitation to do that.
As the district court found, the actor responsible for the alleged wrongdoing
was Central Progressive. As such, SunSouth’s claims are “claim[s] relating to
an[ ] act or omission” by a failed bank for which the FDIC was appointed receiver,
and the claims are subject to administrative exhaustion. See 12 U.S.C.
§ 1821(d)(13)(D)(ii). We affirm the district court’s finding that it lacked
jurisdiction. 3
AFFIRMED.
3
SunSouth also contends that the FDIC’s actions violated the Due Process and Takings
Clauses. First NBC and HCB are not subject to the Fifth Amendment because that Amendment
only applies to “governmental actors.” See S.F. Arts & Athletics, Inc. v. U.S. Olympic
Committee, 483 U.S. 522, 542–46, 107 S. Ct. 2971, 2984–86 (1987). And even assuming that a
private party could assume liability for constitutional violations by a governmental predecessor
in interest, the P&A Agreement contained no assumption of constitutional liability.
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