Oakwood v. State Bank and Trust , 481 F.3d 364 ( 2007 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 07a0108p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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VILLAGE OF OAKWOOD; BAUGHMAN TILE
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COMPANY; GENE A. BAUGHMAN; MARY ANN
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BAUGHMAN; GARY C. GRANT, Trustee; GARY C.
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No. 06-3117
GRANT INSURANCE AGENCY, INC.,
,
Plaintiffs-Appellants, >
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v.
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Defendant-Appellee, -
STATE BANK AND TRUST COMPANY,
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FEDERAL DEPOSIT INSURANCE CORPORATION, -
Intervenor-Appellee. -
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Appeal from the United States District Court
for the Northern District of Ohio.
No. 05-07173—James G. Carr, Chief District Judge.
Argued: October 25, 2006
Decided and Filed: March 22, 2007
Before: MARTIN and COOK, Circuit Judges; TARNOW, District Judge.*
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COUNSEL
ARGUED: John C. Deal, WINKLER & WINKLER, Columbus, Ohio, for Appellants. Stephen A.
Rothschild, SHUMAKER, LOOP & KENDRICK, Toledo, Ohio, Jaclyn C. Taner, FEDERAL
DEPOSIT INSURANCE CORP., Arlington, Virginia, for Appellees. ON BRIEF: John C. Deal,
WINKLER & WINKLER, Columbus, Ohio, for Appellants. Stephen A. Rothschild, James H.
O’Doherty, SHUMAKER, LOOP & KENDRICK, Toledo, Ohio, Jaclyn C. Taner, FEDERAL
DEPOSIT INSURANCE CORP., Arlington, Virginia, for Appellees.
*
The Honorable Arthur J. Tarnow, United States District Judge for the Eastern District of Michigan, sitting by
designation.
1
No. 06-3117 Village of Oakwood, et al. v. State Bank and Trust Co. Page 2
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OPINION
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COOK, Circuit Judge. This case requires us to decide whether intervention by the Federal
Deposit Insurance Corporation (FDIC) in a suit between nondiverse parties raising state law claims
can create federal jurisdiction, even though it had not been a party in state court prior to removal.
Holding that it cannot, we reverse.
I
The day after Oakwood Deposit Bank Company (Oakwood) was placed in federal
receivership, the FDIC, as receiver, entered into a purchase and assumption agreement for State
Bank and Trust (State Bank) to take over Oakwood’s insured deposits and some of its assets. Using
the best information available at the time, the FDIC set at four million dollars the premium State
Bank would pay for these assets (mostly loans) and liabilities (deposits). Two weeks later, the FDIC
returned half of the four million dollar premium to State Bank because it had overvalued some of
the assets transferred to State Bank. Further investigation of Oakwood’s records disclosed that
insured deposits were nearly sixty million dollars more than previously thought. These additional
deposits were liabilities of the receivership, not State Bank.
Village of Oakwood and a handful of individuals and businesses with deposits exceeding the
FDIC’s insurance limit, collectively the “uninsured depositors,” filed suit in an Ohio court. Though
the complaint alleged that the FDIC breached its fiduciary duty by not using the four million dollar
premium to cover their losses, it named State Bank, rather than the FDIC, as defendant and alleged
four Ohio causes of action: successor liability (State Bank being the successor of Oakwood), aiding
and abetting the FDIC’s breach of its fiduciary duty, equitable constructive trust, and “contract.”
The FDIC initially sought to intervene in the Ohio Court of Common Pleas, but then opted
to remove the case to federal court before the Ohio court ruled on its motion to intervene. When the
uninsured depositors responded with a motion to remand the case to the state court, the district court
granted it, then reversed that decision upon the request of the FDIC to reconsider. Having been
granted leave to intervene, the FDIC then moved for 1summary judgment, presumably on behalf of
State Bank, and the district court granted its motion. Village of Oakwood v. State Bank & Trust
Co., 410 F. Supp. 2d 670 (N.D. Ohio 2006). The uninsured depositors timely appealed.
II
We review de novo the existence of subject matter jurisdiction and the denial of a motion
to remand, Palkow v. CSX Transp., Inc., 431 F.3d 543, 548 (6th Cir. 2005), cognizant of our
continuing obligation to ensure that we have subject matter jurisdiction over the case under review,
see Louisville & Nashville R.R. v. Mottley, 211 U.S. 149 (1908); Capron v. Van Noorden, 6 U.S.
(2 Cranch) 126 (1804), even if the parties fail to properly present the issue. United Liberty Life Ins.
Co. v. Ryan, 985 F.2d 1320, 1325 (6th Cir. 1993). In the absence of jurisdiction, the court’s only
function is to announce the lack of jurisdiction and dismiss or remand the case. Steel Co. v. Citizens
for a Better Env’t, 523 U.S. 83, 94 (1998) (citing Ex parte McCardle, 74 U.S. (7 Wall.) 506, 514
(1869)). Because this requirement “springs from the nature and limits of the judicial power of the
United States, [it] is inflexible and without exception.” Id. at 94-95 (citing Mansfield, C. & L. M.
R. Co. v. Swan, 111 U.S. 379, 382 (1884)).
1
The FDIC also argued that the case should be dismissed for failure to join the FDIC as an indispensable party.
The district court did not address that argument, and none of the parties raise the issue on appeal.
No. 06-3117 Village of Oakwood, et al. v. State Bank and Trust Co. Page 3
We analyze the “statutory prerequisites for federal jurisdiction . . . claim by claim.” Exxon
Mobil Corp. v. Allapattah Servs., 545 U.S. 546, 125 S. Ct. 2611, 2618 (2005). Because the only
claims in this action arise under Ohio law between nondiverse parties, and none of them fall within
the original jurisdiction of the district court, the only conceivable basis for jurisdiction is the
presence of the FDIC. Both State Bank and the FDIC itself urge us to view FDIC’s intervention as
sufficient to confer jurisdiction over this case.
III
Intervention cannot, as a general rule, create jurisdiction where none exists. Intervention
“presuppose[s] an action duly brought”; it cannot “cure [the] vice in the original suit” and must
“abide the fate of that suit.” United States ex rel. Tex. Portland Cement Co. v. McCord, 233 U.S.
157, 163-64 (1914). As such, a court requires an already-existing suit within its jurisdiction as a
prerequisite to the “ancillary proceeding” of intervention. Horn v. Eltra Corp., 686 F.2d 439, 440
(6th Cir. 1982); see also Kelley v. Carr, 691 F.2d 800, 806 (6th Cir. 1980) (“[I]ntervention presumes
a valid lawsuit in a court of competent jurisdiction.”). See generally 7C Wright, Miller & Kane,
Federal Practice and Procedure § 1917 (3d ed. 1998). In the absence of jurisdiction over the existing
suit, a district court simply has no power to decide a motion to intervene; its only option is to
dismiss.
This uncontroversial procedural premise finds explicit support from nearly every other
circuit. See, e.g., Pianta v. H. M. Reich Co., 77 F.2d 888, 890 (2d Cir. 1935); Fuller v. Volk, 351
F.2d 323, 328 (3d Cir. 1965); Houston Gen. Ins. Co. v. Moore, 193 F.3d 838, 840 (4th Cir. 1999);
Arkoma Assocs. v. Carden, 904 F.2d 5, 7 (5th Cir. 1990); Hofheimer v. McIntee, 179 F.2d 789, 792
(7th Cir. 1950); Porter v. Knickrehm, 457 F.3d 794, 799-800 (8th Cir. 2006); Benavidez v. Eu, 34
F.3d 825, 829 (9th Cir. 1994); Nat’l Ass’n of State Util. Consumer Advocates v. FCC, 457 F.3d
1238, 1250 (11th Cir. 2006); Aeronautical Radio, Inc. v. FCC, 983 F.2d 275, 283 (D.C. Cir. 1993).
We have, however, recognized a narrow exception to this general rule. In a case where the
intervening party brings separate claims, and the district court has an independent basis to exercise
jurisdiction over those claims, that scenario calls for the district court to dismiss the original claims
in the action for lack of subject matter jurisdiction while retaining jurisdiction over the intervenor’s
claims only. Kelley, 691 F.2d at 806; Horn, 686 F.2d at 440-41; see also Montcalm Publ’g Corp.
v. Virginia, 199 F.3d 168, 172 n.* (4th Cir. 1999); GTE Cal. v. FCC, 39 F.3d 940, 947 (9th Cir.
1994). In Kelley, the Michigan Attorney General sued Carr for violating various securities laws, and
the Commodity Futures Trading Commission (CFTC) intervened as a plaintiff to enforce the Federal
Commodity Exchange Act against Carr. While the district court had no jurisdiction over Attorney
General Kelley’s claims against Carr (for reasons unimportant here), it had jurisdiction over the
CFTC’s claims against Carr. And though required to dismiss Kelley’s claims, the court recognized
the futility of dismissing the CFTC’s claims only “to require the parties to begin again merely to
arrive at the same place.” Kelley, 691 F.2d at 806.
IV
Against this general backdrop, the FDIC and State Bank claim that 12 U.S.C. § 1819(b)(2)
grants the federal courts jurisdiction over this case. Passed as part of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), § 1819(b)(2) deems suits to which the
FDIC is a party to arise under federal law and specifies how and when the FDIC may remove cases
to federal court. Section 1819(b)(2)(A) provides that “all suits of a civil nature at common law or
in equity to which the Corporation [FDIC], in any capacity, is a party shall be deemed to arise under
No. 06-3117 Village of Oakwood, et al. v. State Bank and Trust Co. Page 4
the laws of the United States.”2 Thus, if the FDIC is a party to an action within the meaning of
§ 1819, the district court has federal-question jurisdiction under 28 U.S.C. § 1331. Section
1819(b)(2)(B) allows the FDIC to “remove any action, suit, or proceeding from a State court to the
appropriate United States district court” where “the action, suit, or proceeding is filed against the
Corporation or the Corporation is substituted as a party.” This subsection tracks the language of
28 U.S.C. § 1441, which grants defendants the power to remove. It does not create jurisdiction, but
rather allows the FDIC to remove cases where the district court would have original jurisdiction,
typically under § 1331 and § 1819(b)(2)(A).
Under § 1819(b)(2), if a case or controversy includes any claim to which the FDIC is a party,
the district court has jurisdiction over the entire case or controversy. 28 U.S.C. § 1367(a). Even if
a claim arises under state law between a bank and nondiverse plaintiffs, the district court could still
exercise jurisdiction if the FDIC, in its capacity as receiver, is substituted as a party for that bank
under Fed. R. Civ. P. 25(c). The Eighth Circuit recently held that the FDIC’s substitution for a
failed bank “clearly establishes federal court jurisdiction.” Phipps v. FDIC, 417 F.3d 1006, 1009
n.2 (8th Cir. 2005); see also Buczkowski v. FDIC, 415 F.3d 594, 596 (7th Cir. 2005) (explaining
removal jurisdiction in the context of Rule 25). In Phipps, the failed bank’s interest had been
transferred to its receiver (the FDIC), transforming the plaintiffs’ claim to one against the FDIC,
giving the court jurisdiction under § 1819(b)(2)(A) and § 1331, and allowing the FDIC to remove
under § 1819(b)(2)(B). Phipps exemplifies, in our view, how Congress intended § 1819(b)(2) to
operate.
We thus read § 1819(b)(2) in harmony with the longstanding rule that intervention requires
an existing claim within the court’s jurisdiction and hold that the FDIC’s intervention cannot create
jurisdiction where none existed. We recognize that our holding directly conflicts with the Fifth
Circuit’s holding that “the FDIC’s attempt to intervene conferred on it sufficient ‘party’ status to
bring this case within the federal court’s jurisdiction under § 1819(b)(2)(A).” Heaton v. Monogram
Credit Card Bank, 297 F.3d 416, 426 (5th Cir. 2002). The Fifth Circuit failed to explain why
§ 1819(b)(2)(A) changes the rule against intervention creating jurisdiction, other than to note that
it chose to decide intervention before subject matter jurisdiction because the “the issue of the
propriety of intervention [was] intertwined with that of subject matter jurisdiction.” Id. at 421 n.3.
Heaton errs by putting the intervention cart before the jurisdiction horse, and we decline to adopt
its reasoning.3
2
“Corporation” refers to the FDIC. “In any capacity” modifies “Corporation” and refers to whether the FDIC
is acting in its capacity as receiver or insurer. Contra FDIC v. Loyd, 955 F.2d 316, 326 n.10 (5th Cir. 1992) (“However,
the FDIC as a party ‘in any capacity,’ 12 U.S.C. § 1819, enjoys the right to remove.”).
3
We note, notwithstanding our holding, that there may be an instance in which the FDIC, recognizing that it
has a substantial interest in the litigation, wishes to intervene in a state court proceeding between nondiverse parties, but
the state court denies its motion to intervene. In such a case, the FDIC—despite its status as a federal institution, and
despite the threat to its interests—would not be able to protect those interests because a state court has refused to crown
the FDIC with the requisite “party” status, thus preventing removal to federal court.
We acknowledge that “party” has an ordinary meaning, but we note that a federal court might adopt its own
view of what constitutes a “party” for purposes of § 1819(b)(2). The Supreme Court has warned us, however, to avoid
supplanting state rules unless there is a significant conflict with or threat to a federal interest. See, e.g., Atherton v.
FDIC, 519 U.S. 213, 225 (1997); United States v. Kimbell Foods, Inc., 440 U.S. 715, 730 (1979); Wallis v. Pan Am.
Petroleum Corp., 384 U.S. 63, 68 (1966). Although we realize that such a case would be a rare occurrence, if the FDIC
could demonstrate that a state court’s denial of its motion to intervene would “significant[ly] conflict with, or threat[en]”
its interests, Atherton, 519 U.S. at 225, we leave open the possibility that a federal court could determine that the FDIC
is a party under § 1819(b)(2).
This case, however, presents no such threat given that the FDIC removed to a federal court before the state court
had an opportunity to act on the FDIC’s motion to intervene.
No. 06-3117 Village of Oakwood, et al. v. State Bank and Trust Co. Page 5
V
The only claims in this action arise under Ohio law between Ohio uninsured depositors and
an Ohio bank. While this might be a different case if State Bank had impleaded the FDIC as a third-
party defendant, we are constrained to decide only the case before us. Although the FDIC urges us
to read Kelley as supporting jurisdiction under § 1819(b)(2)(A), we view the narrow exception
announced in Kelley as inapplicable. The FDIC has not asserted any claims against a party, nor has
any party asserted claims against the FDIC. Absent the uninsured depositors’ claims against State
Bank, there is simply nothing left for us to adjudicate.
We note finally our skepticism that the uninsured depositors’ claims can survive FIRREA’s
bar against courts adjudicating “any claim relating to any act or omission of . . . the Corporation as
receiver.” 12 U.S.C. § 1821(d)(13)(D)(ii). Nevertheless, having announced that we are without
jurisdiction, our only remaining task is to reverse the district court and instruct it to remand this case
to the Ohio Court of Common Pleas.