Seaway Bank & Trust Company v. J&A Series I, LLC ( 2020 )


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  •                                 In the
    United States Court of Appeals
    For the Seventh Circuit
    Nos. 19-2268 & 19-2425
    SEAWAY BANK & TRUST COMPANY,
    Plaintiff-Appellee,
    v.
    J&A SERIES I, LLC, SERIES C, et al.,
    Defendants-Appellants.
    Appeals from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    No. 1:17-cv-07213 — Charles R. Norgle, Judge.
    ARGUED DECEMBER 6, 2019 — DECIDED JUNE 18, 2020
    Before ROVNER, BRENNAN, and ST. EVE, Circuit Judges.
    ROVNER, Circuit Judge. J&A Series I, LLC, Series C (“J&A
    Series”), J&A Investment Group, LLC (“J&A Investment”), and
    Adam Ackerman (collectively “J&A Parties”) appeal from the
    district court’s dismissal of the petition they filed under 735
    ILCS 5/2-1401. We affirm.
    2                                               Nos. 19-2268 & 19-2425
    I.
    In October of 2012, Seaway Bank & Trust Co. (“Seaway”)
    filed an action in the Circuit Court of Cook County against the
    J&A Parties and others to collect on two loans issued by its
    predecessor in interest. The debts were guaranteed by
    Ackerman and secured by a mortgage on a Chicago property.
    In August of 2013, the court entered a judgment of foreclosure.
    By early 2014, the court had approved the sale of the mort-
    gaged property and entered a deficiency judgment against
    Ackerman in the amount of $116,381.
    In January of 2017, the Illinois Department of Financial and
    Professional Regulation, Division of Banking, closed Seaway.
    The Federal Deposit Insurance Corporation (“FDIC”) was
    appointed as receiver and set a claims bar date of May 3, 2017.
    Although the FDIC published notice of the bar date, the J&A
    Parties filed no timely claims with the FDIC. Instead, several
    months after the bar date, on September 8, 2017, the J&A
    Parties filed a Petition to Quash Service (“Petition”) against the
    FDIC in the state-court lawsuit that Seaway had filed in 2012.
    The Petition, which was filed pursuant to section 2-1401 of the
    Illinois Code of Civil Procedure, asserted that Seaway’s 2012
    service of process had been defective in several ways.1 The J&A
    1
    The J&A Parties asserted that: (1) the summonses did not name J&A
    Investment or Ackerman; (2) the summonses spelled J&A Series’ name with
    an Arabic numeral “1" instead of a Roman numeral “I;” (3) service of
    process on J&A Series should have been made upon the Illinois Secretary
    of State instead of the registered agent because the limited liability company
    had been dissolved; and (4) the affidavit of service did not contain the full
    name of J&A Series. These purported defects are not relevant to the
    (continued...)
    Nos. 19-2268 & 19-2425                                               3
    Parties requested that: (1) the state court quash service of
    process as to the J&A Parties; (2) vacate as void all orders that
    had been entered against them; (3) find that lack of personal
    jurisdiction over the J&A Parties was apparent on the face of
    the record; and (4) award any further relief that the court
    deemed just. Although they did not expressly seek return of
    the property, they argued below that, once the relief sought in
    the Petition was granted, they were entitled to restitution in the
    form of the return of the title and possession of the property
    from the current title holder.2 The FDIC, which had been
    named as a party in the Petition, removed the proceeding to
    the District Court in the Northern District of Illinois. See 12
    U.S.C. § 1819(b)(2)(B) (providing for removal from a state court
    to the appropriate federal district court of any action, suit, or
    proceeding filed against the FDIC); 28 U.S.C. § 1441 (providing
    for removal of civil actions).
    The FDIC then sent to each of the J&A Parties a “Notice to
    Discovered Claimant to Present Proof of Claim” (“Notice”).
    Contemporaneously, the FDIC moved in the district court to
    stay the proceedings in order to allow the J&A Parties to
    exhaust the mandatory claims process required by the Finan-
    cial Institutions Reform, Recovery, and Enforcement Act of
    1989 (“FIRREA”). See 12 U.S.C. § 1821(d), subsections (3)
    through (13) (setting forth the authority of the FDIC as receiver
    to determine claims and the procedures for doing so). The
    1
    (...continued)
    resolution of this appeal.
    2
    After the foreclosure, the property was sold to a third party.
    4                                            Nos. 19-2268 & 19-2425
    Notices advised the recipients that, because the claims bar date
    had passed, they were required to submit a proof of claim, and
    also prove to the FDIC’s satisfaction that the late-filed claim
    exception applied. The court granted the stay but the J&A
    Parties did not submit any claims to the FDIC by the Novem-
    ber 2018 submission deadline set in the Notices.3
    The FDIC then moved to dismiss the proceeding on the
    ground that the J&A Parties failed to exhaust the mandatory
    FIRREA claims process, and therefore the district court lacked
    subject matter jurisdiction over the action. See
    12 U.S.C. § 1821(d)(13)(D). The J&A Parties opposed the
    motion, arguing that it was unripe for adjudication and that it
    sought improper relief. Specifically, the J&A Parties asserted
    that FIRREA’s jurisdiction-stripping provision applied only to
    claims seeking payment from a failed bank, and that the J&A
    Parties’ Petition did not seek payment. Rather, it sought to
    quash service and vacate void orders from the original litiga-
    tion. Only if the court granted that non-monetary relief, the
    J&A Parties argued, could they then pursue restitution in the
    form of “possessory relief,” or the return of their property.
    They would seek monetary relief only if the property could not
    be restored to them, they contended. In essence, the J&A
    Parties contended that the FDIC’s motion was not ripe for
    adjudication because they were not yet seeking the return of
    the property or monetary relief, but also that they were
    automatically entitled to the return of their property or
    monetary relief should their Petition be granted.
    3
    The three Notices were sent in late August and early September 2018, and
    listed submission deadline dates in late November 2018.
    Nos. 19-2268 & 19-2425                                          5
    In reply, the FDIC pointed out that section 1821(d)(13)(D)
    is not limited to claims for monetary relief, but bars courts
    from reviewing “any claim or any action seeking a determina-
    tion of rights with respect to the assets of any depository
    institution for which the FDIC-R has been appointed receiver,”
    as well as “any claim relating to any act or omission of such
    institution or the Corporation as receiver.” All such claims, the
    FDIC argued, are first subject to the mandatory administrative
    claims process. The district court granted the FDIC’s motion,
    finding that it lacked subject matter jurisdiction over the
    section 2-1401 Petition because the J&A Parties had failed to
    exhaust administrative remedies. The J&A Parties appeal.
    II.
    On appeal, the J&A Parties challenge the district court’s
    conclusion that it lacked jurisdiction over the section 2-1401
    Petition. We review de novo the district court’s order dismissing
    the J&A Parties’ Petition for lack of subject matter jurisdiction.
    Miller v. F.D.I.C., 
    738 F.3d 836
    , 840 (7th Cir. 2013). We may
    affirm a dismissal for lack of subject matter jurisdiction on any
    ground supported by the record. Kowalski v. Boliker, 
    893 F.3d 987
    , 994 (7th Cir. 2018). FIRREA, which was enacted in
    response to the savings and loan crisis of the 1980s, facilitates
    the expeditious and efficient resolution of claims against failed
    banks. 
    Miller, 738 F.3d at 840
    .
    To achieve this purpose, FIRREA allows, and
    in certain situations requires, the FDIC to
    take over failed banks and empowers it as
    receiver to allow or disallow claims asserted
    against them. … To ensure that claims are
    6                                        Nos. 19-2268 & 19-2425
    resolved quickly and efficiently, FIRREA
    establishes strict administrative prerequisites
    and deadlines that claimants must follow to
    lodge their claims and challenge any denials.
    … FIRREA bars claimants from taking claims
    directly to court without first going through
    an administrative determination.
    
    Miller, 738 F.3d at 840
    (citations and quotation marks omitted).
    The J&A Parties contend that they were not properly served
    with process in the underlying foreclosure action in the Circuit
    Court of Cook County. As a result, they continue, the Circuit
    Court lacked personal jurisdiction over them, and so all orders
    entered in that action are void. The Petition asked only that the
    court quash service, void the orders, and declare that the lack
    of personal jurisdiction was apparent from the face of the
    record. The J&A Parties assert that, because the Petition did not
    seek financial restitution and asserted no claim for monetary
    relief from the FDIC, the jurisdiction-stripping provisions of
    section 1821(d)(13)(D) were not implicated, and the Petition
    should not have been dismissed.
    In the district court, the FDIC argued for dismissal under
    either subsection (i) or (ii) of 1821(d)(13)(D). The district court
    focused largely on subsection (i) because of the J&A Parties’
    argument that they were not seeking monetary relief. The
    FDIC now asks us to focus on subsection (ii). Section
    1821(d)(13)(D) provides, in its entirety:
    Limitation on judicial review
    Nos. 19-2268 & 19-2425                                                     7
    Except as otherwise provided in this subsec-
    tion, no court shall have jurisdiction over–
    (i) any claim or action for payment from, or
    any action seeking a determination of rights
    with respect to, the assets of any depository
    institution for which the Corporation has
    been appointed receiver, including assets
    which the Corporation may acquire from
    itself as such receiver; or
    (ii) any claim relating to any act or omission
    of such institution or the Corporation as
    receiver.
    12 U.S.C. § 1821(d)(13)(D).4 To the extent that subsection (i) is
    limited to claims for payment (an issue we need not address
    here), subsection (ii) is not so constrained. Under the facts
    presented here, we find subsection (ii) to be the better fit for
    addressing the relief sought in the Petition.
    Under subsection (ii), “[c]ourts lack authority to review
    FIRREA claims ‘relating to any act or omission’ of a failed bank
    or of the FDIC as receiver of a failed bank unless they are first
    subjected to FIRREA's administrative claims process.” Farnik
    v. F.D.I.C., 
    707 F.3d 717
    , 722 (7th Cir. 2013). That is precisely the
    nature of the J&A Parties’ claim here. Under Illinois law, “a
    plaintiff has a nondelegable duty to (1) assure the clerk issued
    4
    The “[e]xcept as otherwise provided” clause refers back to section
    1821(d)(6). That section allows claimants to seek judicial review of their
    claims after first exhausting the administrative process. 
    Miller, 738 F.3d at 844
    –45; Westberg v. F.D.I.C., 
    741 F.3d 1301
    , 1303 (D.C. Cir. 2014).
    8                                               Nos. 19-2268 & 19-2425
    the summons, (2) deliver the summons to the process server
    for service, and (3) see the process server made a prompt and
    proper return.” Smith v. Menold Constr., Inc., 
    811 N.E.2d 357
    ,
    362 (Ill. App. Ct. 2004). See also John Isfan Constr., Inc. v.
    Longwood Towers, LLC, 
    52 N.E.3d 510
    , 517–18 (Ill. App. Ct. 2016)
    (when a limited liability company has been dissolved, “a
    plaintiff is required to serve process upon the Secretary of
    State, and it must also serve copies at the company's last
    registered office as well as the address that the plaintiff
    believes is most likely to result in actual notice. 805 ILCS
    180/1–50(c)”). The J&A Parties asserted in their Petition that
    Seaway, the failed bank for which FDIC serves as receiver,
    failed to fulfill its duties with respect to service of process in
    the foreclosure action. See note 
    1, supra
    . That failure, in turn,
    resulted in the entry of void orders, they contend, orders that
    wrongfully deprived them of their property. Because the J&A
    Parties’ claims relate to an act or omission of the failed bank,
    they were required to exhaust the FIRREA administrative
    claims process. Because they did not do so within the time
    permitted, the court lacked authority to consider their claims.
    In response to this direct application of the statute, the J&A
    Parties contend that subsection (ii) is not implicated because it
    applies only to “claims” and they assert that their Petition does
    not present a “claim.”5 They relatedly argue that a “claim” in
    5
    The J&A Parties concede that section 2-1401 petitions “are essentially
    complaints inviting responsive pleadings.” People v. Vincent, 
    871 N.E.2d 17
    ,
    23 (Ill. 2007). Section 2–1401 authorizes a trial court to vacate or modify a
    final order or judgment in civil and criminal proceedings. People v. Daniels,
    
    83 N.E.3d 4
    , 7 (Ill. App. Ct. 2017). “A proceeding under section 2–1401
    (continued...)
    Nos. 19-2268 & 19-2425                                                   9
    the context of the statute must be limited to demands for
    monetary relief, an assertion contradicted by the broad
    language of the statute, as we have already noted. And they
    revive their argument that dismissal was premature because
    their ultimate claim for restitution in the form of possessory
    relief will not ripen unless and until a court quashes service
    and declares the orders in the underlying litigation void.
    The statute does not define the word “claim,” but several
    courts have addressed the meaning of that term. As used in
    FIRREA, the word “claim” is “a term-of-art that refers only to
    claims that are resolvable through the FIRREA administrative
    process.” Willner v. Dimon, 
    849 F.3d 93
    , 106 (4th Cir. 2017)
    (quoting American Nat’l Ins. Co. v. F.D.I.C., 
    642 F.3d 1137
    , 1142
    (D.C. Cir. 2011)). See also Hudson United Bank v. Chase
    Manhattan Bank of Conn., N.A., 
    43 F.3d 843
    , 848–49 (3d Cir.
    1994) (“Logic dictates that the claims barred by paragraph
    (13)(D) must coincide with those that may be filed under the
    administrative procedures of paragraph (5).”). Moreover,
    claims under subsection (ii) are not limited to monetary relief
    but may include declaratory or other relief. See 
    Westberg, 741 F.3d at 1305
    n.1. See also 
    Willner, 849 F.3d at 107
    (collecting
    cases).
    The J&A Parties contend that their claims seeking to quash
    service and vacate as void all orders entered against them are
    not resolvable in the FIRREA administrative process because
    5
    (...continued)
    constitutes an independent and separate action from the original action[.]”
    Warren County Soil & Water Conservation Dist. v. Walters, 
    32 N.E.3d 1099
    ,
    1105 (Ill. 2015).
    10                                       Nos. 19-2268 & 19-2425
    only an Illinois court may void the orders. But the J&A Parties
    make clear that their ultimate goal is not simply to void state
    court orders; rather, they argue that once service is quashed
    and the orders voided, they are automatically entitled to
    restitution. In opposing the motion to dismiss filed by the FDIC
    below, the J&A Parties insisted that they were entitled to
    restitution in the form of possessory relief once the court
    granted the Petition:
    Restitution is the right of an aggrieved party.
    Ordering restitution is the obligation of a court
    responsible for an erroneous judgment. As
    such, if this Court should gran Petitioners’
    petition to quash and vacate the void orders
    against them, then it must order restitution.
    … Here, the subject property must be re-
    stored to Petitioners to achieve a return to the
    status quo ante.
    R.16, at 6–7 (emphasis in original). In fact, they sought a
    declaration that the lack of personal jurisdiction was apparent
    from the face of the record because section 2-1401(e) protects
    bona fide third-party purchasers of real property from chal-
    lenges to their rights under section 2-1401(f) unless the lack of
    jurisdiction was apparent on the face of the record. See 735
    ILCS 5/2-1401(e)-(f). This makes clear the nature of the relief
    that the J&A Parties were seeking. The J&A Parties further
    argued that they would not be entitled to monetary relief
    unless the property could not be restored to them, at which
    point the proceeds from the sale of the property would be the
    appropriate relief. All of this demonstrates that the goal of the
    Petition was not simply to quash service or void orders in the
    Nos. 19-2268 & 19-2425                                         11
    abstract; the J&A Parties wanted their property back in the
    form of possession or financial compensation. Critically, they
    contended that they were entitled to that relief because of an
    “act or omission” of the failed bank for which the FDIC serves
    as receiver. 
    Farnik, 707 F.3d at 722
    .
    Moreover, contrary to their assertion, the relief that the J&A
    Parties seek is within the power of the FDIC to provide
    through the mandatory administrative claims process and
    therefore meets the definition of a claim. The FDIC notes that
    it could have allowed an unsecured claim, for example, in the
    amount of the value of the property. The FDIC could also have
    entered into an agreed order to vacate the original judgment.
    If the J&A Parties had timely made this claim for the return of
    the property and the FDIC had disallowed it or offered
    inadequate relief, the J&A Parties would have been entitled
    under the statute to bring the matter to the district court for de
    novo review. 
    Farnik, 707 F.3d at 721
    ; 12 U.S.C. § 1821(d)(6)(A).
    By attempting to bypass the mandatory claims process
    altogether, the J&A Parties waived any argument that the FDIC
    could not provide adequate relief. 
    Willner, 849 F.3d at 109
    (by
    not timely submitting a claim to the FIRREA claims process,
    claimants waived their argument about how the FDIC would
    have resolved it); 
    Westberg, 741 F.3d at 1308
    n.3 (claimants may
    not circumvent FIRREA’s exhaustion requirement by declining
    to pursue the remedies available to them and later arguing that
    such remedies are ineffective).
    In their quest for restitution, the J&A Parties sought to
    avoid the mandatory administrative claims process through
    artful pleading. See 
    Farnik, 707 F.3d at 722
    –23 (in applying
    section 1821(d)(13)(D)(ii), the court focuses “on the substance
    12                                      Nos. 19-2268 & 19-2425
    of a claim rather than its form”). But “[l]itigants cannot avoid
    FIRREA’s administrative requirements through strategic
    pleading.” Benson v. JPMorgan Chase Bank, N.A., 
    673 F.3d 1207
    ,
    1209 (9th Cir. 2012). Because the FDIC, through the administra-
    tive claims process, had the power to remedy the wrong that
    the J&A Parties claim to have suffered, the district court
    correctly concluded that it was without jurisdiction to entertain
    the Petition.
    Before we conclude, we must address one final issue. After
    stating in its briefs that the district court had jurisdiction to
    resolve this matter, the J&A Parties asserted for the first time
    at oral argument that the district court lacked jurisdiction over
    the matter under the Rooker-Feldman doctrine, and that remand
    to the state court was appropriate. See Rooker v. Fidelity Trust
    Co., 
    263 U.S. 413
    (1923); District of Columbia Court of Appeals v.
    Feldman, 
    460 U.S. 462
    (1983). Because the Rooker-Feldman bar is
    jurisdictional, this objection may not be waived. Lennon v. City
    of Carmel, Ind., 
    865 F.3d 503
    , 506 (7th Cir. 2017).
    Recall that the FDIC removed the case to the district court
    under 12 U.S.C. § 1819(b)(2)(B), which allows removal to
    federal court of any suit (with an exception that does not apply
    here) filed against the FDIC. Section 1819(b)(2)(A) provides
    (with the same inapplicable exception) that “all suits of a civil
    nature at common law or in equity to which the [FDIC], in any
    capacity, is a party shall be deemed to arise under the laws of
    the United States.” See also F.D.I.C. v. RLI Ins. Co., 
    784 F.3d 1104
    , 1108 (7th Cir. 2015) (noting that the “district court had
    subject-matter jurisdiction over the suit under 12 U.S.C.
    § 1819(b)(2)(A), which provides that civil suits to which FDIC
    is a party arise under the laws of the United States”);
    Nos. 19-2268 & 19-2425                                         13
    Buczkowski v. F.D.I.C., 
    415 F.3d 594
    , 595 (7th Cir. 2005) (noting
    that, with certain exceptions, all suits against the FDIC in any
    of its capacities “shall be deemed to arise under the laws of the
    United States” and hence may be removed under 28 U.S.C.
    § 1441(b)). See also 28 U.S.C. § 1331 (“The district courts shall
    have original jurisdiction of all civil actions arising under the
    Constitution, laws, or treaties of the United States.”). The
    district court was thus well within its authority to determine
    whether exhaustion under FIRREA’s administrative claims
    process was required. Having concluded that it was, and
    having determined that the J&A Parties failed timely to
    exhaust their claims, dismissal for lack of subject-matter
    jurisdiction under section 1821(d)(13)(D)(ii) was appropriate.
    Remand to the state court would have been improper because
    section 1821(d)(13)(D) provides that, in the absence of exhaus-
    tion of that process, “no court shall have jurisdiction over” a
    claim. 
    Miller, 738 F.3d at 844
    –45. That includes state courts. Cf.
    Mains v. Citibank, NA, 
    852 F.3d 669
    , 678–79 (7th Cir. 2017)
    (finding a claim barred by both Rooker-Feldman and section
    1821(d)(13)(D)).
    AFFIRMED.