Norman Shaw v. Bank of America ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
NORMAN SHAW, No. 17-56706
Plaintiff-Appellant,
D.C. No.
v. 3:12-cv-01207-
DMS-BLM
BANK OF AMERICA CORPORATION;
U.S. BANK,
Defendants-Appellees. OPINION
Appeal from the United States District Court
for the Southern District of California
Dana M. Sabraw, District Judge, Presiding
Argued and Submitted October 24, 2019
Pasadena, California
Filed December 27, 2019
Before: Andrew J. Kleinfeld, Consuelo M. Callahan,
and Ryan D. Nelson, Circuit Judges.
Opinion by Judge R. Nelson
2 SHAW V. BANK OF AMERICA
SUMMARY *
Truth in Lending Act
The panel affirmed the district court’s dismissal of a
Truth in Lending Act claim for lack of subject matter
jurisdiction based on the jurisdiction-stripping provisions of
the Financial Institutions Reform, Recovery, and
Enforcement Act.
Plaintiff sought rescission of a mortgage loan on the
ground that the lender violated TILA by providing him with
defective notice of the right to cancel when the loan was
signed. The panel held that FIRREA’s administrative
exhaustion requirement applied because there was (1) a
“claim” that (2) related to “any act or omission” of (3) an
institution for which the Federal Deposit Insurance Corp.
had been appointed receiver. First, the panel held that
plaintiff had a “claim” because his cause of action gave right
to the equitable remedy of rescission and was susceptible of
resolution via FIRREA’s claims process. Agreeing with the
Fourth Circuit, the panel concluded that there was no
requirement that the loan have passed through an FDIC
receivership. Second, the panel held that plaintiff’s claim
related to an act or omission, that is, the lender’s alleged
failure to comply with TILA’s disclosure requirements.
Finally, the third element was met because the lender had
failed and the FDIC had been appointed as receiver. The
panel further held that FIRREA’s statutory exhaustion
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SHAW V. BANK OF AMERICA 3
requirement does not contain a futility exception, allowing a
claim to proceed when filing with the FDIC would be futile.
The panel held that plaintiff did not exhaust his remedies
with the FDIC before filing suit, and his later
communications with the FDIC did not prevent dismissal of
his TILA claim for lack of subject matter jurisdiction. In
addition, the district court did not abuse its discretion in
denying plaintiff’s request for further discovery.
COUNSEL
Norman Shaw (argued), Solana Beach, California, pro se;
Chris Ford, Ford Law AZ, Phoenix, Arizona; for Plaintiff-
Appellant.
Alan E. Schoenfeld (argued), Wilmer Cutler Pickering Hale
and Dorr LLP, New York, New York; Albinas J. Prizgintas
and Arpit K. Garg, Wilmer Cutler Pickering Hale and Dorr
LLP, Washington, D.C.; Bryant S. Delgadillo and Mariel
Gerlt-Ferraro, Parker Ibrahim & Berg LLP, Costa Mesa,
California; for Defendants-Appellees.
4 SHAW V. BANK OF AMERICA
OPINION
R. NELSON, Circuit Judge:
Plaintiff Norman Shaw appeals from the district court’s
dismissal of his Truth in Lending Act (“TILA”) claim for
lack of subject matter jurisdiction based on the jurisdiction-
stripping provisions of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (“FIRREA”).
Because we agree that the district court lacked subject matter
jurisdiction, we affirm the district court’s dismissal.
I
Plaintiff Norman Shaw owns a home in Solana Beach,
California. In 2006, he refinanced his home loan, borrowing
$1.26 million from Washington Mutual Bank (“WaMu”).
One month later, LaSalle Bank, N.A. allegedly became the
trustee of his loan, although WaMu continued to service it.
WaMu was later closed and placed into the receivership of
the Federal Deposit Insurance Corporation (“FDIC”). At
that time, JPMorgan Chase Bank acquired WaMu’s assets
via a Purchase and Assumption Agreement with the FDIC.
In 2009, Mr. Shaw defaulted on his home loan and a
foreclosure date was set. A month before foreclosure, Mr.
Shaw sent notices of loan rescission to WaMu, JP Morgan
Chase, and Bank of America pursuant to instructions in his
loan documents. Mr. Shaw sought rescission, claiming that
WaMu violated TILA by providing him with defective
notice of the right to cancel when the loan was signed. None
of the institutions contacted by Mr. Shaw rescinded the loan.
Being “short on options to save [his] home,” Mr. Shaw
declared bankruptcy, which halted foreclosure proceedings.
He then filed a TILA lawsuit as an adversary proceeding in
SHAW V. BANK OF AMERICA 5
bankruptcy court. By that point, the trustee of the loan was
U.S. Bank, a successor in interest to Bank of America. U.S.
Bank moved to dismiss Mr. Shaw’s adversarial action for
lack of jurisdiction. The bankruptcy court agreed.
Mr. Shaw then brought this action in May 2012, seeking
rescission of the loan under TILA. After several years of
litigation, including an appeal to this court, U.S. Bank
moved to dismiss Mr. Shaw’s claim for lack of jurisdiction,
arguing he failed to exhaust administrative remedies through
the FDIC as required by FIRREA. Mr. Shaw responded that
FIRREA did not apply and further discovery was needed to
make that showing. The district court rejected these
arguments, granted U.S. Bank’s motion, and entered
judgment. This appeal followed.
While this appeal was pending, Mr. Shaw sent the FDIC
a letter explaining the alleged TILA violations and
requesting assistance in rescinding the loan. Mr. Shaw told
the FDIC that his loan was owned by “either LaSalle Bank,
Bank of America, or both.” 1 The FDIC responded a week
later, explaining it was “unable to process” his request
because “[t]he financial institution referenced in your
request, LaSalle Bank, is not a FDIC Receivership.”
II
“We review de novo the district court’s dismissal for
lack of jurisdiction.” Rundgren v. Wash. Mut. Bank, FA,
1
It is not clear that LaSalle Bank is or ever was the trustee of
Mr. Shaw’s loan. Nor did Mr. Shaw include any allegations about
LaSalle Bank in his Complaint or declaration opposing U.S. Bank’s
motion to dismiss. Nevertheless, because it does not affect the outcome,
we assume that LaSalle Bank was the trustee of Mr. Shaw’s loan at some
point.
6 SHAW V. BANK OF AMERICA
760 F.3d 1056, 1060 (9th Cir. 2014) (dismissal for failure to
exhaust under FIRREA). A district court’s discovery order
is reviewed for abuse of discretion. United States v.
Bourgeois, 964 F.2d 935, 937 (9th Cir. 1992).
III
The Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (“FIRREA”), Pub. L. No. 101-73,
103 Stat. 183, was enacted “in an effort to prevent the
collapse of the [savings and loan] industry in the late 1980s.”
Rundgren, 760 F.3d at 1060 (internal quotation marks
omitted). “[T]o enable the federal government to respond
swiftly and effectively to the declining financial condition of
the nation’s banks and savings institutions,” FIRREA
granted “the FDIC, as receiver, broad powers to determine
claims asserted against failed banks.” Henderson v. Bank of
New Eng., 986 F.2d 319, 320 (9th Cir. 1993).
To that end, FIRREA “provides detailed procedures to
allow the FDIC to consider certain claims against the
receivership estate.” Benson v. JPMorgan Chase Bank,
N.A., 673 F.3d 1207, 1211 (9th Cir. 2012). “The
comprehensive claims process allows the FDIC to ensure
that the assets of a failed institution are distributed fairly and
promptly among those with valid claims against the
institution, and to expeditiously wind up the affairs of failed
banks without unduly burdening the District Courts.”
Rundgren, 760 F.3d at 1060 (internal citations omitted).
As part of this process, the FDIC must “publish a notice
to the depository institution’s creditors” with instructions “to
present their claims, together with proof, to the receiver,” by
a specific date. 12 U.S.C. § 1821(d)(3)(B)(i). Once a claim
is filed, the FDIC is given authority to “determine” claims.
Id. § 1821(d)(3). This authority includes, inter alia,
SHAW V. BANK OF AMERICA 7
“allow[ing]” claims, “disallow[ing]” claims, and “pay[ing]
creditor claims.” Id. § 1821(d)(5)(A)(i), (10)(a). If the
FDIC disallows a claim, “the claimant may request
administrative review of the claim . . . or file suit on such
claim” in the district court whose jurisdiction covers the
depository institution. Id. § 1821(d)(6)(A)(ii).
If a claim has not been exhausted through this process,
FIRREA strips courts of 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 [FDIC] has been appointed
receiver, including assets which the
[FDIC] may acquire from itself as
such receiver; or
(ii) any claim relating to any act or
omission of such institution or the
[FDIC] as receiver.
12 U.S.C. § 1821(d)(13)(D). The Ninth Circuit has
interpreted this provision to be a jurisdictional exhaustion
requirement. E.g., Benson, 673 F.3d at 1211–12.
For FIRREA’s jurisdictional bar in clause (ii) of
12 U.S.C. § 1821(d)(13)(D) to apply, three elements must be
met. There must be (1) a “claim” that (2) relates to “any act
or omission” of (3) “an institution for which the [FDIC] has
been appointed receiver.” Rundgren, 760 F.3d at 1061.
Here, these elements are met. FIRREA’s exhaustion
requirement therefore applies.
8 SHAW V. BANK OF AMERICA
A
A “claim” under FIRREA is “a cause of action . . . that
gives rise to a right to payment or an equitable remedy.” Id.
Mr. Shaw has a “claim” because his cause of action gives
right to an equitable remedy—rescission.
Mr. Shaw disagrees. He argues that he does not have a
“claim” under FIRREA because his demand for rescission of
his loan under TILA is “not susceptible of resolution through
the claims procedure.” He relies on language used in some
of our cases to this effect. E.g., Henderson, 986 F.2d at 321
(“The statute bars judicial review of any non-exhausted
claim, monetary or nonmonetary, which is susceptible of
resolution through the claims procedure.”) (internal
quotation marks omitted); In re Parker N. Am. Corp.,
24 F.3d 1145, 1150 (9th Cir. 1994) (same). A survey of
some of the cases applying this language is instructive.
The Third Circuit was the first court to use the term
“susceptible of resolution through the claims procedure” to
interpret the word “claim” in FIRREA. Rosa v. Resolution
Tr. Corp., 938 F.2d 383, 394 (3d Cir. 1991). There, the
administrator of a retirement savings plan failed, and the
Resolution Trust Corporation (“RTC”) was appointed as the
receiver. Id. at 388–89. Later, when the RTC terminated the
plan, the plan participants did not bring a claim under
FIRREA’s administrative process. Id. at 389–90. Instead,
they sued the RTC and related entities, seeking, among other
things, an order preventing the RTC from terminating the
plan. Id. at 394–95. In deciding whether this type of request
for relief was a “claim” under FIRREA, the Third Circuit
analyzed FIRREA’s claims procedure. Id. Because there
was no indication that this claims procedure contemplated
the RTC determining a claim involving the termination of a
retirement savings plan, the participants’ claim was “not
SHAW V. BANK OF AMERICA 9
susceptible of resolution through the claims procedure” and
exhaustion was not required. Id.
A few years later, we applied the rationale behind this
rule for the first time in In re Parker, 24 F.3d at 1152. In
that case, a debtor filed a preference action in bankruptcy
court seeking recovery of money owed it by a failed bank for
which a receiver had been appointed. Id. at 1148–49. He
did not file a “claim” via FIRREA’s claims process before
doing so. Id. We recognized that the preference action
would seem to be a “claim” under the plain language of
FIRREA, thereby requiring exhaustion. See id. at 1152–53.
But because the broader statutory scheme of FIRREA made
clear that the statute does not apply to claims of debtors in
bankruptcy proceedings, we held that the debtor’s “claim”
was not “susceptible of resolution through FIRREA claims
procedures,” meaning exhaustion was not required. Id.
We used this same framework in McCarthy v. FDIC,
348 F.3d 1075 (9th Cir. 2003). There, a homeowner sought
damages against the FDIC for its conduct after it was
appointed as receiver for a failed bank. Id. at 1077. In
opposing dismissal, the homeowner argued that his claim
was not “susceptible of resolution through the administrative
claims procedure because [it] arose after the FDIC was
appointed receiver.” Id. at 1080–81. But we rejected this
argument, holding that nothing in FIRREA’s claims
procedure suggested the homeowner could not first exhaust
his claim with the FDIC. Id.
These cases recognize the established proposition that
“statutory language must be construed as a whole.”
Marascalco v. Fantasy, Inc., 953 F.2d 469, 470 (9th Cir.
2001). Where the larger statutory scheme establishes that a
claim is not “susceptible of resolution through FIRREA
claims procedures,” it is not a “claim” under FIRREA. In re
10 SHAW V. BANK OF AMERICA
Parker, 24 F.3d at 1152. However, where the statute does
not so indicate, FIRREA applies and exhaustion is required.
McCarthy, 348 F.3d at 1080–81; see also Bank of N.Y. v.
First Millennium, Inc., 607 F.3d 905, 921 (2d Cir. 2010)
(holding that 12 U.S.C. § 1821(d)(13)(D)(ii) “bars only
claims that could be brought under [FIRREA’s]
administrative procedures”).
Mr. Shaw advances a handful of arguments why his
TILA claim is “not susceptible of resolution” through
FIRREA’s claims procedures. But none of his arguments
rely on FIRREA’s claims procedures or its general statutory
scheme. To the contrary, his arguments are inconsistent with
FIRREA’s plain text.
Mr. Shaw first argues that his claim is not susceptible of
resolution via FIRREA’s claims process because TILA
claims are against the current holder of the loan—not the
originating bank. But nothing in FIRREA supports this
argument. FIRREA “does not make any distinction based
on the identity of the party from whom relief is sought.”
Benson, 673 F.3d at 1212. Instead, it “distinguishes claims
on their factual bases.” Id. Mr. Shaw’s contrary
interpretation would “permit[] claimants to avoid the
provisions [of FIRREA] by bringing claims against the
assuming bank” and “would encourage the very litigation
that FIRREA aimed to avoid.” Id. at 1214 (quoting Village
of Oakwood v. State Bank & Tr. Co., 539 F.3d 373, 386 (6th
Cir. 2008)).
Mr. Shaw also argues that his claim is not susceptible of
resolution via FIRREA because his loan was sold to a
different bank before WaMu was placed into receivership.
In other words, because Mr. Shaw’s loan was never in the
possession of the FDIC, FIRREA should not apply. But
FIRREA’s claims process, 12 U.S.C. § 1821(d)(3)–(10),
SHAW V. BANK OF AMERICA 11
never requires the FDIC to have possessed the loan before
“determin[ing]” a claim. Id. § 1821(d)(3). And the
exhaustion provision broadly applies to “any claim relating
to any act or omission of [an institution for which the FDIC
has been appointed receiver],” focusing on the factual basis
for the claim, not where the assets are located. Id.
§ 1821(d)(13)(D)(ii).
The Fourth Circuit reached the same conclusion in
Willner v. Dimon, 849 F.3d 93 (4th Cir. 2017). In that case,
homeowners argued that “FIRREA’s exhaustion
requirement [did not] apply” because their home loan was
securitized prior to the failure of the bank such that the loan
never passed through the receivership estate. Id. at 105. But
the Fourth Circuit rejected that argument as “irrelevant”
because of the broad exhaustion requirement in FIRREA.
Id. (citing 12 U.S.C. § 1821(d)(13)(D)(ii)).
We agree with the Fourth Circuit. Even where an asset
never passes through the FDIC’s receivership estate, the
FDIC should assess the claim first. It may be that the FDIC
can provide relief. In this case, for example, the FDIC
retained liability—including liability for “equitable” relief—
for “Borrower Claims” based on WaMu’s “lending or loan
purchase activities” under the Purchase and Assumption
Agreement with JPMorgan Chase. We do not decide
whether or not the FDIC could have provided relief to Mr.
Shaw. Regardless, Mr. Shaw was required to ask the FDIC
to “determine” his claim before filing suit.
Finally, Mr. Shaw argues that his claim is not susceptible
of resolution because he did not become aware of his claim
until months after the deadline for filing a claim. But the
FDIC still could have permitted his claim at that time.
Indeed, FIRREA contains a provision allowing the FDIC to
consider claims filed after the filing period under certain
12 SHAW V. BANK OF AMERICA
circumstances. See 12 U.S.C. § 1821(d)(5)(C)(ii).
According to the FDIC, that provision “permits late filing by
those whose claims do not arise until after the deadline has
passed.” McCarthy, 348 F.3d at 1080–81. And even had the
FDIC not allowed Mr. Shaw’s claim, he would still have the
right to seek review of that decision before a district court.
12 U.S.C. § 1821(d)(6)(A).
In short, because the FDIC can “determine,” “allow,” or
“disallow,” 12 U.S.C. § 1821(d)(3), (d)(5), Mr. Shaw’s
TILA claim, he has a “claim” under FIRREA. 2 This holding
may seem unfair given Mr. Shaw’s uncertainty about
whether the FDIC can help him rescind his loan. But it
makes sense, under FIRREA, for Mr. Shaw to ask the FDIC
for relief first. True, had Mr. Shaw filed a claim, the FDIC
may have disallowed it. Still, uncertainty about how, or
whether, the FDIC would resolve a claim does not mean
there is no “claim” under FIRREA.
B
Mr. Shaw’s “claim” also relates to an “act or
omission”—that is, WaMu’s supposed failure to comply
with TILA’s disclosure requirements, including providing
defective notice of the right to rescind.
Mr. Shaw argues that this element is not met because he
has alleged “[c]laims of independent misconduct” by
subsequent holders of the loan for failing to respond to his
2
Given this conclusion, we reject Mr. Shaw’s argument that his
communications with the FDIC—raised for the first time on appeal—
support his claim not being “susceptible of resolution” via FIRREA’s
claims process. Even construing the FDIC’s letter in Mr. Shaw’s favor,
it is not clear that the FDIC was doing anything other than
“disallow[ing]” his claim. 12 U.S.C. § 1821(d)(5)(A)(i).
SHAW V. BANK OF AMERICA 13
rescission letter. Mr. Shaw is incorrect. His claim for
rescission depends entirely on alleged misconduct by
WaMu. Any notice of rescission a later loan holder did not
respond to would only be actionable if WaMu failed to
comply with TILA’s disclosure requirement at loan closing.
Mr. Shaw’s claim is “functionally, albeit not formally against
[the] failed bank.” Benson, 673 F.3d at 1215 (internal
quotation marks omitted). FIRREA therefore applies. Id. 3
C
Mr. Shaw further argues that even if all three elements
of FIRREA are met, dismissal was still erroneous because
filing a claim with the FDIC would have been futile. But
FIRREA does not contain a futility exception. 12 U.S.C.
§ 1821(d)(13)(D). And the Supreme Court has made clear
that if exhaustion “is a statutorily specified prerequisite”—
as opposed to a judicially created one—“[t]he requirement is
. . . something more than simply a codification of the
judicially developed doctrine of exhaustion, and may not be
dispensed with merely by a judicial conclusion of futility[.]”
Weinberger v. Salfi, 422 U.S. 749, 766 (1975). We therefore
decline to create a futility exception to this statutory
exhaustion requirement under these circumstances. See
Gallo Cattle Co. v. U.S. Dep’t of Agric., 159 F.3d 1194, 1197
(9th Cir. 1998) (“[W]hile judicially-created exhaustion
requirements may be waived by the courts for discretionary
reasons, statutorily-provided exhaustion requirements
3
Mr. Shaw does not separately contest the third element—that his
“claim” is based on conduct by an “institution for which the [FDIC] has
been appointed receiver.” Because WaMu failed and the FDIC was
subsequently appointed as receiver, this element is met.
14 SHAW V. BANK OF AMERICA
deprive the court of jurisdiction and, thus, preclude any
exercise of discretion by the court.”).
IV
Having determined that FIRREA applies, we must
decide whether Mr. Shaw has exhausted his remedies with
the FDIC. We conclude he has not. Mr. Shaw’s Complaint
includes no allegations that he presented his TILA claim to
the FDIC before filing suit.
On appeal, Mr. Shaw asks us to take judicial notice of
his communications with the FDIC after the district court’s
dismissal, which arguably establish exhaustion. Although
we grant that request, “[s]ubject matter jurisdiction must
exist as of the time the action is commenced,” Mamigonian
v. Biggs, 710 F.3d 936, 942 (9th Cir. 2013), especially in the
context of administrative exhaustion. See Duplan v. Harper,
188 F.3d 1195, 1199 (10th Cir. 1999). Indeed,
administrative exhaustion is often called a “jurisdictional
prerequisite.” Weinberger, 422 U.S. at 766 (emphasis
added). Because subject matter jurisdiction was lacking
when this action was filed, Mr. Shaw’s later communications
with the FDIC do not prevent dismissal of his TILA claim.
V
Finally, we turn to Mr. Shaw’s request for further
discovery. The Federal Rules of Civil Procedure allow
parties to obtain discovery on any matter “relevant to any
party’s claim or defense.” Fed. R. Civ. P. 26(b)(1). Here,
Mr. Shaw requested discovery to determine: (1) “whether
Plaintiff’s loan was sold prior to the date the FDIC placed
[WaMu] in receivership”; (2) “whether exhaustion of
remedies would have been futile”; and (3) “whether
exhaustion of FIRREA actually occurred.” The district court
SHAW V. BANK OF AMERICA 15
held that the first request was “not relevant to forming an
opposition to the motion to dismiss” and that Mr. Shaw did
not make a “a sufficient showing in support” of requests two
and three.
These rulings were not an abuse of discretion. Requests
one and two sought irrelevant information because the date
the loan was sold and futility have no bearing on the
FIRREA inquiry, for the reasons discussed above. And
discovery as to “whether exhaustion of FIRREA actually
occurred” was unnecessary because it was within Mr.
Shaw’s personal knowledge. As the district court
recognized, Mr. Shaw “has not alleged, nor can he—
consistent with his Rule 11 obligations—that he filed a claim
with the FDIC and exhausted his administrative remedies.”
AFFIRMED.