Bank of Am. v. Macho , 2011 Ohio 5495 ( 2011 )

[Cite as Bank of Am. v. Macho, 2011-Ohio-5495.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 96124
BANK OF AMERICA
PLAINTIFF-APPELLEE
vs.
JUNE MACHO, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-696021
BEFORE: Celebrezze, P.J., Sweeney, J., and Keough, J.
RELEASED AND JOURNALIZED: October 27, 2011
ATTORNEY FOR APPELLANT JUNE MACHO
Mark S. Shearer
8193 Avery Road
Suite 201
Broadview Heights, Ohio 44147
FOR APPELLEES
For Bank of America
Bryan Kostura
Bricker & Eckler, L.L.P.
1001 Lakeside Avenue
Suite 1350
Cleveland, Ohio 44114
-and-
Nelson M. Reid
Anne Marie Sferra
Bricker & Eckler, L.L.P.
100 South Third Street
Columbus, Ohio 43215-4291
For Federal Deposit Insurance Corporation, as Receiver for
Washington Mutual Bank, f.k.a. Washington Mutual Bank, FA
Gregory J. O’Brien
Michael J. Zbiegien, Jr.
Taft Stettinius & Hollister, L.L.P.
3500 BP Tower
200 Public Square
Cleveland, Ohio 44114-2302
Oak Mortgage Co., pro se
c/o Darren Rose
33250 N. Burr Oak Drive
Solon, Ohio 44139
Bob Tengler, pro se
15901 Evening Star Avenue
Maple Heights, Ohio 44137
FRANK D. CELEBREZZE, JR., P.J.:
{¶ 1} Appellant, June Macho, brings the instant appeal challenging the trial
court’s dismissal of her cross-claim against Washington Mutual Bank, F.A. (“WaMu”)
and the Federal Deposit Insurance Corporation (“FDIC”), a substituted party as receiver
for WaMu.
{¶ 2} In October 2006, Macho agreed to refinance her home for $149,250 with
WaMu and signed a note and mortgage evidencing the debt. The loan was originated by
Oak Mortgage Company (“Oak”) and its employee, mortgage broker Bob Tengler.
Macho alleges that the loan application was fraudulently completed by Tengler to show
that Macho received more income from social security and her pension than she stated
and that she received conflicting and inaccurate disclosure statements from WaMu, Oak,
and the title company involved in the transaction, Anthem Escrow (“Anthem”).1 Macho
also agreed to a second loan from WaMu in the amount of $15,000.
{¶ 3} On September 25, 2008, WaMu was taken over by the Office of Thrift
Supervision, and the FDIC was appointed as receiver over WaMu’s assets, which
JPMorgan Chase Bank, N.A. (“Chase”) purchased.
{¶ 4} By June 17, 2009, Macho had become delinquent on her mortgage, and
Bank of America N.A. (“BofA”), assignee of the primary note and mortgage, filed a
foreclosure suit on that date. After a title search, BofA named WaMu as a party because
Macho also alleged that Anthem was closely associated with Oak and violated Truth in
1
Lending Act regulations.
it may have had an interest in the property as a result of the $15,000 loan. BofA served
WaMu at the address of a Chase office in Ohio. Macho then filed an answer,
cross-claim, counterclaim, and third-party complaint against BofA, WaMu, Oak, Tengler,
and Anthem.
{¶ 5} On July 8, 2010, the FDIC made a limited appearance to file a motion to be
substituted for WaMu and moved to dismiss the complaint against it. A hearing was held
regarding the motion to dismiss where the FDIC argued that the trial court did not have
subject matter or personal jurisdiction over it, relying on provisions of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), Pub.L.
101-73, 103 Stat. 183. The trial court ultimately agreed with the FDIC and dismissed the
complaint against it for lack of subject matter jurisdiction. Macho timely filed a notice
of appeal assigning a single error.
{¶ 6} I. “The trial court erred when it found that it had no subject matter
jurisdiction over the FDIC.”
Law and Analysis
I. Subject Matter Jurisdiction
{¶ 7} After a party files a Civ.R. 12(B)(1) motion to dismiss, the trial court must
determine whether the complaint contains allegations of a cause of action that the trial
court has authority to decide. Crestmont Cleveland Partnership v. Ohio Dept. of Health
(2000), 139 Ohio App.3d 928, 936, 746 N.E.2d 222. The Ohio Supreme Court has
further noted that the “trial court is not confined to the allegations of the complaint when
determining its subject-matter jurisdiction pursuant to a Civ.R. 12(B)(1) motion to
dismiss, and it may consider material pertinent to such inquiry.” Southgate Dev. Corp. v.
Columbia Gas Transm. Corp. (1976), 48 Ohio St.2d 211, 358 N.E.2d 526, paragraph one
of the syllabus. We apply a de novo review to the trial court’s decision on a motion to
dismiss for lack of subject matter jurisdiction. Crestmont Cleveland Partnership at 936.
{¶ 8} FIRREA was enacted in 1989 after the savings and loan scandals of the
1980’s to allow the expeditious seizure of a failing bank to limit its effect on the financial
system and individual depositors. Brady Dev. Co., Inc. v. Resolution Trust Corp. (C.A.4,
1994), 14 F.3d 998, 1002-1003. This system allows the FDIC to be appointed receiver
over a failing or failed financial institution’s assets for the purpose of resale or
distribution in a fair and orderly manner. 2 Id. at 1003. FIRREA also establishes a
mandatory claims procedure for creditors seeking monetary redress from the defunct
The Resolution Trust Corporation (“RTC”) was the statutory predecessor to the FDIC, and
2
case law dealing with the RTC is generally applicable to the FDIC. Resolution Trust Corp. v. First
Am. Bank (C.A.9, 1998), 155 F.3d 1126, 1127; Nasoordeen v. F.D.I.C. (Mar. 17, 2010), C.D. Cal.
No. CV 08-05631, fn.5.
financial institution for all claims. Robbins v. Foothill Nissan (1994), 22 Cal.App.4th
1769, 1783-1785, 28 Cal.Rptr.2d 190.
A. The FIRREA Claims Process
{¶ 9} The trial court does not have authority to determine Macho’s claims against
WaMu because provisions in FIRREA limit jurisdiction and mandate a claims process,
which Macho had not undertaken at the time she filed her complaint.
{¶ 10} 12 U.S.C. 1821(d)(3)-(13) provides for a mandatory claims procedure.
12 U.S.C. 1821(d)(3) and (4) vest the FDIC with authority to promulgate rules for the
determination of all claims against the assets of failed financial institutions. 12 U.S.C.
1821(d)(6) provides for very limited judicial review with jurisdiction restricted to the “the
district or territorial court of the United States for the district within which the depository
institution’s principal place of business is located or the United States District Court for
the District of Columbia * * *.”3
{¶ 11} Macho’s claims against WaMu are of the type constituting “claims” under
FIRREA. In a federal bankruptcy case, In re Shirk (Bankr.Ct.S.D.Ohio 2010), 437 B.R.
592, similar claims alleging fraud and violations of state and federal lending laws were
brought against Chase as successor to WaMu after the FDIC had been appointed receiver
of WaMu’s assets. The Shirk court held that “[t]he Shirks’ claims for misrepresentation
(Complaint, ¶ ¶ 9 & 10), TILA violations (15 U.S.C. § 1601, et seq.) (Complaint, ¶ ¶
11–17), and negligence (Complaint, ¶ 20) constitute claims ‘relating to any act or
In order for these provisions to take effect, the FDIC as receiver, must comply with notice
3
requirements set forth in 12 U.S.C. 1821(d)(3)(B) and (D).
omission of [a failed institution] or the Corporation as a receiver’ and, therefore, are
subject to FIRREA’s jurisdictional bar.” Id. at 601, citing 12 U.S.C. 1821(d)(13)(D);
Jackson v. F.D.I.C. (Feb. 19, 2010), E.D. Mich. No. 09-10991. See, also, IndyMac
Bank, F.S.B. v. MacPherson (E.D.N.Y. 2009), 672 F.Supp.2d 313, 316.
{¶ 12} The present case is factually similar to Shirk. In both instances, parties
asserted claims against a failed financial institution or its successor after the FDIC had
been appointed receiver alleging improprieties in the origination of a home loan. The
conclusion of the court in Shirk is equally applicable to the present case and is dictated by
the need of the FDIC “to dispose of the bulk of claims against failed financial institutions
expeditiously and fairly.” H.R. Rep. No. 54(I), 101st Cong., 1st Sess. 419 (1989),
reprinted in 1989 U.S.C.C.A.N. 86, 215. Congress has established a claims process for
the orderly administration of the liquidation of the assets of failed banks and has
determined that those asserting claims against those institutions shall go through a claims
process before seeking judicial intervention.4 This process is mandatory in the present
case, and the trial court is without jurisdiction to address Macho’s claims against WaMu.
B. Notice
Some federal courts recognize a distinction between cases filed before a receiver is
4
appointed and those filed after the FDIC has been appointed receiver. See, e.g., Marquis v. F.D.I.C.
(C.A.1, 1992), 965 F.2d 1148, 1152-53. In the latter cases, these courts have held that suit can be
maintained or stayed pending exhaustion of the claims process. But, see, MacPherson, supra, at
317-318 (holding that federal courts do not retain subject matter jurisdiction once a receiver is
appointed pursuant to FIRREA).
{¶ 13} Macho attempts to get around these jurisdictional hurdles by claiming she
did not receive notice of the appointment of the FDIC, and therefore, the provisions of
FIRREA do not apply.
{¶ 14} FIRREA has strict notice requirements in 12 U.S.C. 1821(d)(3)(B) to
preserve the due process rights of creditors of and those with claims against institutions
where the FDIC has been appointed receiver. Accordingly, the FDIC uses a bank’s
records to notify all listed creditors on its books. 12 U.S.C. 1821(d)(3)(C). Some
claims, such as the one at issue here, would not be listed in such records as WaMu, or the
FDIC was not notified about the claim until Macho filed her cross-claim in 2009. 5
However, pursuant to 12 U.S.C. 1821(d)(3)(B), the FDIC published notice of its
appointment as receiver in the Seattle Times, a publication circulated in WaMu’s
principle place of business, and a national publication, the Wall Street Journal.
Additionally, after receiving notice of Macho’s claims, the FDIC alleges that it sent her
notice of the mandatory claims process.
{¶ 15} The Southern District Court of Ohio has determined that a party could not
escape the claims process by arguing a lack of notice when the FDIC published its
appointment in the same fashion and sent notice of the claims process after it learned of
the claim following the filing of suit. White v. Chase Bank USA, NA (Sep. 28, 2010),
S.D.Ohio No. 3:10CV021. The Northern District of Ohio has held similarly, finding the
provisions of FIRREA applied to claimants who were unknown creditors when notice by
The FDIC argues that it was not properly notified at that time either because the complaint
5
was not served upon it, but upon Chase bank addressed to WaMu.
publication in the same manner was accomplished by the FDIC. Brandow v. F.D.I.C.
(Dec. 22, 2008), N.D.Ohio 2008 No. 1:08-CV-02771.
{¶ 16} In the present case, the FDIC accomplished notice by publication in the
Seattle Times and the Wall Street Journal. Further, the FDIC sent a notice of the
administrative claims procedure to Macho on July 16, 2010, as stated in its July 23, 2010
reply to Macho’s opposition to its motion to dismiss.
{¶ 17} Here, as in Shirk, Macho argues that she should not be made to exhaust
administrative remedies when she did not receive proper notice. The Shirk court held
that even if proper notice was not received, “Congress did not intend for the FDIC to lose
jurisdiction based on its failure to mail a takeover notice as FIRREA itself delineates the
parameters within which claimants are exempt from strict compliance with administrative
claims process. Specifically, FIRREA provides the receiver discretion to allow late-filed
claims if the claimant did not receive notice of the appointment of the receiver * * *.
Thus, even if the Shirks failed to receive notice of the FDIC’s takeover of [WaMu], they
were still not relieved of their obligation to follow FIRREA’s administrative claim
process.” (Internal citations omitted.) Id. at 603-604.
{¶ 18} Addressing a claim unknown to the FDIC while it was appointed receiver,
similar to the claim here, the Shirk court found, “‘common sense dictates that actual
notice cannot be given to those with inchoate claims of lender malpractice.’ F.D.I.C. v.
James J. Madden, Inc., 847 F.Supp. 374, 375 (D.Md.1994). At the time of the FDIC
takeover of [WaMu], the Shirks had not filed any claims against [WaMu]. Therefore,
any potential claim they may have had at that time was inchoate and publication notice
was sufficient under the circumstances. Id. Accordingly, a lack of actual notice does
not relieve the Shirks from exhausting FIRREA’s administrate remedies and the
jurisdictional bar erected by FIRREA applies to the Shirks’ claims attributable to the acts
or omissions of [WaMu] and its agents.” Id. at 604.
{¶ 19} Based on this logic and law, Macho’s notice argument in not persuasive.
C. Constitutionality of the FDIC
{¶ 20} Macho next asserts that FIRREA, and the very existence of the FDIC, is
unconstitutional — alleging that Congress does not have the power to create such
“quasi-governmental” entities. Damaging to Macho’s argument is the lack of any
supporting case law on this point. The only support advanced is that Article I, Section 8
of the United States Constitution specifies Congress’s powers and does not give it the
right to establish such entities. However, the Necessary and Proper Clause of the
Constitution6 bestows the right “[t]o make all laws which shall be necessary and proper
for carrying into execution the foregoing powers, and all other powers vested by this
Constitution in the government of the United States, or in any department or officer
thereof.” The Commerce Clause7 also provides authority to regulate commerce “among
the several States,” including the creation of a nationwide banking system and related
agencies for its operation and preservation. Clause 3, Section 8, Article I, United States
Constitution. See Weir v. U.S. (C.A.7, 1937), 92 F.2d 634, 636.
Clause 18, Section 8, Article 1, United States Constitution.
6
Clause 3, Section 8, Article 1, United States Constitution.
7
{¶ 21} Further, federal courts have upheld challenges to FIRREA’s provisions,
including the exhaustion of administrative remedies embodied in 12 U.S.C. 1821(d).
Rosa v. Resolution Trust Corp. (C.A.3, 1991), 938 F.2d 383; Bueford v. Resolution Trust
Corp. (C.A.8, 1993), 991 F.2d 481; Glenborough New Mexico Assoc. v. Resolution Trust
Corp. (D.C.N.M. 1992), 802 F.Supp. 387; F.D.I.C. v. Updike Bros., Inc. (D.C.Wyo.
1993), 814 F.Supp. 1035. But, see, Wilson v. F.D.I.C. (E.D.N.Y. 1993), 827 F.Supp. 120(holding that where an action is instituted before the FDIC is appointed receiver, a court
retains jurisdiction over the action).
{¶ 22} Congress has the power to create governmental corporations to help oversee
the operation of a nationwide banking system under both the Commerce Clause and the
Necessary and Proper Clause of the Constitution.
D. Removal
{¶ 23} Macho also asserts that the trial court should have removed the case to one
of the federal district courts, citing 12 U.S.C. 1819(b)(2). This statute gives the FDIC
the power to remove any case where it is a party to federal court.8 However, removal
would not be appropriate here where Macho had not exhausted her administrative
remedies for her claims against the FDIC. The trial court lacked subject matter
jurisdiction because FIRREA requires Macho to go through the FDIC claims process and
12 U.S.C. 1819(b)(2)(B) states: “Except as provided in subparagraph (D), the [FDIC] may,
8
without bond or security, remove any action, suit, or proceeding from a State court to the appropriate
United States district court before the end of the 90-day period beginning on the date the action, suit,
or proceeding is filed against the Corporation or the Corporation is substituted as a party.”
bestows exclusive jurisdiction upon two federal courts, and subsequent case law has
crafted only very narrow exceptions.
{¶ 24} The FDIC argues that judicial review is precluded by 12 U.S.C.
1821(d)(13). This statute appears to prohibit judicial review of the decisions of the
FDIC. However, the federal district court for this jurisdiction has reviewed the
provisions of FIRREA related to the claims of uninsured depositors against a successor
bank after the assets of a failed institution were transferred under the receivership of the
FDIC and found that 12 U.S.C. 1821(d)(13)’s prohibition of judicial review is actually an
exhaustion of claims requirement necessary before judicial review may occur. Village of
Oakwood v. State Bank & Trust Co. (N.D.Ohio 2007), 519 F.Supp.2d 730, 737-738.
This view was affirmed by the Sixth Circuit. Village of Oakwood v. State Bank & Trust
Co. (C.A.6, 2008), 539 F.3d 373.
{¶ 25} Macho has cited no case law, statute, or regulation that requires the FDIC to
seek removal rather than dismissal. While judicial review has been established by
federal courts in Ohio and other jurisdictions, the FDIC is not required to seek removal
rather than dismissal. Therefore, Macho’s arguments on this issue are unpersuasive.
E. Jurisdictional Limitations in FIRREA
{¶ 26} Macho also argues that FIRREA’s jurisdictional limitation is
unconstitutional where it requires judicial review of any FDIC determination to occur
only in the federal district court in Washington D.C. or the district court located in
WaMu’s principle place of business — Seattle, Washington. However, in a
post-receivership case filed concurrently in two federal jurisdictions, the Washington
D.C. district court found “the District of Maryland would not have had subject matter
jurisdiction over plaintiff’s case. Instead, under FIRREA, only this Court or the district
court in the district where [WaMu’s] principal place of business is located would have
jurisdiction over plaintiff’s claims.” Poku v. F.D.I.C. (D.C.D.C. 2010), 752 F.Supp.2d
23, 27-28, citing Lloyd v. F.D.I.C. (C.A.1, 1994), 22 F.3d 335, 337. The Poku court
found this provision constitutional, and Macho has failed to point to other applicable
cases holding the opposite.
{¶ 27} Macho takes issue with requiring her to seek redress of her claims in a
district court far from her home. She claims that a minimum contacts analysis, as set
forth in Internatl. Shoe Co. v. Washington (1945), 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed.
95, must be applied to her under the Due Process Clause of the Fifth Amendment as a
cross-claim plaintiff to find that she does not have minimum contacts with these
jurisdictions and cannot be forced to sue the FDIC there.
{¶ 28} Ohio and Federal laws require a plaintiff to bring suit in jurisdictions where
they may not have any contacts. For example, Civ.R. 3(B)(1) specifies that proper venue
lies, among other places, “in the county where the defendant resides.” This gives no
consideration to the contacts the plaintiff may have to this forum.9 See, also, 28 U.S.C.
1391. The Supreme Court has also upheld contract provisions that require plaintiffs to
sue in certain fora even where they are complete strangers. See Carnival Cruise Lines,
Inc. v. Shute (1991), 499 U.S. 585, 111 S.Ct. 1522, 113 L.Ed.2d 622.
Civ.R. 4.3 does require a due process analysis, but only for an out-of-state defendant.
9
{¶ 29} Further, Macho bears the burden of demonstrating that the statute in
question is unconstitutional. “When no fundamental right is implicated or suspect
classification affected, the person complaining of the due process violation must establish
that the legislature acted in an arbitrary and irrational fashion.” Feigel v. F.D.I.C.
(S.D.Cal. 1996), 935 F.Supp. 1090, 1100, citing United States R.R. Retirement Bd. v.
Fritz (1980), 449 U.S. 166, 174–75, 101 S.Ct. 453, 66 L.Ed.2d 368; Usery v. Turner
Elkhorn Mining Co. (1976), 428 U.S. 1, 15, 96 S.Ct. 2882, 49 L.Ed.2d 752.
{¶ 30} Macho has not carried that burden. The only case cited by her in
furtherance of the argument that a minimum contacts analysis applies to her as a plaintiff
is Republic of Argentina v. Weltover, Inc. (1992), 504 U.S. 607, 112 S.Ct. 2160, 119
L.Ed.2d 394. In that case, the Supreme Court analyzed the minimum contacts a
defendant, the government of Argentina, had with the New York federal court where the
plaintiffs filed suit. At no point did the court engage in an analysis of the plaintiffs’
contacts with that forum.
{¶ 31} Finally, Macho argues that this is a foreclosure action that must be brought
in Cuyahoga county, the location of the subject property. BofA’s complaint against
Macho does seek foreclosure, but Macho’s claims against WaMu do not. She seeks to
hold WaMu and others responsible for alleged wrongdoing in the origination of her
mortgage. Her claims are not for foreclosure and, but for the intervention of the Office
of Thrift Supervision and its appointment of the FDIC as receiver for WaMu, could be
brought in any jurisdiction where WaMu had sufficient contacts. However, FIRREA
significantly restricts Macho’s choice and requires her to first submit her claims to the
FDIC.
{¶ 32} This is not to say that Macho is entirely prevented from asserting certain
defenses against BofA in its foreclosure actions against her. She may still assert fraud
defenses against BofA through assignee liability under Ohio law. See Citizens Fed.
Bank, F.S.B. v. Brickler (1996), 114 Ohio App.3d 401, 410, 683 N.E.2d 358 (“[T]he
assignee of a contract takes that contract with all rights of the assignor and subject to all
defenses that the obligor may have had against the assignor.”); R.C. 1303.35(A)(1)(c)
(fraud is a valid defense even against a holder in due course10). Therefore, Macho is not
prevented from using WaMu’s conduct as a defense against BofA’s claims against her,
but she is required to follow the FDIC claims process to assert causes of action against
WaMu. See MacPherson at 316; JP Morgan Chase Bank Nat. Bank v. McPhaden (Sep.
14, 2010), Conn.Super. No. FSTCV095009848S.
II. Conclusion
{¶ 33} The trial court did not err in finding that it did not have subject matter
jurisdiction to hear Macho’s claims against the FDIC as receiver for WaMu. FIRREA
established a mandatory process for those with claims against a failed financial institution
over which the FDIC is appointed receiver. Macho is required to engage in this process,
A holder in due course is defined as one who takes an “instrument when issued or
01
negotiated to the holder [that] does not bear evidence of forgery or alteration that is so apparent, or is
not otherwise so irregular or incomplete as to call into question its authenticity; [and:] (a) For value;
(b) In good faith; (c) Without notice that the instrument is overdue or has been dishonored or that
there is an uncured default with respect to payment of another instrument issued as part of the same
series; (d) Without notice that the instrument contains an unauthorized signature or has been altered;
* * *.” R.C. 1303.32.
and the provisions of FIRREA specifically limit the jurisdictions that may review such
claims. This determination renders moot the FDIC’s claim that the trial court erred by
not finding that it also lacked personal jurisdiction, and it will not be addressed.
Judgment affirmed.
It is ordered that appellees recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment into
execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
FRANK D. CELEBREZZE, JR., PRESIDING JUDGE
JAMES J. SWEENEY, J., and
KATHLEEN ANN KEOUGH, J., CONCUR