The opinion of the court was delivered by: Amy Berman Jackson United States District Judge
Plaintiff MBIA Insurance Corporation ("MBIA") has filed an amended complaint against the Federal Deposit Insurance Corporation ("FDIC") asserting claims arising from the failure of IndyMac Bank, F.S.B. ("IndyMac Bank" or "IndyMac") and its subsequent resolution by the FDIC. Defendant FDIC, in its capacity as receiver for IndyMac Federal Bank, F.S.B. ("FDIC Receiver"),*fn1 has moved to dismiss the amended complaint filed by MBIA [Dkt. #26]. In addition, defendant FDIC, in its corporate capacity ("FDIC Corporate"), has separately moved to dismiss the count against it in the amended complaint [Dkt. #25].
MBIA is one of the parties that played a critical role in IndyMac's securitization and sale of mortgage loans, and that incurred significant losses for which it has not been reimbursed by the now insolvent bank. In other words, MBIA is one of the bank's many unhappy creditors. It provided insurance policies protecting the investors in several transactions in which IndyMac securitized mortgage loans in 2006 and 2007. MBIA seeks to be indemnified for the losses it incurred when borrowers defaulted and the investors whose securities dropped in value made claims under the insurance policies. But the receivership has no assets to pay the bank's general creditors.
In this action, MBIA attempts to cast its claims as administrative expenses of the receivership and thereby gain priority over other creditors pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub. L. No. 101-73, 103 Stat. 183 (codified as amended in scattered sections of 12 U.S.C.). But the law does not support MBIA's approach, and the receivership otherwise lacks the means to satisfy MBIA's breach of contract claims. Therefore, and for the reasons set forth in more detail below, the Court will grant the motions to dismiss.
IndyMac was in the business of offering loans to home owners and home buyers as well as acquiring mortgages that had been originated by other entities. Am. Compl. ¶ 23. IndyMac's practice was to sell those mortgage loans through securitization transactions. Id. ¶ 31.
Between December 2006 and March 2007, IndyMac was involved in the three particular securitization transactions at issue in this case (the "Transactions").*fn2 Id. ¶¶ 32--35. In connection with each of the Transactions, MBIA and IndyMac entered into Insurance and Indemnity Agreements pursuant to which MBIA issued insurance policies (the "Policies") for the Transactions. Id. ¶ 36. The agreements are (1) an Insurance and Indemnity Agreement dated December 21, 2006 (the "2006-H4 Insurance Agreement"), (2) an Insurance and Indemnity Agreement dated February 14, 2007 (the "2007-1 Insurance Agreement"), and (3) an Insurance and Indemnity Agreement dated March 22, 2007 (the "2007-2 Insurance Agreement") (collectively, the "Insurance Agreements"). Id. Each Insurance Agreement incorporated by reference the representations and warranties made by the bank in the other "Transaction Documents." Id. ¶ 40. For the 2006-H4 Transaction, the Transaction Documents included a Master Loan Purchase Agreement ("Purchase Agreement") and a Sale and Servicing Agreement; for the 2007-1 and 2007-2 Transactions, the Transaction Documents included, among other documents, Pooling and Servicing Agreements (the Purchase Agreement, the Sale and Servicing Agreement, and the Pooling and Servicing Agreements are collectively referred to by plaintiff -- and hereinafter by the Court -- as the "PSAs"). Id. The PSAs set out IndyMac's obligations in its roles as seller and servicer of the loans.
The Policies issued by MBIA guaranteed that investors in the Transactions would receive the cash flows IndyMac had promised them even if significant defaults and other losses occurred on the mortgage loans underlying the Transactions. Id. ¶¶ 3, 38. IndyMac and MBIA each agreed to certain affirmative covenants in the Insurance Agreements, and IndyMac agreed to service the mortgage loans in compliance with the PSAs by collecting mortgage payments, determining whether a mortgage loan was in default, maximizing borrowers' compliance with their obligations on the loans, and remitting proceeds from the mortgage loans to the trusts for the IndyMac Transactions. Id. ¶¶ 54--56; see also Pl.'s Opp. to Mot. to Dismiss [Dkt. #11], Ex. 1 ("2006-H4 Insurance and Indemnity Agreement"), § 2.04.*fn3 As part of the Insurance Agreements, IndyMac also made representations and warranties to MBIA with respect to the quality of the mortgage loans. Am. Compl. ¶¶ 39--41; see also 2006-H4 Insurance and Indemnity Agreement § 2.01.
MBIA's claims are based on the Transaction Documents that embodied the three securitization Transactions, and an understanding of the chronology of the FDIC's involvement with IndyMac is critical to the resolution of those claims. x July 11, 2008: The Office of Thrift Supervision ("OTS") determined that IndyMac was unlikely to pay its obligations or meet its depositors' demands, and that it was in an unsafe and unsound condition. Am. Compl. ¶ 46; see also Rec. Mot. to Dismiss Ex. 1, (OTS Order No. 2008-24, July 11, 2008). Therefore, it appointed the FDIC as receiver of IndyMac Bank ("Original FDIC Receiver"). The function of the Original FDIC Receiver was to transfer the IndyMac assets to a newly chartered bank as part of a "pass-through receivership." See Am. Compl. Ex. C. In a pass-through receivership, "all deposits, substantially all assets, and certain nondeposit liabilities of the original institution instantly 'pass through the receiver' to a newly chartered federal mutual association, subsequently known as the conservatorship." *fn4 x July 11, 2008: On the same day, the OTS appointed the FDIC as conservator ("FDIC Conservator") of a newly chartered bank, IndyMac Federal Bank, F.S.B. ("IndyMac Federal"). x July 11, 2008: To effectuate the pass-through receivership, the FDIC executed an Amended and Restated Insured Deposit Purchase and Assumption Agreement ("P&A Agreement") and transferred certain of IndyMac's assets and liabilities to IndyMac Federal. Am. Compl. ¶¶ 48--49; see also Am. Compl. Ex. D (the P&A Agreement). The liabilities assumed by IndyMac Federal included (1) "liabilities, if any with respect to Qualified Financial Contracts," ("QFCs")*fn5 and (2) "duties and obligations under any contract to which [IndyMac] provides mortgage servicing for others . . . ." Am. Compl. ¶ 4; P&A Agreement § 2.1(j)--(k).
The P&A Agreement also contained a "put" provision that allowed IndyMac Federal to require the Original FDIC Receiver to repurchase certain assets or reassume certain liabilities. Id. § 3.6. x October 14, 2008: MBIA submitted a proof of claim to the Original FDIC Receiver alleging that IndyMac breached contractual representations and warranties it made in connection with the Transactions prior to its closure on July 11, 2008. The claim contended that "the portfolios of mortgage loans that IndyMac included in the IndyMac transactions were of a fundamentally different quality and character than IndyMac represented to MBIA," and that there were "fundamental, material and consistent violations of IndyMac's purported underwriting guidelines . . . ." Compl. Ex. A [Dkt. #1-1] at 3--4; see also Compl. ¶¶ 64, 86, 96, 108, 119, 128, 139, 149. x March 19, 2009: IndyMac Federal exercised its option under the "put" provision and required the Original FDIC Receiver to reacquire IndyMac's mortgage servicing rights and obligations under the PSA for the 2007-1 Transaction. Rec. Mot. to Dismiss Ex. 10, at 2--4 & Attach. A. x March 19, 2009: The Original FDIC Receiver then exercised its rights under 12 U.S.C. § 1821(e)(1) to repudiate the PSA for the 2007-1 Transaction. Am. Compl. ¶ 72, Ex. E. x March 19, 2009: Contemporaneously, FDIC Conservator sold substantially all of the assets of IndyMac Federal to another financial institution, OneWest. Am. Compl. ¶¶ 69-- 70. Under the P&A Agreement, any amount realized from the final resolution of IndyMac Federal was to be used first to pay in full all of IndyMac Federal's obligations, and the remaining proceeds from the sale, if any, were to be paid to the IndyMac receivership (i.e., Original FDIC Receiver). See P&A Agreement § 7.2. x March 19, 2009: On the date of the OneWest sale, FDIC Conservator was replaced by
FDIC Receiver (as receiver for IndyMac Federal). Rec. Mot. to Dismiss Ex. 2.*fn6 x April 1, 2009: FDIC notified MBIA that its first proof of claim, filed October 14, 2008, was disallowed.
x May 29, 2009: MBIA filed its first complaint in this action against IndyMac and Original
FDIC Receiver. MBIA's original complaint, like its original proof of claim, related to "IndyMac's breach of the contractual representations and warranties made to MBIA, as well as IndyMac's negligent misrepresentations and fraud," in connection with the three Transactions. Compl. ¶ 2. The complaint sought damages for losses arising out of IndyMac's loan practices and alleged wrongful conduct prior to the takeover by the FDIC on July 11, 2008. See, e.g., Compl. ¶¶ 63, 85, 95, 107, 118. x June 16, 2009: MBIA submitted a proof of claim to FDIC as receiver of IndyMac and
IndyMac Federal (i.e., to Original FDIC Receiver and FDIC Receiver) related to the repudiated 2007-1 Transaction. Am. Compl. Ex. A. x August 25, 2009: MBIA submitted a proof of claim to FDIC Receiver alleging that IndyMac Federal breached its contractual obligations in connection with all three Transactions.*fn7 Am. Compl. Ex. B. x November 12, 2009: The FDIC Board of Directors determined that the "amount realized from the resolution of IndyMac Federal is insufficient to pay all of its liabilities, and therefore there will be no amount to pay to the IndyMac Bank receivership" (the "No Value Determination"). Am. Compl. ¶ 77. The Board of Directors also determined that "the assets of IndyMac Federal are insufficient to make any distribution on general unsecured claims and therefore, such claims, asserted or unasserted, will recover nothing and have no value." Id. x December 10, 2009: FDIC, as receiver for IndyMac and IndyMac Federal, ceased reviewing MBIA's two outstanding proofs of claims on the basis of the No Value Determination. FDIC Receiver notified MBIA that the "payment of depositor claims is preferred over all other creditor claims including the non-depositor claims that [MBIA] filed. The Board of Directors of the FDIC has determined that the assets of both IndyMac Bank and IndyMac Federal . . . are insufficient to pay claims below the depositor class and that all non-depositor creditor claims have no value." Am. Compl. ¶ 79, Ex. C (Notice to MBIA, Dec. 10, 2009). x February 8, 2010: MBIA amended its complaint to assert eight claims against FDIC Receiver, FDIC Conservator, and FDIC Corporate seeking damages as well as injunctive and declaratory relief.
The amended complaint challenges the denial of the two proofs of claims that MBIA filed on June 17, 2009, and August 26, 2009, Am. Compl. ¶ 12, and it purports to seek damages arising out of alleged post-receivership contractual breaches by IndyMac Federal and the FDIC rather than the IndyMac pre-receivership conduct outlined in the original complaint.*fn8
Counts I--V of the amended complaint allege that MBIA incurred losses when IndyMac Federal, and FDIC in its capacity as conservator of IndyMac Federal, failed to perform servicing and other duties that IndyMac had been obliged to perform under the terms of the Transaction Documents. Am. Compl. ¶¶ 89--181. Specifically: x Count I alleges that after July 11, 2008, IndyMac Federal and FDIC Conservator failed to properly service the loans underlying the Transactions, and that their failure led to insurance claims that defendants have failed to indemnify. See Am. Compl. ¶¶ 96, 102, 104, 106. x Count II alleges that, under the terms of the Transaction Documents, IndyMac was obliged to repurchase loans put back to it by MBIA, that MBIA exercised its right to do so while the bank was still a going concern, and that those requests were still pending after the conservatorship began in July 2008. MBIA alleges that IndyMac Federal and the FDIC Conservator refused to repurchase the loans properly put back prior to the insolvency, and that they also refused to participate in the put-back process going forward. See Am. Compl. ¶ 113. But while Count II is entitled "Breach of contract and anticipatory breach of contract -- put back process," the claim is more expansive. As part of its requested relief in Count II, MBIA seeks "damages with respect to all mortgage loans in the IndyMac Transactions that fail to comply with the representations and warranties set forth in the IndyMac PSAs." Id. ¶ 127. In other words, in Count II, MBIA explicitly seeks damages arising out of all of IndyMac's pre-receivership misrepresentations.*fn9 x Count III alleges a breach of the servicing obligations for certain of the loans underlying the 2007-1 Transaction, which were covered by a "pool" insurance policy of which MBIA is a third-party beneficiary. See Am. Compl. ¶¶ 137, 144--49. MBIA seeks damages for the alleged failure of IndyMac Federal and the FDIC to comply with those obligations after the imposition of the conservatorship on July 11, 2008. Id. ¶ 149. x Count IV, like Count II, arises out of requests made by MBIA to IndyMac under the
Transaction Documents prior to the imposition of the conservatorship. Am. Compl. ¶ 155. It alleges that those pending requests for access to records were not fulfilled after the conservatorship was instituted, and that IndyMac Federal and FDIC Conservator refused to comply with such requests going forward. Id. ¶¶ 161--64.
x Count V alleges a breach of the duty of good faith and fair dealing implied in IndyMac's Transaction Documents. Am. Compl. ¶¶ 173--76.
MBIA does not allege that IndyMac Federal was bound by the Transaction Documents simply by virtue of its status as IndyMac's successor. A breach of contract under those circumstances would give rise only to an ordinary claim for damages. Rather, for the breach of contract claims in Counts I through V, MBIA specifically asserts that the FDIC "approved" the agreements in question after its appointment as conservator or receiver under 12 U.S.C. § 1821(d)(20). Thus, according to plaintiff:
Because these claims relate to breaches of contractual obligations approved by IndyMac Federal and the FDIC after the imposition of the FDIC Receivership of IndyMac Bank on July 11, 2008, such claims are administrative expenses of IndyMac Federal and entitled to priority payment over depositors and general creditor claims pursuant to 12 U.S.C. § 1821.
Am. Compl. ¶¶ 107, 129, 150, 168, 180. MBIA's first five damage claims are predicated solely on this theory.
Count VIII, the other damages claim, is somewhat different. It purports to seek the "actual, direct, compensatory damages" available under 12 U.S.C. §1821(e)(3) for FDIC Receiver's March 19, 2009 repudiation of the INDS 2007-1 PSA. MBIA alleges that as a result of the repudiation, it suffered damages flowing from IndyMac Federal's and the FDIC's breaches of the PSA that should be calculated as of the date of the appointment of the receiver on July 11, 2008.
The complaint also contains equitable claims. In Count VI, MBIA seeks injunctive relief against FDIC Corporate, FDIC Receiver, and FDIC Conservator under the Administrative Procedure Act ("APA"), 5 U.S.C. § 551, et seq. It asks the Court to order the FDIC to reverse its denial of MBIA's claims for the reasons set forth in the damages claims: that its losses are an administrative expense of the receivership. The count also seeks a declaration that the distribution of assets received from OneWest in connection with the sale of IndyMac Federal was unlawful and an order directing FDIC Corporate to return any assets it received so that MBIA can be paid. Am. Compl. at 55. Count VII challenges FDIC Receiver's repudiation of the PSA for the INDS 2007-1 Transaction on the grounds that it did not occur within a "reasonable period." Am. Compl. ¶¶ 194--202.
In sum, MBIA's claims boil down to a single theory: that FDIC, as conservator for IndyMac Federal, specifically assumed the PSAs for the Transactions when it executed the P&A Agreement assuming assets and liabilities of the failed bank; that the alleged assumption of those contracts under the P&A Agreement on behalf of IndyMac Federal constituted the conservator's "execution or approval" of the PSAs for purposes of 12 U.S.C. § 1821(d)(20); and that, therefore, damages flowing from the conservator's alleged breaches of the PSAs -- in particular the failure to participate in the loan breach remedy or "put-back process" -- are administrative expenses of the receivership entitled to priority payment under section 1821(d)(11).
FDIC Receiver contends that the complaint is a transparent effort by the insurer to repackage its unrecoverable claims against IndyMac Bank -- for losses incurred due to the bank's allegedly risky and reckless pre-receivership loan practices -- into claims against the receiver itself. FDIC Receiver insists that MBIA's effort to re-characterize its claims must fail because even if IndyMac Federal and FDIC Conservator assumed the bank's obligations under the PSAs (which is by no means clear), that assumption did not constitute "approval" of the contracts by the FDIC under section 1821(d)(20) of the statute, and MBIA is therefore not entitled to priority over other creditors.
FDIC Receiver moved to dismiss MBIA's claims for monetary damages (Counts I--V and VIII) under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction, and it moved to dismiss MBIA's claims for injunctive and declaratory relief (Counts VI--VII) under Rule 12(b)(6) for failure to state a claim. FDIC Corporate separately moved to dismiss MBIA's sole claim against it (Count VI) under Rule 12(b)(6) for failure to state a claim.
In evaluating a motion to dismiss under either Rule 12(b)(1) or 12(b)(6), the Court must "treat the complaint's factual allegations as true . . . and must grant plaintiff 'the benefit of all inferences that can be derived from the facts alleged.'" Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000), quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979) (internal citations omitted). Nevertheless, the Court need not accept inferences drawn by the plaintiff if those inferences are unsupported by facts ...