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Bhc Interim Funding Ii, L.P., and Bhc Interim Funding Iii v. Federal Deposit Insurance Corporation

March 30, 2012


The opinion of the court was delivered by: Barbara Jacobs Rothstein United States District Judge


Plaintiffs BHC Interim Funding II, L.P. and BHC Interim Funding III, L.P. (collectively, "BHC") bring this suit against the Federal Deposit Insurance Corporation as receiver for Waterfield Bank. Defendant FDIC has moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Upon consideration of the motion [Dkt. #10], and the opposition thereto, the Court concludes that the motion must be granted as to one claim. The court dismisses the remaining claims without prejudice for lack of subject matter jurisdiction.


"Passed to 'enable the FDIC . . . to expeditiously wind up the affairs of literally hundreds of failed financial institutions throughout the country,'" Am. Nat. Ins. Co. v. FDIC, 642 F.3d 1137, 1141 (D.C. Cir. 2011) (quoting Freeman v. FDIC, 56 F.3d 1394, 1398 (D.C. Cir. 1995)), "[t]he Financial Institutions Reform, Recovery and Enforcement Act of 1989 ('FIRREA') gives the receivers of failed savings and loan institutions wide-ranging powers to consolidate and liquidate those institutions," Nashville Lodging Co. v. Resolution Trust Corp., 59 F.3d 236, 241 (D.C. Cir. 1995). Upon its appointment as receiver, the FDIC acquires "all rights, titles, powers, and privileges of the insured depository institution," 12 U.S.C. § 1821(d)(2)(A)(i), along with the duty-limited in certain ways not relevant here-to "pay all valid obligations of the insured depository institution," 12 U.S.C. § 1821(d)(2)(H).

The FDIC pays those obligations through an administrative claims process. See 12 U.S.C. §§ 1821(d)(3)--(13). FIRREA requires the FDIC to both publish, 12 U.S.C. § 1821(d)(3)(B), and mail, id. § 1821(d)(3)(C), notice to the failed institution's creditors, setting "a date by which claims must be presented, not less than 90 days after publication," Freeman, 56 F.3d at 1399. The FDIC has 180 days after a claim is filed to decide whether to pay it or disallow it. 12 U.S.C. § 1821(d)(5)(A). If the FDIC denies the claim or fails to rule promptly, the claimant may seek judicial review. Id. § 1821(d)(6)(A). But unless a claim is first presented to the FDIC, no court has jurisdiction over it, see id. § 1821(d)(13)(D), because "FIRREA is strict in its demand that claimants first obtain an administrative determination." Office & Prof'l Emps. Int'l Union, Local 2 v. FDIC, 962 F.2d 63, 65 (D.C. Cir. 1992).


When deciding a 12(b)(6) motion "a court construes the complaint liberally in the plaintiff's favor, accepting as true all of the factual allegations contained in the complaint, with the benefit of all reasonable inferences derived from the facts alleged." AktieselskabetAF 21. November 2001 v. Fame Jeans Inc., 525 F.3d 8, 15 (D.C. Cir. 2008) (citations, brackets, and quotation marks omitted); see also Kassem v. Wash. Hosp. Ctr., 513 F.3d 251, 253--54 (D.C. Cir. 2008); Stewart v. Nat'l Educ. Ass'n, 471 F.3d 169, 173 (D.C. Cir. 2006). Courts may not consider "matters outside the pleadings" without converting the 12(b)(6) motion into "one for summary judgment under Rule 56," FED. R. CIV. P. 12(d), but documents attached to the complaint or incorporated by reference therein are not outside of the pleadings. See Abhe & Svoboda, Inc. v. Chao, 508 F.3d 1052, 1059 (D.C. Cir. 2007). Documents "appended to [a] motion to dismiss" may also be considered without converting to summary judgment if they are "referred to in the complaint," "integral" to a claim, and their "authenticity is not disputed." Kaempe v. Myers, 367 F.3d 958, 965 (D.C. Cir. 2004). Bearing those standards in mind, the Court summarizes the allegations underlying this complaint.

In 2008, BHC made two loans to Affinity Financial Corporation ("Affinity"), totaling $14.5 million. Compl. ¶¶ 10--11. Each loan was secured by a first priority lien on the assets of Affinity, id. ¶ 12, and guaranteed by Waterfield Financial Services ("Waterfield Financial"), a wholly-owned subsidiary of Affinity. Id. ¶¶ 1, 13. The Waterfield Financial guarantees were secured by a first priority lien on the company's "[d]eposit [a]ccounts (as defined in the UCC but excluding deposits made by customers of Waterfield Financial Services, Inc. . . . and held at other banks)," as well as its "[g]eneral [i]ntangibles." Id., Ex. A at 47--48 (Continuing Unconditional Guarantee of Waterfield Financial (Apr. 28, 2008)), 57--58 (Continuing Unconditional Guarantee of Waterfield Financial (Jan. 15, 2008)). BHC perfected its security interest in those assets by filing U.C.C. financing statements with the Indiana Secretary of State. Id. ¶ 14; id.,Ex. A at 65 (U.C.C. Financing Statement (Apr. 28, 2008)); id. at 73 (U.C.C. Financing Statement (Jan. 15, 2008)). In March 2010, Affinity defaulted on its loan and Waterfield Financial defaulted on its guarantees. Id. ¶¶ 42--43.

The primary asset of both Affinity and its subsidiary Waterfield Financial was a stream of income from the business of selling financial products and services to the members of "affinity groups" such as unions and other membership organizations. Waterfield Financial*fn1 would enter into a licensing agreement with a group, then market products such as group-branded checks and ATM cards and, most importantly, bank accounts with favorable interest rates to that group's members. Id. ¶ 16. Waterfield Financial would contract with banks to accept the deposits of its customers, which were then held in single pooled account at each participating bank. The participating banks would pay a fee to Waterfield Financial based on the average balance in the pooled account. Id. ¶¶ 17--18. Banks holding such accounts would not, however, interact directly with Waterfield Financial customers-all customer service, including the processing of deposits and withdrawals and the associated record keeping, was performed by another bank. That bank would send customers' deposits to the other, larger banks in accordance with Waterfield Financial's instructions. Id. ¶ 19.

In early 2008, Affinity acquired Waterfield Bank, which assumed the customer service and bookkeeping role described above and also maintained some customer deposits itself. Id. ¶ 21. Under the agreement governing their deposit accounts, customers gave Waterfield Bank "the authority to determine whether it will retain [the customer's] funds in a direct deposit relationship" with the customer. Def.'s Mot. for Summ. J., Ex. 1 (Waterfield Bank, Deposit Account Terms and Conditions (Sept. 2009)) ("Customer Agreement"), at 1.*fn2 If Waterfield Bank chose not to maintain the funds, it would "notify [Waterfield Financial]," which the customer appointed as her "special attorney-in-fact and agent ('Agent') to place [the customer's] deposit in a sub-account at another financial institution (a 'Participating Bank')." Id. Each customer authorized Waterfield Bank "to transfer [that customer's] deposit to a Participating Bank at the direction of [Waterfield Financial]," and further "authorize[d] and direct[ed] each Participating Bank to act in accordance with instructions given by the Agent." Id. The customer agreed that, if her deposit was transferred, "the Participating Banks [would] pay a gross interest amount to [Waterfield Bank], for the benefit of [Waterfield Financial], who, in turn, [would] instruct [Waterfield Bank] to deduct its fee and deposit the remainder in [the customer's] account." Id. Finally, each customer agreed that Waterfield Bank and Waterfield Financial could "assign this Agreement to any successor or other person or entity . . . without [the customer's] prior knowledge or consent." Id. at 2.

When Waterfield Financial guaranteed the loans that BHC made to Affinity, and gave as security for that guarantee a lien in its general intangibles, its largest intangible asset was its right to the fees described above. Compl. ¶ 22. Through February 2010, those fees produced enough revenue to enable Affinity (the parent of Waterfield Financial) to make its monthly loan payments to BHC of approximately $145,000. Id. ¶ 23.

In late February 2010, the Office of Thrift Supervision ("OTS"), the regulatory body that then oversaw savings and loan associations, determined that Waterfield Bank was undercapitalized. OTS "threatened [Waterfield Financial] and its principals with unspecified legal action if Affinity did not cause [Waterfield Financial] to immediately assign to [Waterfield Bank]" the contracts underlying the pooled-account scheme and "all rights to the [pooled accounts] held by [Waterfield Financial] as agent for its customers." Id. ¶ 24. An assignment agreement between Waterfield Financial and Waterfield Bank was completed by March 2, 2010. See id., Ex. A at 8--15 (the "Assignment Agreement"). In its initial recitals, the assignment agreement stated that:

[Waterfield Bank] has been, by letter dated February 26, 2010, directed ("the Directive") by the Office of Thrift Supervision, Department of the Treasury . . . to accept the assignment of all deposit account agreements held by [Waterfield Financial] and to ensure "that the account titles at the participating institutions are changed from '[Waterfield Financial] as agent for its customers' to 'Waterfield Bank as agent for its customers,[']" pursuant to the Waterfield Bank Deposit Account Terms and Conditions . . . .

[A]s a result of the Directive, [Waterfield Financial] desires to transfer to [Waterfield Bank] (x) its full right, title and interest in and to all deposit accounts opened by retail customers who appointed [Waterfield Financial] as their special attorney-in-fact and agent . . . under the Waterfield Bank Deposit Account Terms and Conditions . . . on all [Waterfield Financial] Banking Centers previously or now owned and/or operated by [Waterfield Financial] (the "Agency Relationships"), and (y) its authority to act as Agent ...

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