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Westberg v. Federal Deposit Insurance Corp.

United States District Court, District of Columbia

February 26, 2013

Kim S. WESTBERG, et al., Plaintiffs,

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Michael Weitzner, Cooper & Kirk PLLC, Washington, DC, Christopher A. Lavoy, Ridenour, Hienton & Lewis, PLLC, Phoenix, AZ, for Plaintiffs.

Jaime Walker Luse, John Bucher Isbister, Tydings & Rosenberg LLP, Baltimore, MD, for Defendants.



Plaintiffs Kim and Laverne Westberg sued to prevent the defendants from enforcing the provisions of a construction loan agreement they made with Silver State Bank. Defendants are the successors to Silver State Bank: the Federal Deposit Insurance Corporation (" FDIC" ), which took over the bank after it failed, and Multibank 2009-1 RES-ADC Venture, LLC (" Multibank" ), which became the successor-in-interest to the Westbergs' loan when it purchased the loan from the FDIC. The court granted a motion to dismiss as to the FDIC, so the only remaining claim in this case is for declaratory judgment against Multibank.

The issue before the Court now is whether it has subject matter jurisdiction over this claim. The Financial Institutions Reform, Recovery and Enforcement Act (" FIRREA" ), which authorizes the FDIC to take over failing depository institutions, established an administrative process for the adjudication of claims arising from the FDIC's actions. Affected parties must pursue their claims through the administrative process before they can invoke the court's jurisdiction. Because the Westbergs did not submit their claim for administrative adjudication, they did not exhaust their administrative remedies. Accordingly, the Court does not have jurisdiction over this claim against Multibank, and the remaining count in the complaint will be dismissed.


In May of 2008, the Westbergs took out a construction loan with Silver State Bank to build a home on real property they owned in Arizona.[1] Am. Compl. ¶ 7. A lien was placed on the property as part of the construction loan agreement. Id. ¶ 9. The Westbergs submitted a first draw request under the loan and received a disbursement of $171,510.95. Id. ¶ 13. They received no further disbursements under the loan because before they could complete construction, Silver State Bank failed, and the FDIC took it over as receiver. Id. ¶ 15. After assuming control of Silver State, the FDIC exercised its statutory authority as receiver to repudiate the Westbergs' loan. Id. ¶ 17 and Ex. 5. The receiver's decision to disaffirm the loan agreement relieved the agency, as receiver, of any obligations with respect to the unfunded portion of the loan, and the letter noted, " [w]ith respect to any outstanding

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balance previously funded, future payments should be made in accordance with the terms of your agreement with the institution." Id., Ex. 5.

The Westbergs filed an administrative claim with the FDIC for damages arising from the repudiation, and the FDIC denied the claim. Id. ¶¶ 18-19, Exs. 6-7. After the repudiation, the FDIC demanded that the Westbergs repay the money they had been obligated to repay to Silver State under the loan agreement. Id. ¶ 20.

On September 3, 2009, the Westbergs sued the FDIC challenging its efforts to enforce their loan agreement with Silver State Bank. Count I sought a declaratory judgment that: (a) the FDIC could not repudiate the loan and still require the Westbergs to repay the funds they had already received; and (b) the lien on the property was null and void. Count II sought damages arising from the repudiation and delays with construction. On November 9, 2009, the FDIC filed a motion to dismiss.

Three months later, on February 9, 2010, the FDIC sold the Westberg loan to Multibank, which reiterated the demand that the Westbergs repay the funds disbursed to them under the loan agreement. Id. ¶ 23. The Westbergs filed an amended complaint on July 19, 2010, in which they added the factual allegations that the FDIC sold the loan to Multibank and that Multibank, in turn, had demanded repayment. The amended complaint added Multibank as a defendant to Count I for declaratory judgment but not to Count II for damages. Id. ¶¶ 23, 28. Multibank moved to join the FDIC's motion to dismiss on August 25, 2010. On January 4, 2011, the court granted the motion to dismiss as to the FDIC and denied it as to Multibank.[2] The only count remaining is Count I for declaratory judgment against Multibank.

On March 21, 2011, Multibank filed a motion for summary judgment and plaintiffs filed a cross motion on April 11, 2011. Def.'s Mot. for Summ. J. [Dkt. # 38], Pls.' Cross-Mot. for Summ. J. [Dkt. # 40]. The parties briefed their summary judgment motions. Pls.' Opp. to Mot. for Summ. J. [Dkt. # 39]; Def.'s Reply to Opp. to Mot. for Summ. J. and Opp. to Cross Mot. [Dkt. 41, 42], Pls.' Reply to Opp. to Cross Mot. [Dkt. # 43].

On January 3, 2012, the court stayed the case and ordered the parties to brief the issue of subject ...

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