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Willner v. Dimon

United States District Court, District of Columbia

January 4, 2018

JAMES DIMON et al., Defendants.



         Plaintiffs Michael and Marguerite Willner defaulted on a $3 million refinancing loan that they obtained in 2006 from the now-defunct Washington Mutual Bank. Seeking to halt a foreclosure sale of their property, the Willners brought suit in the Eastern District of Virginia alleging, in essence, that the banks who had since acquired rights to the loan had no power to enforce it. That court dismissed many of the Willners' claims for lack of subject matter jurisdiction. It found that the claims were governed by the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”)-a statute that establishes an administrative scheme to resolve claims against failed financial institutions that have been placed in receivership with the Federal Deposit Insurance Corporation (“FDIC”). As a result, in the court's view, the Willners' failure to raise their claims with the FDIC in the first instance barred the court from reviewing them.

         The Fourth Circuit affirmed that dismissal in February 2017. In the meantime, the Willners had filed their claims with the FDIC. The FDIC denied them as untimely because they were filed long after the December 2008 “bar date” that the FDIC set to govern claims against Washington Mutual Bank. The Willners, proceeding pro se, then brought suit in this Court challenging the FDIC's denial. Following the Fourth Circuit's decision, they amended their complaint to add constitutional claims against the FDIC. Because the Willners fail to state viable claims against the FDIC, and because the doctrine of issue preclusion requires this Court to accord conclusive effect to the Fourth Circuit's relevant holdings, the Court will dismiss all of the Willners' claims.

         I. Background

         The following facts are drawn from the Willners' Amended Complaint and are taken as true for purposes of this motion. The Willners own a home on an eleven-acre lot in Lorton, Virginia along the Potomac River. They purchased the lot in 1989 for $477, 000 and spent about $2 million to build a custom home on the property. Am. Compl. ¶¶ 28-29. Between then and 2006, the Willners obtained three refinancing loans from Washington Mutual Bank, FA (“WMBFA”)-a trade name for the now-defunct Washington Mutual Bank (“WMB”)-to “cash out” equity in the property in order to pay their mortgage. Id. ¶ 32.

         At the heart of this litigation is the third of these refinancing loans, which Mr. Willner (who is an attorney) obtained from WMBFA in September 2006 for $3 million. In applying for this loan, Mr. Willner alleges that he told a WMBFA employee that he expected about $52, 000 in annual income that year. Id. ¶ 37. The employee, according to Mr. Willner, listed this figure as Mr. Willner's monthly income. Id. ¶ 38. A few weeks later, a different WMBFA employee provided Mr. Willner with WMBFA's estimate of the property value-$5.2 million-which the Willners believed to be accurate. But WMBFA received a separate, undisclosed appraisal of the property for only $4 million. Mr. Willner alleges that he would not have obtained the loan (and instead would have sold the property) had he known about the lower appraisal value. Id. ¶ 49.

         The refinancing loan was secured by a deed of trust for the property. Id. Ex. C. Mrs. Willner, afraid of risking her share of the equity, refused to apply or cosign for the loan and did not sign the promissory note. Id. ¶ 50-51. Both she and Mr. Willner did, however, sign the deed of trust, which identifies both as the “borrower.” Id. ¶¶ 64-65; id. Ex. C, at 3, 15. By signing the deed and not the promissory note, Mrs. Willner apparently believed that she was releasing her interest in Mr. Willner's share of the property and thereby allowing him to secure the loan with his interest alone. Id. ¶ 65.

         Not long after the 2008 recession struck, WMB collapsed. On September 25, 2008, the Office of Thrift Supervision, an arm of the Treasury Department, declared the bank insolvent and placed it into receivership with the FDIC. Id. ¶ 101. Notice of the FDIC's receivership and the claims bar date was published in several newspapers, including the Wall Street Journal. Decl. Donald G. Grieser Support FDIC-Receiver's Mot. Dismiss ¶ 5. The day that the FDIC took over WMB, it facilitated a transaction whereby JPMorgan Chase bought most of WMB's assets, including the right to service Mr. Willner's loan. Am. Compl. ¶ 103. Sometime in October 2008, Chase notified Mr. Willner that it had acquired the right to service the loan from the FDIC. Id. ¶ 107.

         The Willners' loan was subsequently repackaged and transferred to U.S. Bank N.A., and the right to service the loan was transferred to Select Portfolio Servicing, Inc. Id. ¶¶ 16-17. The Willners made payments on the loan for several years without serious issue. But by mid-2010, signs of trouble arose. The couple sought to refinance the loan with Chase in July 2010, but were denied due to insufficient income. Id. ¶ 111. By May 2011, the Willners were unable to keep up on their loan payments and defaulted. Id. ¶¶ 112, 115-16. Mr. Willner asked Chase for a 90-day delay on foreclosure so that he could attempt to sell the property, but Chase apparently ignored the request. Id. ¶ 115. He also sought a loan modification from Chase, but it notified him that he was ineligible due to the nature of the loan. Around this time, Mr. Willner discovered documents purportedly showing that his loan application listed his annual income as $624, 000 (or $52, 000 per month); that WMBFA had received a $4 million appraisal for the property; and that, according to records of the Securities and Exchange Commission, WMBFA ceased to exist several months before the loan agreement was executed. Id. ¶¶ 117-52.

         In November 2012, Chase notified the Willners that it intended to foreclose on the property by auctioning it the next month. Mr. Willner filed for Chapter 11 bankruptcy shortly thereafter. Id. ¶ 182. While bankruptcy proceedings were pending, [1] the Willners in July 2014 filed suit pro se in the Eastern District of Virginia against JPMorgan Chase, its CEO James Dimon, U.S. Bank, and Select Portfolio Servicing. See Willner v. Dimon, 2015 WL 12755135 (E.D. Va. May 11, 2015). In its twenty-seven counts, the complaint essentially sought a declaration that the promissory note and deed of trust were unenforceable, an injunction to halt any foreclosure, and damages. Id. at *2. By order issued in May 2015, the district court dismissed the entire case on various grounds. As relevant here, it dismissed twelve of the counts for lack of subject matter jurisdiction, finding that, under FIRREA, the Willners' failure to properly exhaust those claims with the FDIC precluded the court from reviewing them. The Willners then appealed to the Fourth Circuit.

         In August 2015, while their appeal was pending, the Willners each filed a proof of claim with the FDIC. Decl. of Donald G. Grieser in Support FDIC-Receiver's Mot. Dismiss (“Grieser Decl.”) ¶ 6; id Ex. C. Both alleged six identical claims that requested essentially the same relief sought in their Fourth Circuit litigation. In certified letters dated September 2, 2015, the FDIC denied the Willners' claims. Defs.' MTD Ex. D. The FDIC explained that it received their proofs of claim after the December 30, 2008 bar date; that FIRREA (specifically, 12 U.S.C. § 1821(d)(5)(C)(i)) demanded denying the claims as untimely filed; and that the FDIC would “not consent to any further administrative review of this claim determination.” Id

         Shortly after they received the FDIC denial letters, the Willners brought suit in this Court against James Dimon, JPMorgan Chase, U.S. Bank, Select Portfolio Servicing, and nineteen unspecified Does-all together, the “bank defendants.” The Willners sought the same relief that was denied by the FDIC:

1. A declaration that none of the bank defendants have a legal right to foreclose on the property under the deed of trust because it was signed only by Mr. Willner;
2. A similar declaration based on the fact that the bank defendants would be unjustly enriched if allowed to foreclose;
3. Damages and the right to rescind the loan agreement based on all of the bank defendants' fraudulent concealment of facts material to the contract;
4. A declaration as to the bank defendants that the deed of trust is unenforceable because WMBFA had no legal capacity to enter a loan agreement;
5. An order to quiet title against U.S. Bank based on the foregoing; and
6. Damages based on the bank defendants' conspiracy to commit fraudulent concealment.

See Amend. Compl. 34-46. At the parties' request, this Court stayed this case until the Fourth Circuit issued its decision.

         The Fourth Circuit ultimately affirmed dismissal. 849 F.3d 93, 114 (4th Cir. 2017). With respect to the claims that had been dismissed pursuant to FIRREA, [2] the court rejected the argument that those claims actually challenged conduct by Chase and U.S. Bank-neither of which were under FDIC receivership-and therefore did not fall within FIRREA's exhaustion requirement. As the court explained, while several counts of the complaint were “formally asserted against Chase and U.S. Bank, they [were] functionally pleaded against WMB's acts and omissions.” Id. at 104; see also id. at 110-11. The Court also saw no constitutional problem with FIRREA's withdrawal of jurisdiction for claims that purportedly “didn't accrue until Chase threatened foreclosure, which was years after the December 2008 ‘bar date, '” as it found that “the Willners had actual notice that WMB was in receivership” before that date. Id. at 111. The Willners did not seek Supreme Court review of the Fourth Circuit decision.

         Following the Fourth Circuit's decision, this Court lifted its stay. The Willners filed an amended complaint, adding as a defendant the FDIC in its capacity as receiver for WMB. The amended complaint asserted three new counts against the FDIC alone with a unifying theme: that, unless the Court agreed to review the six claims raised against the bank defendants, the FDIC's administrative denial of those claims as untimely would violate their due process rights under the Fifth Amendment; their Seventh Amendment right to a jury trial; and Article III. Am. Compl. 49-51. In separate motions, the bank defendants and the FDIC have moved to dismiss the Willners' claims.

         II. Legal Standards

         A. FIRREA's ...

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