Opinion
Civil No. 18-1107 (FAB)
2022-07-20
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Doral Bank, Plaintiff/Counter-Defendant v. MAPFRE PRAICO INSURANCE COMPANY OF PUERTO RICO; Constructora Japimel, Inc., Defendants/Counter-Claimants Mapfre Praico Insurance Company of Puerto Rico, Third—Party Plaintiff v. Echandi Guzmán & Associates, Inc.; Efraín Echandi-Otero; Ace Insurance Company, Third—Party Defendants
Jairo A. Mellado-Villarreal, Tessie Marie Leal-Garabis, Mellado & Mellado Villarreal, San Juan, PR, for Plaintiff/Counter-Defendant. Leslie Alvarado-Lliteras, Alvarado, Vinas & Fernandez, P.S.C., San Juan, PR, for Defendant/Counter-Claimant/Third—Party Plaintiff MAPFRE Praico Insurance Company of Puerto Rico. Fernando Sabater-Clavell, Ian P. Carvajal-Zarabozo, Manuel Sosa-Baez, Saldana, Carvajal & Velez-Rive, PSC, San Juan, PR, for Defendant/Counter-Claimant Constructora Japimel, Inc. Luis G. Martinez-Llorens, San Juan, PR, for Third—Party Defendants Echandi Guzmán & Associates, Inc., Efraín Echandi-Otero. Francisco J. Colon-Pagan, Colon & Colon PSC, San Juan, PR, for Third—Party Defendant ACE Insurance Company.
Jairo A. Mellado-Villarreal, Tessie Marie Leal-Garabis, Mellado & Mellado Villarreal, San Juan, PR, for Plaintiff/Counter-Defendant.
Leslie Alvarado-Lliteras, Alvarado, Vinas & Fernandez, P.S.C., San Juan, PR, for Defendant/Counter-Claimant/Third—Party Plaintiff MAPFRE Praico Insurance Company of Puerto Rico.
Fernando Sabater-Clavell, Ian P. Carvajal-Zarabozo, Manuel Sosa-Baez, Saldana, Carvajal & Velez-Rive, PSC, San Juan, PR, for Defendant/Counter-Claimant Constructora Japimel, Inc.
Luis G. Martinez-Llorens, San Juan, PR, for Third—Party Defendants Echandi Guzmán & Associates, Inc., Efraín Echandi-Otero.
Francisco J. Colon-Pagan, Colon & Colon PSC, San Juan, PR, for Third—Party Defendant ACE Insurance Company.
OPINION AND ORDER
BESOSA, Senior District Judge. This case comes before the district court via removal from the Puerto Rico Court of First Instance — Carolina Division by Plaintiff/Counter-Defendant Federal Deposit Insurance Corporation, as receiver for Doral Bank ("FDIC-R"). (Docket No. 1.) The FDIC-R now moves to dismiss all claims against it due to lack of subject matter jurisdiction. (Docket No. 7.) Defendant/Counter-Claimant Constructora Japimel, Inc. ("Japimel") opposes this motion. (Docket Nos. 8 and 73.) For the reasons set forth below, the Court DENIES the FDIC-R's motion to dismiss.
I. Background
On February 14, 2007, Japimel contracted to build a housing project in Carolina, Puerto Rico for a developer named Pórticos del Sol ("Pórticos"). (Docket No. 1 at p. 1.) Doral Bank ("Doral") financed the project and Mapfre Praico Insurance Company of Puerto Rico ("Mapfre") guaranteed Japimel's work with performance bonds. Id. For various reasons the construction stalled, and the project eventually fell apart. (Docket No. 12-1 at pp. 3–4; Docket No. 12-4 at pp. 14–16.) On March 9, 2009, Doral signed an agreement with Pórticos to assume all Pórticos’ rights under the construction contract with Japimel, (Docket No. 5 at p. 3,) and on October 2, 2009, Doral sued Mapfre and Japimel in the Court of First Instance of Puerto Rico ("Court of First Instance"). (Docket No. 12-1.) Japimel counterclaimed, alleging breach of contract. (Docket No. 12-4.) On March 31, 2011, Japimel filed an arbitration complaint, (Docket No. 5 at p. 4,) and on February 9, 2012, the Court of First Instance referred the claim to arbitration based on an arbitration clause in the construction contract. Id. The arbitration would determine whether the contract between Japimel and Pórticos had been breached and by whom. Id.; Docket No. 7 at p. 4.
On February 27, 2015, while the arbitration was on-going, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico closed Doral and appointed the FDIC as receiver for the failed bank. (Docket No. 1 at p. 2; Docket No. 7 at p. 4.) On June 4, 2015, Japimel submitted its claims to the FDIC-R in compliance with the required administrative claims process. (Docket No. 7 at p. 4.) On June 15, 2015, Bautista REO PR Corp. ("Bautista") filed a motion in the arbitration stating it had a "Bill of Sale" with the FDIC-R by which Bautista had acquired the credit facilities between Doral and Pórticos, and moved to substitute Doral in the arbitration proceeding. (Docket No. 5 at p. 5.) On June 23, 2015, Bautista filed a motion to substitute Doral before the Court of First Instance, (Docket No. 12-7,) but that court determined that it lacked jurisdiction to grant a substitution because the case had been dismissed without prejudice pending arbitration. (Docket No. 12-8 at pp. 7–8.) On December 2, 2015, the FDIC-R denied Japimel's administrative claim, stating that the claim was "[n]ot proven to the satisfaction of the FDIC as Receiver for Doral Bank" and that "[t]he liability or obligation, if any, related to your claim has been assumed by: Bautista Finance Holdings ..." (Docket No. 7-2.) Japimel opposed the substitution of Bautista in the arbitration proceeding and in the Court of First Instance for reasons not relevant here, and the litigation continued for more than two years. (Docket No. 5 at pp. 5–11; Docket No. 8 at pp. 5–7.) Bautista has not yet been substituted into the arbitration or in the Court of First Instance. Id.
On February 23, 2018, the FDIC-R filed a notice of substitution in the Court of First Instance to substitute itself as plaintiff. (Docket No. 12-17.) On this same date, the FDIC-R removed the case to the United States District Court for the District of Puerto Rico ("district court"). (Docket No. 1.) The FDIC-R then moved to dismiss for lack of subject matter jurisdiction, arguing that Japimel had not exhausted its administrative remedies. (Docket No. 7.) Following litigation over whether the removal was proper, the Court must now decide the FDIC-R's motion to dismiss.
II. Applicable Law
A. Federal Rule of Civil Procedure 12(b)(1) Standard
Federal courts are courts of limited jurisdiction. Destek Grp., Inc. v. State of N.H. Pub. Utils. Comm'n, 318 F.3d 32, 38 (1st Cir. 2003). Accordingly, "federal courts have the duty to construe their jurisdictional grants narrowly." Fina Air, Inc. v. United States, 555 F.Supp.2d 321, 323 (D.P.R. 2008) (citing Alicea-Rivera v. SIMED, 12 F.Supp.2d 243, 245 (D.P.R. 1998) ). A party may move to dismiss an action for lack of subject-matter jurisdiction. Fed. R. of Civ. P. 12(b)(1). The party asserting jurisdiction shoulders the burden of showing the existence of federal jurisdiction. Viqueira v. First Bank, 140 F.3d 12, 16 (1st Cir. 1998) (citations omitted).
B. FIRREA's Administrative Process Requirements
Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), Pub.L. No. 101–73, 103 Stat. 183 "in response to the savings and loan crisis in the 1980s." Acosta-Ramírez v. Banco Pop. de Puerto Rico, 712 F.3d 14, 18 (1st Cir. 2013). FIRREA establishes that when the FDIC is acting as a conservator or receiver, it succeeds to "all the rights, titles, powers, and privileges ... and the assets of the insured depository institution." 12 U.S.C. § 1821(d)(2)(A)(i). FIRREA also establishes a mandatory administrative claims review process, which must be exhausted by every claimant seeking payment from the assets of the affected institution. 12 U.S.C. § 1821(d)(3)-(6). "FIRREA makes participation in the administrative claims review process mandatory for all parties asserting claims against failed institutions, regardless of whether lawsuits to enforce those claims were initiated prior to the appointment of a receiver." Marquis v. FDIC, 965 F.2d 1148, 1151 (1st Cir. 1992). Federal district courts have no subject-matter jurisdiction when a plaintiff brings a claim against a failed institution or the FDIC as its receiver without going through the claims-processing regime. See Demelo v. U.S. Bank Nat'l Ass'n, 727 F.3d 117, 122 (1st Cir. 2013).
III. Discussion
The FDIC-R argues that Japimel failed to exhaust the administrative claims process and the Court therefore lacks subject matter jurisdiction. (Docket No. 7 at p. 1.) Japimel argues that its claims are not the type that must go through the claims process. (Docket Nos. 8 and 73.)
A. Application of the Administrative Claims Process to Japimel
FIRREA establishes a jurisdictional bar that "[e]xcept as otherwise provided in this subsection, no court shall have jurisdiction over
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such institution or the Corporation as receiver.
12 U.S.C. § 1821(d)(13)(D). "Except as otherwise provided in this subsection" has been interpreted as an exhaustion requirement to present claims in accordance with the rest of 12 U.S.C. § 1821. See Natl. Union Fire Ins. Co. of Pittsburgh, Pa. v. City Sav., F.S.B., 28 F.3d 376, 383 (3d Cir. 1994), as amended (Aug. 29, 1994). Japimel argues that it did not have to go through the administrative process because its claims are outside of both subpart (i) and (ii) of section 1821(d)(13)(D) : they are neither for payment from the assets of the failed bank, since the liability for the claim had been transferred to Bautista, nor are they based on the acts or omissions of the failed bank, because the allegations in its complaint were about the failings of Pórticos, not Doral. (Docket Nos. 8 and 73.) Japimel's argument has some merit. Caselaw suggests that a purchase and assumption agreement ("P & A agreement") that assigns liabilities to a new bank may remove claims beyond the ambit of subpart (i), but Japimel cites no precedent requiring so, and the Court is unable to find any binding cases stating so directly. Cf. Farnik v. F.D.I.C., 707 F.3d 717, 725 (7th Cir. 2013) ("In the absence of any evidence that the FDIC intended to transfer—and MB Financial intended to assume—liability for these claims, we credit the March 2010 letter and conclude that liability for these claims remains with the FDIC as InBank's receiver. And since the Appellants did not administratively exhaust those claims, the federal courts lack subject matter jurisdiction.") (citations omitted); Acosta-Ramírez v. Banco Pop. de Puerto Rico, 712 F.3d 14, 19 (1st Cir. 2013) (while analyzing whether plaintiff's claims against the successor bank BPPR required exhaustion of the administrative remedies process, the court noted that "the P & A Agreement indemnifies BPPR against liabilities it did not assume through the P & A Agreement, including claims based on rights of employees of [failed bank] Westernbank .... Hence, any claim for severance pay for the plaintiffs’ tenure at Westernbank is ultimately against the FDIC."); see also In re Miraj and Sons, Inc., 192 B.R. 297, 310 (Bankr. D. Mass. 1996), amended, 197 B.R. 737 (Bankr. D. Mass. 1996) ("Once the FDIC sold the Notes, the Notes were no longer an asset of the failed institution to which the claim process applied. In fact, in its letter of September 19, 1994 disallowing the Debtor's proof of claim, the FDIC stated ‘[t]he assets in question were transferred ... any liability and/or authority over this matter is transferred with the assets. Any questions should be referred to [Cadle].’ Accordingly, the Court finds that the claims process is inapplicable on these facts.") As to the application of subpart (ii), Japimel's complaint does include allegations against Doral alone, such as that Doral knew or should have known that the project did not have permits from the telecommunications regulatory board. See Docket No. 12-4 at p. 15; see Demelo, 727 F.3d at 122 (jurisdictional bar "applies to any act or omission of the failed financial institution.")
The Court will assume without deciding that subparts (i) and (ii) of section 1821(d)(13)(D) applied to Japimel's claims, however, because the Court finds that Japimel exhausted its administrative remedies, as will be explained below.
B. Exhaustion of Administrative Remedies By Japimel
When the FDIC disallows a claim, the claimant has 60 days from the date of the notice of disallowance to:
request administrative review of the claim in accordance with subparagraph (A) or (B) of paragraph (7) or file suit on such claim (or continue an action commenced before the appointment of the receiver ) in 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 (and such court shall have jurisdiction to hear such claim).
12 U.S.C. § 1821(d)(6)(A) (emphasis added). If the claimant fails to take any of these actions within the allotted time, then "[the FDIC's] disallowance [of the claim] shall be final, and the claimant shall have no further right or remedies with respect to such claim." 12 U.S.C. § 1821(d)(6)(B).
Japimel's claim was disallowed on December 2, 2015. (Docket No. 7-2.) It thus had until 60 days from then, until January 31, 2016, to either "file suit on such claim (or continue an action commenced before the appointment of the receiver) in the district or territorial court of the United States" or have no further rights with respect to such a claim. 12 U.S.C. § 1821(d)(6)(A)–(B).
On its face, the location of the parenthetical phrase ‘continue an action commenced before the appointment of the receiver’ seems also to require that the action be in the district court, but courts have construed this parenthetical to be a separate avenue for claimants, noting that the structure of the parenthetical and the use of the words ‘or’ and ‘continue’ establish an alternative to "the process defined in the body of the sentence." See, e.g. Resol. Tr. Corp. v. J.F. Associates, 813 F. Supp. 951, 955 (N.D.N.Y. 1993) ("Congress chose to the use the verb ‘continue’ in this parenthetical at the exclusion of such verbs as ‘recommence’ or ‘refile.’ Thus, the connotation is that Congress intended that previously commenced actions would ‘continue’ without interruption whereas new actions would have to be instituted through ‘fil[ing].’ ") (emphasis in original). Numerous state courts have held that proceedings in state court filed before the FDIC became a bank's receiver remain viable subject to a stay while the administrative process proceeds, and the claimant can then return to state court to ‘continue [the] action.’ See, e.g., Ungar v. Ensign Bank, FSB, 196 A.D.2d 204, 608 N.Y.S.2d 405, 409 (1994) ("Congress's use of the word ‘continue’ can only be interpreted to mean that a case pending in the state court prior to the appointment of a receiver may be continued in that court and that, under FIRREA, concurrent jurisdiction exists between state and federal courts."); Berke v. Resol. Tr. Corp., 483 N.W.2d 712, 714 (Minn. App. 1992) ("To construe this provision as an exclusive grant of jurisdiction to the federal courts renders the parenthetical ‘continue’ language null .... Specifically, a pre-receiver action filed in state court cannot be ‘continued’ after receivership if it must be dismissed from state court and refiled in federal court."); Morris v. Resol. Tr. Corp., 622 A.2d 708, 714 (Me. 1993) ("The interpretation urged by the RTC [the predecessor of the FDIC] would render superfluous the removal provision in paragraph 13(B)(i), which allows but does not require that the RTC remove cases from the state court, and would conflict with the provision in paragraph 5(F)(ii) that proscribes any prejudice (such as dismissal for lack of jurisdiction) to those actions, such as the one before us, that were instituted prior to the RTC receivership.")
Japimel filed a "motion in compliance with order" in the arbitration on December 11, 2015, well within the 60 day window. (Docket No. 8 at p. 5.) The FDIC argues that filing a motion in the arbitration does not qualify as ‘continuing an action’ based on the plain meaning of the statute, the context of FIRREA as a statutory whole, and from its legislative intent. (Docket No. 7 at pp. 9–16.). Japimel does not analyze whether it continued the action within the meaning of the statute because it insists its claims are not subject to the administrative exhaustion requirement, though it does provide a table listing every filing in the arbitration and state court after the denial by the FDIC-R. (Docket No. 8 at pp. 4–7; Docket No. 73 at pp. 4–7.)
The statute codifying FIRREA does not define the term "action." See 12 U.S.C. § 1821. Black's Law Dictionary defines "action" as "4. A civil or criminal judicial proceeding." Action, Black's Law Dictionary (11th ed. 2019). And a "judicial proceeding" is "(16c) Any court proceeding; any proceeding initiated to procure an order or decree, whether in law or in equity." Proceeding, Black's Law Dictionary (11th ed. 2019). The FDIC states that federal courts routinely find that arbitrations are not "judicial actions," but the cases cited for this proposition are for finding that arbitrations are not encompassed within more specific terms like "proceeding in state court ," "state court action," or "suit." (Docket No. 7 at pp. 11–12.) Use of the word ‘action’ or ‘proceeding’ for arbitration is certainly mixed. Compare Goldman, Sachs & Co. v. Golden Empire Schools Financing Auth., 922 F. Supp. 2d 435, 442 (S.D.N.Y. 2013), aff'd, 764 F.3d 210 (2d Cir. 2014) (collecting cases and holding that the words "actions and proceedings" encompass arbitration); and Wang v. Bears, Stearns & Co., Inc., 2010 WL 11520541, at *2 (C.D. Cal. Jan. 13, 2010), aff'd sub nom. Wang v. Bear Stearns & Co., Inc., 456 Fed. Appx. 670 (9th Cir. 2011) (unpublished) (discussing an arbitration and a separate class action and stating "the two actions arose from a common set of factual circumstances but asserted different legal claims.") (emphasis added); with Odeon Capital Group, LLC v. Ackerman, 149 F. Supp. 3d 480, 483–84 (S.D.N.Y. 2016) (holding that arbitration was not an ‘action’ for purposes of determining whether diversity jurisdiction existed at ‘the time the action was filed in state court’ due to the construction of various provisions of New York law).
In Bd. of Ed. of Enlarged Ogdensburg City Sch. Dist. v. Wager Const. Corp., New York's highest court analyzed whether an arbitration counted as an "action or special proceeding" in the context of a statute that required advance notice of claims against school districts, and looked to the statute's purpose for guidance. 37 N.Y.2d 283, 372 N.Y.S.2d 45, 333 N.E.2d 353, 356 (1975). The court reasoned that although New York civil practice rules no longer classified arbitrations as "special proceedings," the purpose of the law would not be served if arbitrations were exempted from the requirement to give school districts prior notice before filing a claim. Id. The court noted further that "as a practical matter[,]" "judicial proceedings and arbitrations for enforcing claims against school districts and boards of education may be inextricable ...." Id. Following this logic, the federal district court, interpreting a different New York law that forbids conveyances without fair consideration by "a defendant in an action for money damages," held that an arbitration qualified as an ‘action for money damages’ because otherwise the purpose of the law, to prevent debtors from placing their assets "outside the reach of the plaintiffs in those actions," would not be served. One Hundred Pearl Ltd. v. Vantage Securities, Inc., 887 F. Supp. 636, 639–40 (S.D.N.Y. 1995) ("One Hundred Pearl points to no functional difference between an arbitration and a judicial action that would support applying § 273–a in the context of the latter but not the former, and the Court has not independently identified such a difference."); see also Dixie Yarns, Inc. v. Forman, 906 F. Supp. 929, 936 (S.D.N.Y. 1995) ("A statutory construction removing arbitration from the ambit of § 273–a, to the disadvantage of deserving creditors, would discourage the use of arbitration in New York, a result inimical to public policy, which favors arbitration as a form of alternate dispute resolution.").
The First Circuit Court of Appeals took an analogous purpose-driven approach in Ryan v. Royal Ins. Co. of Am., where the court had to determine if the word "suit" limited the insurer's obligation to the insured to only losses due to judicial proceedings and not from an environmental agency investigation. 916 F.2d 731, 735–36 (1st Cir. 1990). Noting the ample caselaw interpreting the word ‘suit’ expansively, the court stated that "so literal an approach understates the sweep of the insuring agreement" and that "[l]ogic dictates that if a proceeding is the functional equivalent of a traditional suit, then coverage may inhere." Id. at 735–36. Looking beyond just the ambiguity of the text, the court looked to the purpose of the duty to defend to determine if coverage existed in this instance. Id. at 739.
The purpose of FIRREA was "to create an efficient administrative protocol for processing claims against failed banks." Marquis v. F.D.I.C., 965 F.2d 1148, 1154 (1st Cir. 1992). In determining whether federal courts retained jurisdiction for suits brought before the FDIC became the receiver for a failed bank, the First Circuit Court of Appeals noted that the objective of efficiency would not be served by forcing dismissal and refiling of the cases following the administrative process. Id. In fact, the court stated, "[i]t is difficult to conceive of anything less efficient than dismissing a suit that has been, say, two years in process, only to have an identical suit started afresh some six months later." Id. Instead, once the administrative claims process is complete, "suits based upon claims still unresolved can simply be resumed, thereby dispelling the need to retrace steps already completed." Id. This would serve the policy interests of "fairness to claimants, minimization of expense, and thoughtful husbanding of scarce judicial resources" as "[c]laimants will be spared the unnecessary costs of refiling cases and bringing them up to speed. Courts will similarly be spared the trouble of starting from ground zero in each and every case in which an administrative settlement does not materialize." Id.
Holding that an arbitration is ‘an action commenced before the appointment of the receiver’ would also serve these policy goals. The idea that a party to an ongoing arbitration must file a new case in district court to be considered in compliance with the administrative process is almost exactly the process that the First Circuit Court of Appeals described as "difficult to conceive of anything less efficient ...." See Marquis, 965 F.2d at 1154. Considering that the Court of First Instance in this case compelled the parties to arbitrate based on their contract and denied Bautista's motion for substitution stating it had no jurisdiction to rule on the case, the Court is at a loss to see why Japimel was wrong to file motions in the arbitration following the FDIC-R's denial.
All that is required to ‘continue an action’ is "some affirmative act by the claimant." See Reyes v. F.D.I.C., 2011 WL 2604762, at *3 (D.P.R. June 30, 2011) (Fusté, J.) (citing Lakeshore Realty Nominee Trust v. FDIC, 1994 WL 262913 at *1–2 (D.N.H. May 25, 1994) and First Union National Bank of Florida v. Royal Trust Tower, Ltd., 827 F.Supp. 1564, 1567–68 (S.D. Fla. 1993) ). Japimel filed a "motion in compliance with order" in the arbitration on December 11, 2015. (Docket No. 8 at p. 5.) The FDIC-R argues, without citing any authority for the proposition, that this motion cannot be considered an affirmative act because the motion does not mention the breach of contract claim. (Docket No. 7 at p. 17.) Because all that is required is "some affirmative act" to continue the action, a motion filed in the arbitration unrelated to the outcome of its administrative claim is sufficiently affirmative. Cf. Reyes, 2011 WL 2604762, at *3 ; see also Marquis, 965 F.2d at 1154 ("suits based upon claims still unresolved can simply be resumed ....").
The Court therefore DENIES the FDIC's motion to dismiss.
IV. How To Proceed With This Case
The procedural history of this case is highly unusual. The Court is not aware of a case reflecting similar circumstances where the FDIC chose to remove the case to federal court but did not do so until three years after being named the receiver. Cf. Kosnitzky v. Fed. Deposit Ins. Corp., 2011 WL 13221035, at *2 (S.D. Fla. Sept. 29, 2011) (FDIC filed motion to dismiss in the arbitration immediately after denying administrative claim); Landers v. Fed. Deposit Ins. Corp., 402 S.C. 100, 739 S.E.2d 209, 210 n.1 (2013) (FDIC denied administrative claim but "[n]either the FDIC nor [a]ppellants oppose the action's continuation before [the South Carolina] Court," which was determining which claims were subject to arbitration). Japimel requests that the Court refer the case back to the arbitration panel, (Docket No. 73 at p. 13,) which based on the table of filings provided by Japimel, it is not clear that that action has ever even been stayed. See Docket No. 73 at p. 7.
The Court orders the FDIC to advise the Court on how to proceed in this unique situation and whether referral back to the arbitration panel is the proper course. If it is not the proper course, what is?
V. Conclusion
For the reasons set forth above, the FDIC'S motion to dismiss is DENIED .
The FDIC is ordered to brief the Court on how this case shall proceed, including whether a referral to the arbitration panel is appropriate. This motion is due by August 3, 2022 . Japimel may respond no later than August 17, 2022.