HAYES-BROMAN v. J.P. MORGAN CHASE BANK, N.A. (Minn. 7-14-2010)

uted for WaMu as the real parties in interest in the action. Counsel also indicated that all parties but Plaintiff would receive Notices shortly. Three days later, the McCanns, NRV, Vulcan, C M, and First Minnesota received Notices permitting them to file proofs of claim by December 17, 2009, so long as they showed to the FDIC's satisfaction that they were unaware of the FDIC's appointment in time to file a claim before the claims bar date.

Counsel that represented WaMu before it closed proceeded in the suit on behalf of the FDIC.

First Minnesota submitted a proof of claim dated December 2, 2009. No other Defendant submitted a proof of claim. To show First Minnesota's lack of knowledge of the appointment of the FDIC, the proof of claim identified a September 30, 2008, email exchange between counsel for First Minnesota and WaMu; the March 12, 2009, letter confirming the receivership; and the September 15, 2009, letter. On December 10, 2009, the FDIC rejected First Minnesota's "request to file a claim after the bar date [because its] request does not establish that [it] did not have notice of the appointment of the receiver in time to file [its] claim by the bar date." As a result, First Minnesota's claim was automatically disallowed as untimely filed.

In the email exchange, First Minnesota's counsel informed WaMu's counsel that he had received WaMu's discovery requests in the state action but wanted to know WaMu's position on whether "this action is stayed by Washington Mutual, Inc.'s bankruptcy filing" before responding. WaMu's counsel responded later that day that "[t]here are no automatic stay issues from the bankruptcy filing by the parent corp. Washington Mutual Bank, FA, the defendants [sic] in this case is not in bankruptcy."

The FDIC removed this action to federal court pursuant to 12 U.S.C. § 1819(b) (2006) on October 27, 2009. The caption identifies the following Defendants: Chase, the FDIC as receiver for WaMu, the McCanns, Vulcan, NRV, Edina Realty, C M, and First Minnesota. On April 15, 2010, Plaintiff and First Minnesota separately moved for summary judgment and the FDIC and Chase jointly moved for summary judgment.

It is unclear why Edina Realty remains in the caption as a Defendant after it was omitted from the Second Amended Complaint. The Court orders that Edina Realty be removed from the caption.

II. DISCUSSION

Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)(2). The movant "bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the movant satisfies its burden, the party opposing the motion must respond by submitting evidentiary materials that "set out specific facts showing a genuine issue for trial." Fed.R.Civ.P. 56(e)(2); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

A. Subject matter jurisdiction

The FDIC argues that the Court lacks subject matter jurisdiction over the claims asserted against it because the parties failed to exhaust their administrative remedies. The Financial Institutions Reform, Recovery, and Enforcement Act provides a "comprehensive claims review process for claims against the assets of failed banks held by the FDIC as receiver." Tri-State Hotels, Inc. v. FDIC, 79 F.3d 707, 712 (8th Cir. 1996). The process requires claimants to "initially submit their claims to the FDIC for review, thus enabling the FDIC to dispose of the bulk of claims against failed financial institutions expeditiously and fairly without unduly burdening the District Courts." Id. (quotation marks omitted). "[A] prospective claimant's failure to exhaust its administrative remedies under [12 U.S.C.] § 1821(d) deprives a court of subject matter jurisdiction." RTC Mortgage Trust 1994-N2 v. Haith, 133 F.3d 574, 578 (8th Cir. 1998).

NRV and Vulcan agree that they failed to exhaust their administrative remedies and that summary judgment in favor of the FDIC is warranted. In addition, it is undisputed that Plaintiff and C M did not submit claims to the FDIC, and the Court lacks subject matter jurisdiction over their claims against the FDIC. First Minnesota, on the other hand, argues that the FDIC should be estopped from asserting that its claim was untimely because the FDIC did not mail a Notice until after the claims bar date had passed. Binding precedent directly refutes this argument:

[T]he FDIC's failure to provide proper notice does not relieve the claimant of the obligation to exhaust administrative remedies, because the statute does not provide for a waiver or exception under these circumstances. The only exception to the strict requirement of exhaustion of remedies is where the claimant does not receive notice of the appointment of the receiver in time to file his claim. This exception will only apply to the appellants if they did not receive notice of the fact of the appointment of a receiver. The exception does not apply to claimants who are aware of the appointment of a receiver but who do not receive notice of the filing deadline.

Id. at 579 (citations and quotation marks omitted). Here, First Minnesota does not assert that it was not on notice of the appointment of the FDIC as receiver for WaMu in time to file a claim before the claims bar date. Cf. id. (stating that knowledge of receiving agency's "involvement" with bank sufficient to put claimant "on inquiry notice as to require further inquiry into the details of the administrative process"). Therefore, the undisputed facts establish that First Minnesota failed to exhaust its administrative remedies, and the Court lacks subject matter jurisdiction over First Minnesota's claims against the FDIC. Accordingly, the FDIC is dismissed from this action for lack of subject matter jurisdiction.

Having concluded that the Court lacks subject matter jurisdiction over the claims asserted against the FDIC, the Court must exercise its independent obligation to ensure that it retains jurisdiction over the remaining action. See Sac Fox Tribe of the Miss. in Iowa, Election Bd. v. Bureau of Indian Affairs, 439 F.3d 832, 836 (8th Cir. 2006); see also 28 U.S.C. § 1447(c) (2006) ("If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded."). The FDIC removed this action pursuant to 12 U.S.C. § 1819(b)(2)(A), which provides that "all suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United States." Three possibilities arise with respect to a federal court's subject matter jurisdiction when the FDIC is dismissed from an action in which federal jurisdiction arose solely because of the FDIC's presence. First, a court retains "arising under" jurisdiction over the remaining state law claims pursuant to § 1819(b)(2)(A) because the FDIC's presence effectively federalized the entire action. See Adair v. Lease Partners, Inc., 587 F.3d 238, 244 (5th Cir. 2009); FDIC v. Four Star Holding Co., 178 F.3d 97, 101 n. 3 (2d Cir. 1999); Fed. Sav. Loan Ins. Corp. v. Griffin, 935 F.2d 691, 696 (5th Cir. 1991). Second, a court lacks "arising under" jurisdiction over the remaining claims but retains the discretion to exercise supplemental jurisdiction over those claims pursuant to 28 U.S.C. § 1367 (2006). See New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1497-1511 (3d Cir. 1996). Third, a court lacks "arising under" jurisdiction over the remaining claims and must remand the action pursuant to 28 U.S.C. § 1447(c). See id. at 1511-15 (McKee, J., dissenting).

Were the Court writing on a clean slate, it might adopt the second approach. The United States Court of Appeals for the Eighth Circuit, however, recently adopted the first approach: "[A]ll claims in a case to which the FDIC is a party have `arising under' federal subject matter jurisdiction. The subsequent dismissal of the claim against the FDIC [does] not defeat that jurisdiction or withdraw [a federal] court's jurisdiction over the state law claims filed against the other [parties]." Casey v. FDIC, 583 F.3d 586, 591 (8th Cir. 2009). Accordingly, not only does the Court retain subject matter jurisdiction, it has no discretion under 28 U.S.C. § 1441(c) (2006) to remand this action in which state law predominates. See id. (permitting remand of claims or causes of action that lack an independent basis for federal jurisdiction and "in which State law predominates"); see also Casey, 583 F.3d at 591-92 ("We question the applicability of § 1441(c) in this context since § 1819(b)(2)(B) provides jurisdiction over the state law claims.").

B. Interest in the Property

First Minnesota argues that the Court should vacate the state court's August 15 Order and find that First Minnesota obtained a first-priority mortgage on the Property from C M. Plaintiff asserts that no new facts or arguments support the Court's reconsideration of the August 15 Order and that she retains fee simple ownership of the Property subject to the WaMu mortgage that was assigned to Chase.

After removal, the August 15 Order remains binding in this Court, see 28 U.S.C. § 1450 (2006) ("All injunctions, orders, and other proceedings had in [a state] action prior to its removal shall remain in full force and effect until dissolved or modified by the district court."); 14C Charles Alan Wright et al., Federal Practice and Procedure § 3738 (2009) (noting that state court orders "remain binding on the parties unless and until formally set aside by the federal district court"), but it is "subject to reconsideration just as it had been prior to removal," Resolution Trust Corp. v. Northpark Joint Venture, 958 F.2d 1313, 1316 (5th Cir. 1992). See Fed.R.Civ.P. 54(b) ("[A]ny order . . . that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties . . . may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities."). The November 19 Order granted First Minnesota permission to renew its motion to vacate the August 15 Order "if the discovery process unearths relevant and novel facts or arguments." Accordingly, although First Minnesota did not seek reconsideration of the August 15 Order pursuant to this District's local rules, the Court addresses First Minnesota's arguments. See D. Minn. LR 7.1(h) (prohibiting motions to reconsider "except by express permission of the Court, which will be granted only upon a showing of compelling circumstances").

The August 15 Order found that WaMu's acceptance of payments between April 2006 and August 2006 was "inconsistent with an intention to treat the mortgage as terminated" and "acted as a waiver of the foreclosure sale." First Minnesota argues that the discovery process revealed that WaMu did not accept and retain payments from Plaintiff during that period. The record, however, is undisputed. Plaintiff made payments on her mortgage between April 2006 and August 2006; WaMu accepted those payments and had not returned them as of late September 2006. The state court properly determined that such conduct reflected WaMu's intent to "regard[] the mortgage as still existing" and to waive its rights flowing from the foreclosure. See Brack v. Brack, 16 N.W.2d 557, 560-61 (Minn. 1944) ("Continued recognition of a contract as still binding after default of payment provisions is a waiver of the default and the right resulting therefrom, if any, to rescind or to declare a forfeiture on that ground."); cf. Odegaard v. Moe, 119 N.W.2d 281, 283-84 (Minn. 1962) (vendor's acceptance of payment during thirty-day statutory cancellation period waives the cancellation proceedings and reinstates the contract for deed); Jandric v. Skahen, 50 N.W.2d 625, 628 (Minn. 1951) (concluding that vendor's retention of payment for fourteen days was "sufficient evidence to support an inference that [vendor] had formed an intent to accept the payment"). Furthermore, as noted in the August 15 Order, by negotiating an agreement with WaMu to pay off the mortgage, Plaintiff asserted her interest in the Property and WaMu reflected its intent to restore Plaintiff's interest in the Property. See Credit, Inc. v. Kutzik, 159 N.W.2d 277, 279-80 (Minn. 1968). Because the conduct of Plaintiff and WaMu rendered the foreclosure void, no interest in the Property can flow from the foreclosure sale. In other words, Vulcan's redemption of the Property is void, Vulcan had no interest to convey to C M, and C M had no interest in the Property to mortgage to First Minnesota. See Casey v. McIntyre, 48 N.W. 402, 403 (Minn. 1891) ("Defendant's right to redeem must depend upon a valid foreclosure."). Accordingly, Plaintiff is the fee simple owner of the Property subject to the mortgage held by Chase.

First Minnesota argues extensively that it "has a first lien position [on the Property] as a good faith purchaser." See Minn. Stat. § 508.25 (noting that, subject to certain enumerated exceptions, "every subsequent purchaser of registered land who receives a certificate of title in good faith . . . shall hold it free from all encumbrances and adverse claims"). However, even if First Minnesota was a "good faith purchaser," that status would not create an interest in the Property where none previously existed. Cf. Hanson v. Kuhl, 701 N.W.2d 257, 267 (Minn. Ct. App. 2005) (stating that where the assignment of a judgment that is later determined to be void created an illusory right to redeem, "the bona-fide-purchaser doctrine should not apply to create a title to land when there is a total absence of title in the vendor").

Chase asserts that the mortgage balance as of June 10, 2010, was $80,110.60. Plaintiff argues that a fact issue remains as to the correct balance in light of discrepancies in WaMu's records. The Court agrees with Plaintiff. Accordingly, the Court declines Chase's "request for the determination of the amount of indebtedness owed by Plaintiff on the underlying mortgage transaction."

C. Claims against Chase

At the time the FDIC became WaMu's receiver, the following claims against WaMu remained: Plaintiff asserted a claim for slander of title; NRV and Vulcan asserted a claim for wrongful foreclosure and sought indemnification for any liability they incur to Plaintiff or C M; C M asserted claims for fraud and wrongful foreclosure; and First Minnesota asserted claims for breach of warranty, fraudulent misrepresentation, and promissory estoppel. The FDIC initially assumed the potential liability associated with these claims. Chase argues that under the plain language of section 2.5 of the P A Agreement, "the claims for liability at issue in this case remained with the FDIC." Alternatively, Chase argues that, even if it assumed the claims for liability in this case, those claims fail under 12 U.S.C. § 1823(e) (2006) and on their merits. 1. P A Agreement

Section 2.1 of the P A Agreement transferred to Chase all of the liabilities reflected on WaMu's books and records except for those liabilities excluded pursuant to sections 2.5 and 4.8. Section 2.5 expressly disclaimed any liability to Chase "associated with borrower claims . . . related in any way to any loan . . . made by [WaMu] prior to failure, . . . or otherwise arising in connection with [WaMu's] lending or loan purchase activities." Section 4.8 gave Chase the right to choose whether to assume agreements existing as of September 25, 2008, that "provide[d] for the rendering of services by or to [WaMu]." Section 2.1, however, limited this choice by providing that, "[n]otwithstanding Section 4.8, [Chase] specifically assumes all mortgage servicing rights and obligations of [WaMu]." Courts have construed section 2.5 together with Chase's express assumption of WaMu's mortgage servicing obligations to "`allocate [WaMu's] lender liability to the FDIC and . . . transfer [WaMu's] servicing liability to [Chase].'" Johnson v. Wash. Mut., Civ. No. 1:09-929, 2010 U.S. Dist. LEXIS 22959, at *11 (E.D. Cal. Feb. 24, 2010) (quoting In re Pena, 409 B.R. 847, 861 (Bankr. S.D. Tex. 2009)). The Court agrees with such an interpretation. This case, however, does not present a simple binary choice between lender liability and servicing liability because WaMu both owned and serviced Plaintiff's mortgage. The issue then is whether Chase expressly assumed liability in section 2.1 or expressly disclaimed liability in section 2.5. Although one court has suggested that section 2.5 would apply to exclude liability where WaMu owned and serviced the loan, see In re Pena, 409 B.R. at 861, the Court need not decide this issue because, as discussed below, even if the claims asserted against WaMu by Plaintiff, NRV, Vulcan, C M, and First Minnesota were assumed by Chase, those claims fail on the merits. 2. Interest diminishment

Chase also maintains that all of the claims asserted against it are barred by 12 U.S.C. § 1823(e). Section 1823(e) provides:

No agreement which tends to diminish or defeat the interest of the [FDIC] in any asset acquired by it . . . shall be valid against the [FDIC] unless such agreement —

(A) is in writing,

(B) was executed by the depository institution and any person claiming an adverse interest thereunder . . . contemporaneously with the acquisition of the asset by the depository institution,

(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and

(D) has been, continuously, from the time of its execution, an official record of the depository institution.

See also 12 U.S.C. § 1821(d)(9) ("[A]ny agreement which does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the receiver or the [FDIC]."). Section 1823(e) codified and preempted the common law doctrine established in D'Oench, Duhme Co. v. FDIC, 315 U.S. 447 (1942). Divall Insured Income Fund Ltd. P'ship v. Boatmen's First Nat'l Bank of Kan. City, 69 F.3d 1398, 1401-02 (8th Cir. 1995). That doctrine barred "defenses arising from representations not evidenced in the financial institution's official documents" in order to permit "federal and state examiners to rely on a bank's records in evaluating the worth of the bank's assets, to encourage prudent consideration in lending, and to assure proper recordation of banking acts to guard against collusive or erroneous reconstruction of terms." Cmty. Bank of the Ozarks v. FDIC, 984 F.2d 254, 256-57 (8th Cir. 1993). The protections of § 1823(e) apply to the FDIC's successors in

The "agreement" referred to in § 1821(d)(9) is coterminous with the "agreement" referred to in section 1823(e). See John v. Resolution Trust Corp., 39 F.3d 773, 776 (7th Cir. 1994).

interest. See id. at 257; see also FDIC v. Newhart, 892 F.2d 47, 50 (8th Cir. 1989) ("[T]he FDIC transfers its protected status to subsequent purchasers of notes it holds.").

More than one year before WaMu's failure and Chase's assumption of most of its assets, the state court set aside the foreclosure. Thus, the interest Chase assumed through the P A Agreement was a mortgage on the Property. According to Chase, the relevant agreement that tends to diminish or defeat that interest is the "tacit agreement" between Plaintiff and WaMu that was created when Plaintiff made and WaMu accepted payments on the mortgage between April 2006 and August 2006. This "tacit agreement," however, restored the interest that Chase assumed; it did not "diminish or defeat" that interest. Cf. Kessler v. Nat'l Enters., Inc., 165 F.3d 596, 599 (8th Cir. 1999) ("The interest RTC acquired through the mortgage was a security interest in the Developer's collateral. That security interest has not been diminished — for example, by an undisclosed superior lien — and it cannot be diminished by plaintiffs' claims."). Accordingly, § 1823(e) is inapplicable to the claims asserted against Chase.

3. Substantive claims

Finally, assuming that the P A Agreement transferred to Chase the liability associated with the claims brought by Plaintiff, NRV, Vulcan, C M, and First Minnesota, Chase argues that those claims fail on their merits. For the reasons discussed below, the Court agrees.

a. Slander of title

Plaintiff asserts a claim for slander of title against WaMu. A claim for slander of title requires proof of four elements: (1) a false statement concerning the real property owned by the plaintiff; (2) publication of the false statement to others; (3) publication of the false statement with malice; and (4) publication of the false statement concerning title to the property caused the plaintiff pecuniary loss in the form of special damages. Paidar v. Hughes, 615 N.W.2d 276, 279-80 (Minn. 2000). "The filing of an instrument known to be inoperative is a false statement that, if done maliciously, constitutes slander of title." Id. at 280. "The element of malice requires a reckless disregard concerning the truth or falsity of a matter despite a high degree of awareness of probable falsity or entertaining doubts as to its truth." Brickner v. One Land Dev. Co., 742 N.W.2d 706, 711-12 (Minn. Ct. App. 2007) (quotation marks omitted). Attorney fees incurred to remove a cloud on title constitute special damages in a slander of title action. Paidar, 615 N.W.2d at 280.

Chase first argues that no facts support a finding that WaMu made a false statement. Plaintiff identifies the following three allegedly false statements made by WaMu: (1) filing a February 10, 2006, power of attorney and notice of foreclosure despite having accepted payments on the mortgage on February 6, 2006; (2) filing the certificate of sheriff's sale on April 6, 2006; and (3) causing to be published weekly in a newspaper a notice of mortgage foreclosure sale with respect to the Property for five consecutive weeks beginning on February 2, 2006, and ending on March 23, 2006. At the time of these allegedly false statements, WaMu had not acted inconsistent with its right to foreclose. Specifically, Plaintiff was in default on the mortgage and WaMu returned Plaintiff's February 6, 2006, payments almost immediately. By promptly returning the payments, WaMu acted consistently with its intent to treat the mortgage as in default. Therefore, at the time WaMu made the allegedly false statements, foreclosure on the Property was proper and the statements were not false. WaMu waived the foreclosure only after failing to timely return the payments that Plaintiff tendered from April 2006 to August 2006. Accordingly, because Plaintiff has identified no false statement by WaMu, summary judgment in favor of Chase is warranted on her claim for slander of title. b. Wrongful foreclosure

NRV, Vulcan, and C M each assert claims for wrongful foreclosure against WaMu. WaMu, however, never foreclosed on any mortgages held by these Defendants, and they lack standing to challenge the foreclosure of Plaintiff's mortgage. Cf. First Trust Co. v. Leibman, 430 N.W.2d 257, 261 (Minn. Ct. App. 1988) (holding that mortgagor had no standing to assert deficiencies in foreclosure proceedings as to co-mortgagor), rev'd on other grounds, 445 N.W.2d 547 (Minn. 1989). Accordingly, the Court grants summary judgment in favor of Chase on the wrongful foreclosure claims.

c. Fraud

C M and First Minnesota assert claims for fraud against WaMu based on alleged representations in the notice of foreclosure sale and the certificate of sale. As discussed above, WaMu's representations before and at the time of the foreclosure sale were accurate. Therefore, because C M and First Minnesota have not identified a misrepresentation, see Heidbreder v. Carton, 645 N.W.2d 355, 367 (Minn. 2002) (noting claim for fraud requires proof of a false representation of present fact), summary judgment in favor of Chase on the claims for fraud is warranted.

d. Breach of warranty

First Minnesota asserts a claim for breach of warranty against WaMu, alleging that the certificate of redemption was issued by the Sheriff at WaMu's insistence and that the certificate "constitutes a warranty of title." First Minnesota has cited no authority, and the Court is aware of none, to support this proposition. Accordingly, the Court grants summary judgment in favor of Chase on First Minnesota's claim for breach of warranty. e. Promissory estoppel

Finally, First Minnesota asserts a claim for promissory estoppel against WaMu. First Minnesota, however, has not identified any specific promises upon which it relied. See Hous. Redev. Auth. of Chisholm v. Norman, 696 N.W.2d 329, 336 (Minn. 2005) (noting that claim for promissory estoppel requires proof of a clear and definite promise). Instead, First Minnesota generally alleges that WaMu "made promises to members of the public including First Minnesota by virtue of its foreclosure." First Minnesota's failure to specify any evidence supporting this general allegation warrants the entry of summary judgment on this claim. Therefore, the Court grants Chase's motion for summary judgment as to First Minnesota's claim for promissory estoppel.

III. CONCLUSION

Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:

1. Plaintiff's Motion for Summary Judgment [Docket No. 10] is GRANTED.

2. First Minnesota's Motion for Summary Judgment [Docket No. 16] is DENIED.

3. Plaintiff is the fee simple owner of the Property subject to the mortgage held by Chase.

4. The Joint Motion of the FDIC and Chase for Summary Judgment [Docket No. 18] is GRANTED IN PART.

5. The claims against the FDIC are DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction.

6. The claims against Chase are DISMISSED WITH PREJUDICE.

7. The amount Plaintiff owes Chase under the mortgage remains unresolved.

8. The Motion of the McCanns, NRV, and Vulcan for Summary Judgment [Docket No. 34] is DENIED as untimely.

9. Edina Realty shall be stricken from the caption.

10. The Court declines to address any issues with respect to attorney fees until such time as the claims of all parties have been resolved.