The opinion of the court was delivered by: ALFRED M. WOLIN
This matter comes before the Court on the motion of the Federal Deposit Insurance Corporation ("FDIC") for substitution nunc pro tunc as defendant for Howard Savings Bank ("Howard"). The FDIC also moves to dismiss the complaint of plaintiff, the Estate of Lucille Harding ("the Estate"), for lack of subject matter jurisdiction or, in the alternative, to stay this litigation pending completion of the claims procedure mandated by 12 U.S.C. § 1821(d)(5).
The Court decided this matter on the papers pursuant to Rule 78.
For the following reasons, the Court shall substitute the FDIC as defendant and stay this action for 180 days or the completion of the applicable administrative claims procedure, whichever event occurs first.
The Estate filed this action on October 25, 1983 in the superior Court of New Jersey, Chancery Division, Essex County, against Robert Bell and the FDIC. The Estate alleges that Bell fraudulently induced Harding to place funds from a personal injury settlement in a joint checking account for Bell and Harding. Bell subsequently withdrew substantial amounts of money from the account without Harding's knowledge. The Estate alleges that Howard negligently permitted these events to transpire.
On October 2, 1992, the Commissioner of Banking of the State of New Jersey declared Howard insolvent and offered the receivership appointment to the FDIC. Pursuant to section 212 of the Financial Institution Reform Recovery and Enforcement Act of 1989 ("FIRREA"),
the FDIC accepted appointment as receiver.
The FDIC filed a notice of removal with this Court on December 4, 1992.
The FDIC's motion raises two questions of first impression in this Circuit. First, this Court must decide whether the FDIC properly removed this matter under a 1991 amendment to FIRREA, commonly known as the "Federal Deposit Insurance Corporation Improvement Act of 1991". If removal were proper, the court must then decide whether to dismiss or stay this action. The Third circuit has not had the opportunity to address this question in the context of a suit initiated prior to FDIC appointment.
Congress granted broad jurisdiction to federal courts in matters involving the FDIC.
The only exception that Congress supplied is inapplicable here.
As a result, the Court normally has subject matter jurisdiction over these types of cases. Whether the Court lacks subject matter jurisdiction in this case due to the Estate's failure to exhaust the administrative claims procedure shall be discussed later in this Opinion.
The first novel issue encountered by the Court is whether the FDIC properly removed this case to federal court.
a. Section 1819(b)(2)(B) Before the 1991 Amendment
Prior to its 1991 amendment, 12 U.S.C. § 1819(b)(2)(B) provided federal courts with the following removal jurisdiction:
Except as provided in subparagraph (D), the Corporation may, without bond or security, remove any action, suit, or proceeding from a State court to the appropriate United States district court.
Traditionally, federal courts countenanced removal despite the FDIC's failure to seek substitution as a party in the underlying state proceeding. Farina v. Mission Invest. Trust, 615 F.2d 1068, 1074-75 & n.19 (5th Cir. 1980); Federal Deposit Ins. Corp. v. Norwood, 726 F. Supp. 1073, 1076 (S.D. Tex. 1989); Structural Systems, Inc. v. Sulfaro, 687 F. Supp. 22, 23 (D. Mass. 1988); see also Heafitz v. Interfirst Bank of Dallas, 711 F. Supp. 92, 94 (S.D.N.Y. 1989) (permitting FDIC to remove an action where it served as a receiver for a depository institution, but was not substituted as a party). Because the FDIC was a successor in interest to the failed depository institution that was named as defendant, formal substitution was previously not necessary as a prerequisite to removal. McCarthy Western Constructors, Inc. v. Phoenix Resort Corp., 951 F.2d 1137, 1142 (9th Cir. 1991).
Additionally, the thirty-day limitation on removal contained in section 1446 was super-imposed on the FDIC removal provision. Mountain Ridge State Bank v. Investor Funding Corp., 763 F. Supp. 1282, 1290 (D.N.J. 1991). Furthermore, it was unclear whether the clock of removal began ticking upon FDIC appointment as receiver or FDIC intervention. The Fifth Circuit's rule ran from intervention and not appointment. Federal Deposit Ins. Corp. v. Loyd, 955 F.2d 316, 330 (5th Cir. 1992); see also Diaz v. McAllen State Bank, 975 F.2d 1145, 1147-48 n.2 (5th Cir. 1992). Other courts found that the time began to run when the FDIC was appointed receiver. Structural Systems, 687 F. Supp. at 23. A District Court for the District of New Jersey ruled that the thirty-day period began to run when, after its appointment, the FDIC received service of process or was otherwise advised of its removal prerogative. Mountain Ridge State Bank, 763 F. Supp. at 1290-91. The subsequent amendment to section 1819(b)(2)(B) obviates this Court's need to choose the best approach.
b. The 1991 Amendment to Section 1819(h)(2)(B)
Section 1819(b)(2)(B) was amended in 1991 and now states:
Except as provided in subparagraph (D), the Corporation may, without bond or security, remove any action, suit, or proceeding from a State court to the appropriate United States district court before the end of the 90-day period beginning on the date the action, suit or proceeding is filed against the Corporation or the Corporation is substituted as a party.
12 U.S.C. § 1819(b)(2)(B) (1993 Supp.).
This amendment precipitated three significant changes. First, the FDIC must remove within ninety days. Diaz, 975 F.2d at 1147-48; NCNB Texas Nat'l Bank v. P & R Invest. No. 6, 962 F.2d 518, 519 (5th Cir. 1992).
Second, the Fifth Circuit has found that this period runs from the day the FDIC is substituted as a party. Diaz, 975 F.2d at 1147-48. This ruling was based on section 1819(b)(2)(B)'s "clear" language that "on the date . . . the Corporation is substituted as a party. " This appears to be a sound rule built on common sense and a straightforward reading of the amended statute.
Its application in this case is more complicated, however, and leads the Court to the third substantial change resulting from the amendment. The Court observes that the FDIC removed this case to federal court before its substitution as a party. As previously stated, this was accepted practice under the traditional approach.
The language of the amended statute, however, suggests that removal cannot occur until the FDIC has been named or substituted as a party in state court. An alternative reading would find that the rule simply does not apply, in which case the Court would apply section 1446 as it would under the old removal provision. But the FDIC would run into another jurisdictional problem under this alternative reading--it would be barred from removing as having exceeded the thirty-day rule applicable under section 1446.
In McCarthy, 951 F.2d 1137, the Ninth Circuit ruled that, under 12 U.S.C. § 1441a(1)(3), the district court lacked removal jurisdiction in circumstances analogous to the ones encountered here. More specifically, the plaintiff in McCarthy filed suit against a wholly owned, subsidiary corporation of a federally insured, thrift association. Id. at 1138-39. The Resolution Trust Corporation ("RTC") was subsequently appointed conservator for the association after it failed. In its capacity as conservator for the failed thrift institution, the RTC filed a motion to remove and intervene. Id. at 1139. In ruling that the RTC cannot remove without first joining the state proceeding, the McCarthy Court interpreted a statute similar to the one currently before this Court. Id. at 1140. More specifically, section 1441a(1)(3) controls removal and remand for civil actions involving the RTC: