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CENTENNIAL ASSOCS. L.P. v. FDIC

May 16, 1996

CENTENNIAL ASSOCIATES LIMITED PARTNERSHIP, a New Jersey Limited Partnership; PISCATAWAY ASSOCIATES, a New Jersey Limited Partnership; OFFICE CAMPUS, INC., a New Jersey Corporation; and the ESTATE OF LAWRENCE ZIRINSKY, Plaintiffs,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION; J & M LAND COMPANY, a New Jersey business entity; RICHARD SIMON, TRUSTEE, a New Jersey business entity; RICHARD SIMON; JAKE SIMON; HERMAN ZELL; JOSEPH WOLFSON, and MRS. ZELL, spouse of HERMAN ZELL; and MRS. WOLFSON, spouse of JOSEPH WOLFSON, Defendants.



The opinion of the court was delivered by: LIFLAND

 LIFLAND, District Judge

 Before the Court is defendant Federal Deposit Insurance Corporation's ("FDIC's") motion to dismiss the Complaint and Cross-Claim for lack of subject matter jurisdiction and/or because this Court lacks jurisdiction to provide the requested relief. *fn1" According to the FDIC, the plaintiffs' and cross-claimants' claims have not been formally reviewed as part of the receiver's administrative claims review process, a statutory prerequisite to an action in a federal district court. See 12 U.S.C. §§ 1821(d)(6)(A) and 1821(d)(13)(D). The FDIC also contends that 12 U.S.C. § 1821(j) divests this Court of jurisdiction to order the specific performance and rescission prayed for in the Complaint. The plaintiffs respond that the statutory exhaustion mandate does not apply in this case and, in any event, was satisfied on this record. For reasons set forth at the May 13, 1996 hearing, as more fully explicated below, the Court will grant the FDIC's motion and dismiss the Complaint and Cross-Claim against it.

 Background

 Centennial Associates Limited Partnership and Piscataway Associates ("C & P") own two adjoining tracts of land located in Piscataway, New Jersey ("Property"). On June 20, 1984, C & P executed two promissory notes ("Notes") to The Howard Savings Bank ("HSB"), a New Jersey chartered depository institution. *fn2" First and second mortgages on C & P's Property secured the Notes and were duly recorded with the Clerk of Middlesex County on July 28, 1984. Some four years later, defendant Simon purchased and recorded two tax sale certificates covering the Property.

 On October 2, 1992, the New Jersey Commissioner of Banking declared HSB unsafe and unsound and appointed the FDIC receiver pursuant to 12 U.S.C. § 1821(c)(3). *fn3" Two years later, on December 14, 1994, C & P representatives Andrew Billing and Robert Fogel met with Simon/J & M Land Company ("J & M") representative Herman Zell and one other representative of the Simon/J & M organizations to discuss a proposed joint venture to market and sell the Property. At this meeting, Fogel advised Zell that C & P was prepared to negotiate the purchase of the FDIC mortgages.

 Thereafter, C & P continued the negotiations that had actually commenced prior to the December 14, 1994 meeting with Simon/J & M. By January 30, 1995 letter, C & P's managing agent advised the FDIC of its intent to settle and compromise the debt represented and secured by the First and Second Mortgage. After C & P requested that the FDIC identify its responsible account representative, the receiver identified John Haiduk, a credit specialist with the Corporation. On April 26, 1995, Haiduk told C & P that, "subject to formal FDIC and Bankruptcy court approval, [he was] willing to propose acceptance of $ 125,000 from your Management Committee in full settlement of all claims held by the FDIC in its Receivership capacity for Howard Savings Bank, arising from the bankruptcy proceedings of Piscataway/Centennial Associates. In exchange, the FDIC will release its security interests in the corresponding real estate." See Fogel Certification, Ex. A. C & P accepted Haiduk's proposal and instructed him to seek formal FDIC approval of the transaction. See id., Ex. B.

 Apparently, the FDIC never approved the proposed settlement, but instead assigned the subject mortgages to defendant Simon for $ 5,000, 25 times less than the amount that the FDIC allegedly agreed to accept from plaintiffs. Shortly thereafter, the FDIC authorized Simon to modify the Assignment of Mortgage to identify J & M as the Assignee, and the modified document was recorded on July 28, 1995.

 Once plaintiffs discovered that the FDIC had breached the alleged settlement agreement, it attended a meeting at the FDIC's regional office in East Hartford, Connecticut. C & P was represented at the meeting by its principal, Andrew Billing, and counsel, and the FDIC was represented by an account representative, Jin Choi, and its counsel, Wes Faison. When asked whether the FDIC would honor the alleged settlement agreement with C & P, Messrs. Choi and Faison indicated that the receiver had no intention of overturning or otherwise reversing its assignment of mortgages to Simon/J & M. See id. at P16. This litigation ensued.

 Notwithstanding the claim-disposition authority plaintiffs impute to Choi and Faison, Gail Verley, the FDIC's Assistant Regional Manager of Closed Bank Administration, states that Choi is not in the Claims Department so his activity is subject to the independent review of the Claims Department. The Claims Department is a specialized unit of 16 employees charged with claim intake, analysis, investigation and, when necessary, rendering a determination of allowance or disallowance of claims tendered against the corporation as receiver of a failed institution. See Verley Cert. at PP2-4.

 Discussion

 This case demonstrates how even the most rudimentary breach of contract/negligence action can pose nettlesome jurisdictional problems when it arises in the context of a bank failure, thereby implicating the elaborate statutory structure Congress fashioned to reckon with the crisis that afflicted the thrift industry in the late 1980s. Although the structure erected by the Financial Institutions Reform and Recovery Enforcement Act ("FIRREA") has been well-chronicled by courts up to now, an overview of the pertinent provisions remains useful.

 Overview of FIRREA

 As the Third Circuit has recounted, to reform and bolster public confidence in the troubled savings and loan industry, Congress, in 1989, enacted FIRREA, the most ambitious thrift reform law in American history. FIRREA created a new regulatory agency, the Resolution Trust Corporation, and empowered it and the FDIC to manage, sell, merge, consolidate, or liquidate failed institutions for which they were appointed receiver. See 12 U.S.C. §§ 1821(d)(2) and 1441a(b)(4). See generally Praxis Properties Inc. v. Colonial Sav. Bank S.L.A., 947 F.2d 49 (3d Cir. 1991); Federal Depository Ins. Corp. v. Shain, Schaffer & Rafanello, 944 F.2d 129 (3d Cir. 1991). *fn ...


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