Alter v. Federal Deposit Insurance
Alter v. Federal Deposit Insurance
Opinion of the Court
MEMORANDUM DECISION AND ORDER ON PENDING MOTIONS
This matter is before the Court on Defendant Federal Deposit Insurance Corporation’s (“FDIC”)
I. BACKGROUND
Plaintiffs Dennis Alter and William A. Rosoff are former officers and managing directors of Advanta. Advanta is a bank that was incorporated under Utah law. Plaintiffs allege that Advanta was headquartered out of, and maintained its core of operations in, Draper, Utah. Plaintiffs reside in Pennsylvania. Defendant FDIC is an agency chartered by federal law with, among other duties, administering the Federal Deposit Insurance Act and the federal bank deposit insurance system. FDIC-R was appointed as receiver for Advanta on or about March 19, 2010. This action arises from Advanta’s financial failure.
The parties present conflicting versions of the facts that give rise to this dispute. In their Amended Complaint, Plaintiffs allege that the FDIC destroyed Advanta and has “embarked on a shameful campaign to blame [Plaintiffs] for the failure of [Advan-ta].”
Prior to 2007, Advanta was a leading issuer of credit cards to small businesses. The financial downturn in 2007 had a negative impact on Advanta’s small business customers. As a result, Advanta’s customers began to default on their credit obligations. Such defaults, in turn, had a negative effect on Advanta.
In 2008, Plaintiffs expanded Advanta’s repricing practices to “reflect the rapidly increasing risk in its portfolio.”
Despite this additional income, by 2009, Advanta was in dire straits. At that point, Plaintiffs proposed a plan to further limit Advanta’s credit losses and maximize its income. Plaintiffs proposed to cease funding Advanta’s securitization trust, which received the majority of Advanta’s credit card receivables. This lack of funding would put the trust into early amortization. Early amortization would cause the amounts owing on the credit card receivables—now converted into bonds—to become due. Advanta would then shut down all existing credit card accounts by canceling charging privileges and purchase the senior bonds back at a discount. According to Plaintiffs, if the bonds were later paid in full, Advanta would make a substantial profit, sufficient to fund its recovery.
Plaintiffs allege that they proposed the plan to the FDIC, because without the FDIC’s approval, the plan could not move forward. Plaintiffs further allege that after months of negotiations, the FDIC promised to cooperate with and not oppose the plan. Advanta’s board of directors also
Advanta set the plan in motion by allowing the trust to go into early amortization. Advanta then began buying bonds back at a discounted rate. Advanta also shut down all of its existing credit card accounts by cancelling charging privileges. Plaintiffs allege that, at that point, the FDIC breached its agreement with Plaintiffs to allow the plan to go forward and actively opposed the plan by preventing Advanta from purchasing the bonds back. Plaintiffs allege that, as a result, Advanta failed, Advanta’s parent company declared bankruptcy, and Plaintiffs lost their jobs and suffered financial losses.
The FDIC subsequently initiated an investigation into Advanta’s repricing practices. On June 24, 2009, the FDIC and Advanta reached a settlement agreement embodied in a document referred to as the Consent Order. That agreement provides, in part, “In the interest of compromise and settlement, [Advanta], solely for the purpose of proceeding ... and without admitting or denying any of the unsafe or unsound banking practices or violation of law or regulation as set forth in paragraph 5 of [the Consent Order], hereby consents and agrees to the issuance of the [Consent Order] by the FDIC.”
The FDIC was appointed as receiver for Advanta in March 2010. Following its appointment, FDIC-R notified Plaintiffs that it intended to pursue claims against them on behalf of Advanta. The parties engaged in settlement discussions but were unable to reach an agreement. On June 3, 2013, the FDIC-R informed Plaintiffs that if the parties were unable to reach an understanding, it intended to file suit no later than June 19, 2013. Shortly thereafter, on June 14, 2013, FDIC-R sent Plaintiffs a copy of a draft complaint, indicating that it intended to file suit promptly.
Plaintiffs’ original complaint acknowledged this background and the imminence of the FDIC-R’s suit. In their complaint, Plaintiffs alleged that
since the FDIC became receiver for Ad-vanta, it has pursued the released repricing claims against Plaintiffs. For example, on June 3, 2013, the FDIC gave Plaintiffs notice that it intend[ed] to file suit against Plaintiffs no later than June 19, 2013. On June 14, 2013, the FDIC sent Plaintiffs’ counsel a draft complaint focused on Advanta’s 2008 repricing practices and stated that the agency intends to file it imminently.8
On June 17, 2013, at 10:42 a.m. (EST), Plaintiffs filed the instant suit. Approximately one hour later, at 11:45 a.m. (EST), the FDIC-R filed suit against Plaintiffs in the United States District Court for the Eastern District of Pennsylvania (the “Pennsylvania Action”). In the Pennsylvania Action, the FDIC-R alleged claims for gross negligence and breaches of fiduciary duty. According to the FDIC-R, Plain
Since the filing of the instant motions, the parties filed supplemental briefs regarding the ongoing proceedings in the Pennsylvania Action. Those briefs reveal that Plaintiffs filed a motion to stay the Pennsylvania Action that the court denied without prejudice. In addition, the Pennsylvania court consolidated the Pennsylvania Action with two other cases involving these parties for discovery-related hearings. Plaintiffs assert that the other Ad-vanta-related cases have since reached an agreement to settle their claims.
It is apparent from the parties’ supplemental filings that the merits of many of the same claims in this action are being actively litigated in the Pennsylvania Action. For example, the parties provided briefing regarding a motion to dismiss filed in the Pennsylvania Action that relates to a statute of limitations defense that Plaintiffs raise in that action. In this action, Plaintiffs similarly seek a declaratory judgment that “the FDIC’s claims are barred by the applicable statute of limitations.”
In their original complaint, Plaintiffs first cause of action was for breach of contract based on the FDIC-R’s pursuit of claims against Plaintiffs in violation of the Consent Order. Plaintiffs also sought declaratory relief related to the same alleged breach. In a second cause of action, Plaintiffs claimed that “[t]he FDIC should be held liable for its wrongful conduct which was the critical and determining factor in the demise of [Advanta] and the resultant massive damage.”
On August 26, 2013, Plaintiffs filed their Amended Complaint. Count I of Plaintiffs’ Amended Complaint mirrors Count I of the original complaint—Plaintiffs once more assert that the FDIC breached the Consent Order by bringing the Pennsylvania Action. However, the Amended Complaint also adds two breach-of-contract claims and a claim for promissory estoppel based on the FDIC’s alleged wrongful actions in opposing Plaintiffs’ plan to save Advanta. In response to the Amended Complaint, the FDIC-C and FDIC-R filed separate motions to dismiss. The FDIC-C and FDIC-R also joined in those portions of the FDIC-C’s prior motion to dismiss that were not mooted by the filing of Plaintiffs’ Amended Complaint.
II. DISCUSSION
Defendants argue that this Court lacks subject matter jurisdiction over Plaintiffs’ claims because Plaintiffs’ Amended Complaint is an anticipatory filing that should be dismissed or transferred. Defendants also argue that Plaintiffs’ pleadings on their face do not show that Counts II-IV of the Amended Complaint are within the Court’s jurisdiction. Plaintiffs contend that their suit is not anticipatory because they seek affirmative relief and, in any
A. ANTICIPATORY FILING
The parties’ arguments as to the proper forum to hear Plaintiffs’ claims implicate principles of abstention, comity, and judicial economy. The United States Supreme Court has counseled that
[w]ise judicial administration, giving regard to conservation of judicial resources and comprehensive disposition of litigation, does not counsel rigid mechanical solution of such problems. The factors relevant to wise administration here are equitable in nature. Necessarily, an ample degree of discretion, appropriate for disciplined and experienced judges, must be left to the lower courts.11
“[A]s between federal district courts ... the general principle is to avoid duplicative litigation.”
first-to-file rule is a general case management principle that is not codified by statute or procedural rule. The rule has its genesis in principles of comity, and essentially counsels that federal courts should decline to hear a case if a previously filed case involving nearly identical parties and issues is being pursued in another federal court.14
The first-to-file rule is not applied mechanically. Rather, “[district courts are afforded discretion when deciding whether the first-to-file rule or an exception to that rule applies to the case at hand.”
One exception to the first-to-file rule is the anticipatory-suit exception. That exception is meant to discourage a race ‘“to the courthouse door in an attempt to preempt a later suit in another forum.’”
In an unpublished decision, Buzas Baseball, Inc. v. Board of Regents of University System of Georgia,
The Court’s discretion to decline to hear an anticipatory declaratory-judgment suit pursuant to the Wilton/BHllhart abstention doctrine is well settled.
Courts have applied the same reasoning applicable to declaratoryjudgment actions to dismiss as anticipatory suits that seek declaratory intermixed with affirmative relief.
Despite the foregoing precedent to the contrary, recent Tenth Circuit case law does not appear to support this result. In United States v. City of Las Cruces,
On its face, the Tenth Circuit’s holding in Las Cruces does not appear to square with those cases that have dismissed as anticipatory suits that sought both declaratory and affirmative relief. However, Las Cruces is factually distinguishable from those'cases in at least one regard. Las Cruces involved federal abstention in favor of a parallel state court proceeding. The cases cited by Defendants involve parallel federal proceedings. While this may be viewed as a distinction without a difference, it is arguable that the “ ‘federal judiciary’s virtually unflagging obligation to exercise its jurisdiction’”
In any event, even if Las Cruces forecloses application of the Wilton/Brillhart abstention doctrine on the facts of this case, it does not necessarily follow that the flrst-to-file rule mandates that this Court hear Plaintiffs’ claims. As discussed at the outset, the flrst-to-flle rule is a judicially created doctrine that is premised not only on abstention but also on principles of comity and wise judicial administration.
Federal courts have recognized that, as courts of coordinate jurisdiction and equal rank, they must be careful to avoid interfering with each other’s affairs in order “to avoid the waste of duplication, to avoid rulings which may trench upon the authority of sister courts, and to avoid piecemeal resolution of issues that call for a uniform result.”34
The Tenth Circuit has previously recognized that “sound judicial administration” at times requires that a court of coordinate jurisdiction “decline consideration of [an] action” until related proceedings are completed.
Based on these principles, this Court may stay a case pending the completion of related federal proceedings.
Here, it is undisputed that Plaintiffs filed suit in anticipation of the Pennsylvania Action. Plaintiffs argue that their suit is not anticipatory because Defendants have not demonstrated that Plaintiffs engaged in forum shopping. However, the timing and defensive nature of this suit belies this assertion. Plaintiffs filed suit only after receiving and reviewing a draft copy of the complaint later filed by the FDIC-R in the Pennsylvania Action. Plaintiffs were fully aware of Defendants’ intention to file suit imminently and merely beat Defendants to the courthouse by sixty-three minutes. This Court has found that similar actions constitute improper procedural fencing.
Furthermore, the Court finds that it is likely that a resolution of the Pennsylvania Action will have some preclusive effect on important issues in this case. As such, proceeding in this case will result in a duplication of litigation and may result in conflicting results. It is apparent from the relief sought in Plaintiffs’ Amended Complaint that a resolution of the Pennsylvania Action will result in a determination of the majority of the issues in this case. All of Plaintiffs’ requests for declaratory relief relate to the Pennsylvania Action. Further, Plaintiffs’ affirmative claims for relief may either be brought as defenses in the Pennsylvania Action or may be considered by this Court after the completion of that action.
Based on these findings, the Court will exercise its discretion to stay this case pending the completion of the Pennsylva
B. 28 U.S.C. § 1404(a)
In the event the Court declines to dismiss this case, Defendants assert that this action should be transferred to the Eastern District of Pennsylvania pursuant to the forum non conveniens doctrine codified at 28 U.S.C. § 1404(a). Plaintiffs contend that transfer of venue is not proper because Defendants cannot meet their burden to prove litigating in this Court would be inconvenient and that the balance of factors favors a transfer of venue.
Pursuant to § 1404(a), “a district court may transfer an action ‘for the convenience of parties and witnesses, and in the interest of justice, to any other district or division where it might have been brought.’ ”
the plaintiffs choice of forum; the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of. witnesses; the cost of making the necessary proof; questions as to the enforceability of a judgment if one is obtained; relative advantages and obstacles to a fair trial; difficulties that may arise from congested dockets; the possibility of the existence of questions arising in the area of conflict of laws; the advantage of having a local court determine questions of local law; and all other considerations of a practical nature that make a trial easy, expeditious and economical.43
a. Plaintiffs’ Choice of Forum
The Tenth Circuit has instructed that “unless the balance is strongly in favor of the movant the plaintiffs choice of forum should rarely be disturbed.”
b. Accessibility of Witnesses and Sources of Proof
“The convenience of witnesses is the most important factor in deciding a motion under § 1404(a).”
c.Cost of Making Necessary Proof
The parties have not presented argument regarding the relative costs of bringing this suit in Utah as opposed to Pennsylvania. For this reason, the Court finds that Defendants have failed to meet their burden as to this factor.
d.Congested Dockets
“When evaluating the administrative difficulties of court congestion, the most relevant statistics are the median time from filing to disposition, median time from filing to trial, pending cases per judge, and average weighted filings per judge.”
e.Conflict of'Laws
“In a diversity action, courts prefer the action to be adjudicated by a court sitting in the state that provides the governing substantive law.”
f.Local Courts Determining Local Law
“When the merits of an action are unique to a particular locale, courts favor adjudication by a court sitting in that locale.”
g.Practical Considerations
Defendants assert that convenience and efficiency favor transferring this case to the Eastern District of Pennsylvania. It appears that Defendants’ assertion as to this factor is based on its earlier representation that the majority of witnesses and most of the evidence are located in Penn
h. Summation
To meet their burden under § 1404(a), Defendants must show by clear and convincing evidence that a balance of the foregoing factors demonstrate that the existing forum is inconvenient.
III. CONCLUSION
Based on the foregoing, it is hereby
ORDERED that Defendant FDIC-C’s Motion to Dismiss or Transfer (Docket No. 19) and Second Motion to Dismiss or Transfer' (Docket No. 38) are DENIED. It is further
ORDERED that Defendant FDIC-R’s Motion to Dismiss or Transfer (Docket'No. 36) is DENIED. It is further
ORDERED that this case is hereby STAYED pending the resolution of the Pennsylvania Action. The Clerk of Court is directed to ADMINISTRATIVELY CLOSE this case and remove it from the list of active pending cases. The case may be reopened upon motion by either party, pursuant to the terms of this Order.
. Defendant FDIC moves for dismissal in multiple capacities. For this reason, the FDIC is referred to throughout this memorandum as FDIC-C and FDIC-R. The two entities jointly will be referred to either as FDIC or Defendants.
. See Docket Nos. 19, 36, 38.
. Docket No. 24.
.Docket No. 31, at 5 (citing Docket No. 24, at 11-14).
. Docket No. 24 Ex. A, at 3.
. Id. at 4-5.
. Id. at 4.
. Docket No. 2, at 18.
. Docket No. 24, at 30.
. Docket No. 2, at 22.
. Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183-84, 72 S.Ct. 219, 96 L.Ed. 200 (1952).
. Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).
. Hospah Coal Co. v. Chaco Energy Co., 673 F.2d 1161, 1163 (10th Cir. 1982) (citing O’Hare Int’l Bank v. Lambert, 459 F.2d 328 (10th Cir. 1972)).
. MedSpring Grp., Inc. v. Atl. Healthcare Grp., Inc., No. 1:05-CV-115, 2006 WL 581018, at *3 (D.Utah Mar. 7, 2006).
. Id. (citing Columbia Pictures Indus., Inc. v. Schneider, 435 F.Supp. 742, 747 (S.D.N.Y. 1977)).
. Id. at *4 (quoting Ontel Prod., Inc. v. Project Strategies Corp., 899 F.Supp. 1144, 1150 (S.D.N.Y. 1995)).
. Id. (quoting Ontel Prod., 899 F.Supp. at 1150).
. 189 F.3d 477, 1999 WL 682883 (10th Cir. 1999) (unpublished table decision).
. Id. at *3.
. Id. at *1-2.
. See R.R. St. & Co., Inc. v. Vulcan Materials Co., 569 F.3d 711, 715 (7th Cir. 2009) (citing Wilton v. Seven Falls Co., 515 U.S. 277, 288, 290, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995); Sta-Rite Indus., Inc. v. Allstate Ins. Co., 96 F.3d 281, 287 (7th Cir. 1996); Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942)).
. See Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. Ill, 112, 82 S.Ct. 580, 7 L.Ed.2d 604 (1962) ("The Declaratory Judgment Act was an authorization, not a command. It gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so.”); State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 982-83 (10th Cir. 1994) (recognizing trial court's discretion to decline to hear declaratory judgment action and providing factors that court should weigh in reaching its decision).
. See PPS Data, LLC v. Diebold, Inc., No. 2.-12-CV-12-TC, 2012 WL 1884655, at *1 (D.Utah May 22, 2012).
. See id. at *2; Sutton v. Everest Nat'l Ins. Co., No. 07-CV-00425-WYD-BNB, 2007 WL 2438987, at’*2-3 (D.Colo. Aug. 23, 2007) (dismissing a suit as anticipatory where the primary relief sought was declaratory and the only claims for affirmative relief were intertwined with the declaratory claims); Natural Gas Pipeline Co. of Am. v. Union Pac. Res. Co., 750 F.Supp. 311, 315 (N.D.111. 1990) (dismissing as anticipatory a declaratory judgment action that also sought affirmative relief because plaintiff could assert its claim for affirmative relief by way of counterclaim in the subsequently filed action).
. PPS Data, 2012 WL 1884655, at *2.
. Id. at *1 (citation and internal quotation marks omitted).
. Id. at *1-2.
. 289 F.3d 1170 (10th Cir. 2002).
. Id. at 1181.
. Id. (quoting Sinclair Oil Corp. v. Amoco Prod. Co., 982 F.2d 437, 440 (10th Cir. 1992) (internal quotation marks omitted)).
. Id. at (citing Safety Nat’l Cas. Corp. v. Bristol-Myers Squibb Co., 214 F.3d 562 (5th Cir. 2000)).
. R.R. St., 569 F.3d at 715 (citing New England Ins. Co. v. Barnett, 561 F.3d 392, 395 (5th Cir. 2009)).
. Las Cruces, 289 F.3d at 1181 (quoting Sinclair Oil Corp., 982 F.2d at 440 (internal quotation marks omitted)).
. Buzas Baseball, Inc., 1999 WL 682883, at *2 (quoting Sutter Corp. v. P & P Indus., Inc., 125 F.3d 914, 917 (5th Cir. 1997)).
. Cessna Aircraft Co. v. Brown, 348 F.2d 689, 692 (10th Cir. 1965) (granting writ of mandamus ordering district court to decline to transfer subject cases, to "hold those cases in abeyance[,] and to take no further action in any of them until the final termination of the related cases now pending in the Western District of Louisiana, Lakes Charles Division, or until the further order of this court”).
. Pet Milk Co. v. Ritter, 323 F.2d 586, 588 ' (10th Cir. 1963) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936)).
. Culbertson v. Midwest Uranium Co., 132 F.Supp. 678, 679-80 (D.Utah 1955).
. Id. at 678.
. Id. at 680.
. Id.
. See Republic Ins. Co. v. Sinclair Oil Corp., 791 F.Supp. 278, 281-82 (D.Utah 1992) (holding that plaintiff could not claim benefit of first-to-file rule where it filed suit during ongoing settlement discussions); ICON Health & Fitness, Inc. v. Beachbody, LLC, No. 1:11-CV00024-TC, 2011 WL 1899390, at *3 (D.Utah May 19, 2011) (finding that first-filed suit was anticipatory where filed on the last day to respond to defendant's demand letter that outlined potential causes of action and threatened litigation).
. Employers Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1167 (10th Cir. 2010) (quoting 28 U.S.C. § 1404(a)).
. Id. (citation and internal quotation marks omitted).
. Scheldt v. Klein, 956 F.2d 963, 965 (10th Cir. 1992) (citation and internal quotation marks omitted).
. Bartile Roofs, 618 F.3d at 1168.
. Id. at 1169 (citation and internal quotation marks omitted).
. Id. (citation and internal quotation marks omitted).
. Id.
. Id. (citing Tex. E. Transmission Corp. v. Marine Office-Appleton & Cox Corp., 579 F.2d 561, 567-68 (10th Cir. 1978)).
. See id. (holding that this factor "is less significant because federal judges are qualified to apply state law”).
. Id. at 1170.
. See id. at 1167 n. 13.
Reference
- Full Case Name
- Dennis J. ALTER and William A. Rosoff v. FEDERAL DEPOSIT INSURANCE CORPORATION Federal Deposit Insurance Corporation, as receiver for Advanta Bank Corp. and Federal Deposit Insurance Corporation, in its corporate capacity
- Cited By
- 8 cases
- Status
- Published