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Williams v. Federal Deposit Insurance Corp.

December 22, 2009


CT. APP. NO. 08-15296


Plaintiff Elvis Williams filed this suit against Washington Mutual Bank ("Washington Mutual") in September 2007. Currently before the court on limited remand from the Ninth Circuit is the question of whether defendant Federal Deposit Insurance Corporation ("FDIC") or real party in interest Chase Bank U.S.A., N.A. ("Chase") is the proper successor to Washington Mutual in this case.

I. Factual and Procedural Background

Plaintiff, a holder of a credit card issued by Washington Mutual, filed this class action against Washington Mutual on September 27, 2007, in Solano County Superior Court. (Docket No. 1.) In his Complaint, plaintiff alleged that Washington Mutual increased the interest rates on his credit card without notice and levied excess finance charges on his credit card bill. (Compl. ¶ 11.) The action was removed to this court on November 9, 2007. This court subsequently granted Washington Mutual's motion to dismiss plaintiff's Complaint on January 14, 2008. (Docket No. 24.) Plaintiff then appealed this court's decision on February 5, 2008. (Docket No. 25.)

On September 25, 2008, while plaintiff's appeal with the Ninth Circuit was still pending, the Office of Thrift Supervision ("OTS") closed Washington Mutual and appointed the FDIC as receiver for the bank. (See FDIC Request for Judicial Notice ("RJN") Ex. A.)*fn1 On the same day the FDIC and Chase signed a Purchase and Assumption Agreement ("P&A Agreement"), which allocated Washington Mutual's assets and liabilities among the FDIC in its corporate capacity, the FDIC acting as receiver for Washington Mutual, and Chase. (Id. Ex. B.) In the P&A Agreement, Chase explicitly did not assume any liability related to "borrower claims." (Id. Ex B. § 2.5.) Specifically, section 2.5 of the P&A Agreement states: Notwithstanding anything to the contrary in this Agreement, any liability associated with borrower claims for payment of or liability to any borrower for monetary relief, or that provide for any other form of relief to any borrower . . . related in any way to any loan or commitment to lend made by the Failed Bank prior to failure, or to any loan made by a third party in connection with a loan which is or was held by the Failed Bank, or otherwise arising in connection with the Failed Bank's lending or loan purchase activities are specifically not assumed by [Chase].


Chase claims that the FDIC and it began discussions regarding whether "borrower claims" in the P&A Agreement included claims by Washington Mutual's credit card holders after the P&A Agreement was signed. (Chase Mot. Dismiss 3:17-19.) In the interim, on December 11, 2008, Chase filed a motion with the Court of Appeals to substitute itself as successor-in-interest for Washington Mutual in this action. However, Chase alleges that the FDIC and it agreed that "borrower claims" in section 2.5 included claims brought by credit card holders after Chase filed the motion to substitute. (Id. 3:21-23.) As a result, the FDIC receiver then filed a motion to substitute itself for Washington Mutual and requested a mandatory stay. On December 31, 2008, Chase moved to withdraw its earlier motion to substitute. Plaintiff opposed both the FDIC's motion and Chase's motion to withdraw, and moved in the alternative to add Chase as a necessary party.

The Ninth Circuit granted the FDIC's motion to substitute and granted a ninety-day stay as required by 12 U.S.C. § 1821(d)(12)(B). The Ninth Circuit also granted plaintiff's motion to add Chase as a necessary party "without prejudice as to [Chase's] ability to argue that it is not a proper party to this appeal in its answering brief, and for the merits panel to so decide." (Ninth Cir. Docket No. 32.)

In June 2009, Chase and the FDIC both filed motions to dismiss plaintiff's appeal for lack of subject matter jurisdiction on the ground that the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C. § 1821, deprives courts of jurisdiction to hear any claim relating to an act or omission of a failed depository institution if the plaintiff does not exhaust the FDIC claims process.*fn2 On September 15, 2009, the Ninth Circuit issued an Order denying Chase and the FDIC's motions without prejudice, and remanded the case to this court for the limited purpose of determining "which party, Chase or the FDIC, is the proper successor to Washington Mutual in this case." (Docket No. 36.)

II. Discussion

Under the Federal Deposit Insurance Act, 12 U.S.C. §§ 1811-1832(d), the FDIC may accept appointment as a receiver for any closed insured depository institution. 12 U.S.C. § 1821(c). As receiver, the FDIC succeeds to "all rights, titles powers and privileges of the insured depository institution" and may "take over the assets of and operate" the bank. Id. §§ 1821(d)(2)(A)(i), (B)(i). When appointed as receiver, "the FDIC . . . 'steps into the shoes' of the failed [financial institution]" and operates as its successor. O'Melveny & Myers v. FDIC, 512 U.S. 79, 86 (1994). The FDIC may transfer the failed bank's assets to another bank, separate the failed bank's assets from liabilities, or retain these liabilities through a P&A Agreement. See, e.g., W. Park Associates v. Butterfield Sav. & Loan Ass'n, 60 F.3d 1452, 1458-59 (9th Cir. 1995); Kennedy v. Mainland Sav. Ass'n, 41 F.3d 986, 990-91 (5th Cir. 1994); Payne v. Sec. Sav. & Loan Ass'n, 924 F.2d 109, 111 (7th Cir. 1991). No liability is transferred from a closed bank to an assuming bank without an express transfer of liability. See Kennedy, 41 F.3d at 990-91; Payne, 924 F.2d at 111; Vernon v. Resolution Trust Corp., 907 F.2d 1101, 1109 (11th Cir. 1990); Village of Oakwood v. State Bank & Trust Co., 519 F. Supp. 2d 730, 739 (N.D. Ohio 2007), aff'd 539 F.3d 373 (6th Cir. 2008).

A. The P&A Agreement

Whether Chase or the FDIC is the proper successor to Washington Mutual turns on interpretation of the P&A Agreement between the FDIC and Chase. The P&A Agreement states that it is governed by federal law, and in the absence of controlling federal law, in accordance with Washington law because Washington Mutual's main office was located in Seattle, Washington. (See FDIC RJN Ex. B § 13.4.) As there is no federal law governing interpretation of contracts, the interpretation of the contract must be controlled by Washington law. See Vernon, 907 F.2d at 1109; City & Suburban Mgmt. Corp. V. First Bank of Richmond, 959 F. Supp. 660, 664 (D. Del. 1997); Capital Guidance Associates IV v. NCNB Tex. Nat'l Bank, No. H-90-331, 1991 WL 210740, at *9 (S.D. Tex. Oct. 7, 1991); see also FDIC v. Bank of Am. Nat'l Trust & Sav. Ass'n, 701 F.2d 831, 834 (9th Cir. 1983) ("[P]arties may agree as to the law to be applied to their contract.").

Under Washington law, "[t]he purpose of contract interpretation is to determine the intent of the parties." Navlet v. Port of Seattle, 164 Wash. 2d 818, 842 (2008); see Tanner Elec. Coop. v. Puget Sound Power & Light, 128 Wash. 2d 656, 674 (1996) ("The touchstone of contract interpretation is the parties' intent."). Washington contract law "determine[s] the parties' intent by focusing on the objective manifestations of the agreement, rather than on the unexpressed subjective intent of the parties." Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wash. 2d 493, 504 (2005). The parties' intent may also be determined by "viewing the contract as a whole, the subject matter and objective of the contract, all the circumstances surrounding the making of the contract, the subsequent acts and ...

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