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Waldron v. Federal Deposit Insurance Corp.

United States Court of Appeals, Ninth Circuit

August 28, 2019

Mark D. Waldron, Chapter 7 Trustee for Venture Financial Group, Inc., Plaintiff-Appellee,
v.
Federal Deposit Insurance Corporation, in its capacity as Receiver of Venture Bank, Defendant-Appellant.

          Argued and Submitted June 10, 2019 Anchorage, Alaska

          Appeal from the United States District Court for the Western District of Washington D.C. No. 3:16-cv-05907-RBL Ronald B. Leighton, District Judge, Presiding

          Joseph Brooks (argued), Counsel; Katheryn R. Norcross, Senior Counsel; Colleen J. Boles, Assistant General Counsel; Federal Deposit Insurance Corporation, Arlington, Virginia; for Defendant-Appellant.

          Andrew H. Morton (argued) and Dillon E. Jackson, Foster Pepper PLLC, Seattle, Washington, for Plaintiff-Appellee.

          Before: A. Wallace Tashima, William A. Fletcher, and Marsha S. Berzon, Circuit Judges.

         SUMMARY [*]

         Bankruptcy

         The panel reversed the district court's judgment affirming the bankruptcy court's decision after a bench trial in favor of the chapter 7 trustee for the bankruptcy estate of a failed bank's parent company, on a claim for recovery as a preferential transfer of tax refunds obtained by the FDIC, receiver of the failed bank.

         Agreeing with other circuits, the panel held that the FDIC's appeal was timely filed within 60 days of entry of the district court's judgment because, even though acting solely as a receiver, the FDIC was a United States agency under Federal Rule of Appellate Procedure 4(a)(1)(B)(ii).

         Reversing and remanding, the panel held that the Financial Institutions Reform, Recovery, and Enforcement Act divested the bankruptcy court of jurisdiction because the bankruptcy trustee did not exhaust required administrative remedies before filing the preference action. The panel held that the Parker exhaustion exception did not apply because the preference action did not arise incident to the FDIC's collection efforts against the debtor. Declining to expand the Parker exception, the panel held that, because the trustee failed to exhaust, the bankruptcy court lacked subject matter jurisdiction over his claims.

          OPINION

          PER CURIAM:

         The Federal Deposit Insurance Corporation ("FDIC") obtained approximately $8.4 million in tax refunds as part of its receivership over a failed bank. The bank's parent company declared bankruptcy. Mark Waldron, the bankruptcy estate's trustee, contended that the tax refunds should be considered part of the bankruptcy estate, and the bankruptcy court agreed. But Waldron did not exhaust the administrative claims process as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). We hold that because of the failure to exhaust, the bankruptcy court did not have subject-matter jurisdiction over this dispute.

         I

         Venture Bank ("the Bank") is a wholly owned subsidiary of Venture Financial Group, Inc. ("VFG"). For each tax year before 2009, VFG filed consolidated federal tax returns on behalf of both entities, in accordance with a 1993 tax allocation agreement ("TAA") between VFG and the Bank. The TAA set forth guidelines for how the consolidated tax returns would be handled, specifying that, "[f]or each taxable period, each subsidiary of the Affiliated Group shall compute its separate tax liability as if it had filed a separate tax return and shall pay such amount to the Parent." It further provides that "in the case of a refund, the Parent shall make payment to each member for its share of the refund." The TAA has remained in place and unchanged since its execution.

         In September 2009, Washington State banking regulators closed the Bank and placed it into federal receivership; the FDIC was appointed as the Bank's receiver. In July 2011, the FDIC submitted a request to the IRS to allow the FDIC to serve as an alternative agent for the Bank's affiliated group, per Treasury Regulation § 301.6402-7(c). The FDIC sought to file amended tax returns carrying back losses incurred by the Bank and claiming refunds not previously pursued. The FDIC notified VFG of this request. Although VFG objected to "the FDIC being [its] agent with the IRS, "[1] the IRS granted the FDIC's request to act as an alternative agent. Between August 2011 and September 2013, the FDIC filed a series of amended tax returns to recover refunds owed to the Bank.

         In October 2013, VFG filed for chapter 7 bankruptcy. Mark Waldron was selected as the chapter 7 trustee. In response to the bankruptcy petition, the FDIC filed a protective proof of claim, declaring that the pending tax refunds were property of the FDIC, not VFG or its bankruptcy estate, but stating a claim for payments from the estate should the VFG or the bankruptcy estate be determined to be owner of the refunds. The FDIC did not file a claim for any amount beyond the tax refunds.

         Ultimately, the IRS accepted the FDIC's refund requests and paid the refunds with interest. The IRS paid some of the refunds before VFG filed for bankruptcy, and some after. In total, the FDIC received $8, 471, 982.36 in tax refunds from the IRS.[2]

         In August 2014, Waldron filed this preference action in bankruptcy court against the FDIC, seeking to recover the tax refunds obtained by the FDIC as a preferential transfer. The FDIC moved to dismiss the complaint, arguing, among other things, that the bankruptcy court lacked jurisdiction over Waldron's claims because he had failed to exhaust the administrative claims process as required by FIRREA, Pub. L. No. 101-73, 103 Stat. 183. The bankruptcy court denied the motion.

         After a bench trial, the bankruptcy court issued a decision. The court first reiterated its conclusion that it had subject-matter jurisdiction despite Waldron's failure to exhaust administrative remedies, then interpreted the 1993 TAA to "establish[] a creditor-debtor relationship between VFG and the Bank." According to the bankruptcy court, "[a]ny tax refunds received were the property of VFG, and the Bank merely held a claim for payment against VFG for its share of the funds." In so ruling, the bankruptcy court rejected the FDIC's argument that the "Bob Richards rule" applies in this case. See In re Bob Richards Chrysler-Plymouth Corp., Inc., 473 F.2d 262, 265 (9th Cir. 1973)[3](establishing the default rule that, absent an agreement to the contrary, tax refunds belong to the entity whose losses formed the basis for the refunds). Thus, the court held, the bankruptcy estate was entitled to the refunds as a voidable preference.

         The FDIC appealed the bankruptcy court's decision to the U.S. District Court for the Western District of Washington. The district court affirmed the bankruptcy court's decision and entered final judgment on March 20, 2018. ...


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