caires-v-jp-morgan-chase-bank.pdf

United States District Court, D. Connecticut.

CAIRES v. JP MORGAN CHASE BANK745 F. Supp.2d 40 (D. Conn. 2010)

Decided September 30th, 2010

RICHARD CAIRES, Plaintiff, v. JPMORGAN CHASE BANK, Defendant.

CIVIL ACTION NO 3:09-cv-02142(VLB).

United States District Court, D.Connecticut.

September 30, 2010. *41

Elisabeth Ann Seieroe Maurer, Maurer Associates,Ridgefield, CT, for Plaintiff.

Geoffrey K. Milne, Nicole L. Barber, Hunt LeibertChester Jacobson, Hartford, CT, for Defendant.

[EDITORS' NOTE: THIS PAGE CONTAINS HEAD-NOTES. HEADNOTES ARE NOT AN OFFICIALPRODUCT OF THE COURT, THEREFORE THEYARE NOT DISPLAYED.] *42

MEMORANDUM OF DECISIONAND ORDER GRANTING THE

DEFENDANT'S [DOC. #12] 12(b)(1)MOTION TO DISMISS THEPLAINTIFF'S COMPLAINT

PURSUANT TO FEDERAL RULESOF CIVIL PROCEDURE 12(b)(1)

AND 12(b)(6)

VANESSA L. BRYANT, District Judge.

The Defendant, JP Morgan Chase Bank (hereinafterreferred to as "Chase" and as "JPM"), moves to dismissthe Complaint filed by the Plaintiff, Richard Caires("Caires") pursuant to Federal Rules of Civil Proce-dure 12(b)(1) and 12(b)(6) [Doc. #12]. In this proceed-ing, relating to a note and mortgage issued by Cairesto Washington Mutual Bank, F.A., ("WAMU"),evincing and securing, respectively, a loan made byWAMU to Caires. Caires asserts three causes of actionagainst Chase, as WAMU's successor in interest: 1)fraud in the inducement; 2) equitable estoppel fromforeclosure upon the mortgaged property; and 3) vi-olation of the Connecticut Unfair Trade Practices Act(CUTPA), Conn. Gen. Stat. 42-110a et seq. duringthe formation of the mortgage at issue. [Doc. #1].Chase contends that the Court lacks subject matter ju-risdiction over this matter by virtue of the FinancialInstitutions Reform, Recovery Enforcement Act of1989,12 U.S.C. 1821(d), (FIRREA), and that Cairesfails to state a cause of action for which the Court cangrant relief due to *2 the application of the D'Oench,Duhme doctrine as codified in12 U.S.C. 1823(e).[Id.] Pursuant to the following analysis, Chase's mo-tion to dismiss [Doc. #12] is GRANTED. This dis-missal is without prejudice to the Plaintiff's right tofile an amended complaint not inconsistent with thisorder not later than October 14, 2010.

CAIRES v. JP MORGAN CHASE BANK, 745 F. Supp.2d 40 (D. Conn. 2010)

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I. Factual and ProceduralBackground

The following facts are based on the Plaintiff's Com-plaint [Doc. #1] and are accepted as true for purposesof this motion unless otherwise noted: In December2006, Caires, a citizen and resident of Greenwich, CT,entered into a mortgage contract with WAMU topurchase 634 North Street, Greenwich, CT. In Janu-ary 2007, Caires considered potential lenders for a sixmillion dollar renovation of the property. Relying up-on representations *43 made by WAMU employeesregarding fees and his ability to convert to a lower in-terest rate, Caires agreed to sign to a two-phase loanwith WAMU consisting of construction and conven-tional post construction phases. WAMU lenders indi-cated that the loan would have a reserve account, ap-parently funded with loan proceeds, during the con-struction phase to pay for loan servicing. The lendersalso indicated that the interest rate during the first 18month period of construction or to the date of Caires'Certificate of Occupancy would be 8.50%, and thatfollowing receipt of the Certificate of Occupancy theconstruction loan would be converted to a 5 year Ad-justable Rate Mortgage (ARM) bearing interest at the2 year *3

Treasury rate plus 2 percent. Caires claims that thelenders indicated that his loan would not require anyout of pocket money, but that WAMU failed to abideby its representations and charged Caires $98,000 toclose the loan, and "slipped some clause in that the8.5% construction phase rate would stay in place for 5years and would not adjust as promised on the date ofthe Certificate of Occupancy."

On September 25, 2008, the United States Office ofThrift Supervision seized WAMU and placed it intoreceivership with the FDIC. On the same day, theFDIC sold WAMU and its subsidiaries to Chasethrough a Purchase and Assumption Agreement.

During the construction period of Caires' loan, Caireswas regularly assured by WAMU, and subsequentlyby Chase, that his loan would be converted or that hewould be able to refinance his loan "with no prob-lem or money out of pocket" when the Certificate ofOccupancy was received. In particular, Caires allegesthat WAMU and then Chase representatives indicat-ed that "after the 18 month construction period Caireswould pay interest instead of the reserve account pay-ing it. If the certificate of occupancy was not issuedby the 18 month term Caires could extend the con-struction phase time period by paying a penalty fee . .. Caires was told that if he required more time it wasnot a problem and the reserve account, if it still hadmoney in it would continue to pay the loan servicing."

After Caires paid a penalty fee of a 1/4 point of theloan amount to extend the mortgage's constructionperiod, "WAMU/JPM charged Caires *4 the interestservice on the loan although the reserve account hadplenty of money in it" and "then reduced the size ofCaires' loan by the amount left in the reserve accountwithout adequate warning and outside of the agreedupon terms leaving Caires to pay the servicing out ofpocket depleting Caires' reserves."

Caires also claims that he was coerced by "WAMU/JPM" on May 2, 2009, to accept a modification andreduction of the loan amount effective on March 1,2009; and that on July 2, 2009, Chase failed to fullyhonor an application made by Caires to draw downon the loan to fund construction costs, claiming thatthe Plaintiff's property had depreciated in value andreduced the amount Caires could draw from $160,700to $62,000, which "put Caires in an untenable positionand coerced him to accept these unbargained forterms." The Complaint also notes dissatisfaction withservicing of his account during the transition of themanagement of his account from WAMU to Chase,and alleges that during 2009 an assistant managermade further assurances that Caires' interest ratewould decline significantly upon issuance of the Cer-tificate of Occupancy. The Plaintiff did not attach the



loan documents to, or describe all of the relevant loanterms in, his complaint.

On November 24, 2009, the Plaintiff filed a summonsand complaint in the Connecticut Superior Court. OnDecember 30, *44 2009 Chase removed this actionon the basis of diversity of citizenship, pursuant to28U.S.C. 1332(a)(1), *5

and federal question jurisdiction, pursuant to 28U.S.C. 1331. [Doc #1]. Chase now moves to dismissthe Complaint, in its entirety.

II. Standard of Law"A federal court has subject matter jurisdiction overa cause of action only when it `has authority to ad-judicate the cause' pressed in the complaint." Arar v.Ashcroft, 532 F.3d 157, 168 (2d Cir. 2008) vacated onother grounds, 585 F.3d 559 (2d Cir. 2009), cert. de-nied, 130 S.ct. 3409 (2010) (quoting Sinochem Int'lCo. v. Malay Shipping Corp., 549 U.S. 422, 425(2007). "Determining the existence of subject matterjurisdiction is a threshold inquiry and a claim is prop-erly dismissed for lack of subject matter jurisdictionunder Rule 12(b)(1) when the district court lacks thestatutory or constitutional power to adjudicate it." Id.(internal citations and quotation marks omitted)."When jurisdiction is challenged, the plaintiff bearsthe burden of showing by a preponderance of the ev-idence that subject matter jurisdiction exists, and thedistrict court may examine evidence outside of thepleadings to make this determination." Id. (internal ci-tations and quotation marks omitted). "[T]he courtmust take all facts alleged in the complaint as trueand draw all reasonable inferences in favor of plaintiff,but jurisdiction must be shown affirmatively, and thatshowing is not made by drawing from the pleadingsinferences favorable to the party asserting it." Mor-rison v. Nat'l Austl. Bank Ltd., 547 F.3d 167,170 *6(2d Cir. 2008) (internal citations and quotation marksomitted) (alteration in original).

The United States Supreme Court recently reexamin-ed the standard governing a motion to dismiss, madepursuant to Rule 12(b)(6), for failure to state a claimupon which relief may be granted. See Ashcroft v.Iqbal, 129 S.ct. 1937 (2009). "Under Federal Rule ofCivil Procedure 8(a)(2), a pleading must contain a`short and plain statement of the claim showing thatthe pleader is entitled to relief.'" Id. at 1949. WhileRule 8 does not require detailed factual allegations,

[a] pleading that offers labels and conclusionsor a formulaic recitation of the elements of acause of action will not do. Nor does acomplaint suffice if it tenders "nakedassertion[s]" devoid of "further factualenhancement." To survive a motion to dismiss,a complaint must contain sufficient factualmatter, accepted as true, to "state a claim torelief that is plausible on its face." A claim hasfacial plausibility when the plaintiff pleadsfactual content that allows the court to drawthe reasonable inference that the defendant isliable for the misconduct alleged.

Id. (internal citations omitted).

In evaluating a motion to dismiss, the Court shouldfollow a "two-pronged approach" to evaluate the suffi-ciency of the complaint. Hayden v. Paterson, 594 F.3d150, 161 (2d Cir. 2010). "A court `can choose to be-gin by identifying pleadings that, because they are nomore than conclusions, are not entitled to the assump-tion of truth.'" Id. (quoting Iqbal,129 S.Ct. at 1950)."At the second step, a court should determine whetherthe [remaining] `well-pleaded factual allegations,' as-sumed to be true, *7 `plausibly give rise to an entitle-ment to relief.'" Id. (quoting Iqbal, 129 S.Ct. at 1950).

III. Analysis A) The Defendant'sMotion to Dismiss Pursuant to

Rule 12(b)(1)The Defendant argues that pursuant to the FIRREA,the Court lacks jurisdiction *45 over the Plaintiff's



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claims against Chase, because Chase is an assignee ofthe FDIC, and therefore benefits from the FDIC'sclaim exhaustion requirements that are specified in12U.S.C. 1821(d)(3)-(d)(9). [Doc. #13]. In response,the Plaintiff argues that the legislature intended forthe claim procedure and statutory protections enu-merated in 1821(d) to apply exclusively to the FDIC,and that the "rights, powers and immunities" of FIR-REA only apply to claims made against the FDIC andnot to its assignees. [Doc. #16]. The Plaintiff claimsthat Chase knowingly purchased the assets and theirliabilities at a reduced price and that the FIRREA'sapplication ended when Chase purchased the loan inquestion from the FDIC:

Defendant argues that all claims arising out ofany asset of WAMU, or any other failed bank,purchased by J.P. Morgan Chase from theFDIC is subject to the claims process set out in12 U.S.C. 1821(d)(3)-(9) . . . This argument ispatently incorrect as it misconstrues the federalstatute applicable to the instant claims. Theclaims process established at 12 U.S.C. 1821(d)(3)-(9) specifically states that it wasintended only for the FDIC and only when theFDIC was acting as a receiver for a failed bank.Defendant has not been able to point to anyinstance where the claims process was appliedto an entity other than the FDIC, only to a lineof holdings that allows the statute of limitationson assets purchased from the FDIC to be *8extended by 12 U.S.C. 1821(d)(12). Thesecases in no way affect the Court's jurisdictionover the Plaintiff's claims.

[Id.] (internal citations omitted). The Plaintiff furtherargues that the "practical effect of the Defendant'sreading of the statues at issue here would be a newprecedent which would result in an avalanche ofclaims against the FDIC which were not contemplatedby legislators as evidenced by the fact that Defendantshave been unable to locate a precedent that is analo-gous to the case at bar." [Id.]

Overview of the FIRREA ClaimsProcess and Exhaustion Requirement

The FIRREA includes an exhaustion requirement thatapplies to claims made against the assets of a failed de-pository institution that is in FDIC receivership. See12 U.S.C. 1821(d)(5) (Procedures for determinationsof claims); 1821(d)(13)(D) (Limitation on judicial re-view). The statute allows a claimant to obtain judicialreview of an FDIC claim determination if the claimantfiles a claim with the FDIC, receives a "disallowance"of the claim, and then files suit in a district court with-in 60 days after the FDIC's disallowance of the claim.See id. 1821(d)(5)(A), (6)(A). Notably, the FIRREAmakes a distinction between claimants whose namesappear and whose names fail to appear on the booksof a failed financial institution.

For claimants whose names appear on thebooks of a failed financial institution, thestatute sets forth a relatively straightforwardadministrative review process. Upon beingappointed receiver, the FIRREA requires thatthe FDIC "promptly publish notice tocreditors" that they must present *9 their claimsto the FDIC, together with proof, within astated period (not less than 90 days) of thepublication of the notice (the "bar date"). TheFDIC must also mail a notice containing thesame information to the creditor's last addressappearing on the books of the failed financialinstitution. The creditor may then file a claimwith the FDIC by the bar date and will receivea determination within 180 days (or a longerperiod agreed to by the claimant and theFDIC). If the claim is disallowed, the creditormay undertake an administrative appeal of *46the disallowance or file suit in a district courtwithin 60 days.

Carlyle Towers Condominium Ass'n, Inc. v.FDIC, 170 F.3d 301, 305 (2d Cir., 1999)(internal citations omitted). For claimantswhose names do not appear on a failed



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SDSticky NoteSo Chase is trying to align itself with the FDIC when in fact it is a voluntary purchaser

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SDSticky NoteChase is not Acting as receiver of failed bank, and defendant is not perusing a claim on the FDIC

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financial institution's books, the statute isnoted as less precise:

Within 30 days of discovering the "name andaddress of a claimant not appearing on theinstitution's books," the FDIC must mail to thenewly discovered creditor a notice "similar" tothe notice published pursuant to subsection(3)(B)(i). The FDIC has interpreted therequirement of "similar" notice to provide a90-day period for creditors discovered after thebar date to file their claims. [Lastly], [t]heFIRREA also limits claims that may be allowedif filed after the bar date. "Claims filed afterthe [bar] date . . . shall be disallowed and suchdisallowance shall be final" except for [certainexceptions.]

Id. (internal citations omitted).

FIRREA provides:

Claims filed after the bar date shall bedisallowed and such disallowance shall be finalexcept that the receiver may allow the claim if(I) the claimant did not receive notice of theappointment of the receiver in time to file suchclaim before such [bar] date; and (II) such claimis filed in time to permit payment of such claim.

Id. (internal citations omitted) (alteration inthe original). *10

Further, the FIRREA places an express limitation up-on a district court's review of claims that have notproceeded through the described FDIC claims reviewprocess prior to bringing suit. 1821(d)(13)(D) reads:

(D) Limitation on judicial review. Except asotherwise provided in this subsection, no Courtshall have jurisdiction over

(i) any claim or action for payment from, or anyaction seeking determination of rights with respect

to, the assets of any depository institution for which

the Corporation has been appointed receiver,including assets which the Corporation mayacquire from itself as such receiver; or

(ii) any claim relating to any act or omission ofsuch [failed] institution or the Corporation asreceiver.

12 U.S.C. 1821(d)(13)(D) (emphasisadded). The Second Circuit has held that"section 1821(d)(13)(D), when read inconjunction with the rest of section 1821(d),creates a requirement that all claims bepresented to the FDIC before a claimantmay seek judicial review." Carlyle Towers,170 F.3d at 307; See also Resolution TrustCorp. v. Elman, 949 F.2d 624, 627 (2d Cir.1991).

Applicability of the FIRREA ClaimsProcess and Exhaustion Requirement to

the Plaintiff's Claims

While the FIRREA dictates that the FDIC is protectedfrom suit over an asset from a failed bank until a plain-tiff has exhausted the FDIC's claim procedures, andthat the Court lacks jurisdiction over claims relatingto acts or omissions of a failed bank, the statute doesnot clearly address the Defendant's proposed interpre-tation that Chase as a subsequent purchaser *11 of theassets of a failed financial institution, such as WAMU,automatically benefits from 1821(d)(13)(D)'s limita-tion on judicial review as a right that is incidental to anote that has been acquired from the FDIC. The De-fendant notes that in prior cases, this Court and theConnecticut Appellate Court have applied state prin-ciples of assignment to determine whether subsequentpurchasers of assets were entitled to the rights, bene-fits, and remedies that the FIRREA confers upon theFDIC. The Court finds that the Defendant's character-ization *47 of these past cases is overreaching.

This Court has indeed looked to Connecticut law todetermine whether the statute of limitations specifiedin the FIRREA for claims brought by the FDIC ap-plied to a plaintiff who was an assignee that purchaseddefaulted assets from the FDIC. See Joslin v. Gross-



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SDSticky NoteSo now JP is hoping that the court apply the wrong interpretation of the law

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SDSticky NoteSo Chse is using the statute of limitation in the claims process to snow courts.

man, 107 F. Supp. 2d 150 (D.Conn. 2000); see alsoHardy v. New York City Health Hosp. Corp., 164 F.3d789, 793 (2d Cir. 1999) (noting that "when a federalaction is brought in federal court, the court has dis-cretion to borrow from state law when there are defi-ciencies in the federal statutory scheme.") InJoslin, dueto the absence of a clear statement in the FIRREA, theCourt followed the lead of other courts that have re-lied on state law to settle the ambiguity:

Because the FIRREA is silent as to whether theextended limitations period applies to assigneeswho purchase defaulted assets from the FDIC,a number of courts have turned to state lawand common-law principles governingassignments to resolve the issue. The FifthCircuit relied on [federal] common lawprinciples to fill in the statutory gap, and *12found that an assignee stands in the shoes ofhis assignor. The Fourth Circuit, however,rejected the rationale of [the Fifth Circuit], anddetermined that an assignee does notautomatically enjoy the benefit of the FIRREAstatute of limitations.

Joslin, 107 F. Supp. 2d at 155-56 (citationsand quotation marks omitted). Noting theFourth Circuit's guidance that courts shouldlook to state law, the Court furtherexplained:

Connecticut has followed the holding in [theFourth Circuit], and looked to its own lawgoverning the rights of assignees of the FDIC.It is well established, in Connecticut, "that anassignee stands in the shoes of the assignor". . . "Because the plaintiff stands in the shoesof the FDIC by virtue of the assignment, theplaintiff is vested with all the FDIC's rights,remedies and benefits that are incidental to thenote. Thus, it would appear that the plaintiffshould also receive the benefit of the extendedlimitations period."

Id. at 156 (quoting National Loan InvestorsLtd. P'ship v. Heritage Square Assocs., 733A.2d 876, 879-80 (Conn. App. Ct. 1999).

In the instant case, WAMU executed the loan at issueto the Plaintiff. WAMU subsequently failed and theFDIC was appointed a receiver. Under the ownershipof the FDIC, all of the assets became subject to all pro-visions of the FIRREA. The Defendant contends thatwhen the FDIC sold the failed bank's assets to Chase,Chase became an assignee of the FDIC and "[stepped]in the shoes of the FDIC by virtue of the assignment."National Loan Investors, 733 A.2d at 880. The De-fendant contends that Chase is therefore vested withall of the FDIC's rights, remedies, and benefits thatare incidental to the note pursuant to Joslin andNa-tional Loan Investors, including the claims exhaustionrequirement of 12 U.S.C. 1821(d)(13)(D) *13 thatwould deprive this Court of jurisdiction until thePlaintiff exhausted the FIRREA claim process admin-istrative remedies. The Plaintiff correctly notes how-ever, thatJoslin and National Loan Investors, reflects"a line of holdings that allows the statute of limitationson assets purchased from the FDIC to be extendedby12 U.S.C. 1821(d)(12)." [Doc. #16].Joslin and Na-tional Loan Investors only presented whether theFIRREA's statute of limitations applied to their pro-ceedings. While both opinions observed more gener-ally that, as an assignee, a "plaintiff is vested all of theFDIC's rights, remedies and *48 benefits that are inci-dental to the note," Joslin,107 F. Supp. 2d at 156; Na-tional Loan Investors, 753 A.2d at 880, it does not nec-essarily follow that an assignee would necessarily ben-efit from a jurisdictional bar that congress reserved fora special entity such as the FDIC. The jurisdictionalbar is incidental to the deposit insurance system butnot to each note acquired by a bank prior to its insol-vency. The Court will therefore turn to principles ofstatutory interpretation to resolve this ambiguity.

Where a statute is silent on an issue or unclear, theCourt applies established principles of statutory con-struction:

In interpreting a statute, [courts] look first tothe language of the statute itself . . . Whenthe terms of a statute are ambiguous, however,[courts] may seek guidance in the legislative



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history and purpose of the statute. In so doing,[courts] must construct an interpretation thatcomports with the statute's primary purposeand does not lead to anomalous orunreasonable results.

*14 Marvel Characters, Inc. v. Simon, 310F.3d 280, 289-90 (2d Cir. 2002) (internalcitations and quotation marks omitted).

"The primary purpose underlying FIRREA's exhaus-tion scheme is to allow [the FDIC] to perform itsstatutory function of promptly determining claims soas to quickly and efficiently resolve claims against afailed institution without resorting to litigation." Rosav. Resolution Trust Corp., 938 F.2d 383, 396 (3d Cir.1991) (citing H.R. Rep. No. 101-54(I), 101st Cong.,1st Sess. 418-19, reprinted in 1989 U.S.C.C.A.N. 86,214-15). Further, "the FIRREA was explicitly draftedto satisfy the procedural shortcomings of administra-tive review identified by the Supreme Court in [CoitIndependence Joint Venture v. Federal Sav. Loan Ins.Corp., 489 U.S. 561 (1989).] In so doing, Congress ex-pressly withdrew jurisdiction from all courts over anyclaim to a failed bank's assets made outside the proce-dures established in 1821." F.D.I.C. v. Vernon RealEstate Invs., Ltd., 798 F. Supp. 1009, 1017 (S.D.N.Y.,1992).

The claims exhaustion requirement therefore reflectsthe FDIC's powers as a receiver of failed assets and theFDIC's need "to dispose of the bulk of claims againstfailed financial institutions expeditiously and fairly."H.R. Rep. No. 54(I), 101st Cong., 1st Sess. 419 (1989),reprinted in 1989 U.S.C.C.A.N. 86, 215. Notably, in-cluded in the FDIC's powers as receiver is the authori-ty to "transfer any asset or liability of the institution indefault . . ." 12 U.S.C. 1821(d)(2)(G)(i)(II). Accord-ingly, the FDIC is empowered to determine which as-sets and liabilities of a failed bank are to *15 be soldand transferred, and which assets it should keep. Sucha design "facilitates the sale of a failed institution's as-sets (and thus helps to minimize the government's fi-nancial exposure) by allowing the [FDIC] to absorb li-

abilities itself and guarantee potential purchasers thatthe assets they buy are not encumbered by addition-al financial obligations."Payne v. Security Sav. LoanAss'n, F.A.,924 F.2d 109, 111 (7th Cir. 1991) (Wherethe court analyzed analogous provisions of the FIR-REA and highlighted the significance of purchase andassumption agreements to conclude that the Resolu-tion Trust Corporation, and not the subsequent pur-chaser of the assets of a failed savings and loan associ-ation, was the proper successor to liability created byan age discrimination judgment against the failed in-stitution). It is this intermediate step, the FDIC's abil-ity to designate specific assets and liabilities for pur-chase and assumption that reflects a distinction be-tween the FDIC and a subsequent purchaser, and whya subsequent purchaser does not necessarily benefitfrom the FDIC's claim exhaustion process. *49 Insteada Court should look to the purchase and assumptionagreement governing the transfer of assets betweenthe FDIC and a subsequent purchaser of assets of afailed bank to determine which assets and correspond-ing liabilities are being assumed. Absent a transfer ofliability by the FDIC and assumption of liability by asubsequent purchaser, such as Chase, the liability re-mains with the FDIC and subject to the claim exhaus-tion procedures. *16

The September 25, 2008 Purchase and AssumptionAgreement between Chase and the FDIC explicitly re-served liability for the FDIC:

2.5 Borrower Claims. Notwithstandinganything to the contrary of this Agreement,any liability associated with borrower claimsfor payment of or liability to any borrower formonetary relief, or that provide for any otherform of relief to any borrower . . . related inany way to any loan or commitment to lendmade by the Failed Bank [WAMU] prior tofailure . . . or otherwise arising in connectionwith the Failed Bank's lending or loan purchaseactivities are specifically not assumed by theAssuming Bank.



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[Doc. # 17, Exh. D2]; see also www.fdic.gov/about/freedom/washington_mutual_p_and_a.pdf. TheCourt can consider the Purchase and AssumptionAgreement, as a district court may examine evidenceoutside of the pleadings when determining jurisdic-tion pursuant to Rule 12(b)(1). See Zappia Middle E.Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247,253 (2d Cir. 2000) (district courts "may resolve thedisputed jurisdictional fact issues by referring to evi-dence outside of the pleadings, such as affidavits, andif necessary, hold an evidentiary hearing.") Further, itis appropriate to consider this document as it is a pub-lic document that the Defendant had knowledge of, asthe Plaintiff not only makes reference to the FDIC'ssale of WAMU and its subsidiaries to Chase in hisComplaint, but also makes direct reference to a sec-tion of the Purchase and Assumption Agreement inits Memorandum in Opposition to the Defendant's in-stant motion [Docs. 1 16]. See Cortec Indus. Inc. v.Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991) *17("Despite the fact that the documents attached to [de-fendant's] motion to dismiss were neither public dis-closure documents required by law to be filed withthe SEC, nor documents actually filed with the SEC,nor attached as exhibits to the complaint or incorpo-rated by reference in it, the district court was entitledto consider them in deciding the motion to dismiss.The [documents in question] were documents plain-tiffs had either in its possession or had knowledge ofand upon which they relied in bringing suit.")

Various courts have recently reviewed the efficacy ofthis very Purchase and Assumption Agreement clausebetween the FDIC and Chase:

The Court agrees with Judge Stewart [of theDistrict of Utah], who, in an almost identicalcase to this one, interpreted the same P AAgreement to mean that Chase is shielded fromliability for borrower claims. Plaintiff arguesthat Judge Stewart's decision would allow oneparty to a contract, by agreement with astranger to the contract, to extinguish thecontractual, statutory and constitutional rights

of the other party to the contract. This is simplynot the case . . . the court agrees, that the PA Agreement expressly provides that Chase didnot assume borrower claims against WaMuarising prior to September 25, 2008. Liabilityfor borrower claims remained with the FDIC-Receiver. Consequently, any existing claimsthat plaintiff may properly assert under its loancontract should be pursued with the FDIC-Receiver and not against Chase. Plaintiffs'rights under the contract *50 were notextinguished; they are simply not enforceableagainst Chase.

Aragon v. F.D.I.C., No. 2:09CV793DS,2010 WL 331907 at *1 (D. Utah, January28, 2010) (internal citation and quotationmarks omitted).

A district court reached a similar finding in Molden-hauer v. F.D.I.C., No. 2:09-CV-00756 TS, 2010 WL1064422 (D. Utah, March 18, 2010). In *18Molden-hauer, where the plaintiff sued both the FDIC andChase in connection with an $840,000 loan executedby WAMU, the court first noted that for an actionagainst the FDIC, "[e]xhaustion of administrativeremedies is mandatory where Congress has providedsuch remedies" and dismissed the claim pursuant toFed.R.Civ.P. 12(b)(1). Id. at *2. With regard to theclaim against Chase, the Court found that because the"claims all relate[d] to a loan made before September25, 2008, Plaintiff ha[d] not stated a claim againstChase because Chase expressly did not assume the lia-bility for which Plaintiffs s[ought] to recover." Id. Un-der similar reasoning, the Court finds that the lan-guage of the parties' Purchase and Assumption agree-ment is dispositive and that Chase did not assume li-abilities against WAMU arising from its lending orloan purchase activities prior to September 25, 2008,and that those liabilities remained with the FDIC asreceiver, and subject to the FDIC's jurisdictional claimexhaustion requirements.

The Purchase and Assumption agreement also notes,in section 2.1, however that notwithstanding other



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sections of the agreement, that "the Assuming Bankspecifically assumes all mortgage servicing rights andobligations of the Failed Bank." [Doc. # 17, Exh. D2].Mortgage servicing typically refers to the "adminis-trative tasks associated with collecting mortgage pay-ments." Morrison v. National Australia Bank Ltd.,130S.ct. 2869, 2875 (2010) (citing to J. Rosenberg, Dic-tionary of Banking and Financial Services 600 (2d. ed.1985)). In considering the Complaint *19 pursuant toRule 12(b)(1), the Court must therefore distinguishbetween claims relating to lending activities as distin-guished from claims relating to mortgage servicing.As a result the Court lacks jurisdiction over any ofCaires' allegations regarding the origination and for-mation of the loan and mortgage by and betweenCaires and WAMU, but retains jurisdiction over alle-gations regarding the servicing of Caires mortgage byChase. The Defendant's motion to dismiss made pur-suant to Rule 12(b)(1) is therefore granted as each ofthe Plaintiff's causes of actions rely, at least in part, onactions taken and statements made by WAMU em-ployees in connection with the finalization and is-suance of Caires' mortgage agreement. As each of thecounts in Caires complaint also refer to actions takenby Chase employees possibly after the date of the Pur-chase and Assumption Agreement and actions takenby Chase employees in relation to the servicing of thePlaintiff's loan agreement, but fails to clearly delineatethe timing and responsible party for these alleged mis-deeds, the Plaintiff's case is dismissed without preju-dice to the Plaintiff's right to file an amended com-plaint that limits its causes of actions to allegations re-garding the servicing of the Plaintiff's loan agreementthat are not subject to the FDIC's claim exhaustion re-quirements within fourteen days of this decision. *20

B) The Defendant's Motion toDismiss Pursuant to Rule 12(b)(6)

The Defendant also seeks to dismiss the Plaintiff'sclaims pursuant to rule 12(b)(6) for failure to state acause of action upon which relief can be granted:

Even if this Court has jurisdiction over thesubject matter of this case, the Plaintiff hasfailed to allege any facts *51 that would supporta cause of action against the Defendant. Theentire Complaint is based on allegations thatWAMU, the Defendant, and WAMU and theDefendant together, engaged in oralcommunications and entered into oralagreements with the Plaintiff that changed thewritten terms of the Loan. However, even ifthis Court assumes that such allegations aretrue, they are insufficient to support a claimunder D'Oench Duhme. There are noallegations in the Complaint as are requiredto maintain a cause of action that any ofthese alleged oral agreements were: (1) reducedto writing; (2) which writing was executed byWAMU; (3) which writing was approved byWAMU's board of directors; and (4) whichwriting is and did become an official record ofWAMU's. As a result, the Plaintiff has failed tostate a claim upon which this Court can grantrelief and the Complaint should be dismissed inits entirety.

[Doc. #13]. In response, the Plaintiff contends that thedoctrine of D'Oench, Duhme does not apply to the as-signee of an asset that passed through the FDIC, andthat the Defendant stepped in the shoes of the failedbank in regard to the purchased assets and not theshoes of the FDIC and therefore cannot rely on thepowers of the FDIC.

The D'Oench, Duhme doctrine based on the 1942United States Supreme Court case and subsequent ju-dicial interpretation and legislative codification, inval-idates certain agreements made between a bank's rep-resentatives and borrowers, prior to the FDIC's ap-pointment as a receiver for that failed institution, tomodify the terms of a promissory note, *21 unless theagreement meets certain requirements, including be-ing reduced to writing. See D'Oench, Duhme Co. v.FDIC,315 U.S. 447 (1942). The Second Circuit has ex-plained, in detail, the development of the D'Oench,



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Duhme doctrine, its subsequent codification, and itsapplication to assets acquired by the FDIC:

In D'Oench, Duhme Co. v. FDIC, the SupremeCourt established a doctrine that precludespersons who have lent themselves "to a schemeor arrangement whereby the banking authorityon which the [FDIC] relied in insuring thebank was or was likely to be misled," fromraising a defense to a collection action broughtby the FDIC as the receiver of the failed bankbased on the misleading scheme orarrangement . . . In Langley v. FDIC, theSupreme Court considered the scope of theD'Oench, Duhme doctrine as codified at 12U.S.C. 1823(e) and held that "[a] conditionto payment of a note, including the truth ofan express warranty, is part of the `agreement'to which the writing, approval, and filingrequirements of 12 U.S.C. 1823(e) attach."In 1989, after the Supreme Court had decidedLangley, Congress further enlarged the scopeof the doctrine by amending 1823(e) toextend its protections to assets acquired by theFDIC through appointment as a receiver for aninsolvent financial institution.

F.D.I.C. v. Giammettei, 34 F.3d 51, 55 (2dCir. 1994) (internal citations omitted). Thecodification of that doctrine in FIRREAprovides:

No agreement which tends to diminish ordefeat the interest of the [FDIC] in any assetacquired by it under this section or section1821 of this title, either as security for a loanor by purchase or as receiver of any insureddepository institution, shall be valid against the[FDIC] unless such agreement

(A) is in writing,

(B) was executed by the depository institutionand any person claiming *52 an adverse interestthereunder, including the obligor,contemporaneously with the acquisition of theasset by the depository institution,

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(C) was approved by the board of directors ofthe depository institution or its loancommittee, which approval shall be reflected inthe minutes of said board or committee, and

(D) has been, continuously, from the time of itsexecution, an official record of the depositoryinstitution.

12 U.S.C. 1823(e)(1).

In Langley, The Supreme Court noted a key purposeof theD'Oench, Duhme doctrine:

One purpose of 1823(e) is to allow federaland state bank examiners to rely on a bank'srecords in evaluating the worth of the bank'sassets. Such evaluations are necessary when abank is examined for fiscal soundness by stateor federal authorities, and when the FDIC isdeciding whether to liquidate a failed bank, orto provide financing for purchase of its assets(and assumption of its liabilities) by anotherbank. The last kind of evaluation, in particular,must be made with great speed, usuallyovernight, in order to preserve the goingconcern value of the failed bank and avoid aninterruption in banking services. Neither theFDIC nor state banking authorities would beable to make reliable evaluations if bankrecords contained seemingly unqualified notesthat are in fact subject to undisclosedconditions.

Langley v. Federal Deposit Ins. Corp., 484U.S. 86, 91-92 (1987), (internal citationsand quotation marks omitted).

Several Courts have noted that the D'Oench, Duhmedoctrine applies to assignees of the FDIC:

Courts have expanded the application of thisdoctrine. First, it is not limited to the FDIC inits corporate capacity as the insurer of a failedinstitution's deposits. The FDIC may also assertthe doctrine in its capacity as the receiver of



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the failed institution. Second, bridge banks mayassert the doctrine as the assignees of the FDICas the receiver of the failed institution.

*23 Fleet Bank of Maine v. Steeves,785 F.Supp. 209, 213 (D. Maine 1992) (listingauthorities noting that banks acting asassignees of the FDIC as a failed institutionmay assert theD'Oench, Duhme doctrine);see also Porras v. Petroplex Sav. Ass'n,903F. 2d 379, 380-81 (5th Cir. 1990) ("Thepreferred method of ensuring thatdepositors are paid is through the use ofpurchase and assumption agreements . . .Recognizing this, we recently extendedD'Oench, Duhme to `assignees of theFDIC.'"); see also AAI Recoveries, Inc. v.Pijuan, 13 F. Supp. 2d 448,451 (S.D.N.Y.,1998) ("Although Congress only codifiedthe D'Oench, Duhme doctrine with regardto the FDIC, courts have extended the ruleto include third party assignees andtransferees . . . Therefore, AAI, as asuccessor in interest to the FDIC, is entitledto the protection of theD'Oench, Duhmedoctrine in the instant case.");see also OCIMortg. Corp. v. Marchese,774 A.2d 940,943 n. 7 (Conn. 2001) ("Although not adisputed issue in the present case, it isgenerally recognized that third partytransferees and assignees of the FederalDeposit Insurance Corporation andResolution Trust enjoy the same protectionsof12 U.S.C. 1823(e) and theD'Oench,Duhme doctrine.") This Courtagrees with the line of reasoningpromulgated by these courts, and notes inparticular that allowing parties to assert oralagreements, or agreements that otherwise*53 fail to meet the requirements of theD'Oench, Duhme doctrine against apurchaser would diminish the value ofassets that the FDIC seeks to sell andundermine the deposit insurance system. Asnoted by the Fifth Circuit: *24

A primary duty of the FDIC and FSLIC is topay depositors of failed financial institutions. . . Purchase and assumption agreements arepreferred because they minimize thecorporations' losses, expand the purchasinginstitutions' opportunities at low risk, andprotect depositors. D'Oench, Duhme promotespurchase and assumption transactions byoffering the purchaser protection from secretagreements that tend to affect adversely itsrights in the instruments that it acquires.Extending D'Oench, Duhme to transferees ofassets from the FSLIC [and the FDIC],therefore, provides the FSLIC [and the FDIC]with greater opportunity to protect the failedinstitutions' assets.

Porras, 903 F.2d at 380-81 (internalcitations omitted).

Accordingly, the Court finds that the Defendant is en-titled to the protections of the D'Oench, Duhme doc-trine and12 U.S.C. 1823(e) as an assignee of theFDIC and that Chase is not subject to any agreements,other than Caires' mortgage agreement, made priorto WAMU being placed in receivership of the FDIC,unless they meet the requirements of 1823(e), in-cluding being reduced to writing. As in the discussionof the Defendant's motion to dismiss made pursuantto Rule 12(b)(1), the Court notes that the Plaintiff'sComplaint fails to properly delineate the timing of al-leged statements and agreements made by WAMUand Chase employees. Further, the Plaintiff fails tonote if and how any subsequent communications al-tered the terms of his mortgage despite the existenceof a written mortgage agreement, and more impor-tantly whether such communications or subsequentagreements complied with the requirements of 12U.S.C. 1823(e). Accordingly, the Defendant's motionto dismiss made pursuant to Rule 12(b)(6) is alsogranted, without prejudice to the Plaintiff's right tofile an amended complaint within *25 fourteen daysof this decision that provides sufficient factual detailfor the Court to conclude whether any alleged agree-ments forming the basis of Plaintiff's claims, made



subsequent to the initial mortgage closing but prior toChase's purchase and assumption of WAMU's assetscomply with the D'Oench, Duhme doctrine as codi-fied in the four requirements enumerated in12 U.S.C. 1823(e).

IV. ConclusionChase's motions to dismiss made pursuant toFed.R.Civ.P12(b)(1) and Fed.R.Civ.P. 12(b)(6) [Doc.#12] are GRANTED, and this case will be closed un-less the Plaintiff files an amended complaint in com-pliance with the Court's foregoing instruction by Oc-tober 14, 2010.

IT IS SO ORDERED.

Dated at Hartford, Connecticut: September30, 2010



CAIRES v. JP MORGAN CHASE BANK745 F. Supp.2d 40 (D. Conn. 2010)MEMORANDUM OF DECISION AND ORDER GRANTING THE DEFENDANT'S [DOC. #12] 12(b)(1) MOTION TO DISMISS THE PLAINTIFF'S COMPLAINT PURSUANT TO FEDERAL RULES OF CIVIL PROCEDURE 12(b)(1) AND 12(b)(6)I. Factual and Procedural BackgroundII. Standard of LawIII. Analysis A) The Defendant's Motion to Dismiss Pursuant to Rule 12(b)(1)Overview of the FIRREA Claims Process and Exhaustion RequirementApplicability of the FIRREA Claims Process and Exhaustion Requirement to the Plaintiff's ClaimsB) The Defendant's Motion to Dismiss Pursuant to Rule 12(b)(6)IV. Conclusion

caires-v-jp-morgan-chase-bank.pdf

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