Am. W. Bank Members v. State

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AMERICA WEST BANK MEMBERS, Plaintiff, v. THE STATE OF UTAH, et al., Defendants.

No. 2:16-cv-326

United States District Court, D. Utah

June 21, 2023

MEMORANDUM DECISION AND ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Clark Waddoups, United States District Judge

Before the court is Defendants' motion for summary judgment (ECF No. 280), which argues, among other things, that the each of the claims asserted by Plaintiff America West Bank Members (hereinafter “AWBM” or the “Holding Company”) in this action were assumed by the Federal Deposit Insurance Corporation (“FDIC”), pursuant to 18 U.S.C. § 1821(d)(2)(A), upon the FDIC's appointment as receiver for America West Bank (hereinafter the “Bank”). For the reasons set forth herein the court agrees and grants Defendants' motion for summary judgment.

Background^[1]

AWBM is a Utah limited liability company that was the sole owner of America West Bank. In or around 2007, the Bank allegedly came up with a novel business plan, referred to by AWBM as the “member banking concept,” whereby the Bank would be organized in a manner that combined the best aspects of the banking and credit union models. Under the new model the Bank would have the ability to distribute earnings to its member owners, like a bank, while avoiding the corporate level taxes that a traditional bank would normally have to pay. (2d Am. Compl. at ¶¶ 2124, ECF No. 33.)

In late 2007, the Bank received confirmation from the Federal Reserve that it could move forward with its first proposed private placement and issuance of preferred member equity shares in order to implement the plan. (Id. at ¶ 25.)

In early 2008, however, AWBM alleges that the FDIC and the Utah Department of Financial Institutions (“UDFI”) “temperament” towards the bank suddenly changed and, according to AWBM, both institutions became aggressive and hostile against the Bank. (Id. at ¶ 27.) According to AWBM, the change in temperament by the FDIC and UDFI was the result of the FDIC changing its mind about whether the Bank's member banking concept should be allowed to be implemented, which led to the FDIC deciding to “kill the Bank in order to put an end to the new concept.” (Id. at ¶ 31.)

AWBM alleges that the UDFI and FDIC accomplished their goal of “killing” the bank by changing their methodology for valuing the Bank's assets in an unreasonable way in order to “manufactur[e] a supposedly data-driven excuse to justify a decision that had already been made to shut down the Bank.” (Id.at ¶ 46.) According to AWBM, the methodology used to value the Bank's assets was different than the one used to evaluate any other bank, and AWBM claims that any bank would appear to be failing if the same methodology was applied to it. (Id. at ¶¶ 47-48.)

After several months of back and forth between the Bank and regulators about the condition of the bank, Defendant G. Edward Leary, the commissioner of UDFI, filed an ex parte petition in Utah state court on May 1, 2009 seeking an order granting UDFI possession of the Bank. (Id. at ¶ 67.) The state court held a hearing on the same day, without the attendance of the Bank or AWBM. AWBM alleges that Commissioner Leary failed to disclose material information to the state court at the hearing, including the amount of additional capital that would have been required to meet the Bank's minimum capital requirements. (Id. at ¶¶ 100-103.) At the conclusion of the hearing, the petition was granted, without notice to AWBM or the Bank, despite the Bank's previous request that it be given notice of any action taken by the UDFI. (Id. at ¶¶ 106-107.) The FDIC was appointed as receiver for the Bank on the same day. (Id. at ¶ 108.) The FDIC “immediately and publicly announced the failure and seizure of the Bank and began liquidating assets of the Bank.” (Id. at ¶ 109.) The depositor accounts were taken over by Cache Valley Bank. (Id. at ¶ 114.)

According to AWBM, the Bank's assets were liquiDated: values that exceeded the regulator's estimates, giving the purchasers of the assets “significant profits from their resale” that could have been realized by the Bank if it had not been seized. (Id. at ¶¶ 116-119.)

Procedural History

Utah Code § 7-2-3 provides that a person or institution that the commissioner of UDFI has taken possession of, and that considers itself aggrieved by the taking, may apply to the court within 10 days of the taking to enjoin further proceedings.

Rather than asking the state court to enjoin the taking within the 10-day statutory period, however, AWBM waited more than two years to challenge the UDFI's possession of the bank bringing a separate action in state court in 2012 (the “2012 Action”). The 2012 Action raised several of the same claims and allegations that have been asserted in this suit. The 2012 Action was dismissed without prejudice under Rule 12(b)(6) of the Utah Rules of Civil Procedure for failing to allege sufficient facts. The Utah Supreme Court upheld the dismissal in 2014.^[2] See Am. West Bank Members, L.C. v. Utah, 2014 UT 49, 342 P.3d 224.

AWBM subsequently initiated the current action, initially in state court, on March 23, 2016. (ECF No. 2-1.) AWBM's initial complaint asserted claims against the State of Utah, UDFI, and Commissioner Leary (collectively, the “State”) for breach of contract, violation of due process, a violation of the Takings Clause of the Utah Constitution. (Id.) The State then removed the action to this court on April 21, 2016. (ECF No. 2.)

On February 5, 2018, the court partially granted a motion to dismiss filed by the State, dismissing AWBM's contract claims on statute of limitation grounds, and permitted AWBM to file an amended complaint to plead its taking claims with more particularity. (ECF No. 29.) Thereafter, AWBM filed its second amended complaint, which is now the operative complaint in this action, on April 6, 2018, (ECF No. 33).

The second amended complaint asserts seven causes of action: (1) violation of procedural due process, (2) violation of substantive due process, (3) violations of § 1983 and § 1985 by Commissioner Leary, (4) physical takings claim in violation of the Utah Constitution, (5) regulatory takings claim in violation of the Utah Constitution, (6) physical takings claim in violation of the U.S. Constitution, and (7) regulatory takings claim in violation of the U.S. Constitution. (ECF No. 33 at ¶¶ 120-263.)

In its procedural due process claim, AWBM alleges that it had a clearly established constitutional right to pre-seizure notice and a hearing because Commissioner Leary knew or should have known that the grounds relied on to obtain the seizure order were false. According to AWBM, the allegations about the Bank's status that were included in the seizure petition could not have been made in good faith in light of facts that Leary was or should have been aware of.

AWBM's substantive due process claim alleges that the Utah statute authorizing UDFI to seize the bank without a hearing is unconstitutional as applied to the Bank to the extent it permitted such a seizure on the grounds relied on by Commissioner Leary.

AWBM's §§ 1983/1985 against Commissioner Leary is based on largely the same allegations underlying the due process claims-that Leary violated AWBM's constitutional rights by seizing the bank without a pre-seizure hearing.

AWBM's takings claims allege that the seizure of the bank constitutes either a physical or regulatory taking of AWBM's property interest in “the profitable use and enjoyment of its rights under the [Bank's] charter and the valuable and marketable assets (including notes, trust deeds, accounts, investments, going concern, and good will) which AWBM had acquired and developed in operation of the Bank.” (Id. at ¶ 234.)

As remedies, the second amended complaint seeks “an order requiring UDFI to issue a corrected press release with terms approved by the court; an order requiring UDFI to reissue the Bank's charter and provide the Bank with the minimum capital required for operation; and an order requiring UDFI to correct its files and records consistent with the findings of the court.” (Id. at ¶ 175.) The complaint also seeks monetary damages, including damages in amount that would “put AWBM in the position it would have occupied but for the [taking of its property interests].” (See, e.g., id. at ¶ 238.)

On February 9, 2019, AWBM filed a motion seeking partial summary judgment and a declaration on the grounds that it was undisputed that its due process rights had been violated. (ECF No. 45.) The court denied AWBM's motion on April 20, 2020. (ECF No. 64.) In doing so, the court concluded that it lacked subject matter jurisdiction, under the Rooker-Feldman doctrine, over AWBM's claims to the extent they challenged the state court's decision to issue an order authorizing UDFI to take possession of the bank without providing the Bank or AWBM with a pre-seizure hearing. (Id. at 18-24.) The court also concluded, however, that the Rooker-Feldman doctrine did not bar the court from considering AWBM's claims to the extent they were based on the allegation that the state court's order of possession was obtained as a result of Commissioner Leary's purported failure to disclose material facts to the state court that, if known, would have resulted in disapproval of the seizure. (Id.)

After making its jurisdictional determination, the court held that when the facts were viewed in the light most favorable to the State, Commissioner Leary had a legitimate basis to seek an order for possession of the bank and that AWBM had waived its procedural due process claim by failing to seek an injunction from the state court within 10 days of the taking. (Id. at 34.) The court also held that it lacked...