Com. v. FDIC, Civil Action No. 94-10092-RGS

916 F. Supp. 54

COMMONWEALTH OF MASSACHUSETTS v. FDIC.

Civil Action Nos. 94-10092-RGS, 95-10354-RGS.¹

United States District Court, D. Massachusetts.

February 13, 1996.

Thomas O. Bean, Thomas A. Barnico, Attorney General's Office, Boston, MA, Thomas M. Alpert, Office of Attorney General, Public Protection Bureau, Boston, MA, for plaintiff.

Z. Scott Birdwell, Corporation and Special Litigation Section F.D.I.C., Washington, DC, Charles L. Cope, II, Scott Birdwell, Federal Deposit Insurance Corporation, Washington, DC, Clark van der Velde, Federal Deposit Insurance Corporation, Boston, MA, for defendant.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS, OR IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT

STEARNS, District Judge.

BACKGROUND

The Commonwealth of Massachusetts (Commonwealth) brought this lawsuit against the FDIC in both its corporate and receivership capacities, seeking unclaimed deposits held by thirty-five failed Massachusetts banks.² The Commonwealth bases its claims against the FDIC on a state law, the Massachusetts Abandoned Property Act, G.L. c. 200A (MAPA). MAPA directs the State Treasurer to take possession of any bank deposit account in which the owner has shown no interest for three years. The Treasurer may proceed either in the name of the absent depositor or in the Commonwealth's own right. In this lawsuit the Commonwealth is asking for the insurance value of the abandoned deposits from FDIC-Corporate (Counts I-IV) or, in the alternative, the uninsured (pro rata) value of the same deposits from FDIC-Receiver (Counts V-IX). The Fifth Amended Complaint seeks deposits that MAPA deemed abandoned both prior to (the Pre-Closing Deposits) and after the institution of the receiverships (the Post-Closing Deposits). The receiverships were declared between 1990 and 1993.

On January 18, 1994, the Commonwealth filed a Complaint in this court against FDIC-Receiver. On March 24, 1994, the Commonwealth formally filed its claim with FDIC-Corporate.³ On April 20, 1994, the FDIC rejected the Commonwealth's claim in a two paragraph letter stating that MAPA is preempted by the Federal Deposit Insurance Act, 12 U.S.C. § 1822(e). The Commonwealth appealed directly to the First Circuit Court of Appeals, asserting jurisdiction under 12 U.S.C. § 1821(f)(3) & (4).⁴

On review, the First Circuit explained the two avenues by which an appeal of an adverse decision by the FDIC can be taken.

First, the FDIC can resolve disputes itself by adopting regulations for resolving such claims.⁵ Section 1821(f)(3)(A). If it does so, then under section 1821(f)(4) the dissatisfied claimant can obtain direct court of appeals review of the FDIC's `final determination' pursuant to the Administrative Procedure Act, 5 U.S.C. §§ 701-06. Second, if `the Corporation has not prescribed regulations' for resolving such claims, the FDIC `may require the final determination of a court of competent jurisdiction before resolving such claims.' Section 1821(f)(3)(B).

The phrase `court of competent jurisdiction' assuredly refers to a federal district court or, absent exclusivity or removal, a state trial court.... Against this background, we think that in section 1821(f) Congress deliberately set forth two alternative methods of resolving deposit and insurance claims, and made the course to be followed depend on whether the FDIC has established regulations for the adjudication of such claims. If it has, the agency decides the factual disputes and there is direct court of appeals review; if it has not, then the agency's less formal resolution is subject to scrutiny in an action brought is a trial court of competent jurisdiction, which will normally be the federal district court.

True, the statute's language is not airtight. The direct route to the court of appeals is available, as the statute phrases the matter, when there is a `final determination' by the FDIC. In the abstract, the quoted phrase could refer either to a determination made under FDIC regulations as provided in section 1821(f)(3)(A) or could include far less formal resolutions, such as the letter at issue in this case. But, in context, the latter is surely a less plausible reading of the words....

Massachusetts v. FDIC, 47 F.3d 456, 458 (1st Cir.1995) (footnote omitted). The Court of Appeals then transferred the case to the district court for a ruling on the merits. In doing so, the Court specifically stated that it had "not considered whether the FDIC's determinations here are `final' to the extent required for judicial intervention or any other such question." Id. at 460.⁶

FDIC-Corporate brought a motion to dismiss in the district court reasserting its position that MAPA is preempted by 12 U.S.C. § 1822(e). FDIC-Corporate also moved in the alternative for summary judgment arguing that its denial of the Commonwealth's claim was a proper exercise of discretion. Simultaneously, FDIC-Receiver filed a motion to dismiss the counts against it. The Commonwealth responded with a cross motion for summary judgment against FDIC-Corporate. In its reply to FDIC-Receiver's motion to dismiss, the Commonwealth concedes that it is not entitled to Post-Closing Deposits.⁷ The Commonwealth, however, opposes the motion to dismiss its claims to the Pre-Closing Deposits held in the Group A through D Receivership Banks (Counts V and VIII).⁸

THE STATUTES

The Massachusetts Abandoned Property Act

Section 7 of MAPA requires that holders of deposits submit an annual report to the State Treasurer listing any property deemed abandoned by section 3,⁹ together with the name and address of the depositor. If the amount of the deposit is one hundred dollars or more, the holder must send the owner, within sixty days of the filing of the report, notice that the deposit is to be surrendered to the custody of the Commonwealth. G.L. c. 200A, § 7(A).

If the deposit remains unclaimed, the holder is required to deliver it to the State Treasurer who must then publish notice that the account has been declared abandoned. Id., §§ 8 & 8(A). Unclaimed deposits are placed in an Abandoned Property Fund for the Commonwealth's use. Id., § 9. The owner of the account may thereafter at any time submit a claim to the State Treasurer. If the Treasurer determines the claim to be valid, he or she must pay the owner the value of the deposit plus interest. Id., § 10.

The Federal Deposit Insurance Act

The FDIC operates in dual capacities. FDIC-Corporate acts as the regulator of financial institutions and as the insurer of deposits. 12 U.S.C. § 1821(a) & (c). Upon the default of a depository institution, FDIC-Receiver assumes responsibility for winding up the bank's affairs, collecting outstanding obligations, liquidating the bank's remaining assets, and distributing any resulting surplus to the failed institution's creditors and shareholders. 12 U.S.C. § 1821(c) & (d)(2). In its role as an insurer, FDIC-Corporate draws monies from the Bank Insurance Fund or the Savings Association Insurance Fund and either directly reimburses insured depositors or, if it is more cost effective, arranges the transfer of insured accounts to a solvent purchasing bank. 12 U.S.C. § 1821(f). Upon paying an insured depositor, FDIC-Corporate is subrogated to the depositor's rights against FDIC-Receiver. 12 U.S.C. § 1821(g). FDIC-Corporate may then bring a claim against FDIC-Receiver for the depositor's share of the pro rata distribution of any liquidated assets. 12 U.S.C. § 1821(g)(2).

Section 1822(e) of the Federal Deposit Insurance Act defines FDIC-Corporate's obligations with respect to unclaimed insured deposits. Before June 1993, section 1822(e) provided that:

if, after the Corporation shall have given at least three months' notice to the depositor by mailing a copy thereof to his last-known address appearing on the records of the depository institution in default, any depositor in the depository institution in default shall fail to claim his insured deposit from the Corporation within eighteen months after the appointment of the receiver for the depository institution in default, or shall fail within such period to claim or arrange to continue the transferred deposit with the new bank or with the other insured depository institution which assumes liability therefor, all rights of the depositor against the Corporation with respect to the insured deposit, and against the new bank and such other insured depository institution with respect to the transferred deposit, shall be barred, and all rights of the depositor against the depository institution in default and its shareholders, or the receivership estate to which the Corporation may have become subrogated, shall thereupon revert to the depositor. The amount of any transferred deposits not claimed within such eighteen months' period, shall be refunded to the Corporation.

Until 1988, the FDIC's practice was to honor claims by States to a failed bank's abandoned deposits. In late 1988, the FDIC reversed itself, relying on the last line of then section 1822(e), that "the amount of any transferred deposits not claimed within such eighteen months' period, shall be refunded to the Corporation."

On June 28, 1993, the Unclaimed Deposits Amendments Act of 1993 (UDAA) (1993 Pub.L. No. 103-44) was enacted into law. The UDAA now requires that deposits not claimed within eighteen months of the appointment of FDIC-Receiver be placed in a State's custody for ten years. During this ten year period, the State is mandated to search for the depositor. If, at the end of ten years, the depositor is not found, the account reverts to the FDIC, and all claims regarding the deposit are extinguished. The provisions of the UDAA were made prospective, except that section 2(a) of Public Law 103-44, applied the pre-enactment version of section 1822(e) to banks placed in receivership between January 1, 1989 and June 28, 1993.¹⁰ All of the deposits at issue in this case were...