# Nassau Financial Federal Credit Union v. National Credit Union Administration Board

> District Court, E.D. New York · December 20, 2022

URL: https://www.frixlaw.com/law-library/cases/10309081

## Case

- **Court:** District Court, E.D. New York
- **Decided:** December 20, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10309081

## How later opinions describe it (automated extraction)

- affirming the dismissal of a gross-negligence claim where “plaintiff has not alleged the violation of a legal duty independent of the contract”

## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
------------------------------------------------------------x
NASSAU FINANCIAL FEDERAL CREDIT
UNION,

Plaintiff,

v. MEMORANDUM AND ORDER

NATIONAL CREDIT UNION 22-CV-39 (RPK) (SJB)
ADMINISTRATION BOARD as Liquidating
Agent of LOMTO Federal Credit Union, and
UNITED STATES OF AMERICA,

Defendants.
------------------------------------------------------------x
RACHEL P. KOVNER, United States District Judge:
Plaintiff Nassau Financial Federal Credit Union brings claims against the Board of the
National Credit Union Administration (“NCUA”), a federal agency, and the United States,
challenging the NCUA’s settlement of a group of loans in which Nassau held a substantial
participation interest. Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(1).
For the reasons that follow, the motion is granted.
BACKGROUND
The following facts are drawn from the complaint and are assumed true for purposes of
this order.
In July 2009, plaintiff entered into a loan participation agreement with the League of
Mutual Taxi Owners Federal Credit Union (“LOMTO”). Compl. ¶ 13 (Dkt. #1); see id., Ex. 1, at
16–40 (Dkt. #1-5). The agreement permitted plaintiff to buy participation interests in certain loans
held by LOMTO. Compl., Ex. 1, at 16. It also stated that LOMTO would act in loan administration
and servicing matters “as a trustee with fiduciary duties to hold the Participation Interests in the
loan(s) for the benefit of the Participants.” Id. at 25.
Between 2011 and 2014, LOMTO made nineteen loans totaling about $25 million to
corporate entities associated with three members of the Tudor family: Adrian Tudor, Florina Tudor
and Maria Tudor. Compl. ¶ 14. The loans were secured in part by 105 City of Chicago taxi
medallions. Id. at ¶ 15. Plaintiff purchased a 90% interest in each of five of these loans, totaling

about $5 million. Id. at ¶ 14. Other credit unions purchased interests in several of the other loans.
Ibid. LOMTO held all remaining interests and acted as the loans’ servicer. Id. at ¶¶ 14, 17.
In 2015, the borrowers defaulted on the loans. Id. at ¶ 15. They then entered into a
forbearance agreement in which they agreed to secure the loans with certain commercial real
estate. Ibid. But they defaulted again in 2016, at which point LOMTO sought to foreclose on the
loan collateral in state court. Id. at ¶ 18.
Due to solvency concerns, the NCUA placed LOMTO under conservatorship in 2017 and
into involuntary liquidation in 2018. Id. at ¶ 16; see id., Ex. 1, at 4. The NCUA became LOMTO’s
liquidating agent and assumed its duties as the servicer of the nineteen loans. Compl. ¶¶ 16–17;
see 12 U.S.C. § 1787(b)(2)(A)(i).

As liquidating agent, the NCUA entered into an agreement with the borrowers to
restructure those loans in 2019. Compl. ¶ 20. But in 2020, the borrowers defaulted again. Id. at
¶ 22. Acting as liquidating agent, the NCUA began proceedings to foreclose on the borrowers’
collateral. Id., Ex. 1, at 5. A real estate broker appraised the real-estate portion of the borrowers’
collateral at approximately $5.5 million. Ibid. The highest bids at auction, however, amounted to
only $3.1 million. Ibid. Rather than continue with an overbid process, the borrowers offered to
settle for $3.5 million. Id. at 5–6.
Plaintiff objected to the proposed settlement. Plaintiff contended that (i) the NCUA’s
efforts to market the real estate were insufficient, (ii) the proposed settlement failed to attribute
any value to the 105 taxi medallions that were part of the collateral, and (iii) the NCUA failed to
provide plaintiff with “critical financial information.” Compl. ¶ 24. The NCUA accepted the
settlement over plaintiff’s objection. Id. at ¶ 25.
In 2021, plaintiff sent the NCUA a proof of claim, asserting that the NCUA breached the

loan participation agreement that plaintiff had entered into with LOMTO. Id. at ¶ 5. The NCUA
disallowed the claim, and plaintiff appealed to the NCUA Board. Id. at ¶ 6. The NCUA Board
denied plaintiff’s appeal. Ibid. Plaintiff also sent the NCUA’s Office of General Counsel a form
complaint seeking relief under the Federal Tort Claims Act (“FTCA”), 28 U.S.C. § 2671 et seq.
Id. at ¶ 8. The Office of General Counsel denied the claim. Id. at ¶ 9.
Plaintiff then filed suit in this Court. Plaintiff brings four claims: (i) breach of contract
against the NCUA Board, (ii) indemnification against the NCUA Board, (iii) breach of fiduciary
duties against the United States under the FTCA, and (iv) gross negligence against the United
States under the FTCA. Id. at ¶¶ 27–57.
Defendants move to dismiss under Federal Rule of Civil Procedure 12(b)(1). See Mot. to

Dismiss (Dkt. #16). They argue that plaintiff’s claims against the NCUA Board should be
dismissed because judicial review is only available under the Administrative Procedures Act
(“APA”), 5 U.S.C. § 551 et seq., and plaintiff did not bring an APA claim. Mem. in Supp. of Mot.
to Dismiss 14–20 (Dkt. #17). They also argue that plaintiff’s claims against the United States
should be dismissed because those claims are essentially contract claims that are not actionable
under the FTCA. In the alternative, they argue that those claims are barred by the FTCA’s
discretionary-function exception and its interference-with-contract-rights exception. Id. at 21–31.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(1) permits a party to move to dismiss a complaint
for “lack of subject-matter jurisdiction.” Fed. R. Civ. P. 12(b)(1). “A case is properly dismissed
for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory

or constitutional power to adjudicate it.” Makarova v. United States, 201 F.3d 110, 113 (2d Cir.
2000). When considering a motion to dismiss under Rule 12(b)(1), the court takes as true the
factual allegations in the complaint but does not draw inferences favorable to the party asserting
jurisdiction. J.S. ex rel. N.S. v. Attica Cent. Schs., 386 F.3d 107, 110 (2d Cir. 2004).
DISCUSSION
Defendants’ motion to dismiss is granted.
I. Plaintiff’s Non-FTCA Claims Are Dismissed
Plaintiff’s breach of contract and indemnity claims are dismissed because they are not
brought under the APA. As plaintiff acknowledges, “creditors must pursue their claims against
covered defunct credit unions” through the “exclusive framework” established in 12 U.S.C.
§ 1787(b). Perna v. Health One Credit Union, 983 F.3d 258, 269 (6th Cir. 2020); see 12 U.S.C.

§ 1787(b)(13)(D). Under that framework, a creditor may submit a proof of claim to the NCUA
Board as liquidating agent. 12 U.S.C. § 1787(b)(3)(A); see City of New York v. FDIC, 40 F. Supp.
2d 153, 155 (S.D.N.Y. 1999). If the NCUA Board disallows the claim, “the claimant may request
administrative review of the claim . . . or file suit on such claim.” 17 U.S.C. § 1787(b)(6)(A)
(emphasis added). “If the claimant requests [administrative review] in lieu of filing” suit, the
NCUA Board’s “final determination . . . with respect to such claim shall be subject to judicial
review under [the APA].” Id. § 1787(b)(7)(A). These principles bar plaintiff from bringing claims
of breach of contract and indemnity against the NCUA Board. Because plaintiff sought
administrative review of its breach of contract and indemnity claims, see Compl., Ex. 1, at 6,
judicial review is only available under the standards set forth in the APA, see 12 U.S.C.
§ 1787(b)(7)(A).
Plaintiff does not dispute that its breach of contract and indemnification claims must be
brought under the APA, Mem. in Opp’n to Mot. to Dismiss 11–12 (Dkt. #18), but it contends that

the motion to dismiss should nevertheless be denied because it would be entitled to relief under
the APA, on the ground that the NCUA Board’s decision was “arbitrary, capricious, an abuse of
discretion, [and] otherwise not in accordance with law.” Id. at 12 (citing 5 U.S.C. § 706(2)(A)).
But plaintiff did not assert this APA claim in its complaint, defendants have not briefed the claim’s
merits, and the administrative record has not been provided to the Court. Accordingly, the Court
declines to consider the merits of plaintiff’s APA claim here. See Williams v. Rosenblatt Secs.
Inc., 136 F. Supp. 3d 593, 609 (S.D.N.Y. 2015) (“A plaintiff cannot amend his complaint in
response to a motion to dismiss.”); Mathie v. Goord, 267 F. App’x 13, 14 (2d Cir. 2008).
Plaintiff’s breach of contract and indemnification claims are dismissed.
II. Plaintiff’s FTCA Claims Are Dismissed
Plaintiff’s claims for breach of fiduciary duty and gross negligence are also dismissed.

“Absent an ‘unequivocally expressed’ statutory waiver, the United States . . . [is] immune from
suit based on the principle of sovereign immunity.” Cnty. of Suffolk v. Sebelius, 605 F.3d 135, 140
(2d Cir. 2010) (citation omitted). The FTCA waives federal sovereign immunity for certain torts
committed by “any employee of the Government while acting within the scope of his office or
employment, under circumstances where the United States, if a private person, would be liable to
the claimant in accordance with the law of the place where the act or omission occurred.” 28
U.S.C. § 1346(b)(1). But as the title suggests, “claims against the United States for breach of
contract are not cognizable under the” Federal Tort Claims Act. United States v. Dorio, 483 F.
Supp. 3d 145, 156 (D. Conn. 2020); see Davis v. United States, 961 F.2d 53, 56 (5th Cir. 1991)
(“The Federal Tort Claims Act does not extend subject matter jurisdiction over breach of contract
claims.”).
Plaintiff’s FTCA claims fail because they are not cognizable as torts under New York law.
In New York, “a simple breach of contract is not to be considered a tort unless a legal duty

independent of the contract itself has been violated.” Clark-Fitzpatrick, Inc. v. Long Island R. Co.,
516 N.E.2d 190, 193 (N.Y. 1987). Moreover, a plaintiff cannot “transform a simple breach of
contract into a tort claim” by merely “employing language familiar to tort law.” Id. at 194; see
Edelman v. United States, No. 18-CV-2143 (JS) (AKT), 2020 WL 7123175, at *8 (E.D.N.Y. Dec.
4, 2020) (dismissing an FTCA claim for intentional infliction of emotional distress “[b]ecause the
source of Plaintiff’s claimed rights stem from a contract . . . [and] his allegations are merely a
restatement of [his] breach of contract claim”). To qualify as a tort, the “legal duty must spring
from circumstances extraneous to, and not constituting elements of, the contract, although it may
be connected with and dependent upon the contract.” Clark-Fitzpatrick, 516 N.E.2d at 194; see
Bayerische Landesbank v. Aladdin Cap. Mgmt. LLC, 692 F.3d 42, 58 (2d Cir. 2012).

Plaintiff’s breach-of-fiduciary duty and gross-negligence claims assert that the NCUA
Board “violated its duties and obligations as a fiduciary and trustee,” Compl. ¶¶ 51, 56, which is
not a duty that is “independent of” the loan participation agreement, Clark-Fitzpatrick, 516 N.E.2d
at 193. “Generally, banking relationships are not viewed as special relationships giving rise to a
heightened duty of care.” Banque Arabe et Internationale D’Investissement v. Maryland Nat.
Bank, 57 F.3d 146, 158 (2d Cir. 1995); see Banco Espanol de Credito v. Sec. Pac. Nat. Bank, 973
F.2d 51, 56 (2d Cir. 1992). “This same principle applies to loan participation agreements, in which
there is deemed to be no fiduciary relationship unless expressly and unequivocally created by
contract.” Banque Arabe, 57 F.3d at 158; see In re Mid-Island Hosp., Inc., 276 F.3d 123, 130 (2d
Cir. 2002) (“[W]hen parties deal at arms length in a commercial transaction, no relation of
confidence or trust sufficient to find the existence of a fiduciary relationship will arise absent
extraordinary circumstances.”) (citation omitted).
As a result, the only fiduciary duty under New York law that plaintiff has plausibly alleged

is a contractual one, derived from the loan participation agreement providing that LOMTO would
act “as a trustee with fiduciary duties to hold the Participation Interests in the loan(s) for the benefit
of the Participants.” Compl., Ex. 1, at 25. Because this is not “a legal duty independent of the”
parties’ contract, Clark-Fitzpatrick, 516 N.E.2d at 193, plaintiff fails to show that its claims for
breach of fiduciary duty and gross negligence are cognizable as torts under New York law. See
Bayerische, 692 F.3d at 58; Clark-Fitzpatrick, 516 N.E.2d at 193 (affirming the dismissal of a
gross-negligence claim where “plaintiff has not alleged the violation of a legal duty independent
of the contract”).
Plaintiff does not alter this result by alleging that the NCUA Board breached a fiduciary
duty arising from 12 C.F.R. § 701.4(b), which requires directors of federal credit unions to exercise

good faith and due care. See Mem. in Opp’n to Mot. to Dismiss 16 n.9. Even assuming that this
regulation imposed a fiduciary duty on the NCUA Board in this case, this argument is unavailing
because plaintiff identifies no analogous state law imposing a similar duty on private parties. “The
FTCA’s ‘law of the place’ requirement is not satisfied by direct violations of . . . federal statutes
or regulations standing alone.” Chen v. United States, 854 F.2d 622, 626 (2d Cir. 1988); see FDIC
v. Meyer, 510 U.S. 471, 477–78 (1994).
Because plaintiff’s FTCA claims fail on this basis, I decline to consider defendants’
alternative arguments that the claims are precluded under the FTCA’s discretionary-function
exception and its interference-with-contract-rights exception. See 28 U.S.C. § 2680(a), (h).
CONCLUSION
Defendants’ motion to dismiss is granted. Defendants have consented to the filing of an
amended complaint setting forth claims under the APA. See Reply in Supp. of Mot. to Dismiss
2–3 (Dkt. #19). Accordingly, within 30 days, plaintiff may file an amended complaint that brings
APA claims. Should plaintiff wish to file an amended complaint that contains non-APA claims,

plaintiff shall file a motion to do so within 30 days. Any such motion shall attach the proposed
amended complaint and explain why the amended complaint addresses the defects outlined in this
memorandum.
SO ORDERED.
/s/ Rachel Kovner
RACHEL P. KOVNER
United States District Judge

Dated: December 20, 2022
Brooklyn, New York

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10309081. Public record. Not legal advice.