Herbst v. Resolution Trust Corp.

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Herbst et al., Appellees, v. Resolution Trust Corporation, as

Receiver for First Savings & Loan Company, Massilon, Ohio,

Appellant.

[Cite as Herbst v. Resolution Trust Corp. (1993), Ohio

St. 3d .]

Savings and loan associations -- Section 212(d) of Financial

Institutions Reform, Recovery, and Enforcement Act of 1989

does not vest federal courts with exclusive subject-matter

jurisdiction over actions against Resolution Trust

Corporation as receiver of a failed financial institution

-- Former Sections 1821, 1441a and 1819, Title 12, U.S.

Code, construed.

---

Section 212(d) of the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989, does not vest

federal courts with exclusive subject-matter jurisdiction

over actions against the Resolution Trust Corporation as

receiver of a failed financial institution. (Former

Sections 1821, 1441a and 1819, Title 12, U.S. Code,

construed.)

---

(No. 91-2254 -- Submitted January 6, 1993 -- Decided

February 24, 1993.)

Appeal from the Court of Appeals for Stark County, No.

CA-8478.

On February 12, 1990, appellees, Ronald P. Herbst and

Andrea D. Herbst, filed a complaint in the Court of Common

Pleas of Stark County naming as defendants, First Savings &

Loan Company ("First Savings"), Midland Buckeye Federal Savings

& Loan Association, Smith Development Corporation and Stephen

S. Smith. Appellees' complaint was premised on fraud, breach

of contract, breach of warranty and deceptive trade practices,

arising from the purchase of a lot and construction of a

residence on the lot.

After this action was filed, First Savings became

insolvent and appellant, Resolution Trust Corporation ("RTC"),

was, on or about April 20, 1990, appointed receiver.

Thereafter, RTC published notices informing creditors of First

Savings of the appointment of RTC. It is undisputed the

notices established July 25, 1990 as the final date for

creditors to present their claims, and that appellees did not

file a claim with RTC.

On June 1, 1990, RTC moved to be substituted as a party

defendant, in appellees' cause of action, replacing First

Savings. The common pleas court granted this motion.

On October 3, 1990, RTC moved for summary judgment, urging

that it be dismissed as a party defendant because appellees had

failed to file a claim with RTC by the July 25, 1990 deadline.

The trial court granted RTC summary judgment.

Upon appeal, the court of appeals reversed the judgment of

the trial court and remanded the cause. The court of appeals

determined that pursuant to Section 1821(d)(5)(F)(ii), Title

12, U.S. Code, appellees' failure to file a claim with RTC did

not affect their right to continue their state-court action.

The cause is now before this court pursuant to the

allowance of a motion to certify the record.

Buckingham, Doolittle & Burroughs, Richard G. Reichel and

Todd S. Bundy, for appellees.

Porter, Wright, Morris & Arthur and Jennifer T. Mills;

James D. Snively, for appellant.

Douglas, J. RTC asserts that appellees' state-court

action against it as receiver of First Savings should be

dismissed for lack of subject-matter jurisdiction because: (1)

federal courts have exclusive jurisdiction over claims

involving a failed financial institution under receivership;

and (2) appellees did not pursue and exhaust administrative

procedures described in former Sections 1821(d)(3) through

(d)(10), Title 12, U.S. Code.

I

This appeal concerns the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 ("FIRREA" or "the Act"),

Pub.L. 101-73, 103 Stat. 183.1 The Act is a response by

Congress to the evolving savings and loan crisis. As part of

its comprehensive framework for processing claims, FIRREA

created the RTC "* * * to contain, manage, and resolve failed

savings associations * * *." H.R. Rep. No. 101-54(I), 101st

Cong., 1st Sess. 1, 322, reprinted in 1989 U.S. Code Cong. &

Adm. News 86, 118. In support of their respective positions,

the parties in this appeal cite, and rely upon, various

sections of the Act. Having reviewed these sections, and the

Act as a whole, we believe Judge Selya in Marquis v. Fed.

Deposit Ins. Corp. (C.A.1, 1992), 965 F.2d 1148, 1151, was

accurate in stating that:

"FIRREA's text comprises an almost impenetrable thicket,

overgrown with sections, subsections, paragraphs,

subparagraphs, clauses, and subclauses -- a veritable jungle of

linguistic fronds and brambles. In light of its prolixity and

lack of coherence, confusion over its proper interpretation is

not only unsurprising -- it is inevitable."

Keeping this in mind, we turn our attention to RTC's

contentions.

II

In Elek v. Huntington Natl. Bank (1991), 60 Ohio St.3d

135, 573 N.E.2d 1056, relying on various United States Supreme

Court decisions, we observed that state courts presumptively

enjoy concurrent jurisdiction with federal courts over claims

arising under federal law. Id. at 138-139, 573 N.E.2d at

1059-1060. Quoting language from Gulf Offshore Co. v. Mobil

Oil Corp. (1981), 453 U.S. 473, 101 S.Ct. 2870, 69 L.Ed.2d 784,

we noted that the presumption of concurrent jurisdiction can be

rebutted, and that Congress may vest exclusive jurisdiction in

the federal courts only if (1) a federal statute explicitly

provides that federal courts have exclusive jurisdiction, (2)

the legislative history unambiguously indicates that

jurisdiction lies in federal courts, or (3) there is clear

incompatibility between state-court jurisdiction and federal

interests. Elek, 60 Ohio St.3d at 138, 573 N.E.2d at 1059.

RTC contends that Section 1821(d)(6)(A), Title 12, U.S.

Code (Section 212[d] of FIRREA) read in conjunction with

Section 1821(d)(13)(D), Title 12, U.S. Code, evidences an

explicit statutory directive that all actions against the RTC

be pursued exclusively in federal court, precluding the

exercise of concurrent state-court jurisdiction. We disagree.

Section 1821(d)(6)(A) provides that within sixty days

after the notice of disallowance of a filed claim, or the

expiration of the time period provided for in Section

1821(d)(5)(A)(i), Title 12, U.S. Code, whichever is earlier,

the claimant may:

"* * * [R]equest administrative review of the claim * * *

or file suit on such claim (or continue an action commenced

before the appointment of the receiver) in the district or

territorial court of the United States for the district within

which the depository institution's principal place of business

is located or the United States District Court for the District

of Columbia (and such court shall have jurisdiction to hear

such claim)."

Section 1821(d)(13)(D), entitled "Limitation on judicial

review," provides:

"Except as otherwise provided in this subsection, no court

shall have jurisdiction over--

"(i) any claim or action for payment from, or any action

seeking a 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

may acquire from itself as such receiver; or

"(ii) any claim relating to any act or omission of such

institution or the Corporation as receiver." (Emphasis added.)

When reading Sections 1821(d)(6)(A) and (d)(13)(D) in

isolation from other sections of FIRREA, it would appear that

RTC's position has merit. However, RTC's argument is based on

but two sections of a very detailed and comprehensive federal

scheme. RTC's narrow selection of only two parts of FIRREA is

inattentive to the language that begins Section

1821(d)(13)(D): "[e]xcept as otherwise provided in this

subsection * * *."

Section 1821(d)(2)(A)(i), Title 12, U.S. Code sets forth

RTC's "general powers," and establishes that the RTC succeeds

to "all rights, titles, powers, and privileges" of the failed

insured depository institution. In addition, under Section

1821(d)(2)(J), Title 12, U.S. Code, the RTC has "incidental

powers" and may "(i) exercise all powers and authorities

specifically granted * * * to receivers * * * under this Act *

* *; and (ii) take any action authorized by this Act, which the

Corporation determines is in the best interest of the

depository institution * * *." Pursuant to Section

1441a(b)(10)(F), Title 12, U.S. Code, entitled "Corporate

powers," the RTC has the authority "[t]o sue and be sued in its

corporate capacity in any court of competent jurisdiction."

Further, "[t]he Corporation may * * * remove any such action *

* * from a State Court to * * *" the appropriate federal court

within ninety days after the receiver is substituted as a

party, or thirty days after suit is filed. (Emphasis added.)

Section 1441a(l)(3)(A) and (B), Title 12, U.S. Code; see, also,

Section 1819(b)(2)(B), Title 12, U.S. Code, and Section

1821(d)(13)(B)(i), Title 12, U.S. Code.

As can be gleaned from the above, Congress intended the

RTC to step into the shoes of a failed financial institution.

It is apparent that Congress anticipated that at the time the

receiver is appointed, there may be litigation against a failed

financial institution pending in state court. However,

Congress did not mandate that all such actions be removed to

federal court. Rather, discretionary authority was provided.

Clearly, if Congress had intended federal jurisdiction to be

exclusive, it would not have used language giving the RTC

discretion to remove state actions, and any state action

involving the RTC would necessarily have to be dismissed for

lack of subject-matter jurisdiction.

Equally persuasive is the use of the verb "continue" in

numerous provisions of the Act. See, e.g., Section

1821(d)(5)(F)(ii), Title 12, U.S. Code (filing of a claim with

the RTC does not prejudice the claimant's right to continue any

action filed before receivership); Section 1821(d)(8)(E)(ii),

Title 12, U.S. Code (providing a similar disclaimer of

prejudice to parties who qualify under FIRREA's expedited

claims procedure); and Section 1821(d)(6)(A), Title 12, U.S.

Code (claimant has choice to file suit or seek administrative

review of a disallowed claim, or continue an action commenced

before the appointment of the receiver).

As stated in Marc Dev., Inc. v. Fed. Deposit Ins. Corp.

(D. Utah 1991), 771 F.Supp. 1163, 1168-1169:

"* * * The term 'continue' implies that a party is

proceeding forward in an ongoing case without an interruption

in the court's jurisdiction. A claimant could not 'continue'

an action over which the court has been deprived of subject

matter jurisdiction. The claimant would have to 'refile' such

a lawsuit because the suit would have been dismissed due to

lack of subject matter jurisdiction." (Emphasis added.)

Based on the foregoing, we believe that RTC's reliance on

Sections 1821(d)(6)(A) and 1821(d)(13)(D) for the proposition

that federal courts have exclusive jurisdiction over actions

against the RTC is simply not supported by other parts of

FIRREA. With respect to actions against the RTC, Congress did

not intend that state-court jurisdiction be preempted. Accord

Berke v. Resolution Trust Corp. (Minn. App. 1992), 483 N.W.2d

712, 715, and Armstrong v. Resolution Trust Corp. (1992), 234

Ill. App.3d 162, 170-172, 175 Ill. Dec. 195, 201-202, 599

N.E.2d 1209, 1215-1216.

RTC further argues that the legislative history of Section

1821(d) implies that Congress intended to provide federal

courts with exclusive jurisdiction over all matters involving

the RTC. In support, RTC cites a portion of FIRREA's

legislative history and references the United States Supreme

Court's decision in Coit Independence Joint Venture v. Fed. S.

& L. Ins. Corp. (1989), 489 U.S. 561, 109 S.Ct. 1361, 103

L.Ed.2d 602. However, the legislative history cited to us by

RTC does not evidence a Congressional intent to preclude

state-court jurisdiction when an action is commenced against a

failed financial institution prior to the time the institution

undergoes receivership. In fact, a review of the Act's history

belies RTC's argument. See H.R. Rep. No. 54(I), 101st Cong.,

1st Sess. 1, 419, reprinted in 1989 U.S. Code Cong. & Adm. News

86, 215 ("There shall be no judicial review of the

administrative determination not to allow a claim. [See

Section 1821(d)(5)(E).] Rather, the claimant must file suit or

continue a previously filed suit to establish a disallowed

claim."). It is evident that Congress was indeed aware of, and

did take into account, the possible situation where an action

could be brought in state court against a failed or failing

institution prior to the filing of a claim with RTC as receiver.

Moreover, upon a thorough reading of Coit, we find no

support for RTC's position. In Coit, the court interpreted

former Section 1464(d)(11), Title 12, U.S. Code. The thrust of

the court's decision was that the Federal Savings & Loan

Insurance Corporation ("FSLIC") did not have the authority to

adjudicate certain claims against failed savings and loan

associations. The court also determined that the regulations

adopted under the former statute were infirm because they did

not contain time limits with regard to the period of

adjudication. Congress obviously took into consideration the

Coit decision when drafting Section 1821(d). See H.R. Rep. No.

101-54(I), 101st Cong., 1st Sess. 1, 418-419, reprinted in 1989

U.S. Code Cong. & Adm. News 86, 214-215. The court in Coit did

not specifically rule on the propriety of concurrent state and

federal jurisdiction over actions commenced against a

receiver. However, a close reading of Coit leads us to

conclude that the United States Supreme Court assumed that

state and federal courts could possess concurrent jurisdiction

over such matters.

We also reject RTC's argument that there is a clear

incompatibility between state-court jurisdiction and federal

interests. As is evident, Congress enacted FIRREA in order to

facilitate claims against insolvent savings and loan

associations. Such claims were intended to be resolved in an

expeditious and fair manner. This objective, however, would be

thwarted if, upon appointment of a receiver of a failed

institution, state courts are immediately divested of

subject-matter jurisdiction and forced to dismiss pending

litigation. "It is difficult to conceive of anything less

efficient than dismissing a suit that has been, say, two years

in process * * *." Marquis, supra, 965 F.2d at 1154.

Therefore, having considered the principles set forth in

Elek, as applied to this case, and upon a thorough review of

FIRREA, we hold that Section 212(d) of the Financial

Institutions Reform, Recovery, and Enforcement Act of 1989 does

not vest federal courts with exclusive subject-matter

jurisdiction over actions against the Resolution Trust

Corporation as receiver of a failed financial institution.

III

Appellees urge that pursuant to Section 1821(d)(5)(F)(ii),

Title 12, U.S. Code, failure to pursue and exhaust

administrative procedures described in FIRREA does not require

dismissal of their action filed in the common pleas court. We

agree.

Section 1821(d)(5)(F)(ii) provides that:

"No prejudice to other actions

"Subject to paragraph (12), the filing of a claim with the

receiver shall not prejudice any right of the claimant to

continue any action which was filed before the appointment of

the receiver." (Emphasis added.)

The provision to which Section 1821(d)(5)(F)(ii) refers is

entitled "Suspension of legal actions." The relevant portions

of Section 1821(d)(12), Title 12, U.S. Code provide that after

the receiver is appointed, it may request a stay for a period

not to exceed ninety days. Section 1821(d)(12)(A)(ii).

Further, such stays, if requested, must be granted by any court

with jurisdiction. Section 1821(d)(12)(B).

RTC urges that appellees cannot avail themselves of

Section 1821(d)(5)(F)(ii), since that provision is available

only to those litigants who have, in fact, filed an

administrative claim with a receiver. RTC further urges that

Section 1821(d)(5)(F)(ii) was enacted solely as a tolling

provision, protecting claimants from time bars pending

completion of the administrative-claims process.

RTC's narrow interpretation of Section 1821(d)(5)(F)(ii)

ignores the essence of the provision. By explicit terms, this

provision states that the filing of an administrative claim

with a receiver cannot adversely affect ("prejudice") the

continuation of a pending action. The right to continue an

action is subject only to the right of RTC to seek a ninety-day

stay. Section 1821(d)(12)(A)(ii). As expressed in the

legislative history, Congress intended to give the RTC adequate

time to familiarize itself with a suit to which it has become a

party, "* * * and decide how best to proceed." H.R. Rep. No.

101-54(I), 101st Cong., 1st Sess. 1, 331, reprinted in 1989

U.S. Code Cong. & Adm. News 86, 127. Equally important,

Section 1821(d)(5)(F)(ii) does not condition the continuation

of a pending suit on whether the litigant files a claim with a

receiver. Therefore, in reading Section 1821(d)(5)(F)(ii) in

combination with Section (d)(12)(A)(ii), we believe that

Congress intended to allow courts to retain jurisdiction over

pending lawsuits whether or not the litigant files a claim with

a receiver.

We also note that in support of its position that

appellees' failure to file an administrative claim is grounds

for dismissal of the state-court proceedings, RTC relies

heavily on Resolution Trust Corp. v. Mustang Partners (C.A.10,

1991), 946 F.2d 103. Not only is Mustang distinguishable, but

if that decision stands for the proposition that failure to

file an administrative claim is grounds for dismissal of a

pending action against a receiver of a failed financial

institution, we would disagree with that proposition.

Notwithstanding possible constitutional ramifications, if

Congress had intended to deprive a court of established

subject-matter jurisdiction, it could have so stated. Neither

FIRREA nor the Act's legislative history explicitly or

implicitly indicates that the intention of Congress was to

divest the common pleas court of its subject-matter

jurisdiction. Thus, we find that appellees' state-court action

should not be dismissed for failure to file an administrative

claim with RTC.

In reaching our conclusions today, we are further

persuaded by Justice O'Connor's observations in Coit, wherein

she stated that:

"In cases where suit has already been filed against a

savings and loan association before FSLIC is appointed

receiver, FSLIC will receive notice of those claims when it

steps into the shoes of the failed savings and loan and takes

control of its assets. Trial courts can then determine, in

their discretion, whether to stay the proceedings for a limited

time, based on such factors as the stage of the litigation and

FSLIC's need to assess the possibility of settling the claims.

* * *" (Citations omitted.) Coit, 489 U.S. at 585, 109 S.Ct.

at 1374-1375, 103 L.Ed.2d at 622.

Finally, we are also aware of Justice Scalia's concurrence

in Coit where he joined the court's judgment "* * * on the more

categorical ground that FSLIC's claim procedures cannot

pre-empt the filing of suits under state law." Coit, 489 U.S.

at 592, 109 S.Ct. at 1378, 103 L.Ed.2d at 627.

Accordingly, we affirm the judgment of the court of

appeals.

Judgment affirmed.

Moyer, C.J., A.W. Sweeney, Wright, Resnick, F.E. Sweeney

and Pfeifer, JJ., concur.

FOOTNOTE:

1 The references to the Act in this opinion are construed as

enacted on August 9, 1989.