MBIA Insurance v. Federal Deposit Insurance

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 14, 2012 Decided March 8, 2013

No. 11-5317

MBIA INSURANCE CORPORATION,

APPELLANT

v.

FEDERAL DEPOSIT INSURANCE CORPORATION, IN ITS

CORPORATE CAPACITY AND AS CONSERVATOR AND RECEIVER

OF INDYMAC FEDERAL BANK, F.S.B.,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-01011)

Howard R. Hawkins Jr. argued the cause for appellant.

With him on the briefs were Jason Jurgens, David F. Williams,

and Geoffrey Gettinger.

J. Scott Watson, Counsel, Federal Deposit Insurance

Corporation, argued the cause for appellee. With him on the

brief were Colleen J. Boles, Assistant General Counsel,

Lawrence H. Richmond, Senior Counsel, and William R. Stein

and Scott H. Christensen. Thomas L. Holzman and Daniel H.

Kurtenbach, Counsel, Federal Deposit Insurance Corporation,

entered appearances.

2

Before: HENDERSON and ROGERS, Circuit Judges and

SENTELLE, Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: The issue in this appeal is

whether payments made by the MBIA Insurance Corporation

(“MBIA”) to investors in mortgage securitizations of a failed

bank (IndyMac Bank, F.S.B.) constitute “administrative

expenses” entitled to priority under the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”),

Pub. L. No. 101-73, 103 Stat. 183 (Aug. 9, 1989), 12 U.S.C.

§ 1821(d)(11)(A). MBIA sued as the third party beneficiary of

the Pooling and Servicing Agreements (“PSAs”) of the failed

bank. It alleged that the Federal Deposit Insurance Corporation

(“FDIC”) as conservator of the successor bank had “approved,”

12 U.S.C. § 1821(d)(20), the PSAs and then breached its “Put

Back” obligations under those agreements, resulting in investor

claims on MBIA-issued insurance policies. The district court

rejected MBIA’s priority claim, and MBIA now contends that

the district court erred in relying on a narrow definition of

“approved” as requiring a written sanction when other broader

dictionary definitions exist under which the FDIC Conservator

arguably “approved” the PSAs when it executed the Purchase

and Assumption Agreement (“P&A”) and partially performed its

servicing obligations pursuant to the PSAs. For the following

reasons, we affirm.

I.

In the wake of IndyMac Bank’s financial collapse, a new

federally chartered bank, IndyMac Federal, assumed various

contractual agreements to which the failed bank had been a

party, including the three PSAs that are the basis for MBIA’s

claims. According to MBIA, the FDIC Conservator of IndyMac

3

Federal breached its seller-and-servicer obligations under the

PSAs, causing damages to MBIA. To assess MBIA’s contention

that its damages constitute “administrative expenses” entitled to

priority under 12 U.S.C. § 1821(d)(11)(A) because the FDIC

had “approved” the PSAs within the meaning of § 1821(d)(20),

we set forth the relevant statutory framework before turning to

MBIA’s allegations, which, upon de novo review of the

dismissal of MBIA’s amended complaint, see Barr v. Clinton,

370 F.3d 1196, 1201 (D.C. Cir. 2004), we must accept as true,

Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1253 (D.C.

Cir. 2005).

A.

FIRREA was enacted in 1989 in the wake of the savings

and loan crisis “to enable the FDIC . . . to expeditiously wind

up the affairs of literally hundreds of failed financial institutions

throughout the country.” Freeman v. FDIC, 56 F.3d 1394, 1398

(D.C. Cir. 1995). Congress authorized the takeover of failing

federally regulated financial institutions, vesting authority in the

FDIC as receiver to liquidate the remaining assets of the failed

institution, see 12 U.S.C. § 1821(d)(2)(E), and as conservator to

“carry on the business of the institution and preserve and

conserve the assets and property,” see id. § 1821(d)(2)(D)(ii).

Upon appointment, the FDIC steps into the shoes of the failed

institution and succeeds to “title to the books, records, and

assets” of that entity, as well as to “all rights, titles, powers, and

privileges” of the institution. Id. § 1821(d)(2)(A). In so doing

it has “extraordinary powers,” Nat'l Union Fire Ins. Co. of

Pittsburgh, Pa. v. City Sav., F.S.B., 28 F.3d 376, 388 (3d Cir.

1994), including authority to “disaffirm or repudiate any

contract” of the failed institution that is “burdensome” and

whose repudiation “will promote the orderly administration of

the institution’s affairs,” subject to recovery of only “actual

direct compensatory damages.” See 12 U.S.C. § 1821(e)(1)-(3).

4

In addition, in 1993 Congress adopted the National

Depositor Preference Amendment to the Federal Deposit

Insurance Act. Pub. L. 103–66, § 3001(a), 107 Stat. 312,

336–37. This required, as relevant, that in the distribution of the

assets of a failed institution depositors be paid before general

creditors could collect on their claims.1 As codified at 12 U.S.C.

§ 1821(d)(11), the depositor preference provision provides, in

relevant part:

amounts realized from the liquidation or other

resolution of any insured depository institution

by any receiver appointed for such institution

shall be distributed to pay claims (other than

secured claims to the extent of any such security)

in the following order of priority:

(i) Administrative expenses of the receiver.

(ii) Any deposit liability of the institution.

(iii) Any other general or senior liability of the

institution (which is not a liability described in

clause (iv) or (v)).

(iv) Any obligation subordinated to depositors or

general creditors . . . .

(v) Any obligation to shareholders . . . .

Id. § 1821(d)(11)(A). Of particular relevance here, Congress

also provided:

1

Previously, depositors and general creditors of a failed bank

had typically been treated to the same liquidation priority when claims

against such an institution were being resolved. See James A. Marino

& Rosalind L. Bennett, The Consequences of National Depositor

Preference, 12 FDIC BANKING REV. 19, 22 (1999).

5

Notwithstanding any other provision of this

subsection, any final and unappealable judgment

for monetary damages entered against a receiver

or conservator for an insured depository

institution for the breach of an agreement

executed or approved by such receiver or

conservator after the date of its appointment

shall be paid as an administrative expense of the

receiver or conservator. Nothing in this

paragraph shall be construed to limit the power

of a receiver or conservator to exercise any rights

under contract or law, including to terminate,

breach, cancel, or otherwise discontinue such

agreement.

Id. § 1821(d)(20) (emphasis added). And if, pursuant to a

contract for services of the failed institution, the conservator or

receiver “accepts performance” before deciding to repudiate that

contract, the payment to the counterparty under the contract for

the services performed is “treated as an administrative expense

of the conservatorship or receivership.” Id. § 1821(e)(7)(B).

B.

According to MBIA’s amended complaint, IndyMac

Bank was heavily involved in the creation and promotion of

residential mortgage loan securitizations prior to its insolvency

in July 2008. Am. Compl. ¶¶ 23–25. Between 2002 and 2006,

it sponsored residential mortgage securitizations valued at

approximately $98.6 billion. Id. ¶ 24. To create a securitization,

IndyMac Bank sold portfolios of mortgage loans to trusts

managed by an outside banking institution, which, upon pooling

the loans, would divide the cash flows from the pools and issue

securities to investors. Id. ¶ 26. In order to increase

marketability, lower interest costs, and mitigate risk to investors,

many securitizations included the purchase of a financial

6

guaranty policy from an insurer, such as MBIA. Id. ¶ 29.

Throughout 2006 and 2007, IndyMac Bank contracted with

MBIA to provide financial guaranty insurance policies for the

three IndyMac Bank securitization transactions at issue: INDS

2006-H4, INDS 2007-1, and INDS 2007-2. Id. ¶ 32. For each

securitization, MBIA and IndyMac Bank entered into an

Insurance and Indemnity Agreement, pursuant to which MBIA

issued insurance policies guaranteeing investors in the

securitized mortgages the promised cash flows in the event of

defaults and other losses in the mortgage loans underlying the

investors’ securities. Id. ¶¶ 32, 36, 38. In addition to

representations and warranties by IndyMac Bank regarding its

underwriting guidelines and practices for the loans in the

securitized mortgage pools, id. ¶ 39, the Insurance and

Indemnity Agreements incorporated by reference, for the benefit

of MBIA, the representations and warranties contained in the

PSAs for each securitization between IndyMac Bank and the

trusts managed by the outside banking institution, thereby

making MBIA a third-party beneficiary of the PSAs. Id. ¶¶

40–44. Among other obligations, the PSAs set forth “Seller”

and “Servicer” obligations of IndyMac Bank with respect to the

loans upon which the securitizations were based, including a

“Put Back” process.2

2

As Seller of the mortgage loans, IndyMac Bank made

representations and warranties about the quality and characteristics of

the loans in the pools of mortgages it transferred to the trusts for use

in securities. Am. Compl. ¶ 41; INDS 2007-1 PSA § 2.03, Schedule

III, Feb. 1, 2007. Also as Seller, IndyMac Bank obligated itself to

participate in a “Put Back” process, whereby the bank assumed

ongoing responsibility for curing any discovered breach of its

representations and warranties by replacing or repurchasing the

affected mortgage loans. Am. Comp. ¶¶ 58–59; INDS 2007-1 PSA

§ 2.03. As Servicer, IndyMac Bank collected principal and interest

payments from borrowers, Am. Compl. ¶¶ 27, 55; INDS 2007-1 PSA

§ 3.01-3.06, and provided other collection services in the event that

7

On July 11, 2008, the Office of Thrift Supervision

(“OTS”) appointed the FDIC to act as receiver for IndyMac

Bank because it was “likely to be unable to pay its obligations

or meet its depositors’ demands in the normal course of

business,” “in an unsafe and unsound condition to transact

business due to its lack of capital and its illiquid condition,” and

had “no reasonable prospect of becoming adequately

capitalized.” OTS Order No. 2008-24, Pass-Through

Receivership Of A Federal Savings Association Into A De Novo

Federal Savings Association That is Placed Into

Conservatorship With the FDIC, July 11, 2008 at 2 (“OTS 2008

Order”); Am. Compl. ¶ 46. From the third quarter of 2007 to the

first quarter of 2008, IndyMac Bank had suffered losses

amounting to approximately $842 million and was projected to

report another $354 million loss for the second quarter of 2008.

OTS 2008 Order at 2. The OTS Director had determined that

“OTS must act immediately in order to prevent the probable

default of [IndyMac Bank].” Id. at 3. The OTS approved the

FDIC’s request for issuance of a new federal mutual savings

association charter pursuant to 12 U.S.C. § 1821(d)(2)(F)(i) and

authorized “the transfer of such assets and liabilities of

[IndyMac Bank] to its successor as the FDIC has determined to

be appropriate.” Id. at 3–4. Until a Board of Directors was

appointed or elected for the new institution, the OTS authorized

the FDIC to exercise those powers as well. See id. at 4.

borrowers were delinquent or defaulted on their mortgage obligations,

Am. Compl. ¶¶ 55–56; INDS 2007-1 PSA § 3.12. It also would remit

the proceeds from the mortgage loans to the trust and receive servicing

fees in consideration. Am. Compl. ¶ 57; INDS 2007-1 PSA § 3.15.

As Servicer, IndyMac Bank was not responsible for curing defects in

any representations and warranties made by IndyMac Bank as Seller.

Cf. INDS 2007-1 PSA § 2.09.

8

To carry out its responsibilities, the FDIC, in its several

capacities, executed a Purchase and Assumption Agreement

(“P&A”) on the date of its appointment. Among the contracts

transferred to the successor institution organized by the FDIC,

IndyMac Federal, were the PSAs for the three IndyMac Bank

securitizations at issue. See P&A § 2.1(j)-(l). A “put” provision

allowed IndyMac Federal to require the IndyMac Bank Receiver

to reassume certain liabilities or assets upon request. See id.

§ 3.6. Any proceeds from a sale of IndyMac Federal’s assets

and liabilities that remained after satisfaction of all obligations

arising from IndyMac Federal’s operation were to be paid to the

IndyMac Bank Receiver to use in paying remaining claims. See

id. § 7.2. Section 13.5 of the P&A provided that “the

obligations and statements of responsibilities” in the P&A “are

for the sole and exclusive benefit of the Receiver, the

Corporation and the Assuming Bank and for the benefit of no

other Person.” Id. § 13.5 (emphasis added).

By March 2009, the FDIC Conservator had wound up

most of IndyMac Bank’s affairs. It sold a substantial portion of

IndyMac Federal’s assets and transferred all deposits to a newly

chartered federal savings bank — OneWest Bank; OneWest

agreed to “purchase all deposits and approximately $20.7 billion

[of IndyMac Federal’s $23.5 billion] in assets at a discount of

$4.7 billion.” FDIC Press Release, FDIC Closes Sale of

IndyMac Federal Bank, Pasadena, California, Mar. 19, 2009

(“FDIC 2009 Press Release”); Am. Compl. ¶ 70. As

conservator the FDIC had exercised authority under the “put”

provision to require the IndyMac Bank Receiver to reacquire

“any rights, obligations, or liabilities whatsoever” (enumerated

under the PSA) in connection with INDS 2007-1, as well as two

other securitizations not at issue here. See Agreement to

Evidence Put of Assets and Liabilities at 4–5 & Attachment A,

Mar. 2009. This FDIC Receiver repudiated the PSA contracts

as burdensome and not in the interests of the orderly

9

administration of IndyMac Bank’s affairs. See FDIC Letter of

Mar. 19, 2008 to Deutsche Bank National Trust Co. With the

end of the FDIC conservatorship upon the sale to OneWest

Bank, IndyMac Federal was placed in a FDIC receivership,

which transferred IndyMac Federal’s remaining assets to FDIC

Corporate in satisfaction of certain obligations that arose in

connection with IndyMac Federal. Am. Compl. ¶ 85.

On May 29, 2009, MBIA filed suit against IndyMac

Bank and the FDIC as its receiver, alleging that MBIA had

incurred “significant losses in connection with its obligations

. . . to insure certain shortfalls in payments to investors in the

IndyMac [Securitization] Transactions, all as a result of

IndyMac’s misrepresentations and misleading conduct.” Compl.

¶ 49. MBIA also submitted in the FDIC administrative process

proofs of claims on June 16, 2009 and August 25, 2009, based

on alleged breaches of the representations and warranties in

IndyMac Bank’s PSAs and failure to honor the “Put Back”

obligation. See Am. Compl. ¶¶ 12, 130.

On November 12, 2009, the FDIC Board of Directors

made a “No Value Determination,” finding that the

receiverships for IndyMac Bank and IndyMac Federal had

insufficient assets to cover their respective liabilities. See FDIC

Resolution, Nov. 12, 2009 (“No Value Determination”). The

receiverships thus would make no “distribution on general

unsecured claims (and any lower priority claims).” Id. at 2.

“[T]herefore all such claims, asserted or unasserted, will recover

nothing and have no value.” Id. MBIA was advised by letter on

December 10, 2009 that no distribution would be made on its

submitted proofs of claims, which the FDIC classified as general

creditor claims.

On February 8, 2010, MBIA filed an amended complaint

alleging that its damages arising from the breach of three

10

IndyMac Bank PSAs to which it was a third-party beneficiary

constituted “administrative expenses” under § 1821(d)(11)(A)

because the PSAs had been “approved” under § 1821(d)(20) by

the FDIC Conservator. Id. ¶ 4. Specifically, the FDIC

Conservator had “approved” the PSAs by entering into the P&A

on behalf of IndyMac Federal, collecting servicing fees under

the PSAs, partially performing its servicing obligations under

the PSAs, and selling two of the three PSAs to OneWest Bank.

Id. ¶¶ 60–62, 69. MBIA also asserted claims against FDIC

Corporate based on the No Value Determination deeming

MBIA’s claims worthless general creditor claims, and on FDIC

Corporate’s allegedly wrongful receipt of the proceeds of

IndyMac Federal’s sale of assets, liabilities, and deposits to

OneWest Bank.3 Id. ¶¶ 182–193. MBIA sought declaratory and

injunctive relief regarding the FDIC’s purported repudiation of

contracts related to INDS 2007-1, an IndyMac Bank

securitization. Id. ¶¶ 40, 194–202.

The district court, upon finding that MBIA had failed to

plead facts sufficient to demonstrate its monetary damages were

entitled to priority as administrative expenses of the FDIC

Conservator or Receiver, ruled that MBIA’s damages claims are

general creditor claims not entitled to administrative priority,

granted the FDIC’s motion to dismiss MBIA’s claims as

prudentially moot, and denied MBIA’s other requests for relief.

MBIA Ins. Corp. v. FDIC, 816 F. Supp. 2d 81 (D.D.C. 2011).

MBIA appeals.

3

In the district court MBIA counsel clarified that MBIA was

seeking “administrative expenses” priority under FIRREA’s

administrative claims process and “[did]n’t care what happened to the

$1.5 [billion]” in proceeds that the FDIC obtained from the sale to

OneWest Bank, and that its only alternative theory of recovery was

based on 12 U.S.C. § 1821(m). See Tr. Sept. 27, 2011 at 40, 85.

11

II.

MBIA’s contention that its damages claims, arising from

payouts on insurance policies supporting three IndyMac Bank

mortgage securitizations, constitute “administrative expenses”

entitled to priority under 12 U.S.C. § 1821(d)(11)(A) presents a

question of statutory interpretation. Although that provision

does not define “administrative expenses,” MBIA relies on

§ 1821(d)(20), which it contends is “clear on its face,” MBIA Br.

at 55, in maintaining that the FDIC Conservator plainly

“approved” the underlying PSAs. Presumably because the FDIC

has not promulgated a regulation or other policy defining

“approved” for purposes of distribution under § 1821(d)(11)(A),

it does not seek deference under Chevron U.S.A., Inc. v. Natural

Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). See United

States v. Mead Corp., 533 U.S. 218, 226–27 (2001). With

Chevron inapplicable, the court “must decide for [itself] the best

reading.” Miller v. Clinton, 687 F.3d 1332, 1342 (D.C. Cir.

2012) (internal quotation and citation omitted). In so doing, we

will give the FDIC’s views “the weight derived from their

‘power to persuade.’” Id. at 1342 n.11 (quoting, inter alia,

Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)); see Wells

Fargo Bank v. FDIC, 310 F.3d 202, 208–09 (D.C. Cir. 2002).

We begin by examining whether the statutory text

resolves whether “approved” requires a formal, written

acknowledgment — as urged by the FDIC — or rather indicates

that approval by implication from other conduct is sufficient, as

MBIA urges. MBIA points to dictionary definitions that

“approved” means simply “to consent or agree to” or “to ratify.”

MBIA Br. at 38 (citing RANDOM HOUSE WEBSTER’S

UNABRIDGED DICTIONARY 103 (2d ed. 1998)). It also points out

that, unlike in other subsections calling for approval by the

12

Corporation,4 Congress did not prescribe formal procedures for

a contract to be “approved” in § 1821(d)(20). Further, MBIA

views FIRREA to establish “a binary scheme whereby contracts

of a failed institution are either repudiated or not repudiated, and

those that are not repudiated may be enforced by the FDIC.” Id.

at 42. In other words, “approved” is the equivalent of “non-

repudiated” because, MBIA claims, invoking a statutory canon

against redundancy, otherwise § 1821(e)(1)-(3), which authorizes

the FDIC to repudiate contracts executed before appointment of

a receiver or conservator, is redundant. “‘Approved’ contracts

thus should include those that are assumed and not repudiated,

like the PSAs.” Id. at 42. After all, MBIA maintains, when

§ 1821(d)(20)’s use of “approved” is read in conjunction with

§ 1821(e)(7) on acceptance of services, it is clear that Congress

wanted counterparties to be protected when they satisfied their

contractual obligations.

4

Section 1821(d)(10) provides, in relevant part:

The receiver may, in the receiver's discretion and to the extent

funds are available, pay creditor claims which are allowed by

the receiver, approved by the Corporation pursuant to a final

determination pursuant to paragraph (7) or (8), or determined

by the final judgment of any court of competent jurisdiction

in such manner and amounts as are authorized under this

chapter.

12 U.S.C. § 1821(d)(10) (emphasis added). Section 1821(n) provides,

in relevant part:

The articles of association and organization certificate of a

bridge bank as approved by the Corporation shall be executed

by 3 representatives designated by the Corporation.

12 U.S.C § 1821(n)(1)(C) (emphasis added).

13

In contrast to MBIA’s broad interpretation of

§ 1821(d)(20), the FDIC’s view is that in that provision:

Congress created a simple, bright-line rule. If

counterparties wish to ensure that they receive

administrative priority, they need to obtain

written documentation: a contract “executed or

approved” by FDIC after its appointment. This

simple rule protects the receivership estate,

depositors, contractual counterparties, and the

courts from precisely the kind of disputes

involved here.

FDIC Br. at 14. As to dictionary definitions, the FDIC responds

that in the context of contract approval the dictionaries all say the

same thing, namely that “approve” means to “confirm or

sanction formally” or to “confirm authoritatively.” See id. at 23

(citing RANDOM HOUSE WEBSTER’S UNABRIDGED DICTIONARY

103 (2d ed. 1998), WEBSTER’S THIRD NEW INTERNATIONAL

DICTIONARY 106 (2002), BLACK’S LAW DICTIONARY 118 (9th

ed. 2009), and A NEW ENGLISH DICTIONARY ON HISTORICAL

PRINCIPLES 416 (1st ed. 1888)). It emphasizes that its

interpretation gathers meaning from the words around

“approved.” See Jarecki v. G.D. Searle & Co., 367 U.S. 303,

307 (1961). Referencing the canon that words are known by

their companions, e.g., Gutierrez v. Ada, 528 U.S. 250, 255

(2000), the FDIC observes that the word “execute” is narrow and

does not include oral or other non-written actions, but requires

a writing; “to execute means ‘to complete and give validity to (a

legal instrument) by fulfilling the legal requirements, as by

signing or sealing.’” FDIC Br. at 24 (quoting RANDOM HOUSE

WEBSTER’S UNABRIDGED DICTIONARY at 676). It follows, the

FDIC suggests, that “approved” must be of similar limit, citing

Jarecki where the Supreme Court applied the canon noscitur a

sociis to limit the scope of the word “discovery,” which is broad

14

viewed in isolation, to the common characteristic it shared with

the adjacent words “exploration” and “prospecting,” and

therefore “discovery” was limited to “only the discovery of

mineral resources.” 367 U.S. at 307. Moreover, the FDIC

observes, this court appears to have recognized that the lack of

identification by Congress of the relevant format — here, a

writing — may indicate latitude with regard to form but not with

respect to the recording requirement generally. Cf. Boulez v.

Comm’r, 810 F.2d 209, 216 n.51 (D.C. Cir. 1987).

MBIA replies that a list of two words is an inappropriate

occasion for application of noscitur a sociis, citing to Graham

County Soil & Water Conservation District v. United States ex

rel. Wilson, 130 S. Ct. 1396, 1403 (2010), and S.D. Warren

Company v. Maine Board of Environmental Protection, 547 U.S.

370, 378 (2006). Functionally, however, the FDIC points out

that there would have been no point for Congress to use a narrow

and precise term only to eliminate its usefulness and specificity

by intending that “approved” be read more broadly and in a way

that would make “executed” unnecessary or redundant. MBIA

has no response. Also, the FDIC explains that its narrow

interpretation does not read “executed” out of the statute as a

subset of “approved,” but gives each word its typical meaning:

“executed” refers to the FDIC giving legal validity by signing a

contract entered into by the receiver while “approved” refers to

the FDIC giving legal validity to a contract previously entered

into by the failed bank. MBIA agrees with this temporal

analysis, but maintains that “[t]his distinction . . . is entirely

consistent with MBIA’s allegation that the FDIC ‘approved’ the

PSAs” at issue. Reply Br. at 7.

The parties’ dictionary references and interpretation of

“executed or approved” suggest that MBIA’s “clear on its face”

claim fails, or at least does not resolve the precise question.

Considering § 1821(d)(20) in the context of other provisions of

15

§ 1821 does, however, confirming that “approved” requires a

formal, written sanction and cannot take the broad meaning

urged by MBIA. In the only other instance where Congress

provided for “administrative expenses” status in § 1821 — in

§ 1821(e)(7) — it used a narrow and circumscribed provision.

Both parties cite Russello v. United States, 464 U.S. 16, 23

(1983), in support of their interpretations of “approved,” but the

FDIC points out that, in tying administrative priority to

“acceptance” in § 1821(e)(7)(B)(ii), Congress indicated it meant

something more specific by the word “approved” in

§ 1821(d)(20) than mere “acceptance” of a counterparty’s

performance. And having limited “acceptance” in § 1821(e)(7)

to the acceptance of services performed for the FDIC after its

appointment, Congress thereby demonstrated that it did not

intend administrative priority to extend to claims based on other

types of contractual obligations.

MBIA suggests that § 1821(e)(7) shows Congress

intended that “the FDIC should not accept benefits from

counterparties . . . without those counterparties being

compensated ahead of depositors during the resolution process.”

MBIA Br. at 46 (emphasis added). But the plain text of

§ 1821(e)(7) shows the opposite; Congress did not confer

administrative priority whenever the FDIC accepts “benefits”

from counterparties, but rather limited the priority status to

acceptance of “services performed” for the FDIC post-

appointment. MBIA does not deny it provided no such services

for the IndyMac Federal Conservator. So too, MBIA’s reference

to § 1821(n), supra note 4, regarding bridge banks and formal

approval by the Corporation, does not address administrative

expense priority much less demonstrate that § 1821(d)(20)’s

“approved” is “clear on its face” in MBIA’s favor; approval by

the Corporation is what the FDIC’s interpretation contemplates

when the Corporation acts as conservator or receiver.

16

To the extent MBIA relies on the contract repudiation

provisions of § 1821(e), it does not advance its cause. MBIA

points to a comment in the legislative history of § 1821(e) that

it was “closely modeled on parallel provisions of section 365 of

the Bankruptcy Code” to support its argument that its reading of

“approved” in the FIRREA context is correct. MBIA Br. at 52

(citing S. REP. NO. 101-19 at 314 (1989)). But a reading of the

two sections shows they have little in common because

Congress omitted from § 1821(e) key language in 11 U.S.C.

§ 365, whereby the trustee may “assume or reject executory

contracts or [the] unexpired lease of the debtor,” instead

speaking only of the FDIC’s authority to repudiate. See RTC v.

Diamond, 18 F.3d 111, 122 (2d Cir. 1994), vacated on other

grounds, 513 U.S. 801. The FDIC suggests, moreover, that the

Bankruptcy Code does not have the need to “strengthen [the

FDIC’s] hand in remedying a national economic emergency,”

nor an overarching policy of protecting a class of depositors

above all others and a corresponding need to cabin

administrative expense. FDIC Br. at 41 (quoting Diamond, 18

F.3d at 123).

MBIA also maintains that the repudiation provisions

would be unnecessary and ineffective if damages arising from

the conservator’s breach of an un-repudiated contract left a

counterparty with only a general creditor claim. There is no

reason to view these provisions as unnecessary even it they do

not change the priority of damages, because the provisions serve

to limit the damages available to a counterparty (by eliminating

expectation and punitive damages). As the FDIC explains,

expectation damages in contract cases are of particular concern

to failed banks; for instance, repudiation protects the FDIC from

paying damages for lost profits resulting from repudiated

installment contracts. See ALLTEL Info. Servs. v. FDIC, 194

F.3d 1036, 1041 (9th Cir. 1999). Even assuming protections

from expectation and punitive damages were as insignificant as

MBIA suggests, which the FDIC emphasizes they are not, their

17

elimination constitutes the only consequences Congress attached

to repudiation. See 12 U.S.C. § 1821(e)(3). Nothing in § 1821

provides that breaches of un-repudiated contracts have

administrative priority. Cf. Whitman v. Am. Trucking Ass’n, 531

U.S. 457, 468 (2001).

Furthermore, a broad reading of “approved” would

undermine Congress’s stated purpose to prefer depositors over

other creditors. Section 1821(d)(11) establishes an order of

priority among claimants of the failed bank, placing recovery of

“administrative expenses” first, followed by depositors’ claims,

and only thereafter general creditors’ claims. MBIA’s

interpretation would put general creditors before depositors

simply by virtue of the fact that the contracts to which they were

a party or beneficiary were liabilities transferred to the FDIC

Conservator by the commonly-used mechanism of a purchase

and assumption agreement, see FDIC, RESOLUTIONS HANDBOOK

19 (2003), and were not repudiated. Specifically, MBIA’s

broad interpretation of “approved” would “plac[e] general

creditor claims related to the failed bank’s pre-failure

misrepresentations above depositors,” which “are hardly the

types of claims that could ever be classified as administrative

expenses.” FDIC Br. at 35 (emphasis in original).5 The FDIC

regulation on “administrative expenses”6 tracks Congress’s

5

The FDIC characterizes MBIA’s lawsuit as an “attempt[] to

push off onto FDIC responsibility for the losses MBIA sustained when

the extreme risks it had knowingly assumed came home to roost and

MBIA had to pay out on its insurance commitments.” FDIC Br. at 1.

6

The FDIC regulation instructs that the receiver’s

“administrative expenses” are “necessary expenses,” 12 C.F.R.

§ 360.4 (2008), such as payment of the institution’s last payroll, guard

services, data processing services, utilities, and expenses related to

leased facilities, but generally do not include severance pay claims or

claims arising from contract repudiations, Receivership Rules, 60 Fed.

18

purpose that “administrative expenses” be a narrowly drawn

category, limited to “ordinary and necessary expenses of the

[failed] institution . . . but only those that the receiver

determines are necessary to maintain services and facilities and

to effect an orderly resolution of the institution.” H.R. CONF.

REP. NO. 103-213, at 436–37 (1993). Conservator duties are

similarly circumscribed. See 12 U.S.C. § 1821(d)(2)(D). And

the FDIC notes, when Congress enacted the National Depositor

Preference Amendment it was part of a deficit reduction plan to

reduce FDIC losses from bank failures. See FDIC, HISTORY OF

THE EIGHTIES, LESSONS FOR THE FUTURE: AN EXAMINATION OF

THE BANKING CRISES OF THE 1980S AND EARLY 1990S 90

(1997); see also H.R. CONF. REP. NO. 103-111, at 87–88 (1993)

(stating amendment “would increase the amount of distribution

to depositors of failed institutions” and increase FDIC recovery,

thereby helping the Corporation to “realize a savings”). Even

under the FDIC’s narrow interpretation of “approved,” the

Federal Deposit Insurance Fund sustained a loss during IndyMac

Federal’s operation of about $10.7 billion. See FDIC 2009 Press

Release.7

In sum, by means of a pass-through receivership and

organization of a successor institution, continued banking

services could be provided to IndyMac Bank’s depositors while

Reg. 35,487-01, 35,487-1 (July 10, 1995). MBIA suggests the

regulations provide a nonexclusive list; still they reflect a limited

scope for “administrative expenses” that is consistent with the FDIC’s

narrow interpretation of § 1821(d)(20)’s “approved,” a related

provision. Cf. Babbitt v. Sweet Home Chapter of Cmty. for a Great

Oregon, 515 U.S. 687, 698–703 (1995).

7

During oral argument counsel for MBIA acknowledged that

its breach of contract claims, which it contends constitute

“administrative expenses” could amount to as much as five hundred

million dollars. See Oral Arg. Tr. Nov. 14, 2012 at 13, 27.

19

a buyer was located for IndyMac Bank’s assets and other

property. Certain on-going contracts of the failed bank would

continue for these purposes. But Congress distinguished, by its

choice of words, between contracts merely “accepted” upon

transfer or thereafter “non-repudiated” and contracts that

qualified for “administrative expenses” priority under

§ 1821(d)(11)(A) because they had been “executed or approved”

under § 1821(d)(20) by the FDIC after appointment. The

context, where the FDIC steps into the shoes of a failed bank in

emergency circumstances, shows in light of other provisions of

§ 1821 that Congress intended “approved” to have a formality

consistent with “executed” and beyond “accept[ance],” and that

a narrow meaning is required under the depositor preference

scheme. A formal written sanction thus serves an important

statutory purpose by limiting the contracts that are given

priority. Cf. Doe v. United States, 372 F.3d 1347, 1359–61 (Fed.

Cir. 2004). The FDIC’s interpretation, unlike MBIA’s, gives

meaning to “approved” in the context of contract approval while

treating § 1821 as a “symmetrical and coherent regulatory

scheme,” FDA v. Brown & Williamson Tobacco Corp., 529 U.S.

120, 121 (2000). Viewed in context, “approved” cannot bear the

weight of MBIA’s broad meaning, see King v. St. Vincent’s

Hosp., 502 U.S. 215, 221 (1991), for Congress’s “will has been

expressed in reasonably plain terms,” Griffin v. Oceanic

Contractors, Inc., 458 U.S. 564, 570 (1982).

The FDIC has presented a careful contextual analysis of

§ 1821(d)(20) in light of the words Congress used in that

provision and elsewhere in § 1821 and the purpose of the

depositor preference distribution scheme, giving meaning to all

provisions of § 1821. Unlike MBIA’s approach, the FDIC’s

analysis neither renders “executed” and § 1821(e)(7)

meaningless, nor frustrates the depositor preference goal in

§ 1821(d)(11) but best advances it. In the § 1821 context, we

conclude that contract approval demands a formal determination

of necessity by the FDIC Conservator or Receiver, see 12 U.S.C.

20

§ 1821(d)(2), and that a writing protects all interested parties,

distinguishing “approved” contracts from on-going agreements

assumed and non-repudiated. Under MBIA’s broad

interpretation of “approved,” mere assumption, oral agreement,

or partial performance would accord priority status to any

damages stemming from a non-repudiated contract encompassed

in the P&A as § 1821(d)(11)(A) “administrative expenses.”

Requiring a writing limits draws from the FDIC Insurance Fund

for payment of “administrative expenses” in a manner consistent

with the depositor preference distribution scheme. Section

1821(d)(20) is therefore best read as requiring formal, written

approval by the FDIC to qualify contract damages for priority as

“administrative expenses” under § 1821(d)(11)(A).

Our decision in Wells Fargo, 310 F.3d 202, reenforces

our conclusion. In that case, the court concluded that “[a]t the

very least” the FDIC was entitled to Skidmore deference for its

interpretation of a different FIRREA provision because it was

“charged with administering this highly detailed regulatory

scheme.” Id. at 208 (regarding 12 U.S.C. §§ 1815(d), 1817(l)).

In according Skidmore deference, the court examined the

purpose of the statutory scheme and concluded that the FDIC’s

interpretation was persuasive in part because contrary readings

of the text “would frustrate Congress’s . . . purpose” in enacting

the provision “and would render the statutory scheme largely

meaningless.” Id. Here, as in Wells Fargo, interpreting

§ 1821(d)(20) in light of Congress’s goals in enacting the

depositor preference scheme clearly favors the FDIC’s

interpretation.

The district court therefore properly rejected MBIA’s

broad interpretation of “approved” in § 1821(d)(20) and

dismissed MBIA’s damages claims in counts I-V and VIII as

prudentially moot in light of the FDIC’s No Value

Determination. See MBIA Ins. Corp., 816 F. Supp. 2d at

101–02. “Where it is so unlikely that the court’s grant of

21

[remedy] will actually relieve the injury,” Penthouse Int’l, Ltd.

v. Meese, 939 F.2d 1011, 1019 (D.C. Cir. 1991), the doctrine of

prudential mootness permits the court in its discretion to “stay

its hand, and to withhold relief it has the power to grant” by

dismissing the claim for lack of subject matter jurisdiction,

Chamber of Commerce v. U.S. Dep’t of Energy, 627 F.2d 289,

291 (D.C. Cir. 1980). Absent a formal, written sanction by the

FDIC of the PSAs for the three mortgage securitizations at issue,

MBIA stands in the status of a general creditor under

§ 1821(d)(11). The No Value Determination forecloses the

possibility of a real measure of redress for general creditors

because the proceeds turned over to the FDIC receivers were

insufficient to pay claims below the depositor class, cf. FDIC v.

Kooyomjian, 220 F.3d 10, 15 (1st Cir. 2000); Boone v. IndyMac

Bank F.S.B., 2010 WL 7405439 (C.D. Cal. Dec. 14, 2010).

MBIA does not contend that it could recover on its damages

claims if it were treated as a general creditor, see Am. Compl.

¶ 12, and so a favorable judgment for MBIA on its contract

breach claims cannot “provide a real measure of redress,”

Foretich v. United States, 351 F.3d 1198, 1216 (D.C. Cir. 2003),

under § 1821(d)(11)’s despositor preference distribution scheme.

III.

MBIA also contends that the district court erred in

dismissing counts VI and VII for failure to state a claim. See

MBIA Ins. Corp., 816 F. Supp. 2d at 102–05. We affirm.

A.

MBIA sought an injunction ordering FDIC Corporate to

return any assets it received from the IndyMac Federal Receiver

as a result of the sale of IndyMac Federal’s assets to OneWest

Bank. Maintaining that “[w]hatever payments were made by

FDIC Receiver to FDIC Corporate . . . surely did not constitute

‘dividends’” within the meaning of this statute, MBIA Br. at 65,

MBIA alleged that the FDIC either “retained the $1.5 billion

22

paid by OneWest . . . and has since liquidated other assets, the

proceeds from which it is holding in reserve to satisfy

administrative expense claims” and erroneously refused to

review MBIA’s claims, or “transferred or otherwise dissipated

the proceeds” from the sale without regard for these priority

claims, Am. Compl. ¶¶ 188–89. Under either theory, MBIA

insists, payment to FDIC Corporate was premature and therefore

exceeded statutory authority. Id.

Section 1821(d)(10)(B) provides:

The receiver may, in the receiver's sole

discretion, pay dividends on proved claims at any

time, and no liability shall attach to the

Corporation (in such Corporation's corporate

capacity or as receiver), by reason of any such

payment, for failure to pay dividends to a

claimant whose claim is not proved at the time of

any such payment.

12 U.S. C. § 1821(d)(10) (emphasis added). MBIA agrees with

the FDIC’s definition of “dividend” as a payment to creditors of

“any excess cash generated by the disposition of [a failed

bank’s] assets less disposition cost and reserves met,” to be paid

in accordance with the priority distribution scheme of

§ 1821(d)(11)(A). See MBIA Br. at 64 (quoting FDIC, FDIC

Dividends from Failed Banks, available at

http://www2.fdic.gov/divweb/index.asp). In urging that

payment by the FDIC Receiver of IndyMac Federal to FDIC

Corporate does not fall within this definition, MBIA relies

principally on information about IndyMac Bank’s dividend

payments that it accessed from the FDIC’s website. See MBIA

Br. at 64. That information, however, is not part of the record

properly before the court. See FED. R. APP. P. 10 (a) & (d).

MBIA has not alleged in its amended complaint sufficient facts

to determine that the IndyMac Federal Receiver paid FDIC

23

Corporate on the basis of unproven claims, or that such payment

otherwise ought not to constitute a dividend payment. See, e.g.,

Am. Compl. ¶¶ 85–87, 188–89. Absent such allegations, there

was no basis for the district court to conclude that

§ 1821(d)(10)(B)’s preclusion of liability for the payment of

dividends is inapplicable to the IndyMac Federal Receiver’s

distribution of funds to FDIC Corporate.

B.

MBIA also sought an injunction reversing the FDIC’s

denial of MBIA’s claims against FDIC Corporate and the FDIC

Receivers, and a declaratory judgment that the FDIC failed to

repudiate the INDS 2007-1 PSA within a “reasonable period” as

required by 12 U.S.C. § 1821(e)(2). See Am. Compl. ¶¶

185–202. MBIA maintains that § 1821(j) poses no bar to this

relief because, “[b]y its terms, § 1821(j) shields only the

exercise of powers or functions Congress gave to the FDIC; the

provision does not bar injunctive relief when the FDIC has acted

or proposes to act beyond, or contrary to, its statutorily

prescribed, constitutionally permitted, powers or functions.”

Nat’l Trust for Hist. Pres. v. FDIC, 995 F.2d 238, 240 (D.C. Cir.

1993), aff’d on reh’g, 21 F.3d 469, 471 (1994) (internal

quotation omitted) (emphasis in original).

MBIA suggests that the FDIC acted beyond its statutory

powers when: (1) the “FDIC Receiver ignored section

1821(d)(20) by not treating MBIA’s claims as ‘administrative

expenses’ during the claims process”; (2) the “FDIC

Conservator did not properly dispose of the proceeds from the

sale of assets to OneWest”; and (3) the “FDIC Receiver did not

repudiate the INDS 2007-1 PSA in a reasonable time.” MBIA

Br. at 67. MBIA concedes, however, “[w]ith respect to the first

two of these claims, to the extent liability arising from MBIA’s

damages claims constitutes ‘administrative expenses,’ then the

FDIC’s actions were ultra vires, and declaratory relief is

appropriate.” Id. These two grounds for injunctive claims are

24

therefore resolved on the merits by our holding that MBIA is not

entitled to “administrative expenses” distribution priority. See

Part II. MBIA’s request for injunctive and declaratory relief

based on untimely repudiation, in turn, is barred by 12 U.S.C.

§ 1821(j).

Section 1821(j) provides:

Except as provided in this section, no court may

take any action, except at the request of the

Board of Directors by regulation or order, to

restrain or affect the exercise of powers or

functions of the Corporation as a conservator or

a receiver.

12 U.S.C. § 1821(j). This court has acknowledged that Congress

placed “drastic” restrictions on a court’s ability to institute

equitable remedies of the sort requested by MBIA, see Freeman,

56 F.3d at 1398–99, and has held that § 1821(j) bars equitable

relief against the FDIC acting in its corporate capacity as well,

see Nat’l Trust, 995 F.2d at 240.

The FDIC as conservator or receiver is authorized to

“disaffirm or repudiate any contract or lease,” 12 U.S.C.

§ 1821(e)(1), and therefore repudiation is properly viewed as a

power of the Corporation operating in such capacities. Cf.

Nashville Lodging Co. v. RTC, 59 F.3d 236, 241 (D.C. Cir.

1995). A court declaring a repudiation invalid would necessarily

“restrain or affect the exercise” of this power by the FDIC and

thereby contravene § 1821(j). Even assuming that the

“reasonable time” clause in § 1821(e)(2) limits the repudiation

power, MBIA alleges no facts to show that the FDIC’s

repudiation of the INDS 2007-1 PSA eight months after

assuming the contract was not “within a reasonable period” in

light of the financial crisis and the other circumstances that led

to liquidation of IndyMac Bank’s assets and liabilities.

25

IV.

Finally, as an alternative theory of recovery, MBIA

contends that FDIC Corporate was obligated under 12 U.S.C.

§ 1821(m)(13) to fund IndyMac Federal’s losses. Such losses,

it asserts, include any “liability to MBIA arising out of FDIC

Conservator’s breaches of the PSAs.”8 MBIA Br. at 59. “Had

FDIC Corporate satisfied its statutory obligation in section

1821(m)(13) to furnish funds to cover IndyMac Federal’s losses

during the period of the conservatorship,” MBIA continues,

“those additional funds would have been assets of the IndyMac

Federal receivership and available for distribution to claimants

like MBIA.” Id. at 62. In sum, “[t]he district court’s reliance on

prudential mootness to dismiss MBIA’s claims cannot be

reconciled with FDIC Corporate’s statutory obligation under

section 1821(m)(11)-(13) to fund IndyMac Federal’s losses,

including its liability to MBIA arising out of FDIC

Conservator’s breaches of the PSAs.” Id. at 59.

8

Neither party has waived its contention on this issue. The

district court analyzed MBIA’s alternative theory of recovery on its

merits. See MBIA Ins. Corp., 816 F. Supp. 2d at 105–06. Although

MBIA maintains that it “relied on FDIC’s admissions” in the district

court that § 1821(m) applied, see Reply Br. at 27, the district court

transcript shows that the FDIC immediately objected that § 1821(m)

had no relevance, see Tr. Sept. 27, 2011 at 73–74, and stated in

moving to dismiss that it may have relied on other statutory

mechanisms to establish IndyMac Federal, see Memorandum of Points

and Authorities in Support of FDIC Receiver’s Motion to Dismiss, at

7 (May 21, 2010). Moreover, the FDIC may “urge in support of a

decree any matter appearing in the record, although [its] argument

may involve an attack upon the reasoning of the lower court or an

insistence upon matter overlooked or ignored by it” so long as doing

so does not “modify the relief granted.” Freeman v. B&B Assoc., 790

F.2d 145, 150–51 (D.C. Cir. 1986) (citation omitted).

26

Section 1821(m) addresses when the FDIC “organize[s]

a new national bank in the same community as the bank in

default.” 12 U.S.C. § 1821(m)(1). Under subpart (m) (11), the

FDIC “shall promptly make available” to the new bank “an

amount equal to the estimated insured deposits of such bank in

default plus the estimated amount of the expenses of operating

the new bank.” Id. § 1821(m)(11)(A). Subpart (m)(12), in turn,

requires “[e]arnings of the new bank” to be paid or credited to

the Corporation. Id. § 1821(m)(12). Subpart (m)(13) provides:

If any new bank, during the period it continues

its status as such, sustains any losses with respect

to which it is not effectively protected except by

reason of being an insured bank, the Corporation

shall furnish to it additional funds in the amount

of such losses.

Id. § 1821(m)(13).

Section 1821(m) is inapplicable here. The OTS 2008

Order approved a charter for a successor bank pursuant to 12

U.S.C. § 1821(d)(2)(F)(i). See OTS 2008 Order at 3. That

section states:

The Corporation may, as receiver –

(i) with respect to savings associations and by

application to the [OTS] organize a new Federal

savings association to take over such assets or

such liabilities as the Corporation may determine

to be appropriate.

12 U.S.C. § 1821(d)(2)(F)(i). The provision makes no reference

to the obligations in § 1821(m), and MBIA points to nothing to

suggest that “a new Federal savings association” organized

pursuant to § 1821(d)(2)(F)(i) triggers FDIC Corporate’s loss-

funding obligation under § 1821(m). Additionally, the version

27

of the statute in effect when IndyMac Federal was created did

not allow for the creation of a “new bank” as a means to resolve

the affairs of a failed savings association like IndyMac Bank.

The amendment allowing such creation did not take effect until

July 30, 2008, weeks after the failure of IndyMac Bank.

Accordingly, we affirm the dismissal of MBIA’s

amended complaint.