Foreclosure Challenge Fails Over FIRREA Process

In plaintiffs’ appeal of dismissal of their suit seeking a declaration that JP Mor­gan Chase Bank and U.S. Bank cannot foreclose on their home, the 4th Circuit affirms the district court’s dismissal of certain counts for lack of subject matter jurisdiction due to plaintiffs’ failure to ex­haust their claims through the FIRREA administrative process, and for failure to state facts supporting additional claims.

FIRREA exhaustion

The district court found that it lacked subject matter jurisdiction over counts 1-9 and 16-19 because those counts were based on Washington Mutual Bank’s al­leged misconduct and thus subject to an administrative remedies exhaustion re­quirement in the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which plaintiffs had not satisfied. The court dismissed counts 14 and 15 for failure to state a claim.

Plaintiffs jointly make four principal arguments for why the district court erred in dismissing counts 1, 2 and 5 for lack of subject matter jurisdiction. Each is an at­tempt to exclude some or all of the counts from FIRREA’s exhaustion requirement. As an initial matter, the district court erred by applying § 1821(d)(13)(D)(i) rather than analyzing the counts under § 1821(d)(13)(D)(ii).

Plaintiffs allege they seek a determina­tion of rights with respect to the assets of a third party that purchased the assets in question from the FDIC. If FIRREA’s juris­dictional bar applies, it’s because plaintiffs’ claims fall within FIRREA’s exhaustion re­quirement for any claim relating to any act or omission of an institution for which the FDIC has been appointed receiver, or the corporation as receiver.

Though counts 1 and 2 are formally asserted against Chase and U.S. Bank, they are functionally pleaded against WMB’s acts and omissions. These counts allege WMB made misrepresentations and that the note and deed of trust are defective. Plaintiffs allege that WMB agreed not to foreclose on the property, that the note “does not exist” because plaintiff wife never signed it and that the deed of trust cannot be used to fore­close on the property because the note to which it refers does not exist.

Because these unexhausted claims are functionally pleaded against the acts and omission of WMB rather than against independent misconduct by Chase and U.S. Bank, § 1821(d)(13)(D)(ii) operates as a jurisdictional bar. FIRREA required plaintiffs to exhaust counts 1, 2 and 5. Plaintiffs have failed to show these counts could not be resolved through the administrative process. Section 1821(d)’s administrative claims process accommo­dates declaratory judgment actions. We hold that by not timely submitting what is on its face a “claim” to the FIRREA claims process, plaintiffs waived their argument about how the FDIC would have resolved it.

We have acknowledged in an unpub­lished opinion, and reiterate now, that FIRREA’s exhaustion requirement does not encompass affirmative defenses.

Here, we hold that a purported affir­mative defense does not qualify as one for the purpose of avoiding FIRREA’s exhaustion requirement if, after looking beyond the nomenclature of the request for relief, the remedy sought is actual­ly a “claim” within the meaning of FIR­REA. Applying this rule to counts 1 and 5 reveals that they are not affirmative defenses because each is a “claim” within the meaning of FIRREA. Each is a re­quest for a declaratory judgment that the deed of trust cannot be sued to fore­close on plaintiffs’ house. Counts 1 and 5 are functionally pleaded against WMB’s conduct. Neither qualifies as an affirma­tive defense and plaintiffs were required to exhaust those claims. Finally, requiring administrative exhaustion of these counts does not violate plaintiffs’ Fifth Amendment due process rights.

Willner v. Dimon (Diaz) No. 15-1678, Feb. 16, 2017; USDC at Alexandria, Va. (Trenga) Benjamin S. Softness, Michael A. Willner for appellants; Brent J. McIntosh, Matthew D. Patterson for appellees. VLW 017-2-040, 33 pp.