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Federal Deposit Insurance Corp. v. Hartford Insurance Co.

decided: June 15, 1989.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 87 C 8682 -- Charles R. Norgle, Judge.

Posner, Easterbrook, and Ripple, Circuit Judges.

Author: Easterbrook

EASTERBROOK, Circuit Judge

When the Federal Deposit Insurance Corporation bailed out Continental Illinois National Bank in 1984, it acquired, in addition to a lot of bad loans, Continental's right to collect on fidelity bonds issued by five insurance companies. These insurers promised to compensate Continental for losses caused by its employees' misconduct. Hanky-panky in dealing with Penn Square Bank of Oklahoma has landed John R. Lytle, the head of the Mid-Continent Division of Continental's Oil and Gas Group, in prison. The FDIC wants recompense for the losses Lytle left behind.

Lytle -- inspired by $585,000 in unsecured personal "loans" from Penn Square arranged by its officer William G. Patterson -- induced Continental to purchase participations worth more than $1 billion in loans made by Penn Square. Continental was left holding the bag when many of the borrowers folded, taking Penn Square with them. See United States v. Lytle, 677 F. Supp. 1370 (N.D.Ill. 1988), describing the criminal case. (Lytle and Patterson pleaded guilty in June 1988.) Continental's losses exceed $200 million, the exact amount depending on how much can be recovered from the assets backing the loans.

The FDIC filed this suit to collect on the fidelity bonds, which cover tiers of losses. Hartford Insurance Company, for example, supplied $5 million of coverage with a $1 million deductible; Insurance Company of North America supplied $5 million of coverage with a $6 million deductible (i.e., the band between $6 million and $11 million), and so on up to $101 million. American Insurance Company underwrote the bands between $11-31 million and $71-101 million (a total exposure of $50 million). The FDIC asked not only for this $50 million but also for punitive damages on the ground that American financed Lytle's defense against the criminal charges, violating its fiduciary duty to Continental.

American responded with a third-party complaint against the United States under Fed.R.Civ.P. 14(a). It believes that the FDIC, as receiver, mismanaged Penn Square's portfolio of loans and thus magnified Continental's losses. American believes that it should not be required to pay the FDIC, as insurer of Continental's deposits (FDIC-Corporate), more than the loss Continental would have borne had the FDIC, as receiver (FDIC-Receiver), maximized the value of the assets securing the loans. FDIC-Receiver's errors, according to American, are torts for which it has a remedy under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671-80.

Resort to the FTCA introduces a complication: the right defendant is the United States. Suits by and against the FDIC are authorized by 12 U.S.C. § 1819 Fourth, a sue-and-be-sued clause. If American were to sue FDIC-Receiver, it would have to go to Oklahoma in light of 12 U.S.C. § 94, which provides:

Any action or proceeding against a national banking association for which the Federal Deposit Insurance Corporation has been appointed receiver, or against the Federal Deposit Insurance Corporation as receiver of such association, shall be brought in the district or territorial court of the United States held within the district in which that association's principal place of business is located. . . .

The United States asked the district court to dismiss it as a party and to direct American to proceed under § 1819 Fourth against FDIC-Receiver. Although the initial motion did not mention venue, the United States supplemented its contentions before the district court took up the matter and so avoided forfeiting the venue point under Fed.R.Civ.P. 12(h)(1). Bechtel v. Liberty National Bank, 534 F.2d 1335, 1341 (9th Cir. 1976). The district court denied the motion, 692 F. Supp. 866 (N.D.Ill. 1988), and certified issues for an interlocutory appeal under 28 U.S.C. § 1292(b). We accepted jurisdiction.

Despite sue-and-be-sued clauses, the FTCA is the exclusive remedy when it applies, 28 U.S.C. § 2679(a). We held in FDIC v. Citizens Bank & Trust Co., 592 F.2d 364 (7th Cir. 1979), that § 2679(a) precludes suits under sue-and-be-sued clauses even when one of the exemptions in the FTCA prevents the imposition of liability on the United States. Although there is a question whether a suit against the FDIC as receiver is a suit against an "agency" of the United States -- important because § 2679(a) makes the FTCA exclusive only when a "federal agency" is involved -- the district court thought the matter settled by Citizens Bank. The tort alleged in Citizens Bank had been committed by the FDIC as receiver, and in remarking, 592 F.2d at 369 n. 5, that "FDIC is unquestionably a 'federal agency' within the meaning of § 2679(a)" we made nothing of the distinction between FDIC as corporation and FDIC as receiver. So the district court held that the United States is the proper defendant, 692 F. Supp. at 867-70. If the suit is against the United States rather than FDIC-Receiver, 12 U.S.C. § 94 seems inapplicable. Nonetheless, the district court believed, "[the] narrow venue provision under § 94 controls over the more general FTCA [venue] provision". 692 F. Supp. at 871. But just as it seemed about to pack American's action off to Oklahoma City, the district court distinguished third-party from original actions. Believing that it would be convenient to litigate everything in Illinois, the court denied the motion to transfer. Ibid.

Logically, our first question is: "Who is the right defendant?" If FDIC-Receiver is the proper party, then § 94 applies by its terms. In authorizing the appeal, however, the Solicitor General instructed counsel not to argue that FDIC-Receiver is the proper party. Apparently the Solicitor General believed that question foreclosed in this circuit by the implication (though not the square holding) of Citizens Bank. At oral argument counsel for the United States steadfastly declined to address the subject. Yet if the identity of the proper party affects subject-matter jurisdiction, we must wrestle with the problem no matter what the parties do. Even if not jurisdictional, an unresolved dispute about the right party may make it improvident to take up the interpretation of § 94 on interlocutory appeal.

Whether the United States or FDIC-Receiver is the right party does not affect subject-matter jurisdiction, however. If the United States is the right party, then 28 U.S.C. § 1346(b) supplies jurisdiction. If FDIC-Receiver is the right party, then judicial competence comes from § 1819 Fourth and 28 U.S.C. § 1331. Section 1819 Fourth provides that any civil suit to which the FDIC is a party is deemed to arise under federal law (so that § 1331 supplies jurisdiction) unless the FDIC acts as receiver of a state bank and the suit "involves only the rights or obligations of depositors, creditors, stockholders, and such State bank under State law". See also FDIC v. Elefant, 790 F.2d 661, 665-66 (7th Cir. 1986). A tort claim against the FDIC is not one that involves "only" creditors' or stockholders' rights. DuVoison v. FDIC, 872 F.2d, (6th Cir. 1989). To the extent sovereign immunity has jurisdictional attributes, there are no worries: either the FTCA or § 1819 Fourth waives immunity. So the claim may be resolved by a federal court, and the identification of the real party in interest, Fed.R.Civ.P. 17(a), is not a jurisdictional problem.

Sooner or later this court must decide whether, given Citizens Bank, the venue provisions of § 94 have melted away. This case is as good as any, and we therefore decline to reconsider the decision of another panel of this court accepting the appeal under § 1292(b). We would be concerned if we thought that the Department of Justice were trying to maneuver this case to Oklahoma only to ask the Tenth Circuit to disagree with Citizens Bank, consigning American's claim to limbo. At oral argument counsel for the United States disavowed any such plan, and the law of the case would make the tactic difficult even ...

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