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Federal Deposit Insurance Corporation v. Fbop Corporation

United States District Court, N.D. Illinois, Eastern Division

September 2, 2014

FEDERAL DEPOSIT INSURANCE CORPORATION, as a separate and distinct Receiver of Bank USA, N.A., California National Bank, Citizens National Bank of Teague, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank, Plaintiff,
v.
FBOP CORPORATION, et al., Defendants.

MEMORANDUM OPINION AND ORDER

JAMES F. HOLDERMAN, District Judge.

Before the court is the Pension Benefit Guaranty Corporation's ("PBGC") motion to intervene pursuant to Federal Rule of Civil Procedure 24. (Dkt. No. 20.) This motion arises from a dispute between two federal agencies-PBGC and the Federal Deposit Insurance Corporation ("FDIC")-over money mistakenly transferred to defendant FBOP Corporation ("FBOP") because of a computer glitch at a third federal agency, the Bureau of the Fiscal Service ("BFS"). The government, apparently unable to resolve its dispute internally, seeks the assistance of this court. For the reasons set forth below, PBGC's motion to intervene is granted.

BACKGROUND

The following facts are taken from the FDIC's amended complaint (Dkt. No. 35) and PBGC's motion to intervene (Dkt. Nos. 20, 21), both which the court must accept as true. See Lake Investors Dev. Group v. Egidi Dev. Group, 715 F.2d 1256, 1258 (7th Cir. 1983) ("In evaluating the motion to intervene, the district court must accept as true the non-conclusory allegations of the motion and cross-complaint.")

I. The Original Lawsuit

This lawsuit is a dispute over the ownership of a $265 million tax refund, which currently resides in an escrow account pursuant to an agreement between the original parties. (Dkt. No. 35 ¶¶ 20, 22.). The FDIC is a separate and distinct receiver for each of the following eight failed banks: Bank USA, N.A., California National Bank, Citizens National Bank of Teague, Madisonville State Bank, North Houston Bank, Pacific National Bank, Park National Bank, and San Diego National Bank (collectively, the "Banks"). (Dkt. No. 35 at 1-2.) In the years preceding the Banks' failure, FBOP, the Banks' defunct parent company, filed tax returns as the common parent of a consolidated tax group that included FBOP, the Banks, and FBOP's non-bank subsidiaries. ( Id. ) On December 31, 2013, more than four years after the FDIC put the Banks into receivership, the Department of the Treasury paid FBOP a federal tax refund of approximately $265 million. (Dkt. No. 21 ¶ 15.) On June 10, 2014, the FDIC filed the instant lawsuit against FBOP, FBOP's Trustee-Assignee, and a number of FBOP's creditors to determine the ownership of the $265 million tax refund, which now sits in the escrow account awaiting the result of this lawsuit. (Dkt. No. 35 ¶¶ 20, 22.)

II. Non-Party PBGC's Claim

PBGC is a government corporation established to backstop underfunded pension plans when employers go belly up. (Dkt. No. 21 ¶ 1.) When a pension plan terminates with underfunded liabilities, PBGC becomes the plan's trustee and, subject to statutory limits, pays pension benefits to plan participants. ( Id. ) Before its collapse, FBOP, like many employers, sponsored and administered a pension plan to provide benefits to its employees and their beneficiaries. ( Id. ¶ 5.) And like many employers, FBOP's pension fund was significantly underfunded-in this case, by $40.5 million. ( Id. ¶ 6.)

On April 27, 2011, PBGC filed a complaint in this district court seeking an order (a) terminating the FBOP pension plan, (b) appointing PBGC as trustee of the plan, and (c) establishing April 21, 2011 as the termination date for the pension plan. ( Id. ¶ 7); see also PBGC v. FBOP Corp., No. 11 C 2788 (N.D. Ill.) (Dkt. No. 1). PBGC's complaint further asserted a right to collect unfunded benefit liabilities through an offset against FBOP's future tax refunds pursuant to 31 U.S.C. § 3720A. ( Id. ¶ 8.) On August 21, 2012, [1] PBGC, FBOP, and two of FBOP's creditors-JPMorgan Chase Bank, N.A. ("JPMorgan") and BMO Harris Bank, N.A. ("BMO")-entered into an agreement to settle the case (the "Settlement Agreement"). ( Id. ¶ 9.) Under the Settlement Agreement, FBOP agreed to (1) terminate the FBOP pension plan and (2) not oppose the PBGC's referral to the Treasury Offset Program ("TOP") a claim of $30 million to account for the unfunded pension liabilities (the "Offset Claim"). ( Id. ) JPMorgan and BMO likewise agreed not to oppose the $30 million Offset Claim. ( Id. )

The same day, as required by statute, PBGB sent FBOP a formal notice of (1) the past-due, legally enforceable debt owed to PBGC in the amount of $30 million and (2) PBGC's intention to refer the debt to BFS[2] for an offset against FBOP's forthcoming tax refund. ( Id. ¶ 11.) PBGC sent a similar notice to the FDIC as receiver for the Banks.[3] ( Id. ) On October 23, 2012, PBGC referred its $30 million Offset Claim to BFS and recorded the Offset Claim in the TOP. ( Id. ¶ 12.)

On December 18, 2012 and January 2, 2013, PBGC received payments of $8, 780 and $175 through the TOP pursuant to its Offset Claim. ( Id. ¶ 13.)

III. BFS's Computer Glitch

On December 31, 2013, the Department of the Treasury, through BFS, paid FBOP the $265 million federal tax refund at the heart of this case. (Dkt. No. 21 ¶ 15.) BFS issued the refund as five separate paper checks, each paired with a form titled "Manual Refund Posting Voucher." ( Id. ¶¶ 15-16.) On each form, a box labeled "Yes (Allow TOP Offset, BPI-0)" was checked. ( Id. ¶ 17.) Unfortunately, despite literally "checking all of the boxes, " BFS did not deduct the remainder of PBGC's $30 million Offset Claim from the $265 million tax refund. ( Id. ¶ 18.) PBGC alleges, and BFS apparently acknowledges, that the sole reason BFS did not deduct PBGC's Offset Claim was a "computer glitch" in its payment system, which will be corrected in a forthcoming software update called "PAM Release 7.0."[4] ( Id. ¶¶ 19-20.)

PBGC now seeks to intervene in this lawsuit to recover the portion of the tax refund that, pursuant to 31 U.S.C. § 3720A, should have been deducted and paid to PBGC before any refund issued to FBOP. The proposed complaint attached to PBGC's motion sets forth a number of grounds for recovering the Offset Claim, including the federal statutory framework (Count I), unjust enrichment (Counts II-IV), and mistake or accident (Count V). (Dkt. No. 21 Ex. A.) FBOP, its trustee-assignee, and its creditors have consented to PBGC's intervention. The FDIC, however, opposes intervention. The FDIC argues ...


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