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Barrington Bank & Trust Company, National Association v. Federal Deposit Insurance Corporation

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

April 24, 2015

BARRINGTON BANK & TRUST COMPANY, NATIONAL ASSOCIATION, Plaintiff,
v.
THE FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants.

MEMORANDUM OPINION AND ORDER

EDMOND E. CHANG, District Judge.

This case arises out of a dispute over rent allegedly owed by a failed financial institution, Charter National Bank. The FDIC, as the receiver of Charter, transferred many of the bank's assets to Plaintiff Barrington Bank & Trust. Among the transferred assets was a lease for one of Charter's bank locations. The landlord of that location claims that Barrington, as assignee of the lease, is responsible for the past-due rent owed by Charter. Barrington filed this action under the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that it does not owe the unpaid rent. R. 8, First Am. Compl.[1]

Shortly after this case was filed, the landlord of the property-Defendant Chicago Title Land Trust Company-filed an action against Barrington in state court, seeking eviction and damages for the amount due under the lease. R. 28-1, State Court Compl. In responding to that suit, Barrington joined the FDIC as a third-party defendant, and then the FDIC removed the case to federal court. Id. ; see also Notice of Removal, Chicago Trust Co. v. Barrington Bank & Trust, N.A., 14-cv-09570 (N.D. Ill.Dec. 12, 2014). The FDIC then moved to consolidate that case (the one that had been in state court) with this declaratory-judgment action. R. 28, Mot. Consolidate; R. 31, Dec. 22, 2014 Minute Entry. The other parties did not object. Dec 22, 2014 Minute Entry. The cases were consolidated, and this Court determined that Chicago Title's eviction claims were compulsory counterclaims in the declaratory-judgment action. Id. Chicago Title was directed to amend its responsive pleading to the declaratory-judgment action to include these counterclaims; it has not yet done so. Id.

Instead, Chicago Title now argues that the Court does not have subject matter jurisdiction over either the declaratory-judgment action or the removed eviction action. See generally R. 34 (Chicago Title's Brief). Barrington and the FDIC disagree, arguing that there is jurisdiction over both because the FDIC is a party and because there are substantial federal questions. See generally R. 32 (FDIC's Brief); R. 35 (Barrington's Brief). Barrington and the FDIC also argue that, under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1821 et seq., Chicago Title has failed to exhaust its claims and that it lacks what the FDIC calls "standing" to enforce the contract between the FDIC and Barrington. See FDIC's Br. at 8-15. If this is the case, Chicago Title's claims must be dismissed for lack of jurisdiction. For the reasons discussed below, the Court has subject-matter jurisdiction over both the declaratory judgment action and the counterclaim, and the counterclaim is dismissed for failure to exhaust.

I. Background

On February 10, 2012, Charter National Bank failed. First Am. Compl. at 2. The FDIC was appointed as the institution's receiver, id., and was responsible for managing the assets and liabilities of the failed bank, 12 U.S.C. § 1821(d). Acting as Charter's receiver, the FDIC transferred some of Charter's assets and liabilities to Barrington Bank & Trust under a Purchase and Assumption Agreement. First Am. Compl. at 2. As part of this agreement, Barrington assumed Charter's lease for a building at 1400 Irving Park Road in Hanover Park, Illinois. Id. The assumption of the lease occurred on June 8, 2012. Id. ¶ 23. The current landlord of this property is Chicago Title Land Trust Company, as the trustee of a land trust. Id. at 2-3. Defendants 1400 Irving Park Limited Partnership and Northwest Investors, Inc. are directors of the Chicago Title land trust.[2] Id. ¶¶ 4-5.

When Charter failed, the FDIC publicly announced the process by which creditors of the failed institution could request payment. Id. ¶ 16. Anyone who provided, among other things, a "leased space" to Charter had to submit a claim to the FDIC by May 17, 2012. Id. Chicago Title did not file a claim within this timeframe. R. 15, Chicago Title's Answer ¶ 17. Now, Chicago Title claims that, at the time it closed, Charter owed more than $1.3 million in unpaid rent. State Court Compl. ¶ 14. Chicago Title believes that Barrington, as assignee of the lease, is responsible for that unpaid rent. Id. ¶¶ 6-7, 9.

Although Barrington did assume the lease under the Purchase and Assumption Agreement, the bank argues that it did not assume liability for the pre-failure rent owed by Charter. First Am. Compl. ¶ 20. The agreement explicitly set out which of Charter's liabilities that Barrington took on, and that list does not include unpaid rent. Id. ¶ 19. The agreement also says that the FDIC will indemnify Barrington for losses arising from any Charter liabilities that Barrington did not expressly assume. Id. ¶ 21. Based on these provisions, Barrington filed this suit, seeking a declaration that it does not owe any unpaid rent owed by Charter. Id. at Prayer for Relief.

Less than two months later (but after Chicago Title had been served with summons in this case), Chicago Title filed an eviction action against Barrington in state court seeking possession of the property and the unpaid rent. See State Court Compl. (filed Oct. 10, 2014); see also R. 11, Chicago Title Summons (served Sept. 23, 2014). In answering the state-court complaint, Barrington named the FDIC as a third-party defendant. R. 28-1, State Court Answer at 28-38. The FDIC quickly removed the state-court action under 12 U.S.C. § 1819(b)(2)(B). Notice of Removal at 1, Chicago Trust Co., 14-cv-09570. Once the state-court action was removed, the FDIC moved to consolidate it with Barrington's declaratory-judgment action. Mot. Consolidate. No party objected. Dec. 22, 2014 Minute Entry. This Court granted the motion to consolidate, finding that the removed eviction claim was a compulsory counterclaim to Barrington's declaratory-judgment action. Id.

Chicago Title was directed to amend its responsive pleading to include those claims, but the deadline to amend the pleadings was suspended because Chicago Title questioned the Court's jurisdiction to hear both the declaratory-judgment action and the removed eviction claim, id. ; R. 43, Feb. 17, 2015 Minute Entry. The parties were instructed to submit briefs on the issue. Dec. 22, 2014 Minute Entry. In conjunction with the subject matter jurisdiction issue, the FDIC argued that no court has jurisdiction to hear the removed claim because Chicago Title has failed to exhaust under FIRREA. FDIC's Br. at 13-15. It also argued that Chicago Title lacked standing to challenge the Purchase and Assumption Agreement. Id. at 8-12. Although Chicago Title had not yet amended its responsive pleading to include the counterclaims, it was ordered to respond to the FDIC's substantive arguments. Feb. 17, 2015 Minute Entry.

II. Subject Matter Jurisdiction

Chicago Title argues that the Court lacks subject matter jurisdiction over both the original declaratory-judgment action and the state-court eviction action. Chicago Title's Br. at 3-8. Generally, "the party invoking federal jurisdiction bears the burden of demonstrating its existence." Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 679 (7th Cir. 2006). In this case, FDIC and Barrington are those parties. In evaluating a challenge to jurisdiction, "the district court may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Evers v. Astrue, 536 F.3d 651, 656-57 (7th Cir. 2008) (internal alterations omitted) (quoting St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 625 (7th Cir. 2007)). The Court will address its jurisdiction over each claim in turn.

A. Declaratory-Judgment Action

Federal courts have jurisdiction, known as federal-question jurisdiction, over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. A case arises under the laws of the United States within the meaning of § 1331 only when the claim for relief depends in some way on federal law as stated in a well-pleaded complaint, "unaided by anything alleged in anticipation or avoidance of defenses which it is thought the defendant may interpose." Vorhees v. Naper Aero Club, Inc., 272 F.3d 398, 402 (7th Cir. 2001) (quoting Taylor v. Anderson, 234 U.S. 74, 75-76 (1914)) (internal quotation marks omitted). When the FDIC is a party to a civil lawsuit, the suit is "deemed to arise under the laws of the United States" for purposes of § 1331.[3] 12 U.S.C. § 1819(b)(2)(A) ("[A]ll suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is a party shall be deemed to arise ...


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