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Southwest Marine and General Insurance Co. v. National Credit Union Administration Board

United States District Court, W.D. Texas, Austin Division

August 20, 2019

SOUTHWEST MARINE AND GENERAL INSURANCE COMPANY, Plaintiff and Counter Defendant,
v.
NATIONAL CREDIT UNION ADMINISTRATION BOARD, in Its Capacity as Liquidating Agent for Lakeside Federal Credit Union, Defendant and Counter-Plaintiff.

          ORDER

          SAM SPARKS SENIOR UNITED STATES DISTRICT JUDGE

         BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and specifically Defendant National Credit Union Administration Board (the Board)'s Motion for Summary Judgment [#51] and Memorandum of Law in Support [#52], Plaintiff Southwest Marine and General Insurance Company (Southwest Marine)'s Response [#55] in opposition, and the Board's Reply [#58] in support. Having reviewed the documents, the governing law, and the file as a whole, the Court now issues the following opinion and order.

         Background

         This case involves a dispute over the purported rescission of a fidelity bond (the Bond) issued by Southwest Marine. The Bond was issued in 2014 to Lakeside Federal Credit Union (Lakeside) and provided Lakeside with coverage for losses resulting from dishonest acts committed by its employees or directors. Am. Compl. [#26] at 4. Lakeside paid Southwest Marine a premium of $10, 248 for this coverage. Id. at 5.

         In April 2015, Lakeside notified Southwest Marine that it had incurred a loss covered under the Bond in connection with "suspicious transactions" linked to two of its employees. Id. Three months later, Lakeside was placed into liquidation. Id. The Board was appointed liquidating agent for Lakeside and took over Lakeside's claim for coverage (the Claim) under the Bond. Id. In this capacity, the Board submitted a proof of loss in support of the Claim on September 15, 2015, explaining a dishonest "check-kiting" scheme by two Lakeside employees had resulted in losses to Lakeside of $690, 120.88. Id.

         In an attempt to avoid making payment under the bond, Southwest Marine reviewed the bond application submitted by Lakeside and concluded Lakeside had made several incorrect statements of material fact regarding the preventative measures it used to detect and deter check kiting. Id. at 6-8. On this basis, Southwest Marine sent a letter to the Board on October 19, 2015, stating that the Bond had been unilaterally rescinded due to incorrect statements of material fact in the application. Id. at 8-9; Southwest Marine also returned the premium paid by Lakeside and warned that if Southwest Marine did not receive a response within thirty days, it would assume that the Board agreed with the decision to rescind the Bond. Id. The Board deposited the $10, 248 premium refund check but did not otherwise respond to the letter until fourteen months later, when the Board notified Southwest Marine that it did in fact wish to contest the rescission. Id. at 10-11. The Board then attempted to return the already-cashed premium refund, which Southwest Marine declined to accept. Id.

         Southwest Marine subsequently filed this lawsuit seeking a declaratory judgment affirming rescission of the Bond, and the Board counterclaimed for breach of contract based on Southwest Marine's failure to pay the Claim. Am. Compl. [#26]; Def.'s Am. Answer [#28].[1] In response to the Board's counterclaim, Southwest Marine asserted five affirmative defenses. PL's Am. Answer [#27] at 9-16.

         Analysis

         The Board now moves for summary judgment on Southwest Marine's claims and affirmative defenses. Mot. Summ. J. [#51] at 1-2. First, the Board contends 12 U.S.C. § 1787(b)(13)(D) deprives this Court of jurisdiction over Southwest Marine's claims and affirmative defenses. Id. at 1. In the alternative, the Board contends it is entitled to summary judgment on those claims and affirmative defense because the Court is statutorily barred from granting Southwest Marine's requested relief. Id. at 2. The Court considers each of these arguments in turn.

         I. Subject Matter Jurisdiction

         A. Legal Standard

         The Board first contends this Court lacks jurisdiction to hear Southwest Marine's claims or its affirmative defenses. See Mot. Summ. J. [#51] at 1.

         Under Rule 12(b)(1), [2] claims may be dismissed for lack of subject matter jurisdiction when the court lacks the statutory power to adjudicate the claim. See Fed. R. Civ. P. 12(b)(1); see also Home Builders Ass'n of Miss. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). Jurisdiction is a threshold issue that must be resolved before any consideration of the merits of a case. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 88-89 (1998). The plaintiff bears the burden of establishing a federal court has jurisdiction to adjudicate its claims. See, e.g., Family Rehabilitation, Inc. v. Azar, 886 F.3d 496, 500 (5th Cir. 2018).

         B. Application

         Under 12 U.S.C. § 1787(b), one of the Board's primary powers as liquidating agent is to "collect all obligations and money due to the credit union" and to "conserve the assets and property of the credit union." Id. § 1787(b)(2)(B)(ii), (iv). Towards this end, § 1787 positions the Board as the initial arbiter of claims brought against the credit union. See Id. § 1787(b)(3)(A) (permitting the Board to "determine claims in accordance with the requirements of this subsection"). After a party files a claim with the Board, the Board has 180 days to determine whether to allow or disallow the claim and to notify the claimant of this determination; this deadline may be extended by written agreement between the claimant and the Board. Id. § 1787(b)(5)(A)(i)-(ii). A claimant may obtain judicial review of the Board's determination on a claim if the claimant files suit within 60 days of either the end of the 180-day period or the date the claimant received notice that the Board had disallowed its claim, whichever is earlier. Id. § 1787(b)(6)(A). If a claimant fails to file suit within this 60-day window, the claim shall be deemed finally disallowed "and the claimant shall have no further rights or remedies with respect to such claim." Id. § 1787(b)(6)(B).

         To prevent claimants from circumventing the Board and proceeding directly to the district court, § 1787(b)(13)(D) divests courts of jurisdiction over: (1)"any claim or action for payment from ... the assets of any credit union for which the Board has been appointed liquidating agent"; (2) "any claim or action seeking a determination of rights with respect to" such assets; or (3) "any claim relating to any act or omission of [a] credit union or the Board as liquidating agent" 12 U.S.C. § 1787(b)(13)(D)(i)-(ii). The only exception to this jurisdictional bar is where a litigant exhausts her administrative remedies by submitting the claim or action to the Board in accordance with the administrative review process outlined in § 1787(b). See Id. § 1787(b)(13)(D) ("Except as otherwise provided in this subsection . . . ."); see also FDIC v. Scott,125 F.3d 254, ...


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