Whatley v. Resolution Trust Corp. Ex Rel. Continental Savings

                   UNITED STATES COURT OF APPEALS

                        FOR THE FIFTH CIRCUIT



                                No. 93-2104



JAMES B. WHATLEY, ET AL.,
                                                  Plaintiffs-Appellants,


                                  versus


RESOLUTION TRUST CORPORATION as
Receiver for Continental Savings,
a Federal Savings and Loan
Association,
                                                     Defendant-Appellee.




           Appeal from the United States District Court
                for the Southern District of Texas

                        ( September 7, 1994 )


Before POLITZ, Chief Judge, GARWOOD and DUHÉ, Circuit Judges.

POLITZ, Chief Judge:

     James Whatley, John Rowley, Philip Solomon, Myra Beth Whatley,

and Dan Bensimon appeal the district court's dismissal of their

claims   against   Resolution     Trust    Corporation   and   Continental

Savings, AFSLA, for lack of subject matter jurisdiction.          For the

reasons assigned we vacate and remand for further proceedings.

                                BACKGROUND

     On December 17, 1990 the plaintiffs filed suit in state court
in Travis County, Texas against Continental Savings, AFSLA for

breach      of   fiduciary   duty,   breach   of   contract,   and   tortious

interference with contractual relations.           RTC, as conservator for

Continental, intervened on January 16, 1991 and removed to federal

court.      The conservator was substituted as party defendant and

requested and received a stay of proceedings pursuant to 12 U.S.C.

§ 1821(d)(12)(A)(i).1        This stay expired in March of 1991.

     Six months later, on August 16, 1991, the Office of Thrift

Supervision declared Continental insolvent and appointed RTC as

receiver.        RTC filed pleadings to reflect its capacity as receiver

but did not request a stay of proceedings, although part (ii) of

subsection 1821(d)(12)(A) permits of such.2             RTC initiated the

administrative claims process by publishing notice in the Houston

Chronicle directing Continental's creditors to submit their claims

to RTC by November 18, 1991.3         RTC did not publish this notice in

Travis County where the plaintiffs lived and originally had filed

their suit.         Nor did RTC provide the plaintiffs with personal


    1
     "After the appointment of a conservator . . . for an insured
depository institution, the conservator . . . may request a stay
for a period not to exceed -- (i) 45 days, in the case of any
conservator, . . . in any judicial action or proceeding to which
such   institution   is or   becomes  a   party."     12   U.S.C.
§ 1821(d)(12)(A)(i).
        2
       "After the appointment of a . . . receiver of an insured
depository institution, the . . . receiver may request a stay for
a period not to exceed . . . (ii) 90 days, in the case of any
receiver, in any judicial action or proceeding to which such
institution    is   or   becomes   a    party."       12   U.S.C.
§ 1821(d)(12)(A)(ii).
    3
     See 12 U.S.C. § 1821(d)(3)(B), requiring that such notice be
published.

                                       2
notice of    the   filing    procedures           and   deadline    as    required   by

12 U.S.C. § 1821(d)(3)(C).4       Unaware of the procedure for filing an

administrative claim, on September 27, 1991 the plaintiffs sent RTC

a letter advising of the claims made in their pending lawsuit.

     RTC, obviously fully cognizant of the pending lawsuit, made no

attempt whatsoever to communicate with plaintiffs or their counsel.

Instead,    on   January    15,   1992       --    after   the     time   for    filing

administrative claims had expired -- RTC filed a motion to dismiss

the plaintiffs' complaint for failure to exhaust administrative

remedies.     In response the plaintiffs asserted that:                         (1) the

administrative claims process of the Financial Institutions Reform

and Recovery Enforcement Act of 1989 (FIRREA) does not apply to

lawsuits filed before the appointment of the receiver; (2) the

receiver's failure to give the plaintiffs proper notice of the

claims process exempted them from the exhaustion requirement; and

(3) the plaintiffs notified the receiver of their claim by the

September 1991 letter.

     The district court initially denied RTC's motion to dismiss.

RTC then filed a motion for summary judgment contending that the


     4
                 The receiver shall mail a notice similar
            to the notice published under [subsection B]
            at the time of such publication to any
            creditor shown on the institution's books --
                 (i) at the creditor's last address
            appearing in such books; or
                 (ii) upon the discovery of the name and
            address of a claimant not appearing on the
            institution's books within 30 days after the
            discovery of such name and address.

12 U.S.C. § 1821(d)(3)(C) (emphasis added).

                                         3
plaintiffs' unsecured claims were prudentially moot because the

value of the secured claims exceeded the value of the bank's

assets. Before ruling on the summary judgment motion, however, the

district court reversed its position on the motion to dismiss,

vacated its prior orders, and dismissed the plaintiffs' case for

lack       of   subject   matter   jurisdiction.   The   plaintiffs   timely

appealed.

                                     ANALYSIS

       We review dismissals for lack of subject matter jurisdiction

de novo,5 applying the same standard as that applied by the

district court. The district court determined that the plaintiffs'

failure to file an administrative claim with RTC deprived the court

of jurisdiction.          Concluding that FIRREA provides otherwise with

respect to lawsuits filed before the receivership, we vacate and

remand for further proceedings.

                     Pre- Versus Post-receivership Claims

       We noted the differences between pre- and post-receivership

claims in Carney v. Resolution Trust Corporation.6         Because subject

matter jurisdiction is tested as of the time of the filing of the

complaint,7 district courts presiding over actions properly filed

prior to the appointment of a receiver continue to be vested with




       5
        Matter of Bradley, 989 F.2d 802 (5th Cir. 1993).
       6
        No. 93-1329, 1994 WL 126745 (5th Cir. April 14, 1994).
       7
        Carney.

                                         4
jurisdiction.8           The    situation       differs   when   the   receiver   is

appointed before the filing of an action against a failed financial

institution.        As     explained       in    Meliezer   v.   Resolution   Trust

Company,9       "FIRREA        contains    no     provision      granting   federal

jurisdiction to claims filed after a receiver is appointed but

before administrative exhaustion."10

      By contrast, several sections of FIRREA provide that federal

jurisdiction      over    pre-receivership         claims   continues    after    the

appointment of a receiver.            Subsection 1821(d), which governs the

powers and duties of a receiver, states:

           Except as otherwise provided in this subsection,11
      no court shall have jurisdiction over --
           (i) any claim or action for payment from, or any
      action seeking a determination of rights with respect to,
      the assets of any depository institution for which the
      Corporation has been appointed receiver . . .; or
           (ii) any claim relating to any act or omission of
      such institution or the Corporation as receiver.12

Paragraph (5)(F)(ii) of the subsection provides otherwise, stating

that "[s]ubject to paragraph (12), the filing of a claim with the

receiver shall not prejudice any right of the claimant to continue

any   action     which     was     filed    before    the     appointment   of    the



      8
      See Rosa v. Resolution Trust Corp., 938 F.2d 383 (3d Cir.),
cert. denied, 112 S.Ct. 582 (1991); see also Praxis Properties,
Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49 (3d Cir. 1991).
      9
       952 F.2d 879 (5th Cir. 1992).
      10
           Id. at 882.
           11
        "This subsection" refers to section 1821(d) as a whole.
Marquis v. F.D.I.C., 965 F.2d 1148 (1st Cir. 1992) (en banc).
      12
           12 U.S.C. § 1821(d)(13)(D).

                                            5
receiver."13     Paragraph (12) explains that after its appointment,

a receiver "may request a stay for a period not to exceed . . .

(ii) 90 days, . . . in any judicial action or proceeding to which

such institution is or becomes a party."14

     This circuit, and the others addressing the issue, have

interpreted these and other paragraphs15 of subsection 1821(d) to

mean that a separate scheme exists for the disposition of lawsuits

filed pre-receivership.16       Those claims, based on valid federal

jurisdiction when filed, may be affected only through the stay

provision       detailed   in     paragraph   (12)(A)(ii).      This

legislatively-created framework strikes a fair balance between the

goals of efficiency and expediency underlying FIRREA and the

interests of creditors who, having invoked the proper procedures

for protecting their rights, have expended time, money, and energy

in properly asserting their claims.

                 Pre-receivership Claims and Exhaustion

     There is an added odious dimension when the receiver, with


     13
          12 U.S.C. § 1821(d)(5)(F)(ii).
     14
          12 U.S.C. § 1821(d)(12)(A)(ii).
     15
      For example, paragraphs (6)(A) and (8)(C) permit a claimant
to continue a suit filed before the appointment of a receiver after
its administrative claim has been disallowed.            12 U.S.C.
§ 1821(d)(6)(A) and (8)(C).
    16
      See Brady Development Co. v. Resolution Trust Corp., 14 F.3d
998 (4th Cir. 1994); Carney; Marquis; Praxis; Rosa; see also
F.D.I.C. v. Glynn, 1993 WL 413958 (N.D.Ill. October 15, 1993);
Lanigan v. Resolution Trust Corp., 1992 EL 130075 (N.D.Ill. June 9,
1992); Guidry v. Resolution Trust Corp., 790 F.Supp. 651 (E.D.La.
1992); Coston v. Gold Coast Graphics, Inc., 782 F.Supp. 1532
(S.D.Fla. 1992).

                                    6
full knowledge of the pending lawsuit, foregoes a request for a

stay and waits until the time for the administrative claims process

has expired to appear in court requesting dismissal because of the

plaintiffs' supposed failure to exhaust administrative remedies.

In the eyes of the claimant -- especially one who receives no

actual notice of the administrative process -- his lawsuit is

awaiting disposition:     the receiver, having intervened and been

substituted as party defendant, ostensibly joins him in awaiting a

hearing on the merits.    In reality, however, the receiver lies in

ambush, awaiting expiration of the administrative deadline so that

it may dispose of the claim without consideration of its merits.

We neither find nor assign any such intent to Congress in its

enactment of FIRREA.

     Congress   created   a   separate   scheme   for    the   handling   of

pre-receivership actions, giving the receiver the privilege, but

not the duty, to request a stay of judicial proceedings so that it

might first consider the pending claim administratively.           Neither

a request for a stay nor the failure to request a stay deprives the

district court of jurisdiction.     Rather, if the receiver requests

a stay, the court will defer action temporarily.          If the receiver

does not timely seek a stay, the judicial action will routinely

proceed.   This does not mean that the judicial process runs

concurrently with the administrative remedy.17          Congress has given

the receiver the option to either request a stay, and proceed

     17
      See Carney (allowing simultaneous pursuit of administrative
and judicial remedies thwarts the congressional purpose for
enacting FIRREA); accord Brady.

                                   7
administratively       based    on   the     claimant's   complaint    or   any

substitute or supplemental filing it may request, or forego the

privilege of requesting a stay and thus proceed judicially. Should

the receiver choose to proceed administratively, it must request

the stay within 90 days of its appointment;18 thereafter no stay may

be sought and the judicial action is to proceed.

      As in any case of statutory interpretation, we look to the

plain language of the statute, reading it as a whole and mindful of

the   linquistic      choices   made    by   Congress.     The   language   of

subsection 1821(d) is clear:           "The Corporation may, as receiver,

determine claims in accordance with the requirements of this

subsection."19      "After . . . appointment . . . [as] receiver for an

insured depository institution, . . . [it] may request a stay for

a period not to exceed . . . 90 days, . . . in any judicial action

or proceeding to which such institution is or becomes a party."20

The term "may" is permissive; it neither indicates nor requires an

exclusive means of action -- it is discretionary.21                   Paragraph

             18
         See Praxis (analyzing the legislative history and the
language of 12 U.S.C. § 1821(d)(12)(A) and concluding that Congress
intended that the receiver request the stay within the first 90
days of its appointment).     Otherwise, the receiver would have
"carte blanche to stay a judicial proceeding at any time it feels
it needs a 90-day break from the rigors of litigation." Id. 947
F.2d at 69. We agree with the analysis of our colleagues on the
Third Circuit that the privilege to request a stay must be
restricted to the first 90 days after appointment to prevent abuse.
        19
       12 U.S.C. § 1821(d)(3)(A) (entitled "Authority of receiver
to determine claims") (emphasis added).
      20
           12 U.S.C. § 1821(d)(12)(A)(ii) (emphasis added).
        21
             Rose v. Rose, 481 U.S. 619 (1987) (Congress' use of word
"may"        does not imply exclusivity; it establishes only a

                                        8
(3)(A) allows, but does not require, the receiver to determine

claims in accordance with FIRREA;22 paragraph (12)(A)(ii) grants the

receiver           the    privilege,      should    it      choose      to   proceed

administratively, to request a stay of judicial proceedings.23

Neither provision is mandatory.                 The use of the term "shall" in

other paragraphs of subsection 1821(d) supports this analysis.24

       The        language    of   subsection   1821(d),    and   its   legislative

history, lends support to our conclusion.                  Absent a request for a

stay    pursuant         to   paragraph   (12)(A)(ii),     no   provision    of   the

subsection exists by which the judicial proceeding may be stayed.

As congressional goals of efficiency and expediency would be

prejudiced if administrative and judicial processes were allowed to

proceed simultantously,25            Congress obviously intended to grant the

receiver the option to use initially either the administrative or

judicial mechanism.             If Congress had intended the administrative


discretionary power); accord F.D.I.C. v. McSweeney, 976 F.2d 532
(9th Cir. 1992), cert. denied, 113 S.Ct. 2440 (1993); F.D.I.C. v.
Canfield, 967 F.2d 443 (10th Cir.), cert. dismissed, 113 S.Ct. 516
(1992); Resolution Trust Corp. v. Lightfoot, 938 F.2d 65 (7th Cir.
1991).
       22
      See also 12 U.S.C. § 1821(d)(6)(A)(i) (the receiver may opt
out of the administrative process after an administrative claim is
filed by refusing to act on the claim for 180 days at which point
the claimant is free to proceed in federal court).
             23
        See also Brady (concluding stay provision of paragraph
(12)(A)(ii) is optional and discretionary).
        24
       See e.g., 12 U.S.C. § 1821(d)(5)(A)(i) (establishing time
period in which receiver shall determine administrative claims);
(8)(A) (receiver shall establish an expedited claims process for
certain claimants); (15)(A) and (B) (receiver shall make an
accounting).
       25
            See Carney; see also Brady.

                                            9
procedure to be exclusive for pre-receivership actions, it would

not have provided for the permissive stay.           It would have been a

simple matter to provide for an automatic, mandatory stay of all

pending judicial actions.26        This Congress did not do; this we will

not do under the guise of statutory interpretation.27

       Finally, the purposes of FIRREA and basic notions of fair play

militate against the procedure followed by the receiver -- awaiting

expiration of the time allowed for initiating claims and then

moving to dismiss the pending judicial actions.          FIRREA seeks the

efficient and expedient handling of claims.28              Efficiency and

expediency, however, are not justifications for vitiating the

primary purpose of FIRREA. Congress intended to establish a scheme

for     fairly      adjudicating     claims   against   failed   financial

institutions. It did not structure a system for the sandbagging of

valid claims.        The statute is not to be used as an easy means of

avoiding consideration of claims on their merits.          As demonstrated

by    the     special   provisions    governing   pre-receivership   suits,

Congress had the rights of claimants in mind when it enacted

FIRREA.       RTC may not distort the provisions designed to facilitate

the processing of claims into a tool for subverting the right of

claimants to present their claims on the merits.


       26
      See e.g., 11 U.S.C. § 362(a)(1) (imposing automatic stay in
the bankruptcy context).
      27
      Matter of Meyerland Co., 960 F.2d 512 (5th Cir. 1992), cert.
denied, 113 S.Ct. 967 (1993).     See also Lightfoot; McSweeney;
Canfield.
       28
            See Brady; Carney; Marquis; Meliezer.

                                       10
      We therefore hold that with regard to actions filed before the

receivership, the receiver may opt either for the judicial route,

by   allowing    the   action    to   continue,   or   it   may   choose   the

administrative process, by moving for a stay within 90 days of its

appointment.29    In the instant case, RTC did not timely request a

stay of the plaintiffs' pre-receivership proceeding and it is

therefore deemed to have determined to proceed with the litigation

in federal court.

      The decision of the district court is VACATED and the case is

REMANDED for further proceedings consistent herewith.

DUHÉ, Circuit Judge, concurring:

      I agree that the receiver's failure to invoke the optional

stay simultaneously with the giving of notice to creditors means

that the pending action was not suspended under § 1821(d)(12) but

continued   under      §   1821(d)(5)(F)(ii).      (Paragraph     (5)(F)(ii)

recognizes that a claimant's right to continue a pre-appointment

law suit is not prejudiced unless the receiver requests a stay

under paragraph (12)).          A plaintiff whose suit continues cannot

have his claim disallowed for failure to continue his suit.

      I write separately to express my opinion that RTC's failure to

mail the notice required under § 1821(d)(3)(C) is also dispositive,

for two reasons.

      First, the failure to mail notice left the receiver without

      29
      In so holding, we recognize that other circuits are not in
accord. See Brady Development Co. V. Resolution Trust Corp., 14
F.3d 998 (4th Cir. 1994); see also Bueford v. Resolution Trust
Corp., 991 F.2d 481 (8th Cir. 1993); Resolution Trust Corp. v.
Mustang Partners, 946 F.2d 103 (10th Cir. 1991).

                                       11
the power to determine the plaintiffs' claim administratively and,

therefore, exempted plaintiffs from the exhaustion requirement

notwithstanding Meliezer.   In Meliezer, a suit filed against the

receiver post-appointment, the receiver's failure to mail notice

upon learning the identity of the claimant (under subsection

(d)(3)(C)(ii)) did not relieve the claimant from the obligation to

exhaust administrative remedies, because subsection (d)(3)(C) does

not impose "a consequence for failure of compliance."30        The

Meliezer claimant was a debtor of the institution, not shown on the

institution's books as a creditor, and the claim became known to

the receiver only upon the filing of the suit after the bar date

for filing claims had passed.   The plaintiff could have filed an

administrative claim belatedly at the time of its complaint which

the receiver would likely have disallowed.31 I would not extend the

     30
         Meliezer, 952 F.2d at 883. Unlike the Meliezer panel, I
find sound statutory basis for the argument that the receiver's
very authority to determine claims hinges on its compliance with
the notice requirements.     See § 1821(d)(3)(A) (receiver may
determine claims in accordance with "requirements" of § 1821(d));
§ 1821(d)(3)(B) (receiver "shall" publish notice); § 1821(d)(3)(C)
(receiver "shall" mail a similar notice to creditors shown on the
institution's books and claimants who become known); see also
Meliezer, 952 F.2d at 881 (recognizing that under § 1821(d)(3) it
is the new claims procedure which "gives the Receiver . . .
authority to review claims"); id. at 880 (recognizing that by
publishing the notice and establishing a claims deadline the RTC
"implement[s] the administrative claims process"); Brady Dev. Co.
v. RTC, 14 F.3d 998, 1001 (4th Cir. 1994) (noting that RTC "began
its claims process" by publishing the required notice). Because
the notice provisions are mandatory under paragraph (3)(B) & (C),
I consider them a "requirement" of subsection (d).         I also
interpret paragraph (3)(A) as conferring authority to determine
claims only if the receiver satisfies such "requirements."
Accordingly, the statutory scheme does provide a consequence for
the failure of compliance with the notice requirement.
     31
         See § 1821(d)(5)(C)(i) (providing for final disallowance
of claims filed after the date given in the published notice,
unless clause (ii) applies, i.e., claimant does not have notice of
holding       of   Meliezer    to   a    creditor     suit   filed   against   the

institution before appointment of the receiver.                In the case of a

claimant with a suit pending when the receiver is appointed, I

would hold that if the receiver fails to give notice of the claims-

filing    deadline     as     required   under    §   1821(d)(3)(C),    it   lacks

authority to determine the claim under § 1821(d)(3)(A).

     Chief Judge Politz's opinion recognizes, at least implicitly,

that the receiver's notice to a claimant with a suit pending

against the receiver is important. I consider his reference to the

receiver's "request [for a] substitute or supplemental filing" an

allusion to the receiver's duty to notify a plaintiff of any

administrative filing requirements.              Thus if the receiver requests

a stay of a suit without requesting from the claimant a "substitute

or supplemental filing," the receiver must consider the claim

administratively based solely on the complaint.                  The mailing of

notice under § 1821(d)(3)(C) would constitute such a request for

substitute or supplemental presentation of the claim at the address

given in the notice.

     Second, I would hold that the Due Process Clause requires

mailed notice to a claimant known to the receiver by virtue of his

having filed suit against the institution before the appointment of

the receiver.       For such claimants, publication of notice (which is

sufficient for unknown claimants32) is constitutionally infirm. See


the appointment of the receiver in time to file a claim before the
bar date but files in time to permit payment).
         32
          Meliezer is again distinguishable.  This Court never
considered the effect of the constitutional requirement of due

                                          13
Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 317-20,

70 S. Ct. 652 (1950) (holding that notice by newspaper publication,

which   is   sufficient   for   unknown   or   missing   claimants,   is

unconstitutional with respect to known persons whose whereabouts

are also known); Mennonite Bd. of Missions v. Adams, 462 U.S. 791,

798-800, 103 S. Ct. 2706, 2711-12 (1983) (requiring under the Due

Process Clause that a proceeding affecting the property of a party

whose name and address are reasonably ascertainable be preceded by

personal service or mailed notice).       These fundamental principles

of due process dictate that a claimant known because of a pending

law suit enjoys the protection of § 1821(d)(3)(C) (mailed notice to

creditors shown on the institution's books or to claimants who

become known) as a constitutional minimum.

     I nevertheless concur.      Regardless of the adequacy of the

notice given by the receiver under either the constitution or

FIRREA itself, the receiver must also request a stay to suspend

judicial action in a case filed pre-appointment.         Otherwise, the

jurisdiction of the court continues.




process on the statutory notice provisions in that case.       The
Meliezer plaintiff apparently received constitutionally adequate
notice via the newspaper publication. Meliezer at 883 n.7. Until
suit was filed after the receiver was appointed and indeed after
the bar date had passed, the Meliezer plaintiff was not a known
claimant and was known only as a debtor of the institution. Id. at
880.

                                   14