June 18, 2019

Colorado Court of Appeals: Failure to Exhaust Administrative Remedies Deprived Trial Court of Jurisdiction

The Colorado Court of Appeals issued its opinion in Liberty Bankers Life Insurance Co. v. First Citizens Bank & Trust Co. on Thursday, November 6, 2014.

Subject Matter Jurisdiction—Financial Institutions Reform, Recovery and Enforcement Act—Receiver—Proof of Claim—Doctrine of Administrative Exhaustion—Attorney Fees.

The underlying claims in this case relate to appellant’s (Liberty) participation in two loans with Colorado Capital Bank (CCB) for the purpose of funding the development of a townhome project. CCB was closed by the Colorado Division of Banking on July 8, 2011, and the Federal Deposit Insurance Corporation (FDIC) was named its receiver (FDIC-R). On the same day, First Citizens Bank & Trust Co. (FCBT) purchased the assets and assumed the liabilities of CCB in a purchase and assumption agreement. The FDIC later denied Liberty’s proof of claim, and Liberty thereafter filed suit against FCBT and the FDIC-R in federal court. In the state court proceedings, Liberty filed twelve counterclaims against FCBT, which were dismissed by the court.

On appeal, Liberty argued that the district court incorrectly dismissed its counts 1 through 3 for lack of subject matter jurisdiction. However, Liberty did not properly plead the claims found in its counterclaims in its original proof of claim. Therefore, the district court correctly dismissed those claims for lack of subject matter jurisdiction.

Liberty further argued that the doctrine of administrative exhaustion did not apply in this case. Liberty’s futility argument was based on (1) the transfer of assets and liabilities to FCBT and (2) the FDIC-R’s motion to dismiss in the federal litigation. The jurisdictional bar extends to successors in interest of the failed bank. Further, by failing to properly plead its claims in the proof of claim, Liberty had already failed to exhaust the process provided to it. FDIC-R’s actions in filing a motion to dismiss, therefore, had no bearing on futility. Accordingly, Liberty’s pursuit of relief is not futile “beyond a reasonable doubt,” and does not excuse its failure to exhaust its claims. The district court correctly dismissed those claims for lack of subject matter jurisdiction.

FCBT claimed that it was entitled to reasonable attorney fees incurred on appeal under CRS § 13-17-201. Although Liberty’s counterclaims facially alleged a tort claim of gross negligence and willful misconduct, the overall action was more accurately characterized as a contract action, because all of the counterclaims were based on acts or omissions relating to the alleged breach of the two participation agreements. The essence of Liberty’s action did not sound in tort, so FCBT was not entitled to attorney fees incurred on appeal under CRS § 13-17-201.

Summary and full case available here, courtesy of  The Colorado Lawyer.

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