Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 1 of 12 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: WASHINGTON MUTUAL INC., et al., Debtors Chapter 11 Case No. 08-12229 (MFW) WMI LIQUIDATING TRUST, Plaintiff, Adv. Pro. No. 14-50435 (MFW) v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, et al., Defendants. DEFENDANT BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM S REPLY IN SUPPORT OF ITS MOTION TO DISMISS THE AMENDED COMPLAINT Dated: December 5, 2014 Katherine H. Wheatley Associate General Counsel Board of Governors of the Federal Reserve System 20th & C Streets, N.W. Washington, D.C. 20551 (202) 452-3779 (phone) (202) 736-5615 (fax) Email: kit.wheatley@frb.gov Counsel for Board of Governors of the Federal Reserve System
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 2 of 12 TABLE OF CONTENTS PRELIMINARY STATEMENT... 1 ARGUMENT... 3 I. The Court Lacks Subject Matter Jurisdiction Over Claims Against the Board Because There is No Applicable Waver of Sovereign Immunity... 3 II. III. Plaintiff Has Not Stated a Claim Against the Board Because There Is No Actual Controversy Between the Board and Plaintiff... 6 Plaintiff Has Alleged No Actual Controversy with the Board in the Automatic Termination Regulations and Res Judicata... 7 CONCLUSION... 8 i
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 3 of 12 TABLE OF CITATIONS Cases Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937)... 6, 7 Cudjoe ex rel. Cudjoe v. Dep t of Veterans Affairs, 426 F.3d 241 (3d Cir. 2005)... 6 Garcia v. United States, 666 F.2d 960 (5th Cir. 1982)... 6 Geronimo v. Obama, 725 F. Supp. 2d 182 (D.D.C. 2010)... 4 MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007)... 7 N. Side Lumber Co. v. Block, 753 F.2d 1482 (9th Cir. 1985)... 4 Orff v. United States, 545 U.S. 596 (2005)... 4 Robinson v. Salazar, 838 F. Supp. 2d 1006 (E.D. Cal. 2012)... 4 Schonberg v. Fed. Election Comm n, 792 F. Supp. 2d 20 (D.D.C. 2011)... 4 Sevigny v. United States, 2014 WL 3573566 (D.N.H. July 21, 2014)... 5 Treasurer of New Jersey v. U.S. Dep t of Treasury, 684 F.3d 382 (3d Cir. 2012)... 4 WMI Liquidating Trust v. FDIC, No. 1-14-CV-01816 (D.D.C., filed October 29, 2014)... 3 Statutes 5 U.S.C. 702... passim 28 U.S.C. 1331... 6 ii
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 4 of 12 28 U.S.C. 2201... 1 28 U.S.C. 2201(a)... 6 31 U.S.C. 3713(b)... 5 Rules Fed. R. Civ. P. 12(b)(1)... 1 Fed. R. Civ. P. 12(b)(6)... 1 Regulations 12 C.F.R. Part 359... 2 iii
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 5 of 12 Defendant Board of Governors of the Federal Reserve System (the Board ), by and though its undersigned counsel, hereby submits this Reply to Plaintiff WMI Liquidating Trust s Memorandum of Law in Opposition to Motion of Defendant Board to Dismiss the Amended Complaint (the Plaintiff s Opposition or Opposition ) [D.I. 106]. PRELIMINARY STATEMENT As explained in the Board s Motion to Dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) (the Motion ) [D.I. 41-42], the Court lacks subject matter jurisdiction over Plaintiff WMI Liquidating Trust s ( Plaintiff ) claims as to the Board because the Board s sovereign immunity has not been waived. Furthermore, Plaintiff has not pled that an actual controversy exists between it and the Board. For these reasons, the Board respectfully requests that the Court grant its Motion. Notwithstanding its arguments to the contrary, Plaintiff cannot rely on the waiver of sovereign immunity in the Administrative Procedure Act ( APA ), 5 U.S.C. 702, because that waiver is limited, by its express terms, to suits stating a claim that an agency acted or failed to act. Plaintiff failed to allege that the Board has taken any action at all. Plaintiff has also not alleged any failure to act by the Board, nor could it, as there is no role for the Board to play in interpreting the FDIC s golden parachute regulations. Moreover, Plaintiff did not plead that an actual controversy exists between it and the Board, as required by the Declaratory Judgment Act, 28 U.S.C. 2201, because no such controversy exists now nor can it ever exist between the Board and Plaintiff. The Board has no control over the relief that Plaintiff demands, namely, an interpretation regarding a statute and regulations that are strictly within the FDIC s realm of authority to provide binding interpretations. 1
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 6 of 12 As explained in the Board s Motion, Congress has delegated sole authority to limit or prohibit golden parachute payments to the FDIC. The golden parachute statute grants no interpretive authority over golden parachutes to the Board. Pursuant to its statutory authority, the FDIC has issued regulations, 12 C.F.R. Part 359 (the Regulations ), that define the term golden parachute payment, and generally prohibit such payments. The Regulations do, however, establish a procedure for insured depository institutions or depository institution holding companies to file an application seeking approval to make payments that constitute golden parachute payments as defined in the Regulations. If such an application is filed and approved by both the FDIC and the applicant s primary federal regulator which, in the case of depository institution holding companies is the Board the payment may be made even though it would otherwise be prohibited. The FDIC issued an opinion letter to Plaintiff that payments made pursuant to specific agreements and/or plans are, in fact, golden parachute payments under the Regulations, and therefore may not be paid without prior regulatory approval. In response to the FDIC s opinion letter, Plaintiff filed a golden parachute application with the FDIC and the Board seeking approval to make payments to 32 of the 90 claimants named as individual defendants in this action. Many other claimants, however, have declined to file applications based on their belief that the payments are not golden parachutes, and that as a result neither the FDIC nor the Board has jurisdiction to approve or deny those payments. On October 15, 2014, the FDIC denied Plaintiff s request to make golden parachute payments to the 30 individuals. 1 The Board played no part in this decision. Due to the 1 The application was previously amended to withdraw two individuals from the request. 2
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 7 of 12 regulatory scheme created by the FDIC in the Regulations, both the FDIC and the Board must approve the payment request before Plaintiff is permitted to make the golden parachute payments. The Board did not take any action on the application, and, because the FDIC did not approve the request, no Board action is necessary, as no action it might take would permit Plaintiff to make the golden parachute payments. On October 29, 2014, Plaintiff filed suit against the FDIC in the United States District Court for the District of Columbia, seeking review of the FDIC s determinations under the Administrative Procedure Act (the APA Action ). WMI Liquidating Trust v. FDIC, No. 1-14- CV-01816 (D.D.C., filed October 29, 2014). The APA Action requests that the D.C. District Court issue an order that Plaintiff is subject to the golden parachute statute and regulations, and also that the court set aside the FDIC s denial barring Plaintiff from making such golden parachute payments. The FDIC then filed a Motion to Stay Proceedings in this Court [D.I. 115] in order to allow the APA Action to move forward. Because no justiciable case or controversy exists between Plaintiff and the Board that would support this action, and because no waiver of the Board s sovereign immunity applies to the facts presented, Plaintiff s claims against the Board fail as a matter of law. ARGUMENT I. The Court Lacks Subject Matter Jurisdiction Over Claims Against the Board Because There Is No Applicable Waiver of Sovereign Immunity Plaintiff argues that, although it does not seek review of agency action under the APA, it may still rely on the waiver of sovereign immunity in the APA, 5 U.S.C. 702, in this action. While some cases cited by Plaintiff suggest that Section 702 s waiver of sovereign immunity may be utilized in non-apa cases, these cases do not support its use in Plaintiff s claims against the Board. None of the cases Plaintiff cites involved facts similar to those presented here, in 3
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 8 of 12 which there is no allegation that the Board has acted or failed to act in any way or even has the authority to act. And, any waiver of the government s sovereign immunity must be strictly construed in favor of the sovereign. Treasurer of New Jersey v. U.S. Dep t of Treasury, 684 F.3d 382, 396 (3d Cir. 2012) (quoting Orff v. United States, 545 U.S. 596, 601-02 (2005)). Plaintiff s Opposition incorrectly suggests that Section 702 s waiver of sovereign immunity is limitless. Although the requirement in Section 704 of the APA that there be agency action or final agency action prior to judicial review may not apply in this proceeding, the plain language of the waiver contained in Section 702 requires an allegation that an agency or [its] officer[s] or employee[s] acted or failed to act. Robinson v. Salazar, 838 F. Supp. 2d 1006, 1042 (E.D. Cal. 2012) (internal quotation marks omitted). If a claim does not make an allegation that an agency acted or failed to act, the declaratory relief claim[] fails to fit within the waiver of immunity. Id. Section 702 does not waive immunity if there is no allegation that an agency acted or failed to act. N. Side Lumber Co. v. Block, 753 F.2d 1482, 1484 (9th Cir. 1985) ( [W]e have been able to identify from the record in this case no claim of an official action or failure to act within the meaning of 5 U.S.C. 702. In the absence of such a claim, 702 does not waive immunity. ); Schonberg v. Fed. Election Comm n, 792 F. Supp. 2d 20, 27 (D.D.C. 2011) ( Nowhere in his complaint does [plaintiff] identify an agency that, or an officer of the United States who, acted or failed to act in a way that implicates the constitutionality of [challenged statutes]. ); Geronimo v. Obama, 725 F. Supp. 2d 182, 186 (D.D.C. 2010) (plaintiffs complaint deficient because [i]t cites no agency action, inaction or involvement at all ). Here, Plaintiff has made no allegation that the Board acted or failed to act. And, as the Board has no control over the relief that Plaintiff seeks, an interpretation of a statute granting 4
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 9 of 12 authority to the FDIC and regulations promulgated by the FDIC, Plaintiff will never be able to allege any act or failure to act in the future. Although Plaintiff submitted a golden parachute application to the FDIC and the Board, this request for declaratory relief is unrelated to that. Plaintiff is not asking this Court to compel the Board to review that application, nor is Plaintiff alleging that the Board failed to act on that application. In any event, the FDIC denied Plaintiff s request for permission to make golden parachute payments, rendering moot any Board decision on that application. Plaintiff, relying on Sevigny v. United States, 2014 WL 3573566 (D.N.H. July 21, 2014), incorrectly claims that Section 702 provides a waiver of sovereign immunity because Plaintiff faces the threat of potential liability. 2 However, in that case, the federal government had acted or failed to act with regard to the plaintiff, a state insurance commissioner, by filing proofs of claim in an insurance company s bankruptcy being resolved by the plaintiff. Here, the Board has not affirmatively acted to restrict Plaintiff s conduct. Furthermore, WMILT does not face a sufficiently imminent threat from the Board because the question of whether certain proposed payments are golden parachute payments is the subject of ongoing litigation where the FDIC is the defendant. See Sevigny, 2014 WL 3573566, at *8. In Sevigny, plaintiff faced potential personal liability under a straightforward federal statute that clearly governed the plaintiff s conduct. See id. at *6 (citing 31 U.S.C. 3713(b)). WMILT, on the other hand, relies on the FDIC s warning of liability for violating the golden parachute regulations, but the applicability of those regulations to the payments WMILT seeks to make has not been conclusively resolved. 2 Pl. Opposition at 6. 5
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 10 of 12 Plaintiff does not argue in its Opposition that it has alleged that the Board acted or failed to act as is required for Section 702 to waive sovereign immunity. Most of Plaintiff s Opposition focuses on the fact that 28 U.S.C. 1331 grants subject matter jurisdiction. However, Section 1331 alone does not waive sovereign immunity. Garcia v. United States, 666 F.2d 960, 966 (5th Cir. 1982). As the court explained in Garcia, a complaint alleging jurisdiction based solely on 28 U.S.C. 1331 does not properly plead a waiver of sovereign immunity. See id. Without a waiver of sovereign immunity, this Court lacks subject matter jurisdiction over the claims against the Board, and Plaintiff s claims against the Board must be dismissed. Cudjoe ex rel. Cudjoe v. Dep t of Veterans Affairs, 426 F.3d 241, 246 (3d Cir. 2005). II. Plaintiff Has Not Stated a Claim Against the Board Because There Is No Actual Controversy Between the Board and Plaintiff Plaintiff fails to state a claim under the Declaratory Judgment Act, 28 U.S.C. 2201(a), because it does not allege an actual controversy between Plaintiff and the Board. An action pursuant to the Declaratory Judgment Act must allege a controversy that is definite and concrete, touching the legal relations of parties having adverse legal interests. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937). As Plaintiff has made no allegations in its amended complaint that amount to an actual controversy between it and the Board, this case should be dismissed under Rule 12(b)(6). In an attempt to create an actual controversy, Plaintiff s Opposition attributes to the Board several positions which the Board has never taken. For example, Plaintiff states that itself, the individual defendants named in the amended complaint, and the Board dispute whether [certain payments] constitute golden parachute payments. 3 However, the Board has not taken 3 Pl. Opposition at 10. 6
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 11 of 12 any position on whether these payments constitute golden parachute payments. Although other parties may dispute whether these payments are in fact golden parachutes, creating an actual controversy between those parties, the Board is uninvolved with that disagreement. The Board has no role in interpreting the golden parachute statute and regulations to determine whether the proposed payments require prior approval under those laws. Plaintiff has not alleged adverse legal interests between it and the Board, as required for a justiciable controversy. Aetna Life Ins. Co., 300 U.S. at 240-41. The Board has taken no position on the interpretation of the FDIC s regulations, as the interpretation question is a matter for the FDIC alone. Any other statement by Plaintiff that its legal interests are adverse to the Board s is merely speculation, which is also inadequate, as a matter of law, to establish the existence of a substantial, immediate controversy which is capable of judicial resolution. Id. Nor does the fact that the Bankruptcy Court ordered Plaintiff to name the Board as a defendant create an actual controversy. Plaintiff again argues that it is acting under an imminent threat by the Board that it will impose civil money penalties should Plaintiff make payments without prior approval. 4 There is no imminent threat against Plaintiff from the Board because the question of whether certain proposed payments are golden parachute payments is the subject of ongoing litigation where the FDIC is the defendant. See MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 129 (2007). III. Plaintiff Has Alleged No Actual Controversy with the Board in the Automatic Termination Regulations and Res Judicata Claims Plaintiff, in both the amended complaint and its Opposition, does not allege that any actual controversy exists between it and the Board on these claims. Even if the Bankruptcy 4 Pl. Opposition at 11. 7
Case 14-50435-MFW Doc 151 Filed 12/05/14 Page 12 of 12 Court ordered Plaintiff to file those claims against the Board, that does not create the actual controversy required under the Declaratory Judgment Act. As the Board has no connection whatsoever to any of the claims in Counts XII-XIX of the amended complaint, those claims must also be dismissed pursuant to Rule 12(b)(6). CONCLUSION For the foregoing reasons, and the reasons stated in the Board s Motion to Dismiss the Amended Complaint, the Board respectfully requests that the amended complaint be dismissed in its entirety as to the Board. Dated: December 5, 2014 Respectfully submitted, /s/ Katherine H. Wheatley Katherine H. Wheatley Associate General Counsel Board of Governors of the Federal Reserve System 20th & C Streets, N.W. Washington, D.C. 20551 (202) 452-3779 (phone) (202) 736-5615 (fax) Email: kit.wheatley@frb.gov Counsel for Board of Governors of the Federal Reserve System 8