#2251 signed 6-25-96
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
STEVEN H. OSMAN,
SUSAN J. OSMAN,
DANIEL L. NUSSBECK, Trustee
of the Osman Liquidating Trust,
FEDERAL DEPOSIT INSURANCE CORP.,
ADV. NO. 95-7098
ORDER DENYING DEFENDANT'S MOTION TO DISMISS
This proceeding is before the Court on the motion of defendant Federal Deposit Insurance
Corporation (FDIC) to dismiss. The FDIC appears by counsel Cynthia C. Dunham and Steven
M. Leigh. The plaintiff appears by counsel F. Stannard Lentz and John J. Cruciani. The Court
has reviewed the relevant pleadings and is now ready to rule.
For purposes of the FDIC's motion to dismiss, the facts alleged in the plaintiff's complaint must be taken as true; they have been supplemented by a stipulation the parties have submitted. In addition, the Court has reviewed proof of claim number 82, filed by the FDIC's predecessor.
In 1988, the debtors borrowed $340,000 from a bank. They owned about half of a company called Dominion Banqueshares Limited (Dominion), and may have pledged Dominion's convertible subordinated debenture to the bank to secure the loan. Nevertheless, the debtors later sold part of the debenture to a third party, and it was cancelled and replaced by one given to the third party and another given to the debtors. The debtors later transferred their $300,000 debenture to a corporation debtor Steven Osman owned, and it was cancelled and replaced by a new one in the corporation's name. Mr. Osman operated this corporation as his alter ego rather than as a legally separate entity. Finally, the bank the debtors had borrowed from in 1988 obtained the debenture from the corporation, and it was cancelled and replaced in May 1992 by a new one in the bank's name. In its proof of claim, the bank declared it held the debenture as security for the debtors' obligations to it; according to the bank, the debtors owed it over $1,900,000.
In September 1992, the debtors filed a voluntary chapter 11 bankruptcy case. In April 1993, the FDIC was appointed as receiver for the bank that had Dominion's debenture, and apparently acquired physical possession of the debenture as a result. The FDIC published a notice which gave creditors of the bank until July 6, 1993, to present their claims to the FDIC. Later that year, the debtors' plan of reorganization was confirmed, and the plaintiff was appointed trustee of the Osman Liquidating Trust. That trust now owns the corporation from whom the bank obtained the debenture.
During 1994, Dominion merged with another company, which agreed to pay off Dominion's subordinated debentures as part of the merger. The plaintiff agreed and obtained the Court's permission to sell the debtors' stock in Dominion to the other company. Upon completion of the merger, the other company paid the FDIC the $300,000 plus interest owed on the debenture it held. So far as the parties can now determine, the FDIC was paid on the debenture simply as the possessor of it. Investigations of related matters led the plaintiff to question the FDIC's right to receive the proceeds of the debenture. He then filed this proceeding, seeking: (1) under 11 U.S.C.A. §549, to avoid the payment to the FDIC as an unauthorized postpetition transfer of property of the estate; (2) under §550, turnover of property of the estate; and (3) under §547, to avoid the May 1992 transfer of the debenture to the FDIC's predecessor as a preference. He alleges he cannot verify that the FDIC either owned or had a perfected security interest in the debenture.
The FDIC has moved to dismiss all the trustee's claims, alleging the Court has no jurisdiction of
the first two because the trustee has not complied with a mandatory administrative procedure for
presenting such claims to the FDIC, and no jurisdiction of the third because the trustee failed to
present it to the FDIC within the time allowed for making pre-receivership claims.
DISCUSSION AND CONCLUSIONS
The FDIC relies on part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, more commonly known as FIRREA. See 12 U.S.C.A. §1821(d)(3) through (13). The plaintiff argues that FIRREA applies only to claims held by creditors of an institution for which the FDIC is appointed receiver, not those held by debtors of the institution.
The Court concludes the plaintiff is correct that FIRREA does not apply under the circumstances. When the debtors filed for bankruptcy, the bank had possession of the debenture only to secure the debtors' debt. The debtors owned the debenture, either in their own names or the name of Mr. Osman's alter-ego corporation, so the debenture became property of the debtors' bankruptcy estate. 11 U.S.C.A. §541(a)(1). "The district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such case, and of property of the estate." 28 U.S.C.A. §1334(d) (emphasis added). This Court consequently had exclusive jurisdiction of the debenture, through the District Court's general order referring bankruptcy cases to this Court. See 28 U.S.C.A. §157(a); "In the Matter of the Enactment of an Order Conferring Authority and Responsibility Pursuant to the Bankruptcy Amendments and Federal Judgeship Act of 1984" (D.Kan. eff. July 10, 1984); D.Kan. Rule 83.8.5(a). The FDIC has cited nothing in FIRREA that might withdraw property from this Court's exclusive jurisdiction because one of the debtors' creditors was later placed in receivership under that statute. Before claims to that asset could be subjected to FIRREA, this Court would have to determine that the FDIC is entitled to obtain the debenture (or its proceeds) from the bankruptcy estate, that is, the Court must determine whether the debenture actually is an asset of the FDIC. See In re Purcell, 141 B.R. 480, 486 (Bankr.D.Vt. 1992), aff'd 150 B.R. 111, 114-15 (D.Vt. 1993). The debenture did not become the FDIC's asset simply because the bank possessed it when the FDIC was appointed receiver. Instead, the bank--and later the FDIC--would have to obtain an order from this Court approving the distribution of the debenture or its proceeds to it. Furthermore, at least with respect to the claims based on the FDIC's actions after it took over the bank--submitting to Dominion the materials required to receive, and then receiving and retaining the proceeds of the debenture--the Tenth Circuit has held that they are not subject to the FIRREA administrative claims procedure. Homeland Stores v. RTC, 17 F.3d 1269, 1272-75 (10th Cir.), cert. denied ___ U.S. ___, 115 S.Ct. 317, 130 L.Ed.2d 279 (1994)
Even if the debenture was somehow not property of the estate, under the circumstances of this case, the Court would follow those courts which have ruled that the FIRREA administrative claims procedure applies only to claims of creditors against the FDIC or RTC, and not to challenges incident to the FDIC's or RTC's claims against its debtors. Parker North American Corp. v. RTC (In re Parker North American Corp.), 24 F.3d 1145, 1152-56 (9th Cir. 1994) (RTC); Purcell v. FDIC (In re Purcell), 141 B.R. 480, aff'd 150 B.R. 111 (FDIC); In re Miraj & Sons, 192 B.R. 297, 310-11 (Bankr.D.Mass. 1996); Scott v. RTC (In re Scott), 157 B.R. 297, 308-16 (Bankr.W.D.Tex. 1993), withdrawn as part of parties' settlement, 162 B.R. 1004 (1994); FDIC v. Continental Financial Resources (In re Continental Financial Resources), 154 B.R. 385, 387-89 (D.Mass. 1993); cf. National Union Fire Ins. Co. v. City Savings, 28 F.3d 376, 385-93 (3d Cir. 1994) (failure to exhaust FIRREA administrative claims procedure bars claims and counterclaims of debtors as well as creditors but does not bar assertion of defenses or affirmative defenses to claims RTC asserts in court). But see Tri-State Hotels v. FDIC, 79 F.3d 707 (8th Cir. 1996) (questioning reasoning of Parker North American and declining to extend it outside of bankruptcy); Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) (same). The plaintiff here is the successor to the debtors, and his claims arise from the FDIC's claims against the debtors.
For these reasons, the Court concludes the plaintiff's claims are not barred by the failure to exhaust the FIRREA administrative claims procedure. The FDIC's motion to dismiss is hereby denied.
IT IS SO ORDERED.
Dated at Topeka, Kansas, this _____ day of June, 1996.
JAMES A. PUSATERI
CHIEF BANKRUPTCY JUDGE