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National Credit Union Administration Board v. Ciuni & Panichi Inc.

United States District Court, N.D. Ohio, Eastern Division

March 30, 2017

NATIONAL CREDIT UNION ADMINISTRATION BOARD, acting in its capacity as Liquidating Agent for G.I.C. Federal Credit Union, PLAINTIFF,
v.
CIUNI & PANICHI, INC., et al., DEFENDANTS.

          MEMORANDUM OPINION AND ORDER

          HONORABLE SARA LIOI UNITED STATES DISTRICT JUDGE.

         Plaintiff National Credit Union Administration Board (“NCUA Board” or “plaintiff”) has filed two motions: (1) Motion to Dismiss Ciuni & Panichi, Inc.'s Counterclaims[1] (Doc. No. 23 [“MTD”]), [2] and (2) Motion to Strike Certain of Defendants' Affirmative Defenses (Doc. No. 15 [“M-Strike.”]).[3] For the reasons set forth herein, the motion to dismiss counterclaims (Doc. No. 23) is granted and the motion to strike affirmative defenses (Doc. No. 15) is denied.

         I. BACKGROUND

         The National Credit Union Administration (“NCUA”) is an independent agency of the executive branch of the United States government that insures all federal and most state-chartered credit unions. The NCUA is managed by the NCUA Board pursuant to 12 U.S.C. § 1752a(a). (Complaint, Doc. No. 1 [“Compl.”] ¶ 1.) On February 26, 2016, plaintiff NCUA Board, acting in its capacity as Liquidating Agent for G.I.C. Federal Credit Union (“GIC”), filed a complaint asserting claims against the defendants for professional negligence, gross negligence, and breach of three separate contracts between defendants and GIC. The complaint alleges that, on December 13, 2012, GIC was placed into involuntary liquidation due to insolvency. (Id. ¶ 13.) The liquidation was triggered by the discovery that William Memmer (“Memmer”), a long-time officer and employee of GIC, had committed a massive, multi-year fraud against GIC by overstating its assets by over $9 million, resulting in a loss to the National Credit Union Share Insurance Fund (“NCUSIF”) of more than $8 million. (Id.)[4]

         At all relevant times, defendant C&P had served as GIC's outside independent auditor, [5]required to perform services in accordance with Generally Accepted Auditing Standards (“GAAS”). (Id. ¶ 15.) Plaintiff alleges that, during the time Memmer was carrying out his fraud, “Defendants failed to discover that millions of dollars of GIC assets that Defendants reported on their published financial statements for each of the years 2006, 2007, and 2008 did not exist. . . . Defendants repeatedly, and erroneously, issued clean opinions stating that the asset accounts listed in GIC's financial statements were fairly and accurately stated. Overlooking colossal misstatements of assets and nonexistent internal controls, Defendants continued to negligently perform auditing services for GIC.” (Id. ¶ 16.) Plaintiff alleges that, “[absent] Defendants' misfeasance, Memmer's substantial misstatement of assets would have been discovered by early 2007 . . . and Plaintiff's damages would have been avoided.” (Id. ¶ 17.)

         On April 26, 2016, C&P filed an answer and counterclaim, which it amended on April 29, 2016. In addition to denying most of the allegations of the complaint, C&P asserts 27 affirmative defenses in its answer. In the counterclaim, C&P seeks a declaratory judgment “as to the rights of C&P and responsibilities of [GIC], its employees, officers, committees, directors and members under the letters of engagement.” (Counterclaim (Doc. No. 10) [“Countercl.”] ¶ 12.) It also seeks to hold the Liquidating Agent (NCUA Board) liable for GIC's breach of contract and on a theory of promissory estoppel.

         II. DISCUSSION

         A. Plaintiff's Motion to Dismiss C&P's Counterclaims (Doc. No. 23)

         Plaintiff moves to dismiss C&P's counterclaims under Fed.R.Civ.P. 12(b)(1) (lack of subject matter jurisdiction) and Fed.R.Civ.P. 12(b)(6) (failure to state a claim). Plaintiff asserts that C&P is statutorily precluded from asserting claims against the NCUA Board and, as a consequence, this Court lacks jurisdiction to address the counterclaims. Plaintiff further asserts that C&P's sole remedy is through the administrative claims process set forth in the Federal Credit Union Act of 1934 (“FCUA”).[6]

         Under 12 U.S.C. § 1787(a)(1), once the NCUA Board finds that a federal credit union is bankrupt or insolvent, “the Board shall close such credit union for liquidation and appoint itself liquidating agent therefor.” The Board, as Liquidating Agent, succeeds to “all rights, titles, powers, and privileges of the credit union, and of any member, accountholder, officer, or director of such credit union with respect to the credit union and the assets of the credit union; and title to the books, records, and assets of any previous conservator or other legal custodian of such credit union.” § 1787(b)(2)(A). On or about December 13, 2012, GIC was declared insolvent under this statute and the NCUA Board took over as the Liquidating Agent. (Pryor Aff. [Doc. No. 23-1] ¶ 4.)[7]

         In order to wind up the estate of a closed credit union, the Liquidating Agent has authority, under an extensive statutory and regulatory scheme, to determine claims of creditors of the credit union. To that end, under § 1787(b)(3)(B), the Liquidating Agent must publish a notice for three consecutive months “to the credit union's creditors to present their claims, together with proof, to the liquidating agent by a date specified in the notice which shall be not less than 90 days after the publication of such notice[.]” Here, notice was published four times in the Cleveland Plain Dealer instructing GIC creditors to present their claims by March 25, 2013 (the “Claims Waiver Date”). (Id. ¶ 5.)

         The relevant statutes do not define “creditor” or “claim, ” but courts have applied the bankruptcy code's definitions. See Alkasabi v. Washington Mut. Bank, F.A., 31 F.Supp.3d 101, 108 n.7 (D.D.C. 2014) (citing Nat'l Union Fire Ins. Co. v. City Sav., F.S.B., 28 F.3d 376, 386-87 (3d Cir. 1994) (further citations omitted)); see also Elmco Props., Inc. v. Second Nat'l Fed. Sav. Ass'n, 94 F.3d 914, 919 (4th Cir. 1996); Office & Prof. Empl. Int'l Union, Local 2 v. FDIC, 962 F.2d 63, 68 (D.C. Cir. 1992). “Claim” is defined by 11 U.S.C. § 101(5) as “right to payment, whether or not such right is reduced to judgment, ” or “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment[.]” “Creditor” is defined by 11 U.S.C. § 101(10)(A) as “entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor[.]” In this case, there is no dispute that C&P received notice of the Claims Waiver Date and that, on February 28, 2013, it presented one claim for an unpaid invoice for services rendered. (Pryor Aff. ¶ 6.) The Liquidating Agent never made a determination with respect to this claim within the requisite 180 days under § 1787(b)(5)(A)(i), and C&P never filed either an administrative appeal or a lawsuit within the requisite 60 days under § 1787(b)(6)(A). (Id. ¶¶ 7-8.) Therefore, under § 1787(b)(6)(B), the claim is deemed disallowed and the disallowance is final. In re Lewis, 398 F.3d 735, 740 (6th Cir. 2005) (applying 12 U.S.C. § 1821(d)(6)(B), the corresponding section of FIRREA). As a result, that claim is not at issue here. But, as discussed infra, plaintiff seeks to use the notice that C&P received with respect to filing claims, which led it to file the claim for the unpaid invoice, as a basis to argue notice and failure to exhaust administrative remedies as a bar to some of defendants' affirmative defenses as to plaintiff's claims in this case.

         The statute further provides that “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 credit union for which the Board has been appointed liquidating agent, including assets which the Board may acquire from itself as such liquidating agent; or (ii) any claim relating to any act or omission of such credit union or the Board as liquidating agent.” § 1787(b)(13)(D).

         Plaintiff argues that this Court has no subject matter jurisdiction over the counterclaims raised by C&P because they were not first presented as administrative claims. C&P counters that “the limitation on judicial intervention is not absolute[, ] [and] [n]ot all claims are subject to the exhaustion requirement of FIRREA.” (Opp'n MTD at 342, [8] quoting Sharpe v. FDIC, 126 F.3d 1147, 1156 (9th Cir. 1997), and further citing cases.) C&P argues that its claims did not arise until after the Claims Waiver Date expired, and, in fact, “it was only after [plaintiff] filed the Complaint that Defendants were, and continue to be, damaged as a result of various breaches of contract [by GIC] . . . that are appropriately asserted against [plaintiff] under the FCUA.” (Opp'n MTD at 339.) But, in reply, plaintiff points out that the counterclaims are not based on any action ...


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