USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 1 of 124 ORAL ARGUMENT NOT YET SCHEDULED Case No. 11-5317 UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT MBIA INSURANCE CORPORATION, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant-Appellee. On Appeal From the United States District Court For The District of Columbia 09-CV-01011-ABJ BRIEF FOR APPELLANT David F. Williams Howard R. Hawkins, Jr. Geoffrey Gettinger Jason Jurgens* CADWALADER, WICKERSHAM & TAFT, CADWALADER, WICKERSHAM & TAFT, LLP LLP 700 Sixth Street, N.W. One World Financial Center Washington, D.C. 20001 New York, New York 10281 Tel: (202) 862-2200 Tel: (212) 504-6000 Fax: (202) 862-2400 Fax: (212) 506-6666 * Admission Pending Attorneys for Plaintiff-Appellant MBIA Insurance Corporation USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 2 of 124 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(a)(1), appellant MBIA Insurance Corporation (“MBIA”) hereby certifies the following: Parties and Amici 1. Parties Appearing Before District Court: MBIA appeared as plaintiff before the district court. The Federal Deposit Insurance Corporation (“FDIC”) appeared as defendant in its corporate capacity, and as conservator and receiver for IndyMac Federal Bank, F.S.B. (“IndyMac Federal”). No amici or intervenors appeared before the district court. 2. Parties Appearing Before This Court: MBIA appears as appellant before this Court. The FDIC has appeared as appellee in its corporate capacity, and as conservator and receiver for IndyMac Federal. To date, no amici or intervenors have appeared before this Court in connection with this appeal. Rulings Under Review MBIA appeals from the Order issued by District Court Judge Amy Berman Jackson, dated October 6, 2011 (the “Order”), and the accompanying Memorandum Opinion, dated October 6, 2011, which granted the FDIC’s motions to dismiss MBIA’s Amended Complaint (the “Ruling”). A copy of the Order can be found in the Joint Appendix at __, and a copy of the Ruling can be found in the -i- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 3 of 124 Joint Appendix at ___. The Ruling is reported at 816 F. Supp. 2d 81 (D.D.C. 2011). Related Cases This case was not previously before this Court or any court other than the district court. A related case, Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d 1142 (C.D. Cal. 2011), appeal pending, No. 11-56339 (9th Cir.), involves certain of the same transactions and parties. -ii- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 4 of 124 CORPORATE DISCLOSURE STATEMENT Pursuant to Fed. R. App. P. 28(a)(1) and Circuit Rule 26.1, MBIA hereby discloses that it is a wholly owned subsidiary of MBIA Inc., which is a publicly held corporation listed on the New York Stock Exchange. MBIA is incorporated and headquartered in New York. MBIA provides financial guarantee insurance in connection with, among other things, residential mortgage-backed securitizations. -iii- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 5 of 124 TABLE OF CONTENTS PAGE CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES .............. i CORPORATE DISCLOSURE STATEMENT ....................................................... iii TABLE OF CONTENTS .......................................................................................... iv TABLE OF AUTHORITIES ................................................................................. viii GLOSSARY OF ABBREVIATIONS ....................................................................... 1 JURISDICTIONAL STATEMENT .......................................................................... 3 STATEMENT OF ISSUES PRESENTED FOR REVIEW ...................................... 4 STATEMENT OF THE CASE .................................................................................. 5 A. MBIA’s Amended Complaint ..................................................... 5 B. The District Court’s October 6 Opinion ..................................... 7 STATUTES AND REGULATIONS ......................................................................... 9 STATEMENT OF FACTS ...................................................................................... 10 A. The FDIC And Relevant Statutory Framework ........................ 10 1. FDIC As Conservator ..................................................... 12 2. FDIC As Receiver .......................................................... 13 3. FDIC Corporate .............................................................. 14 B. MBIA, IndyMac And The IndyMac Transactions ................... 15 -iv- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 6 of 124 PAGE C. IndyMac’s Post-Closing Contractual Obligations As Servicer And Seller Under The PSAs ....................................... 16 D. IndyMac’s Failure And The Creation Of IndyMac Federal ....................................................................................... 18 E. IndyMac Federal Assumes IndyMac’s Contractual Rights And Obligations Under The PSAs ............................................ 19 F. FDIC Conservator Breached Post-Closing Servicing Obligations ................................................................................ 20 G. FDIC Conservator Breached Post-Closing Seller Obligations ................................................................................ 21 H. FDIC Conservator Continued To Partially Perform And Collect Millions In Servicing Fees ........................................... 22 I. The Sale Of IndyMac Federal’s Assets .................................... 23 J. MBIA’s Proofs Of Claim .......................................................... 25 K. The FDIC’s No Value Determination ....................................... 25 SUMMARY OF ARGUMENT ............................................................................... 26 STANDARD OF REVIEW ..................................................................................... 31 ARGUMENT ........................................................................................................... 31 POINT I MBIA’S CLAIMS ARE NOT PRUDENTIALLY MOOT ................ 32 A. MBIA’s Claims Constitute “Administrative Expenses” Entitled To Priority ................................................................... 33 -v- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 7 of 124 PAGE B. The District Court Erred In Concluding That FDIC Conservator Did Not “Approve” The PSAs ............................. 37 1. “Approved” As Used In 12 U.S.C. § 1821(d)(20) Means To Have Consented, Agreed Or Ratified ............ 37 2. The Formal Approval Process Envisioned By The District Court Is Not Found In Either The Statute Or The FDIC’s Regulations ............................................ 40 3. The District Court Ignored MBIA’s Allegations That FDIC Conservator “Approved” The PSAs ............ 42 C. Treating Liability Arising From FDIC Conservator’s Breach Of Contracts As Administrative Expenses Is Consistent With Section 1821(e)(7)(B) .................................... 45 D. Congress’s Inclusion Of A Repudiation Process In FIRREA Confirms That MBIA’s Interpretation Of Section 1821(d)(20) Is Correct ................................................. 46 E. Public Policy Requires Liability Arising From FDIC Conservator’s Breaches To Be Treated As Administrative Expenses .......................................................... 50 F. Treating Liability Arising From FDIC Conservator’s Breaches As Administrative Expenses Is Consistent With The Bankruptcy Code ............................................................... 52 G. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With Legislative History ......................................... 55 H. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With The FDIC’s Regulations ................................ 56 -vi- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 8 of 124 PAGE POINT II THE RESOLUTION OF A NEW BANK, LIKE INDYMAC FEDERAL, SHOULD NOT RESULT IN A NO VALUE DETERMINATION THAT AVOIDS BREACH OF CONTRACT CLAIMS ON PRUDENTIAL MOOTNESS GROUNDS .......................................................................................... 59 POINT III MBIA’S CLAIMS AGAINST FDIC CORPORATE ARE NOT BARRED BY SECTION 1821(d)(10)(B) .......................................... 63 POINT IV MBIA’S CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF ARE NOT BARRED BY SECTION 1821(j) ................................................................................................. 65 CONCLUSION ........................................................................................................ 69 CERTIFICATE OF COMPLIANCE ....................................................................... 71 CERTIFICATE OF SERVICE ................................................................................ 72 -vii- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 9 of 124 TABLE OF AUTHORITIES PAGE(S) CASES: Adams v. Resolution Trust Corp., 927 F.2d 348 (8th Cir. 1991) .............................................................................. 64 Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602 (2d Cir. 2007) ............................................................................... 53 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................ 31 Bank of New York v. FDIC, 508 F.3d 1 (D.C. Cir. 2007) ................................................................................ 38 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................ 31 Cabell v. Markham, 148 F.2d 737 (2d Cir.), aff’d, 326 U.S. 404 (1945) ........................................................................................... 38 Chamber of Commerce v. United States Dep’t of Energy, 627 F.2d 289 (D.C. Cir. 1980) ............................................................................ 32 City of Covington v. Covington Landing L.P., 71 F.3d 1221 (6th Cir. 1995) .............................................................................. 53 Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d 1142 (C.D. Cal. 2011) ........................................................ 19, 68  Authorities upon which we chiefly rely are marked with asterisks. -viii- USCA Case #11-5317 Document #1377012 Filed: 06/04/2012 Page 10 of 124 PAGE(S) Doe v. Metropolitan Police Dep’t, 445 F.3d 460 (D.C. Cir. 2006) ............................................................................ 31 Doe v. United States, 372 F.3d 1347 (Fed. Cir. 2004) .......................................................................... 38 FDIC v. Phoenix Casa Del Sol, LLC, No. CV 09–2556–PHX–MHM, 2011 WL 814858 (D. Ariz. Mar. 3, 2011) ....................................................................................... 56 First Hartford Partners II v. FDIC, No. 93 Civ. 0933, 1993 U.S. Dist. LEXIS 14651 (S.D.N.Y. Oct. 15, 1993) .................................................................................... 67 Foretich v. United States, 351 F.3d 1198 (D.C. Cir. 2003) .......................................................................... 32 Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268 (9th Cir. 1995) ................................................................................ 52 In re GM Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009), aff’d sub nom. In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010) ....................... 54-55 Henry v. FDIC, 695 F. Supp. 2d 1063 (C.D. Cal. 2010) .............................................................. 64 Janowsky v. United States, 133 F.3d 888 (Fed. Cir. 1998) ............................................................................ 36 Johnson v. Jamaica Hosp., 467 N.E.2d 502 (N.Y. 1984) ............................................................................... 49 Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234 (N.Y. 1986) ............................................................................... 49 -ix-