Kusen v. Herbert, II et al, No. 3:2023cv02940 - Document 233 (N.D. Cal. 2025)
Court Description: ORDER GRANTING 184 motion to dismiss for lack of subject matter jurisdiction and TERMINATING remaining motions. Signed by Judge Araceli Martinez-Olguin on June 9, 2025. (amolc3, COURT STAFF) (Filed on 6/9/2025)
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Kusen v. Herbert, II et al Doc. 233 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 ALEXANDRA KUSEN, et al., 7 Plaintiffs, 8 ORDER GRANTING MOTION TO DISMISS v. 9 JAMES H. HERBERT, II, et al., 10 Re: Dkt. Nos. 182, 184, 186 Defendants. 11 United States District Court Northern District of California Case No. 23-cv-02940-AMO 12 This is a putative securities class action regarding statements made by officers and the 13 14 auditor for a now-defunct bank. The motions to dismiss from Defendants James H. Herbert, II, 15 Neal Holland, Michael J. Roffler, Michael D. Selfridge, Olga Tsokova (“Individual Defendants,” 16 motion at ECF 186); KPMG, LLP (“KPMG,” motion at ECF 182); and Federal Deposit Insurance 17 Corporation (“FDIC,” motion at ECF 184) were heard before this Court on April 17, 2025. 18 Having read the papers filed by the parties and carefully considered their arguments therein and 19 those made at the hearing, as well as the relevant legal authority, the Court hereby GRANTS 20 FDIC’s motion to dismiss for the reasons stated below and TERMINATES the remaining 21 motions as moot. 22 I. 23 BACKGROUND Non-party First Republic Bank (“FRB”) was a San Francisco-based bank that primarily 24 served individuals, with a particular focus on residential mortgage loans. See FAC (ECF 123) 25 ¶¶ 2, 19, 87. Lead Plaintiff Alecta Tjänstepension Ömsesidigt (“Alecta”) is a Swedish pension 26 fund that purchased FRB stock during the relevant period. FAC ¶ 45. Alecta was appointed Lead 27 Plaintiff by the Court on November 24, 2023. ECF 103. Additional named Plaintiff Neil Fairman 28 (“Fairman”) is an investor who purchased FRB stock during the relevant period. FAC ¶ 46. The Dockets.Justia.com United States District Court Northern District of California 1 Individual Defendants were FRB officers and/or directors at various times during the relevant 2 period. Defendant KPMG LLP (“KPMG”) was FRB’s auditor during the relevant period. FAC 3 ¶ 55. 4 A. 5 In the period leading up to its demise, FRB experienced several years of rapid growth, Plaintiffs’ Allegations of Securities Fraud 6 driven primarily by its acquisition of “uninsured” deposits – i.e., deposits over the limit for FDIC 7 insurance. FAC ¶¶ 85, 103-09. At the end of 2021, 75% of FRB’s deposits were uninsured, 8 roughly twice the median of its peers. FAC ¶110. The Individual Defendants repeatedly assured 9 investors that the Bank’s deposit growth was driven by its “service-focused culture” and that, as a 10 result, FRB’s deposit base was “safe,” “stable,” and “well-diversified.” See FAC ¶¶ 122, 439-41, 11 611. The Individual Defendants’ statements concealed the risk of deposit outflows through an 12 undisclosed reliance on rate incentives and exceptions. FAC ¶¶ 131-34. 13 FRB’s Interest-Rate/Market Risk Management Framework called for a “neutral balance 14 sheet,” with a “balanced match” of assets and liabilities according to their duration and interest 15 rates. FAC ¶¶ 220-23. Throughout the Class Period, FRB violated its policy framework by 16 “mismatching” the combination of assets and liabilities and failing to publicly disclose such 17 mismatch. FAC ¶¶ 14, 30, 40, 134, 170, 335, 357, 431. In addition, FRB manipulated its deposit 18 outflow models, including by improperly recategorizing tens of billions of deposits from short- 19 term to long-term. FAC ¶¶ 200-06. 20 The Individual Defendants misclassified assets in contravention of Generally Accepted 21 Accounting Principles (“GAAP”), falsely assuring investors about the strength of the Bank’s 22 liquidity and risk management practices. FAC ¶ 114. KPMG, who served as FRB’s independent 23 auditor and knew of FRB’s liquidity and interest-rate risks through its receipt of regulatory 24 documents, also falsely represented that FRB’s financial statements complied with GAAP in its 25 Auditor Report submitted in support of FRB’s regulatory filings. FAC ¶¶ 643, 547-49. KPMG 26 additionally falsely certified that its audit complied with certain accounting standards. FAC 27 ¶¶ 352-64. 28 2 1 2 approximately $25 billion, or roughly 16.8% of FRB’s total deposits, on a single day. FAC ¶ 367. 3 The Individual Defendants failed to report these massive deposit outflows; instead, they issued a 4 press release assuring that FRB’s deposit base was still “strong and very-well diversified” and 5 reiterating the “safety and stability” of FRB’s liquidity positions. FAC ¶ 373-85. 6 United States District Court Northern District of California Following the collapse of Silicon Valley Bank on March 10, 2023, depositors withdrew On May 1, 2023, following several public disclosures and decreases in stock price, the 7 California Department of Financial Protection and Innovation closed FRB and appointed the FDIC 8 as Receiver pursuant to Title 12 U.S.C. § 1821(c)(5). FAC ¶¶ 690-92; Barter Decl. ¶ 3 & Ex. A, 9 May 22, 2024. The FDIC accepted appointment as Receiver for First Republic on the same date. 10 Id.; see also FAC ¶¶ 38, 59, 419. By operation of law, the FDIC-R succeeded to “all rights, titles, 11 powers, and privileges” of First Republic, and of “any stockholder, member, accountholder, 12 depositor, officer, or director of [First Republic] with respect to [First Republic] and the assets of 13 [First Republic].” 12 U.S.C. § 1821(d)(2)(A)(i). 14 As part of the mandatory Financial Institutions Reform, Recovery, and Enforcement Act of 15 1989 (“FIRREA”) claims process, the FDIC-R established September 5, 2023, as First Republic’s 16 “Claims Bar Date,” the deadline for filing any administrative claims. Barter Decl. ¶ 4. The 17 FDIC-R provided notice of the Claims Bar Date to creditors and depositors of First Republic as 18 required by law. Id. ¶¶ 5-6 & Ex. B (publication notices issued on May 8, 2023, on June 9, 2023, 19 and on July 7, 2023, in the Boston Globe, the Los Angeles Times, the New York Times, the San 20 Francisco Chronicle, and the Wall Street Journal.). 21 B. 22 This lawsuit was filed by Alexandra Kusen on June 14, 2023, after FRB failed and the Procedural History 23 FDIC’s appointment as receiver. Compl. (ECF 1); Barter Decl. ¶¶ 3, 7, 9, 12. Kusen’s original 24 complaint sought relief on behalf of a proposed class of stockholders against certain former 25 directors and officers of First Republic and First Republic’s outside auditor, KPMG, LLP, alleging 26 violations of federal securities laws. See generally Compl. The claims in Kusen’s original 27 complaint relate to alleged false statements and misrepresentations by the Bank, by the director 28 and officer defendants in their roles as directors and officers of the Bank, and by KPMG 3 1 concerning the Bank’s false statements and misrepresentations. Kusen named neither the Bank 2 nor the FDIC-R in the Complaint, but Kusen’s claims are based upon alleged false or misleading 3 statements or omissions by the Bank, the Bank’s directors and officers, and KPMG in the Bank’s 4 press releases, the Bank’s public securities filings, the Bank’s earnings calls, and the Bank’s 5 public investor events. Compl. ¶¶ 35-48, 51-65, 69, 71-73, 75-81, 85-86, 88-89. Kusen’s claims 6 are also based on allegedly false or misleading statements by FRB directors and officers at public 7 conferences concerning the Bank, the Bank’s assets, and the Bank’s financial condition. Compl. 8 ¶¶ 49-50, 66-67, 74. Kusen’s claim against KPMG is likewise premised upon statements made in 9 the Bank’s public securities filings that concerned the Bank’s allegedly false or misleading 10 statements about its financial condition and its assets.1 Compl. ¶¶ 40, 57, 81. On September 5, 2023, after this lawsuit was filed, Lead Plaintiff, Alecta, filed an United States District Court Northern District of California 11 12 individual administrative claim against FRB “aris[ing] under Sections 10(b) and 20(a) of the 13 Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder.” Barter Decl. ¶ 9. 14 On the same date, Alecta filed with the FDIC-R a second administrative claim against FRB on 15 behalf of a putative class of investors in FRB and described the claim as “aris[ing] under Sections 16 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated 17 thereunder.” Barter Decl. ¶ 10. Alecta’s second administrative claim on behalf of a putative class 18 was substantively identical to its individual claim. Barter Decl. ¶ 10. On September 7, 2023, the 19 FDIC-R administratively closed Alecta’s second administrative claim on behalf of a purported 20 class as duplicative of its first-filed, individual administrative claim. Barter Decl. ¶ 10. On March 21 1, 2024, the FDIC-R issued a notice of disallowance of Alecta’s individual administrative claim. 22 23 24 25 26 27 28 Further, Kusen’s complaint was substantively identical to the City of Hollywood Police Officers’ Retirement System complaint against First Republic, with the exception that Kusen omitted First Republic and the FDIC-R as defendants. Compare Compl. ¶¶ 1-10 (overview and summary of the claims); id. ¶¶ 24-33 (naming Herbert, Erkan, Roffler, Tsokova, Selfridge, Holland, and KPMG as defendants, but not First Republic); id. ¶¶ 34-67, 69-81, 83-89, 91-102 (substantive allegations); id. ¶¶ 120-27 (claims under sections 10(B) and 20(A) of the Exchange Act and SEC Rule 10B-5); with Compl. ¶¶ 1-10 (substantively identical overview and summary of the claims), City of Hollywood Police Officers’ Retirement System v. First Republic Bank, Case No. 3:23-cv-1993HSG (N.D. Cal. Apr. 24, 2023), at ECF 1; id. ¶¶ 16-25 (naming First Republic as a defendant in addition to the defendants named in Kusen’s complaint); id. ¶¶ 27-60, 62-74, 76-82, 84-95 (identical substantive allegations); id. ¶¶ 109-16 (claims under sections 10(B) and 20(A) of the Exchange Act and SEC Rule 10B-5). 4 1 1 Barter Decl. ¶ 11 & Ex. D. Neither Kusen nor Plaintiff Neil Fairman submitted any administrative 2 claim to the FDIC-R. Barter Decl. ¶¶ 7, 9, 12. On February 13, 2024, before Alecta’s administrative claim was disallowed, Alecta filed United States District Court Northern District of California 3 4 an Amended Complaint in this case. ECF 123 (“FAC”). The Amended Complaint, on behalf of a 5 proposed class of stockholders against certain former directors and officers of First Republic and 6 First Republic’s outside auditor, KPMG, alleges violations of federal securities laws. Id. Like 7 Kusen’s original Complaint, the claims asserted in the Amended Complaint relate to alleged false 8 statements and misrepresentations by the Bank and by the Defendants in their roles as directors 9 and officers of the Bank, and by KPMG concerning FRB’s false statements and 10 misrepresentations. Plaintiffs specifically allege that each of the Individual Defendants named in 11 the FAC “issued public statements on behalf of [the Bank], including the alleged materially false 12 or misleading statements identified.” See FAC ¶ 47 (Herbert); ¶ 48 (Erkan); ¶ 49 (Roffler); ¶ 50 13 (Tsokova); ¶ 51 (Selfridge); ¶ 52 (Holland); see also id. ¶ 54 (alleging former directors and 14 officers of the Bank “each possessed the power and authority to control, and did in fact control, 15 [the Bank’s] public statements, including its [securities] filings, press releases, and presentations 16 to analysts and investors.”). Though Plaintiffs did not name either the Bank or the FDIC-R as 17 defendants in the FAC, Plaintiffs’ claims are based upon alleged false or misleading statements or 18 omissions by the Bank, acting through the individual defendants, in the Bank’s public securities 19 filings, the Bank’s earnings calls, and in the Bank’s press releases, as well as allegedly false or 20 misleading statements by Bank directors and officers at public conferences or to CNBC 21 concerning the Bank, the Bank’s assets, and the Bank’s financial condition. Plaintiffs’ claim 22 against KPMG is likewise premised upon statements made in the Bank’s public securities filings 23 that concerned the Bank’s allegedly false or misleading statements about its financial condition 24 and its assets. FAC ¶ 547. 25 II. 26 DISCUSSION As noted at the outset, all Defendants move for dismissal, but the Court focuses here on 27 FDIC’s motion because it disposes of the case. FDIC moves to dismiss on two grounds: (1) Rule 28 12(b)(1) for lack of subject matter jurisdiction on the basis that Plaintiffs failed to administratively 5 1 exhaust their claims with the FDIC-R as required by the Financial Institutions Reform, Recovery, 2 and Enforcement Act of 1989 (“FIRREA”), see 12 U.S.C. § 1821(d)(6)(A), (d)(13)(D); and 3 (2) Rule 12(b)(6) for failure to state a claim on the basis that Plaintiffs’ securities law claims are 4 claims of stockholders of FRB, claims which now belong to FDIC-R as the real-party-in-interest 5 and cannot be prosecuted by these Plaintiffs under Federal Rule of Civil Procedure 17(a). The 6 Court begins by examining whether it possesses subject matter jurisdiction. It does not reach 7 FDIC-R’s second argument because it concludes it lacks subject matter jurisdiction over the 8 action. 9 United States District Court Northern District of California 10 A. Legal Standard An attack on subject matter jurisdiction “may be facial or factual.” Safe Air for Everyone 11 v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A facial attack asserts that “the allegations 12 contained in a complaint are insufficient on their face to invoke federal jurisdiction[,]” while a 13 factual attack “disputes the truth of the allegations that, by themselves, would otherwise invoke 14 federal jurisdiction.” Id. Where the attack is facial, the court determines whether the allegations 15 contained in the complaint are sufficient on their face to invoke federal jurisdiction, accepting all 16 material allegations in the complaint as true and construing them in favor of the party asserting 17 jurisdiction. Warth v. Seldin, 422 U.S. 490, 501 (1975). Where the attack is factual, however, 18 “the court need not presume the truthfulness of the plaintiff's allegations.” Safe Air for Everyone, 19 373 F.3d at 1039. In resolving a factual dispute as to the existence of subject matter jurisdiction, a 20 court may review extrinsic evidence beyond the complaint without converting a motion to dismiss 21 into one for summary judgment. Id.; McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 22 1988) (holding that a court “may review any evidence, such as affidavits and testimony, to resolve 23 factual disputes concerning the existence of jurisdiction”). The plaintiff bears the burden of 24 establishing subject matter jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 25 377 (1994). 26 B. 27 FIRREA authorizes the FDIC to “act as receiver or conservator of a failed institution for 28 Administrative Exhaustion the protection of depositors and creditors.” Sharpe v. F.D.I.C., 126 F.3d 1147, 1154 (9th Cir. 6 1 1997). Once the FDIC has assumed receivership of a bank, FIRREA requires claimants to exhaust 2 administrative remedies before filing certain claims in court. Benson v. JPMorgan Chase Bank, 3 NA, 673 F.3d 1207, 1211 (9th Cir. 2012). As the Ninth Circuit has recognized, “FIRREA strips 4 courts of jurisdiction over claims that have not been exhausted through [the administrative claims] 5 process.” Rundgren v. Wash. Mut. Bank, FA, 760 F.3d 1056, 1060-61 (9th Cir. 2014). The statute 6 itself outlines the administrative claims process that each claimant must exhaust before filing in 7 court. 12 U.S.C. § 1821(d)(6). FIRREA provides: 8 9 10 United States District Court Northern District of California 11 12 13 (D) Limitation on judicial review. Except as otherwise provided in this subsection, 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 depository institution for which the [FDIC] has been appointed receiver, including assets which the [FDIC] may acquire from itself as such receiver; or (ii) any claim relating to any act or omission of such institution or the [FDIC] as receiver. 14 12 U.S.C. § 1821(d)(13)(D). “The phrase ‘except as otherwise provided in this subsection’ refers 15 to a provision that allows jurisdiction after the administrative claims process has been completed,” 16 a circumstance that no party contends applies here. McCarthy v. F.D.I.C., 348 F.3d 1075, 1078 17 (9th Cir. 2003) (citing Sharpe, 126 F.3d at 1156). 18 FDIC argues that the jurisdictional bar of subsection (ii) applies in this case. See, e.g., 19 Reply at 2. “For FIRREA’s jurisdictional bar in clause (ii) of 12 U.S.C. § 1821(d)(13)(D) to 20 apply, three elements must be met. There must be (1) a ‘claim’ that (2) relates to ‘any act or 21 omission’ of (3) ‘an institution for which the [FDIC] has been appointed receiver.’ ” Shaw v. 22 Bank of Am. Corp., 946 F.3d 533, 538 (9th Cir. 2019) (quoting Rundgren, 760 F.3d at 1061). 23 These three elements are satisfied here, requiring administrative exhaustion before the Court can 24 exercise jurisdiction. 25 For purposes of FIRREA, a statute that does not expressly define the term “claim,” the 26 Ninth Circuit defines the term “claim” as “a cause of action or the aggregate of facts that gives rise 27 to a right to payment or an equitable remedy.” Rundgren, 760 F.3d at 1061 (citing Black’s Law 28 Dictionary 281-82 (9th ed. 2009)); see also Shaw, 946 F.3d at 538 (concluding that a plaintiff’s 7 United States District Court Northern District of California 1 Truth-In-Lending Act claim was a “claim” for purposes of FIRREA because it was “a cause of 2 action . . . that gives rise to a right to payment or an equitable remedy.”). District courts are to 3 interpret FIRREA’s “any claim” provision expansively to bar “judicial review of any non- 4 exhausted claim, monetary or nonmonetary, which is ‘susceptible of resolution through the claims 5 procedure.’ ” Henderson v. Bank of New England, 986 F.2d 319, 321 (9th Cir. 1993) (quoting 6 Rosa v. Resol. Tr. Corp., 938 F.2d 383, 393 (3d Cir. 1991)). “The statute contains no provision 7 granting federal jurisdiction to claims filed after a receiver is appointed but before administrative 8 exhaustion. . . . A claimant must therefore first complete the claims process before seeking 9 judicial review.” Henderson, 986 F.2d at 320-21 (citation omitted). 10 Here, Plaintiffs assert that the Individual Defendants and KPMG made false and 11 misleading statements giving rise to causes of action for securities fraud. Specifically, Plaintiffs 12 describe the misrepresentations underpinning their claims by pointing to statements in FRB’s 13 press releases, in FRB’s securities filings, and in FRB’s earnings calls. See generally FAC. 14 Plaintiffs aver that these claims are not targeted at FRB, that the claims focus on the malfeasance 15 of the Individual Defendants as officers of the Bank and KPMG. Opp. at 17-18. However, 16 FIRREA “does not make any distinction based on the identity of the party from whom relief is 17 sought” and instead focuses on the facts underlying a cause of action to determine whether it is a 18 claim that relates to an act or omission of an institution in receivership. Benson, 673 F.3d at 1212. 19 Further, while some of the Defendants named in the FAC might also be liable for some of the 20 alleged misrepresentations, such liability arises in addition to, rather than in lieu of, FRB’s 21 primary liability. See, e.g., In re Alphabet, Inc. Sec. Litig., 1 F.4th 687, 705 (9th Cir. 2021) 22 (holding that defendant corporation, among possible others, made allegedly false statements in the 23 corporation’s securities filings); see also In re ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471, 24 475 (9th Cir. 2015) (quoting Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 25 101 (2d Cir. 2001)) (“a corporation ‘can only act through its employees and agents.’ ”). Plaintiffs’ 26 allegations make plain that they aim to hold Defendants liable for the statements issued by and on 27 behalf of FRB. See, e.g., FAC ¶¶ 47-52 (recounting public statements made by Defendants on 28 behalf of FRB). As in Shaw, Plaintiffs’ claims here are based on the misconduct of the Bank 8 1 before it was placed into FDIC receivership. See id., 946 F.3d at 540 (finding TILA claim against 2 the then-current holder of the loan was still subject to administrative exhaustion). The causes of 3 action here thus fall within FIRREA’s definition of “claim” because those claims are based upon 4 First Republic’s acts or omissions. See 12 U.S.C. § 1821(d)(13)(D)(ii); Shaw, 946 F.3d at 538-41. United States District Court Northern District of California 5 Further, Kusen filed this case on June 14, 2023, after the appointment of the FDIC-R. 6 Because Kusen’s claims in the original complaint and the Plaintiffs’ claims in the FAC all relate to 7 acts or omissions of FRB, Kusen and the other Plaintiffs were required to exhaust their claims 8 administratively with the FDIC-R before seeking judicial review. 12 U.S.C. § 1821(d)(6)(A), 9 (d)(13)(D). Kusen never filed any administrative claim with the FDIC-R, so she did not exhaust 10 administrative remedies with the FDIC-R prior to filing suit. Barter Decl. ¶¶ 7, 9, 12. 11 Accordingly, this Court lacked jurisdiction over this suit at the time it was filed. Cf. Morongo 12 Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988) 13 (“Subject matter jurisdiction must exist as of the time the action is commenced. . . . If jurisdiction 14 is lacking at the outset, the district court has ‘no power to do anything with the case except 15 dismiss.’ ” (citation omitted)). 16 Even if the Court were to look to the Alecta’s FAC to assess subject matter jurisdiction, the 17 result would not change because the administrative process had not been exhausted. Alecta filed 18 its amended complaint on February 13, 2024, before the FDIC-R disallowed its administrative 19 claim on March 1, 2024. Barter Decl. ¶ 11. The Court therefore also lacks jurisdiction over 20 Alecta’s claims. See Intercontinental Travel Mktg., Inc. v. F.D.I.C., 45 F.3d 1278, 1282 (9th Cir. 21 1994) (“No court has jurisdiction over the claim until the exhaustion of this administrative 22 process.”). Plaintiff Fairman likewise cannot overcome the Court’s lack of jurisdiction because he 23 failed to exhaust administrative remedies with the FDIC-R. Barter Decl. ¶¶ 7, 9, 12. “[B]ecause 24 plaintiffs did not exhaust administrative remedies, their claims are jurisdictionally barred by 25 FIRREA.” Benson, 673 F.3d at 1215. 26 Plaintiffs additionally argue that their securities fraud claims are not “susceptible of 27 resolution through the claims procedure.” See Opp. at 18-19. This argument is belied by Alecta’s 28 conduct – Alecta filed an administrative claim with the FDIC-R, which the FDIC-R disallowed on 9 United States District Court Northern District of California 1 March 1, 2024. Barter Decl. ¶ 11. Alecta’s tender of the claim to FDIC-R contradicts its 2 argument that it was not obligated to fulfill the administrative prerequisites or that it saw them as 3 completely futile. Alecta’s conduct demonstrates that it knew of the opportunity to tender a claim 4 to FDIC-R for determination. Indeed, the Ninth Circuit held that the opportunity for the FDIC to 5 “ ‘determine,’ ‘allow,’ or ‘disallow,’ ” a plaintiff’s cause of action based on the underlying facts 6 means that the plaintiff “has a ‘claim’ under FIRREA.” Shaw, 946 F.3d at 540 (internal citation 7 omitted) (stating further that, even if the FDIC did not allow the plaintiff’s claim, “he would still 8 have the right to seek review of that decision before a district court.”). Because Plaintiffs’ claims 9 all relate to acts or omissions of FRB, and because FDIC-R could have determined whether to 10 allow or disallow the claims, Plaintiffs’ claims were subject to administrative exhaustion with the 11 FDIC-R prior to judicial review. 12 U.S.C. § 1821(d)(6)(A), (d)(13)(D); Henderson, 986 F.2d at 12 320-21; Benson, 673 F.3d at 1211; Verdi v. F.D.I.C., No. 8:23-cv-1206-JVS (KESx), 2023 WL 13 6388225, at *6 (C.D. Cal. Sept. 28, 2023) (“Where the claims relate to an act or omission of an 14 institution under the receivership of the FDIC, the court lacks jurisdiction prior to administrative 15 exhaustion – no matter the defendant.”). Because none of the Plaintiffs administratively exhausted 16 their claims prior to filing this lawsuit, this Court lacks jurisdiction over the claims, and the Court 17 therefore GRANTS FDIC’s motion to dismiss for lack of subject matter jurisdiction. 18 C. Claim of Statutory and Constitutional Violation 19 Resisting the jurisdictional hurdle of administrative exhaustion, Plaintiffs assert that 20 FIRREA’s Claims Process conflicts with the PSLRA and the Seventh Amendment. Opp. (ECF 21 190) at 22-25. Plaintiffs’ arguments in this regard each fail. 22 With respect to the PSLRA, Plaintiffs contend that the Claims Process conflicts with the 23 PSLRA’s procedures for selection of a lead plaintiff, 15 U.S.C. § 78u-4(a)(3), but those 24 procedures only apply only to private securities claims brought as putative class actions. 25 15 U.S.C. § 78u-4(a)(1). Though Plaintiffs challenge the application of the Claims Process to 26 securities class actions (see Opp. at 23-24), they do not dispute that FIRREA does not permit class 27 claims and instead requires each claimant to exhaust individually. Michels v. RTC, Case No. 4-93- 28 cv-1167, 1994 WL 242162, at *1-2 (D. Minn. Apr. 13, 1994) (“Although the court recognizes that 10 United States District Court Northern District of California 1 requiring each class member to exhaust FIRREA claim procedures may not be the most 2 convenient or efficient method of resolving the parties’ dispute, total exhaustion is required under 3 [12 U.S.C. § 1821].”). Quite simply, no member of a purported class may exhaust the FIRREA 4 claims process on behalf of another member of that purported class without actual authority to act 5 on behalf of those other class members. Cassese v. Wash. Mut., Inc., 711 F. Supp. 2d 261, 269-70 6 (E.D.N.Y. 2010) (concluding that “Rule 23 does not provide a certified class plaintiff with the 7 power to file an administrative claim [to exhaust the FIRREA claims process] on behalf of other 8 class members”); Holman v. Downey Sav. & Loan Ass’n, No. 09-cv-3121-DMG (AGRx), 2010 9 WL 11597286, at *8 (C.D. Cal. Apr. 21, 2010) (finding that the court lacked subject matter 10 jurisdiction over putative class claims despite the plaintiff’s attempt to file a “class claim” in the 11 FIRREA claims process). 12 With respect to the Seventh Amendment, Plaintiffs argue that the Claims Process conflicts 13 with the constitutional guarantee of a jury trial for legal claims akin to common law fraud. Under 14 the Seventh Amendment, the right to a jury trial in an Article III court must be preserved for 15 claims that are legal, as opposed to equitable, in nature. SEC v. Jarkesy, 144 S. Ct. 2117, 2128 16 (2024). But the Claims Process does not conflict with such right because it preserves a claimant’s 17 right to have a jury determine the facts with respect to its claims. Under FIRREA, the FDIC-R is 18 empowered to “determine” whether to “allow” or “disallow” administrative claims submitted 19 through the Claims Process. 12 U.S.C. § 1821(d)(3), (d)(5). Of course, if the Receiver disallows 20 a claim in whole or in part, the claimant may file suit in federal court on its claim (to the extent of 21 any disallowance), 12 U.S.C. § 1821(d)(6)(A), and the claimant’s right to a jury trial is, thus, 22 preserved. 23 The Plaintiffs describe the Claims Process as “administrative adjudication,” but the 24 FDIC-R’s role in the Claims Process does not rise to the level of “administrative adjudication” 25 because the Receiver does not make findings of fact or issue binding judgments with respect to 26 any submitted claim – it only “determines” whether to “allow” or “disallow” the claim. Compare 27 12 U.S.C. § 1821(d)(3), (d)(5) (empowering the FDIC-R to determine claims, but not to find facts 28 or issue binding judgments), with Coit Independence Joint Venture v. Federal Savings and Loan 11 United States District Court Northern District of California 1 Insurance Corp., 489 U.S. 561, 586 (1989) (noting that the regulations that existed prior to 2 FIRREA purported to grant the agency, as receiver, “adjudicatory authority . . . to make binding 3 findings of fact and conclusions of law” subject only to review under the Administrative 4 Procedure Act). The Claims Process does not suffer from the same shortcomings identified in 5 Coit. To the contrary, the Claims Process specifically addresses the infirmities identified in Coit 6 because the Receiver does not make findings of fact or issue binding judgments, id. § 1821(d)(3), 7 (d)(5), and the statute sets a reasonable time limit for the Claims Process, id. § 1821(d)(5)-(6). 8 The Claims Process conflicts with neither the procedural provisions of the PSLRA nor the 9 Seventh Amendment. Plaintiffs’ assertion of constitutional infirmity does not preclude dismissal 10 here. 11 III. 12 CONCLUSION For the foregoing reasons, the Court GRANTS FDIC’s motion to dismiss for lack of 13 subject matter jurisdiction. The Court does not reach the remaining motions to dismiss and 14 TERMINATES them as moot. The action is DISMISSED with prejudice and the clerk is 15 instructed to close the file. 16 17 18 IT IS SO ORDERED. Dated: June 9, 2025 19 20 ARACELI MARTÍNEZ-OLGUÍN United States District Judge 21 22 23 24 25 26 27 28 12
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