505 SFD, LLC v. Federal Deposit Insurance Corporation

Background

505 SFD, LLC owns a commercial property at 505 Sir Francis Drake Boulevard in Greenbrae, California. First Republic Bank leased the property beginning January 4, 2023. After California’s financial regulator closed the Bank on May 1, 2023, the Federal Deposit Insurance Corporation, acting as receiver, assumed the Bank’s responsibilities, including the lease.

505 SFD submitted a proof of claim to the receiver for rent allegedly owed under the lease. The receiver later repudiated the lease effective December 4, 2023, and partially allowed the claim for $23,000 while disallowing the rest. The court’s earlier order had dismissed claims for rent abatement and additional interest and left the request for attorney’s fees unresolved.

The First Amended Complaint asserted three claims: declaratory relief that the receiver’s disallowance was invalid and the lease remained in effect; damages for breach of contract; and an unconstitutional taking without just compensation under the Fifth Amendment. The claims were based in part on the theory that the receiver had repudiated the lease too late.

Motion and Legal Standard

The receiver moved under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal when the court lacks subject-matter jurisdiction. The receiver argued that 505 SFD had not exhausted the administrative claims process required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or FIRREA.

FIRREA requires a claimant to present claims, with supporting proof, to the FDIC as receiver. The FDIC may allow, disallow, or pay the claims. Under the Ninth Circuit’s interpretation of FIRREA, courts lack jurisdiction over claims that were not submitted through that process. A “claim” includes a cause of action or the facts giving rise to a right to payment or an equitable remedy.

Court’s Analysis

The court found that 505 SFD’s proof of claim did not fairly notify the receiver of the new theories in the amended complaint. The proof of claim consisted largely of a one-page table listing descriptions, dates, amounts due, and notes. It did not mention an untimely repudiation or facts supporting a constitutional violation.

The court rejected 505 SFD’s argument that the claims were sufficiently presented because they involved the same lease and sought the same damages. Under the applicable Ninth Circuit standard, the proof of claim had to present either the cause of action or the facts giving rise to the requested payment or equitable remedy. The court found that it did neither for the late-repudiation and constitutional theories.

The court also rejected the argument that exhaustion was impossible because the receiver repudiated the lease after the original claims deadline. The receiver’s repudiation letter stated that 505 SFD had 90 days from the repudiation date to file a related proof of claim. In addition, a letter included with 505 SFD’s proof of claim stated that the receiver was likely to repudiate the lease and indicated when the Bank intended to end operations. The court therefore concluded that 505 SFD should have presented the late-repudiation theory through the administrative process before bringing it to court.

The court further found that the claims could not be separated from the allegation that the lease was repudiated too late. Because that theory had not been properly exhausted, the court concluded that it lacked jurisdiction over it under FIRREA.

Disposition

The court granted the receiver’s motion to dismiss the First Amended Complaint for lack of jurisdiction over the new legal claims and theories. The first and third claims, based on the theory of untimely lease repudiation, were dismissed with prejudice. The court allowed 505 SFD one final opportunity to amend its breach-of-contract claim, subject to the limits stated in the order. The Second Amended Complaint was due August 8, 2025. The court cautioned that the amended pleading could not include theories or damages based on the lease’s alleged late repudiation.