Titan Capital ID v. Axos Bank and Federal Deposit Insurance Corporation as…

Background

Titan Capital ID, LLC entered into a Participation Agreement with Signature Bank concerning a mortgage loan. Titan sold Signature Bank a 72.85% senior participation interest and retained a 27.15% junior participation interest. The agreement made Titan the loan servicer and gave Titan a right of first refusal, meaning the right to match a third party’s offer to purchase Signature Bank’s interest on the same terms.

After Signature Bank and then Signature Bridge Bank failed, the Federal Deposit Insurance Corporation became receiver. The FDIC transferred the relevant participation interest to Signature Bridge Bank and later marketed it through an auction. Titan argued that the FDIC had to give it notice of the winning offer and allow it to match the offer. The FDIC instead told Titan that it could purchase the interest at par value, while proceeding with the auction. Axos Bank submitted the winning bid, and the interest was transferred to Axos on December 7, 2023.

Titan filed two claims: breach of contract against the FDIC and tortious interference with contract against Axos. The FDIC and Axos separately moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally plausible claim.

Breach of Contract Claim Against the FDIC

The court held that the FDIC had express statutory authority under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to transfer assets of a failed institution without approval, assignment, or consent. The court concluded that this authority applied to the Participation Agreement and took priority over Titan’s contractual right of first refusal.

The court also held that the FDIC’s auction did not trigger Titan’s right of first refusal under New York law. A right of first refusal generally requires a willing seller, while the FDIC was acting as a governmental receiver performing its statutory duties to liquidate a failed bank’s assets. The FDIC did not become the same commercial actor as Signature Bank. Because the FDIC’s actions did not trigger the right, the court found that there was no breach of contract.

The court separately concluded that Titan had not plausibly alleged damages. The Participation Agreement remained in effect, and Titan continued to hold its junior participation interest and serve as the mortgage-loan servicer. The court therefore found that Titan still held the right of first refusal and had not adequately alleged that the auction caused a compensable loss.

Tortious Interference Claim Against Axos

The court explained that a tortious-interference claim under New York law requires, among other things, a valid contract, the defendant’s knowledge of the contract, intentional procurement of the other party’s breach, an actual breach, and resulting damages. Because the court found no breach by the FDIC, Titan’s claim against Axos necessarily failed.

The court also held that the claim failed for two independent reasons. First, Titan did not allege facts showing that Axos’s objective was specifically to cause the FDIC to breach the Participation Agreement. Axos bid on a pool of assets that included the senior participation interest, but the complaint did not plausibly allege that Axos targeted Titan’s agreement or directed the FDIC to violate it.

Second, Titan did not adequately allege that Axos was the “but for” cause of the FDIC’s alleged breach. The FDIC had announced its marketing process months before Axos submitted the winning bid, which indicated that the FDIC had already decided to sell the interest. The court reasoned that the alleged breach would have occurred regardless of which bidder won the auction.

Disposition

Judge Edgardo Ramos granted the FDIC’s and Axos’s separate motions to dismiss. The court directed the Clerk of Court to terminate the specified motions and close the case. The opinion’s conclusion does not expressly state whether the dismissals were with or without prejudice.