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Praxis Properties, Inc. v. Colonial Sav. Bank

filed: October 8, 1991; As Corrected.


On Appeal From the United States District Court for the District of New Jersey; D.C. Civil No. 90-01497.

Becker, Hutchinson, Circuit Judges and C. Clyde Atkins, District Judge.*fn*

Author: Becker

BECKER, Circuit Judge

This appeal, set in the context of the recent crisis in the savings and loan industry, presents the important question whether and for how long a federal district court must grant a receiver of an insured depository institution a stay after its appointment, under the stay provision of the the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), 12 U.S.C.A. § 1821(d)(12)(A)(ii) (West 1989). The district courts are sharply divided on the issue, and the only court of appeals to consider the provision did so only tangentially.

Before grappling with this question, however, we must clear three preliminary hurdles, appellate jurisdiction, justiciability, and exhaustion of administrative remedies. We conclude, on those points: (1) that there is jurisdiction over this appeal under the collateral order doctrine of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949); (2) that the instant controversy is not moot, despite the passing of the 90 days during which the receiver claims that it was entitled to a stay and even though the underlying action has settled, because the issue is "capable of repetition, yet evading review," see Murphy v. Hunt, 455 U.S. 478, 102 S. Ct. 1181, 71 L. Ed. 2d 353 (1982); and (3) that for all practical purposes, Praxis exhausted its administrative remedies. On the merits, we hold that if the receiver of a depository institution makes its request under section 1821(d)(12)(A)(ii) within 90 days of its appointment, the district court then must stay the litigation until those 90 days after appointment have expired. That is, the district court has no discretion to decline a section 1821(d)(12) stay request based on alleged irreparable harm to other parties, but the court should not grant a section 1821(d)(12) stay lasting beyond 90 days after the receiver's appointment.


The material facts in this case are few and basically undisputed. On March 23, 1988, Colonial Savings Bank ("Colonial Savings"), a savings and loan institution, loaned $1.8 million to Praxis Properties, Inc. ("Praxis") and Dynamic Industries, Inc. ("Dynamic").*fn1 As partial security for this loan, Praxis gave Colonial Savings a $1 million mortgage on property it owned in West Long Branch, New Jersey. Sometime later, Praxis and Dynamic began to negotiate with Colonial Savings to modify the loan transaction and to release the collateral owned by Praxis. During those negotiations, but before a modification agreement was consummated, Colonial Savings failed.

On November 8, 1989, the Office of Thrift Supervision ("OTS") declared Colonial Savings insolvent and chartered Colonial Federal Savings Association ("Colonial Federal") as a federal "bridge" savings association under sections 301 and 501 of FIRREA. The next day, OTS appointed the Resolution Trust Corporation ("RTC") as receiver of Colonial Savings and conservator of Colonial Federal. RTC in its capacity as receiver of Colonial Savings then reached a "purchase and assumption" agreement with Colonial Federal whereby Colonial Federal purchased Colonial Savings's assets and assumed certain Colonial Savings liabilities. Among the assets that Colonial Federal purchased was Praxis's mortgage note.

Shortly after RTC's appointment as receiver and conservator, Praxis demanded that RTC release the mortgage note encumbering its property in West Long Branch. This demand precipitated extensive negotiations and discussions between RTC and Praxis, which proved unfruitful. On March 27, 1990, because RTC refused to relinquish Praxis's mortgage note, Praxis brought an action in the Superior Court of New Jersey to enforce its putative right to obtain the release. RTC then removed the action to the district court for the District of New Jersey under 12 U.S.C.A. § 1819(b)(2)(B) (West 1989).*fn2 In its capacity as both receiver of Colonial Savings and conservator of Colonial Federal, RTC also requested that the district court stay the action pursuant to 12 U.S.C.A. § 1821(d)(12) for 90 days running from the date of removal.

The district court heard oral argument concerning RTC's entitlement under section 1821(d)(12) to a 90-day stay. RTC argued that section 1821(d)(12) imposed on the district court an obligation to grant a stay for a full 90 days once requested by a receiver of an insured depository institution. In contrast, Praxis asserted that the district court was not bound to grant the requested stay. The stay provision, Praxis contended, was included in FIRREA to afford an appointed receiver (or conservator) "breathing room" to determine how best to proceed with litigation pending at the time of the receiver's appointment. In this case, Praxis observed, RTC was appointed receiver of Colonial Savings a full four months before the state-court litigation was initiated, and discussions between the parties concerning RTC's supposed obligation to release Praxis's mortgage note had been ongoing for months. Therefore, Praxis argued, the stay was not mandatory and should not be granted.

The district court was impressed equally by both parties' arguments:

The legislative history makes clear that the purpose of the stay is to enable the RTC to familiarize itself with the factual and legal controversy into which it has been drawn. In the instant case the RTC was aware of the controversy before the instant litigation was filed. However, this court takes seriously the mandatory language of the statute.

The court thus opted to split the difference between the parties' positions. It granted RTC's motion for a stay, but limited the stay to 45 days:

While the court will grant [RTC's] motion for entry of a stay, the stay . . . will be limited for a period of 45 days. This appears to be consistent with the relevant statutory language and sufficiently protective of both parties.

Believing that it was entitled to a 90-day stay under section 1821(d)(12), RTC appealed the district court's order insofar as it limited the stay to 45 days.

While RTC's appeal was pending before this court, two noteworthy events occurred. First, the district court's 45-day stay lapsed, causing the litigation between RTC and Praxis to resume. Although RTC filed a brief with this court, Praxis, which no longer had any practical interest in RTC's entitlement to a 90-day stay under section 1821(d)(12), did not. We felt, however, that the issue presented by this appeal was difficult, and that its resolution by a court of appeals was extremely important to the efficient administration of Congress's Thrift Recovery Program, one of whose most expensive components is litigation. We accordingly appointed Susan Block-Lieb, Assistant Professor of Law at Seton Hall Law School in Newark, New Jersey, as amicus curiae to review the record and submissions thus far and to act as an advocate for the legal position previously advanced by Praxis.*fn3

Second, after the appointment of Professor Block-Lieb, RTC and Praxis settled the underlying lawsuit and stipulated to dismissal. According to the terms of the stipulation, Praxis agreed to pay RTC as receiver for Colonial Savings approximately $1.8 million in exchange for a discharge of Praxis's mortgage note. The parties, however, specifically excluded from the stipulation the issues raised in this appeal.


Before examining the merits of RTC's appeal, we must work our way through a complex jurisdictional maze. Although the issue was not flagged by the parties, we early on expressed concerns about the appealability of the district court's order. In response, RTC has advanced two alternative bases for our jurisdiction. It contends, initially, that the district court's order is immediately appealable under 28 U.S.C. § 1291 (1988) via the "collateral order doctrine." See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 69 S. Ct. 1221, 93 L. Ed. 1528 (1949).*fn4 RTC also asserts that we have jurisdiction pursuant to 28 U.S.C. § 1292(a)(2) (1988), which affords the courts of appeals jurisdiction over appeals from:

Interlocutory orders appointing receivers, or refusing orders to wind up receiverships or to take steps to accomplish the purposes thereof, such as directing sales or other disposals of property. . . .

For the reasons that follow, we find that the district court's order granting a limited 45-day stay and thereby rejecting the claimed mandatory 90-day stay is appealable under the collateral order doctrine. We therefore will not comment on the applicability of section 1292(a)(2) to this appeal.*fn5

In Cohen, the Supreme Court held that a "small class" of collateral orders are final and appealable under section 1291 even though they do not terminate the underlying litigation. 337 U.S. at 546. For an order to be appealable under Cohen 's collateral order doctrine, it must satisfy a three-pronged test:

First, the order must "conclusively determine the disputed question." Second, the order must "resolve an important issue completely separate from the merits of the action." Third and finally, the order must be "effectively unreviewable on appeal from a final judgment."

Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 276, 108 S. Ct. 1133, 99 L. Ed. 2d 296 (1988) (citations omitted). If the order at issue fails to satisfy any one of the above requirements, it is not an appealable collateral order. 485 U.S. at 276. In addition, the collateral order doctrine has always been construed narrowly by this court, "'lest the exception swallow up the salutary general rule' that only final orders may be appealed." Yakowicz v. Pennsylvania, 683 F.2d 778, 783 n.10 (3d Cir. 1982) (quoting Rodgers v. United States Steel Corp., 541 F.2d 365, 369 (3d Cir. 1976)); see also Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 430, 105 S. Ct. 2757, 86 L. Ed. 2d 340 (1985) ("The collateral order doctrine is a 'narrow exception.'" (citation omitted)). We are nonetheless convinced that the district court's order granting a limited 45-day stay and rejecting the claimed mandatory 90-day stay meets each of the three requirements of the collateral order doctrine.

A. The "Conclusiveness" Prong

In determining whether a non-final order "conclusively determine[s] the disputed question," the Supreme Court has contrasted two types of orders: those that are "inherently tentative" and those that, "although technically amendable, are 'made with the expectation that they will be the final word on the subject addressed.'" Gulfstream Aerospace, 485 U.S. at 277, (citations omitted). Two of the leading Supreme Court cases on "conclusiveness" both involved appeals of district court orders deciding whether to grant Colorado River stays.*fn6 The contrast between them is instructive here.

The Court held in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983), that a district court order granting a Colorado River stay was expected to be the final word on the subject and thus satisfied the "conclusiveness" prong of Cohen. The Court noted that an order granting a Colorado River stay "necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case" because a district court can invoke Colorado River only if it first determines that the parallel state proceeding "will be an adequate vehicle for the complete and prompt resolution of the issues between the parties." 460 U.S. at 28. It thus concluded that there was no reason to suppose that the district court would reconsider its decision to grant the Colorado River stay. Id. at 12-13.

In contrast, the Supreme Court held in Gulfstream Aerospace that an order denying a motion to stay an action pursuant to Colorado River is "inherently tentative." The Court explained that a district court usually will expect to "revisit and reassess" an order denying a Colorado River stay in light of subsequent events that occur during the course of litigation:

A district court that denies a Colorado River motion does not "necessarily contemplate" that the decision will close the matter for all time. In denying such a motion, the district court may well have determined only that it should await further developments before concluding that the balance of factors to be considered under Colorado River warrants a dismissal or stay. . . . Thus, whereas the granting of a Colorado River motion necessarily implies an expectation that the state court will resolve the dispute, the denial of such a motion may indicate nothing more than that the district court is not completely confident of the propriety of a stay or dismissal at that time.

485 U.S. at 278 (citation omitted). Because an order denying a Colorado River stay is not "made with the expectation that it will be the final word on the subject addressed," the Court concluded that it is not immediately appealable. Id.

Praxis submits that the district court's order granting a limited 45-day stay pursuant to 12 U.S.C.A. § 1821(d)(12) was "inherently tentative," much like the order denying a Colorado River stay in Gulfstream Aerospace. Praxis reasons that the district court's order does not preclude RTC from seeking a further stay on some other related ground. For example, Praxis points out that RTC is free to request a 180-day stay of this action under 12 U.S.C.A. § 1821(d)(5), (6), and (7) (West 1989) on the ground that FIRREA and principles of judicial economy require a claimant against a failed savings and loan institution to exhaust the administrative claims procedure established by those subparagraphs before resorting to the courts for relief. See Part IV (discussing FIRREA's exhaustion of administrative remedies requirement).*fn7 Because the district court could still reconsider RTC's entitlement to some kind of stay, Praxis maintains that the court did not expect its order staying the litigation for 45 days to be the "final word on the subject" of a stay.

We think that Praxis misconstrues the first prong of Cohen. Although the district court's order was not the "final word" on RTC's entitlement to a stay for any and all reasons, it did conclusively determine the discrete legal question that is the subject of this appeal: RTC's statutory right to 90-day stay under 12 U.S.C.A. § 1821(d)(12)(A)(ii). Once the district court granted a limited 45-day stay, RTC's entitlement to a 90-day stay under section 1821(d)(12) was for all intents and purposes finally resolved. We can perceive of no circumstances under which the district court would revisit the legal question that RTC now appeals to this court. Because the district court undoubtedly expected its order granting a limited 45-day stay to resolve forever RTC's right to a stay under section 1821(d)(12), we conclude that the "conclusiveness" prong of the collateral order doctrine is satisfied.

B. The "Importance/Separateness" Prong

Praxis also contends that the district court's order granting a 45-day stay and rejecting a 90-day stay does not "resolve an important issue completely separate from the merits of the action." In its submissions, however, Praxis has neglected the first half of the second prong of Cohen : whether RTC's appeal raises an "important issue." Because "the importance of the right asserted has always been a significant part of [the] collateral order doctrine," Lauro Lines S.R.L. v. Chasser, 490 U.S. 495, 502, 109 S. Ct. 1976, 104 L. Ed. 2d 548 (1989) (Scalia concurring), we must independently assure ourselves that the issue at bar is important enough to warrant an immediate appeal.

1. "Important Issue"

"The type of 'important issue[s'] that the 'completely separate from the merits' requirement encompasses are those that are important in a jurisprudential sense." Nemours Foundation v. Manganaro Corp., New England, 878 F.2d 98, 100 (3d Cir.1989). See also Lauro Lines, 490 U.S. at 503 (Scalia concurring) (the right at issue must be "sufficiently important to overcome the policies militating against interlocutory appeals"); Nixon v. Fitzgerald, 457 U.S. 731, 742, 102 S. Ct. 2690, 73 L. Ed. 2d 349 (1982) (" Cohen established that a collateral appeal of an interlocutory order must 'present a serious and unsettled question.'" (citation omitted)).

Whether section 1821(d)(12) obligates a district court to grant a receiver's request for a 90-day stay is a serious and unsettled question. The district courts have split over the nature of section 1821(d)(12). See Part V. Whereas some courts think that they must grant a receiver's request for a stay, others believe that section 1821(d)(12) is discretionary.*fn8 In addition, Congress has emphasized the importance of RTC's duties in reestablishing a firm foundation under the thrift industry. In so doing, Congress also recognized that RTC may find litigation stays necessary tools to facilitate fulfillment of that statutory mandate. Moreover, there is widespread public concern about the costs -- including legal costs -- of administering the thrift industry recovery program. See, for example, Comment, Is the Power of the RTC Unlimited? -- Federal Preemption of State Banking Law, 18 Fla. St. U. L. Rev. 995, 996 (1991) ("It was originally estimated that FIRREA would cost American taxpayers about $100 billion; however, recent estimates have ranged from a low of $500 billion to a high of over $1 trillion."). With the district courts split and RTC's performance of its duties so vital to the economy, we conclude that this appeal presents an issue that is "important enough in a jurisprudential sense to require an immediate interlocutory appeal." Nemours Foundation, 878 F.2d at 101.

2. "Completely Separate From the Merits"

The "separateness" requirement derives from "the principle that there should not be piecemeal review of 'steps towards final judgment in which they will merge.'" Moses H. Cone, 460 U.S. at 12 n.13 (citation omitted). As the Supreme Court observed in Van Cauwenberghe v. Biard, 486 U.S. 517, 527-28, 108 S. Ct. 1945, 100 L. Ed. 2d 517 (1988), "allowing appeals from interlocutory orders that involve considerations enmeshed in the merits of the dispute would waste judicial resources by requiring repetitive appellate review of substantive questions in the case." Here, Praxis identifies several reasons why the court's stay order is not "completely separate from the merits" of the underlying action.

Praxis first argues that section 1821(d)(12) permits the district court to decline to grant a stay, if granting a stay would result in irreparable injury to the plaintiff. In reviewing the district court's finding of irreparable harm, Praxis maintains, the appellate court will inevitably be drawn into the merits of the action. This argument fails because, as we will explain below, it is premised on a misreading of the statute. See Part V.A. The controlling statutory language is unmistakably mandatory: If a receiver requests a stay in a timely fashion, the district court is required to grant it. Section 1821(d)(12)(B) affords a district court confronted with a timely motion for a stay no room to maneuver and to consider the possibility of irreparable injury. We therefore dismiss Praxis's first argument.

Praxis next points out that section 1821(d)(12) enables RTC to request a stay of up to 90 days only if RTC is acting in its capacity as receiver, rather than conservator, of an insured depository institution. To ascertain whether RTC is acting as receiver or conservator, Praxis contends, the district court -- and, on appeal, the court of appeals -- must consider aspects of the merits of the underlying suit. Similarly, Praxis asserts that section 1821(d)(12) limits the time period in which RTC may request a stay and that consideration of the timeliness of a request for a stay may immerse the reviewing court in the procedural history of the substantive dispute.

These arguments, though based on a correct reading of the statute, too must fail. Although we agree with Praxis that the district court must ascertain RTC's capacity and the timeliness of its request before granting a stay under section 1821(d)(12), we do not think that these determinations involve "considerations that are 'enmeshed in the factual and legal issues comprising the plaintiff's cause of action.'" Coopers & Lybrand v. Livesay, 437 U.S. 463, 469, 98 S. Ct. 2454, 57 L. Ed. 2d 351 (1978) (citation omitted). Rather, RTC's capacity and the timeliness of its request can be confirmed by a quick glance at the caption and at the date on which RTC was appointed. The reviewing court will not be thrust into the merits, as can be seen by contrasting these determinations with others that have been found inextricably intertwined with the merits.

For example, the Supreme Court concluded in Van Cauwenberghe that the denial of a motion to dismiss on forum non conveniens grounds was not separate from the merits. The Court stated that the district court in assessing a forum non conveniens motion must, among other things, "scrutinize the substance of the dispute between the parties to evaluate what proof is required." 486 U.S. at 528. Similarly, we held in Demenus v. Tinton 35 Inc., 873 F.2d 50, 52-53 (3d Cir.1989), that an order discharging a notice of lis pendens does not satisfy the "separateness" prong of Cohen. Applying the Van Cauwenberghe methodology, we concluded:

Because [the statute] requires the district court to determine the "probability that final judgment will be entered in favor of the plaintiff" in ruling on a motion to discharge a notice of lis pendens, we are indeed "thrust . . . into the merits of the underlying dispute" when we review a district court order ruling on such a motion.

Id. at 52 (citations omitted). Returning to this same issue in Nemours Foundation, we held that an order certifying questions to a state supreme court is not separate from the merits. We noted that before deciding to certify the questions, the district court had to review the status of state law and determine whether the state-law questions were of first impression. 878 F.2d at 100 (citation omitted).

In contrast, when section 1821(d)(12) is properly applied, the decision to grant or deny a stay does not require (or, indeed, allow) an incursion into the merits of the dispute. The district court need not "scrutinize the substance of the dispute" and "evaluate what proof is required." Nor must it determine the "probability" that the plaintiff will prevail on the merits or review the status of applicable law. Instead, under the statute's mandatory language, the district court's inquiry is rather constrained: The court must simply determine whether RTC is acting as receiver or conservator and whether its request was timely made. These determinations are sufficiently ancillary to the underlying action that the reviewing court need not become "enmeshed" in the merits of the dispute. In this case, for example, we note that the court's decision to grant ...

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