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BURROUGHS v. COLONY FIRST FED. S&L ASSN.

June 27, 1994

JOHN F. BURROUGHS, THERESA M. BURROUGHS, Plaintiffs,
v.
COLONY FIRST FEDERAL SAVINGS & LOAN ASSOCIATION, aka FIRST FEDERAL OF WESTERN PENNSYLVANIA, INC., KNUTSON MORTGAGE CORPORATION, RESOLUTION TRUST CORPORATION, Defendants.



The opinion of the court was delivered by: MAURICE B. COHILL, JR.

 Before the Court is a Motion to Dismiss filed by defendant Resolution Trust Corporation (RTC), receiver for Colony First Federal Savings and Loan Association (Colony). The motion is in response to a complaint filed by plaintiffs John F. Burroughs and Therese M. Burroughs.

 In this action, we are called on to decide whether those who are debtors at the time the RTC assumes control of their bank, and who later bring a claim against the RTC and its mortgage corporation, must exhaust administrative remedies prior to initiating litigation in court pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183. (1989) (codified as amended passim 12 U.S.C.).

 For the reasons below, we decide that such debtors must first exhaust FIRREA's administrative remedies. The RTC's motion to dismiss will be granted.

 I. Background

 On October 23, 1985, the plaintiffs borrowed the sum of $ 22,500.00 from Colony. Compl. P 6. As security for the loan, plaintiffs executed a properly-recorded mortgage in favor of Colony on the premises known as 2601 East Avenue, Erie, Pennsylvania. Compl. P 7. Subsequent to the execution of the mortgage, Colony became insolvent, and its operation was assumed by the RTC, a corporation wholly-owned by the federal government and created to assume control over financially-troubled savings and loan institutions. 12 U.S.C. § 1441a(b)(1), (3).

 After assuming control of Colony, the RTC obtained the services of defendant Knutson Mortgage Corporation (Knutson) as a servicing agency for plaintiffs' mortgage. Compl. P 9. On February 15, 1993, plaintiffs paid off the remainder of their mortgage by tendering a cashier's check in the amount of the payoff figure, $ 12,104.75, which Knutson endorsed. Compl. P 14; id. at Exs. D, E.

 According to the plaintiffs, the defendants failed to mark the formerly-outstanding mortgage as "satisfied," which plaintiffs allege was the reason they were denied a business line of credit for the business operated at 2601 East Avenue. Compl. P 17. As a consequence, plaintiffs brought a six-count complaint in the Court of Common Pleas, Erie County, Pennsylvania, which defendants properly removed to this Court pursuant to 28 U.S.C. § 1441 and 12 U.S.C. § 1819(b)(2)(B). The complaint seeks both legal and equitable remedies against the defendants. In response to the complaint, defendant RTC filed a motion to dismiss.

 II. Discussion

 In 1989, against the backdrop of what became popularly known as the "savings and loan crisis," Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA created the RTC, which essentially took over the role of the Federal Savings and Loan Insurance Corporation (FSLIC). Praxis Properties, Inc. v. Colonial Savings Bank, S.L.A., 947 F.2d 49, 62 (3d Cir. 1991). FIRREA sets forth a detailed and "comprehensive administrative procedure for adjudicating claims asserted against a failed depository institution." Id.; see also In re First City Nat'l Bank & Trust Co., 759 F. Supp. 1048, 1050-51 (S.D.N.Y. 1991).

 In an attempt to provide an orderly process for the anticipated multitude of claimants, Congress requires claimants first to exhaust their administrative remedies pursuant to FIRREA, 12 U.S.C. § 1821(d)(13)(D) prior to seeking judicial intervention. See H.R. Rep. No. 101-54(I), 101st Cong. 1st Sess. 1 at 419, reprinted in 1989 U.S.C.C.A.N. 86, 215 (noting that the purpose of the exhaustion requirement is to enable RTC "to dispose of the bulk of claims against failed financial institutions expeditiously and fairly"); see also Tuxedo Beach Club Corp. v. City Federal Sav. Bank, 737 F. Supp. 18, 20 (D.N.J. 1990) ("Congress has determined that these administrative procedures are the most efficient way to resolve the hundreds of claims with which a receiver might be confronted.")

 The exhaustion requirement in § 1821(d)(13)(D) provides:

 
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 Corporation has been appointed receiver, including assets which the ...

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