IN TI-lE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

MEDFORD DIVISION 

LOUIS LILLIS and SHIRLEY LILLIS, No. I: 14-cv-00867-CL 

Plaintiffs, 

REPORT & RECOMMENDATION 

V. 

NATIONAL CREDIT UNION 

ADMINISTRATION BOARD, as liquidating 

Agent of Chetco Federal Credit Union, 

Defendant. 

CLARKE, Magistrate Judge. 

PlaintitTs Louis and Shirley Lillis (collectively, "Plaintiffs") bring this breach of contract 

action against the National Credit Union Administration Board (the "Board"), the liquidating 

agent of the Chetco Federal Credit Union (the "Credit Union"). Currently before the Court is the 

Board's motion (#13) for dismissal of Plaintiffs' amended complaint (#12) under FED. R. C!v. P. 

12(b )(I) for lack of subject matter j uriscliction. For the reasons stated belovv, the Board's motion 

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(#13) should be GRANTED and Plaintiffs case should be dismissed without prejudice. 

Plaintiffs' request (#14) for a stay should be DENIED. 

BACKGROUND 

The Court assumes the following allegations are true for the limited purpose of ruling on 

Defendant's motion to dismiss. On December 31, 2013, the Board became the liquidating agent 

of the Credit Union. Am. Compl. ,[2. As liquidating agent, the Board succeeded to all rights of 

the Credit Union and its members with respect to the Credit Union's assets. Am. Compl. ,[2. 

On February 17, 2014, Plaintiffs and the Board entered into a Residential Real Estate 

Sale Agreement for real property located in Curry County, Oregon. Am. Compl. ,[ 6. As 

documented in the sales contract, the parties agreed to a price of $300,000.00 and a closing date 

of March 7, 2014. Am. Com pl. ~ 7. Plaintiffs complied with all conditions precedent to the 

closing and, on the day of closing, were ready to tender payment to the escrow agent. Am. 

Compl. ,[,[8-9. However, the Board refused to comply with the terms of the agreement and failed 

to deliver deed to and possession of the property to Plaintiffs. Am. Com pl. ,[1 0. 

STANDARD 

Pursuant to fED. R. Civ. P. 12(b)(l), the Court may dismiss a case for lack of subjectmatter jurisdiction. "[W]hen considering a motion to dismiss pursuant to Rule 12(b)(1) the 

district court is not restricted to the face of the pleadings, but may review any evidence, such as 

affidavits and testimony, to resolve factual disputes concerning the existence of jurisdiction." 

McCarthv v. United States, 850 F.2d 558, 560 (9th Cir. 1988); FED. R. Civ. P. 12(d). The 

plaintiff bears the burden of proving the Court has subject matter jurisdiction. Prescott v. United 

States, 973 F.2d 696, 70 I (9th Cir. 1992) ("plainti IT bears the burden of persuading the court that 

it has subject matter jurisdiction under the FTCA's general waiver of immunity"). 

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DISCUSSION 

Claims against the Board are governed by 12 U.S.C. § 1787. The Board asserts the Court 

lacks subject-matter jurisdiction over Plaintiffs' claims because Plaintiffs have not exhausted 

their administrative remedies under this stat'ute. Plaintiffs concede they have not availed 

themselves of the § 1787 administrative process but argue they need not do so because the 

process does not apply to their breach of contract claim against the Board. 

The text of§ 1787(b)(13)(D) plainly states that any claim that asserts a right to the asset 

of a failed credit union or challenges the Board's acts or omissions as liquidating agent is subject 

to exhaustion. See McCarthy v. FDIC, 348 F.3d I 075, I 077 (9th Cir. 2003) (analyzing the 

Financial Institutions Reform, Recovery, and Enforcement Act's ("FIRREA") identical language 

regarding claims against the Federal Deposit Insurance Corporation ("FDIC")). The provision 

broadly constrains judicial review. Unless the claimant completes the administrative claims 

process and secures jurisdiction as provided under 12 U.S.C. § 1787(b)(6): 

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 credit union for 

which the Board has been appointed liquidating agent, including assets 

which the Board may acquire from itself as such liquidating agent; or 

(ii) any claim relating to any act or omission of' such credit union or 

the Board as liquidating agent. 

I 2 U.S.C. § 1787(b)(13)(D) (emphasis added); 19..: at I 077-78 .. This requirement explicitly bars 

judicial review of unexhausted claims against the Board for its actions as liquidating agent. It is 

not limited to creditor's claims against the Credit Union or claims arising from events· that 

predate the Board's appointment.~ at 1077; Lafavette Fed. Credit Union v. Nat'! Credit Union 

Admin. 960 F.Supp. 999, 1004 (E.D. Va. 1997) (holding "Congress evinced no intention to 

differentiate between claimants" under § 1787 and noting plaintiffs' attempts to distinguish 

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between the Board and the Credit Union "highlighted a distinction without illustrating a 

difference."), afCd, 133 F.3d 915 (4th Cir. 1998). 

"Despite this broad language, the limitation on judicial intervention is not absolute." 

Sharpe v. F.D.I.C., 126 F.3d 1147, 1156 (9th Cir. 1997). The Ninth Circuit has recognized some 

exceptions to the strict exhaustion requirement for "special situations." McCarthv, 348 F.3d at 

1081. Most relevant to the case at hand, in Sharpe, 126 F.3d at 1157, the Ninth Circuit held that a 

cause of action raised by an aggrieved party to a contract breached by FDIC in its authority as 

receiver did not require exhaustion under a statutory scheme analogous to 12 U.S.C. § 1787. See 

Nat'! Credit Union Admin. Bel. v. Lormet Cmty. Feel. Credit Union, No. 1: I 0 CV 1964, 20 I 0 WL 

4806794, at *6 (N.D. Ohio Nov. 18, 201 0) ("The exhaustion requirements contained in FIRREA 

and FCUA are nearly identical."). The Sharpes were parties to a settlement agreement with a 

bank. Sharpe, 126 F.3d at 1150. Pursuant to the agreement, the Sharpes provided the bank with 

certain documents and the bank gave the Sharpes $510,000 in cashier's checks. ~ at 1151. 

Immediately after the transaction, the bank failed and the FDIC took over as receiver. ~ The 

FDIC took possession of the documents, and later recorded them, but refused to honor the 

cashier's checks.~ The Sharpes sued for breach of contract which the FDIC maintained was an 

administrative claim subject to exhaustion. ~ The Ninth Circuit held otherwise, noting 

"[n]othing in the statute addresses whether a cause of action by a party to a contract breached by 

the FDIC is considered a 'claim' for the purposes of the administrative exhaustion requirement." 

~at 1156. The Ninth Circuit concluded administrative exhaustion was not required and that the 

district court had jurisdiction over the Sharpes' claims.~ at 1157. 

The Ninth Circuit has called Sharpe "an unusual case" and limited its holding to its 

unique factual context. Meritage Homes ofNevacla. Inc. v. F.D.I.C., 753 F.3cl 819, 825 (9th Cir. 

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2014) ("[I]n McCarthy, we held that Sharpe is not controlling outside of its limited context. [] 

We reach the same conclusion here."); Deutsche Bank Nat. Trust Co. v. F.D.I.C., 744 F.3d 1124, 

1137 (9th Cir. 2014) ("We, therefore, hold that Sharpe was limited to its particular facts."); 

McCarthy, 348 F.3d at I 078 ("Sharpe was an unusual case."). The present case's facts depart 

from Sharpe's in two key respects. Jafari v. F.D.I.C., No. 12CVI971-LAB RBB, 2012 WL 

3637288, at *5 (S.D. Cal. Aug. 22, 2012) (district court distinguished facts in breach of contract 

claim from Sharpe). First, Sharpe involved a pre-receivership contract whereas Plaintiffs' claims 

arise from a post-receivership contract. The Ninth Circuit's McCarthy decision highlights the 

importance of this distinction. In Sharpe, the Ninth Circuit was concerned that "if merely 

breaching a contract \Vere to make the Sharpes' creditors subject to the claims process, the FDIC 

'would be free to breach any pre-receivership contract, keep the benefit of the bargain, and then 

escape the consequences by hiding behind the FIRREA claims process.'" McCarthy, 348 F.3d at 

I 078 (emphasis added). However, the Ninth Circuit did not extend this concern to breaches of 

post-receivership contracts. Instead, the McCarthy court held "1/J}ost-receivership claims arising 

out of acts by the receiver as well as by the failed institution" are "subject to exhaustion." & at 

I 081 (emphasis added). Second, the aggrieved party in Sharpe fully performed the contract 

whereas, here, neither party performed. In McCarthy, the Ninth Circuit explained the Sharpe 

decision "turned on the claimants being aggrieved parties to a contract that the FDIC had not 

repudiated." & at I 078 (emphasis added). The breach of contract was not an administrative 

claim subject to exhaustion because "the Sharpes were neither creditors nor debtors, but parties 

to a contract they fully performed." & Because the facts in this case are not strictly analogous to 

those explored in Sharpe, Sharpe's exception to the administrative process is inapplicable. 

Plaintiffs have failed to avail themselves of § 1787's administrative process or otherwise 

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establish that the Court has jurisdiction over their claims. Accordingly, Defendant's motion to 

dismiss should be granted. 

In the event the Court grants Defendant's motion, Plaintiffs ask this court to stay the 

current action. The U.S. Supreme Court instructs courts to construe statutes affecting federal 

jurisdiction "both with precision and with fidelity to the terms by which Congress has expressed 

its wishes." Cheng Fan Kwok v. INS, 392 U.S. 206,212 (1968). 12 U.S.C. § 1787(b)(13) 

specifically mandates the exhaustion of administrative remedies as a prerequisite to this Court's 

jurisdiction. In the face of this clear directive, this Court does not have jurisdiction to stay rather 

than dismiss Plaintiffs' claims. See Schimsky v. U.S. Office of Personnel Management, 403 

F.App'x 150, 151 (9th Cir. 201 0) (holding district court had discretion to stay rather than dismiss 

the action because the exhaustion requirement was created by agency regulations, not statute, 

and thus was non-jurisdictional); Intercontinental Travel MarketinQ. Inc. v. F.D.I.C., 45 F.3d 

1278, 1284 (9th Cir. 1994) (holding "[t]he district court properly found FIRREA's exhaustion 

requirement mandatory and dismissed ITM's case for lack of subject matter jurisdiction."). 

Therefore, the Court should deny Plaintiffs' request to stay litigation for the pendency of the 

administrative proceedings. 

RI~COMMENDATlON 

For the reasons stated above, Defendant's motion to dismiss (#13) should be GRANTED 

without prejudice and Plaintiffs' request to stay proceedings(# 14) should be DENIED. · 

This Report and Recommendation will be referred to a district judge. Objections, if any, 

arc due no later than fourteen ( 14) clays after the date this recommendation is filed. FED. R. Civ. 

I I I 

I I I 

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P. 72. If objections are filed, any response is due within fourteen (14) days after being served 

with a copy of the objections. ld. 

United States Magistrate Judge 

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