The depositor had several billion dollars deposited in three separate deposit accounts at the failed bank. Once the bank failed, the FDIC took over the process of liquidating the assets and ensuring depositors received the insured funds from the bank. During this process, the United States Secretary of the Treasury invoked the Systemic Risk Exception under 12 U.S.C. § 1823(c)(4)(G), which allows for the protection of uninsured deposits if it would mitigate serious financial problems. The Secretary of the Treasury also made “public statements that all deposits would be made available and all depositors would be made whole.” While mitigating the disaster, the government agencies set up a bridge bank to receive the failed bank’s deposits, both insured and uninsured. This transfer included the depositor’s funds, some of which it withdrew. However, the bridge bank began rejecting the depositor's transfers after the FDIC, acting in its receiver capacity (FDIC-R1), placed a hold on the depositor’s accounts. The bridge bank then assigned the depositor’s accounts to the FDIC-R1, which caused the depositor to lose access to a substantial amount of funds. Subsequently, the depositor filed for relief under Chapter 11 of the Bankruptcy Code and therefore operated as a debtor in possession. The depositor sent a letter to the FDIC in its corporate capacity (FDIC-C) demanding access to its uninsured funds, but the FDIC did not respond until several months later. The depositor then brought the following eight claims for relief against the FDIC-C: (1) declaratory judgment, (2) turnover of account funds, (3) violation of the automatic stay, (4) violation of the depositor’s Fifth Amendment due process rights, (5) violation of the Administrative Procedure Act, (6) review of the FDIC-C’s decision under the APA, (7) estoppel, and (8) violation of the Freedom of Information Act (FOIA). The FDIC responded with Rule 12(b)(1) and 12(b)(6) motions.
In SVB Fin. Grp. v. FDIC, No. 23-cv-06543-BLF, 2024 WL 3745009, 2024 U.S. Dist. LEXIS 141371 (N.D. Cal. Aug. 8, 2024) (opinion not yet released for publication), the Court granted in part and denied in part the FDIC’s motion to dismiss. First, the court addressed whether 12 U.S.C. § 1821(f) preempted any of the depositor’s claims. The FDIC-C argued that the depositor’s claims (excluding the FOIA claims and Count VI) were “demands for insurance coverage;” therefore, are preempted by § 1821(f) because the statute “encompasses any claim regarding insurance coverage.” The depositor argued that its claims are not for insurance coverage, rather, that when the Secretary of the Treasury invoked the Systemic Risk Exception, the FDIC was required to pay its uninsured deposits. The court agreed with the depositor that its claims were not for insurance coverage and, thus, were not pre-empted by § 1821(f). Further, the court could reasonably infer that the “invocation of the Systemic Risk Exception and actions taken pursuant to it did not change the characterization of deposits in excess of the statutory maximum as insured.” Therefore, the court dismissed the FDIC-C’s preemption argument. Second, the court addressed the plausibility of the depositor’s non-FOIA claims. The Court dismissed Count II, finding that the facts alleged by the depositor do not show that the FDIC-C had “possession, custody, or control” of the depositor’s deposit. Instead, the depositor’s claims stated that the FDIC-R1 was responsible for the bridge bank’s failure to turn over the deposits; “[h]owever, the FDIC-C and the FDIC-R1 are legally distinct entities;” thus, the depositor failed to state a claim against the FDIC-C. Similarly, the Court dismissed Count III because the depositor failed to show that the FDIC-C had possession of the depositor’s deposit liabilities. The court also found that the depositor failed to adequately allege that any of the FDIC-C’s actions violated the automatic stay provision, because the depositor “merely alleges that the FDIC-C has retained its property,” which does not violate § 362(a)(3). City of Chicago, Illinois v. Fulton, 592 U.S. 154, 156 (2021). The FDIC-C’s motion to dismiss Count IV was granted because the depositor failed to allege that it was deprived of a property interest by the FDIC-C because it was the FDIC-R1 that had placed the hold on the depositor’s accounts. The court also granted the FDIC-C’s motion to dismiss Count V because the depositor’s allegations of “purported policy pursuant to which it exercises discretion” is a “generalized complaint,” which failed to provide evidence of a “purported policy” that would constitute a final agency action. Next, the court denied the FDIC’s motion to dismiss Count VII. The court found there is a “general waiver of sovereign immunity from claims brought against the FDIC,” under 12 U.S.C. § 1819 (Fourth). Woodbridge Plaza v. Bank of Irvine, 815 F.2d 538, 542-43 (9th Cir. 1987). In addition, the court found that “promissory estoppel claims are meant to reach the FDIC.” The FDIC-C’s motion to dismiss Count I was granted concerning prejudgment interest and denied in all other respects. The court cited the “no-interest rule,” which explicitly denies the “award of interest separate from a general waiver of immunity to suit” without express congressional consent. Library of Congress v. Shaw, 478 U.S. 310, 314 (1986). Finally, the Court granted the FDIC-C’s motion to dismiss Count VIII because the depositor voluntarily withdrew its FOIA claim.
By Jace Brown: [email protected]
Edited By Hayden Mariott: [email protected]