Receivership, Liquidations and Voluntary Administration (VA)
presents FDIC Receivership: Legal Considerations for Banks...
Transcript of presents FDIC Receivership: Legal Considerations for Banks...
presents
FDIC Receivership: Legal Considerations for Banks and Their Stakeholders
presents
Dealing with the FDIC's Special Powers in Claims Processing and Litigation
A Live 90-Minute Teleconference/Webinar with Interactive Q&A
Today's panel features:John L. Douglas, Partner, Davis Polk, New York
Dennis S. Klein, Partner, Hughes Hubbard & Reed, Washington, D.C.Ronald R Glancz Partner Venable Washington D CRonald R. Glancz, Partner, Venable, Washington, D.C.
Thursday, August 19, 2010
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Presented byJohn L DouglasJohn L. DouglasPartner
August 2010August 2010
Davis Polk & Wardwell LLP
FDIC Receivership: Legal Considerations for Banks and their Shareholders
FDIC As Receiver or Conservator: Grounds
Grounds for receivership or conservatorship include:p p
Assets insufficient for obligations
Undercapitalizationp
Liquidity
Unsafe or unsound conditionUnsafe or unsound condition
Willful violation of a cease-and-desist order
Violations of lawViolations of law
See 12 USC 1821(c)(5)
Note: Charterer closes; FDIC “receives” (or “conserves”)5
Note: Charterer closes; FDIC receives (or conserves )
FDIC as Receiver or Conservator: Impact
The Corporation shall, as conservator or receiver, and by p yoperation of law, succeed to— all rights, titles, powers, and privileges of the insured depository
i tit ti d f t kh ld b th ldinstitution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution; and
title to the books, records, and assets of any previous conservator or other legal custodian of such institution.
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FDIC as Receiver or Conservator: Differences
Conservator The Corporation may, as conservator, take such action as may be— necessary to put the insured depository institution in a sound and solvent condition;
and
appropriate to carry on the business of the institution and preserve and conserve the assets and property of the institution.
Receiver The Corporation may as receiver, place the insured depository institution in liquidation and proceed to realize upon the
assets of the institution, having due regard to the conditions of credit in the locality., g g y
with respect to any insured depository institution, organize a new depository institution under subsection (m) or a bridge depository institution under subsection (n).
7
FDIC as Receiver: What it Does in Practice
Evaluates the business
Determines the appropriate liquidation structure
Determines, in conjunction with other regulators, qualified bidders
Assures that all insured depositors will be fully protected Assures that all insured depositors will be fully protected
Conducts an auction for that portion of the business it determines appropriate Deposits (insured, with the option of uninsured)
Assets (cash, securities, loans (with or without loss protection) with options to purchase other assets
Liquidates remaining assets
Applies proceeds against valid claims in accordance with statutory priorities
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priorities
FDIC as Receiver: The P&A Transaction
FDIC offers a balance sheet to an acquirer whereby it: Permits the acquirer to “purchase” offered assets and
Permits the acquirer to “assume” deposit liabilities (insured or insured and uninsured
There are various financial aspects to the bidding process that require analysis Loss sharing percentages
Asset discounts
Deposit premiums
After the various bid aspects are evaluated, there will be some form of equity adjustment to bring the balance sheet to zero
Every transaction is a variation of the P&A
FDIC d b l t t t t b t bid i FDIC governed by least cost test – so best bid wins
Must submit a conforming bid; may submit non-conforming bids
9
FDIC as Receiver: Statutory Constraints
Must abide by “least cost resolution” testy
Cannot provide assistance to shareholders or non-deposit creditors
Accordingly, “open bank assistance” limited to systemically important cases Citi; offered to BofA
Basis for the TAG and TLGP programs
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FDIC as Receiver: Asset Dispositions
With or without loss sharing
Loss sharing percentages now subject to bidding
Loss sharing designed to enhance recoveries and align incentives
If not sold at time of failure, will be sold later
Assets sold with loss sharing come with FDIC oversight
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FDIC as Receiver: Statutory Priorities
Amounts realized from the liquidation or other resolution of any insured depository institution by any receiver appointed for such institution shall be distributed to pay claims (other than secured claims to the extent of any such security) in the following order of priority:(i) Administrative expenses of the receiver.
(ii) Any deposit liability of the institution.
(iii) Any other general or senior liability of the institution (which is not a liability(iii) Any other general or senior liability of the institution (which is not a liability described in clauses (iv) or (v)).
(iv) Any obligation subordinated to depositors or general creditors (which is not an obligation described in clause (v))not an obligation described in clause (v))
(v) Any obligation to shareholders or members arising (including any depository institution holding company or any shareholder or creditor of such company)
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such company).
FDIC as Receiver: Impact of the Priorities
Secured Creditors will be paid in full up to the value of the security
FDIC recovers its administrative expenses off the top
Insured depositors are always protected, but to the extent the FDIC has to pay for the protection it is subrogated to their claim to thehas to pay for the protection, it is subrogated to their claim to the assets
FDIC shares its loss with uninsured depositors
Only if the FDIC is repaid in full will general creditors receive any payment
It is extremely rare that subordinated creditors or equity holders get It is extremely rare that subordinated creditors or equity holders get paid – but it is not unheard of
If the FDIC is anticipating a loss, general creditors should be skeptical
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of any recovery
FDIC as Conservator or Receiver: Claims Process
FDIC must give notice to all potential claimantsg p
Claimants have 90 days to submit claims to the agency
Agency has 180 days to considerg y y
After 180 days, or after FDIC rules on the claim (whichever occurs first), the claimant has 60 days to seek de novo judicial review
If you win, you likely get a “receivership certificate” Beware of the empty receivership
You may want to see if you can find a theory for a claim outside the receivership context
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the receivership context
FDIC as Receiver: Contingent Claims
FDIC generally takes the position that claims must be g y pdetermined and be determinable as of the date of the receivership
This has the impact of cutting off certain types of contingent claims St db l tt f dit ( d t i l l tt f Standby letters of credit (as opposed to commercial letters of
credit)
This is closely tied to repudiation powers that Dennis Klein will discuss
This issue is not settled and certain (e.g., breaches of warranties and representations in loan sales late arising claims)
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and representations in loan sales, late arising claims)
FDIC Receivership: L l C id ti f B k
FDIC Receivership: L l C id ti f B k Legal Considerations for Banks
and Their StakeholdersLegal Considerations for Banks
and Their Stakeholders
Dennis KleinPartnerHughes Hubbard & Reed LLP
Dennis KleinPartnerHughes Hubbard & Reed LLPgAugust 19, 2010
gAugust 19, 2010
OverviewOverview
FDIC’s Role in Liquidation of Failed BanksFDIC’s Role in Liquidation of Failed BanksFDIC s Role in Liquidation of Failed Banks• Three Special Powers
FDIC s Role in Liquidation of Failed Banks• Three Special Powers
Litigation Issues• Mandatory Stay of Litigation
Litigation Issues• Mandatory Stay of Litigation
• Federal Question Jurisdiction
• Removal to Federal Court
• Federal Question Jurisdiction
• Removal to Federal Court • Removal to Federal Court • Removal to Federal Court
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FDIC’s Special PowersFDIC’s Special Powerspp
1. Disregarding Unenforceable Agreements
2 Contract Enforcement and ipso facto Clauses
1. Disregarding Unenforceable Agreements
2 Contract Enforcement and ipso facto Clauses2. Contract Enforcement and ipso facto Clauses
3. Contract Repudiation and Damages
2. Contract Enforcement and ipso facto Clauses
3. Contract Repudiation and Damagesp gp g
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First Power: Disregarding f bl
First Power: Disregarding f blUnenforceable AgreementsUnenforceable Agreements
• FDIC has broad discretion to disregard unenforceable agreements• FDIC has broad discretion to disregard unenforceable agreements• FDIC has broad discretion to disregard unenforceable agreements.
• This power began with the D’Oench1 doctrine, which “provides that a party who lends himself or herself to a scheme or arrangement that
• FDIC has broad discretion to disregard unenforceable agreements.
• This power began with the D’Oench1 doctrine, which “provides that a party who lends himself or herself to a scheme or arrangement that would tend to mislead the banking authorities cannot assert defenses and/or claims based on that scheme or arrangement.”2
• Congress codified and expanded upon this doctrine in 1950 under 12
would tend to mislead the banking authorities cannot assert defenses and/or claims based on that scheme or arrangement.”2
• Congress codified and expanded upon this doctrine in 1950 under 12 Congress codified and expanded upon this doctrine in 1950 under 12 U.S.C. 1823(e) to bar defenses to collection of assets by the FDIC.3
1. D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942).
2. FDIC’s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As Receiver or
Congress codified and expanded upon this doctrine in 1950 under 12 U.S.C. 1823(e) to bar defenses to collection of assets by the FDIC.3
1. D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942).
2. FDIC’s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As Receiver ory g g y g ,Corporate Liquidator, Against Unrecorded Agreements or Arrangements of a Depository Institution Prior toReceivership of Feb. 10, 1997 (62 FR 5984).
3. See id.
y g g y g ,Corporate Liquidator, Against Unrecorded Agreements or Arrangements of a Depository Institution Prior toReceivership of Feb. 10, 1997 (62 FR 5984).
3. See id.
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Agreements Against Agreements Against g gthe Interests of the FDIC
g gthe Interests of the FDIC
“No agreement which tends to diminish or defeat the interest of the Corporation in any “No agreement which tends to diminish or defeat the interest of the Corporation in any No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement—
(A) i i iti
No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it under this section or section 1821 of this title, either as security for a loan or by purchase or as receiver of any insured depository institution, shall be valid against the Corporation unless such agreement—
(A) i i iti (A) is in writing, (B) was executed by the depository institution and any person claiming an adverse
interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,
(A) is in writing, (B) was executed by the depository institution and any person claiming an adverse
interest thereunder, including the obligor, contemporaneously with the acquisition of the asset by the depository institution,
(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and
(D) has been continuously from the time of its execution an official record of the
(C) was approved by the board of directors of the depository institution or its loan committee, which approval shall be reflected in the minutes of said board or committee, and
(D) has been continuously from the time of its execution an official record of the (D) has been, continuously, from the time of its execution, an official record of the depository institution.”1
1. 12 U.S.C. 1823(e)(1).
(D) has been, continuously, from the time of its execution, an official record of the depository institution.”1
1. 12 U.S.C. 1823(e)(1).
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Effect of FIRREAEffect of FIRREAEffect of FIRREAEffect of FIRREA• Enactment of FIRREA added section 12 U.S.C. 1821(d)(9)(A),
which states that “any agreement which does not meet the • Enactment of FIRREA added section 12 U.S.C. 1821(d)(9)(A),
which states that “any agreement which does not meet the which states that, any agreement which does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the receiver or the Corporation.”
which states that, any agreement which does not meet the requirements set forth in section 1823(e) of this title shall not form the basis of, or substantially comprise, a claim against the receiver or the Corporation.”receiver or the Corporation.
• The purpose of this section is to bar affirmative claims against the FDIC.1
receiver or the Corporation.
• The purpose of this section is to bar affirmative claims against the FDIC.1
• Applies to claims beginning August 1989 and onwards; does not apply retroactively.2
1. See FDIC’s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As
• Applies to claims beginning August 1989 and onwards; does not apply retroactively.2
1. See FDIC’s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As 1. See FDIC s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As Receiver or Corporate Liquidator, Against Unrecorded Agreements or Arrangements of a Depository Institution Prior to Receivership of Feb. 10, 1997 (62 FR 5984).
2. See Landgraf v. USI Film Products, 511 U.S. 244 (1994).
1. See FDIC s Statement of Policy Regarding Federal Common Law and Statutory Provisions Protecting FDIC, As Receiver or Corporate Liquidator, Against Unrecorded Agreements or Arrangements of a Depository Institution Prior to Receivership of Feb. 10, 1997 (62 FR 5984).
2. See Landgraf v. USI Film Products, 511 U.S. 244 (1994).
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Second Power: Contract Enforcement d i f t Cl
Second Power: Contract Enforcement d i f t Cland ipso facto Clausesand ipso facto Clauses
• Congress granted to the FDIC, as conservator or receiver, the power to “enforce any contract entered into by the depository
• Congress granted to the FDIC, as conservator or receiver, the power to “enforce any contract entered into by the depository to, enforce any contract . . . entered into by the depository institution notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of or the exercise
to, enforce any contract . . . entered into by the depository institution notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of or the exercise y y y ppof rights or powers by a conservator or receiver.”1
• Congress grants to the FDIC the power to continue enforcement of any contract without regard to an ipso facto clause contained therein.
y y y ppof rights or powers by a conservator or receiver.”1
• Congress grants to the FDIC the power to continue enforcement of any contract without regard to an ipso facto clause contained therein.any contract without regard to an ipso facto clause contained therein.
• Therefore, a party to a contract in which the FDIC has been appointed receiver or conservator cannot exercise its contractual rights under an otherwise valid ipso facto clause
any contract without regard to an ipso facto clause contained therein.
• Therefore, a party to a contract in which the FDIC has been appointed receiver or conservator cannot exercise its contractual rights under an otherwise valid ipso facto clauserights under an otherwise valid ipso facto clause.
1. FIRREA § 212(e) (12 U.S.C. 1821(e)(13)(A)).
rights under an otherwise valid ipso facto clause.
1. FIRREA § 212(e) (12 U.S.C. 1821(e)(13)(A)).
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ExceptionsExceptionspp• An ipso facto clause retains its force in case of the following:
director’s or officer’s liability insurance contract or a depository
• An ipso facto clause retains its force in case of the following: director’s or officer’s liability insurance contract or a depository director s or officer s liability insurance contract or a depository
institution bond; the rights of parties to certain qualified financial contracts in
receivership;1
director s or officer s liability insurance contract or a depository institution bond;
the rights of parties to certain qualified financial contracts in receivership;1p
the rights of parties to netting contracts.2
• Despite the FDIC’s contract enforcement power, Congress did not i t d f th FDIC t b itt d “t f il t l ith
p the rights of parties to netting contracts.2
• Despite the FDIC’s contract enforcement power, Congress did not i t d f th FDIC t b itt d “t f il t l ith intend for the FDIC to be permitted, “to fail to comply with otherwise enforceable provisions of [a] contract.”3
1 See 12 U S C 1821(e)(8)
intend for the FDIC to be permitted, “to fail to comply with otherwise enforceable provisions of [a] contract.”3
1 See 12 U S C 1821(e)(8)1. See 12 U.S.C. 1821(e)(8).
2. Pursuant to subtitle A of title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401 et seq.)
3. 12 U.S.C. 1821(e)(13)(C)(ii).
1. See 12 U.S.C. 1821(e)(8).
2. Pursuant to subtitle A of title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4401 et seq.)
3. 12 U.S.C. 1821(e)(13)(C)(ii).
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Third Power: Third Power: Third Power: Contract RepudiationThird Power: Contract RepudiationCONTRACT
• Congress grants to FDIC the discretion to repudiate contracts that the FDIC deems too burdensome 1
• Congress grants to FDIC the discretion to repudiate contracts that the FDIC deems too burdensome 1contracts that the FDIC deems too burdensome.
• There is no specific statutory definition for what constitutes a sufficient burden.
contracts that the FDIC deems too burdensome.• There is no specific statutory definition for what constitutes
a sufficient burden.• This power applies to contracts and leases.2 This power
applies to executory and non-executory contracts.• This power applies to contracts and leases.2 This power
applies to executory and non-executory contracts.
1. See FIRREA § 212(e) (12 U.S.C. 1821(e)(1)).
2. RTC v. Diamond, 45 F.3d 665, 672 (2nd Cir. 1995).
1. See FIRREA § 212(e) (12 U.S.C. 1821(e)(1)).
2. RTC v. Diamond, 45 F.3d 665, 672 (2nd Cir. 1995).
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Authority to Repudiate ContractsAuthority to Repudiate Contractsy py p
“In addition to any other rights a conservator or receiver may have, the “In addition to any other rights a conservator or receiver may have, the conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease—
(A) to which such institution is a party;
conservator or receiver for any insured depository institution may disaffirm or repudiate any contract or lease—
(A) to which such institution is a party; (B) the performance of which the conservator or receiver, in the
conservator’s or receiver’s discretion, determines to be burdensome; and
(B) the performance of which the conservator or receiver, in the conservator’s or receiver’s discretion, determines to be burdensome; and
(C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator’s or receiver’s discretion, will promote the orderly administration of the institution’s affairs.”1
(C) the disaffirmance or repudiation of which the conservator or receiver determines, in the conservator’s or receiver’s discretion, will promote the orderly administration of the institution’s affairs.”1
1. FIRREA § 212(e) (12 U.S.C. 1821(e)(1)).1. FIRREA § 212(e) (12 U.S.C. 1821(e)(1)).
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TimingTiminggg
• FDIC must repudiate within a reasonable time of its • FDIC must repudiate within a reasonable time of its • FDIC must repudiate within a reasonable time of its appointment as receiver or conservator.
• Some courts have held repudiation within 90 days of FDIC’s 1
• FDIC must repudiate within a reasonable time of its appointment as receiver or conservator.
• Some courts have held repudiation within 90 days of FDIC’s 1appointment to be reasonable.1
• Other courts have found the reasonableness of the timing for repudiation should be based on the facts and particular
appointment to be reasonable.1
• Other courts have found the reasonableness of the timing for repudiation should be based on the facts and particular repudiation should be based on the facts and particular circumstances of the case.2
1. 1185 Ave. of the Americas Associates v. RTC, 22 F.3d 494, 498 (2nd Cir. 1994).
repudiation should be based on the facts and particular circumstances of the case.2
1. 1185 Ave. of the Americas Associates v. RTC, 22 F.3d 494, 498 (2nd Cir. 1994).f , , ( )
2. See RTC v. CedarMinn Bldg. Ltd. Partnership, 956 F 2d 1446, 1455 (8th Cir. 1992); Central Buffalo Project Corp. v. FDIC, 29 F.Supp.2d 164, 170 (W.D.N.Y. 1998) (finding repudiation after 181 days unreasonable because no fact indicated repudiation could not have occurred earlier).
f , , ( )
2. See RTC v. CedarMinn Bldg. Ltd. Partnership, 956 F 2d 1446, 1455 (8th Cir. 1992); Central Buffalo Project Corp. v. FDIC, 29 F.Supp.2d 164, 170 (W.D.N.Y. 1998) (finding repudiation after 181 days unreasonable because no fact indicated repudiation could not have occurred earlier).
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Claims for Damages for Claims for Damages for gRepudiation
gRepudiation
• “In general the liability of the conservator or receiver for the disaffirmance or • “In general the liability of the conservator or receiver for the disaffirmance or In general . . . the liability of the conservator or receiver for the disaffirmance or repudiation of any contract . . . shall be—(i) limited to actual direct compensatory damages; and (ii) determined as of—(I) the date of the appointment of the conservator or receiver; or (II) in the case of any contract or agreement [for certain qualified financial contracts in receivership], the date of the disaffirmance or
In general . . . the liability of the conservator or receiver for the disaffirmance or repudiation of any contract . . . shall be—(i) limited to actual direct compensatory damages; and (ii) determined as of—(I) the date of the appointment of the conservator or receiver; or (II) in the case of any contract or agreement [for certain qualified financial contracts in receivership], the date of the disaffirmance or qualified financial contracts in receivership], the date of the disaffirmance or repudiation of such contract or agreement.”1
• Damages do not include, “(i) punitive or exemplary damages; (ii) damages for lost profits or opportunity; or (iii) damages for pain and suffering.”2
qualified financial contracts in receivership], the date of the disaffirmance or repudiation of such contract or agreement.”1
• Damages do not include, “(i) punitive or exemplary damages; (ii) damages for lost profits or opportunity; or (iii) damages for pain and suffering.”2
• For certain qualified financial contracts in receivership, “damages shall be deemed to include normal and reasonable costs of cover or other reasonable measures of damages utilized in the industries for such contract and agreement claims.”3
• For certain qualified financial contracts in receivership, “damages shall be deemed to include normal and reasonable costs of cover or other reasonable measures of damages utilized in the industries for such contract and agreement claims.”3
1. 12 U.S.C. 1821(e)(3)(A).
2. Id. at 1821(e)(3)(B).
3. Id. at 1821(e)(3)(C)(i).
1. 12 U.S.C. 1821(e)(3)(A).
2. Id. at 1821(e)(3)(B).
3. Id. at 1821(e)(3)(C)(i).
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Damages (cont.)Damages (cont.)g ( )g ( )
• “The damages are simply calculated ‘as of’ the appointment date ”1
• “The damages are simply calculated ‘as of’ the appointment date ”1date.
• The FDIC is also liable for damages on a lease, “if the conservator or receiver disaffirms or repudiates a lease under
2
date.
• The FDIC is also liable for damages on a lease, “if the conservator or receiver disaffirms or repudiates a lease under
2which the insured depository institution was the lessee.”2
• But, “the amount a lessor can claim is truncated . . . the lessor’sdamages claim is completely extinguished except for back
which the insured depository institution was the lessee.”2
• But, “the amount a lessor can claim is truncated . . . the lessor’sdamages claim is completely extinguished except for back damages claim is completely extinguished except for back rent.”3
1. FDIC v. Parkway Executive Office Center, 1998 WL 18204, *3 (E.D.Pa.). See Citibank, N.A. v. FDIC, 827 F. Supp.
damages claim is completely extinguished except for back rent.”3
1. FDIC v. Parkway Executive Office Center, 1998 WL 18204, *3 (E.D.Pa.). See Citibank, N.A. v. FDIC, 827 F. Supp. y ff , , ( ) , , pp789, 791 (D.D.C. 1993).
2. 12 U.S.C. 1821(e)(4).
3. Unisys Finance Corp. v. RTC, 979 F.2d 609, 611 (7th Cir. Ill. 1992).
y ff , , ( ) , , pp789, 791 (D.D.C. 1993).
2. 12 U.S.C. 1821(e)(4).
3. Unisys Finance Corp. v. RTC, 979 F.2d 609, 611 (7th Cir. Ill. 1992).
28
FDIC as Receiver: QFCs
The term "qualified financial contract" means any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar agreement that the Corporation determines by regulation, resolution or order to be a qualified financial contract
Congress imposed special rules dealing with QFCs because of their importance to the financial system and the need for predictabilityimportance to the financial system and the need for predictability upon insolvency
Rules are essentially equivalent to bankruptcy rules
29
FDIC as Receiver: QFCs (continued)
no walkaway clause shall be enforceable in a qualified financial contract of an insured depository institution in default
No person shall be stayed or prohibited from exercising— any right such person has to cause the termination liquidation or any right such person has to cause the termination, liquidation, or
acceleration of any qualified financial contract with a depository institution in a conservatorship based upon a default under such financial contract which is enforceable under applicable noninsolvency law;pp y ;
any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i);described in clause (i);
any right to offset or net out any termination values, payment amounts, or other transfer obligations arising under or in connection with such qualified financial contracts.
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qualified financial contracts.
FDIC as Receiver: QFCs (continued)
In dealing with QFCs, the FDIC shall either transfer to one financial institution— all qualified financial contracts between any person or any affiliate of such person
and the depository institution in default;
all claims of such person or any affiliate of such person against such depository institution under any such contract (other than any claim which, under the terms of any such contract, is subordinated to the claims of general unsecured creditors of such institution););
all claims of such depository institution against such person or any affiliate of such person under any such contract; and
all property securing or any other credit enhancement for any contract described in subclause (I) or any claim described in subclause (II) or (III) under any such contract; or
transfer none of the qualified financial contracts, claims, property or other
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credit enhancement referred to above
FDIC as Receiver: Securitizations
The FDIC shall not, by exercise of its authority to disaffirm or repudiate contracts under 12 U.S.C. 1821(e), reclaim, recover, or recharacterize as property of the institution or the receivership any financial assets transferred by an insured depository institution in connection with a securitization or participation provided that such transfer meets all conditions for saleparticipation, provided that such transfer meets all conditions for sale accounting treatment under generally accepted accounting principles, other than the "legal isolation" condition as it applies to institutions for which the FDIC may be appointed as conservator or receiver, which is addressed byFDIC may be appointed as conservator or receiver, which is addressed by this section. 12 CFR 360.6
This section shall not be construed as waiving, limiting, or otherwise affecting the power of the FDIC as conservator or receiver to disaffirm oraffecting the power of the FDIC, as conservator or receiver, to disaffirm or repudiate any agreement imposing continuing obligations or duties upon the insured depository institution in conservatorship or receivership.
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FDIC as Receiver: New Securitization Safe Harbor
Change in FAS (166, 167) substantially changed accounting treatment for securitization
FDIC i i t i fi l l df th d i l f i iti ti i d FDIC, in an interim final rule, grandfathered previously conforming securitizations issued pre-9/30/2009
FDIC, in May, announced a proposed safe harbor Designed in part to mitigate effects of a 2006 amendment to FDIA that imposed a 90-day stay on self-help
remedies
Many of the requirements are designed to assure higher quality securitizations, and have little to do with the legal underpinnings Risk retention
Arm’s length
Ordinary course, adequate consideration
Perfection of security interests
Disclosure
No unfunded or synthetic securitizations; must be based on actual performance of assets; limited use of derivatives (only interest rate and currency derivatives)
Special rules for residential mortgage-backed securities (limited credit support, loan level data, ability of servicer to engage in loss mitigation, deferred comp for rating agencies, etc.)
33
Dodd-Frank Orderly Liquidation Authority
Modeled after FDIA receivership powers
Limited to systemically important companies; bias against inclusion
FDIC with plenary powers to transfer assets, operate “bridge” corporations, etc.
Attempt to incorporate bankruptcy provisions in particularly important areas Contingent claims
D’Oench “lite”D Oench lite
Fraudulent conveyances, preferences
Creditors guaranteed amount would have received in Chapter 7 liquidation
Potential claw-back from creditors with excess recoveries
FDIC must promulgate rules; no mandatory timeframe
34
Primary Contact Information
CONTACTS PHONE CELL EMAIL
John L. Douglas
R d G
212 450 4145
212 450 4239
678 596 6971
646 413 5486
d ll @d i lkRandy Guynn
Reena Sahni
212 450 4239
212 450 4801
646 413 5486 [email protected]
35
John L. Douglas 202 962 7126 [email protected]
Mr. Douglas is a partner in our Financial Institutions Group, heading the firm’s bank regulatory practice and focusing on bank restructuring and resolutions and other issues arising from the current banking and financial crisis. He has been involved in some of the most difficult and sensitive matters during the crisis, including advising the boards of directors of Indymac and Bank United, counseling Citigroup with respect to FDIC matters, advising various parties on the fallout from the failure of Washington Mutual and advising various private equity firms on proposed investments in troubled or failed banks. He recently
t d FBR C it l M k t i th t St t B k/S it B k t tirepresented FBR Capital Markets in the recent State Bank/Security Banks transaction, where FBR raised $300 million to capitalize the six failed Security Banks ($3 BN in assets).
Mr. Douglas was appointed General Counsel of the Federal Deposit Insurance Corporation in 1987 and continued in that capacity through 1989. This was a period of unprecedented stress on the financial system, and he was involved in the major bank failures and restructurings of the late 1980s, participated in the landmark Financial Institutions Regulatory Reform and Restructuring Act of 1989 and assisted in the organization of the Resolution Trust Corporation.
Mr. Douglas is now regarded as one of the leading bank insolvency lawyers in the nation.
Bar Admission District of Columbia State of Georgia Education B.A., Economics, Davidson
College, 1972 J.D., University of Georgia, 1977
36
Davis Polk & Wardwell LLP
M d t St f Liti tiM d t St f Liti tiMandatory Stay of LitigationMandatory Stay of Litigation
• “After the appointment of a conservator or receiver for an insured depository institution, the conservator or receiver may request a stay . . . in any judicial action or proceeding to which such
• “After the appointment of a conservator or receiver for an insured depository institution, the conservator or receiver may request a stay . . . in any judicial action or proceeding to which such y y j p ginstitution is or becomes a party.”1
• No discretion is involved in the decision of whether to grant a request for a stay.
y y j p ginstitution is or becomes a party.”1
• No discretion is involved in the decision of whether to grant a request for a stay. q y
• “Grant of stay by all courts required . . . for a stay of any judicial action or proceeding in any court with jurisdiction of such action or proceeding the court shall grant such stay as to all parties ”2
q y• “Grant of stay by all courts required . . . for a stay of any judicial
action or proceeding in any court with jurisdiction of such action or proceeding the court shall grant such stay as to all parties ”2or proceeding, the court shall grant such stay as to all parties.
1. 12 U.S.C. 1821(d)(12)(A).
2. Id. at 1821(d)(12)(B).
or proceeding, the court shall grant such stay as to all parties.1. 12 U.S.C. 1821(d)(12)(A).
2. Id. at 1821(d)(12)(B).
37
Mandatory Stay (cont.)Mandatory Stay (cont.)y y ( )y y ( )
• Period of stay cannot exceed 45 days if the FDIC is • Period of stay cannot exceed 45 days if the FDIC is y yappointed conservator, and 90 days if the FDIC is appointed receiver.1
Th “‘ i i d ll h i
y yappointed conservator, and 90 days if the FDIC is appointed receiver.1
Th “‘ i i d ll h i • The “‘stay provision was enacted to allow the . . . receiver “breathing room” immediately following its appointment.’ This purpose suggests . . . to confine [the]
h h l d f ll
• The “‘stay provision was enacted to allow the . . . receiver “breathing room” immediately following its appointment.’ This purpose suggests . . . to confine [the]
h h l d f llright to request a stay to the initial period following . . . appointment, rather than to grant . . . a free time-out at any time during the litigation.”2
right to request a stay to the initial period following . . . appointment, rather than to grant . . . a free time-out at any time during the litigation.”2
1. 12 U.S.C. 1821(d)(12)(A).
2. Praxis Properties, Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49, 70 (3d Cir. 1991) (internal citations omitted).
1. 12 U.S.C. 1821(d)(12)(A).
2. Praxis Properties, Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49, 70 (3d Cir. 1991) (internal citations omitted).
38
Federal Question JurisdictionFederal Question JurisdictionFederal Question JurisdictionFederal Question Jurisdiction
• “[A]ll suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United
• “[A]ll suits of a civil nature at common law or in equity to which the [FDIC], in any capacity, is a party shall be deemed to arise under the laws of the United shall be deemed to arise under the laws of the United States.”1
• Therefore, federal district courts have original subject
shall be deemed to arise under the laws of the United States.”1
• Therefore, federal district courts have original subject Therefore, federal district courts have original subject matter jurisdiction over any case or controversy to which the FDIC is a party.
Therefore, federal district courts have original subject matter jurisdiction over any case or controversy to which the FDIC is a party.
1. 12 U.S.C. 1819 (b)(2)(A).1. 12 U.S.C. 1819 (b)(2)(A).
39
Removal to Federal CourtRemoval to Federal Court
• The FDIC has a the power to remove any action against it • The FDIC has a the power to remove any action against it p y gto federal court.
• The FDIC, “may, without bond or security, remove any i i di f S h
p y gto federal court.
• The FDIC, “may, without bond or security, remove any i i di f S h action, suit, or proceeding from a State court to the
appropriate United States district court before the end of the 90-day period beginning on the date the action, suit, or
d f l d h [ ] h [ ]
action, suit, or proceeding from a State court to the appropriate United States district court before the end of the 90-day period beginning on the date the action, suit, or
d f l d h [ ] h [ ]proceeding is filed against the [FDIC] or the [FDIC] is substituted as a party.”1proceeding is filed against the [FDIC] or the [FDIC] is substituted as a party.”1
1. 12 USC 1819(b)(2)(B).1. 12 USC 1819(b)(2)(B).
40
State Actions ExceptionState Actions Exceptionpp• If the following three requirements are met, the action will not be
considered to arise under the laws of the U.S.: “(i) the Corporation . . . as receiver of a State insured depository institution by the exclusive
• If the following three requirements are met, the action will not be considered to arise under the laws of the U.S.: “(i) the Corporation . . . as receiver of a State insured depository institution by the exclusive p y yappointment by State authorities, is a party other than as a plaintiff; (ii) [the action] involves only the preclosing rights against the State insured depository institution, or obligations owing to, depositors, creditors, or t kh ld b th St t i d d it i tit ti d (iii) l
p y yappointment by State authorities, is a party other than as a plaintiff; (ii) [the action] involves only the preclosing rights against the State insured depository institution, or obligations owing to, depositors, creditors, or t kh ld b th St t i d d it i tit ti d (iii) l stockholders by the State insured depository institution; and (iii) only
the interpretation of the law of such State is necessary.”1
• The above, “shall not be construed as limiting the right of the C ti t i k th j i di ti f U it d St t di t i t
stockholders by the State insured depository institution; and (iii) only the interpretation of the law of such State is necessary.”1
• The above, “shall not be construed as limiting the right of the C ti t i k th j i di ti f U it d St t di t i t Corporation to invoke the jurisdiction of any United States district court in any action . . . if the institution of which the Corporation has been appointed receiver could have invoked the jurisdiction of such court.”2
Corporation to invoke the jurisdiction of any United States district court in any action . . . if the institution of which the Corporation has been appointed receiver could have invoked the jurisdiction of such court.”2
1. 12 USC 1819(b)(2)(D).
2. Id. at (b)(2)(E).
1. 12 USC 1819(b)(2)(D).
2. Id. at (b)(2)(E).
41
ConclusionConclusionFDIC’s Three Special Powers in Liquidating Failed Banks:FDIC’s Three Special Powers in Liquidating Failed Banks:
• Disregarding Unenforceable Agreements
• Contract Enforcement and ipso facto Clauses
• Disregarding Unenforceable Agreements
• Contract Enforcement and ipso facto Clausesp f
• Contract Repudiation and Damages
FDIC’s Powers at the Litigation Stage:
p f
• Contract Repudiation and Damages
FDIC’s Powers at the Litigation Stage:FDIC s Powers at the Litigation Stage:• Mandatory Stay of Litigation
• Federal Question Jurisdiction
FDIC s Powers at the Litigation Stage:• Mandatory Stay of Litigation
• Federal Question Jurisdiction • Federal Question Jurisdiction
• Removal to Federal Court
• Federal Question Jurisdiction
• Removal to Federal Court
42
Questions?Questions?QQ
Dennis Klein
Hughes Hubbard & Reed LLP
Dennis Klein
Hughes Hubbard & Reed LLPHughes Hubbard & Reed LLP
(202) 721- 4710
Hughes Hubbard & Reed LLP
(202) 721- 4710
[email protected]@HughesHubbard.com
43
FDIC Receivership: Litigation Issues (continued)p g ( )
Presented by Ronald R GlanczRonald R. Glancz
Partner, Venable LLP
August 2010
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© 2008 Venable LLP
Applicable LawApplicable Law
Federal Deposit Insurance Act (FDIA) Federal Deposit Insurance Act (FDIA)
Financial Institution Reform, Recovery and Enforcement Act of 1989 (FIRREA)Enforcement Act of 1989 (FIRREA)
Atherton v. FDIC, 519 U.S. 213 (1997)– §1821(k) “provides only a floor” of gross– §1821(k) provides only a floor of gross
negligence for directors and officers; stricterstandards established by states will apply.
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© 2010 Venable LLP
Extension of Statute of LimitationsExtension of Statute of Limitations
12 U S C §1821(d)(14)(A): 12 U.S.C.§1821(d)(14)(A):– Contract Claims – Six years or period
applicable under state law, whichever is pplonger
– Tort Claims – Three years or period applicable under state law whichever isapplicable under state law, whichever is longer
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© 2010 Venable LLP
Extension of Statute of LimitationsExtension of Statute of Limitations
The clock begins to run on the date the FDIC is appointed The clock begins to run on the date the FDIC is appointed receiver/conservator or the date the cause of action accrues, whichever is later.
12 U S C §1821(d)(14)(B)12 U.S.C.§1821(d)(14)(B)
Unless the statute of limitations has expired prior to the appointment of the FDIC, an entirely new time period begins regardless of the existing statute of limitations. See, e.g., FDIC v. Henderson, 849 F. Supp. 495 (5th Cir. 1995)
A majority of jurisdictions hold that a cause of action involving a loan accrues at the time the loan is made, versus when the loan goes into default.
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© 2010 Venable LLP
Extension of Statute of LimitationsExtension of Statute of Limitations
Special Exception Tort claims arising from fraud or Special Exception – Tort claims arising from fraud or intentional misconduct that resulted in unjust enrichment or substantial loss to the institution are revived as long as the applicable statute expired less than five years before the FDIC’s appointment.
12 U S C §1821(d)(14)(C)– 12 U.S.C.§1821(d)(14)(C) Adverse Domination – State-specific. Not all states
recognize this claim, while others narrow its g ,application.
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© 2010 Venable LLP
Limitation on Claims and DefensesLimitation on Claims and Defenses
“[N]o court may take any action except at the “[N]o court may take any action, except at the request of the Board of Directors by regulation or order to restrain or affect the exercise of powersorder, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.”– 12 U.S.C.§1821(j)
Courts may not issue attachments or executions upon assets in the possession of the receiver.– 12 U.S.C.§1821(d)(13)(C)
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© 2010 Venable LLP
Limitation on Claims and DefensesLimitation on Claims and Defenses
Mitigation of Damages Mitigation of Damages– Defense not allowed in many states/courts. – See RTC v. Massachusetts Mut. Life Ins., 93See RTC v. Massachusetts Mut. Life Ins., 93
F. Supp. 2d 300 (W.D.N.Y. 2000) for discussion of the split among district courts over whether mitigation of damages is a viableover whether mitigation of damages is a viable defense to FDIC suits.
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© 2010 Venable LLP
Limitation on Claims and DefensesLimitation on Claims and Defenses
Tort Claims Against the FDIC Tort Claims Against the FDIC– Federal Tort Claims Act (FTCA) covers tort
claims for actions taken by FDIC as receiver. y28 U.S.C. 1346(b), 2401(b), 2671 et seq.
– Torts committed by the bank prior to receivership are not covered by the FTCAreceivership are not covered by the FTCA, even after the FDIC steps in.
– Requires exhaustion of administrative remediesremedies
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© 2010 Venable LLP
Limitation on Claims and DefensesLimitation on Claims and Defenses
Discretionary Function Exception: Discretionary-Function Exception:– Tort claims cannot be brought for “[a]ny claim
based upon an act or omission of an employee of the Government exercising due care in thethe Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation would be valid, or based upon the exercise or performance or the failure to
i f di ti f tiexercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.” 28 U.S.C.§2680(a) (emphasis added).
– U.S. v. Gaubert, 499 U.S. 315 (1991)
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© 2010 Venable LLP
Limitation on Claims and DefensesLimitation on Claims and Defenses
Shareholder Derivative and Direct ActionsShareholder Derivative and Direct Actions 12 U.S.C.§1821(d)(2)(A)(i) “grants the FDIC ownership
over all shareholder derivative claims against the B k’ ffi ” b “ h h ld d i tiBank’s officers” because “shareholder derivative actions ‘enforce a corporate cause of action,’ and any recovery is ‘in favor of the corporation.’” Lubin v. Sk 2010 WL 23 4141 (11 h Ci J 14 2010)Skow, 2010 WL 2354141 (11th Cir. June 14, 2010).
Shareholders may still bring direct, non-derivative actions, but some courts give FDIC claims priority. See, e.g., Gaff v. FDIC, 919 F.2d 384 (6th Cir. 1990).
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© 2010 Venable LLP
Actions Against Directors and Officers
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© 2010 Venable LLP
RoadmapRoadmap
Duty of CareA. Duty of Care
B. FDIC Guidance on Suits Against Directors and OfficersOfficers
C. Litigation Issues Regarding Independent/Outside Directors vs Inside DirectorsDirectors vs. Inside Directors
D. Reliance Defense
E The IndyMac Complaint A Preview of Things toE. The IndyMac Complaint – A Preview of Things to Come?
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Duty of Care 12 U S C §1821(k): 12 U.S.C.§1821(k):
A director or officer of an insured depository institution may be held personally liable for monetary damages in any civil
ti b b h lf f t th t di ti f thaction by, on behalf of, or at the request or direction of the Corporation, which action is prosecuted wholly or partially for the benefit of the Corporation . . . For gross negligence, i l di i il d t d t th t d t tincluding any similar conduct or conduct that demonstrates a greater disregard of a duty of care (than gross negligence) including intentional tortious conduct, as such terms are d fi d d d t i d d li bl St t l N thidefined and determined under applicable State law. Nothing in this paragraph shall impair or affect any right of the Corporation under other applicable law.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Duty of Care
Courts were split as to what law was Courts were split as to what law was authoritative: federal common law, state common law or§1821(k)law, or§1821(k).
Issue was settled in the 1997 Supreme Court case Atherton v. FDIC. 519 U.S. 213.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Duty of Care
Atherton v FDIC Atherton v. FDIC– “There is no federal common law that would
create a general standard of care applicable to g ppthese cases.” 519 U.S. at 226.
– “The statute’s ‘gross negligence’ standard provides only a floor – a guarantee thatprovides only a floor a guarantee that officers and directors must meet at least a gross negligence standard. It does not stand in the way of a stricter standard that the lawsin the way of a stricter standard that the laws of some states provide.” 519 U.S. at 227.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Duty of Care
The Post Atherton Duty of Care: The Post-Atherton Duty of Care:– State common law controls as long as the
standard is at least gross negligence.g g g Most states have now adopted the Business
Judgment Rule, which is typically based on the gross negligence standard.– Aronson v. Lewis, 473 A.2d 805, 812 (Del.
1984)1984)– FDIC v. Castetter, 184 F.3d 1040 (9th Cir.
1999) (discussing California law).
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Duty of Care
Business Judgment Rule Director/Officer must: Business Judgment Rule – Director/Officer must:– Act in good faith;– Be uninterested in the subject of the judgment;Be uninterested in the subject of the judgment;– Be appropriately informed as to the subject
matter involved; andR ti ll b li th t th j d t i i th– Rationally believe that the judgment is in the best interests of the company.
Aronson, 473 A.2d at 812. Specific state standard may vary slightly
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:FDIC Guidance
1992 FDIC Statement of Policy (included with 1992 FDIC Statement of Policy (included with handouts):Procedures to bring suitProcedures to bring suit1. Requires authorization by FDIC Board of
Directors2. Allow officers and directors to respond to
proposed charges and discuss settlement3. Lawsuit must be cost-effective
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:FDIC GuidanceThree principal categories for FDIC D&O suits:Three principal categories for FDIC D&O suits:1. Dishonest conduct or approved/condoned abusive
transactions with insiders
2. Responsibility for failure of institution to adhere to applicable laws, regulations, internal policies,
fsupervisory agreements or other safety or soundness violations
3 Failure to establish or monitor adherence to proper3. Failure to establish or monitor adherence to proper underwriting policies or knowledge or reason to know of improper underwriting policies
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© 2010 Venable LLP
D&O LitigationD&O Litigation
Prejudgment Attachments Prejudgment Attachments– The FDIC as receiver or conservator may
seek injunctive relief through “asset freezes” itho t sho ing that inj r loss or damage iswithout showing that injury, loss, or damage is
irreparable and immediate, as normally required by Federal Rule 65. 12 U S C §1821(d)(19)12 U.S.C.§1821(d)(19)
– The other requirements for injunctive relief (likelihood of success on the merits, balance of harms favors plaintiff no harm to publicof harms favors plaintiff, no harm to public interest) still must be met.12 U.S.C.§1821(d)(18)
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© 2010 Venable LLP
D&O Litigation:D&O Litigation: Inside vs. Independent Directors
Inside Director Officer of the institution or Inside Director – Officer of the institution or member of the control group. Typically has day-to-day responsibility for management of the bankto day responsibility for management of the bank.
Independent/Outside Director – No connection to bank other than the directorship. Typically do not p yp yparticipate in day-to-day business operations.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation: Inside vs. Independent DirectorsIndependent/Outside DirectorsIndependent/Outside Directors FDIC suits against independent/outside directors tend
to involve insider abuse or failure to act upon warnings by regulators or other advisors regarding significant problems at the bank
Case law outside directors cannot simply monitor Case law – outside directors cannot simply monitor operations; they must intervene when risks are apparent. See, e.g., Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006).
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:Reliance Defense
Directors will not be liable for negligence when Directors will not be liable for negligence when they reasonably rely on information, opinions, reports or statements within the expertise of anreports or statements within the expertise of an expert selected with reasonable care, as long as the information is not so deficient as to give reason to question. In re Walt Disney Co. Derivative Action, 907 A.2d 693, 770 (Del. Ch. 2005).
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© 2010 Venable LLP
D&O Litigation:D&O Litigation: Reliance Defense Reliance on Employee: Reliance on Employee:
– “[A] director’s obligation includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is d t i t d th t f il t d dadequate, exists, and that failure to do so under
some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.” In re C k I t I D i ti Liti ti 698Caremark Intern. Inc. Derivative Litigation, 698 A.2d 959, 970 (Del. Ch. 1996).
– If the directors did not know of any violations of law and had in place a system of monitoring p y gcompliance, the board should not be held liable for the illegal conduct of employees.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:The IndyMac Complaint
FDIC v Van Dellen et al Case No CV 10 4915 FDIC v. Van Dellen, et al., Case No. CV-10-4915– Filed July 2, 2010 in the Central District of
California– Defendants were the former officers of
IndyMac’s Homebuilder Division (HBD)No claims made against directors– No claims made against directors
– 68 total counts– 300-plus page complaint
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© 2010 Venable LLP
D&O Litigation:D&O Litigation: The IndyMac ComplaintThe FDIC claims that IndyMac’s HBD losses stemThe FDIC claims that IndyMac s HBD losses stemfrom two departures from safe and sound bankingpractices:1. Management disregarded HBD’s credit policies and
approved loans to borrowers who were not credit-worthy and/or for projects that provided insufficient y p j pcollateral.
2. Management pushed to grow loan production despite being aware of an imminent downturn in the housingbeing aware of an imminent downturn in the housing market and despite warnings from IndyMac’s upper management.
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:The IndyMac ComplaintOutline of factual background:Outline of factual background:
A. HBD followed a high risk growth strategy
B. HBD followed a high risk underwriting strategyg g gy1. HBD violated its own credit policies2. HBD’s consideration of loan applications was
superficial and hastyp y3. HBD’s credit matrix led to poor underwriting
decisions4. HBD’s compensation of officers encouraged risky
loans5. IndyMac recognized HBD’s flaws
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:The IndyMac Complaint
Main focus of FDIC:Main focus of FDIC:
1. Lax underwriting policies
T h th t f t2. Too much growth too fast
3. Continuing to grow and provide questionable loans in the face of an economic downturnloans in the face of an economic downturn
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© 2010 Venable LLP
D&O Litigation:D&O Litigation:The IndyMac Complaint The IndyMac case will serve as an important test case The IndyMac case will serve as an important test case
for future litigation.– Many of the FDIC’s Material Loss Reports identify
excessive growth as a key factor in bank failures We expect many lawsuits to be filed in the coming
years as the FDIC completes its investigations andyears as the FDIC completes its investigations and negotiations.
This wave of lawsuits could easily surpass the number yof cases resulting from the Savings & Loan crisis.
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© 2010 Venable LLP
Handouts1Handouts FDIC Statement of Policy (December 3, 1992)
V bl Cli t Al t Venable Client Alerts:– Joseph T. Lyniak, The Failing Bank Scenario: An
Explanation and Suggested Analysis for a Bank’s Board of Directors and Management (May 2010)of Directors and Management (May 2010).
– Joseph T. Lyniak, Responding to Proposed Enforcement Actions by the Federal Banking Agencies (May 2010).
– Joseph T Lyniak Liability Considerations for OfficersJoseph T. Lyniak, Liability Considerations for Officers and Directors of Failed FDIC-Insured Institutions (May 2010).
Richard J. Osterman, Jr., FDIC Deputy Counsel, FDIC , , p y ,Program for Investigating Bank Failures, Presented at ABA Annual Meeting on August 9, 2010 (used with permission).
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© 2010 Venable LLP
1. Presentation materials prepared with assistance from John B. Williams III and Meredith L. Boylan.
Ronald R. GlanczPartner, Washington, DC Officet 202.344.4947 f 202.344.8300 [email protected]
Ron Glancz is the Chair of Venable's Financial Services Group.
Mr. Glancz represents financial institutions of virtually every type -- banks, savings associations, bank and thrift holding companies, insurance companies, securities firms, and credit unions - and represents companies and investors seeking to become or acquire a bank. He also represents directors and officers of financial institutions. Mr. Glancz represented the U.S. Department of the Treasury in connection with the Capital Purchase Program.
He focuses on bank and thrift regulation, supervision and enforcement, mergers and acquisitions, new financial products and services, corporate governance, FDIC issues, and Bank Secrecy Act compliance.
Mr. Glancz is recognized for leadership in banking law by both The Best Lawyers in America and Chambers USA: America's Leading Lawyers for Business.
He served as assistant general counsel and acting deputy general counsel of the Federal Deposit Insurance Corporation, where he also served on the U.S. Attorney General's Bank Fraud Enforcement Working Group.
Mr. Glancz was director of the Litigation Division, Office of the Comptroller of the Currency.He was an assistant director, Civil Division, Department of Justice, where he represented the Federal Reserve, OCC, and FDIC in many of the leading banking cases.
Bar Admission
District of Columbiay g g
HONORS
Recognized in the 2009 edition of Chambers USA, (Band 1), Financial Services Regulation: Banking (Regulatory Enforcement & Investigations), National Recognized in the 2008 edition of Chambers USA, (Band 2), Financial Services Regulation: Banking (Regulatory Enforcement & I ti ti ) N ti l
Education
J.D., cum laude, University of Michigan Law School, 1968
& Investigations), National Recognized in the 2007 edition of Chambers USA, (Band 2), Financial Services Regulation: Banking (Regulatory Enforcement & Investigations), National Recognized in the 2006 edition of Chambers USA, (Band 2), Financial Services Regulation: Banking (Regulatory Enforcement & Investigations), National Listed in The Best Lawyers in America, Banking Law, (Woodward/White, Inc) Recognized in 2009 by Washingtonian magazine as one of “Washington’s Top Lawyers"
B.A., University of Michigan, 1964
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© 2010 Venable LLP
Recognized in 2009 by Washingtonian magazine as one of Washington s Top Lawyers Selected for inclusion in District of Columbia Super Lawyers (2008 - 2010) Listed in Who's Who in AmericaAV® Peer-Review Rated by Martindale-Hubbell Frank Simpson II Award from American Bar Association's Banking Law Committee