What You Need To Know When Litigating For or Against the FDIC, Part 2 of 4

What You Need To Know When Litigating For or Against the FDIC, Part 2 of 4

 
Written by Teresa Zink for HB Litigation Conferences LLC
 
This is the second of four posts covering the presentations of Stinson Morrison Hecker partner Michael Tucci and Kilpatrick Stockton partner Rex Veal delivered on January 15, 2009, a the “FDIC & The New Banking Crisis” conference in Washington, DC. Both men held positions at the FDIC and the Resolution Trust Corporation.   Copies of their presentations are available in video, audio and text for a fee. Send inquiries to info@litigationconferences.com.   
 
Automatic Stays and the Claims Process
 
The FDIC has a right to an automatic stay of 45-days when acting as a conservator and a 90-day stay when acting as receiver for a failed bank, Tucci explained. “There is no discretion on the part of the district court to grant the stay or not grant the stay, although many of them would like to read some discretion into the provisions.”  In a receivership, he explained, in addition to the 90-day stay, there is a 180-day determination period through the claims process. What that means is “there is basically 270 days that can be requested by the agency and it will be granted. Once the case is in the process of going through the administrative process, district courts will allow that as a general rule to run its course prior to reengaging.” The statute also has provision for further agency review after the determination has been made, but that does not usually occur. “Most litigants are sort of adamant that they had a claim and they want it determined by a federal judge as opposed to the agency that would actually be on the hook for the determination.”
 
Federal Court Jurisdiction
 
Tucci also explained that the FDIC “has the basically unfettered right to remove to federal court,” whether the case is at the trial court or appellate court level. “The hook here and the issue you need to focus on,” said Tucci, is that “the right to remove begins when the agency is substituted as a party. What did creative litigants do? They fought the substitution of the FDIC as a party. And some state court judges are inclined to deny the substitutions. Tucci anticipates additional litigation over that issue.
 
So what law applies? “I am often fond of saying, because I’ve written it in probably a thousand briefs that the rights and obligations of the FDIC are determined pursuant to federal law. That is what the statute says. That is what the cases say,” Tucci explained.   However, he noted “The source of federal law and the determination of federal law has evolved substantially over the last 25 years or so. Clearly, federal statutes apply with respect to the rights and obligations of the FDIC. We were fond of arguing, maybe 20 years ago, that if there was no federal law, then federal common law applied. That is the prong of this issue that has been hotly contested and litigated over the last maybe 15 years.” As the case law has developed, Tucci says, application of federal common law will really only be found when there is an “important” federal interest at stake. “What that means is if there is no federal statute on point, and state law would not frustrate important federal objectives, state law is basically going to be incorporated as a rule of decision with respect to that particular issue.” 
 
A corollary to federal jurisdiction is the specific application of 1823(e) and the D’Oench Doctrine. “Obviously, federal law is embodied in 1823(e),” Tucci said, which requires agreements recognized by the FDIC to be in writing, “executed by the depository institution and person claiming an adverse interest there under, including the obligator, contemporaneously with the acquisition of the asset by the depository institution,” approved by the board of directors of the depository institution or its loan committee, and continuously on the official record of the depository institution from the time of its execution. The  D'Oench Doctrine is the federal common law doctrine from which many courts have said 1823(e) was generated, Tucci explained. It says essentially that “secret agreements…aren’t enforceable against a financial institution because they aren’t part of the books and records and not available for inspection by examiners when the examiners examine the bank.” The FDIC issued a policy statement in 1997 on when it would apply 1823(e) and when it would apply the D'Oench Doctrine, Tucci