North Carolina Business Litigation Report

Fee Fi Fo FIRREA: NC Business Court On Maintainability Of Claims Against Banks Which Buy The Assets Of Failed Banks

The Financial Institutions Reform, Recovery and Enforcement Act, affectionately known to banking lawyers as FIRREA, is a statute passed by Congress in the late 1980's at the tail end of the savings and loan crisis of that decade.  It bars lawsuits against institutions in FDIC receivership and requires that claims first be presented to the FDIC for administration before being made in court.  In other words, there is no subject matter jurisdiction over those claims.

Last week, the Business Court took up a case of first impression in North Carolina: to what extent is FIRREA a bar to claims against a bank that acquires the assets of a failed bank from the FDIC?  That was the threshold issue in Front Street Construction, LLC v. Colonial Bank, N.A., 2012 NCBC 25. Some of the assets and liabilities of Colonial had been acquired by BB&T, against which Front Street sought to make its claims arising from Colonial failing to fund a loan.

After a summary of a number of cases on this issue of successor liability and FIRREA, Judge Jolly elected to reject the reasoning of another court involving the same acquisition by BB&T, Frazier v. Colonial Bank, 2011 U.S. Dist. LEXIS 22630 (M.D. Ala. 2011). 

He said that the proper resolution of Plaintiffs' claims depended on the terms of the document by which BB&T had acquired any assets and liabilities of Colonial Bank. This was the Purchase and Assumption Agreement between BB&T and the FDIC (the PPA). This climb up the FIRREA beanstalk via the terms of the PPA had been led by several other federal court decisions which Judge Jolly found persuasive: Fernandes v. JPMorgan Chase Bank, N.A., 818 F. Supp. 2d 1086 (N.D. Ill. 2011); Caires v. JP Morgan Chase Bank, 745 F. Supp. 2d 40 (D. Conn. 2010); Rundgren v. Washington Mut. Bank, F.A., No. 09-00495, 2010 U.S. Dist. LEXIS 126803 (D. Haw. Nov. 30, 2010); Moldenhauer v. FDIC, No. 2:09-CV-00756 TS, 2010 U.S. Dist.LEXIS 25315 (D. Utah Mar. 18, 2010). 

The Plaintiffs’ claims bogged down when the Court examined a Shared Loss Agreement between BB&&T and the FDIC, which said that the FDIC would reimburse BB&T for at least some of the losses incurred by BB&T on certain loans assumed by BB&T. Plaintiffs didn’t allege that the Colonial loan agreement on which their claims were based was covered by the Shared Loss agreement, and Judge Jolly ruled that they had not carried their burden of showing that the Court had jurisdiction in the face of FIRREA.      Most of Plaintiffs' claims were dismissed due to the Business Court's lack of subject matter jurisdiction.

One claim that was left standing after Judge Jolly’s Order was the Plaintiff’s claim against BB&T directly, for BB&T's failure to fund the loan after it assumed Colonial’s assets. He held that FIRREA did not apply when bringing a claim against a sucessor bank for its own conduct.             

There were other claims discussed and dismissed by the Court, but none as significant as those raised by the FIRREA issues. And some of those other claims turned on Alabama law, about which I rarely care.   So if you are interested, you need to read the opinion.                                                                                                                                                                

 

 

 

 

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Mack Sperling
Brooks Pierce, LLP
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