UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA
Transcript of UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA
ORAL ARGUMENT NOT YET SCHEDULED
Case No. 11-5317
UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
MBIA INSURANCE CORPORATION,
Plaintiff-Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
Defendant-Appellee.
On Appeal From the United States District Court For The District of Columbia
09-CV-01011-ABJ
BRIEF FOR APPELLANT
David F. Williams Geoffrey Gettinger CADWALADER, WICKERSHAM & TAFT, LLP 700 Sixth Street, N.W. Washington, D.C. 20001 Tel: (202) 862-2200 Fax: (202) 862-2400
Howard R. Hawkins, Jr. Jason Jurgens* CADWALADER, WICKERSHAM & TAFT, LLP One World Financial Center New York, New York 10281 Tel: (212) 504-6000 Fax: (212) 506-6666
* Admission Pending
Attorneys for Plaintiff-Appellant MBIA Insurance Corporation
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CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES
Pursuant to Circuit Rule 28(a)(1), appellant MBIA Insurance
Corporation (“MBIA”) hereby certifies the following:
Parties and Amici
1. Parties Appearing Before District Court: MBIA appeared as
plaintiff before the district court. The Federal Deposit Insurance Corporation
(“FDIC”) appeared as defendant in its corporate capacity, and as conservator and
receiver for IndyMac Federal Bank, F.S.B. (“IndyMac Federal”). No amici or
intervenors appeared before the district court.
2. Parties Appearing Before This Court: MBIA appears as
appellant before this Court. The FDIC has appeared as appellee in its corporate
capacity, and as conservator and receiver for IndyMac Federal. To date, no amici
or intervenors have appeared before this Court in connection with this appeal.
Rulings Under Review
MBIA appeals from the Order issued by District Court Judge Amy
Berman Jackson, dated October 6, 2011 (the “Order”), and the accompanying
Memorandum Opinion, dated October 6, 2011, which granted the FDIC’s motions
to dismiss MBIA’s Amended Complaint (the “Ruling”). A copy of the Order can
be found in the Joint Appendix at __, and a copy of the Ruling can be found in the
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Joint Appendix at ___. The Ruling is reported at 816 F. Supp. 2d 81 (D.D.C.
2011).
Related Cases
This case was not previously before this Court or any court other than
the district court. A related case, Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F.
Supp. 2d 1142 (C.D. Cal. 2011), appeal pending, No. 11-56339 (9th Cir.), involves
certain of the same transactions and parties.
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CORPORATE DISCLOSURE STATEMENT
Pursuant to Fed. R. App. P. 28(a)(1) and Circuit Rule 26.1, MBIA
hereby discloses that it is a wholly owned subsidiary of MBIA Inc., which is a
publicly held corporation listed on the New York Stock Exchange. MBIA is
incorporated and headquartered in New York. MBIA provides financial guarantee
insurance in connection with, among other things, residential mortgage-backed
securitizations.
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TABLE OF CONTENTS
PAGE
CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES .............. i
CORPORATE DISCLOSURE STATEMENT ....................................................... iii
TABLE OF CONTENTS .......................................................................................... iv
TABLE OF AUTHORITIES ................................................................................. viii
GLOSSARY OF ABBREVIATIONS ....................................................................... 1
JURISDICTIONAL STATEMENT .......................................................................... 3
STATEMENT OF ISSUES PRESENTED FOR REVIEW ...................................... 4
STATEMENT OF THE CASE .................................................................................. 5
A. MBIA’s Amended Complaint ..................................................... 5
B. The District Court’s October 6 Opinion ..................................... 7
STATUTES AND REGULATIONS ......................................................................... 9
STATEMENT OF FACTS ...................................................................................... 10
A. The FDIC And Relevant Statutory Framework ........................ 10
1. FDIC As Conservator ..................................................... 12
2. FDIC As Receiver .......................................................... 13
3. FDIC Corporate .............................................................. 14
B. MBIA, IndyMac And The IndyMac Transactions ................... 15
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C. IndyMac’s Post-Closing Contractual Obligations As Servicer And Seller Under The PSAs ....................................... 16
D. IndyMac’s Failure And The Creation Of IndyMac Federal ....................................................................................... 18
E. IndyMac Federal Assumes IndyMac’s Contractual Rights And Obligations Under The PSAs ............................................ 19
F. FDIC Conservator Breached Post-Closing Servicing Obligations ................................................................................ 20
G. FDIC Conservator Breached Post-Closing Seller Obligations ................................................................................ 21
H. FDIC Conservator Continued To Partially Perform And Collect Millions In Servicing Fees ........................................... 22
I. The Sale Of IndyMac Federal’s Assets .................................... 23
J. MBIA’s Proofs Of Claim .......................................................... 25
K. The FDIC’s No Value Determination ....................................... 25
SUMMARY OF ARGUMENT ............................................................................... 26
STANDARD OF REVIEW ..................................................................................... 31
ARGUMENT ........................................................................................................... 31
POINT I MBIA’S CLAIMS ARE NOT PRUDENTIALLY MOOT ................ 32
A. MBIA’s Claims Constitute “Administrative Expenses” Entitled To Priority ................................................................... 33
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B. The District Court Erred In Concluding That FDIC Conservator Did Not “Approve” The PSAs ............................. 37
1. “Approved” As Used In 12 U.S.C. § 1821(d)(20) Means To Have Consented, Agreed Or Ratified ............ 37
2. The Formal Approval Process Envisioned By The District Court Is Not Found In Either The Statute Or The FDIC’s Regulations ............................................ 40
3. The District Court Ignored MBIA’s Allegations That FDIC Conservator “Approved” The PSAs ............ 42
C. Treating Liability Arising From FDIC Conservator’s Breach Of Contracts As Administrative Expenses Is Consistent With Section 1821(e)(7)(B) .................................... 45
D. Congress’s Inclusion Of A Repudiation Process In FIRREA Confirms That MBIA’s Interpretation Of Section 1821(d)(20) Is Correct ................................................. 46
E. Public Policy Requires Liability Arising From FDIC Conservator’s Breaches To Be Treated As Administrative Expenses .......................................................... 50
F. Treating Liability Arising From FDIC Conservator’s Breaches As Administrative Expenses Is Consistent With The Bankruptcy Code ............................................................... 52
G. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With Legislative History ......................................... 55
H. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With The FDIC’s Regulations ................................ 56
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POINT II THE RESOLUTION OF A NEW BANK, LIKE INDYMAC FEDERAL, SHOULD NOT RESULT IN A NO VALUE DETERMINATION THAT AVOIDS BREACH OF CONTRACT CLAIMS ON PRUDENTIAL MOOTNESS GROUNDS .......................................................................................... 59
POINT III MBIA’S CLAIMS AGAINST FDIC CORPORATE ARE NOT BARRED BY SECTION 1821(d)(10)(B) .......................................... 63
POINT IV MBIA’S CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF ARE NOT BARRED BY SECTION 1821(j) ................................................................................................. 65
CONCLUSION ........................................................................................................ 69
CERTIFICATE OF COMPLIANCE ....................................................................... 71
CERTIFICATE OF SERVICE ................................................................................ 72
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TABLE OF AUTHORITIES
PAGE(S)
CASES:
Adams v. Resolution Trust Corp., 927 F.2d 348 (8th Cir. 1991) .............................................................................. 64
Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602 (2d Cir. 2007) ............................................................................... 53
Ashcroft v. Iqbal, 556 U.S. 662 (2009) ............................................................................................ 31
Bank of New York v. FDIC, 508 F.3d 1 (D.C. Cir. 2007) ................................................................................ 38
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ............................................................................................ 31
Cabell v. Markham, 148 F.2d 737 (2d Cir.), aff’d, 326 U.S. 404 (1945) ........................................................................................... 38
Chamber of Commerce v. United States Dep’t of Energy, 627 F.2d 289 (D.C. Cir. 1980) ............................................................................ 32
City of Covington v. Covington Landing L.P., 71 F.3d 1221 (6th Cir. 1995) .............................................................................. 53
Deutsche Bank Nat’l Trust Co. v. FDIC, 784 F. Supp. 2d 1142 (C.D. Cal. 2011) ........................................................ 19, 68
Authorities upon which we chiefly rely are marked with asterisks.
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PAGE(S)
Doe v. Metropolitan Police Dep’t, 445 F.3d 460 (D.C. Cir. 2006) ............................................................................ 31
Doe v. United States, 372 F.3d 1347 (Fed. Cir. 2004) .......................................................................... 38
FDIC v. Phoenix Casa Del Sol, LLC, No. CV 09–2556–PHX–MHM, 2011 WL 814858 (D. Ariz. Mar. 3, 2011) ....................................................................................... 56
First Hartford Partners II v. FDIC, No. 93 Civ. 0933, 1993 U.S. Dist. LEXIS 14651 (S.D.N.Y. Oct. 15, 1993) .................................................................................... 67
Foretich v. United States, 351 F.3d 1198 (D.C. Cir. 2003) .......................................................................... 32
Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268 (9th Cir. 1995) ................................................................................ 52
In re GM Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009), aff’d sub nom. In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010) ....................... 54-55
Henry v. FDIC, 695 F. Supp. 2d 1063 (C.D. Cal. 2010) .............................................................. 64
Janowsky v. United States, 133 F.3d 888 (Fed. Cir. 1998) ............................................................................ 36
Johnson v. Jamaica Hosp., 467 N.E.2d 502 (N.Y. 1984) ............................................................................... 49
Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234 (N.Y. 1986) ............................................................................... 49
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Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) ............................................................................................ 31
In re Kollel Mateh Efraim, LLC, 456 B.R. 185 (S.D.N.Y. 2011) ........................................................................... 54
Laurel Baye Healthcare of Lake Lanier, Inc. v. NLRB, 564 F.3d 469 (D.C. Cir. 2009) ............................................................................ 41
MBIA Ins. Corp. v. F.D.I.C., 816 F. Supp. 2d 81 (D.D.C. 2011) ................ 7, 18, 22, 32, 34, 37, 40, 41, 43, 44, ...................................................................... 46, 48, 51, 52, 54, 56, 61, 62, 63, 64
National Ctr. for Mfg. Scis. v. Department of Defense, 199 F.3d 507 (D.C. Cir. 2000) ............................................................................ 41
National Trust for Historic Pres. v. FDIC, 995 F.2d 238, vacated, 5 F.3d 567 (D.C. Cir. 1993), reinstated in relevant part, 21 F.3d 469 (D.C. Cir. 1994) ....................................................... 66
In re New Valley Corp., 168 B.R. 82 (Bankr. D.N.J. 1994) .......................................................... 12-13, 50
New York Univ. v. Continental Ins. Co., 662 N.E.2d 763 (N.Y. 1995) ............................................................................... 49
Office & Prof’l Employees Int’l Union, Local 2 v. FDIC, 27 F.3d 598 (D.C. Cir. 1994) .............................................................................. 52
In re Old Carco LLC, No. 10 Civ. 8283, 2012 WL 893614 (S.D.N.Y. Mar. 15, 2012) ........................ 54
In re Old Carco LLC, 424 B.R. 650 (Bankr. S.D.N.Y. 2010), aff’d, No. 10 Civ. 2800, 2010 WL 4455648 (S.D.N.Y. Nov. 2, 2010) .................. 53-54
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PAGE(S)
Olympic Towers Assocs. v. Goldome Bank, No. 92-cv-0267E, 1995 U.S. Dist. LEXIS 6028 (W.D.N.Y. Mar. 21, 1995) .................................................................................. 67
Rachmani Corp. v. 9 E. 96th St. Apt. Corp., 629 N.Y.S.2d 382 (N.Y. App. Div. 1995) .......................................................... 22
Russello v. United States, 464 U.S. 16 (1983) .............................................................................................. 39
Silverman v. United States, 679 F.2d 865 (Ct. Cl. 1982) ................................................................................ 36
Thompson v. Texas Mexican Ry. Co., 328 U.S. 134 (1946) ............................................................................................ 53
United States v. Gonzales, 520 U.S. 1 (1997) ................................................................................................ 55
United States v. Stewart, 311 U.S. 60 (1940) .............................................................................................. 46
Winder v. Erste, 566 F.3d 209 (D.C. Cir. 2009) ............................................................................ 31
Winston v. Mediafare Entm’t Corp., 777 F.2d 78 (2d Cir. 1985) ................................................................................. 36
WRH Mortg. Inc. v. S.A.S. Assocs., 214 F.3d 528 (4th Cir. 2000) .............................................................................. 12
STATUTES & OTHER AUTHORITIES:
12 U.S.C. § 1821(a) ............................................................................................................. 14 § 1821(d) ............................................................................................................. 11
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12 U.S.C. (cont.) § 1821(d)(2)(D) ............................................................................................. 12, 19 § 1821(d)(2)(E) ................................................................................................... 13 § 1821(d)(2)(H) ................................................................................................... 12 § 1821(d)(3-4) ..................................................................................................... 13 § 1821(d)(10) ...................................................................................................... 13 § 1821(d)(10)(A) ................................................................................................. 39 § 1821(d)(10)(B) ....................................................................................... 8, 30, 63 § 1821(d)(11) ................................................................................................ 27, 47 § 1821(d)(11)(A) .............................................................. 13-14, 25, 29-30, 33, 34 § 1821(d)(11)(A)(i) ............................................................................................. 33 § 1821(d)(20) ....................................................... 7, 14, 22, 28, 33, 37, 39, 47, 68 § 1821(e) ............................................................................................................. 42 § 1821(e)(2) ........................................................................................................ 67 § 1821(e)(1-3) ......................................................................................... 13, 20, 35 § 1821(e)(3)(A)(ii)(II) ......................................................................................... 68 § 1821(e)(7)(B) ....................................................................................... 13, 45, 46 § 1821(e)(7)(B)(ii) ........................................................................................ 45, 51 § 1821(e)(9)(A) ................................................................................................... 13 § 1821(e)(13) ...................................................................................................... 34 § 1821(f) .............................................................................................................. 14 § 1821(i)(2) ................................................................................................... 61, 63 § 1821(j) ................................................................................................................ 8 § 1821(m)(13) ........................................................................................... 8, 15, 60 § 1821(m)(11)(A) ......................................................................................... 14-15 § 1821(m)(11)(B) ................................................................................................ 15 § 1821(m)(18) ..................................................................................................... 62 § 1821(n)(1)(C) ................................................................................................... 39
12 C.F.R. § 360.4 ......................................................................................... 56, 57, 58
60 Fed. Reg. at 35487 .............................................................................................. 58
H.R. Conf. Rep. No. 103-213, reprinted in 1993 U.S.C.C.A.N. 1088 (Aug. 4, 1993) ............................................................................................... 48, 55
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PAGE(S)
S. Rep. No. 101-19, 101st Cong., 1st Sess. (Apr. 13, 1989) ....................... 48, 52-53
1 Alan N. Resnick & Henry J. Sommer, Collier Bankruptcy Manual ¶ 503.06[5][b] (3d ed. rev. 2012) ......................... 53
2A Norman J. Singer & J.D. Singer, Sutherland Statutes and Statutory Construction 46:6 (7th ed. 2007) ................. 41
Random House Webster’s Unabridged Dict. 103 (2d ed. 1998) ............................. 38
Webster’s New Universal Unabridged Dict. 92 (2d ed. 1983) ................................ 38
http://www.fdic.gov/about/learn/symbol/index.html (last visited on June 1, 2012) ................................................................................................................... 11
http://www.fdic.gov/news/news/press/2009/pr09042.html (last visited June 1, 2012) ............................................................................................................... 23
http://www2.fdic.gov/divweb/Dividendindex.asp. (last visited June 1, 2012) ............................................................................. 24, 64
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GLOSSARY OF ABBREVIATIONS
APA The Administrative Procedure Act codified at 5 U.S.C. § 701 et seq.
FDIC Federal Deposit Insurance Corporation
FDIC Corporate Appellee FDIC, acting in its corporate capacity
FDIC Conservator Appellee FDIC, acting as conservator for IndyMac Federal
Old IndyMac Receiver FDIC, acting as receiver for IndyMac
FDIC Receiver Appellee FDIC, acting as receiver for IndyMac Federal
FIRREA Financial Institutions Reform, Recovery, and Enforcement Act of 1989
IndyMac IndyMac Bank, F.S.B.
IndyMac Federal IndyMac Federal Bank, F.S.B.
IndyMac Transactions The three residential mortgage-backed securitization transactions at issue on this appeal referred to in the Amended Complaint as INDS 2006-H4, INDS 2007-1 and INDS 2007-2
MBIA Appellant MBIA Insurance Corporation
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No Value Determination The November 12, 2009 resolution issued by the FDIC’s Board of Directors, determining that in each IndyMac receivership, “[i]nsufficient assets exist to make any distribution on general unsecured claims . . . and therefore all such claims, asserted or unasserted, will recover nothing and have no value.”
OTS Office of Thrift Supervision
PAA The Amended and Restated Insured Deposit Purchase and Assumption Agreement, dated as of July 11, 2008, executed by Old IndyMac Receiver, FDIC Corporate and FDIC Conservator, on behalf of IndyMac Federal, pursuant to which the PSAs were assumed
Policies The financial guaranty insurance policies provided by MBIA pursuant to insurance agreements entered by MBIA and IndyMac in connection with the IndyMac Transactions
PSAs The Pooling and Servicing Agreements related to the INDS 2007-1 and INDS 2007-2 Transactions, as well as the Purchase Agreement and the Sale and Servicing Agreement related to the INDS 2006-H4 Transaction, which FDIC Conservator assumed pursuant to the PAA
QFCs Qualified Financial Contracts, as defined by 12 U.S.C. § 1821(e)(8)(D)(i)
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JURISDICTIONAL STATEMENT
Pursuant to Fed. R. App. P. 28(a)(4) and Circuit Rule 28(a)(4), MBIA
states the following:
1. The APA provides the basis for the district court’s subject
matter jurisdiction.
2. This Court has jurisdiction over this appeal pursuant to 28
U.S.C. § 1291.
3. MBIA filed a timely notice of appeal on November 4, 2011.
4. This appeal is from a final order and judgment, which disposed
of all of the parties’ claims.
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STATEMENT OF ISSUES PRESENTED FOR REVIEW
1. Whether the district court committed reversible error when it
dismissed MBIA’s breach of contract claims as prudentially moot after concluding
that the FDIC’s liability, arising from contracts breached after FDIC Conservator
expressly assumed them and while FDIC Conservator profited from them, did not
constitute “administrative expenses” under 12 U.S.C. § 1821(d)(11)(A) because
the contracts were not “approved” as contemplated by 12 U.S.C. § 1821(d)(20).
2. Whether the district court committed reversible error when it
dismissed MBIA’s claims as prudentially moot, despite the fact that pursuant to 12
U.S.C. § 1821(m)(11)-(13), FDIC Corporate had (but did not fulfill) a statutory
obligation to furnish funds to IndyMac Federal to cover its losses, including its
liability to MBIA.
3. Whether the district court committed reversible error when it
held that MBIA’s claims against FDIC Corporate were barred by 12 U.S.C. §
1821(d)(10)(B) because FDIC had paid itself a “dividend” when, in fact, the only
dividend paid in connection with the FDIC’s resolution of IndyMac and IndyMac
Federal was to uninsured depositors.
4. Whether the district court committed reversible error when it
concluded that 12 U.S.C. § 1821(j) bars MBIA’s claims seeking declaratory and
injunctive relief.
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STATEMENT OF THE CASE
This action arises from the FDIC’s conduct in connection with the
resolution of the IndyMac estate through a new federally chartered bank, IndyMac
Federal. In the wake of IndyMac’s collapse, the FDIC created IndyMac Federal
and caused it to assume various contracts to which IndyMac had been a party,
including the three PSAs, which are the basis for MBIA’s claims here. Between
July 2008 and March 2009 the FDIC, as conservator of IndyMac Federal, breached
its seller-and-servicer obligations under the PSAs, causing damages to MBIA.
Because 12 U.S.C. § 1821(d)(20) required the FDIC’s liability for its breaches of
the PSAs to be treated as “administrative expenses,” MBIA sought to recover its
losses as such on a priority basis in accordance with 12 U.S.C.§ 1821(d)(11). The
FDIC refused to honor MBIA’s proofs of claim, ultimately declaring them
worthless.
A. MBIA’s Amended Complaint
On February 8, 2010, MBIA filed its Amended Complaint in the
United States District Court for the District of Columbia.1 The Amended
Complaint asserted eight claims against the FDIC as conservator and receiver for
1 MBIA filed the Amended Complaint in the wake of the No Value Determination (discussed infra), dropping original claims MBIA had asserted against Old IndyMac Receiver that had been predicated on contractual breaches that occurred prior to IndyMac’s failure.
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IndyMac Federal, including claims for breach of contract and breach of the implied
duty of good faith and fair dealing.2 Am. Compl. ¶¶ 89-210 (JA_). These claims
arise out of contractual breaches that occurred after the FDIC formed IndyMac
Federal and placed it into conservatorship, and while FDIC Conservator continued
to pay itself millions of dollars in fees pursuant to the contracts it was breaching.
MBIA alleged that FDIC Conservator’s liability to MBIA constituted
“administrative expenses of the [IndyMac Federal] receiver,” to be paid on a
priority basis pursuant to section 1821(d)(11)(A). Specifically, MBIA alleged that
liability arising from FDIC Conservator’s breach of the three PSAs constituted
“administrative expenses” because those agreements were “approved” by FDIC
Conservator as contemplated by section 1821(d)(20). Am. Compl. ¶ 4 (JA_).
MBIA also asserted claims under the APA against FDIC Corporate
based on (a) the No Value Determination made by the FDIC Board of Directors,
which deemed MBIA’s claims worthless general creditor claims, even though
MBIA had filed administrative expense claims; and (b) FDIC Corporate’s
wrongful receipt of IndyMac Federal assets.
2 MBIA also asserted claims for declaratory judgment and statutory damages arising from the FDIC’s purported repudiation of contracts related to one of the IndyMac Transactions.
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B. The District Court’s October 6 Opinion
On May 21, 2010, the FDIC moved to dismiss MBIA’s Amended
Complaint. (JA_). On September 27, 2011, the district court held oral argument.
(JA_). On October 6, 2011, the district court granted the FDIC’s motions,
dismissing MBIA’s damages claims as prudentially moot, and otherwise holding
that MBIA failed to state a claim. The district court concluded that, as a matter of
law, MBIA’s claims did not constitute “administrative expenses” of FDIC
Receiver, but were instead general creditor claims rendered worthless by the No
Value Determination. MBIA Ins. Corp. v. FDIC, 816 F. Supp. 2d 81, 100 (D.D.C.
2011).
The district court’s legal analysis hinged on its erroneous construction
of section 1821(d)(20), which provides, in relevant part:
Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator.
12 U.S.C. § 1821(d)(20) (emphasis added).
The district court erroneously held that FDIC Conservator did not
“approve” the PSAs even though (1) the FDIC, in three separate capacities, had
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executed a formal 65-page “Purchase & Assumption Agreement” (the “PAA”)
whereby FDIC Conservator, on behalf of IndyMac Federal, expressly assumed the
PSAs; and (2) IndyMac Federal thereafter paid itself millions of dollars in
servicing fees for its partial performance of servicing obligations under the PSAs
before (3) selling two of the PSAs to One West.
The district court also held that 12 U.S.C. § 1821(m)(13), which
provides that FDIC Corporate “shall furnish to [a newly created insured bank, like
IndyMac Federal] additional funds in the amount of [its] losses,” was inapplicable
to MBIA’s claims. This too was error.
The district court also wrongly dismissed MBIA’s claims seeking
declaratory and injunctive relief as barred by 12 U.S.C. § 1821(j), and against
FDIC Corporate as barred by 12 U.S.C. § 1821(d)(10)(B).
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STATUTES AND REGULATIONS
Relevant statutes and regulations are reproduced in the Addendum to
this brief.
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STATEMENT OF FACTS
This appeal arises out of the district court’s dismissal of claims
brought by MBIA seeking, among other things, damages that it suffered as a result
of FDIC Conservator’s breaches of contracts that occurred between July 11, 2008
and March 19, 2009.
As alleged in the Amended Complaint, MBIA insured the
performance of mortgage loans sold by IndyMac into three securitizations. When
IndyMac failed, the FDIC placed its assets, including the PSAs, into a pass-through
receivership. The FDIC did not repudiate the PSAs. Rather, FDIC Conservator
expressly assumed them under the PAA after forming IndyMac Federal and
placing it into conservatorship. Pursuant to the PSAs, FDIC Conservator thereafter
paid itself millions of dollars in fees for servicing loans, albeit improperly in
breach of the PSAs. FDIC Conservator also breached its post-closing seller
obligations to repurchase defective loans. Ultimately, the FDIC misclassified
MBIA as a general creditor, while taking for itself the proceeds of the sale of
IndyMac Federal’s assets, including two of the breached PSAs.
A. The FDIC And Relevant Statutory Framework
The FDIC is an independent agency of the federal government created
in 1933 in response to bank failures during the Great Depression. The FDIC
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insures deposits held by banks and thrift institutions that it oversees, and that pay
for deposit insurance coverage. See http://www.fdic.gov/about/learn/symbol/
index.html (last visited on June 1, 2012). The FDIC receives no Congressional
appropriations; instead, it is funded primarily by premiums that banks and thrifts
(like IndyMac, before its collapse) pay for deposit insurance. Id.
The FDIC is the primary federal regulator of state-chartered banks
that do not join the Federal Reserve System. See http://www.fdic.gov/about/learn/
symbol/index.html (last visited on June 1, 2012). In addition, the FDIC is the
back-up supervisor for the remaining insured banks and thrift institutions. Id. To
protect insured depositors, the FDIC examines and supervises banks. Id. FDIC-
regulated institutions can be closed if they are deemed to be unsound and otherwise
unable to pay their obligations or meet their depositors’ demands. The FDIC often
supervises the resolution of the failed banking institutions. Id.
The FDIC has several options for resolving failed banking institutions.
See generally 12 U.S.C. § 1821. In particular, under FIRREA, the FDIC can
operate in various capacities: (1) as a conservator for the failed institution; (2) as a
receiver for the failed institution; and (3) in its corporate capacity. 12 U.S.C. §
1821(d).
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1. FDIC As Conservator
As a conservator, the FDIC’s mandate is to “take such action as may
be (i) necessary to put the insured depository institution in a sound and solvent
condition; and (ii) appropriate to carry on the business of the institution and
preserve and conserve the assets and property of the institution.” 12 U.S.C. §
1821(d)(2)(D). In other words, the FDIC, as conservator, is required to operate the
failed institution’s business in a manner that preserves and maximizes its value.
The FDIC, as conservator, is statutorily obligated to “pay all valid obligations of
the insured depository institution in accordance with the prescriptions and
limitations” in FIRREA. 12 U.S.C. § 1821(d)(2)(H).
When the FDIC is appointed conservator, it can take one of two
actions with respect to the pre-conservatorship contracts of a failed institution: (1)
it may repudiate contracts consistent with its powers under section 1821(e)(1-3) or
(2) elect not to repudiate a contract. Repudiation of a contract relieves both the
FDIC and its counterparties from any future obligations, and unpaid amounts due
to counterparties on repudiated contracts become general creditor claims.3
In exercising these powers the FDIC must repudiate or enforce the
contract in its entirety, and is not authorized to accept the benefits of an agreement
while repudiating its burdens. See In re New Valley Corp., 168 B.R. 82, 90
3 See WRH Mortg. Inc. v. S.A.S. Assocs., 214 F.3d 528, 532 (4th Cir. 2000).
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(Bankr. D.N.J. 1994) (“the FDIC cannot seek to enforce one part of the agreement
and simultaneously seek to bar another part of the same agreement”); 12 U.S.C. §
1821(e)(9)(A) (prohibiting the FDIC from severing out portions of QFCs); cf. 12
U.S.C. § 1821(e)(7)(B) (requiring FDIC conservator to pay for services performed
by counterparties when services accepted).
2. FDIC As Receiver
As receiver, the FDIC’s statutory mandate is to “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.” 12 U.S.C.
§ 1821(d)(2)(E). An FDIC receiver may repudiate contracts upon its appointment.
12 U.S.C. § 1821(e)(1-3).
An FDIC receiver also is authorized to establish a claims process to
resolve creditor claims, 12 U.S.C. § 1821(d)(3-4), and pay creditor claims and
dividends on proved claims. See 12 U.S.C. § 1821(d)(10).
Section 1821(d)(11) requires, in relevant part, that:
[A]mounts 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.
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(ii) Any deposit liability of the institution.
(iii) Any other general or senior liability of the institution (which is not a liability described in clause (iv) or (v)).
12 U.S.C. § 1821(d)(11)(A).
Among the “administrative expenses” to be paid on a priority basis
are liabilities arising from “the breach of an agreement executed or approved by
[the FDIC as] receiver or conservator after the date of its appointment.” 12 U.S.C.
§ 1821(d)(20) (emphasis added).
3. FDIC Corporate
The FDIC in its corporate capacity has the primary obligation to
provide deposit insurance, i.e., insure any shortfall between (a) amounts realized
from the resolution of a failed institution, and (b) the failed institution’s obligations
to depositors. See 12 U.S.C. §§ 1821(a), 1821(f).
The FDIC may also organize a new national bank in accordance with
section 1821(m) to assume the assets of the failed institution, as it did when it
formed IndyMac Federal. FDIC Corporate is obligated to fund new national banks
that it organizes pursuant to section 1821(m)(11-13). Specifically, “[u]pon the
organization of a new bank, the Corporation shall promptly make available to it an
amount equal to the estimated insured deposits of such bank in default plus the
estimated amount of the expenses of operating the new bank. . . .” 12 U.S.C. §
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1821(m)(11)(A).4 If its initial estimates are incorrect, FDIC Corporate is obligated
to adjust the amount of funding it provides to the new bank. 12 U.S.C. §
1821(m)(11)(B). FDIC Corporate also has a statutory obligation to fund any losses
suffered by the new bank in connection with operating its business. 12 U.S.C. §
1821(m)(13).
B. MBIA, IndyMac And The IndyMac Transactions
MBIA is a New York insurance corporation engaged in the business
of issuing financial guaranty insurance policies in connection with, among other
things, residential mortgage-backed securitizations, such as those at issue here
sponsored by IndyMac. Am. Comp. ¶¶ 15, 29 (JA_).
Prior to its insolvency in July 2008, IndyMac was an FDIC-insured
depository institution that, in addition to collecting traditional deposits, originated
and acquired residential mortgage loans. Am. Comp. ¶ 23 (JA_). IndyMac sold
those mortgage loans into securitizations. Am. Comp. ¶ 31 (JA_).
Starting in September 2006, IndyMac contracted with MBIA to
provide financial guaranty insurance policies (each, a “Policy” and, collectively,
the “Policies”) with respect to the three IndyMac Transactions. Am. Comp. ¶ 32
4 This appeal arises from events that occurred in 2008 and 2009, since which time certain provisions of section 1821 have been amended. All citations and analysis herein concern the statutory language in effect on July 11, 2008.
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(JA_). The Policies guarantee that investors who purchased securities in the
IndyMac Transactions would continue to receive the cash flows that IndyMac had
promised, even if the loans backing the securities failed to perform. Am. Comp. ¶¶
3, 29, 66 (JA_).
C. IndyMac’s Post-Closing Contractual Obligations As Servicer And Seller Under The PSAs
In connection with each IndyMac Transaction, IndyMac had
continuing contractual obligations as both the seller and the servicer of the
mortgage loans. These post-closing contractual obligations were set forth in the
PSAs. Am. Compl. ¶ 40 (JA_). MBIA is an express third-party beneficiary under
the PSAs. Id.
In connection with the IndyMac Transactions, IndyMac agreed to
service the mortgage loans that it securitized. Am. Compl. ¶¶ 5, 41 (JA_). That is
to say, IndyMac agreed to collect principal and interest payments from borrowers,
and provide other collection services in the event that borrowers were delinquent
or defaulted on their mortgage obligations. Am. Compl. ¶¶ 28, 54-56, 98-99, 102-
03 (JA_). These servicing rights allowed IndyMac to earn substantial servicing
fees. Am. Comp. ¶¶ 5, 57, 62 (JA_). Importantly, pursuant to the PSAs, IndyMac,
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as servicer, paid itself servicing fees from mortgage-loan proceeds it collected each
month. See, e.g., INDS 2007-1 PSA §§ 3.09(a)(i), 3.15 (JA_).5
In exchange for these substantial servicing fees, IndyMac was
supposed to (1) collect mortgage payments, (2) determine whether a mortgage loan
was in default, (3) interact with borrowers to maximize recoveries and (4) remit
proceeds from the mortgage loans to the trusts for the IndyMac Transactions (net
of its servicing fees). Am. Comp. ¶¶ 55-56 (JA_). IndyMac, as servicer, also
undertook to determine if defaulted mortgage loans were likely to generate further
cash flows and, if not, whether such mortgage loans should be “charged-off” (that
is, have the value written down to zero). Am. Comp. ¶¶ 28, 98-99 (JA_).
In addition to its post-closing obligations as servicer, IndyMac also
had continuing obligations as the seller of the securitized mortgage loans.
Specifically, when each IndyMac Transaction closed, IndyMac, as seller, made
representations and warranties in the PSAs concerning the characteristics of the
mortgage loans. Am. Comp. ¶¶ 30, 39-41 (JA_). Pursuant to the PSAs, if any
given securitized mortgage loan evidenced a breach of the seller’s representations
and warranties, the seller had a post-closing obligation to repurchase (or provide a
substitute for) that mortgage loan. Am. Comp. ¶¶ 52, 58 (JA_).
5 The INDS 2007-1 PSA is representative of the operative terms included in the INDS 2006-H4 and INDS 2007-2 PSAs.
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Specifically, pursuant to the PSAs, the seller was contractually
obligated to participate in a Put Back Process. See, e.g., INDS 2007-1 PSA § 2.03
(JA_). MBIA had the right to bring the non-compliant mortgage loans to the
seller’s attention at any time. Am. Comp. ¶¶ 59, 114, 116 (JA_). The seller had 90
days to cure a breach. Am. Comp. ¶¶ 59, 114 (JA_). If the seller failed to cure the
breach in 90 days, it was required to repurchase the non-compliant mortgage loan.
Am. Comp. ¶¶ 59, 114 (JA_).
D. IndyMac’s Failure And The Creation Of IndyMac Federal
On July 11, 2008, OTS announced that IndyMac had failed. Am.
Comp. ¶ 46 (JA_). OTS appointed the FDIC as receiver of IndyMac, thus
beginning IndyMac’s resolution. Am. Comp. ¶ 46 (JA_).
The FDIC undertook a “pass-through receivership” strategy. Am.
Comp. ¶¶ 47-48 (JA_). “In a pass-through receivership, all deposits, substantially
all assets, and certain non-deposit liabilities of the original institution instantly
‘pass[] through the receiver’ to a newly chartered federal mutual association,
subsequently known as the conservatorship.” MBIA, 816 F. Supp. 2d at 85. To
effectuate the pass-through receivership, the FDIC immediately chartered IndyMac
Federal, a new bank established in accordance with section 1821(m). IndyMac
Federal, in turn, was contemporaneously placed under the conservatorship of the
FDIC.
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E. IndyMac Federal Assumes IndyMac’s Contractual Rights And Obligations Under The PSAs
Upon being appointed, FDIC Conservator entered into the PAA. Am.
Comp. ¶ 48 (JA_). The PAA was a formal 65-page legal document, signed by the
FDIC in all three of its capacities, and signed by FDIC Conservator on behalf of
IndyMac Federal. Pursuant to the PAA, FDIC Conservator expressly assumed
IndyMac’s (1) “duties and obligations under any contract to which [IndyMac]
provides mortgage servicing for others,” (2) “Qualified Financial Contracts” and
(3) “mortgage servicing rights and related contracts.” Am. Comp. ¶¶ 48-51 (JA_);
PAA at §§ 2.1(j), (k) (JA_).
The PSAs were among the contracts assumed under the PAA. As a
result, IndyMac Federal was entitled to the benefits of the PSAs, and assumed the
corresponding post-closing obligations to act as seller and servicer with respect to
the IndyMac Transactions. Am. Comp. ¶¶ 49-50, 52-59 (JA_); see also Tr. of Oral
Argument (Sept. 27, 2011) at 24:22-23 (JA_); Deutsche Bank Nat’l Trust Co. v.
FDIC, 784 F. Supp. 2d 1142, 1154 (C.D. Cal. 2011).
By expressly assuming the financial benefits and undertaking the
post-closing seller-and-servicer obligations under the PSAs, the FDIC was carrying
out its statutory mandate to “preserve and conserve” IndyMac’s assets and property
for eventual sale. See 12 U.S.C. 1821(d)(2)(D); Am. Comp. ¶ 62 (JA_). Indeed, in
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the eight-month period of its conservatorship, IndyMac Federal earned $3.3
million in servicing fees under the PSAs alone. Am. Comp. ¶ 62 (JA_).
Importantly, FDIC Conservator could have repudiated the PSAs (as
could the Old IndyMac Receiver). See 12 U.S.C. § 1821(e)(1-3). Had the FDIC
done so, IndyMac Federal would not have been able to collect millions of dollars
in servicing fees. On being appointed, FDIC Conservator chose not to repudiate
the PSAs. Am. Compl. ¶ 4, 51, 60 (JA_). In fact, FDIC Conservator never
repudiated two of the three PSAs, and as to the third, only attempted an untimely
repudiation in March 2009.6 Ultimately, the FDIC sold two of the PSAs and
corresponding servicing rights to OneWest at a substantial profit.
F. FDIC Conservator Breached Post-Closing Servicing Obligations
Despite executing the PAA, and deliberately undertaking to perform
the post-closing duties of servicer under the PSAs, FDIC Conservator only
partially and improperly performed its contractual servicing obligations. Am.
Comp. ¶¶ 61 (JA_). For example, FDIC Conservator did not diligently contact
borrowers and ensure their compliance with their payment obligations. FDIC
Conservator also improperly charged-off mortgage loans, thus causing more
insurance claims to be submitted to MBIA. Am. Comp. ¶ 61 (JA_). Finally, FDIC
6 In Claim VII of its Amended Complaint, MBIA alleges that this repudiation was ultra vires. Am. Compl. ¶¶ 194-202 (JA_).
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Conservator converted for its own benefit servicing proceeds that were owed to the
trusts for the IndyMac Transactions. Am. Comp. ¶ 103 (JA_). FDIC
Conservator’s breaches of its servicing obligations under the PSAs caused
increased delinquencies and harm to MBIA. Am. Comp. ¶¶ 104-05 (JA_).
G. FDIC Conservator Breached Post-Closing Seller Obligations
FDIC Conservator also breached the post-closing seller obligations
that it assumed as part of the PSAs. In particular, as successor to IndyMac, i.e., the
seller for the IndyMac Transactions, FDIC Conservator expressly assumed the
seller’s post-closing obligation to continue to engage in the Put Back Process
described above. Am. Comp. ¶¶ 58-59, 114 (JA_). Again, Old IndyMac Receiver
could have repudiated the PSAs before executing the PAA, and FDIC Conservator
could have promptly repudiated the PSAs after executing the PAA. But the FDIC
elected not to do so, thereby accepting responsibility for IndyMac’s post-closing
seller obligations.
In breach of its post-closing seller obligations, FDIC Conservator
refused to engage in the Put Back Process. Specifically, before FDIC Conservator
assumed the PSAs, MBIA had submitted repurchase demands to IndyMac on May
23, 2008. IndyMac’s time to respond (i.e., 90 days) had not yet expired when
FDIC Conservator entered the PAA. By assuming the PSAs, FDIC Conservator
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was obligated to honor MBIA’s outstanding repurchase demands.7 It failed to do
so. Separate and apart from that, FDIC Conservator refused to respond to
additional repurchase demands that MBIA made after FDIC Conservator assumed
the PSAs. Am. Comp. ¶¶ 63-64, 113 (JA_).
H. FDIC Conservator Continued To Partially Perform And Collect Millions In Servicing Fees
While breaching its servicer obligations, and refusing to honor its
post-closing seller obligations, FDIC Conservator continued to pay itself millions
of dollars in servicing fees. Am. Comp. ¶ 61-62 (JA_). Specifically, from July 11,
2008 through March 19, 2009, FDIC Conservator paid itself over $3.3 million in
servicing fees for the IndyMac Transactions from the mortgage-loan proceeds it
collected on a monthly basis from borrowers. Am. Comp. ¶ 62 (JA_). FDIC
Conservator’s decision to pay itself these fees and partially perform its servicing
obligations further demonstrates that the PSAs were “approved” by FDIC
Conservator as contemplated by section 1821(d)(20). So too does FDIC
7 As the district court correctly noted, MBIA’s claim based on a breach of the post-closing seller obligations did not become actionable until the 90-day cure-period expired. 816 F. Supp. 2d at 88 n.8. Thus, despite the district court’s doubts (id. at 88 n.9), MBIA clearly alleged a breach of contract that occurred in August 2008. The district court’s attempt to distinguish between the timing of the breach and the remedy cannot be reconciled with New York law. See Rachmani Corp. v. 9 E. 96th St. Apt. Corp., 629 N.Y.S.2d 382, 384 (N.Y. App. Div. 1995) (contract not breached until time for performance expires).
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Conservator’s use of its servicing rights to increase IndyMac Federal’s value in
advance of the eventual sale to OneWest. Am. Comp. ¶ 62 (JA_). Indeed, FDIC
Conservator assumed a $184 billion servicing portfolio for IndyMac Federal (JA
___), which allowed it to earn approximately $600 million in servicing fees during
FDIC Conservator’s eight-month tenure alone. This underscores just how critical
servicing rights were to the overall value of IndyMac Federal, which FDIC
Conservator was charged with preserving and maximizing.
I. The Sale Of IndyMac Federal’s Assets
On March 19, 2009, the FDIC completed the sale of IndyMac
Federal’s assets to OneWest. Am. Comp. ¶ 69 (JA_). According to the FDIC’s
contemporaneous account of the transaction: “As of January 31, 2009, IndyMac
Federal had total assets of $23.5 billion and total deposits of $6.4 billion. OneWest
has agreed to purchase all deposits and approximately $20.7 billion in assets at a
discount of $4.7 billion. The FDIC will retain the remaining assets for later
disposition.” http://www.fdic.gov/news/news/press/2009/pr09042.html (last
visited June 1, 2012).
On the same day, the FDIC purported to retroactively repudiate as of
July 2008 FDIC Conservator’s contractual obligations in connection with the
INDS 2007-1 securitization, one of the three securitizations at issue here. Am.
Comp. ¶ 72 (JA_). Notably, FDIC Conservator did not repudiate any contractual
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obligations with respect to the other two PSAs, choosing instead to monetize those
assets by selling the valuable servicing rights to OneWest.
In conjunction with the One West sale, the FDIC also appointed itself
receiver of IndyMac Federal, thereby replacing the conservatorship with a second
receivership. The FDIC Receiver never paid any dividend.8 Nonetheless, at some
time after the March 2009 sale to OneWest, FDIC Receiver paid, and FDIC
Corporate accepted, some (or all) of the $5.3 billion then remaining in the IndyMac
Federal estate. Am. Comp. ¶ 83 (JA_).
On April 3, 2009, the FDIC represented to the Federal Reserve that it
would address the concerns of counterparties of IndyMac Federal and FDIC
Conservator, who were afraid of doing business with IndyMac’s successors, by
telling them that “the government stands behind this bank.” (JA_). These
statements to the Federal Reserve cannot be reconciled with the FDIC’s subsequent
conduct in this case, including its failure to fulfill its statutory obligation under
section 1821(m)(11-13) to furnish IndyMac Federal with funds to cover losses
incurred during the FDIC’s conservatorship, and its refusal to otherwise honor
MBIA’s contractual rights.
8 Old IndyMac Receiver paid a 50% dividend to uninsured depositors on July 13, 2008. http://www2.fdic.gov/divweb/Dividendindex.asp (last visited on June 1, 2012).
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J. MBIA’s Proofs Of Claim
MBIA filed proofs of claim against IndyMac Federal with FDIC
Receiver on June 17, 2009 and August 26, 2009, expressly designating its claims
as “administrative expense” claims, Am. Comp. ¶ 21 (JA_), that should have been
paid on a priority basis to MBIA in accordance with FIRREA. 12 U.S.C. §
1821(d)(11)(A). MBIA’s proofs of claim asserted, among other things, claims
based on breaches of contractual obligations by FDIC Conservator that occurred
after the creation of IndyMac Federal. In addition, MBIA asserted claims with
respect to the FDIC’s failure to timely repudiate the INDS 2007-1 PSA. In May
2009, MBIA brought suit in the district court on those claims.
K. The FDIC’s No Value Determination
On November 12, 2009, the FDIC Board of Directors issued a “No
Value Determination,” announcing that the IndyMac Federal receivership had
insufficient assets to satisfy any general unsecured creditor claims. Am. Comp. ¶
77 (JA_). On November 24, 2009, the FDIC notified MBIA about the No Value
Determination. (JA_). Despite MBIA’s clear indication that its proofs of claim
concerned “administrative expenses” that were to be paid on a priority basis ahead
of depositors and general unsecured creditor claims, and, therefore, not properly
the subject of the “No Value Determination,” the FDIC informed MBIA that it
would not review the claims, thereby summarily denying them. (JA_).
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SUMMARY OF ARGUMENT
When the FDIC assumes contracts from a failed financial institution
and collects millions in fees under those contracts before selling the contractual
rights at a profit, it cannot be permitted to misclassify damages caused by its
breach of those contracts as mere general creditor claims. The relevant statutory
scheme requires such liability to be paid on a priority basis as “administrative
expenses” of the relevant FDIC receivership.
When IndyMac failed, the FDIC chose to resolve IndyMac through
(a) the creation of a new bank, IndyMac Federal, pursuant to section 1821(m); (b)
placing IndyMac Federal into conservatorship under the FDIC; (c) the assumption
by IndyMac Federal of certain contracts and assets from IndyMac pursuant to the
PAA, including the three PSAs at issue here; (d) the sale, eight months later, of a
substantial portion of IndyMac Federal’s assets to OneWest; and (e) the placing of
IndyMac Federal into receivership, where claims against the IndyMac Federal
estate could be resolved.
While IndyMac Federal was under FDIC Conservator’s control, FDIC
Conservator breached post-closing servicer-and-seller obligations to MBIA under
the PSAs, which FDIC Conservator assumed and, MBIA submits, “approved”, as
part of the PAA. In particular, FDIC Conservator breached its obligations to
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service delinquent mortgage loans, and to repurchase defective mortgage loans that
were improperly included in the IndyMac Transactions.
At the same time, FDIC Conservator continued to pay itself millions
of dollars in servicing fees from the mortgage-loan proceeds that it collected each
month as servicer. FDIC Conservator also used the PSAs to increase the value of
the IndyMac Federal asset portfolio that it would ultimately sell to OneWest.
Pursuant to section 1821(d)(20), liability arising from FDIC
Conservator’s breach of the PSAs constitutes an “administrative expense.”
Pursuant to section 1821(d)(11), FDIC Receiver should have satisfied MBIA’s
claims concerning FDIC Conservator’s liability on a priority basis ahead of
depositors and general creditors. As alleged in the Amended Complaint, the FDIC
acted contrary to the relevant statutory scheme when it failed to do so, and instead
summarily rejected MBIA’s proofs of claim after issuing the No Value
Determination.
In dismissing MBIA’s claims as prudentially moot, the district court
incorrectly held that MBIA’s claims could not qualify as administrative expenses.
In particular, the district court erroneously held that FDIC Conservator did not
“approve” the PSAs. In doing so, the district court relied on an unduly restrictive
reading of section 1821(d)(20), and read some unidentified formal approval
process into the statute. The formal approval process that the district court held
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was required to bring a contract within the meaning of section 1821(d)(20) simply
does not exist in either the statute or the relevant regulations.
The district court also improperly failed to consider MBIA’s
allegations that FDIC Conservator “approved” the PSAs when it (a) purposefully
executed the 65-page formal PAA, thereby assuming the PSAs, (b) chose not to
timely repudiate the PSAs, (c) paid itself over $3 million in servicing fees, (d)
partially performed its servicing obligations and (e) ultimately sold two of the
PSAs to OneWest.
More fundamentally, the district court concluded that when the FDIC
breaches a contract it expressly assumes and does not repudiate, only a general
creditor claim results. This makes no sense. If this were the law, then the entire
statutory scheme governing the FDIC’s repudiation of contracts would be rendered
unnecessary and superfluous. Section 1821(d)(20), considered in pari materia
with the repudiation process in the same statute, demonstrates that there would
never be any need for the FDIC to repudiate any contract if “un-repudiated”
contracts produced only general creditor claims.
Separate and apart from misconstruing the relevant statute and failing
to properly apply the relevant factual allegations, the district court ignored the
serious policy problems that its interpretation and holding will create if left intact.
Counterparties who are obligated to continue to do business with a failed bank
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must have meaningful recourse for breaches by the FDIC while conservator of a
failed institution, especially if the FDIC is simultaneously reaping benefits under
the breached agreements, and using such agreements to enhance the value of the
failed institution for an eventual asset sale.
If the district court’s holding is allowed to stand, there is no incentive
for rational counterparties to continue to perform their obligations under any
contract expressly assumed and not repudiated by the FDIC. For example, there is
no reason why counterparties who owe payments to the FDIC in connection with
continuing financial relationships will voluntarily make those payments absent
advance, formal approval of the contracts by the FDIC conservatorship. This, of
course, would interfere with the FDIC’s ability to resolve the failed institution, and
preserve its value. Plainly, Congress did not intend such a result.
Under FIRREA, an FDIC conservator can either repudiate a contract
or not repudiate the contract. Any un-repudiated contract should be considered
“approved” within the meaning of section 1821(d)(20), especially when, as here,
the FDIC Conservator assumed the contract in writing and continued to reap
financial benefits from the contract before selling the contract at a profit. It
follows that liability flowing from a breach of such a contract should be treated as
an administrative expense paid on a priority basis pursuant to section
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1821(d)(11)(A). Consequently, MBIA’s administrative expense claims here
should not have been dismissed as prudentially moot.
The district court’s prudential mootness analysis also ignored FDIC
Corporate’s obligations under section 1821(m)(11)-(13) to fund IndyMac Federal’s
losses, including losses related to liability arising from breaches of the PSAs that
occurred during FDIC Conservator’s tenure. If FDIC Corporate had fulfilled its
statutory obligations, MBIA’s claims could have been satisfied. Similarly, if the
FDIC had accounted for FDIC Corporate’s statutory obligations to IndyMac
Federal as an asset of FDIC Receiver, the No Value Determination could not have
been issued. For these additional reasons, the district court’s prudential mootness
determination should be reversed.
The district court also improperly shielded from review FDIC
Receiver’s transfer of IndyMac Federal’s assets to FDIC Corporate when it held
that MBIA’s claims against FDIC Corporate were barred by section
1821(d)(10)(B), a provision clearly inapplicable to the payment. That section only
shields the FDIC from liability for “pay[ing] dividends on proved claims,”
something which the IndyMac Federal Receiver has indisputably never done.
Finally, to ensure that MBIA has a remedy to address the FDIC’s
ultra vires conduct, this Court should reinstate MBIA’s claims for declaratory and
injunctive relief. As demonstrated above, in connection with resolving IndyMac,
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the FDIC repeatedly acted beyond, and contrary to, its statutorily prescribed
powers and functions. Thus, the ultra vires exception to section 1821(j)’s bar to
injunctive relief should be applied.
STANDARD OF REVIEW
This Court reviews de novo the district court’s decision to dismiss for
lack of subject matter jurisdiction and for failure to state a claim. Doe v.
Metropolitan Police Dep’t, 445 F.3d 460, 466 (D.C. Cir. 2006); Winder v. Erste,
566 F.3d 209, 214 (D.C. Cir. 2009). In reviewing the district court’s decision, this
Court should accept as true all the well-pleaded allegations in the Amended
Complaint. Winder, 566 F.3d at 214.
ARGUMENT
Under Rule 12(b)(6), a complaint must contain sufficient factual
matter, accepted as true, to “state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal,
556 U.S. 662, 677-78 (2009). Dismissal for lack of subject matter jurisdiction
pursuant to Rule 12(b)(1) is allowed only when the district court lacks the statutory
or constitutional power to adjudicate the case. See Kokkonen v. Guardian Life Ins.
Co. of Am., 511 U.S. 375, 377 (1994).
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POINT I MBIA’S CLAIMS ARE NOT PRUDENTIALLY MOOT
The doctrine of prudential mootness favors dismissal when “a
controversy, not actually moot, is so attenuated that considerations of prudence and
comity for coordinate branches of government counsel the court to stay its hand,
and to withhold relief it has the power to grant.” Chamber of Commerce v. United
States Dep’t of Energy, 627 F.2d 289, 291 (D.C. Cir. 1980). However, a court
should not dismiss claims as prudentially moot when “a favorable judgment. . .
will provide a real measure of redress” for the wrongs alleged. Foretich v. United
States, 351 F.3d 1198, 1216 (D.C. Cir. 2003).
Here, the district court erred when it dismissed MBIA’s claims as
prudentially moot. The district court’s prudential mootness analysis turned almost
entirely on its erroneous conclusion that MBIA’s claims did not constitute
“administrative expenses,” but instead were properly treated by the FDIC as
general creditor claims. MBIA, 816 F. Supp. 2d at 101-02. The district court
reached its ultimate holding through a series of erroneous legal conclusions, some
of which relied on faulty factual premises. Specifically, to reach its ultimate
holding, the district court misinterpreted several statutory provisions, including
sections 1821(d)(11), 1821(d)(20), 1821(e)(7) and 1821(m), and failed to
recognize the significance of key allegations in the Amended Complaint regarding
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affirmative conduct undertaken by FDIC Conservator, which demonstrates it
“approved” the PSAs.
A. MBIA’s Claims Constitute “Administrative Expenses” Entitled To Priority
“Administrative expenses” incurred in connection with resolving a
failed institution are to be paid by the FDIC, as receiver, during the claims process
on a priority basis, even ahead of depositor claims. 12 U.S.C. § 1821(d)(11)(A)(i).
This is in contrast to general creditor claims, which are only paid after secured
claims, administrative expenses and depositor claims. 12 U.S.C. § 1821(d)(11)(A).
Section 1821(d)(11) does not expressly define “administrative
expenses.” However, various related provisions identify certain categories of
liabilities that Congress intended to be treated as “administrative expenses.” In
particular, section 1821(d)(20) provides:
Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator.
12 U.S.C. § 1821(d)(20) (emphasis added).
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Pursuant to this provision, the FDIC, as a conservator, can be held
liable for breaching agreements with contractual counterparties. Such liability is
not to be treated as a general creditor claim by an FDIC receiver in the context of
the claims process. Rather, liability arising from an FDIC conservator’s breach of
an approved contract is to be treated as an administrative expense of the FDIC
receiver to be paid on a priority basis pursuant to section 1821(d)(11)(A).9 This
statutory scheme protects counterparties who themselves are bound by agreements
the FDIC chooses to enforce. 12 U.S.C. § 1821(e)(13).
Here, MBIA’s breach of contract claims are predicated on the PSAs.
See Am. Compl. ¶¶ 96, 103, 114, 147, 157, 175. MBIA alleged that the FDIC
Conservator “approved” the PSAs in several different ways after the date of its
appointment as conservator. Both as a result of this affirmative action (most
significantly, its execution of the formal PAA) and by its decisions not to timely
repudiate the PSAs, FDIC Conservator “approved” the PSAs. As a result, liability
arising from their breach should have been “paid as an administrative expense of
the receiver” in accordance with section 1821(d)(20).
9 There is no claims process for an FDIC conservator – only an FDIC receiver. 12 U.S.C. § 1821(11)(A). Thus, as the district court correctly observed, to give proper effect to section 1821(d)(20), which refers to the “administrative expenses” of the conservator, an FDIC receiver must be obligated to pay them on a priority basis. 816 F. Supp. 2d at 98 n.18.
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First, after IndyMac Federal was formed and the FDIC became its
conservator, FDIC Conservator “approved” the PSAs when it entered into the PAA
on behalf of IndyMac Federal. Specifically, pursuant to the PAA, FDIC
Conservator, on behalf of IndyMac Federal, expressly assumed IndyMac’s (1)
“duties and obligations under any contract to which [IndyMac] provides mortgage
servicing for others,” (2) “Qualified Financial Contracts” and (3) “mortgage
servicing rights and related contracts.” Am. Comp. ¶¶ 48-51 (JA_); PAA §§ 2.1(j),
(k) (JA_). This included IndyMac’s post-closing seller and servicing obligations
under the PSAs.
Second, after assuming the PSAs, FDIC Conservator made the
conscious decision not to timely repudiate them as it could have done pursuant to
section 1821(e)(1)-(3).10 This is further evidence that FDIC Conservator
“approved” the relevant agreements as that term is used in section 1821(d)(20).
FDIC Conservator’s affirmative decision not to repudiate the PSAs was ostensibly
made because FDIC Conservator found that the PSAs added value to IndyMac
Federal, value that it would later monetize when selling IndyMac Federal’s assets
to OneWest. See Am. Comp. ¶¶ 62 (JA_).
10 Had FDIC Conservator repudiated the agreements, MBIA would have been able to transfer responsibility for servicing loans away from IndyMac Federal, and could have avoided certain servicing-related losses suffered during the period of the FDIC’s conservatorship.
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Third, FDIC Conservator paid itself over $3 million in servicing fees
pursuant to the PSAs from the mortgage loan proceeds that it collected each month
as servicer. This too evidences that FDIC Conservator had “approved” the relevant
agreements after its appointment, thereby making liability flowing from its breach
of those agreements “an administrative expense” under section 1821(d)(20). See
Janowsky v. United States, 133 F.3d 888, 892 (Fed. Cir. 1998); Silverman v.
United States, 679 F.2d 865, 870 (Ct. Cl. 1982) (“By accepting the benefits
flowing from the senior FTC official’s promise of payment, the FTC ratified such
promise and was bound by it”).
Fourth, FDIC Conservator partially performed its servicing
obligations under the PSAs. This partial performance further evidences that FDIC
Conservator had “approved” the relevant agreements. If it had not approved the
PSAs, it would not have performed. See Winston v. Mediafare Entm’t Corp., 777
F.2d 78, 80 (2d Cir. 1985).
Fifth, in March 2009, FDIC Conservator elected to sell two of the
three PSAs to OneWest, thereby turning the assumed and un-repudiated contracts
into additional cash that enriched the IndyMac Federal estate, and ultimately
replenished the coffers of FDIC Corporate.
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Together these five separate decisions and affirmative acts by FDIC
Conservator provide substantial evidence that FDIC Conservator “approved” the
PSAs as contemplated by section 1821(d)(20).
B. The District Court Erred In Concluding That FDIC Conservator Did Not “Approve” The PSAs
The district court never squarely addressed why FDIC Conservator’s
execution of the PAA and other affirmative acts did not mean the PSAs were
“approved” under section 1821(d)(20). Instead, the district court focused on
whether the PSAs had been “approved” through “inaction,” ultimately reaching the
erroneous conclusion that FDIC Conservator did not “approve” the relevant
agreements, as that term is used in section 1821(d)(20). 816 F. Supp. 2d at 93-98.
As demonstrated below, the district court’s reasoning and analysis were flawed.
1. “Approved” As Used In 12 U.S.C. § 1821(d)(20) Means To Have Consented, Agreed Or Ratified
The district court began its analysis by selecting one unduly narrow
definition of “approve” from several possible definitions offered by the
dictionaries it consulted – Black’s Law Dictionary and Oxford English Dictionary,
OED Online – and ignoring other sources. Specifically, the district court held that
“approved” as used in section 1821(d)(20) means “give formal sanction to; to
confirm authoritatively.” 816 F. Supp. 2d at 96. While “formal sanction” is
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certainly a species of “approval,” something can be “approved,” as that word is
more commonly used, through simple consent, agreement or ratification. See
Random House Webster’s Unabridged Dict. 103 (2d ed. 1998) (definitions of
“approve” include “to consent or agree to” and “ratify”); Webster’s New Universal
Unabridged Dict. 92 (2d ed. 1983) (definitions of “approve” include “to ratify”);
see also Doe v. United States, 372 F.3d 1347, 1359 (Fed. Cir. 2004) (finding the
statutory word “approve” ambiguous and noting that its dictionary definitions were
broad enough to encompass both written and oral approval).
As this Court has previously recognized, in construing statutory
language it is not proper to choose one narrow dictionary definition over an equally
applicable, but broader definition, especially when the narrower definition is
selected from a specialized dictionary such as Black’s Law Dictionary. See Bank
of New York v. FDIC, 508 F.3d 1, 5 (D.C. Cir. 2007) (“why choose Black’s? Other
dictionaries contain broader definitions of these words”); see also Cabell v.
Markham, 148 F.2d 737, 739 (2d Cir.) (when construing statutes, it is improper to
“make a fortress out of the dictionary”), aff’d, 326 U.S. 404 (1945).
Yet, that is exactly what the district court did here. Fortunately, the
“battle of definitions” does not need to be decided in a statutory vacuum. The
district court’s definition choice cannot be reconciled with the statute inasmuch as
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the district court has improperly grafted some unidentified formality and process
onto section 1821(d)(20) where none exists.
When Congress intended for formal approval to be obtained through
something more than simple consent, agreement or ratification, the statute spells
out those requirements in plain English. For example, section 1821(n) provides:
The articles of association and organization certificate of a bridge depository institution as approved by the Corporation shall be executed by 3 representatives designated by the Corporation.
12 U.S.C. § 1821(n)(1)(C) (emphasis added). Similarly, section 1821(d) provides:
The receiver may, in the receiver’s discretion and to the extent funds are available, pay creditor claims which are allowed by the receiver, approved by the Corporation pursuant to a final determination pursuant to paragraph (7) or (8) . . . .
12 U.S.C. § 1821(d)(10)(A) (emphasis added).
In both instances, when Congress sought to formalize or dictate the
FDIC approval process in some way, it expressly did so. See Russello v. United
States, 464 U.S. 16, 23 (1983) (“Where Congress includes particular language in
one section of a statute but omits it in another section of the same Act, it is
generally presumed that Congress acts intentionally and purposely in the disparate
inclusion or exclusion”) (internal citations omitted). By contrast, in the case of
section 1821(d)(20), Congress did not add any formal process or requirements
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specifying the manner in which a contract should be approved before liability
arising from a breach of such a contract can be treated as an “administrative
expense.”
2. The Formal Approval Process Envisioned By The District Court Is Not Found In Either The Statute Or The FDIC’s Regulations
The district court’s analysis ignored these provisions, which provide
insight into how Congress used the word “approved.” Instead, the district court
focused on the fact that section 1821(d)(20) does not refer to other categories of
breached contracts, such as contracts that are “assumed” or “not repudiated” or
“performed.” 816 F. Supp. 2d at 96, 99. The district court’s logic is flawed in
several respects.
As an initial matter, nowhere does section 1821(d) refer to contracts
being “approved,” except in sub-section 1821(d)(20). This suggests that Congress
intended to include other categories of contracts, such as “assumed,” “performed,”
“enforced” or “un-repudiated” contracts within the category of “approved”
contracts.
Tellingly, the district court did not point to any place in section 1821
or the FDIC’s regulations to suggest how a contract could be formally “approved,”
as that term was construed by the district court. For “approved” to require some
special formalities, either the statute or the FDIC’s regulations must have created
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the formal approval process envisioned by the district court. See Laurel Baye
Healthcare of Lake Lanier, Inc. v. NLRB, 564 F.3d 469, 472 (D.C. Cir. 2009) (“A
cardinal principle of interpretation requires us to construe a statute so that no
provision is rendered inoperative or superfluous, void or insignificant”) (internal
quotations omitted); 2A Norman J. Singer & J.D. Singer, Sutherland Statutes and
Statutory Construction 46:6 (7th ed. 2007).
Yet, neither the statute nor the FDIC’s regulations does so. As a
result, there is no standard or guidance concerning how any contract can ever be
“approved,” as envisioned by the district court, and thus qualify as the kind of
contract that can give rise to liability that should be treated as an “administrative
expense.”11 Remarkably, the district court never attempted to specify what exactly
the FDIC would have to do to “approve” a contract. Does it have to hold a
meeting, take a vote and send a notice citing the statute? Does it have to get out a
copy of the exact contract and write “approved” on its face? Does the FDIC have
11 The district court’s flawed statutory construction analysis also rested, in part, on the sub-section heading Congress used for section 1821(d)(20). See 816 F. Supp. 2d at 96. Of course, statutory titles should not be relied on to constrain or alter the meaning of otherwise clear operative statutory provisions. See, e.g., National Ctr. for Mfg. Scis. v. Department of Defense, 199 F.3d 507, 511 (D.C. Cir. 2000). In any event, if correct, the district court’s interpretation would effectively read the word “approved” out of the statute by equating it to “executed.” Congress would not have used the phrase “executed or approved” in section 1821(d)(20) if it intended to equate “approved” with “executed” as the district court suggests.
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to apply a special stamp? The district court did not venture onto such shaky
ground for good reason: there is nothing in the statute or any FDIC regulation that
requires any formalities to be observed for a contract to be “approved” within the
meaning of section 1821(d)(20).
Rather, FIRREA sets up a binary statutory scheme whereby contracts
of a failed institution are either repudiated or not repudiated, and those that are not
repudiated may be enforced by the FDIC. 12 U.S.C. § 1821(e). “Approved”
contracts thus should include those that are assumed and not repudiated, like the
PSAs.
3. The District Court Ignored MBIA’s Allegations That FDIC Conservator “Approved” The PSAs
Applying its erroneous construction, the district court further erred by
ignoring allegations and evidence that FDIC Conservator “approved” the PSAs.
As set forth above, there were five different ways FDIC Conservator “approved”
the PSAs. In particular, after the FDIC formed IndyMac Federal and placed it
under conservatorship, FDIC Conservator executed the PAA, thereby expressly
acquiring IndyMac’s deposits and various agreements from IndyMac for IndyMac
Federal, including the PSAs. Again, FDIC Conservator’s execution of the PAA
cannot be squared with the district court’s conclusion that the relevant agreements
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were not “approved” by FDIC Conservator after its appointment within the
meaning of section 1821(d)(20).
This was not a situation where the FDIC, as receiver, simply stepped
into the shoes of a failed institution. Here, the FDIC created IndyMac Federal, and
placed it into conservatorship. Only after FDIC Conservator had control of
IndyMac Federal did it execute the PAA, thereby assuming the PSAs. Indeed,
even if “approved” required some “formal sanction” or “authoritative”
confirmation, there is nothing in the record below to support the conclusion that
the formal PAA, signed by the FDIC in all three capacities, was anything less than
an authoritative, formal approval of the PSAs.
The district court all but ignored MBIA’s allegations concerning the
PAA.12 The district court also all but ignored MBIA’s allegations of FDIC
Conservator’s other affirmative conduct – reaping financial benefits under the
PSAs, and partially performing servicing obligations. Instead, the district court
focused almost exclusively on MBIA’s allegation that FDIC Conservator did not
repudiate the agreements after deciding to acquire them pursuant to the PAA.
For example, the district court stated:
12 The district court addressed the PAA only in the context of making a policy argument to support its flawed interpretation of section 1821(d)(20). 816 F. Supp. 2d at 96-97. This brief addresses that policy argument below. See this Brief at I. E., infra.
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“MBIA’s argument that the FDIC ‘approved’ the Transaction agreements simply because the FDIC – in its capacity as the conservator of IndyMac Federal – did not repudiate them is not consistent with the language or the intent of the statute.” 816 F. Supp. 2d at 92 (emphasis added).
“Plaintiff's concept of approval by omission does not comport with the plain language of the statutory provision and to interpret the clause in this manner would broaden administrative priority well beyond anything Congress appears to have intended.” Id. at 93-94 (emphasis added).
“More important, treating claims as administrative expenses based simply on the conservator’s inaction would be contrary to the clear system of priorities set out in the statute.” Id. at 97 (emphasis added).
As these passages demonstrate, throughout its decision the district
court rejected MBIA’s claims for relying solely on FDIC Conservator’s “inaction”
and “tacit” “approval by omission” when FDIC Conservator decided not to avail
itself of its statutory right to repudiate the PSAs. But MBIA’s claims are not based
on mere inaction. Thus, the primary premise of the district court’s decision was
incorrect.
In fact, MBIA alleged affirmative action on the part of FDIC
Conservator, including its formal execution of the PAA, its paying itself millions
of dollars in servicing fees, its partial performance of its servicing obligations and
its sale of two of the PSAs to OneWest, all as proof that FDIC Conservator
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“approved” the PSAs. The district court’s failure to properly consider these
allegations is reversible error.
C. Treating Liability Arising From FDIC Conservator’s Breach Of Contracts As Administrative Expenses Is Consistent With Section 1821(e)(7)(B)
Construing “administrative expenses” to include liability arising from
FDIC Conservator’s breach of the PSAs is entirely consistent with how Congress
wanted other contractual obligations owed by FDIC Conservator to the failed
institution’s contractual counterparties to be treated. For example, by virtue of
section 1821(e)(7)(B), Congress ensured that counterparties would be compensated
for services that they continued to provide a failed institution after the FDIC
became the failed institution’s conservator. Congress wanted counterparties to be
protected when they satisfied their contractual obligations (e.g., here, MBIA
continued to insure investors), and the FDIC received tangible benefits (here, $3.3
million in servicing fees). As section 1821(e)(7)(B)(ii) demonstrates, Congress did
not want such counterparties to be treated as general creditors. The same
Congressional intent manifested in section 1821(e)(7)(B) is reflected in section
1821(d)(20).
In its decision, the district court ignored the parallels between section
1821(e)(7)(B) and section 1821(d)(20). Instead, it reasoned that section
1821(e)(7)(B) is inapplicable because MBIA did not allege that FDIC Conservator
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accepted services from MBIA. 816 F. Supp. 2d at 99-100. This reasoning reflects
a misunderstanding of how residential mortgage-backed securitizations work when
they involve financial guarantee insurers like MBIA. MBIA’s insurance payments
to investors directly and indirectly benefitted IndyMac Federal, as seller, under the
terms of the PSAs. Among other things, if MBIA failed to make insurance
payments, investors would have been harmed, and would have made claims against
IndyMac Federal for any missed bond payments.
In any event, even if FDIC Conservator did not accept any services
from MBIA, the district court’s analysis still misses the point. Section
1821(e)(7)(B) reflects the following basic policy choice made by Congress: the
FDIC should not accept benefits from counterparties who hold up their end of
contractual arrangements, without those counterparties being compensated ahead
of depositors during the resolution process. This Congressional intent should
inform this Court’s interpretation of section 1821(d)(20).
D. Congress’s Inclusion Of A Repudiation Process In FIRREA Confirms That MBIA’s Interpretation Of Section 1821(d)(20) Is Correct
The rule of in pari materia requires that statutory provisions should be
read and construed together, so that each is given effect. See United States v.
Stewart, 311 U.S. 60, 64 (1940). The district court’s attempt to find some other
category of general creditor claims based on breached un-repudiated contracts is
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inconsistent with the statutory scheme. The district court’s narrow construction of
section 1821(d)(20) leaves no material difference between claims resulting from
(a) the breach of an un-repudiated agreement (like the PSAs here), and (b) the
repudiation of an agreement, as both would result in general creditor claims. This
makes no sense.
There would be no reason for Congress to have established FIRREA’s
complex repudiation process if, as the district court erroneously held, damages
arising from the conservator’s breach of an un-repudiated contract left a
counterparty with only a general creditor claim. The repudiation process would be
entirely unnecessary. Congress simply could have omitted the repudiation
framework altogether, and allowed an FDIC receiver or conservator to breach
those agreements it did not want to perform. Aggrieved counterparties, whether
their contracts were repudiated or not, would have general creditor claims.
But that is not what Congress did. Congress crafted both a
repudiation provision that created general creditor claims (12 U.S.C. § 1821(e)),
and a separate provision requiring that liability arising from a breach of contract by
an FDIC conservator or receiver be treated as an administrative expense that had to
be paid on a priority basis. See 12 U.S.C. §§ 1821(d)(11), 1821(d)(20). Both
provisions must be given effect.
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The district court implicitly recognized the foregoing as an obstacle to
its ultimate holding. Trying to overcome the issue, the district court only
compounded the flaw in its statutory construction analysis. In particular, pointing
to section 1821(e)(3)’s limitation on repudiation liability, the district court
suggested that Congress included the repudiation process solely as a way for FDIC
Conservator to avoid punitive damages and limit its liability to direct
compensatory damages for contracts that it did not intend to honor. 816 F. Supp.
2d at 98. This reading of FIRREA cannot be reconciled with the statute, and
otherwise misconstrues Congress’s intent.
Limiting repudiation liability had nothing to do with differentiating
between repudiated contracts and breached un-repudiated contracts. Congress was
merely trying to codify limitations that exist at common law for damages arising
from the repudiation of contracts. See S. Rep. No. 101-19, 101st Cong., 1st Sess.,
at 314 (Apr. 13, 1989). Moreover, under the district court’s reasoning, by
breaching an un-repudiated contract, FDIC Conservator exposed itself to other
types of damages theories. If Congress intended to consciously expose FDIC
Conservator to a limitless number of damage theories, it surely would have said so,
especially given the care Congress took elsewhere to fashion limits to the FDIC’s
liability.
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In any event, for all practical purposes, the damages available for
breaching un-repudiated contracts, like the PSAs, would be limited to direct
compensatory damages. Indeed, MBIA’s claims here arising from the PSAs are
limited to direct compensatory damages. While it is theoretically possible that a
counterparty to a breached un-repudiated contract could seek punitive damages,
lost profits or tort-like damages, it is extremely difficult to imagine under what
circumstances such theories could be actionable in the context of a failed financial
institution run by the FDIC where the plaintiff is seeking redress for an FDIC
conservator’s conduct.13 It strains credulity to believe that Congress had such
hypothetical claims in mind when drafting FIRREA and section 1821(d)(20).
13 See New York Univ. v. Continental Ins. Co., 662 N.E.2d 763, 767 (N.Y. 1995) (punitive damages for breach of contract unavailable except in extraordinary circumstances when breach evidences “criminal indifference to civil obligations” that is part of a pattern of “morally reprehensible” tortious conduct directed at plaintiff and general public); Kenford Co., Inc. v. Erie Cty., 493 N.E.2d 234, 235-36 (N.Y. 1986) (lost profits not recoverable when damage theory is based on projections or estimates, or when parties, as evidenced by contract’s terms, do not expressly provide for them as remedy); Johnson v. Jamaica Hosp., 467 N.E.2d 502, 504 (N.Y. 1984) (pain-and-suffering damages not recoverable in a breach of contract action except in exceptional circumstances when breach involves mishandling of dead body, or ejection accompanied by accusations of immorality or humiliation).
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E. Public Policy Requires Liability Arising From FDIC Conservator’s Breaches To Be Treated As Administrative Expenses
As a matter of public policy, the district court’s decision refusing to
treat FDIC Conservator’s liability arising from its breach of contracts with MBIA
as administrative expenses should be reversed. Under the district court’s
construction of the statute, the FDIC, in its capacity as conservator of a failed
institution, may, without any legal consequences whatsoever, (a) affirmatively and
in writing deliberately assume a contract, then (b) elect not to promptly repudiate
the contract, while simultaneously (c) breaching its obligations under those very
same contracts despite (d) paying itself millions of dollars pursuant to the contracts
before (e) selling the contract in an asset sale to a third party and (f) using the
profits to replenish FDIC Corporate’s coffers. This cannot possibly be consistent
with Congress’s intent.
Counterparties must have meaningful recourse for breaches of un-
repudiated contracts by the FDIC that occur while it is the conservator of a failed
institution, especially if the FDIC is simultaneously reaping benefits under the
breached agreements, and using such agreements to enhance the value of the failed
institution for an eventual asset sale to raise funds for depositors. See In re New
Valley, 168 B.R. at 90 (“the FDIC cannot seek to enforce one part of the agreement
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and simultaneously seek to bar another part of the same agreement”); cf. 12 U.S.C.
§ 1821(e)(7)(B)(ii).
Otherwise, there is no incentive for counterparties to voluntarily
continue to perform their obligations. Rather, once the FDIC is appointed receiver
or conservator of a failed institution, rational counterparties would demand the
formal approval envisioned by the district court (although no one knows what that
is) before performing obligations, or making payments. This, of course, would
interfere with the FDIC’s ability to resolve the failed institution and maximize its
value. Plainly, Congress did not intend to create such a situation.
The district court failed to consider this policy concern. Instead, the
district court focused on its concern that allowing “inaction” to constitute
“approval” would open the floodgates to numerous administrative expense claims,
thereby unduly burdening future FDIC conservators attempting to conserve estate
assets. 816 F. Supp. 2d at 96-97. Once again, the district court’s focus on
“inaction” ignores MBIA’s actual allegations here. FDIC Conservator expressly
assumed the PSAs by executing the PAA, and took other affirmative steps
demonstrating it approved the PSAs. See this Brief at POINT I.B., supra. Under
the circumstances, there is no reason why Congress would have wanted MBIA to
be treated as a general creditor of the failed institution, and not the holder of an
administrative expense claim pursuant to section 1821(d)(20).
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The district court’s concern also was based on other false premises:
not every contractual obligation that an FDIC conservator fails to “immediately”
repudiate will automatically turn into administrative expenses, as the district court
suggests. See 816 F. Supp. 2d at 97. Rather, an FDIC conservator has a
“reasonable period” to decide whether to repudiate a contract, typically 90 days.
See this Brief at POINT IV, infra. Moreover, only when the conservator breaches
an un-repudiated agreement will there be any risk of liability being treated as an
administrative expense. Thus, the district court’s “floodgates” argument is without
merit.
F. Treating Liability Arising From FDIC Conservator’s Breaches As Administrative Expenses Is Consistent With The Bankruptcy Code
Further support for MBIA’s interpretation of “administrative
expenses” can be found in bankruptcy law. Office & Prof’l Employees Int’l Union,
Local 2 v. FDIC, 27 F.3d 598, 603 n.3 (D.C. Cir. 1994) (looking to bankruptcy law
to interpret the concept of “administrative expenses” under FIRREA); see also
Franklin Fin. v. Resolution Trust Corp., 53 F.3d 268, 272 (9th Cir. 1995)
(“[B]ankruptcy law was intended to be a model for FIRREA’s
receivership/conservatorship scheme”). Congress expressly modeled the FDIC’s
power to repudiate contracts on the Bankruptcy Code, which affords debtors and
trustees similar powers to assume or reject contracts. See S. Rep. No. 101-19, at
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314 (FIRREA repudiation provision “incorporates rights and principles established
at common law or in bankruptcy. Subparagraphs (D) and (E) are closely modeled
on parallel provisions of section 365 of the Bankruptcy Code”). The district court
ignored the structural parallels between FIRREA and the Bankruptcy Code.
Like the Bankruptcy Code, section 1821(d)(20) should be read to treat
liability flowing from un-repudiated financial contracts as administrative expenses
to be paid on a priority basis, especially when the FDIC conservator accepts
financial benefits under the contracts. Under the Bankruptcy Code, a debtor or
trustee may not exercise its assumption or rejection powers under 11 U.S.C. § 365
to assume the benefits of an executory contract without also assuming its
burdens.14 Moreover, an executory contract that is assumed under 11 U.S.C. § 365
“after commencement of the [bankruptcy] case is entitled to the same treatment as
a new contract or lease entered into by the trustee . . . any damages for breach of
that contract or lease will be entitled to administrative expense priority.” 1 Alan
N. Resnick & Henry J. Sommer, Collier Bankruptcy Manual ¶ 503.06[5][b] (3d ed.
rev. 2012) (emphasis added); Adelphia Bus. Solutions, Inc. v. Abnos, 482 F.3d 602,
606 (2d Cir. 2007). This priority is based upon the premise that assumed contracts
benefit the bankruptcy estate and pre-petition creditors. In re Old Carco LLC, 424
14 See Thompson v. Texas Mexican Ry. Co., 328 U.S. 134, 141 (1946); City of Covington v. Covington Landing L.P., 71 F.3d 1221, 1226 (6th Cir. 1995).
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B.R. 650, 655 (Bankr. S.D.N.Y. 2010), aff’d, No. 10 Civ. 2800, 2010 WL 4455648
(S.D.N.Y. Nov. 2, 2010). A further “purpose of the priority status for
administrative expenses is to ensure that the services needed to preserve the estate
will be performed and provided by third-parties by minimizing the risk that the
debtor will ultimately not be able to provide payment therefor.” In re Kollel Mateh
Efraim, LLC, 456 B.R. 185, 191 (S.D.N.Y. 2011) (internal quotation omitted).
These same purposes exist in the context of the resolution of a failed bank, and
should inform the construction of the term “administrative expenses” as used in
section 1821(d)(20).
Bankruptcy Code precedent also illustrates the erroneous nature of the
district court’s belief that administrative expenses should be limited to minimal
services necessary to “keep the lights on” or the like. See 816 F. Supp. 2d at 93.
Bankruptcy trustees and debtors, like an FDIC conservator, are often motivated to
assume profitable operating contracts of the failed institution, far beyond utilities
and janitorial services. In re Old Carco LLC, No. 10 Civ. 8283, 2012 WL 893614,
at *2 (S.D.N.Y. Mar. 15, 2012) (“Pursuant to the Purchase Agreement and the Sale
Order, New Chrysler’s ‘purchased assets’ included assumed and assigned dealer
agreements for Chrysler, Dodge and Jeep vehicle lines . . .”); In re GM Corp., 407
B.R. 463, 483 (Bankr. S.D.N.Y. 2009) (“Substantially all of old GM’s executory
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contracts with direct suppliers are likely to be assumed and assigned to New GM”),
aff’d sub nom. In re Motors Liquidation Co., 428 B.R. 43 (S.D.N.Y. 2010).
G. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With Legislative History
Since section 1821(d)(20) is clear on its face, resorting to legislative
history is unnecessary. See United States v. Gonzales, 520 U.S. 1, 6 (1997). Thus,
there is no need for this Court to concern itself with the relevant legislative history.
However, because the district court misconstrued the legislative history to bolster
its erroneous statutory construction, MBIA is compelled to address it here.
Notwithstanding the district court’s suggestion to the contrary,
MBIA’s statutory construction is entirely consistent with the statute’s legislative
history. In enacting the National Depositor Preference Act, which established
administrative expenses as a priority payment under section 1821(d)(11)(A), a
Congressional conference report noted that “administrative expenses” include
“expenses that preserve the value or the operation of the failed institution in
preparation for resolution.” H.R. Conf. Rep. No. 103-213, at 436, reprinted in
1993 U.S.C.C.A.N. 1088, 1125 (Aug. 4, 1993) (emphasis added).
The district court failed to recognize MBIA’s allegation that the PSAs
preserved the value of the IndyMac Federal receivership estate, and that liabilities
arising from their breach were exactly the kind of administrative expenses
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envisioned by Congress.15 There can be little doubt that the PSAs, along with the
remainder of IndyMac’s vast $184 billion portfolio of mortgage loan-servicing
rights, constituted a valuable asset of IndyMac Federal. As alleged in the
Amended Complaint, IndyMac Federal earned as much as $3.3 million as servicer
on the $1 billion portfolio comprising the IndyMac Transactions. Thus, the
MBIA-insured mortgage pools were part of IndyMac Federal’s $184 billion loan-
servicing portfolio that generated approximately $600 million in servicing fees
during FDIC Conservator’s tenure alone. See Statement of Facts, Sections H & I,
supra.
H. MBIA’s Interpretation Of Section 1821(d)(20) Is Consistent With The FDIC’s Regulations
The district court also found support for its incorrect interpretation in
the FDIC’s regulations, which the district court suggests confine “administrative
expenses” to routine operating expenses like data-processing services and utility-
bill payments. 816 F. Supp. 2d at 93. They do no such thing. Rather, the FDIC’s
regulations provide a non-exclusive list of expenses that a receiver may incur,
which should be treated as “administrative expenses.” See 12 C.F.R. § 360.4.
15 See FDIC v. Phoenix Casa Del Sol, LLC, No. CV 09–2556–PHX–MHM, 2011 WL 814858, at *3 (D. Ariz. Mar. 3, 2011) (expenses incurred to preserve bank’s assets for liquidation constitute “administrative expenses which deserve to receive the highest priority of repayment” after assets are liquidated by FDIC).
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Moreover, as noted above, corporate debtors in Chapter 11 bankruptcy routinely
assume large valuable operating contracts, thus making amounts due under those
contracts into administrative expenses. See this Brief at POINT I. F., supra.
Importantly, the FDIC’s regulations make clear that “administrative
expenses” include obligations that are determined by the FDIC to be “necessary
and appropriate to facilitate the smooth and orderly liquidation or other resolution
of the institution.” 12 C.F.R. § 360.4. In this case, FDIC Conservator determined
that the PSAs were necessary to the resolution of IndyMac when it elected to
assume and not repudiate them. In particular, FDIC Conservator made the
decision to use the PSAs to generate millions of dollars and increase the value of
IndyMac Federal in anticipation of the asset sale to OneWest.
The servicing rights provided by the PSAs proved lucrative to FDIC
Conservator. See Am. Compl. ¶ 62 (JA_). Had these agreements been repudiated
at the outset of the conservatorship, and IndyMac Federal foregone the servicing
rights and income generated by those agreements, the value of the institution upon
sale would have been reduced. For these reasons, treating liability arising from the
PSAs as “administrative expenses” is entirely consistent with the definition of
“administrative expenses” outlined in the FDIC’s own regulations.16
16 IndyMac Federal needed “data processing services” to service its $184 billion mortgage portfolio to preserve the value of the institution for sale. Thus,
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The FDIC’s regulations identified certain items that do not qualify as
“administrative expenses” – “severance pay claims, golden parachutes and claims
arising from contract repudiations.” 60 Fed. Reg. at 35487 (emphasis added).
This list provides yet further support for MBIA’s interpretation of section
1821(d)(20). Specifically, the FDIC’s regulations do not exclude claims arising
from “non-repudiated” contracts (like the PSAs here), contracts affirmatively
“assumed” by the FDIC (like the PSAs), partially-performed contracts (like the
PSAs) or liability arising from breached contracts (like the liability at issue here).
Plainly, the FDIC could have identified such contracts in its regulations if liability
flowing from such contracts did not constitute “administration expenses” as it did
with respect to repudiated contracts. All of this demonstrates that liability flowing
from contracts that are assumed and not repudiated qualifies as an administrative
expense.
the inclusion of “data processing services” as an example of a category of costs that would qualify as administrative expenses in the FDIC’s regulations only serves to further underscore that liabilities arising from breaches of the PSAs assumed by IndyMac Federal should be treated as administrative expenses. See 12 C.F.R. § 360.4.
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POINT II THE RESOLUTION OF A NEW BANK, LIKE INDYMAC FEDERAL, SHOULD NOT RESULT IN A NO VALUE DETERMINATION THAT AVOIDS BREACH OF CONTRACT CLAIMS ON PRUDENTIAL MOOTNESS GROUNDS
The district court’s reliance on prudential mootness to dismiss
MBIA’s claims cannot be reconciled with FDIC Corporate’s statutory obligation
under section 1821(m)(11)-(13) to fund IndyMac Federal’s losses, including its
liability to MBIA arising out of FDIC Conservator’s breaches of the PSAs.17
There is no dispute that IndyMac Federal was created as a “new bank”
in accordance with the FDIC’s authority under sections 1821(d)(2)(F) and
1821(m). See Memorandum of Points and Authorities in Support of FDIC
Receiver’s Motion to Dismiss at 7 (citing OTS Order No. 2008-24 (July 11, 2008)
at 2-4) (JA__). Section 1821(d)(2)(F)(ii) allowed the FDIC, as receiver, to
organize a new national bank under subsection (m). See Statement of Facts,
17 Section 1821(m)(13) also provides support for MBIA’s construction of section 1821(d)(20). It would make little sense for Congress to have obligated FDIC Corporate to fund IndyMac Federal’s losses and expenses if IndyMac Federal did not have to disburse those funds to pay counterparties. And it would make even less sense for Congress to have crafted a statutory scheme that allowed the same funds paid to the IndyMac Federal conservatorship to be diverted by the subsequent IndyMac Federal receivership back to FDIC Corporate without the conservatorship’s administrative expenses and other losses being paid first.
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Section A.3, supra. Subsection (m), entitled “New Banks” clearly establishes in a
subpart entitled “Losses,” that:
[i]f any new bank, during the period it continues its status as such, sustains any losses with respect to which it is not effectively protected except by reason of being an insured bank, the Corporation shall furnish to it additional funds in the amount of such losses.
12 U.S.C. § 1821(m)(13).18
By virtue of section 1821(m)(13), Congress explicitly directed FDIC
Corporate to stand behind “new banks” that it created, and to pay for losses
suffered while operating the bank, including losses arising out of contractual
obligations that are not repudiated. Consistent with this statutory obligation, on
April 3, 2009, the FDIC told the Federal Reserve that its message to IndyMac
Federal’s concerned counterparties was that “the government stands behind this
bank.” (JA_).
Here, FDIC Corporate has a still-unfulfilled statutory obligation to
fund losses suffered by IndyMac Federal during FDIC Conservator’s tenure.
18 As noted above, shortly after IndyMac failed, Congress altered sub-section 1821(m) by, among other things, replacing the phrase “new bank” with “depository institution” to address certain substantive changes made to the statute. See this Brief at n.4, supra. The analysis of, and references to, section 1821(m) in this brief concern the statutory language in effect at the time IndyMac Federal was created as a “new bank.”
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Those losses include liability to MBIA for breaching the PSAs.19 If FDIC
Corporate had funded FDIC Conservator’s losses, including its liability to MBIA,
as required by section 1821(m)(13), then FDIC Conservator would have had
sufficient funds to pay MBIA, and the district court’s prudential mootness holding
would be demonstrably incorrect.
Despite considering section 1821(m), the district court erroneously
concluded that FDIC Corporate could not be responsible for funding FDIC
Conservator’s liability to MBIA because section 1821(i)(2) limits any recovery by
MBIA to the assets of FDIC Receiver. 816 F. Supp. 2d 106.
Section 1821(i)(2) provides:
The maximum liability of the Corporation, acting as receiver or in any other capacity, to any person having a claim against the receiver or the insured depository institution for which such receiver is appointed shall equal the amount such claimant would have received if the Corporation had liquidated the assets and liabilities of such institution without exercising the Corporation’s authority under subsection (n) of this section or section 1823 of this title.
12 U.S.C. § 1821(i)(2).
However, the assets of IndyMac Federal necessarily included a
receivable based on FDIC Corporate’s unpaid statutory obligation to provide
19 Importantly, section 1821(m)(11) makes no distinction between “administrative expenses,” as the district court has narrowly construed that term, or losses arising from financial contracts like the PSAs.
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funding to IndyMac Federal pursuant to section 1821(m)(13) for losses attributable
to liability from breaches of the PSAs. That valuable asset should have passed to
FDIC Receiver, and should still be there. The district court’s analysis failed to
account for this asset passing to FDIC Receiver.
The district court also reasoned that FDIC Corporate’s funding
obligations under section 1821(m) ended when FDIC Receiver was appointed. 816
F. Supp. 2d 106. From this premise, the district court concluded that it was too late
for MBIA to look to FDIC Corporate to fund IndyMac Federal’s liabilities to
MBIA. Again, this fails to account for the fact that the expense and loss that FDIC
Corporate was statutorily obligated to fund occurred during the conservatorship.
That is what is relevant to trigger FDIC Corporate’s statutory funding obligation.
Moreover, the text of section 1821(m) itself clearly demonstrates that when the
“new bank” is wound down, the FDIC must pay its remaining debts. See 12
U.S.C. § 1821(m)(18).
In sum, there is no inconsistency between the FDIC’s obligation under
section 1821(m)(13) and the limitation on liability embodied in section 1821(i)(2).
Had FDIC Corporate satisfied its statutory obligation in section 1821(m)(13) to
furnish funds to cover IndyMac Federal’s losses during the period of the
conservatorship, those additional funds would have been assets of the IndyMac
Federal receivership and available for distribution to claimants like MBIA.
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Similarly, had the FDIC taken this funding obligation into account, it would not
have issued the No Value Determination.
The district court was willing to overlook FDIC Corporate’s
abdication of its statutory obligations, and conclude that it was too late to do
anything about it. This Court should not allow the FDIC to ignore its statutory
responsibilities with no recourse to those affected, like MBIA.20
POINT III MBIA’S CLAIMS AGAINST FDIC CORPORATE ARE NOT BARRED BY SECTION 1821(d)(10)(B)
The district court erroneously dismissed MBIA’s claims against FDIC
Corporate on the ground that they are barred by section 1821(d)(10)(B). 816 F.
Supp. 2d at 104-05. Section 1821(d)(10)(B) provides:
(B) Payment of Dividends On Claims: The receiver may, in the receiver’s sole discretion, pay dividends on proved claims at any time, and no liability shall attach to the Corporation (in such Corporation’s corporate capacity or as receiver), by reason of any such payment, for failure to pay dividends to a claimant whose claim is not proved at any time of any such payment.
12 U.S.C. § 1821(d)(10)(B).
20 Notably, in section 1821(i), Congress recognized that there would be times when the FDIC could be liable in some capacity other than as receiver. Otherwise, it would not have established “[t]he maximum liability of the Corporation, acting as receiver or in any other capacity.” 12 U.S.C. § 1821(i)(2) (emphasis added).
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The district court misconstrued this provision as providing complete
discretion to FDIC Receiver in connection with resolving claims, and complete
immunity to FDIC Corporate from liability, without regard to whether its conduct
was consistent with FIRREA. 816 F. Supp. 2d at 105.21
In short, FDIC Corporate’s receipt of the proceeds of the sale of
IndyMac Federal’s assets to OneWest is not shielded by section 1821(d)(10)(B).
There is no showing that the alleged payment received by FDIC Corporate was a
“dividend” paid by FDIC Receiver, which is necessary to bring the payment within
the plain meaning of the statute. A dividend is merely a distribution of “excess
cash generated by the disposition of these assets less disposition cost and reserves
met.” (http://www2.fdic.gov/divweb/index.asp). It is not a claim.
It is undisputed that Old IndyMac Receiver made the one and only
“dividend” payment in connection with IndyMac’s resolution – a 50% payment to
uninsured depositors on July 13, 2008. See Henry v. FDIC, 695 F. Supp. 2d 1063,
1068 (C.D. Cal. 2010); http://www2.fdic.gov/divweb/Dividendindex.asp. (last
visited June 1, 2012). IndyMac Federal has never paid a dividend. See id. Hence,
the only payment that arguably qualifies as a “dividend” here is the July 13, 2008,
21 The district court did not address the FDIC’s argument that MBIA had failed to challenge a “final agency action” in its APA challenge. 816 F. Supp. 2d at 105 n.25. The argument, nonetheless, is meritless. See Adams v. Resolution Trust Corp., 927 F.2d 348, 355 n.15 (8th Cir. 1991) (holding no value determination reviewable under APA).
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payment to depositors. Because the OneWest asset sale did not occur until March
2009, FDIC Corporate cannot possibly demonstrate that the funds that it received
from the receivership were part of that dividend payment to depositors. Whatever
payments were made by FDIC Receiver to FDIC Corporate, they surely did not
constitute “dividends.”
Moreover, to conclude that FDIC Corporate’s receipt of the proceeds
of the OneWest sale was insulated from review by section 1821(d)(10)(B) ignores
section 1821(d)(10)(A), which limits the receiver’s discretion to “pay creditor
claims which are allowed by the receiver” only “to the extent funds are available.”
Under the statute, funds cannot be “available” to pay dividends on depositor claims
(or to FDIC subrogated to depositor claims) if administrative expense claims have
not been fully satisfied. As demonstrated above, MBIA has unpaid administrative
expense claims. Because those claims were not satisfied, any payment to FDIC
Corporate was premature and thus not authorized by section 1821(d)(10).
POINT IV MBIA’S CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF ARE NOT BARRED BY SECTION 1821(j)
MBIA’s claims for declaratory and injunctive relief are predicated
principally on various instances when the FDIC exceeded its authority, or
otherwise acted contrary to FIRREA and other statutory requirements. See Am.
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Comp. ¶¶ 182-202 (JA__). As demonstrated above, the district court erred when it
concluded that FDIC Conservator’s liability flowing from its breach of the PSAs
did not constitute administrative expenses that FDIC Receiver should have paid to
MBIA pro rata along with other administrative expenses, ahead of depositor
claims. A correct reading of the relevant statutes makes clear that the FDIC acted
contrary to, and well beyond, its powers. To ensure that MBIA has a remedy to
address the FDIC’s disregard for its statutory obligations, this Court should
reinstate MBIA’s claims for declaratory and injunctive relief.
Section 1821(j) prevents courts from “tak[ing] any action, except at
the request of the Board of Directors by regulation or order, to restrain or affect the
exercise of powers or functions of the Corporation as a conservator or a receiver.”
Importantly, this statutory obstacle to injunctive relief does not apply “when the
FDIC has acted or proposes to act beyond, or contrary to, its statutorily prescribed,
constitutionally permitted, powers or functions.” National Trust for Historic Pres.
v. FDIC, 995 F.2d 238, 239-40, vacated, 5 F.3d 567 (D.C. Cir. 1993), reinstated in
relevant part, 21 F.3d 469 (D.C. Cir. 1994).
Here, MBIA’s claims for declaratory and injunctive relief are
predicated on allegations that the FDIC acted beyond, or contrary to, its statutorily
prescribed powers. Specifically, MBIA alleges the following:
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FDIC Receiver ignored section 1821(d)(20) by not treating MBIA’s claims as “administrative expenses” during the claims process.
FDIC Conservator did not properly dispose of the proceeds from the sale of assets to OneWest.
FDIC Receiver did not repudiate the INDS 2007-1 PSA in a reasonable time as required by FIRREA.
With respect to the first two of these claims, to the extent liability
arising from MBIA’s damages claims constitutes “administrative expenses,” then
the FDIC’s actions were ultra vires, and declaratory relief is appropriate. First
Hartford Partners II v. FDIC, No. 93 Civ. 0933, 1993 U.S. Dist. LEXIS 14651, at
**9-10 (S.D.N.Y. Oct. 15, 1993).
With respect to MBIA’s repudiation claim, the district court failed to
address the relevant question: did the FDIC wait too long to repudiate the INDS
2007-1 PSA? FIRREA provides that a conservator or receiver must repudiate a
contract “within a reasonable period.” 12 U.S.C. § 1821(e)(2); Olympic Towers
Assocs. v. Goldome Bank, No. 92-cv-0267E, 1995 U.S. Dist. LEXIS 6028, at *20
(W.D.N.Y. Mar. 21, 1995) (“reasonable” pursuant to section 1821(e)(2) “depends
on the circumstances of the case, but as a benchmark courts have used the 90-day
period Congress initially proposed when drafting the FIRREA”).
The purported repudiation of the INDS 2007-1 PSA was ultra vires
since it occurred almost nine months after the appointment of FDIC Conservator
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and the express assumption of the INDS 2007-1 PSA under the PAA. Because the
purported repudiation was untimely, the district court should have concluded that
the INDS 2007-1 PSA remained a valid obligation of FDIC Conservator, and that
liability flowing from its breach was an administrative expense pursuant to section
1821(d)(20) that should have been paid to MBIA on a priority basis.22
In sum, if this Court concludes that FDIC Conservator’s liability for
breaching the PSAs should have been treated as administrative expenses, or that
FDIC Corporate had an obligation to fund IndyMac Federal’s losses pursuant to
section 1821(m)(13), then MBIA’s claims seeking declaratory and injunctive relief
should be allowed, as they are necessary to provide MBIA with a remedy to
address the FDIC’s failure to fulfill its statutory obligations.
22 Even if the FDIC’s repudiation of the INDS 2007-1 PSA was timely, its repudiation is only effective as of the date of repudiation – March 19, 2009. The INDS 2007-1 PSA is a “Qualified Financial Contract.” See Deutsche Bank, 784 F. Supp. 2d. at 1154. Damages for repudiation of a QFC are determined as of the date of disaffirmance or repudiation. See 12 U.S.C. § 1821(e)(3)(A)(ii)(II). The repudiation of a QFC may not be made retroactively to the date of the appointment of a conservator or receiver. Id. Accordingly, liabilities arising from contractual breaches that occurred during the FDIC conservatorship of IndyMac Federal (July 11, 2008 through March 19, 2009), are administrative expenses of FDIC Receiver. 12 U.S.C. § 1821(d)(20).
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CONCLUSION
For these reasons, the district court’s order and judgment dismissing
the Amended Complaint should be vacated, and the case should be remanded for
further proceedings.
Dated: Washington D.C. June 4, 2012
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Respectfully submitted,
CADWALADER, WICKERSHAM & TAFT LLP
By: [s] Howard R. Hawkins, Jr. Howard R. Hawkins, Jr.
D.C. Circuit Bar No. 53922 Jason Jurgens (admission pending) Cadwalader, Wickersham & Taft, LLP One World Financial Center New York, New York 10281 Tel: (212) 504-6000 Fax: (212) 506-6666 [email protected] [email protected] David F. Williams D.C. Bar No. 298380 D.C. Circuit Bar No. 33342 Geoffrey Gettinger D.C. Bar No. 477533 D.C. Circuit Bar No. 53843 Cadwalader, Wickersham & Taft, LLP 700 Sixth Street, N.W. Washington, D.C. 20001 Tel: (202) 862-2200 Fax: (202) 862-2400 [email protected] [email protected]
Attorneys for Plaintiff-Appellant MBIA Insurance Corporation
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CERTIFICATE OF COMPLIANCE
I hereby certify that:
1. This brief contains 13,989 words, as calculated under Fed. R. App.
P. 32(a)(7)(B) and Circuit Rule 32(a)(1).
2. This brief complies with the typeface requirements of Fed. R. App.
P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because it
has been prepared in a proportionally spaced typeface using Microsoft Word 2010
in Times New Roman, 14-point font.
[s] Howard R. Hawkins, Jr.__
Howard R. Hawkins, Jr.
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ADDENDUM OF STATUTES AND REGULATIONS1
1 Certain sections of 12 U.S.C. § 1821(d), (e) and (m) were amended by Pub. L. 110-289 which became effective on July 30, 2008. Accordingly, this brief and statutory appendix reflect the version of these statutory sections that were effective on July 11, 2008, the date of formation for IndyMac Federal.
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A-1
STATUTES AND REGULATIONS 12 U.S.C. § 1821(d) ..................................................................................................................... A2 12 U.S.C. § 1821(e) ................................................................................................................... A10 12 U.S.C. § 1821(i) .................................................................................................................... A27 12 U.S.C. § 1821(j) .................................................................................................................... A28 12 U.S.C. § 1821(m) .................................................................................................................. A29 12 C.F.R. § 360.4………………………………………………………………………………A31 11 U.S.C. § 365………………………………………………………………………………...A32
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A-2
12 U.S.C. § 1821(d): Powers and duties of Corporation as conservator or receiver
(2) General powers
(A) Successor to institution
The Corporation shall, as conservator or receiver, and by operation of law, succeed to—
(i) all rights, titles, powers, and privileges of the insured depository institution, 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
(ii) title to the books, records, and assets of any previous conservator or other legal custodian of such institution.
(B) Operate the institution
The Corporation may (subject to the provisions of section 1831q of this title), as conservator or receiver—
(i) take over the assets of and operate the insured depository institution with all the powers of the members or shareholders, the directors, and the officers of the institution and conduct all business of the institution;
(ii) collect all obligations and money due the institution;
(iii) perform all functions of the institution in the name of the institution which are consistent with the appointment as conservator or receiver; and
(iv) preserve and conserve the assets and property of such institution.
(C) Functions of institution’s officers, directors, and shareholders
The Corporation may, by regulation or order, provide for the exercise of any function by any member or stockholder, director, or officer of any insured depository institution for which the Corporation has been appointed conservator or receiver.
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(D) Powers as conservator
The Corporation may, as conservator, take such action as may be—
(i) necessary to put the insured depository institution in a sound and solvent condition; and
(ii) appropriate to carry on the business of the institution and preserve and conserve the assets and property of the institution.
(E) Additional powers as receiver
The Corporation may (subject to the provisions of section 1831q of this title), 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.
(F) Organization of new institutions
The Corporation may, as receiver
(i) with respect to savings associations and by application to the Director of the Office of Thrift Supervision, organize a new Federal savings association to take over such assets or such liabilities as the Corporation may determine to be appropriate; and
(ii) with respect to any insured bank, organize a new national bank under subsection (m) of this section or a bridge bank under subsection (n) of this section.
(G) Merger; transfer of assets and liabilities
(i) In general
The Corporation may, as conservator or receiver—
(I) merge the insured depository institution with another insured depository institution; or
(II) subject to clause (ii), transfer any asset or liability of the institution in default (including assets and liabilities associated with any trust business) without any approval, assignment, or consent with respect to such transfer.
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(ii) Approval by appropriate Federal banking agency No transfer described in clause (i)(II) may be made to another depository institution (other than a new bank or bridge bank established pursuant to subsection (m) or (n) of this section) without the approval of the appropriate Federal banking agency for such institution.
(H) Payment of valid obligations
The Corporation, as conservator or receiver, shall pay all valid obligations of the insured depository institution in accordance with the prescriptions and limitations of this chapter.
(I) Subpoena authority
(i) In general The Corporation may, as conservator, receiver, or exclusive manager and for purposes of carrying out any power, authority, or duty with respect to an insured depository institution (including determining any claim against the institution and determining and realizing upon any asset of any person in the course of collecting money due the institution), exercise any power established under section 1818 (n) of this title, and the provisions of such section shall apply with respect to the exercise of any such power under this subparagraph in the same manner as such provisions apply under such section.
(ii) Authority of Board of Directors A subpoena or subpoena duces tecum may be issued under clause (i) only by, or with the written approval of, the Board of Directors or their designees (or, in the case of a subpoena or subpoena duces tecum issued by the Resolution Trust Corporation under this subparagraph and section 1441a (b)(4) [2] of this title, only by, or with the written approval of, the Board of Directors of such Corporation or their designees).
(iii) Rule of construction This subsection shall not be construed as limiting any rights that the Corporation, in any capacity, might otherwise have under section 1820 (c) of this title.
(J) Incidental powers
The Corporation may, as conservator or receiver—
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(i) exercise all powers and authorities specifically granted to conservators or receivers, respectively, under this chapter and such incidental powers as shall be necessary to carry out such powers; and
(ii) take any action authorized by this chapter,
which the Corporation determines is in the best interests of the depository institution, its depositors, or the Corporation.
(K) Utilization of private sector
In carrying out its responsibilities in the management and disposition of assets from insured depository institutions, as conservator, receiver, or in its corporate capacity, the Corporation shall utilize the services of private persons, including real estate and loan portfolio asset management, property management, auction marketing, legal, and brokerage services, only if such services are available in the private sector and the Corporation determines utilization of such services is the most practicable, efficient, and cost effective.
(3) Authority of receiver to determine claims
(A) In general
The Corporation may, as receiver, determine claims in accordance with the requirements of this subsection and regulations prescribed under paragraph (4).
(B) Notice requirements
The receiver, in any case involving the liquidation or winding up of the affairs of a closed depository institution, shall—
(i) promptly publish a notice to the depository institution’s creditors to present their claims, together with proof, to the receiver by a date specified in the notice which shall be not less than 90 days after the publication of such notice; and
(ii) republish such notice approximately 1 month and 2 months, respectively, after the publication under clause (i).
(C) Mailing required
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The receiver shall mail a notice similar to the notice published under subparagraph (B)(i) at the time of such publication to any creditor shown on the institution’s books—
(i) at the creditor’s last address appearing in such books; or
(ii) upon discovery of the name and address of a claimant not appearing on the institution’s books within 30 days after the discovery of such name and address.
(4) Rulemaking authority relating to determination of claims
(A) In general
The Corporation may prescribe regulations regarding the allowance or disallowance of claims by the receiver and providing for administrative determination of claims and review of such determination. (B) Final settlement payment procedure
(i) In general In the handling of receiverships of insured depository institutions, to maintain essential liquidity and to prevent financial disruption, the Corporation may, after the declaration of an institution’s insolvency, settle all uninsured and unsecured claims on the receivership with a final settlement payment which shall constitute full payment and disposition of the Corporation’s obligations to such claimants. (ii) Final settlement payment For purposes of clause (i), a final settlement payment shall be payment of an amount equal to the product of the final settlement payment rate and the amount of the uninsured and unsecured claim on the receivership; and (iii) Final settlement payment rate For purposes of clause (ii), the final settlement payment rate shall be a percentage rate reflecting an average of the Corporation’s receivership recovery experience, determined by the Corporation in such a way that over such time period as the Corporation may deem appropriate, the Corporation in total will receive no more or less than it would have received in total as a general creditor standing in the place of insured depositors in each specific receivership.
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(iv) Corporation authority The Corporation may undertake such supervisory actions and promulgate such regulations as may be necessary to assure that the requirements of this section can be implemented with respect to each insured depository institution in the event of its insolvency.
(10) Payment of claims
(A) In general
The receiver may, in the receiver’s discretion and to the extent funds are available, pay creditor claims which are allowed by the receiver, approved by the Corporation pursuant to a final determination pursuant to paragraph (7) or (8), or determined by the final judgment of any court of competent jurisdiction in such manner and amounts as are authorized under this chapter.
(B) Payment of dividends on claims
The receiver may, in the receiver’s sole discretion, pay dividends on proved claims at any time, and no liability shall attach to the Corporation (in such Corporation’s corporate capacity or as receiver), by reason of any such payment, for failure to pay dividends to a claimant whose claim is not proved at the time of any such payment.
(C) Rulemaking authority of Corporation
The Corporation may prescribe such rules, including definitions of terms, as it deems appropriate to establish a single uniform interest rate for or to make payments of post insolvency interest to creditors holding proven claims against the receivership estates of insured Federal or State depository institutions following satisfaction by the receiver of the principal amount of all creditor claims.
(11) Depositor preference
(A) In general
Subject to section 1815 (e)(2)(C) of this title, amounts realized from the liquidation or other resolution of any insured depository institution by any
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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 described in clause (iv) or (v)).
(iv) Any obligation subordinated to depositors or general creditors (which is not an obligation described in clause (v)).
(v) Any obligation to shareholders or members arising as a result of their status as shareholders or members (including any depository institution holding company or any shareholder or creditor of such company).
(B) Effect on State law
(i) In general The provisions of subparagraph (A) shall not supersede the law of any State except to the extent such law is inconsistent with the provisions of such subparagraph, and then only to the extent of the inconsistency.
(ii) Procedure for determination of inconsistency Upon the Corporation’s own motion or upon the request of any person with a claim described in subparagraph (A) or any State which is submitted to the Corporation in accordance with procedures which the Corporation shall prescribe, the Corporation shall determine whether any provision of the law of any State is inconsistent with any provision of subparagraph (A) and the extent of any such inconsistency.
(iii) Judicial review The final determination of the Corporation under clause (ii) shall be subject to judicial review under chapter 7 of title 5.
(C) Accounting report
Any distribution by the Corporation in connection with any claim described in subparagraph (A)(v) shall be accompanied by the accounting report required under paragraph (15)(B).
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(20) Treatment of claims arising from breach of contracts executed by the receiver or conservator
Notwithstanding any other provision of this subsection, any final and unappealable judgment for monetary damages entered against a receiver or conservator for an insured depository institution for the breach of an agreement executed or approved by such receiver or conservator after the date of its appointment shall be paid as an administrative expense of the receiver or conservator. Nothing in this paragraph shall be construed to limit the power of a receiver or conservator to exercise any rights under contract or law, including to terminate, breach, cancel, or otherwise discontinue such agreement.
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12 U.S.C. § 1821(e): Provisions relating to contracts entered into before appointment of conservator or receiver
(1) Authority to repudiate contracts
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;
(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.
(2) Timing of repudiation
The conservator or receiver appointed for any insured depository institution in accordance with subsection (c) of this section shall determine whether or not to exercise the rights of repudiation under this subsection within a reasonable period following such appointment.
(3) Claims for damages for repudiation
(A) In general
Except as otherwise provided in subparagraph (C) and paragraphs (4), (5), and (6), the liability of the conservator or receiver for the disaffirmance or repudiation of any contract pursuant to paragraph (1) 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
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(II) in the case of any contract or agreement referred to in paragraph (8), the date of the disaffirmance or repudiation of such contract or agreement.
(B) No liability for other damages
For purposes of subparagraph (A), the term “actual direct compensatory damages” does not include—
(i) punitive or exemplary damages;
(ii) damages for lost profits or opportunity; or
(iii) damages for pain and suffering.
(C) Measure of damages for repudiation of financial contracts
In the case of any qualified financial contract or agreement to which paragraph (8) applies, compensatory damages shall be—
(i) 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; and
(ii) paid in accordance with this subsection and subsection (i) of this section except as otherwise specifically provided in this section.
(7) Provisions applicable to service contracts
(A) Services performed before appointment
In the case of any contract for services between any person and any insured depository institution for which the Corporation has been appointed conservator or receiver, any claim of such person for services performed before the appointment of the conservator or the receiver shall be—
(i) a claim to be paid in accordance with subsections (d) and (i) of this section; and
(ii) deemed to have arisen as of the date the conservator or receiver was appointed.
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(B) Services performed after appointment and prior to repudiation
If, in the case of any contract for services described in subparagraph (A), the conservator or receiver accepts performance by the other person before the conservator or receiver makes any determination to exercise the right of repudiation of such contract under this section—
(i) the other party shall be paid under the terms of the contract for the services performed; and
(ii) the amount of such payment shall be treated as an administrative expense of the conservatorship or receivership.
(C) Acceptance of performance no bar to subsequent repudiation
The acceptance by any conservator or receiver of services referred to in subparagraph (B) in connection with a contract described in such subparagraph shall not affect the right of the conservator or receiver to repudiate such contract under this section at any time after such performance.
(8) Certain qualified financial contracts
(A) Rights of parties to contracts
Subject to paragraphs (9) and (10) of this subsection and notwithstanding any other provision of this chapter (other than subsection (d)(9) of this section and section 1823 (e) of this title), any other Federal law, or the law of any State, no person shall be stayed or prohibited from exercising—
(i) any right such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured depository institution which arises upon the appointment of the Corporation as receiver for such institution at any time after such appointment;
(ii) any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i); [3]
(iii) any right to offset or net out any termination value, payment amount, or other transfer obligation arising under or in
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connection with 1 or more contracts and agreements described in clause (i), including any master agreement for such contracts or agreements.
(B) Applicability of other provisions
Subsection (d)(12) of this section shall apply in the case of any judicial action or proceeding brought against any receiver referred to in subparagraph (A), or the insured depository institution for which such receiver was appointed, by any party to a contract or agreement described in subparagraph (A)(i) with such institution.
(C) Certain transfers not avoidable
(i) In general Notwithstanding paragraph (11), section 91 of this title or any other Federal or State law relating to the avoidance of preferential or fraudulent transfers, the Corporation, whether acting as such or as conservator or receiver of an insured depository institution, may not avoid any transfer of money or other property in connection with any qualified financial contract with an insured depository institution.
(ii) Exception for certain transfers Clause (i) shall not apply to any transfer of money or other property in connection with any qualified financial contract with an insured depository institution if the Corporation determines that the transferee had actual intent to hinder, delay, or defraud such institution, the creditors of such institution, or any conservator or receiver appointed for such institution.
(D) Certain contracts and agreements defined
For purposes of this subsection, the following definitions shall apply:
(i) Qualified financial contract 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 for purposes of this paragraph.
(ii) Securities contract The term “securities contract”—
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(I) means a contract for the purchase, sale, or loan of a security, a certificate of deposit, a mortgage loan, any interest in a mortgage loan, a group or index of securities, certificates of deposit, or mortgage loans or interests therein (including any interest therein or based on the value thereof) or any option on any of the foregoing, including any option to purchase or sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option, and including any repurchase or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option (whether or not such repurchase or reverse repurchase transaction is a “repurchase agreement”, as defined in clause (v));
(II) does not include any purchase, sale, or repurchase obligation under a participation in a commercial mortgage loan unless the Corporation determines by regulation, resolution, or order to include any such agreement within the meaning of such term;
(III) means any option entered into on a national securities exchange relating to foreign currencies;
(IV) means the guarantee (including by novation) by or to any securities clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests therein (including any interest therein or based on the value thereof) or option on any of the foregoing, including any option to purchase or sell any such security, certificate of deposit, mortgage loan, interest, group or index, or option (whether or not such settlement is in connection with any agreement or transaction referred to in subclauses (I) through (XII) (other than subclause (II)); [4]
(V) means any margin loan;
(VI) means any extension of credit for the clearance or settlement of securities transactions;
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(VII) means any loan transaction coupled with a securities collar transaction, any prepaid securities forward transaction, or any total return swap transaction coupled with a securities sale transaction;
(VIII) means any other agreement or transaction that is similar to any agreement or transaction referred to in this clause;
(IX) means any combination of the agreements or transactions referred to in this clause;
(X) means any option to enter into any agreement or transaction referred to in this clause;
(XI) means a master agreement that provides for an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), (VIII), (IX), or (X), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a securities contract under this clause, except that the master agreement shall be considered to be a securities contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), (VIII), (IX), or (X); and
(XII) means any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this clause, including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause.
(iii) Commodity contract The term “commodity contract” means—
(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a contract market or board of trade;
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(II) with respect to a foreign futures commission merchant, a foreign future;
(III) with respect to a leverage transaction merchant, a leverage transaction;
(IV) with respect to a clearing organization, a contract for the purchase or sale of a commodity for future delivery on, or subject to the rules of, a contract market or board of trade that is cleared by such clearing organization, or commodity option traded on, or subject to the rules of, a contract market or board of trade that is cleared by such clearing organization;
(V) with respect to a commodity options dealer, a commodity option;
(VI) any other agreement or transaction that is similar to any agreement or transaction referred to in this clause;
(VII) any combination of the agreements or transactions referred to in this clause;
(VIII) any option to enter into any agreement or transaction referred to in this clause;
(IX) a master agreement that provides for an agreement or transaction referred to in subclause (I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a commodity contract under this clause, except that the master agreement shall be considered to be a commodity contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), (VII), or (VIII); or
(X) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in this clause, including any guarantee or reimbursement obligation in connection
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with any agreement or transaction referred to in this clause.
(iv) Forward contract The term “forward contract” means—
(I) a contract (other than a commodity contract) for the purchase, sale, or transfer of a commodity or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract trade, or product or byproduct thereof, with a maturity date more than 2 days after the date the contract is entered into, including,[5] a repurchase or reverse repurchase transaction (whether or not such repurchase or reverse repurchase transaction is a “repurchase agreement”, as defined in clause (v)), consignment, lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or any other similar agreement;
(II) any combination of agreements or transactions referred to in subclauses (I) and (III);
(III) any option to enter into any agreement or transaction referred to in subclause (I) or (II);
(IV) a master agreement that provides for an agreement or transaction referred to in subclauses (I), (II), or (III), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a forward contract under this clause, except that the master agreement shall be considered to be a forward contract under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), or (III); or
(V) any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in subclause (I), (II), (III), or (IV), including any guarantee or reimbursement obligation in
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connection with any agreement or transaction referred to in any such subclause.
(v) Repurchase agreement The term “repurchase agreement” (which definition also applies to a reverse repurchase agreement)—
(I) means an agreement, including related terms, which provides for the transfer of one or more certificates of deposit, mortgage-related securities (as such term is defined in the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.]), mortgage loans, interests in mortgage-related securities or mortgage loans, eligible bankers’ acceptances, qualified foreign government securities or securities that are direct obligations of, or that are fully guaranteed by, the United States or any agency of the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests as described above, at a date certain not later than 1 year after such transfers or on demand, against the transfer of funds, or any other similar agreement;
(II) does not include any repurchase obligation under a participation in a commercial mortgage loan unless the Corporation determines by regulation, resolution, or order to include any such participation within the meaning of such term;
(III) means any combination of agreements or transactions referred to in subclauses (I) and (IV);
(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or (III);
(V) means a master agreement that provides for an agreement or transaction referred to in subclause (I),
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(III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for an agreement or transaction that is not a repurchase agreement under this clause, except that the master agreement shall be considered to be a repurchase agreement under this subclause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (III), or (IV); and
(VI) means any security agreement or arrangement or other credit enhancement related to any agreement or transaction referred to in subclause (I), (III), (IV), or (V), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause.
For purposes of this clause, the term “qualified foreign government security” means a security that is a direct obligation of, or that is fully guaranteed by, the central government of a member of the Organization for Economic Cooperation and Development (as determined by regulation or order adopted by the appropriate Federal banking authority).
(vi) Swap agreement The term “swap agreement” means—
(I) any agreement, including the terms and conditions incorporated by reference in any such agreement, which is an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange, precious metals, or other commodity agreement; a currency swap, option, future, or forward agreement; an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; weather swap, option, future, or forward agreement; an emissions swap,
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option, future, or forward agreement; or an inflation swap, option, future, or forward agreement;
(II) any agreement or transaction that is similar to any other agreement or transaction referred to in this clause and that is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap or other derivatives markets (including terms and conditions incorporated by reference in such agreement) and that is a forward, swap, future, option, or spot transaction on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value;
(III) any combination of agreements or transactions referred to in this clause;
(IV) any option to enter into any agreement or transaction referred to in this clause;
(V) a master agreement that provides for an agreement or transaction referred to in subclause (I), (II), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement or transaction that is not a swap agreement under this clause, except that the master agreement shall be considered to be a swap agreement under this clause only with respect to each agreement or transaction under the master agreement that is referred to in subclause (I), (II), (III), or (IV); and
(VI) any security agreement or arrangement or other credit enhancement related to any agreements or transactions referred to in subclause (I), (II), (III), (IV), or (V), including any guarantee or reimbursement
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obligation in connection with any agreement or transaction referred to in any such subclause.
Such term is applicable for purposes of this subsection only and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any swap agreement under any other statute, regulation, or rule, including the Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934) and the Commodity Exchange Act.
(vii) Treatment of master agreement as one agreement Any master agreement for any contract or agreement described in any preceding clause of this subparagraph (or any master agreement for such master agreement or agreements), together with all supplements to such master agreement, shall be treated as a single agreement and a single qualified financial contract. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are themselves qualified financial contracts.
(viii) Transfer The term “transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the depository institution’s equity of redemption.
(ix) Person The term “person” includes any governmental entity in addition to any entity included in the definition of such term in section 1 of title 1.
(E) Certain protections in event of appointment of conservator
Notwithstanding any other provision of this chapter (other than subsections (d)(9) and (e)(10) of this section, and section 1823 (e) of this title), any other Federal law, or the law of any State, no person shall be stayed or prohibited from exercising—
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(i) 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;
(ii) any right under any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts described in clause (i);
(iii) 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.
(F) Clarification
No provision of law shall be construed as limiting the right or power of the Corporation, or authorizing any court or agency to limit or delay, in any manner, the right or power of the Corporation to transfer any qualified financial contract in accordance with paragraphs (9) and (10) of this subsection or to disaffirm or repudiate any such contract in accordance with subsection (e)(1) of this section.
(G) Walkaway clauses not effective
(i) In general Notwithstanding the provisions of subparagraphs (A) and (E), and sections 4403 and 4404 of this title, no walkaway clause shall be enforceable in a qualified financial contract of an insured depository institution in default.
(ii) Limited suspension of certain obligations In the case of a qualified financial contract referred to in clause (i), any payment or delivery obligations otherwise due from a party pursuant to the qualified financial contract shall be suspended from the time the receiver is appointed until the earlier of—
(I) the time such party receives notice that such contract has been transferred pursuant to subparagraph (A); or
(II) 5:00 p.m. (eastern time) on the business day following the date of the appointment of the receiver.
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(iii) Walkaway clause defined For purposes of this subparagraph, the term “walkaway clause” means any provision in a qualified financial contract that suspends, conditions, or extinguishes a payment obligation of a party, in whole or in part, or does not create a payment obligation of a party that would otherwise exist, solely because of such party’s status as a nondefaulting party in connection with the insolvency of an insured depository institution that is a party to the contract or the appointment of or the exercise of rights or powers by a conservator or receiver of such depository institution, and not as a result of a party’s exercise of any right to offset, setoff, or net obligations that exist under the contract, any other contract between those parties, or applicable law.
(H) Recordkeeping requirements
The Corporation, in consultation with the appropriate Federal banking agencies, may prescribe regulations requiring more detailed recordkeeping by any insured depository institution with respect to qualified financial contracts (including market valuations) only if such insured depository institution is in a troubled condition (as such term is defined by the Corporation pursuant to section 1831i of this title).
(9) Transfer of qualified financial contracts
(A) In general In making any transfer of assets or liabilities of a depository institution in default which includes any qualified financial contract, the conservator or receiver for such depository institution shall either—
(i) transfer to one financial institution, other than a financial institution for which a conservator, receiver, trustee in bankruptcy, or other legal custodian has been appointed or which is otherwise the subject of a bankruptcy or insolvency proceeding—
(I) all qualified financial contracts between any person or any affiliate of such person and the depository institution in default; (II) all claims of such person or any affiliate of such person against such depository institution under any such contract (other than any
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claim which, under the terms of any such contract, is subordinated to the claims of general unsecured creditors of such institution); (III) all claims of such depository institution against such person or any affiliate of such person under any such contract; and (IV) 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
(ii) transfer none of the qualified financial contracts, claims, property or other credit enhancement referred to in clause (i) (with respect to such person and any affiliate of such person).
(B) Transfer to foreign bank, foreign financial institution, or branch or agency of a foreign bank or financial institution
In transferring any qualified financial contracts and related claims and property under subparagraph (A)(i), the conservator or receiver for the depository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of a foreign country, or a branch or agency of a foreign bank or financial institution unless, under the law applicable to such bank, financial institution, branch or agency, to the qualified financial contracts, and to any netting contract, any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified financial contracts, netting contracts, security agreements or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under this section.
(C) Transfer of contracts subject to the rules of a clearing organization
In the event that a conservator or receiver transfers any qualified financial contract and related claims, property, and credit enhancements pursuant to subparagraph (A)(i) and such contract is cleared by or subject to the rules of a clearing organization, the clearing organization shall not be required to accept the transferee as a member by virtue of the transfer.
(D) Definitions
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For purposes of this paragraph, the term “financial institution” means a broker or dealer, a depository institution, a futures commission merchant, or any other institution, as determined by the Corporation by regulation to be a financial institution, and the term “clearing organization” has the same meaning as in section 4402 of this title.
(13) Authority to enforce contracts
(A) In general The conservator or receiver may enforce any contract, other than a director’s or officer’s liability insurance contract or a depository institution bond, 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 of rights or powers by a conservator or receiver.
(B) Certain rights not affected No provision of this paragraph may be construed as impairing or affecting any right of the conservator or receiver to enforce or recover under a director’s or officer’s liability insurance contract or depository institution bond under other applicable law.
(C) Consent requirement
(i) In general Except as otherwise provided by this section or section 1825 of this title, no person may exercise any right or power to terminate, accelerate, or declare a default under any contract to which the depository institution is a party, or to obtain possession of or exercise control over any property of the institution or affect any contractual rights of the institution, without the consent of the conservator or receiver, as appropriate, during the 45-day period beginning on the date of the appointment of the conservator, or during the 90-day period beginning on the date of the appointment of the receiver, as applicable. (ii) Certain exceptions No provision of this subparagraph shall apply to a director or officer liability insurance contract or a
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depository institution bond, to the rights of parties to certain qualified financial contracts pursuant to paragraph (8), or to the rights of parties to netting contracts pursuant to subtitle A of title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. § 4401 et seq.), or shall be construed as permitting the conservator or receiver to fail to comply with otherwise enforceable provisions of such contract. (iii) Rule of construction Nothing in this subparagraph shall be construed to limit or otherwise affect the applicability of title 11.
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12 U.S.C. § 1821(i): Valuation of claims in default
(2) Maximum liability
The maximum liability of the Corporation, acting as receiver or in any other capacity, to any person having a claim against the receiver or the insured depository institution for which such receiver is appointed shall equal the amount such claimant would have received if the Corporation had liquidated the assets and liabilities of such institution without exercising the Corporation’s authority under subsection (n) of this section or section 1823 of this title.
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12 U.S.C. § 1821(j): Limitation on court action
Except as provided in this section, no 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 powers or functions of the Corporation as a conservator or a receiver.
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12 U.S.C. § 1821(m): New banks
(1) Organization authorized
As soon as possible after the default of an insured bank, the Corporation, if it finds that it is advisable and in the interest of the depositors of the insured bank in default or the public shall organize a new national bank in the same community as the bank in default to assume the insured deposits of such bank in default and otherwise to perform temporarily the functions hereinafter provided for.
(11) Transfer of deposits
(A) Upon the organization of a new bank, the Corporation shall promptly make available to it an amount equal to the estimated insured deposits of such bank in default plus the estimated amount of the expenses of operating the new bank, and shall determine as soon as possible the amount due each depositor for the depositor’s insured deposit in the insured bank in default, and the total expenses of operation of the new bank.
(B) Upon such determination, the amounts so estimated and made available shall be adjusted to conform to the amounts so determined.
(12) Earnings
Earnings of the new bank shall be paid over or credited to the Corporation in such adjustment.
(13) Losses
If any new bank, during the period it continues its status as such, sustains any losses with respect to which it is not effectively protected except by reason of being an insured bank, the Corporation shall furnish to it additional funds in the amount of such losses.
(18) Winding up Unless the capital stock of the new bank is sold or its assets are taken over and its liabilities are assumed by an insured bank as above provided within 2 years after the date of its organization, the Corporation shall wind up the
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affairs of such bank, after giving such notice, if any, as the Comptroller of the Currency, may require, and shall certify to the Comptroller of the Currency, the termination of the new bank. Thereafter the Corporation shall be liable for the obligations of such bank and shall be the owner of its assets.
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12 C.F.R. § 360.4: Administrative expenses.
The priority for administrative expenses of the receiver, as that term isused in section 11(d)(11) of the Act (12 U.S.C. 1821(d)(11), shall include those necessary expenses incurred by the receiver in liquidating or otherwise resolving the affairs of a failed insured depository institution. Such expenses shall include pre-failure and post-failure obligations that the receiver determines are necessary and appropriate to facilitate the smooth and orderly liquidation or other resolution of the institution.
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11 U.S.C. § 365: Executory contracts and unexpired leases (a) Except as provided in sections 765 and 766 of this title and in subsections (b), (c), and (d) of this section, the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor. (b)
(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee—
(A) cures, or provides adequate assurance that the trustee will promptly cure, such default other than a default that is a breach of a provision relating to the satisfaction of any provision (other than a penalty rate or penalty provision) relating to a default arising from any failure to perform nonmonetary obligations under an unexpired lease of real property, if it is impossible for the trustee to cure such default by performing nonmonetary acts at and after the time of assumption, except that if such default arises from a failure to operate in accordance with a nonresidential real property lease, then such default shall be cured by performance at and after the time of assumption in accordance with such lease, and pecuniary losses resulting from such default shall be compensated in accordance with the provisions of this paragraph; (B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and (C) provides adequate assurance of future performance under such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a default that is a breach of a provision relating to—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title;
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(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement; or (D) the satisfaction of any penalty rate or penalty provision relating to a default arising from any failure by the debtor to perform nonmonetary obligations under the executory contract or unexpired lease.
(c) The trustee may not assume or assign any executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—
(1)
(A) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (B) such party does not consent to such assumption or assignment; or
(2) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor; or (3) such lease is of nonresidential real property and has been terminated under applicable nonbankruptcy law prior to the order for relief.
(d)
(1) In a case under chapter 7 of this title, if the trustee does not assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor within 60 days after the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such contract or lease is deemed rejected. (2) In a case under chapter 9, 11, 12, or 13 of this title, the trustee may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such
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contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease. (3) The trustee shall timely perform all the obligations of the debtor, except those specified in section 365 (b)(2), arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503 (b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period. This subsection shall not be deemed to affect the trustee’s obligations under the provisions of subsection (b) or (f) of this section. Acceptance of any such performance does not constitute waiver or relinquishment of the lessor’s rights under such lease or under this title. (4)
(A) Subject to subparagraph (B), an unexpired lease of nonresidential real property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of—
(i) the date that is 120 days after the date of the order for relief; or (ii) the date of the entry of an order confirming a plan.
(B)
(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause. (ii) If the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.
(5) The trustee shall timely perform all of the obligations of the debtor, except those specified in section 365 (b)(2), first arising from or after 60 days after the order for relief in a case under chapter 11 of this title under an unexpired lease of personal property (other than personal property leased to
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an individual primarily for personal, family, or household purposes), until such lease is assumed or rejected notwithstanding section 503 (b)(1) of this title, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise with respect to the obligations or timely performance thereof. This subsection shall not be deemed to affect the trustee’s obligations under the provisions of subsection (b) or (f). Acceptance of any such performance does not constitute waiver or relinquishment of the lessor’s rights under such lease or under this title.
(e)
(1) Notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case; (B) the commencement of a case under this title; or (C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement.
(2) Paragraph (1) of this subsection does not apply to an executory contract or unexpired lease of the debtor, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties, if—
(A)
(i) applicable law excuses a party, other than the debtor, to such contract or lease from accepting performance from or rendering performance to the trustee or to an assignee of such contract or lease, whether or not such contract or lease prohibits or restricts assignment of rights or delegation of duties; and (ii) such party does not consent to such assumption or assignment; or
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(B) such contract is a contract to make a loan, or extend other debt financing or financial accommodations, to or for the benefit of the debtor, or to issue a security of the debtor.
(f) (1) Except as provided in subsections (b) and (c) of this section, notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease under paragraph (2) of this subsection. (2) The trustee may assign an executory contract or unexpired lease of the debtor only if—
(A) the trustee assumes such contract or lease in accordance with the provisions of this section; and (B) adequate assurance of future performance by the assignee of such contract or lease is provided, whether or not there has been a default in such contract or lease.
(3) Notwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law that terminates or modifies, or permits a party other than the debtor to terminate or modify, such contract or lease or a right or obligation under such contract or lease on account of an assignment of such contract or lease, such contract, lease, right, or obligation may not be terminated or modified under such provision because of the assumption or assignment of such contract or lease by the trustee.
(g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease—
(1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or (2) if such contract or lease has been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title—
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(A) if before such rejection the case has not been converted under section 1112, 1208, or 1307 of this title, at the time of such rejection; or (B) if before such rejection the case has been converted under section 1112, 1208, or 1307 of this title—
(i) immediately before the date of such conversion, if such contract or lease was assumed before such conversion; or (ii) at the time of such rejection, if such contract or lease was assumed after such conversion.
(k) Assignment by the trustee to an entity of a contract or lease assumed under this section relieves the trustee and the estate from any liability for any breach of such contract or lease occurring after such assignment. (o) In a case under chapter 11 of this title, the trustee shall be deemed to have assumed (consistent with the debtor’s other obligations under section 507), and shall immediately cure any deficit under, any commitment by the debtor to a Federal depository institutions regulatory agency (or predecessor to such agency) to maintain the capital of an insured depository institution, and any claim for a subsequent breach of the obligations thereunder shall be entitled to priority under section 507. This subsection shall not extend any commitment that would otherwise be terminated by any act of such an agency.
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CERTIFICATE OF SERVICE
I hereby certify that on this 4th day of June, 2012, I electronically filed the
foregoing Brief for Appellant with the Clerk of the Court for the United States
Court of Appeals for the D.C. Circuit by using the appellate CM/ECF system.
Service was accomplished on the following persons on this 4th day of June,
2012, by electronically filing the foregoing Brief for Appellant with the Clerk of
the Court for the United States Court of Appeals for the D.C. Circuit by using the
appellate CM/ECF system:
J. Scott Watson Federal Deposit Insurance Corporation Appellate Litigation Unit 3501 N. Fairfax Drive Arlington, VA 22226 Mr. Thomas Ludwig Holzman, Esq. Federal Deposit Insurance Corporation (FDIC) Legal Division 3501 Fairfax Drive Arlington, VA 22226-3500 Mr. Daniel Harold Kurtenbach, Esq. Federal Deposit Insurance Corporation (FDIC) Legal Division Room 2152-C 3501 Fairfax Drive Arlington, VA 22226-3500
[s] Howard R. Hawkins, Jr. Howard R. Hawkins, Jr.
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