Philadelphia-based Pepper Hamilton has filed suit against the Federal Deposit Insurance Corp. in federal court, alleging that the agency is trying to improperly downgrade legal fees the firm charged to a Utah bank before the bank was placed in an FDIC receivership.
According to the firm’s complaint, filed in the U.S. District Court for the District of Columbia on Aug. 20, lawyers for Pepper Hamilton provided a wide range of bankruptcy, tax, and corporate governance counseling to Advanta Bank Corp. during an “extraordinary and unusual” time period.
The complaint says that Advanta was the subject of repeated supervisory actions and had some of its major business lines discontinued for supervisory reasons. The complaint also says that almost all of the bank’s directors abdicated their positions and its parent company declared bankruptcy. As a result, the complaint says, the FDIC became “very active” in the day-to-day oversight of Advanta.
The complaint says that Advanta ran up more than $260,000 in legal fees and that much of the work performed by Pepper Hamilton was performed either under the direction of the FDIC or with the agency’s knowledge.
On March 10, the Utah Department of Financial Institutions closed Advanta and appointed the FDIC as its receiver. On April 9, Pepper Hamilton submitted a proof of claim to the FDIC, claiming that the firm was owed $139,232 as an administrative claim and an additional $121, 105 as an unsecured claim, for a total of $260,337. The firm also argues that it is owed interest.
On June 25, the FDIC responded by saying that Pepper Hamilton’s claims for legal fees for services rendered after the receivership date – a total of $5,733 – were denied. The FDIC said the rest of the legal fees, amounting to $254,603, would be allowed as a general unsecured claim, which means that their claim for legal fees had a much lower priority and might not be paid at all.
Pepper Hamilton’s complaint, which is signed by Matthew Foster, a Washington-based associate, alleges that by determining that the legal fees were an unsecured claim, the FDIC had “violated [its] statutory duty to pay all valid claims in accordance with the FDI Act.” The complaint alleges that the FDIC unjustly enriched itself by determining that the fees deserved a lower priority.
The complaint asks that a judge issue an order declaring that Pepper Hamilton’s fees are valid. The complaint also asks that the FDIC-receiver be ordered to pay $206, 530 as an administrative claim, which would ensure that those fees are paid, and $53,807 as a general unsecured claim. In the alternative, the complaint argues, the FDIC’s disallowance of the claims made after the receivership and its deeming other claims as unsecured should be declared void.
Foster and the Pepper Hamilton’s chair, Nina Gussack, did not immediately return calls for comment.
Last week, JPMorgan Chase also filed suit against the FDIC in the district court, alleging that the agency improperly denied JPMorgan’s effort to recoup losses it suffered when a different bank went under.