Bank of America N.A. is challenging the Federal Deposit Insurance Corporation's authority to knock out certain court claims against financial institutions under receivership by issuing a determination that they have "no value."
The lawsuit, filed July 22 in U.S. District Court for the District of Columbia, is part of Bank of America's more than three-year quest to recover $1.75 billion from the receivership estate of Colonial Bank, which collapsed in 2009. The case stems from the FDIC's April determination that unsecured claims against Colonial had "no value," meaning there wouldn't be enough assets recovered to pay.
Bank of America, represented by Hunton & Williams and Munger Tolles & Olson, is arguing the FDIC violated the Administrative Procedure Act by making its "no value" determination without giving public notice and while collection efforts were still pending. The bank is also accusing the FDIC of using the "no value" determinations in general as an end-run around claims that should be subject to review in court.
"There is no authority in any of the FDIC’s governing statutes for this assertion of unreviewable power to deem claims against itself to be unrecoverable," Bank of America argued in its complaint.
In a separate action filed yesterday, also in Washington federal district court, Hunton claimed the FDIC wrongly refused a request under the Freedom of Information Act for documents related to the Colonial Bank "no value" determination.
An FDIC spokesman said via email today that the agency doesn't comment on pending litigation. A spokesman for Bank of America and attorneys at Hunton and Munger did not immediately return requests for comment.
The FDIC was appointed as receiver for the Alabama-based Colonial Bank—at one time one of the 25 largest banks in the United States—when the bank dissolved in 2009. Senior executives at Colonial and the financial firm Taylor, Bean & Whitaker were later convicted in a massive fraud scheme that led to Colonial's demise.
Several months after Colonial entered receivership, Bank of America filed claims seeking approximately $1.75 billion. In a lawsuit filed by Bank of America in 2010 against the agency, the bank said its claims were "disallowed" and that the only explanation from the agency was that the claims were "not proven to the satisfaction of the Receiver." The agency filed counterclaims seeking $900 million from Bank of America for allegedly breaching its duties as the custodian and bailee for Colonial.
Discovery began after U.S. District Judge Barbara Rothstein, a visiting judge from the U.S. District Court for the Western District of Washington, declined to dismiss the entirety of either the bank's complaint or the agency's counterclaims in December.
In May, the agency informed the court of its "no value" determination and argued the case should be dismissed because as long as there was no money to recover, there was no longer a reason to continue litigating.
In the complaint filed this week, Bank of America argued the agency lacked statutory authority to make a unilateral decision that claims against an institution under receivership had no value. The "no value" notice about claims against Colonial, the bank said, didn't include enough evidence to support the determination and was made without any opportunity for the public or interested parties to comment.
The bank claimed the agency made the "no value" determination to "evade" judicial review of its earlier decision to disallow the claims for $1.75 billion from the Colonial estate. The Financial Institutions Reform, Recovery, and Enforcement Act says parties are entitled to challenge the disallowance of a claim in court, the bank argued.
The lawsuit and Hunton's FOIA case are both before Rothstein. No hearings have been scheduled.