A federal judge in Washington handed Bank of America N.A. a loss yesterday in its fight with the Federal Deposit Insurance Corporation over $1.75 billion from the collapse of failed financial institutions. The ruling wasn't a total defeat for Bank of America, though. The company filed a suit against the agency in July that addressed issues raised in yesterday's decision.
Following the 2009 collapse of financial institutions in a multi-billion dollar fraud scheme, the FDIC was appointed as receiver. Bank of America sued the agency in 2010 to recover losses for investors, saying its claims were wrongfully denied. The agency filed counterclaims seeking $900 million from the bank for allegedly breaching its duties as the custodian and bailee of one of the failed institutions, Colonial Bank.
In April, the agency issued a "no value" determination, saying there were no longer any assets in the Colonial receivership estate for Bank of America to recover. Without money in controversy, U.S. District Judge Barbara Rothstein, a visiting judge from the U.S. District Court for the Western District of Washington, wrote yesterday that she lacked subject matter jurisdiction to hear Bank of America's claims.
If Bank of America wanted to challenge the "no value" determination, the judge said, they'd have to raise a claim under the federal Administrative Procedure Act.
That’s exactly what Bank of America did in a complaint filed against the agency in July in U.S. District Court for the District of Columbia. Acknowledging the new complaint, Rothstein said in yesterday's decision that she would hold the order of judgment until Bank of America resolved its new challenge.
Spokesmen for Bank of America and the FDIC declined to comment. Hunton & Williams and Munger, Tolles & Olson represent Bank of America in both cases.
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 the 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 then filed its counterclaims.
In the new lawsuit filed in July, Bank of America argued the agency didn't have statutory authority to make a unilateral decision that claims against an institution under receivership had no value. The "no value" notice regarding 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 accused the agency of making the determination as an end-run around litigation.
Hunton & Williams also filed a separate complaint against the FDIC in July in Washington federal court accusing the agency of wrongfully refusing a request under the Freedom of Information Act for documents related to the "no value" determination. Both cases filed in July are assigned to Rothstein.