In Zucker v. Rodriguez, No. 17-1749 (1st Cir. 2019), the First Circuit interpreted the rights of Receivers under 12 U.S.C. § 1821(d)(2)(A) in the Federal Deposit Insurance Corporation’s favor.
When an insured depository institution fails, it is common for regulators to appoint the Federal Deposit Insurance Corporation (FDIC) as the institution’s receiver. This is precisely what happened in 2010 when R&G Financial Corporation, a holding company, entered Chapter 11 bankruptcy after its primary subsidiary, R-G Premier Bank of Puerto Rico failed. The Bank’s failure was one of the largest in Puerto Rico’s history, costing the FDIC’s Deposit Insurance Fund at least $1.2 billion.
In 2012, the administrator of the holding company’s estate brought suit against six of the holding company’s previous directors and their insurer alleging that the directors’ negligence and breach of their fiduciary duty to the holding company led to the bank’s failure and the holding company’s loss of its investment in the bank. The FDIC intervened in the suit, alleging that the claims asserted in the administrator’s complaint actually belonged to the FDIC as the receiver in accordance with 12 U.S.C.A. § 1821(d)(2)(A).
Under § 1821(d)(2)(A), the FDIC–as the bank’s receiver–must “succeed to–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.” The District Court agreed with FDIC’s interpretation of the statute and dismissed the complaint. The administrator appealed arguing that §1821(d)(2)(A) only applies to derivative claims that the holding company could assert under state law on behalf of the bank, and not to direct claims the holding company had under Puerto Rico law. The administrator relied on the only circuit court case interpreting the language in §1821(d)(2)(A). In Levin v. Miller, 763 F.3d 667 (7th Cir. 2014), the court found that § 1821(d)(2)(A) only transferred to FDIC stockholders’ claims that investors could pursue derivatively on behalf of the bank in that case.
However, the First Circuit–relying on the plain language of the statute–disagreed with the administrator and dismissed his complaint based on a broad interpretation of the law. The Court also stated that its ruling should only applies to cases like this one–cases where a holding company brings claims to recover its interest in a wholly owned subsidiary and seeks recovery from assets that the FDIC is also seeking in its own action.
With Zucker placing doubt on the holding in Levin, only time will tell if other circuit courts will follow the First Circuit’s lead and choose a broad interpretation of § 1821(d)(2)(A) in these types of cases.