Farnik v. Federal Deposit Insurance
2013 U.S. App. LEXIS 2469
| 7th Cir. | 2013Background
- Borrowers sued Interstate Bank in state court for allegedly deceptive loan indexing practices.
- FDIC replaced the failed bank as receiver and MB Financial Bank, N.A. substituted as defendant; FDIC removed the case to federal court.
- FIRREA requires administrative exhaustion before claims relating to a failed bank or its receiver may be heard in court.
- Plaintiffs amend to name MB Financial as defendant; district court grants dismissal for lack of jurisdiction and later denies amendment as futile.
- FDIC argues for the first time on appeal that exhaustion bars jurisdiction; court agrees, holding claims relate to InBank’s pre-receivership conduct and must be exhausted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FIRREA exhaustion bars jurisdiction | Farnik and North Inc. argue MB Financial is proper defendant and claims are not against FDIC. | FDIC contends exhaustion applies because claims relate to failed-bank conduct. | Yes, exhaustion applies; FDIC has jurisdictional bar. |
| Whether MB Financial assumed InBank’s liabilities | Liabilities may have transferred to MB Financial; thus, exhaustion not required. | No evidence of an actual assumption; liability remained with FDIC. | Liability did not pass to MB Financial; exhaustion still required. |
| Whether the claims are against InBank’s independent conduct or MB Financial’s | Claims target MB Financial’s independent wrongdoing. | Claims target InBank’s conduct; MB Financial is merely successor. | Claims relate to InBank’s conduct; FIRREA exhaustion applicable. |
| Whether the record supports substitution over pre-receivership liability | The March 2010 letter indicates indemnification and substitution; ambiguity exists. | Letter indicates MB Financial did not assume claims; FDIC remains proper defendant. | Record supports FDIC as proper defendant; exhaustion required. |
Key Cases Cited
- American National Ins. Co. v. FDIC, 642 F.3d 1137 (D.C. Cir. 2011) (third-party claims against a failed bank’s acquirer fall under FIRREA if functionally against the bank/FDIC)
- Benson v. JPMorgan Chase Bank, N.A., 673 F.3d 1209 (9th Cir. 2012) (claims against purchasing bank based on failed-bank conduct must be exhausted)
- Village of Oakwood v. State Bank & Trust Co., 539 F.3d 373 (6th Cir. 2008) (FIRREA exhaustion focus on actor, not entity named as defendant)
- Payne v. Sec. Sav. & Loan Ass’n, F.A., 924 F.2d 109 (7th Cir. 1991) (express assumption required for liability transfer; absent, receiver remains proper defendant)