662 B.R. 53
Bankr. S.D.N.Y.2024Background
- SVB Financial Group (SVBFG) filed for Chapter 11 bankruptcy after the FDIC became receiver for its key subsidiary, Silicon Valley Bank (SVB), following SVB's collapse in March 2023.
- The reorganizational plan proposed by SVBFG (the Debtor) included provisions that could extinguish the FDIC's right to setoff debts between the Debtor and the FDIC (acting as receiver for SVB).
- The FDIC objected to the plan, arguing it would improperly eliminate its defensive setoff rights owed under both bankruptcy and federal banking law.
- The FDIC did not file a proof of claim in the bankruptcy but asserted its setoff rights defensively in two federal district court actions (pending in SDNY and ND Cal.), where it faces liability claims by SVBFG.
- The bankruptcy court was asked to decide if the FDIC could still assert setoff defensively despite not having filed a proof of claim, and whether the plan could discharge such rights.
- All other plan objections were resolved; this decision solely addresses the FDIC's setoff objection.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Must FDIC file a proof of claim to preserve setoff? | Yes; not filing forfeits setoff rights under plan and bankruptcy | No; defensive setoff doesn’t require proof of claim | No proof of claim required for defensive setoff |
| Are defensive setoff rights "claims" under §101(5)? | Yes; so must be preserved by claim filing/bar date | No; defensive setoff is not a claim, just reduces exposure | Defensive setoff is not a "claim" requiring proof of claim |
| Does §553(a)(3) bar FDIC’s setoff after deposit transfer? | Yes; mutuality lost due to transfer after 90-day prepetition | No; transfer did not extinguish mutuality or FDIC obligations | Mutuality preserved; transfer did not defeat FDIC’s setoff rights |
| Can plan discharge FDIC’s defensive setoff rights? | Yes; only surviving claims are those properly preserved in BK case | No; §553 preserves defensive setoff against discharge | FDIC’s defensive setoff rights cannot be discharged by plan |
Key Cases Cited
- Spokeo, Inc. v. Robins, 578 U.S. 330 (standing requires concrete, particularized injury)
- Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (section 553 preserves, but does not create, setoff rights)
- Bank of America v. Lehman Bros. Holdings Inc., 439 B.R. 811 (Bankr. S.D.N.Y. 2010) (section 553 neither creates nor expands setoff rights)
- Kane v. Johns-Manville Corp., 843 F.2d 636 (prudential standing in bankruptcy)
- In re Bennett Funding Group, 146 F.3d 136 (2d Cir. 1998) (section 553 preserves setoff only per nonbankruptcy law)
- Warth v. Seldin, 422 U.S. 490 (constitutional standing must show invasion of legally protected interest)
- In re Colonial BancGroup, 2:11cv133 (mutuality analysis for setoff; contract can't unilaterally extinguish liability)