Veluchamy v. Federal Deposit Insurance
2013 U.S. App. LEXIS 2408
| 7th Cir. | 2013Background
- Plaintiffs Veluchamy family and Veluchamy Family Foundation own 93.2% of the bank holding company that owned Mutual Bank.
- In 2008, after FDIC-Corporate downgraded the bank’s capital, plaintiffs arranged for about $30 million in note purchases and equity to restore well capitalized status.
- Regulators later demanded an additional $70 million; despite developments, that funding was not secured and the bank faced near-term insolvency in 2009.
- On July 1, 2009, the bank considered redeeming the $30 million in notes and placing proceeds into deposit accounts for two Veluchamys to gain depositor priority, but FDIC-Corporate did not respond.
- The bank was declared insolvent on August 1, 2009; the FDIC became receiver and arranged a sale to United Central Bank, with depositors transferred as needed.
- Plaintiffs filed claims seeking to redeem notes and gain high-priority depositor status; FDIC-Receiver disallowed these proofs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the APA claim against FDIC-Corporate is barred as money damages. | Veluchamy argues FDIC-Corporate misled investors and should compensate them. | FDIC-Corporate argues the relief sought is money damages and barred by the APA. | APA claim barred as money damages. |
| Whether the APA claim against FDIC-Receiver is jurisdictionally barred for lack of administrative review. | Veluchamy sought review of disallowance of claims under APA. | Disallowance requires FIRREA review; APA review is not available. | APA claim against FDIC-Receiver dismissed for lack of administrative review. |
| Whether the FIRREA claim against FDIC-Receiver is cognizable given Section 1821(j). | Veluchamy seeks depositor-status relief through FIRREA challenging FDIC as regulator. | Section 1821(j) withdraws equitable relief from courts, but FIRREA claims may proceed when it concerns regulator actions via 1821(d). | FIRREA claim against FDIC-Receiver survives to merits; statute does not bar relief here; but claim fails on the merits as to depositor status. |
| Whether Section 1821(j) precludes relief that would alter FDIC-Receiver’s distribution priorities. | Reclassify their claims as depositors to gain higher priority. | Changing priority would disrupt the statutory distribution scheme and FDIC-Receiver’s function. | Section 1821(j) does not bar this FIRREA claim in the circumstances; but the asserted depositor-rights relief fails on the merits. |
| Whether leave to amend the complaint should be granted. | Amendment could cure deficits and permit depositor-status relief. | Amendment would be futile; plaintiffs did not move for leave; court should not permit. | Leave to amend denied; amendment would be futile. |
Key Cases Cited
- Bowen v. Massachusetts, 487 U.S. 879 (1988) (distinguishes money damages from specific relief)
- Blue Fox, Inc. v. United States, 525 U.S. 255 (1999) (equitable relief can be money damages where it functions as substitute for money)
- Helm v. Resolution Trust Corp., 43 F.3d 1163 (7th Cir. 1995) (FIRREA review framework for disallowances)
- Freeman v. FDIC, 56 F.3d 1394 (D.C. Cir. 1995) (limits on equitable relief against FDIC as receiver; remedies through admin claims process)
- Courtney v. Halleran, 485 F.3d 942 (7th Cir. 2007) (Section 1821(j) supremacy over equitable relief; interplay with 1821(d))
- Bank of America National Association v. Colonial Bank, 604 F.3d 1239 (11th Cir. 2010) (administrative claims process permission; 1821(j) considerations)