Harrington v. Federal Deposit Insurance Corporation

Background

The plaintiffs were a group of former First Republic Bank employees who represented that they constituted a majority of the participants in First Republic’s Deferred Compensation Plan. They sued the Federal Deposit Insurance Corporation in its capacity as First Republic’s receiver. The plaintiffs alleged that the FDIC had improperly treated them as wholly unsecured creditors, stopped making payments from the Non-Qualified Deferred Compensation Plan Trust in May 2023, and refused to provide them with assets in that trust, including company-owned life-insurance accounts.

The complaint asserted claims for quiet title, conversion, constructive trust, preliminary injunctive relief, and declaratory relief. The plaintiffs sought orders declaring that they were entitled to recover directly from trust assets and preventing the FDIC from using those assets to pay other general unsecured creditors. The court had previously denied the plaintiffs’ request for a temporary restraining order because of the likely jurisdictional bar under the Financial Institutions Reform, Recovery and Enforcement Act of 1989, commonly called FIRREA.

Court’s analysis

The FDIC moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which challenges the court’s subject-matter jurisdiction. The court focused on 12 U.S.C. § 1821(j), which provides that, except at the FDIC’s request, no court may take action to restrain or affect the FDIC’s exercise of its powers or functions as a conservator or receiver.

The court concluded that the FDIC was acting within its receivership capacity and that the requested remedies would restrain or affect its statutory powers. Those powers include taking over, preserving, liquidating, and transferring the failed bank’s assets; determining and allowing or disallowing claims; and paying claims according to statutory priorities. Because the plaintiffs sought exclusively equitable remedies—including declarations, a constructive trust, and an injunction—the court held that it lacked jurisdiction over the lawsuit.

The court rejected the plaintiffs’ argument that the jurisdictional bar could not apply until the court decided whether the trust assets belonged to the plaintiffs rather than to First Republic or the FDIC. The court stated that Section 1821(j) applies to the FDIC’s handling of assets found in its possession, whether or not the failed institution owned them. It also rejected the argument that completing the FDIC’s administrative claims process would eliminate the separate jurisdictional bar in Section 1821(j). The court further agreed that provisions barring attachment or execution against assets in the receiver’s possession independently limited the requested relief.

Disposition

The court granted the FDIC’s motion to dismiss under Rule 12(b)(1) and did not reach the FDIC’s alternative arguments under Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim. The court held that the plaintiffs could not overcome FIRREA’s bar through an amended complaint and therefore dismissed the case with prejudice. It directed the Clerk to enter judgment for the FDIC against the plaintiffs and close the file. The court noted that the plaintiffs could potentially bring a conversion claim for monetary damages under the Federal Tort Claims Act against the proper party, but the court did not decide such a claim in this case.