Farella Braun + Martel LLP v. Federal Deposit Insurance Corporation as Receiver…

Background

Silicon Valley Bank was shut down on March 10, 2023, and the Federal Deposit Insurance Corporation (FDIC) became its receiver. Before the shutdown, Silicon Valley Bank had retained Farella Braun + Martel LLP for legal services under a flat-fee arrangement that reflected a discount from the firm’s regular hourly rates.

The firm alleged that 17 invoices totaling $211,025.72 remained unpaid. It filed a proof of claim with the FDIC. The FDIC partially allowed the claim for $162,193.97 and partially disallowed $48,831.75, stating that the disallowed amount was not proven to the receiver’s satisfaction. After the FDIC said that legal invoices needed billing rates, hours, and itemized work descriptions, the firm supplied supplemental invoices. The FDIC allegedly refused to change its position.

The firm sued under the federal statute governing judicial review of claims against a failed bank’s receiver. It sought review of the partial disallowance, a declaration concerning the FDIC’s liability, interest, costs, and attorneys’ fees.

The FDIC’s Motion

The FDIC moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss the request for declaratory relief. It argued that the complaint did not allege a sufficient contractual relationship between the firm and Silicon Valley Bank and that the firm’s claim could not proceed without a written agreement meeting statutory requirements.

The FDIC also moved under Rule 12(f) to strike the requests for pre- and post-judgment interest and attorneys’ fees. It argued that sovereign immunity barred interest awards against the FDIC and that the firm had not identified a legal basis for attorneys’ fees.

Declaratory Relief

The court denied the FDIC’s motion to dismiss the request for declaratory relief. It concluded that, at the pleading stage, it could not determine that it lacked jurisdiction to review the FDIC’s partial disallowance of the firm’s claim.

The court distinguished cases involving attempts to invalidate or restrain the FDIC’s exercise of its receivership powers. Here, the firm was seeking review of the FDIC’s claims decision after the administrative claims process and was ultimately seeking recovery of the money that the FDIC had disallowed. The court therefore held that the complaint could proceed past the motion-to-dismiss stage on this request.

Pre- and Post-Judgment Interest

The court granted the FDIC’s motion to strike the request for pre- and post-judgment interest. Relying on cited authority, the court concluded that sovereign immunity barred an interest award against the FDIC because the FDIC is a governmental and regulatory entity, not a private commercial enterprise, and Congress had not expressly waived the FDIC’s immunity from interest.

Attorneys’ Fees

The court denied the FDIC’s motion to dismiss and its motion to strike the request for attorneys’ fees. It explained that the sufficiency of a complaint is generally tested by the facts supporting the claim, not solely by the requested remedies. The court also concluded that the FDIC had not adequately shown at this stage that attorneys’ fees against it are always legally barred.

The court noted that striking a request for damages under Rule 12(f) is generally improper when the argument is that the requested relief is legally unavailable. That issue may instead be addressed through a motion to dismiss or a motion for summary judgment. The court did not decide that the firm was entitled to attorneys’ fees; it allowed the request to remain in the complaint.

Disposition

The court granted in part and denied in part the FDIC’s motion. It denied the motion to dismiss the firm’s claim for declaratory relief; granted the motion to strike the request for pre- and post-judgment interest; and denied the motion to dismiss and strike the request for attorneys’ fees.