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

Background

Farella Braun + Martel LLP performed legal work for Silicon Valley Bank before the bank failed on March 10, 2023. The Federal Deposit Insurance Corporation (FDIC) was appointed receiver for the failed bank. The FDIC published a deadline requiring claims against Silicon Valley Bank to be filed by July 10, 2023.

On July 6, 2023, Farella submitted a proof of claim for $211,025.72 covering 17 bills for work performed in 2022 and early 2023. The FDIC later asked for invoices and additional information, including who performed the work, how long the work took, and documentation of any flat-fee agreement. Farella provided invoices the next day, but only eight of the 17 invoices contained the requested detail.

The FDIC mailed a notice of partial allowance on January 5, 2024. It approved payment of $162,193.97 and disallowed $48,831.75 because the claim was not proven to the receiver’s satisfaction. The FDIC explained that legal invoices without billing rates, billed hours, and itemized descriptions of the work would be disallowed. Farella sought administrative review, which the FDIC denied on January 16, 2024. Farella later supplied additional invoices and asked the FDIC to reconsider, but the FDIC declined to change its position.

Farella filed this action on March 4, 2024, under 12 U.S.C. § 1821(d)(6), seeking judicial review of the disallowed portion of its claim. The FDIC moved for summary judgment, which asks whether the evidence shows that one side is entitled to judgment without a trial.

Jurisdiction and Scope of Review

The FDIC first argued that the court lacked jurisdiction. The court considered the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), which governs claims against failed financial institutions in receivership.

The court reconciled FIRREA’s provisions by holding that it could conduct a fresh determination of the validity of Farella’s claim, but could not review whether the FDIC’s administrative disallowance decision was correct. The court found that Farella’s complaint, which cited the judicial-review provisions in § 1821(d)(6), adequately established jurisdiction. The court understood the complaint to seek a fresh determination of the claim itself, not review of the propriety of the FDIC’s initial rejection.

The FDIC also argued that the court’s review should be limited to material submitted during the 180-day period in which the FDIC determined the claim. The court agreed. It reasoned that allowing a claimant to withhold evidence from the FDIC and then present it for the first time in court would undermine FIRREA’s goal of resolving claims against failed banks quickly. The court noted that Farella did not intentionally hide evidence, but concluded that the FDIC was not legally required to repeatedly follow up with claimants whose submissions lacked sufficient documentation.

Merits

The court reviewed the nine invoices for which the FDIC had refused payment. Those invoices listed legal fees and costs and briefly described the work, but generally did not state the hours worked, billing rates, or the individuals who performed the work. The invoices only sometimes identified a particular bank client. Farella also did not submit evidence of a flat-fee agreement during the 180-day claim-determination period.

The court held that the information in the disallowed invoices was insufficient to support payment. It stated that requiring billing rates and hours worked, or evidence of a flat-fee agreement if one existed, was necessary and fair to protect the FDIC and other creditors of the failed bank.

Disposition

The court granted the FDIC’s motion for summary judgment. The opinion does not use the terms “with prejudice” or “without prejudice.”

Judge

The order was entered by Susan Illston, United States District Judge.