Harrington v. Federal Deposit Insurance Corporation

Background

The plaintiffs are former employees of First Republic Bank who represent that they constitute a majority of the participants in the bank’s Deferred Compensation Plan. They sued the Federal Deposit Insurance Corporation, which was acting as First Republic Bank’s receiver. The plaintiffs alleged that the FDIC unlawfully treated them as wholly unsecured creditors and deprived them of assets from the plan’s Non-Qualified Deferred Compensation Plan Trust, also called the Rabbi Trust, including company-owned life-insurance accounts held within that trust.

The plaintiffs asserted claims for quiet title, conversion, constructive trust, preliminary injunctive relief, and declaratory relief. They asked the court to prevent the FDIC from transferring, selling, liquidating, or otherwise disposing of Rabbi Trust assets and either to order the FDIC to turn over those assets or to impose a constructive trust over them. They also sought an order allowing expedited discovery. The FDIC opposed the temporary restraining order.

Legal standard

Under Federal Rule of Civil Procedure 65, a temporary restraining order is an extraordinary form of emergency relief. The plaintiffs had to make the required threshold showing that they were likely to succeed on the merits, likely to suffer irreparable harm without relief, that the balance of hardships favored them, and that an injunction would serve the public interest. Under the Ninth Circuit’s sliding-scale approach, serious questions on the merits may sometimes suffice if the other requirements are met and the hardship balance tips sharply toward the moving party.

Court’s analysis

The court concluded that the plaintiffs had not shown a likelihood of success. The FDIC argued that Section 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA, barred a court from restraining or affecting the FDIC’s exercise of its powers as a receiver. The court said that provision appeared likely to bar the relief requested because the plaintiffs’ application directly challenged the FDIC’s handling of core receivership assets and sought an order distributing those assets or placing them in a constructive trust.

The court found that the plaintiffs had not shown that an exception to Section 1821(j) applied. It distinguished the Ninth Circuit authority cited by the plaintiffs, explaining that the earlier case involved whether the court could decide if property had been transferred to a receiver through a state-law foreclosure. The court said that situation was different from the plaintiffs’ direct challenge to the FDIC’s handling of the Rabbi Trust. Because the requested injunction appeared facially barred by FIRREA, the court did not address the FDIC’s other arguments at that stage.

The court also found that the sliding-scale approach did not justify emergency relief. The plaintiffs filed suit several months after affected individuals began receiving claim letters from the receiver, which undercut the urgency they asserted. The court further found that the plaintiffs had offered only general predictions that unsecured claimants would recover little and had not shown that the difference between their expected returns from the Rabbi Trust and their actual returns through the FDIC’s claims process was significantly injurious. The court recognized a significant public interest in upholding FIRREA and allowing the FDIC to perform its statutory duties while managing the consequences of First Republic Bank’s failure. It concluded that the balance of hardships did not tip sharply in the plaintiffs’ favor.

Disposition

Judge Haywood S. Gilliam, Jr. denied the plaintiffs’ application for a temporary restraining order and denied their related request for expedited discovery. The opinion did not issue a final ruling on the plaintiffs’ underlying quiet-title, conversion, constructive-trust, or declaratory claims.