Rise Development Partners, LLC v. Signature Bank
- John Koeltl
- 1:23-cv-04242
- U.S. District Court · Southern District of New York
- 8
In Rise Development Partners v. Signature Bank, Judge Koeltl stayed the action while plaintiffs pursue the FDIC’s administrative claims process.
The plaintiffs’ case against Signature Bank and the FDIC receiver is stayed while the plaintiffs pursue FIRREA’s administrative claims-review process; the underlying claims were not decided.
What happened
Rise Development Partners, LLC and other plaintiffs sued Signature Bank and others over transactions involving a Signature employee, alleging claims including negligence and breach of contract. After Signature was closed and the Federal Deposit Insurance Corporation became its receiver, the FDIC moved to stay the case.
The FDIC argued that the plaintiffs had to use the administrative claims process required by the Financial Institutions Reform, Recovery, and Enforcement Act before continuing in court. The plaintiffs argued that their claims had passed to Flagstar Bank under an agreement with the FDIC and therefore no longer belonged in that process. The court found that the relevant agreement kept the litigation liabilities with the FDIC receiver.
The court granted the FDIC receiver’s motion and stayed the action pending the plaintiffs’ exhaustion of the administrative claims process. Judge John G. Koeltl also directed the Clerk to close the motion. The order did not decide the underlying negligence, contract, or other claims.
The detailed version
- Rise Development Partners, LLC v. Signature Bank · No. 1:23-cv-04242
- John Koeltl
- July 6, 2023
Background
The plaintiffs, described in the opinion as former customers of Signature Bank and its subsidiaries, originally brought the action in New York state court. They asserted several claims, including negligence and breach of contract, concerning two transactions involving Signature employee Darshini “Donna” Mahadeo. The plaintiffs alleged that Mahadeo induced them to borrow money from HK Capital LLC at allegedly usurious rates and to lend money to Atlantic Construction, LLC, which later defaulted.
Before the state court transferred the case to another New York County, the New York State Department of Financial Services closed Signature Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC receiver transferred deposits and substantially all of Signature’s assets to Signature Bridge Bank, N.A. The transfer agreement stated that the FDIC receiver retained, and the Bridge Bank had no liability for, litigation in which the receiver or Signature was a defendant. The FDIC receiver later entered into a purchase and assumption agreement with Flagstar Bank covering substantially all deposits and certain loan portfolios. The FDIC receiver then removed the action to federal court, and the case was transferred to the Southern District of New York.
Issue and arguments
The FDIC receiver moved to stay the action while the plaintiffs pursued the administrative claims-review process under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). FIRREA provides an administrative process for claims seeking payment from, or a determination of rights concerning, the assets of a failed bank in receivership, as well as claims relating to an act or omission of the failed bank or receiver. The FDIC receiver had set July 17, 2023, as the deadline for filing claims against the Signature receivership.
The opinion noted that courts were divided over whether FIRREA imposes a statutory exhaustion requirement for lawsuits filed before a bank enters receivership. The plaintiffs did not dispute that their claims would ordinarily be subject to FIRREA’s review process. They argued instead that the claims had passed to Flagstar under the purchase and assumption agreement. The court recognized that claims assumed by a purchasing bank may no longer be subject to FIRREA’s administrative process, but concluded that the transfer agreement here expressly kept the relevant litigation liabilities with the FDIC receiver.
Ruling
The court held that, because the FDIC receiver retained the liabilities at issue, it could require the plaintiffs to proceed through FIRREA’s administrative claims-review process after giving notice and requesting a stay. The FDIC receiver had made that request. The court therefore granted the motion for a stay pending the plaintiffs’ exhaustion of the administrative claims process and stayed the action on that basis. The court did not resolve the merits of the plaintiffs’ underlying claims. Judge John G. Koeltl directed the Clerk to close the motion. The FDIC receiver’s alternative request for a mandatory 90-day stay was no longer applicable because more than 90 days had passed since its appointment.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.