Previous posts discussed how the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) creates a mandatory administrative claims process for claims against the assets of failed financial institutions. If a party with a claim against a failed bank does not comply with FIRREA, then that party is barred from later bringing that claim in federal or state court.
FIRREA’s administrative claims process must generally be followed regardless of whether the assets of the failed bank were purchased by another institution. In Benson v. JP Morgan Chase Bank, the Eleventh Circuit Court of Appeals affirmed that a claim asserted against a purchasing bank based on the conduct of a failed bank must be administratively exhausted. The rationale for this extension of FIRREA is that a purchasing bank stands in the shoes of the FDIC as receiver and thus acquires the FDIC’s protected status. Still, there are certain claims that need not go through the administrative process before being asserted against the purchasing bank, as well as some limited exceptions based on the procedural posture of the case. For this reason, purchasing banks and practitioners should evaluate the circumstances of each case before asserting that the court lacks jurisdiction to consider a creditor’s claims.
The administrative claims protection applies equally to a defendant’s counterclaims as to a plaintiff’s claims. For example, if a bank sues a borrower for breach of a promissory note, the borrower might respond with a counterclaim based on some theory of lender liability. However, such a counterclaim could not be considered by a court if the borrower’s claim of lender liability is based on the acts or omissions of a failed bank and the borrower failed to timely file its lender liability claim with the FDIC as receiver. The purchasing bank need only invoke the jurisdictional bar of FIRREA to defeat the counterclaim. It is important to note that the protection only applies to claims, so it generally does not apply to affirmative defenses.