Georgia District Court Judge Rules that FIRREA Precludes D&O Insurer Declaratory Judgment Actions Against FDIC as Receiver and Insured D&Os

On March 5, 2014, Judge Richard Story in the United States District Court for the Northern District of Georgia issued an order denying Plaintiff OneBeacon Midwest Insurance Company’s (OneBeacon) Motion for Limited Reconsideration, Leave to Amend, and for Clarification—notably holding that the federal courts lack jurisdiction to consider an insurance carrier’s coverage actions in the failed bank litigation context.

The case at hand arose out of litigation relating to the failure of Habersham Bank of Clarkesville, Georgia.1 The bank failed in February 2011, and the FDIC as receiver of the bank sent claim letters in August 2011 to the director and officer defendants (D&O Defendants) for various torts arising from breach of duties.

OneBeacon, the D&O Defendants’ professional liability insurer, subsequently sought a declaratory judgment that various portions of the insurance policy barred coverage for the claims asserted by the FDIC against the D&O Defendants.2 In response to the declaratory judgment, the D&O Defendants moved to dismiss the action, arguing that Section 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) precluded OneBeacon’s claim. The relevant language of the statute, referred to as the “anti-injunction provision,” states that “no court may take any action, except at the request of the Board of Directors by Regulation or Order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.”3

To support its claim, the D&O Defendants relied on Wheatland (Wheatland I),4 a case in the Northern District of Illinois. OneBeacon, also the insurer in Wheatland I, similarly sought a preemptive determination of rights under the D&O policy for the D&O Defendants in that case. The Wheatland I court held that “a preemptive determination would ‘affect the FDIC’s authority to collect all obligations and money due the [failed bank].’”5 As such, the Wheatland I court concluded that OneBeacon’s declaratory judgment action was jurisdictionally barred by Section1821(j).

OneBeacon, as plaintiff in the Northern District of Georgia, argued that the reasoning in Wheatland I appeared to be the minority position among jurisdictions, and that many courts had allowed insurers to bring declaratory judgments to determine coverage in FDIC tort claims against D&Os of failed banks. In addition, OneBeacon tried to distinguish Wheatland I on the grounds that it pertained to a first-party bond policy and a counterclaim for rescission, which was not present in the current case.

Judge Story concluded that because the decision in Wheatland I was not based on the first-party bond policy and rescission claims, OneBeacon’s distinction on this point was irrelevant. OneBeacon also attempted to distinguish on the ground that Illinois tort law is different from Georgia tort law. Judge Story found OneBeacon’s second argument similarly unpersuasive given the broad language of Section 1821(j) and a directive by the U.S. Court of Appeals for the Eleventh Circuit that “‘exceptions to § 1821(j)’s jurisdictional bar are extremely limited.’”6 Finally, Judge Story concluded that despite the jurisdictional bar in Section 1821(j), the plaintiff could still use FIRREA’s administrative process as a remedy. Judge Story granted the D&O Defendants’ motion to dismiss on March 28, 2013.

The most recent decision follows Judge Story’s order granting the D&O Defendants’ motion to dismiss. Attempting to amend its first complaint, OneBeacon filed its Motion for Limited Reconsideration, Leave to Amend, and for Clarification. In denying the plaintiff’s request, Judge Story concluded that the plaintiff had failed to provide any new evidence or change in law, the motion sought to relitigate old matters, and the plaintiff’s amendment would not vest jurisdiction in the court.7

1 OneBeacon Midwest Insurance Company v. FDIC as receiver for Habersham Bank, et. al, No. 2:12-CV-0106-RWS (N.D. Ga. Mar. 28, 2013).

2 Specifically, OneBeacon sought a declaratory judgment that the “Insured v. Insured” policy provision barred coverage of the FDIC claim; the “Loan Loss Carve-Out” provision barred coverage for the alleged loan losses; lack of timely notice barred coverage for the FDIC claim; the “Restitution Carve-Out” provision barred coverage for the alleged dividend losses; the Policy required an allocation should the Court hold that the FDIC Claim consisted of covered and uncovered claims; and Plaintiff had reserved all rights under the Policy. See id. at 5.

3 12 U.S.C. § 1821(j).

4 FDIC, as Receiver for Wheatland Bank v. OneBeacon Midwest Insurance Co., 883 F. Supp. 2d 754 (N.D. Ill. 2010).

5 OneBeacon, No. 2:12-CV-0106-RWS at 8 (quoting Wheatland I, 883 F. Supp. 2d at 762).

6 Id. at 12 (quoting RPM Inv., Inc. v. Resolution Trust Corp., 75 F.3d 618, 620 n.2 (11th Cir. 1996)).

7 Id. at 5-7.

 

Topics:  Board of Directors, D&O Insurance, FDIC, FIRREA, Professional Liability

Published In: Business Torts Updates, Civil Procedure Updates, General Business Updates, Finance & Banking Updates, Insurance Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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