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FDIC Permitted to Stay Bank Failure Suit Until Certain FIRREA Remedies Are Exhausted
Insurance Law Update
U.S. District Court for the Northern District of Texas, Dallas Division
In Sewell v. Millennium State Bank of Texas, 2009 WL 4723141 (N.D.Tex. December 10, 2009), the U.S. District Court for the Northern District of Texas, Dallas Division, granted the FDIC's motion to stay securities fraud litigation against Millennium State Bank pending exhaustion of certain administrative remedies under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).
In the underlying Sewell litigation, the plaintiff-shareholders filed suit against Millennium, its directors and officers, and various third parties, including Millennium's auditors and underwriters, alleging that they had been provided incomplete and inaccurate information about the financial viability of Millennium before the bank failed. The plaintiffs alleged fraud, breaches of fiduciary duty and violations of Texas securities laws. The plaintiffs filed their suit in a Texas state court, but the FDIC removed the suit to the federal district court.
The FDIC then moved for, and the court granted, a stay due to the provisions of FIRREA. The court observed that FIRREA initially was enacted during the savings and loan crisis of the 1980s, and that it has since been expanded to permit the FDIC to review and consider failed bank claims. Specifically, under FIRREA, the FDIC in its capacity as a receiver has 180 days to conduct an administrative review of a claim to decide if the claim may proceed. As such, the court in Sewell stayed the action until the earlier of the date that the FDIC disallows plaintiffs’ claims or the expiration of the 180-day administrative review period. The court further held that the stay applies to all claims against the Millennium and any related third parties.
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