The Federal Deposit Insurance Corporation became the Court-appointed Receiver for Habersham Bancorp in Georgia. In that capacity, the FDIC sued certain Habersham Directors and Officers to get back over $4 Million in losses based on "allegedly improper dividends" approved by the underlying defendants-Directors-and-Officers in violation of their Fiduciary Duties. OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *1 (N.D. Ga. March 28, 2013).
The Plaintiff issued a Management and Professional Liability Insurance Policy to Habersham under which the Directors and Officers could claim Coverage. The Liability Insurance Company filed a Declaratory Judgment Action as a preemptive strike to obtain a declaration of no coverage for various reasons. The D&O Defendants filed a Motion to Dismiss the DJA based on lack of Subject Matter Jurisdiction. OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).
The Federal Court GRANTED the D&O Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction, and here's why. The ruling is potentially significant to D&O Insurers seeking DJ's of no Coverage for bank Directors and Officers, as in this case.
The D&O Defendants in this DJA based their no-subject-matter-jurisdiction argument on a Federal Statute which, of course, applies throughout the jurisdictions of the United States (and not just Georgia, where this case was filed):
D & O Defendants assert that Plaintiff's claim is precluded by Section 1821(j) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). (Def.s' MTD, Dkt. [33] at 7.) Under § 1821(j), “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 [FDIC] as a conservator or a receiver.” At issue here is the FDIC's power to “collect all obligations and money due the institution” that has been placed into receivership. See 12 U.S.C. § 1821(d)(2)(B)(ii). The so-called “anti-injunction provision” (§1821(j)) was “intended to permit the FDIC to perform its duties as conservator and receiver promptly and effectively without judicial interference.”
OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *2 (N.D. Ga. March 28, 2013).
Following the holding in a 2010 decision by the Northern District of Illinois, the Federal Judge in the Northern District of Georgia held in this case that a "preemptive determination of rights with respect to the D & O policy was jurisdictionally barred by Section 1821(j). OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *3 (N.D. Ga. March 28, 2013). The Federal Judge in Georgia elaborated:
The FDIC Claim seeks to recover sums owed to the bank because of the D & Os' alleged wrongful conduct; if the FDIC succeeds, the D & O Coverage would help satisfy any judgment for the bank. Section 1821(j)'s language is broad: “no court may take any action ... to restrain or affect the exercise of powers or functions of the [FDIC].” (emphasis added). According to the Eleventh Circuit, “[t]he exceptions to § 1821(j)'s jurisdictional bar are extremely limited.” [Citation to Eleventh Circuit decision omitted here.] The Court finds that issuing a declaratory judgment on Plaintiff's claims would affect the FDIC's ability to collect money due to Habersham. Consequently, the claim is barred by § 1821(j).
OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *4 (N.D. Ga. March 28, 2013).
The Plaintiff D&O Liability Insurer is not left without a remedy by this holding, however. "Plaintiff's claims can be pursued through FIRREA's administrative process' authorized by Section 1821(d). OneBeacon Midwest Insurance Co. v. Federal Deposit Insurance Corp., 2013 WL 1337193 *5 (N.D. Ga. March 28, 2013).
FIRREA is not a furry woodland creature for certain D&O Liability Insurance Companies. This decision applies to bar DJA's apparently whenever the FDIC sues "insured" bank Directors and Officers to get the defunct banks' money back as an alleged result of the D&O Defendants' "Bad Faith" Breach of Fiduciary Duties.
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