Wednesday, May 5, 2010

FYI: 11th Cir Says FIRREA Does Not Provide Jurisdiction for Preliminary Injunction Against FDIC

The U.S. Court of Appeals for the Eleventh Circuit recently held that, under the anti-injunction provision of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (""FIRREA"), 12 U.SC. §1821(j), a district court did not have jurisdiction to enter a preliminary injunction against the FDIC because the preliminary injunction unlawfully restrained the FDIC's exercise of its receivership powers and functions.  A copy of the opinion is attached.

This action arose from the collapse of Colonial Bank ("Colonial").  Pursuant to an agreement between Bank of America and Colonial, Colonial was to hold certain loans in trust and facilitate the sale of such loans to a third party, remitting sale proceeds or returning unsold loans to Bank of America within fifteen days of receipt of the loans.  Colonial collected over $1 billion in loan proceeds from the sale of the loans. 

When Colonial refused to return the loans and loan proceeds, Bank of America filed this lawsuit in federal court and a temporary restraining order ("TRO") was issued, enjoining Colonial from making any transactions in relation to the loans and loan proceeds.  The next day, the FDIC was appointed as receiver for Colonial.  The FDIC subsequently moved to be substituted in this lawsuit and filed an emergency motion to dissolve the TRO.  The district court denied the FDIC's motion and converted the TRO into a preliminary injunction.  This appeal followed.

In reversing the district court's decision and vacating the district court's preliminary injunction order, the Eleventh Circuit looked to the language of Section 1821(j) of FIRREA which provides in relevant part that "no court may take any action … to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver."  In evaluating whether the challenged action constituted the exercise of a receivership power, the court held that the FDIC would not exceed its statutory powers and functions as receiver by controlling and disposing of the loans and loan proceeds at issue, given that the steps the FDIC would need to take to identify and dispose of the loans and loan proceeds held in trust fell "squarely within the FDIC's statutory powers contained in FIRREA."   

The court held that ultimately the administrative claims process was the appropriate mechanism to evaluate Bank of America's claim, and that Bank of America must exhaust FIRREA's administrative claims process before filing an action in federal court. 

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874


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