When the Federal Deposit Insurance Corporation (the “FDIC”) becomes the receiver for a failed bank, there’s usually a lot of lawsuits by, and against, the bank pending in state court. And there’s often post-Appointment Date lawsuits filed in state court against the FDIC as receiver too. Under Section 9(b)(2) of the Federal Deposit Insurance Act (the "FDI Act"), also known as 12 U.S.C. §1219(b)(2) (the “removal statute”), the FDIC may remove (i.e., transfer) most of those cases from state to federal court.
Most FDIC Cases are Eligible for Removal
With limited exception, under the removal statute, any case where the FDIC is a party is considered to arise under federal law. And the FDIC may remove lawsuits arising under federal law to federal court.
Exception: Cases Ineligible For Removal
Section 9(b)(2)(D) of the removal statute identifies an exception for cases the FDIC may not remove. To qualify for this exception, the case must meet each of the following requirements:
- The FDIC is serving as receiver for a state chartered bank
- The FDIC was appointed as receiver by a state banking regulatory agency
- The FDIC is not the plaintiff, i.e., the FDIC did not file the original complaint that started the pending state court lawsuit
- The lawsuit involves only (a) pre-Appointment Date rights against the failed bank or (b) pre-Appointment Date obligations the failed bank owed to depositors, creditors (including borrowers), or stockholders
- The case requires only the interpretation of state law
At least one judicial decision (PDF) holds that if the case requires applying federal law, it does not satisfy the last requirement and the FDIC may remove it to federal court. And that applies regardless of whether:
- The original complaint starting the case raises issues of federal law, or
- The FDIC asserts, or could later in the case assert, a defense under federal law (e.g., the D’Oench, Duhme doctrine, Section 13(e) of the FDI Act)
And at least one judicial decision (PDF) holds that a priority dispute between a mortgage lender in FDIC receivership and a mechanics lien holder qualifies for the exception and the FDIC cannot remove the case to federal court.
Exclusion from the Exception
If a case satisfies each of the five exception requirements mentioned above, but before the Appointment Date the failed bank could have started the lawsuit in, or removed it to, federal court, the FDIC may also remove the case to federal court just as the bank could have before the FDIC became receiver for the failed bank.
When May the FDIC Remove to Federal Court?
Under the removal statute, the FDIC may remove an eligible case to federal court within 90 days after:
- The date the FDIC is substituted as a party in the case after the Appointment Date, or
- The date the case is filed against the FDIC