A Potential Defense for Purchasing Banks Against Lender Liability Claims Based on the Actions of a Failed Bank

By: Adam B. Brandon

Previous posts discussed how the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) creates a mandatory administrative claims process for claims against the assets of failed financial institutions. If a party with a claim against a failed bank does not comply with FIRREA , then that party is barred from later bringing that claim in federal or state court.

FIRREA’s administrative claims process must generally be followed regardless of whether the assets of the failed bank were purchased by another institution. In Benson v. JP Morgan Chase Bank , the Eleventh Circuit Court of Appeals affirmed that a claim asserted against a purchasing bank based on the conduct of a failed bank must be administratively exhausted. The rationale for this extension of FIRREA is that a purchasing bank stands in the shoes of the FDIC as receiver and thus acquires the FDIC’s protected status. Still, there are certain claims that need not go through the administrative process before being asserted against the purchasing bank, as well as some limited exceptions based on the procedural posture of the case. For this reason, purchasing banks and practitioners should evaluate the circumstances of each case before asserting that the court lacks jurisdiction to consider a creditor’s claims.