FIRREA Protects Purchasing Banks Against Some Claims Disguised as Affirmative Defenses

By Scott J. Kennelly and Adam B. Brandon

As previously discussed on this blog, 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’s requirements, then that party is generally barred from later raising the claim in state or federal court. This jurisdictional bar applies both to a defendant’s counterclaims and a plaintiff’s claims . This post examines whether FIRREA also deprives courts of subject matter jurisdiction over affirmative defenses.

In theory, an affirmative defense is not subject to the administrative claims process of FIRREA provided it merely attacks a purchasing bank’s legal right to bring an action. In practice, however, many so-called “affirmative defenses” are actually claims against the assets of failed banks. FIRREA may bar these types of claims even if a defendant labels them “affirmative defenses.”