Opinion ID: 576265
Heading Depth: 4
Heading Rank: 2

Heading: Case law interpreting the NBA

Text: 29 Very little case law exists interpreting these provisions of the NBA. The Supreme Court first spoke in this area in White v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603 (1884). White involved the failure of Miners' National Bank in 1875. The Comptroller refused to allow White's claim, and White brought a mandamus action against the Comptroller. In 1883, White recovered a judgment against the bank in the amount of his claim plus interest from the date the claim had been denied. During the intervening eight years, the Comptroller had made dividends to other creditors amounting to sixty-five percent of their claims. The Comptroller then made a payment to White in the amount of sixty-five percent of his original claim, excluding interest. White sued, claiming he was entitled to sixty-five percent of his judgment, which included interest from the date his claim had been denied. The Supreme Court affirmed the action of the Comptroller. The Court explained the statutory proscription that dividends be paid ratably as requiring dividends to be made by some uniform rule and noted that [a]ll creditors are to be treated alike. White, 4 S.Ct. at 686-87. The Court held that it was the comptroller's duty in paying dividends, to take the value of the claim at that time as the basis of distribution. Id. at 687. White, with its emphasis on payments to creditors from the assets of the bank as of the date of insolvency, bolsters our conclusion that the FDIC did not violate its duty to distribute dividends ratably. The explanatory language that all creditors be treated alike does not, as plaintiffs-appellees assert, dictate the outcome in this case. 30 Since White, a string of federal cases have cemented the principle that the NBA mandates pro rata payment of claims as of the date of insolvency. See, e.g., Scott v. Armstrong, 146 U.S. 499, 13 S.Ct. 148, 151, 36 L.Ed. 1059 (1892); FDIC v. McKnight, 769 F.2d 658, 661 (10th Cir.1985), cert. denied sub nom. All Souls Episcopal Church v. Federal Deposit Ins. Corp., 475 U.S. 1010, 106 S.Ct. 1184, 89 L.Ed.2d 300 (1986); American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983). Scott also affirms the principle that ratable payments are only required to be made to the extent of the assets of the failed bank: The requirement as to ratable dividends is to make them from what belongs to the bank, and that which at the time of the insolvency belongs of right to the debtor does not belong to the bank. Scott, 13 S.Ct. at 151. FDIC Receiver had a duty to make ratable dividends only from the amount that belonged to TAB Fort Worth at the date of insolvency; this amount was sufficient to pay each creditor only sixty-seven percent of its claim. The remaining portion of the $900 million that FDIC Corporate contributed to satisfy the unaffiliated creditors' claims at the time of insolvency belonged of right to FDIC Corporate, and thus did not belong to TAB Fort Worth. Neither the NBA nor the Federal Deposit Insurance Act imposed any duty on the FDIC to distribute this $900 million ratably. 31 Plaintiffs-appellees and the district court base their theory that the FDIC violated the ratability requirement of the NBA on First Empire Bank v. Federal Deposit Ins. Corp. and its progeny. See 572 F.2d 1361 (9th Cir.1978), cert. denied 439 U.S. 919, 99 S.Ct. 293, 58 L.Ed.2d 265 (1978); Woodbridge Plaza v. Bank of Irvine, 815 F.2d 538 (9th Cir.1987) (extending the principle of First Empire to state banks of which the FDIC is appointed receiver). First Empire arose on facts similar in many respects to those now before this Court. It involved the insolvency of United States National Bank of San Diego (USNB). The FDIC closed and was appointed receiver of USNB on October 18, 1973. The FDIC entered a purchase and assumption agreement with Crocker National Bank (Crocker) for most of the assets and liabilities of USNB. Certain assets and liabilities associated with USNB's controlling shareholder, however, were not assumed by Crocker. To make the purchase and assumption feasible, the FDIC in its corporate capacity lent the FDIC as receiver $128,780,000, which amount was among the assets transferred by the receiver to Crocker in the purchase and assumption agreement. The FDIC in its corporate capacity received and retained a first lien, superior to that of any unassumed creditor, in all the assets of the receivership estate not transferred to Crocker, to secure its $128,780,000 loan to the receivership. The creditors whose claims were not assumed sued the FDIC for payment in full. The district court held in favor of the FDIC, and the Ninth Circuit reversed. 32 In ruling in favor of those creditors, the Ninth Circuit held that sections 91 and 194 of the NBA apply to the FDIC when acting as receiver of a failed bank. It also found that in a purchase and assumption transaction the assumption of some liabilities in full, while the obligations of other creditors were not assumed at all, violated section 194 of the NBA. The court did note, however, that not every purchase and assumption agreement must include every creditor in order to be valid. If the purchase leaves sufficient assets in the receivership to allow distribution to unassumed creditors equal to that undertaken by the acquiring bank as to the creditors it has accepted, distribution still could be ratable. First Empire, 572 F.2d at 1371. 33 Although at first glance First Empire appears to be identical to the present case, it is in fact significantly different. The FDIC made no provision for any payment of the creditors' claims that were not assumed in First Empire; the unassumed creditors, unlike the plaintiff TAB banks here, did not receive a ratable dividend of the assets of the failed bank. The Ninth Circuit's decision in First Empire seems to be strongly influenced by this fact. The Court noted that: 34 In this case the extraordinary extent of the lack of equal treatment is emphasized by the fact that the unassumed creditors, left with only a claim against the undesirable assets of USNB remaining in the receivership, do not even have that questionable source of recovery unimpaired. They are subordinated to the lien of the Corporation [the FDIC] to secure its loan of money to the Receiver, all of which went to Crocker to make possible the advantage to the assumed creditors. This lien would without doubt consume in full the remaining assets, leaving the unassumed creditors without any recovery whatsoever. First Empire, 572 F.2d at 1371 (emphasis added). 9 35 Thus, the purchase and assumption agreement structured by the FDIC in First Empire would have denied the unassumed creditors what they would have received in a straight liquidation (and indeed would have denied them any payment). That is not the case here, and that is the crucial distinction. 36 In addition to First Empire, a trio of federal district courts in Texas have recently been confronted with interpreting sections 194 and 91 of the NBA. See MCorp v. Clarke, 755 F.Supp. 1402 (N.D.Tex.1991); Senior Unsecured Creditors' Committee v. FDIC, 749 F.Supp. 758 (N.D.Tex.1990); Texas Am. Bancshares, Inc. v. Clarke, 740 F.Supp. 1243 (N.D.Tex.1990) (appeal pending). In MCorp and Texas American (the district court's decision in the present case), the courts followed the lead of First Empire and found that the NBA prevents structuring a purchase and assumption transaction so that some creditors receive one hundred percent while others receive only liquidation value. In contrast, the district court in Senior Unsecured Creditors' Committee, after noting that this appeal was pending, declined to decide whether the First Empire interpretation of the NBA should be followed, but opined that: 37 the court sees considerable force in the FDIC's argument that the ratable distribution requirement of § 194 applies differently to purchase and assumption transactions, requiring only the ratable distribution of the value of the failed bank's assets as if it had been liquidated. Senior Unsecured Creditors' Comm., 749 F.Supp. at 775-76 (footnote omitted).