Opinion ID: 196528
Heading Depth: 2
Heading Rank: 1

Heading: Ratable Distribution

Text: The FDIC, as receiver, is authorized to distribute the assets of a failed bank to all creditors on a pro rata basis pursuant to the National Bank Act at 12 U.S.C. 91 and 194, and the FIRREA at 12 U.S.C. 1821(i)(2).8 See also United States ex rel. White v. Knox, 111 U.S. 784, 786 8. Section 91 prohibits a bank facing insolvency from making payments that prefer some creditors over others. 12 U.S.C. 91. Section 194 requires a ratable distribution of assets among all general creditors entitled to a share in the receivership estate. 12 U.S.C. 194 (providing that the FDIC shall make a ratable dividend . . . on all such claims as may have been proved to [its] satisfaction or adjudicated in a court of competent jurisdiction). Section 1821(i)(2) limits the FDIC's liability as receiver to the amount a claimant would have received in a straight liquidation of the failed bank. 12 U.S.C. 1821(i)(2) (The maximum liability of the [FDIC] . . . to any person having a claim . . . shall equal the amount such claimant would have received if the [FDIC] had liquidated the assets and liabilities of such institution . . . .). Section 1821(i)(2) does not, by itself, resolve the issue of whether a plaintiff is entitled to a preference because the statute does not alter[] or define[] the priorities [that] define liquidation value. Branch v. FDIC, 825 F. Supp. 384, 417 & n.35 (D. Mass. 1993) (internal quotation omitted). -18- 18 (1884) (Dividends are to be paid to all creditors ratably; that is to say, proportionally. To be proportionate they must be made by some uniform rule. . . . All creditors are to be treated alike.). While the ratable distribution rule is not absolute, the statutory framework is distinctly unfriendly to the recognition of special interests or preferred claims. Downriver, 879 F.2d at 762 (internal quotation omitted). A plaintiff seeking an exception from the pro rata rule bears a heavy burden of proof to show that a preference is warranted. Id.; see also Branch 825 F. Supp. at 416. A preference might be warranted where a plaintiff is a secured creditor and is seeking to enforce a lien against the security, see Ticonic Nat'l Bank v. Sprague, 303 U.S. 406, 413 (1938), or where the plaintiff, although a general unsecured creditor, can show an entitlement to a constructive trust. See Downriver, 879 F.2d at 762. Because the plaintiffs can show neither, their awards are subject to pro rata distribution. None of the plaintiffs has a secured claim, and they argue to no avail that they have claims entitling them to a constructive trust. The plaintiffs must have shown, and did not, that the Bank's fraudulent conduct caused a particular harm that is not shared by substantially all other creditors, and that granting the relief would not disrupt the -19- 19 orderly administration of the estate. Id. The district court found, however, that the defendants committed no fraud in this case, and fraud (or violation of a fiduciary duty) is generally a prerequisite to the formation of a constructive trust.9 Moreover, the plaintiffs have not shown that a preference would not interfere with the orderly administration of the estate. The district court properly held that the plaintiffs' awards were subject to the pro rata distribution rule.