Opinion ID: 569328
Heading Depth: 2
Heading Rank: 1

Heading: Provable Claims under Section 194 of the National Bank Act.

Text: 19 As receiver of North Central, FDIC is responsible for marshalling the bank's assets and distributing them ratably on all such claims as may have been proved to [the receiver's] satisfaction. 3 20 The distribution of assets of an insolvent national bank by the FDIC is a matter of federal law: 21 Under the relevant provisions of the National Bank Act (12 U.S.C. §§ 191-200) and the Federal Deposit Insurance Act (12 U.S.C. §§ 1811-32) Congress has established a complete system for the administration and liquidation of insolvent banks for the benefit of creditors with the receiver acting as the administrative agent of the Comptroller of the Currency. The Acts constitute a complete plan for the establishment and government of national banks.... 4 22 When the FDIC acts in its corporate capacity as receiver of a national bank, federal law applies. 5 23 Relying on First Empire Bank-New York v. FDIC; 6 FDIC v. Liberty National Bank and Trust Co.; 7 and Interfirst Bank-Abilene v. FDIC; 8 the district court in the case at bar held that Citizen's claims, pursuant to the standby letters of credit issued by North Central, were provable against FDIC, within the meaning of Section 194 of the National Bank Act. 24 The National Bank Act addresses the establishment, regulation, and liquidation of national banks, and provides in pertinent part the following: 25 [T]he Comptroller [receiver] shall make a ratable dividend of the money paid over to him ... on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction.... 26 12 U.S.C. § 194. The National Bank Act itself does not otherwise set forth specifically the requirements of a provable claim. The lack of said specifics, was recognized early on by the Supreme Court in American Surety Co. v. Bethlehem National Bank, 314 U.S. 314, 316, 62 S.Ct. 226, 227-28, 86 L.Ed. 241 (1941), which held that Congress chose instead that  'just and equal distribution' of an insolvent bank's assets be achieved through the operation of familiar equitable doctrines fashioned by the courts. Id. 27 The First Empire decision is indistinguishable from the case at bar. The test of provability set forth in First Empire was adopted by the Tenth Circuit in Liberty National Bank, and this circuit in Interfirst Bank-Abilene. In First Empire, the court concluded that claimant's standby letter of credit claim was provable even though the default on the underlying note occurred subsequent to the issuer's insolvency, based on the following criteria: 28 1) it existed before the issuing bank's insolvency and did not depend on any new contractual obligation arising later; 9 29 2) liability on the claim was absolute and certain in amount when suit was filed against the receiver; 10 and 30 3) the claim was made in a timely manner. 31 572 F.2d at 1367-69. 32 The FDIC disputes neither the facts nor that Citizen's claim meets First Empire' § provability test. Rather, the FDIC's argument rests on a whole host of factually inapposite Supreme Court decisions discussed below in some detail, which focus on the concept of ratable distribution 11 as opposed to the nature of a provable claim. 33 In United States ex rel. White v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603 (1884), the question before the Court was whether a distribution should be calculated based on the amount of the claim on the date of insolvency or whether the creditor should be allowed to include the interest accrued post-insolvency. In White, the creditor had obtained a judgment against the receiver which included interest accrued post-insolvency. The Court concluded that it would not be ratable to allow one creditor to include interest and other creditors not to include interest, and therefore the creditor's ratable portion of a dividend was determined as of the date of insolvency. Nowhere in its decision in White, did the Court equate provability of claims with the absolute, fixed, due-and-owing language which applies to the concept of a ratable distribution. Provable claims were defined as claims which are shown ... to have their origin in something done before the insolvency. 111 U.S. at 787, 4 S.Ct. at 687. 34 In Scott v. Armstrong, 146 U.S. 499, 13 S.Ct. 148, 36 L.Ed. 1059 (1892), a set off case, the insolvent bank owed a promissory note which was not due on the date of insolvency. The issue before the Court was whether the holder of the note could set off funds it owed to the insolvent bank based on the promissory note which was not mature on the date of insolvency. The Court allowed the set off based on equitable principles, stating that the National Bank Act was not intended to alter existing rights, including the right of set off. 35 Both Merrill v. National Bank of Jacksonville, 173 U.S. 131, 19 S.Ct. 360, 43 L.Ed. 640 (1899), and American Surety Co. v. Bethlehem National Bank, 314 U.S. 314, 62 S.Ct. 226, 86 L.Ed. 241 (1941), dealt with the case of the secured creditor and ratable distribution of dividends. In Merrill, the issue before the Court was whether the value of the secured creditor's claim should be calculated on the date of insolvency, with or without credit for collateral or collections made post-insolvency. In other words, the issue before the Court was the basis for calculating the creditor's ratable portion of a dividend, and not whether the creditor's claim was provable pursuant to section 194 of the National Bank Act. 36 The American Surety case 12 is similar to Merrill, except that American Surety involved a surety who had collateral. The issue therein, which the Court answered in the negative, was whether the surety had to reduce the claim by collections occurring post-insolvency. 37 Essentially, the FDIC argues that no reference whatsoever should be made to post-insolvency events, and that a claim must be absolutely fixed, due, and owing as of the date of insolvency to be provable, and therefore entitled to participate in the ratable distribution of funds with regard to insolvent national banks. Its argument is premised on the basic misconception that guidelines set forth in decisions of the Supreme Court pertaining to ratable distribution apply with equal force to the determination of whether a claim is provable within the meaning of section 194. Though related concepts, whether a claim is provable under section 194, and whether a distribution is ratable represent two entirely different inquiries. 38 Appellant's militant stand against reference to post-insolvency occurrences in determining the provability of claims, when carried to its logical conclusion, would in certain instances result in the secured creditor receiving more than his ratable share (e.g. the secured creditor who collects dividends based on the entire amount of the debt, and also recovers from the sale of collateral). Appellant's position would further dictate a result at odds with this court's decision in Pinckney v. Wylie, 86 F.2d 541 (5th Cir.1936). 39 In Pinckney, the noteholder (Wylie) asserted a claim against the insolvent national bank (Belton National Bank) which had guaranteed payment of the note. The note was secured by trust deeds on land, having the effect of mortgages, and a retained vendor's lien. Belton National Bank purchased the land from the original purchasers and makers of the notes, in liquidation of their indebtedness to the Bank, assuming the purchase money debt in the amount of $7,000. The Bank then sold the land to an individual who later renewed two of the notes, which the Bank guaranteed. The Bank then became insolvent. 40 The principal issue in Pinckney was ratable distribution, i.e., whether the Bank's liability would be based on the entire indebtedness or the amount after crediting the debt with proceeds from the sale of collateral. This court, of necessity, had to recognize the provability of the noteholder's claim against the Bank based upon its obligation as surety/guarantor. 41 Pinckney stands for the proposition that an obligation under a guaranty is provable. The obligation under a letter of credit considered herein is perhaps more absolute than that under a guaranty, considered in Pinckney. 42