- From LexisNexis® Mealey’s™ Daily Legal News.
Bank of America National Association, the indenture trustee for short-term notes issued by a division of bankrupt mortgage company Taylor Bean Whitaker Mortgage Corp. (TBW), on June 17 filed a brief opposing a motion to dismiss the bank’s lawsuit against the Federal Deposit Insurance Corp. (FDIC) and asserting its right to $ 1.7 billion in funds related to the TBW bankruptcy (Bank of America National Association v. Federal Deposit Insurance Corporation, No. 10-01681, D. D.C.).
Taylor Bean Bankruptcy
TBW filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida in 2009. TBW’s affiliate, Ocala Funding LLC, filed for Chapter 11 bankruptcy in the same Bankruptcy Court on July 10, 2012 (In Re: Ocala Funding LLC, No. 12-04524, Chapter 11, M.D. Fla. Bkcy.).
Ocala was established in 2005 by TBW to provide short-term liquidity to TBW’s mortgage origination business. Bank of America was the collateral agent, indenture trustee, depositary and custodian of the loans.
In 2010, Bank of America sued the FDIC in the U.S. District Court for the District of Columbia in an attempt to collect $ 1.7 billion related to TBW’s Chapter 11 bankruptcy.
Specifically, the bank alleges that it is entitled to recover $ 1.7 billion from the FDIC as the receiver for the now-defunct Colonial and Platinum banks. The FDIC, in turn, has countersued. It seeks to recover $ 900 million from Bank of America for allegedly breaching its duties as the custodian and bailee for Colonial.
$ 1.7 Billion Sought
The FDIC has argued that Bank of America’s claims should be dismissed based on the FDIC’s unilateral administrative pronouncement – without any hearing or adjudicative process – that the assets will be insufficient to make payments to any general unsecured creditors, which means the claims of such creditors must be deemed to have no value. This is referred to as a “no value” determination.
The bank contends that the FDIC’s motion should be denied because Bank of America’s claims are not, as the FDIC represents, solely those of a general unsecured creditor.
Even if the “no value” determination were deemed to be dispositive here, it does not even establish that the bank’s claims are “prudentially moot,” Bank of America contends.
Furthermore, the bank maintains that the FDIC has “identified no conventional legal basis for the court to give dispositive weight to the ‘no value’ determination, other than the ipse dixit pronouncements in certain out-of-circuit cases litigated by the FDIC.”
The FDIC maintains that its “No Value Determination” conclusively establishes that there are no assets in the Colonial Bank receivership estate to make any payments on general creditor claims and, consequently, those claims have no value.
TBW collapsed in August 2009, at which point the FDIC says it came to light that TBW had been manipulating the mortgage origination system. Bank of America, in filing its lawsuit for recovery of the $ 1.7 billion in question, alleges that TBW Chairman Lee Bentley Farkas and employees at Colonial and Platinum fraudulently diverted virtually all of Ocala’s assets.
Bank of America’s action seeks to recover this loss from the FDIC, but the FDIC alleges that at some point in 2008, TBW began to manipulate its operation such that thousands of loans were pledged as collateral to Ocala, Colonial and Freddie Mac at the same time.
The FDIC is represented by Athanasios Basdekis, Michael L. Murphy, Benjamin L. Bailey and Christopher S. Morris of Bailey & Glasser in Washington. Bank of America is represented by Mark T.G. Dworsky, Kristin L. Myles and Gregory D. Phillips of Munger Tolles & Olson in Los Angeles and Bonnie K. Arthur, Frank E. Emory Jr. and Patrick L. Robson of Hunton & Williams in Washington.