- From LexisNexis® Mealey’s™ Daily Legal News.
The Federal Deposit Insurance Corp. on May 3 moved in the U.S. District Court for the District of Columbia for dismissal of claims made by Bank of America N.A., the indenture trustee for short-term notes issued by a division of bankrupt mortgage company Taylor Bean Whitaker Mortgage Corp. (TBW), arguing that the bank’s claim to $ 1.7 billion in funds is “prudentially moot” (Bank of America National Association v. Federal Deposit Insurance Corporation, No. 10-01681, D. D.C.).
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, also 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, which was proceeding in the U.S. Bankruptcy Court for the Middle District of Florida.
On Dec. 10, the District Court judge presiding over Bank of America’s action against the FDIC ruled that the bank could proceed with its lawsuit.
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.
In its motion filed May 3, the FDIC contends that the assets of the Colonial Bank receivership are insufficient to make any distribution on the claims of general unsecured creditors; therefore, it says, all such claims will recover nothing and have no value.
Moreover, because Bank of America’s claims against Colonial are general unsecured claims, they have no value; therefore, the claims should be dismissed because no case or controversy exists under Article III of the U.S. Constitution, the FDIC contends. Alternatively, Bank of America’s claims against the FDIC should be dismissed as “prudentially moot,” the agency adds.
Furthermore, the FDIC argues that pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the liability of the FDIC as a receiver is “strictly” limited to the assets of the receivership estate.
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 argues that Colonial was unaware of this “multi-pledging scheme” and ultimately lost a total of $ 900 million. The FDIC claims that Bank of America was complicit in the “multi-pledging” and seeks to recover the $ 900 million loss.
Ocala is represented by Russell M. Blain of Stichter Riedel Blain & Prosser in Tampa, Fla. TBW is represented by Kristopher E. Aungst of Berger Singerman in Miami.
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.