Limitations on Judicial Determination of Creditor Claims Under Firrea
| Jurisdiction | United States,Federal |
| Citation | Vol. 11 No. 1992 Pg. 2379 |
| Pages | 2379 |
| Publication year | 1992 |
1992, November, Pg. 2379. Limitations on Judicial Determination of Creditor Claims Under FIRREA
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") was enacted August 9,1989.(fn1) FIRREA contains procedures for asserting claims against failed financial institutions. It also puts limitations on judicial determinations of claims by either barring the exercise of jurisdiction or requiring the stay of pending court actions.(fn2) The Federal Deposit Insurance Corporation ("FDIC") and the Resolution Trust Corporation ("RTC") (hereinafter collectively and generically referred to as "RTC"), as receivers of failed institutions, routinely invoke these provisions in civil actions.
The interpretation and effect of the jurisdictional and stay provisions of FIRREA have been the subject of numerous recent federal court decisions. This article gives a general overview of the FIRREA claims procedure and explores how the courts are treating such provisions in civil actions against failed financial institutions for which RTC is appointed receiver.
FIRREA "created a comprehensive administrative procedure for adjudicating claims asserted against a failed depository institution" after RTC is appointed receiver to liquidate or wind up the affairs of the institution.(fn3) Congress intended that the claims determination procedure would
dispose of the bulk of claims against failed financial institutions expeditiously and fairly [and] allow [RTC] to quickly resolve many of the claims against failed financial institutions without unduly burdening the District Courts.(fn4)
On its appointment as receiver, RTC must promptly publish notice to the institution's creditors to present claims by a date not less than ninety days after publication of the notice.(fn5) A claims notice also must be mailed to the last known address of each creditor shown on the institution's books.(fn6) With certain exceptions,(fn7) claims filed after the date specified in the notice are barred.(fn8) RTC has 180 days after filing to review a claim and notify the claimant whether the claim has been allowed or disallowed.(fn9) RTC must allow claims "proved to the satisfaction of the receiver."(fn10) If a claim is disallowed in whole or in part, RTC is required to tell the claimant why the claim was disallowed and the procedures available for challenging the disallowance.(fn11)
FIRREA provides two remedies if a claim is disallowed. Within sixty days for a routine claim (thirty days for an expedited claim) after the end of the applicable claims review period or the date of notice of disallowance, whichever is earlier, the claimant may either request further administrative review by RTC,(fn12) file suit or continue a previously filed action on the claim.(fn13) Unless suit is commenced or continued, or administrative review is sought within the prescribed time, a claim may be totally or partially disallowed:
[S]uch disallowance shall be final, and the claimant shall have no further rights or remedies with respect to such claim.(fn14)
The administrative procedure followed by RTC and RTC's decision on a claim may not be reviewed if an action on the claim is filed or continued. Rather, a claimant is entitled to trial de novo on the claim.(fn15) A new action for judicial determination of a claim may be brought in the federal district court for the district in which the institution's principal place of business is located or in the District of Columbia.(fn16) To ensure a party is not prejudiced while proceeding through the administrative claims process, filing a claim with RTC constitutes commencement of an action for statute of limitations purposes.(fn17)
If an action on the claim was not commenced before RTC was appointed receiver, FIRREA forces a claimant to follow
the claims process by barring the exercise of jurisdiction by any court to consider a claim until the claim has been disallowed.(fn18) Under 12 U.S.C. § 1821(d) (13), "[r]esort to either the District Courts or administrative process is available only after the claimant has first presented its claim to [RTC]."(fn19) According to several circuit court decisions:
[I]f RTC has already been appointed receiver of a depository institution, a claimant must first comply with FIRREA's statutory procedures as a prerequisite to federal jurisdiction, no matter when the claim arose.(fn20)
FIRREA does not expressly address whether a claimant must file an administrative claim if an action has been filed before RTC is appointed receiver. The legislative history suggests that the filing of a claim may be optional if a civil action was pending when RTC was appointed receiver:
The administrative procedures, including the review procedures, created by the FDIC, if made sufficiently attractive to claimants, should lead to a large number of claimants agreeing to present their claims through these forms rather than in court.(fn21)
A question exists as to why Congress was concerned with attracting claimants to the claims process if filing an administrative claim is mandatory in all cases. Congress may have intended to give parties in pending litigation the option to proceed through the claims process or continue with the litigation. For example, if RTC is appointed receiver on the eve of trial, the claimant may choose to continue in litigation after a delay of only ninety days.(fn22) Conversely, a claimant may file a claim and proceed with the claims process if no prejudice results from abandoning or suspending the litigation.
FIRREA does not expressly require a party involved in litigation at the time RTC is appointed receiver to file a claim. However, nearly all courts considering the issue have found the filing of a claim mandatory. For example, in RTC v. Mustang Partners,(fn23) Mustang Partners, believing it was exempt because its counterclaim was pending when RTC was appointed receiver, did not file an administrative claim. In affirming the district court's summary judgment dismissing the counterclaim for lack of subject matter jurisdiction, the Tenth Circuit Court of Appeals found no support in the language of FIRREA for the argument by Mustang Partners that the claims procedure can be ignored if suit was filed before a receiver was appointed. The court concluded that "Mustang's right to continue pursuing...
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