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Federal Deposit Insurance Corp. v. Citizens Bank & Trust Co.

decided: February 2, 1979.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 76-C-3092 - J. Sam Perry, Judge.

Before Fairchild, Chief Judge, Tone, Circuit Judge, and Sharp, District Judge.*fn*

Author: Tone

Federal Deposit Insurance Corporation, after becoming the receiver of an insolvent state bank, entered into a so-called purchase and assumption transaction under 12 U.S.C. § 1823(e) whereby it, as receiver, assigned to itself in its corporate capacity the insolvent bank's claim against Citizens Bank & Trust Company. In FDIC's suit on the claim, Citizens asserted a set-off and counterclaim based on alleged liability of the insolvent bank to Citizens arising out of an unrelated transaction. The issue we find to be controlling is whether the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671, Et seq., withdrew the sue-and-be-sued liability of FDIC under 12 U.S.C. § 1819 for torts not covered by that Act and thus makes FDIC immune from Citizens' claim.

When an insured state bank becomes insolvent, FDIC may accept appointment as the receiver, if the appointment is authorized by state law and tendered in accordance with that law. 12 U.S.C. § 1821(e). When acting as a receiver of a closed bank, FDIC may deal with itself. Thus it may act in two capacities, as receiver and on its own behalf as insurer of deposits and often as a creditor.

By an amendment to the Federal Deposit Insurance Act adopted in 1935, 49 Stat. 684, FDIC was authorized to enter into purchase and assumption agreements with respect to the assets of failing or closed banks. 12 U.S.C. § 1823(e).*fn1 Under this provision, FDIC may contract with another bank to have the latter assume the deposit and other liabilities and purchase the assets of the insolvent bank, and may lend the insolvent bank money in sufficient amount to bring the assumed liabilities and purchased assets into balance. FDIC may also make loans secured "by assets of an open or closed insured bank, which loans may be in subordination to the rights of depositors and other creditors," or may purchase such assets or guarantee the assuming bank against loss by reason of the purchase and assumption.

This case arose out of the insolvency of the Northern Ohio Bank . Before the insolvency, NOB made a loan to Gananda Development Corporation in which defendant Citizens participated to the extent of $348,000. Gananda defaulted on the loan. Thereafter, Citizens, contending that NOB had induced Citizens' participation by misrepresentations concerning collateral and had failed to obtain collateral after agreeing to do so, attempted to negotiate with NOB for the return of the $348,000.

NOB maintained a correspondent account with Citizens, which at the time of the Gananda default was in the amount of $300,868.84. In the ensuing months this balance remained unchanged, and Citizens sent monthly statements to NOB accordingly.

On Friday, February 14, 1975, the Superintendent of Banks for the State of Ohio took possession of NOB and appointed FDIC as its receiver. On Monday, February 17, 1975, FDIC filed an ex parte petition in an Ohio court seeking approval of the purchase and assumption transaction contested in this suit, and the court granted the petition.

This transaction was reflected in two contracts, one between FDIC as receiver and National City Bank of Cleveland and the other between FDIC as receiver and itself in its corporate capacity. By the first, National City Bank purchased from the receiver certain "acceptable" NOB assets, consisting of cash, deposits in other banks, and certain "other assets of sound banking quality," and assumed NOB's deposit liabilities and certain other liabilities. National City Bank paid $3,750,000 for the value of the ongoing business of NOB. By the second contract, FDIC in its corporate capacity purchased from itself as receiver the other assets of NOB, which were generally described as assets carried on the books of NOB at an amount greater than their actual value and unacceptable to the assuming bank, for $90,250,000, which sum was included in the assets turned over to National City Bank. Under the second contract FDIC in its corporate capacity was to retain all net recoveries from the assets assigned to it until it had recovered the $90,250,000, costs of liquidation, and 61/2 per cent interest on the unrecovered balance of the $90,250,000 calculated monthly.

The Gananda loan was among the "unacceptable" assets transferred by the second contract to FDIC in its corporate capacity, as was, for reasons FDIC has never explained, NOB's balance in the correspondent account with Citizens. The purchase and assumption transaction effectively left the receivership estate without assets of value or prospect of receiving any. This, in turn, had the effect of preventing recovery by Citizens and any other creditors to whom National City Bank did not assume liability.

On March 12, 1975, FDIC, apparently as receiver,*fn2 wrote to Citizens demanding payment of the balance in NOB's correspondent account. In its letter in response, Citizens refused to comply with the demand, stating that it might set off FDIC's claim against its tort claim against NOB. In another letter to FDIC dated May 27, 1975, Citizens asserted its claim that NOB was liable to Citizens in the amount of $348,000 by reason of the Gananda transaction and stated that it had set off the correspondent account balance of $300,868.84.

On August 19, 1975, FDIC, in its corporate capacity, brought the instant action against Citizens in the Northern District of Illinois, where Citizens operates its banking business, to recover the $300,868.84. Thereafter Citizens filed a timely claim against FDIC as receiver, which rejected the claim. Answering the complaint in this action, Citizens challenged jurisdiction, and asserted affirmative defenses, including fraud, breach of contract, and negligence on the part of NOB in the Gananda loan transaction, which entitled it to a set-off in the amount claimed by FDIC. Citizens also counterclaimed for the approximately $48,000 difference between the amount of its participation in the Gananda loan transaction and the amount of the set-off. In addition Citizens moved to transfer the case to the Northern District of Ohio under 28 U.S.C. § 1404(a).

The District Court denied Citizens' motion to transfer and granted FDIC's motion to strike the affirmative defenses and counterclaims. Shortly thereafter, the court, on FDIC's motion, entered summary judgment against Citizens, from which it appeals. We affirm the judgment.


Citizens argues that the District Court did not have jurisdiction over this case because 12 U.S.C. § 1819 Fourth, which provides that FDIC may sue and be sued and vests jurisdiction over "(a)ll suits of a civil nature at common law or in equity to which the Corporation (FDIC) shall be a party" in the United States District Court, excepts from that jurisdiction suits to which FDIC is a party in its capacity as receiver of a state bank and which involve only the rights or obligations of creditors and the state bank under state law. Citizens' characterization of this suit as one which falls within this exception rests entirely on FDIC v. Ashley, 408 F. Supp. 591 (E.D.Mich.1976), which was reversed on appeal after oral argument in the case at bar, FDIC v. Ashley, 585 F.2d 157 (6th Cir., 1978).

In its opinion the Sixth Circuit analyzed § 1819 Fourth in detail and concluded that the dual roles created for FDIC by Congress should not be ignored for purposes of jurisdiction. Id., at 160-162. The Sixth Circuit was not persuaded by the argument that because the purchase and assumption transaction required FDIC in its corporate capacity to return to FDIC as receiver sums recovered in excess of the purchase price it had paid the receivership for the "unacceptable assets," it was doing no more than acting as a receiver. The court pointed out that FDIC bore the risk of loss as to recovery on the "unacceptable assets." Id., at 163. Furthermore, FDIC did not participate in the assignment for the purpose of creating federal jurisdiction.

We agree with the Sixth Circuit. See also, FDIC v. Godshall, 558 F.2d 220 (4th Cir. 1976), and FDIC v. Abraham, 439 F. Supp. 1150 (E.D.La.1977). The District Court here ...

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