Silicon Valley Bank
Silicon Valley Bank v. FDIC-C
Date: Aug. 8, 2024
Issue: Whether the Federal Deposit Insurance Corporation, in its corporate capacity (FDIC-C), unlawfully withheld $1.93 billion from Silicon Valley Bank Financial Group (SVBFG) following the collapse and mass withdrawals of its subsidiary, Silicon Valley Bank.
Case Summary: A California district court trimmed SVBFG’s lawsuit against the FDIC-C alleging it unlawfully withheld $1.93 billion following Silicon Valley Bank’s collapse.
SVBFG maintained accounts in Silicon Valley Bank and Silicon Valley Bridge Bank. When Silicon Valley Bank collapsed, following mass withdrawals by its tech-concentrated customer base, the California Department of Financial Protection and Innovation appointed the FDIC as receiver (FDIC-R) for the banks. The FDIC in its capacity as receiver for Silicon Valley Bank is referred to as FDIC-R1. The FDIC in its capacity as receiver for Silicon Valley Bridge Bank is referred to as FDIC-R2. Initially, SVBFG still possessed access to its funds, but on March 16, 2023, the FDIC-C cut SVBFG’s access off without notice. The FDIC-C claimed it satisfied its obligation by paying SVBFG the maximum $250,000 deposit insurance amount, and it had no legal duty to pay the company for its uninsured deposits.
SVBFG sued the FDIC-C claiming its actions were “tantamount to theft.” According to SVBFG, the FDIC-C wrongfully denied SVBFG’s access to $1.93 billion because it did so itself, or because it permitted FDIC-R1 or FDIC-R-2 to do so. SVBFG made the following claims for relief:
- Count I: Declaratory Judgment
- Count II: Turnover of the account funds
- Count III: Violation of the automatic stay under the Bankruptcy Code
- Count IV: Violation of SVBFG’s Fifth Amendment due process rights
- Count V: The FDIC-C’s policy exercising discretion to determine not to pay or provide access to uninsured deposits is contrary to law, exceeds statutory authority, and is arbitrary and capricious under the Administrative Procedure Act (APA)
- Count VI: Review of final agency action under the APA
- Count VII: Estoppel
- Count VIII: Failure to produce records under the Freedom of Information Act (FOIA)
The FDIC-C filed a motion to dismiss, arguing each of SVBFG’s claims, except for Count VI and Count VIII, are preempted by Section 1821(f) of the Federal Deposit Insurance Act (FDIA). The FDIC-C also argued SVBFG failed to state a claim for all non-FOIA claims other than Count VI.
Judge Beth Freeman of the Northern District of California partially granted FDIC-C’s motion to dismiss. The court rejected the FDIC-C’s argument that SVBFG’s claims were preempted by FDIA section 1821(f). Section 1821(f) governs the “[p]ayment of insured deposits” by the FDIC-C and creates a process for “any claim for insurance coverage.” The FDIC-C argued that claims for insurance coverage include claims for “any deposit,” whether insured or uninsured. However, SVBFG argued the FDIC-C, as an insurer, should use insurance funds from the Deposit Insurance Fund to pay for SVBFG’s deposits at the failed bank. Siding with FDIC-C, the court ruled that SVBFG’s claims are not for insurance coverage and are thus not preempted. The court emphasized the Deposit Insurance Fund has historically been used for purposes beyond insurance, and nothing in section 1821 limits its use exclusively to insurance. Accordingly, SVBFG’s claims do not constitute a demand for insurance coverage.
In addition, SVBFG argued that, in invoking the Systemic Risk Exception, Secretary Yellen “mandated the payment of uninsured deposits at SVB from the Deposit Insurance Fund.” In response, FDIC-C contended nothing in the text of the Systemic Risk Exception authorizes claims against the FDIC-C outside of the Section 1821(f) administrative process. Siding with SVBFG, the court concluded it could reasonably assume that Secretary Yellen’s decision to protect all depositors was within her authority. Moreover, using the Systemic Risk Exception and the actions that followed did not change the status of deposits over the statutory limit from uninsured to insured. As a result, the court rejected the FDIC-C’s claims of preemption.
In addition, the court also refused to dismiss SVBFG’s claims for declaratory judgment and Estoppel (Count I and VII). However, the court dismissed SVBFG’s claims for Turnover of the account, violation of its Fifth Amendment due process rights, and violation of the APA (Counts II, IV, and V), while providing the FDIC-C with leave to amend these claims. Conversely, the court dismissed SVBFG’s claims of violation of the automatic stay under the Bankruptcy Code and failure to produce records under FOIA (Counts III and VIII) providing no leave to amend.
Bottom Line: On Aug. 29, 2024, SVBFG filed its amended complaint, amending its claims for turnover of the account, and violation of its Fifth Amendment due process rights (Counts II and IV). SVBFG did not amend its claim for violation of the APA (Count V).
Documents: Order
