Editor’s Advisor Contacts: Pamela Whitney – 202.747.4440
July 6, 2010
FDIC Signs on Bank Counters
Insuring Deposits Up To $250,000
Really Backed By The US Congress?
WHO: Tom Buchanan, partner Winston & Strawn LLP (Wash, DC)
Frank Slattery, Jr. and shareholders of Meritor Savings Bank (PSFS)
WHAT: En Banc hearing at US Court of Appeals/Fed. Circuit Thursday, July 8th, 11:00 a.m., Rm. 201
WHY: To determine if the FDIC is a NAFI or backed by the US Congress as stated on all FDIC bank counter-top tent cards across America.
The 18 year-old case is about the fabled Philadelphia Saving Fund Society, which was once the oldest and largest savings association in the country. In the 1980s, it changed its name to Meritor. In 1992, the FDIC asked Pennsylvania’s Department of Banking to shut it down and padlock its doors. Those decisions are at the epicenter of this case in which both the trial court and the court of appeals have found that FDIC’s actions, including the events that triggered seizure of this storied franchise, constituted a breach of contract for which the government must now pay $276 million. Tom Buchanan represents Frank P. Slattery Jr., who was a principal shareholder of Meritor and its predecessor, PSFS. After losing at the court of appeals, the government petitioned for a rehearing en banc of the defendant. The en banc court is not considering issues of liability or damages but rather whether the trial court had jurisdiction over this case in the first place. If the government were to succeed, the plaintiffs will have to start the case all over again in another court, some 18 years after the case was first filed. But if the case is re-filed, the potential looms that the award may grow exponentially, from the $276 million awarded in the current proceedings, to possibly more than $1 billion. First, the trial court hinted that a $700 million award was appropriate — but that the court was bound by precedent that would not be applicable in a different judicial district. Second, a new suit would have to be brought against the FDIC rather than the United States. While this may appear to be a technical change, the prohibition against prejudgment interest against the United States may well not apply.
WHAT MAKES THIS RELEVANT TODAY — PARTICULARLY TO BANK DEPOSITORS?
1. In order to find the FDIC a NAFI, the government is arguing that Congress has no obligation to honor its promises to back deposits with the full faith and credit of the United States. Indeed, government lawyers call that language “rhetoric.” Won’t the American public be surprised to learn that the US Congress does not back their FDIC insured funds as Congress has promised repeatedly?
2. The government is arguing that the FDIC is a NAFI (Non-appropriated Funds Instrumentality — similar to a military commissary), and does not receive funding from the US Treasury, i.e., Congress. The FDIC receives its funding by charging banks fees. If the court rules that the FDIC is a NAFI, and if the en banc court finds that appropriated funds may not be used to pay judgments against NAFI’s, then any judgment in any subsequent action will have to be borne not by Treasury dollars, but by the banks regulated by the FDIC! In other words, the FDIC could be found to be in breach, but it would be entitled to recover the judgment by bank assessments, most likely passed along to depositors i.e., customers.
Attach: 1. Article 2. Timeline. 3. 01/22/10 US Court of Appeals 207-5063,-5064,-5089