Editor’s Advisor Contact: Pamela Whitney 202.747.4440
July 8, 2010
Tom Buchanan to Argue Before Federal Circuit in Slattery (Meritor Saving) v. U.S.
On July 8 at 11:00 a.m. EST, Winston & Strawn partner, Tom Buchanan, will engage in en banc oral arguments at the U.S. Court of Appeals, Federal Circuit, on behalf of Frank Slattery, Jr. and shareholders of Meritor Savings Bank (PSFS).
The case will decide the government’s request that the FDIC be treated as a Non-Appropriated Fund Instrumentality (NAFI) that is similar to a military commissary, or backed by the U.S. Congress as stated on all FDIC signs on bank countertops at every teller’s window
across America. If the former, all FDIC regulated banks and their depositors, not U.S. taxpayers, may be on the hook for hundreds of millions of dollars in the 18 year old case.
The case began in 1992, when the FDIC asked Pennsylvania’s Department of Banking to shut down Meritor, formerly PSFS, and the oldest and largest savings association in the country. Both the trial court and a panel for the Court of Appeals for the Federal Circuit have found that FDIC’s actions, including the events that triggered the seizure of this storied franchise, constituted a breach of contract for which the government must now pay at least $276 million.
Mr. Slattery, a principal shareholder of Meritor and PSFS, brought this case as a derivative action on behalf of the seized bank.
After losing before a 3-judge panel of the Federal Circuit, the government petitioned for a rehearing en banc. The en banc court has agreed to review whether the trial court had the appropriate jurisdiction to hear the breach of contract dispute.
The government is further arguing that the FDIC is a NAFI, an agency created by the executive branch that receives no funding, and will not receive any funding, from the U.S. Treasury (i.e., Congress). The FDIC receives funding by charging banks fees to member banks. If the en banc court agrees that the FDIC is a NAFI, and finds that appropriated funds may not be used to pay judgments against NAFI’s, then any judgment in the Meritor Savings case will be produced by the banks regulated by the FDIC and not by Treasury dollars. In other words, the FDIC could be found to be in breach, but it would be entitled to recover the judgment by member banks.
Moreover, if the government were to succeed on its jurisdictional challenge, the plaintiffs would have to start the case all over again in another court and sue the FDIC rather than Uncle Sam.
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.
“We are confident the prior court rulings will be affirmed based on the long-standing precedents we’ve cited in our briefs,” Buchanan said. “Members of Congress over the years have repeatedly assured their constituents and the American public that the full faith and credit of the U.S. government stands behind all FDIC deposits. The American public will be shocked to learn that the U.S. Congress not only does not back their FDIC-insured deposits, but also that those signs on bank counters stating that they do . . . are meaningless,” concluded Buchanan.