A federal judge dismissed a lawsuit Friday against the Federal Deposit Insurance Corp. that alleged the agency blocked former First Republic employees from receiving at least $150 million in retirement funds.
Judge Haywood Gilliam of the U.S. District Court for the Northern District of California, cited the Financial Institutions Reform, Recovery and Enforcement Act of 1989 in dismissing the case, saying the law grants the FDIC broad authority as receiver for failed banks.
“Court lacks jurisdiction over this lawsuit,” Gilliam said.
The case was filed in December by 170 former First Republic staff who claim they represent most of the participants in the lender’s deferred compensation plan.
The FDIC-R (as in receiver) allegedly misclassified plaintiffs as unsecured creditors, thereby depriving them of assets from a non-qualified deferred compensation plan trust or the Rabbi Trust, and company-owned life insurance accounts within the trust.
The plaintiffs allege the FDIC wrongfully stopped trust payments in May 2023 and refused to transfer Rabbi Trust assets to the plaintiffs. They argued that classification as unsecured creditors would result in severe financial consequences since “it is expected that general unsecured claimants will recover little, if anything, on account of their claims,” the court document said.
The plaintiffs also asserted entitlement to “specifically earmarked assets” from the Rabbi Trust.
“Given the nature of Plaintiffs’ case, there are no allegations Plaintiffs could raise in an amended complaint to overcome the fact that FIRREA forecloses actions — like this one — which seek to ‘restrain or affect’ the FDIC-R in fulfilling its receivership duties,” the judge ordered.
The judge dismissed the case with prejudice, meaning the decision was final, and the file was closed.
Before the FDIC intervened last year and put First Republic up for sale, nearly a dozen large U.S. banks pumped around $30 billion into the bank to stabilize its balance sheet after the firm’s share prices dropped following last March’s bank failures.
JPMorgan Chase acquired roughly $173 billion of First Republic’s loans, $30 billion of securities and $92 billion in deposits as part of the FDIC-orchestrated deal last May.
The deal was finalized overnight after California’s Department of Financial Protection and Innovation shut down the $229 million asset-bank and appointed the FDIC as receiver.
The plaintiffs filed a motion for a temporary restraining order along with the complaint against the FDIC. The court denied that, saying there was a low probability of plaintiffs prevailing due to the jurisdictional bar that comes with the FIRREA.
The FDIC, for its part, argued that “no court may take any action, except at the request of the [FDIC] by regulation or order, to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver.”
