Levin v. Miller, No. 12-3474 (7th Cir. 2014)Annotate this Case
Irwin, a holding company, entered bankruptcy when its two subsidiary banks failed. The FDIC closed both in 2009. Their asset portfolios were dominated by mortgage loans, whose value plunged in 2007-2008. Irwin’s trustee in bankruptcy sued its directors and officers (Managers). The FDIC intervened because whatever Irwin collects will be unavailable to satisfy FDIC claims. Under 12 U.S.C. 821(d)(2)(A)(i), when taking over a bank, the FDIC acquires “all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution.” The claims assert that the Managers violated fiduciary duties to Irwin by not implementing additional financial controls; allowing the banks to specialize in kinds of mortgages that were especially hard-hit; allowing Irwin to pay dividends (or repurchase stock) so that it was short of capital; “capitulating” to the FDIC and so that Irwin contributed millions of dollars in new capital to the banks. The district judge concluded that all claims belong to the FDIC and dismissed. The Seventh Circuit affirmed in part, but vacated with respect to claims that concern only what the Managers did at Irwin: supporting the financial distributions, informing Irwin about the banks’ loan portfolios, and causing Irwin to invest more money in the banks after they had failed.