Now Updating
In re Fansteel Foundry Corporation

Summarizing by Bradley Pearce

Levin v. Miller

App. No. No. 12-3474 (7th Circuit Court of Appeals) - August 14, 2014
The Seventh Circuit held that the derivative claims held by the trustee of a bankrupt bank holding company against former managers were assigned by federal law to the FDIC, and upheld the district court's dismissal of those counts. The Seventh Circuit reversed the district court's dismissal of two direct claims of the parent holding company against the managers, concluding that such claims were not subject to assignment to the FDIC and belonged to the trustee, and vacated and remanded for further proceedings on those direct claims.
Procedural context:
On appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 1:11-cv-1264-SEB-TAB — Sarah Evans Barker, Judge
The bankruptcy trustee of Irwin Financial Corp. ("Irwin"), a bank holding company with two operating bank subsidiaries, asserted that the managers of Irwin, who also held roles with the subsidiaries, breached their fiduciary duties to Irwin by failing to implement financial controls to protect Irwin from the managers' errors as directors and officers of the subsidiary banks. The errors included stacking the banks' portfolios in 2007 and 2008 with risky real estate loans, and compounding the error by failing to hedge the banks' exposure for such investments by diversifying into other financial instruments. The trustee also alleged that the managers, in their roles with the holding corporation, improperly authorized dividends and stock repurchases to investors leaving Irwin undercapitalized. Finally, the trustee alleged that two of the managers, in their roles with the holding corporation, breached their duty of loyalty to Irwin by "capitulating" to the FDIC's demand that Irwin contribute millions of dollars to recapitalize the bank subsidiaries, which indirectly benefited such managers in their roles at those subsidiaries. The district court had dismissed all of the claims, finding that the FDIC owned the claims under federal law (see 12 U.S.C. sec. 1821(d)(2)(A)(i)). The Seventh Circuit disagreed, finding that the FDIC owned only the derivative claims of the holding corporation against the managers in their directors and officers roles with the subsidiaries, but did not own the direct claims of Irwin (the holding corporation) against those parties in their roles with the holding corporation.
Wood, Easterbrook, Hamilton (Opinion by Easterbrook; concurrence by Hamilton).

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