FDIC v. AmTrust Financial Corp. (In re AmTrust Financial Corp.)

Summarized by Anthony Bisconti , Bienert Katzman Littrell Williams LLP
13 years 5 months ago

Citation:

No. 1:10-cv-1298 (6th Cir. Sept. 14, 2012)

Tag(s):

Ruling:

In AFFIRMING the district court, the Sixth Circuit Court of Appeals found that language in a stipulated cease-and-desist order requiring a parent corporation to "ensure" that its subsidiary, a bank, maintain certain ratios was ambiguous, and it was also ambiguous with respect to the entity it supposedly obligated (whether it was the parent, the board of the parent, or the subsidiary). The Court further found that based on a totality of the evidence considered, the district court did not commit error in determining that the cease-and-desist order was not intended to be a commitment of the parent corporation to maintain the capital of the subsidiary bank entitling the FDIC to payment under 11 U.S.C. 365(o).

Procedural context:

AmTrust Financial Corporation ("AFC") filed for bankruptcy in 2009 and the FDIC was appointed receiver of AFC's subsidiary, AmTrust Bank (the "Bank"). The FDIC sought payment from AFC pursuant to 11 U.S.C. 365(o), arguing that AFC committed "to maintain the capital of an insured depository institution" by agreeing to entry of a cease-and-desist order ("C&D") requiring its board to ensure that the Bank maintained capital ratios of 7% and 12%. The parties filed cross-motions for summary judgment, which the district court denied, finding that the C&D was ambiguous. After an advisory-jury trial, the court found that the C&D order was not a capital maintenance commitment under 11 U.S.C. 365(o). The FDIC appealed both rulings.

Facts:

Beginning in 2008, the Office of Thrift Supervision ("OTS") determined that the Bank faced significant future risk due to its assets, which were mainly poor-performing mortgage and loan portfolios. OTS had concerns about the Bank's capital levels. AFC planned to issue stock and contribute $240 million to the Bank by September 30, 2008, but this fell through and AFC did not make the expected contribution. OTS presented AFC and the Bank with proposed C&Ds requiring the Bank to "have and maintain" "(I) a Tier 1 (Core) Capital Ratio of at least seven percent (7%) and (ii) a Total Risk-Based Capital Ration of at least twelve percent (12%)." AFC's C&D required "the Holding Company" to submit "a detailed capital plan" to attain the required ratios and required AFC's board to "ensure that [the Bank] complies..." The boards of both AFC and the Bank stipulated to issuance of the C&Ds. Certain note-holders contacted AFC and claimed that it violated their note purchase agreement by failing to keep adequate capital in the Bank. The ratios in the C&D were not met by the deadline, and OTS stated that "the holding company and bank were not in compliance." The Bank's condition continued to deteriorate, and AFC filed chapter 11 on November 30, 2009. The FDIC became receiver of the Bank four days later.

Judge(s):

Martin and Daughtrey, Circuit Judges; Maloney, District Judge sitting by designation.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!