South Bay Law Firm is proud to profile select “Cases of Interest,” prepared by members and colleagues of the Califoria Lawyers Association Business Law Section’s Insolvency Law Committee, and posted here by kind permission of the California Lawyers Association:


In Waldron v. FDIC, 935 F.3d 844 (9th Cir. 2019), the U.S. Court of Appeals for the Ninth Circuit held that (a) the FDIC acting as a receiver for a failed bank is a “United States agency” under Rule 4 of the Federal Rules of Appellate Procedure and therefore has 60 days in which to file a notice of appeal, and (b) a bankruptcy court lacks subject matter jurisdiction over a preference action against the FDIC unless the preference is asserted solely as an affirmative defense to a claim by the FDIC against the bankruptcy estate. Where the preference is not asserted solely as an affirmative defense to a claim by the FDIC against the bankruptcy estate, a bankruptcy trustee must pursue and exhaust the administrative claims process under FIRREA, with a right to file suit on the claim in district court after that process is completed.

To read the published decision, click here.


Venture Bank (the Bank) was a wholly-owned subsidiary of Venture Financial Group, Inc. (VFG). For each tax year before 2009, VFG filed consolidated tax returns on behalf of both entities in accordance with a tax allocation agreement (TAA) between VFG and the Bank. The TAA set forth guidelines for how the consolidated tax returns would be handled, specifying that (a) for each tax period, the Bank shall compute its separate tax liability as if it had filed a separate tax return and shall pay such amount to VFG, and (b) in the case of a refund, VFG shall pay the Bank for its share of the refund.

In September 2009, Washington State banking regulators closed the Bank and placed it into federal receivership. The Federal Deposit Insurance Corporation (FDIC) was appointed as the Bank’s receiver. In July 2011, the FDIC submitted a request to the IRS to allow the FDIC to serve as an alternative agent for the Bank’s affiliated group. The IRS granted the request, over VFG’s objection, and between August 2011 and September 2013, the FDIC filed a series of amended tax returns to recover refunds owed to the Bank.

In October 2013, VFG filed for chapter 7 bankruptcy, and a trustee was appointed. The FDIC filed a protective proof of claim in the chapter 7 case stating that the pending tax refunds were property of the FDIC, not VFG or the bankruptcy estate. The FDIC did not file a claim for any amount beyond the tax refunds.

The IRS accepted the FDIC’s refund requests and paid $8,471,982.36 in refunds to the FDIC at various times both before and after VFG filed for bankruptcy.

In August 2014, the chapter 7 trustee filed a preference action in bankruptcy court against the FDIC seeking to recover the tax refunds obtained by the FDIC. The FDIC moved to dismiss the complaint on the ground that the bankruptcy court lacked subject-matter jurisdiction over the trustee’s preference claims because he had failed to exhaust the administrative claims process as required by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

The bankruptcy court determined that it had subject matter jurisdiction despite the trustee’s failure to exhaust administrative remedies. It then interpreted the TAA to establish a creditor-debtor relationship between VFG and the Bank such that any tax refunds received were the property of VFG, and the Bank merely held a claim for payment against VFG for its share of the funds. Thus, the bankruptcy court held that the bankruptcy estate was entitled to the refunds as a voidable preference.

The U.S. District Court for the Western District of Washington affirmed, and the FDIC filed an appeal with the Ninth Circuit forty-two days after entry of judgment.


Rule 4 of the Federal Rules of Appellate Procedure provides that in a civil case, a notice of appeal must be filed within 30 days after entry of the order or judgment appealed from. If, however, one of the parties is a “United States agency,” then the notice of appeal may be filed by any party within 60 days. (FRAP 4(a)(1)(B)).

The chapter 7 trustee argued that the FDIC acting solely in the capacity of a receiver did not qualify as a United States agency within the meaning of Rule 4 and that the FDIC’s notice of appeal, filed 42 days after judgment, was untimely. The Ninth Circuit, joining all other circuits that have considered the issue, disagreed and ruled that the FDIC’s notice of appeal was timely. The Ninth Circuit supported its decision by observing that (a) the FDIC performs a government function by reducing the losses borne by federal taxpayers when federally-insured financial institutions fail, (b) the FDIC’s board members are appointed by the President with the advice of the Senate, (c) although the operations of the FDIC as receiver are financed by the assets of the failed bank, those funds are essentially government funds as the FDIC is the successor to any assets not paid out to the failed bank’s creditors, (d) no entity other than the FDIC has a proprietary interest in an FDIC receivership, (e) the FDIC as receiver is referred to as a federal agency throughout its enabling act, and (f) the FDIC is considered a federal agency under other statutes, including the Federal Tort Claims Act.

With respect to whether FIRREA divested the bankruptcy court of jurisdiction over the trustee’s preference action against the FDIC, the Ninth Circuit first focused on the background, purpose and claims provisions of FIRREA. FIRREA was enacted in 1989 in an effort to prevent the collapse of the savings and loan industry. The statute grants the FDIC as receiver broad powers to determine claims asserted against failed banks and has detailed procedures to allow the FDIC to consider claims against the receivership estate. Most importantly, FIRREA requires that a plaintiff exhaust administrative remedies before seeking a judicial determination and strips courts of jurisdiction over claims initially brought outside of the statutorily prescribed administrative procedures. Once a claimant has exhausted FIRREA’s administrative process, the claimant may file suit on the claim and the district court will have jurisdiction to hear the claim.

The Ninth Circuit recognized an exception to FIRREA’s exhaustion requirement with respect to the jurisdiction of the bankruptcy court to determine preference claims in In re Parker N. Am. Corp., 24 F.3d 1145 (9th Cir. 1994). In that case, the Ninth Circuit held that the FIRREA claims process does not apply to preference actions filed in bankruptcy court, at least where the FDIC has filed a proof of claim that exceeds the amount sought to be recovered by the bankruptcy trustee. In such a case, the preference action is a partial affirmative defense to the FDIC’s claim against the bankruptcy estate, not a claim against the FDIC, since the preference action will likely result in at most a setoff rather than a recovery against the FDIC.

In Waldron, however, the bankruptcy trustee’s preference claim was to recover tax refunds from the FDIC. It was not an affirmative defense to a claim by the FDIC against the bankruptcy estate. Indeed, the FDIC’s proof of claim in the bankruptcy case was asserted solely as a protective measure in the event that it was determined that the refund belonged to VFG’s bankruptcy estate. Unlike Parker, the preference action did not arise incident to the FDIC’s collection efforts against the bankruptcy estate.

The Ninth Circuit declined to extend Parker to circumstances in which the FDIC’s proof of claim does not exceed the amount that the bankruptcy estate seeks to recover in a preference action. The Ninth Circuit justified its decision by discounting any special expertise of the bankruptcy court. According to the Ninth Circuit, the bankruptcy trustee’s claim against the FDIC did not require interpretation of the preference provisions of the Bankruptcy Code and instead involved “fairly arcane questions of federal tax law concerning the concept of consolidated filing groups.” Bankruptcy courts have no special expertise regarding such questions. Thus, the Ninth Circuit held that the bankruptcy trustee needed to exhaust the administrative procedures under FIRREA with regard to his assertion of ownership of the tax refunds. The bankruptcy court lacked subject matter jurisdiction to determine the claim.


From a bankruptcy practitioner’s perspective, this decision is not a welcome development. It means that unless the FDIC files a proof of claim in an amount that exceeds the amount of the bankruptcy trustee’s claim for recovery of tax refunds paid to the FDIC, the bankruptcy court will not have jurisdiction to decide the claim. Instead, the trustee will have to exhaust the administrative procedures under FIRREA, and if dissatisfied, seek a determination by the district court. These procedures are likely to result in significant delay in administering the parent corporation’s bankruptcy case.

This situation, however, is not likely to occur. The parent corporation of a consolidated group is typically the agent for the group, and any tax refunds would ordinarily be paid to the parent corporation. In the Waldron case, the FDIC was the receiver for the failed bank subsidiary for approximately four years before the parent filed for bankruptcy. During this time, the FDIC obtained authority to act as alternative agent for the group, filed amended tax returns, and received the tax refunds. If the parent corporation had taken a more active role and filed the amended returns itself, or if the parent’s bankruptcy case had been commenced earlier, either the parent corporation or the trustee of the parent corporation would have received the tax refunds from the IRS, and the bankruptcy court would have had jurisdiction to determine the allocation of the refunds between the bankruptcy estate and the FDIC.

The U.S. Supreme Court’s recent decision in Rodriguez v. FDIC, 2020 U.S. LEXIS 1364, 2020 WL 889191 (Feb. 25, 2020), held that federal courts must rely on state law, not federal common law, to resolve how tax refunds should be distributed to members of an affiliated group. In that case, unlike Waldron, the parent corporation received the tax refund on behalf of the affiliated group, and the FDIC filed a proof of claim in the parent’s chapter 7 case. The bankruptcy trustee filed an adversary proceeding against the FDIC asserting (a) a claim for declaratory relief that the tax refund was property of the bankruptcy estate, (b) a claim for turnover of the tax refund to the extent that the FDIC possessed the tax refund, and (c) an objection to the FDIC’s proof of claim. Thus, the bankruptcy court in that case made the initial determination regarding ownership of the tax refund. See In re United Western Bancorp, Inc., 914 F.3d 1262 (10th Cir. 2019). There was no discussion in either the Supreme Court’s decision, or the lower court decision of the U.S. Court of Appeals for the Tenth Circuit, regarding the bankruptcy court’s jurisdiction to adjudicate the allocation of the tax refunds.

These materials were written by Mary H. Rose of Buchalter, P.C. in Los Angeles ( Editorial contributions were provided by Joseph Boufadel of Salvato Law Offices ( in Los Angeles. Ms. Rose and Mr. Boufadel are members of the Insolvency Law Committee.

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