Representatives of Foreign Accountholders of Collapsed Bank Lack Standing to Sue FDIC 

Recently, the U.S. District Court for the Northern District of California dismissed claims brought by purported representatives of accountholders at a Cayman Island’s branch of a collapsed U.S. bank (the Bank) against the FDIC for denying deposit insurance claims.

The Bank had a Cayman Islands branch where accountholders’ agreements stated they were “NOT domestic deposits” and “NOT insured by the FDIC.”  When the Bank collapsed and the FDIC placed it into a receivership, the FDIC determined that money market and operating accounts held by this branch were not deposits within the meaning of the Federal Deposit Insurance Act and accountholders could file claims as unsecured creditors.  Many of the Cayman Islands accountholders filed claims.  Plaintiffs successfully petitioned a Cayman Islands Court to “wind-up” the Bank’s Cayman Islands branch and appoint them as joint official liquidators.  Plaintiffs then demanded the FDIC insure all accounts at the Cayman Islands branch.  The FDIC refused on the basis that it is prohibited from paying claims of foreign-payable accounts, and because the Plaintiffs lacked standing to represent all accountholders.  Plaintiffs sued, and the FDIC moved to dismiss on the grounds that Plaintiffs lacked standing.

First, the district court agreed with Defendants that Plaintiffs lacked associational standing.  Specifically, the Court found that a foreign bankruptcy estate is not an association and the Plaintiffs were not accountholders themselves, elected to lead accountholders, and thus could not show they were themselves injured by the FDIC’s denial of Cayman Islands accountholders’ claims. 

The district court also found that a U.S. bankruptcy court had already determined that the Cayman Islands court could not create an agency relationship between the Plaintiffs and the accountholders.  The district court further determined that it would be futile to allow Plaintiffs to amend their complaint because they could not show they had ownership interests in the Cayman Islands accounts.  The district court therefore dismissed the case without prejudice.