Federal Deposit Insurance Corporation v. Bank of America, N.A.
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Opinion
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
FEDERAL DEPOSIT INSURANCE CORPORATION,
Plaintiff, Civil Action No. 17 - 36 (LLA) v. UNDER SEAL
BANK OF AMERICA, N.A.,
Defendant.
MEMORANDUM OPINION
Plaintiff, the Federal Deposit Insurance Corporation (the “FDIC”), brings this action
against Defendant, Bank of America, N.A. (“BANA”), alleging its failure to pay $1.12 billion in
deposit insurance assessments in violation of the Federal Deposit Insurance Act (“FDIA”),
12 U.S.C. § 1817, and its resulting unjust enrichment. ECF No. 10. BANA raises several
affirmative defenses to the FDIC’s claims and brings counterclaims against the FDIC for violations
of the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq., arising out of the FDIC’s
promulgation and enforcement of a 2011 regulation that set the formula for calculating deposit
insurance assessment rates.
This matter is before the court on the FDIC’s partial motion for summary judgment, ECF
No. 361, and BANA’s cross-motion for summary judgment, ECF No. 366. Upon consideration of
the motions and supporting documentation, the court will grant in part and deny in part the FDIC’s
partial motion for summary judgment, and grant in part and deny in part BANA’s motion for
summary judgment, and it will enter judgment in favor of the FDIC and against BANA in the amount of $540,261,499.90, representing BANA’s underpaid assessments from 2Q 2013 through
4Q 2014, plus pre- and post-judgment interest.
I. FACTUAL BACKGROUND
A. The FDIC and the FDIA
The FDIC was created in 1933 during the Great Depression. Since that time, it has played
an “important role in maintaining stability and public confidence in the banking system and in
protecting the savings of ordinary Americans.” ECF No. 364, at 5. The FDIC does this by insuring
banks: when an insured bank fails, the FDIC “provides depositors access to their insured accounts
at that institution,” and where “the institution’s assets are insufficient, the FDIC pays the balance
from the Deposit Insurance Fund.” Id. 1
The FDIC finances the Deposit Insurance Fund by collecting quarterly premiums, called
“assessments,” from the banks it insures. Id. ¶ 5. The FDIA directs the FDIC to “by regulation,
establish a risk-based assessment system for insured depository institutions.” 12 U.S.C.
§ 1817(b)(1)(A). The risk-based assessment system must be based on:
(i) the probability that the Deposit Insurance Fund will incur a loss with respect to the institution, taking into consideration the risks attributable to—
(I) different categories and concentrations of assets;
(II) different categories and concentrations of liabilities . . .; and
(III) any other factors the [FDIC] determines are relevant to assessing such probability;
1 The FDIC pays up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category (single accounts, joint accounts, certain retirement accounts, trust accounts, employee benefit plan accounts, corporation/partnership/unincorporated association accounts, and government accounts). FDIC, Understanding Deposit Insurance, https://perma.cc/24H7-GTM9.
2 (ii) the likely amount of any such loss; and
(iii) the revenue needs of the Deposit Insurance Fund.
Id. § 1817(b)(1)(C).
The FDIA permits the FDIC to use “separate risk-based assessment systems for large and
small” banks. Id. § 1817(b)(1)(D). Accordingly, the FDIC employs different methodologies for
calculating a bank’s risk depending on whether the bank is a small institution, a large institution,
or a highly complex institution (“HCI”). ECF No. 248-4 ¶ 5. HCIs are “the largest and most
complex banks.” Id. ¶ 7. During the time period relevant to this case, there were only nine HCIs
in the United States, including BANA. Id. ¶ 12. 2
Being insured by the FDIC makes a bank more appealing to customers because they know
that their savings are safe. But as with any insurance system, where there is greater risk, the insurer
charges a higher premium. Just as a teenage driver pays more in car insurance than an adult driver,
a risky bank will pay higher quarterly assessments to the FDIC.
B. The 2011 Rule
After the Great Recession in 2008, it became clear to lawmakers that existing regulations
did not go far enough in ensuring the stability of the national banking system. 76 Fed. Reg. 10672,
10674 (Feb. 25, 2011). In 2010, Congress passed the Dodd-Frank Wall Street Reform and
2 The FDIC defines an HCI as: “(i) An insured depository institution (excluding a credit card bank) that has had $50 billion or more in total assets for at least four consecutive quarters . . . that is controlled by a U.S. parent holding company that has had $500 billion or more in total assets for four consecutive quarters, or controlled by one or more intermediate U.S. parent holding companies that are controlled by a U.S. holding company that has had $500 billion or more in assets for four consecutive quarters; or (ii) A processing bank or trust company.” 12 C.F.R. § 327.8(g)(1). In addition to BANA, the other HCIs at the time were Bank of New York Mellon; Citibank, N.A.; Goldman Sachs Bank USA; JPMorgan Chase Bank, N.A.; Morgan Stanley N.A.; The Northern Trust Company; State Street Bank and Trust Company; and Wells Fargo Bank, N.A. ECF No. 248-4 ¶ 12.
3 Consumer Protection Act (the “Dodd-Frank Act”) to “improve[] accountability and transparency
in the financial system” and “end ‘too big to fail.’” Pub. L. No. 111-203, 124 Stat. 1376 (2010).
The Dodd-Frank Act achieved this goal in part by requiring the FDIC to amend its regulations for
calculating banks’ assessment rates. Id. at 1376, 1538; see 76 Fed. Reg. at 10674.
In response to the Dodd-Frank Act, the FDIC began “develop[ing] a comprehensive,
long-range management plan for the [Deposit Insurance Fund].” 76 Fed. Reg. at 10674; see 75
Fed. Reg. 23516 (May 3, 2010); 75 Fed. Reg. 72582 (Nov. 24, 2010); 75 Fed. Reg. 72612
(Nov. 24, 2010). In November 2010, it issued Notices of Proposed Rulemaking and Requests for
Comment. The proposed rules suggested revisions to the assessment methodologies for large
banks and HCIs. 75 Fed. Reg. at 72582; 75 Fed. Reg. at 72612. The FDIC published the final
rule (“the 2011 Rule”) in February 2011, and it went into effect in 2Q 2011. 76 Fed. Reg. at 10672
(codified at 12 C.F.R. § 327.9(b)(2) (2011)).
In promulgating the 2011 Rule, the FDIC aimed to “revise the large insured depository
institution assessment system to better differentiate for risk and better take into account losses from
large institution failures that the FDIC may incur” “if a large insured depository institution fails.”
Id. at 10672, 10688. Before the 2011 Rule, the FDIC placed each large bank or HCI into one of
four risk categories depending on its capital levels and supervisory evaluations. Id. at 10672. The
2011 Rule eliminated those categories and instead implemented “scorecards”: one scorecard for
large banks and another for HCIs like BANA. Id. at 10688.
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
FEDERAL DEPOSIT INSURANCE CORPORATION,
Plaintiff, Civil Action No. 17 - 36 (LLA) v. UNDER SEAL
BANK OF AMERICA, N.A.,
Defendant.
MEMORANDUM OPINION
Plaintiff, the Federal Deposit Insurance Corporation (the “FDIC”), brings this action
against Defendant, Bank of America, N.A. (“BANA”), alleging its failure to pay $1.12 billion in
deposit insurance assessments in violation of the Federal Deposit Insurance Act (“FDIA”),
12 U.S.C. § 1817, and its resulting unjust enrichment. ECF No. 10. BANA raises several
affirmative defenses to the FDIC’s claims and brings counterclaims against the FDIC for violations
of the Administrative Procedure Act (“APA”), 5 U.S.C. § 551 et seq., arising out of the FDIC’s
promulgation and enforcement of a 2011 regulation that set the formula for calculating deposit
insurance assessment rates.
This matter is before the court on the FDIC’s partial motion for summary judgment, ECF
No. 361, and BANA’s cross-motion for summary judgment, ECF No. 366. Upon consideration of
the motions and supporting documentation, the court will grant in part and deny in part the FDIC’s
partial motion for summary judgment, and grant in part and deny in part BANA’s motion for
summary judgment, and it will enter judgment in favor of the FDIC and against BANA in the amount of $540,261,499.90, representing BANA’s underpaid assessments from 2Q 2013 through
4Q 2014, plus pre- and post-judgment interest.
I. FACTUAL BACKGROUND
A. The FDIC and the FDIA
The FDIC was created in 1933 during the Great Depression. Since that time, it has played
an “important role in maintaining stability and public confidence in the banking system and in
protecting the savings of ordinary Americans.” ECF No. 364, at 5. The FDIC does this by insuring
banks: when an insured bank fails, the FDIC “provides depositors access to their insured accounts
at that institution,” and where “the institution’s assets are insufficient, the FDIC pays the balance
from the Deposit Insurance Fund.” Id. 1
The FDIC finances the Deposit Insurance Fund by collecting quarterly premiums, called
“assessments,” from the banks it insures. Id. ¶ 5. The FDIA directs the FDIC to “by regulation,
establish a risk-based assessment system for insured depository institutions.” 12 U.S.C.
§ 1817(b)(1)(A). The risk-based assessment system must be based on:
(i) the probability that the Deposit Insurance Fund will incur a loss with respect to the institution, taking into consideration the risks attributable to—
(I) different categories and concentrations of assets;
(II) different categories and concentrations of liabilities . . .; and
(III) any other factors the [FDIC] determines are relevant to assessing such probability;
1 The FDIC pays up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category (single accounts, joint accounts, certain retirement accounts, trust accounts, employee benefit plan accounts, corporation/partnership/unincorporated association accounts, and government accounts). FDIC, Understanding Deposit Insurance, https://perma.cc/24H7-GTM9.
2 (ii) the likely amount of any such loss; and
(iii) the revenue needs of the Deposit Insurance Fund.
Id. § 1817(b)(1)(C).
The FDIA permits the FDIC to use “separate risk-based assessment systems for large and
small” banks. Id. § 1817(b)(1)(D). Accordingly, the FDIC employs different methodologies for
calculating a bank’s risk depending on whether the bank is a small institution, a large institution,
or a highly complex institution (“HCI”). ECF No. 248-4 ¶ 5. HCIs are “the largest and most
complex banks.” Id. ¶ 7. During the time period relevant to this case, there were only nine HCIs
in the United States, including BANA. Id. ¶ 12. 2
Being insured by the FDIC makes a bank more appealing to customers because they know
that their savings are safe. But as with any insurance system, where there is greater risk, the insurer
charges a higher premium. Just as a teenage driver pays more in car insurance than an adult driver,
a risky bank will pay higher quarterly assessments to the FDIC.
B. The 2011 Rule
After the Great Recession in 2008, it became clear to lawmakers that existing regulations
did not go far enough in ensuring the stability of the national banking system. 76 Fed. Reg. 10672,
10674 (Feb. 25, 2011). In 2010, Congress passed the Dodd-Frank Wall Street Reform and
2 The FDIC defines an HCI as: “(i) An insured depository institution (excluding a credit card bank) that has had $50 billion or more in total assets for at least four consecutive quarters . . . that is controlled by a U.S. parent holding company that has had $500 billion or more in total assets for four consecutive quarters, or controlled by one or more intermediate U.S. parent holding companies that are controlled by a U.S. holding company that has had $500 billion or more in assets for four consecutive quarters; or (ii) A processing bank or trust company.” 12 C.F.R. § 327.8(g)(1). In addition to BANA, the other HCIs at the time were Bank of New York Mellon; Citibank, N.A.; Goldman Sachs Bank USA; JPMorgan Chase Bank, N.A.; Morgan Stanley N.A.; The Northern Trust Company; State Street Bank and Trust Company; and Wells Fargo Bank, N.A. ECF No. 248-4 ¶ 12.
3 Consumer Protection Act (the “Dodd-Frank Act”) to “improve[] accountability and transparency
in the financial system” and “end ‘too big to fail.’” Pub. L. No. 111-203, 124 Stat. 1376 (2010).
The Dodd-Frank Act achieved this goal in part by requiring the FDIC to amend its regulations for
calculating banks’ assessment rates. Id. at 1376, 1538; see 76 Fed. Reg. at 10674.
In response to the Dodd-Frank Act, the FDIC began “develop[ing] a comprehensive,
long-range management plan for the [Deposit Insurance Fund].” 76 Fed. Reg. at 10674; see 75
Fed. Reg. 23516 (May 3, 2010); 75 Fed. Reg. 72582 (Nov. 24, 2010); 75 Fed. Reg. 72612
(Nov. 24, 2010). In November 2010, it issued Notices of Proposed Rulemaking and Requests for
Comment. The proposed rules suggested revisions to the assessment methodologies for large
banks and HCIs. 75 Fed. Reg. at 72582; 75 Fed. Reg. at 72612. The FDIC published the final
rule (“the 2011 Rule”) in February 2011, and it went into effect in 2Q 2011. 76 Fed. Reg. at 10672
(codified at 12 C.F.R. § 327.9(b)(2) (2011)).
In promulgating the 2011 Rule, the FDIC aimed to “revise the large insured depository
institution assessment system to better differentiate for risk and better take into account losses from
large institution failures that the FDIC may incur” “if a large insured depository institution fails.”
Id. at 10672, 10688. Before the 2011 Rule, the FDIC placed each large bank or HCI into one of
four risk categories depending on its capital levels and supervisory evaluations. Id. at 10672. The
2011 Rule eliminated those categories and instead implemented “scorecards”: one scorecard for
large banks and another for HCIs like BANA. Id. at 10688.
The scorecards for both large banks and HCIs included a “performance score” and a “loss
severity score.” Id. at 10695. The performance score “measure[d] [a bank]’s financial
performance and its ability to withstand stress,” while the loss severity score “measure[d] the
relative magnitude of potential losses to the FDIC in the event of [the bank]’s failure.” Id.
4 at 10689. The FDIC multiplied the performance score by the loss severity score to produce a
bank’s “combined score,” which determined the amount of the bank’s quarterly payment. Id.
As one can see from the HCI scorecard, replicated below, the FDIC used a number of
sub-factors to determine the performance and loss severity scores.
Id. at 10695. One factor that the FDIC used to determine performance (specifically, to assess a
bank’s ability to withstand asset-related stress) was the “concentration measure,” which quantified
how concentrated (not diversified) a bank’s risk exposure was. Id. at 10696.
The 2011 Rule calculated the concentration measure for large banks and HCIs differently.
The HCI scorecard “consider[ed] the [HCI’s] top 20 counterparty exposures . . . and the largest
counterparty exposure . . . instead of the growth-adjusted portfolio concentrations measure used in
the scorecard for large institutions.” Id. at 10696. As the 2011 Rule explained, the HCI scorecard
used these measures “because recent experience show[ed] that the concentration of a[n HCI]’s
exposures to a small number of counterparties—either through lending or trading activities—
significantly increase[d] the institution’s vulnerability to unexpected market events. The FDIC
use[d] the top 20 counterparty exposure and the largest counterparty exposure to capture this risk.”
Id.
5 Importantly, the 2011 Rule defined “counterparty exposure” as “the sum of Exposure at
Default (EAD) associated with derivatives trading and Securities Financing Transactions (SFTs)
and the gross lending exposure (including all unfunded commitments) for each counterparty or
borrower at the consolidated entity level.” Id. at 10721 (emphasis added). It is the meaning of this
phrase that is at the heart of this case.
The 2011 Rule and its subsequent permutations that also required reporting at the
“consolidated entity level,” were in effect from April 1, 2011 through December 31, 2015.
12 C.F.R. § 327.9 (2011). Every quarter during this period, HCIs reported their required
information to the FDIC in a “Call Report.” ECF No. 248-4 ¶ 13. In June 2011, the FDIC
published instructions accompanying the Call Report stating that HCIs should report the amount
of their largest counterparty exposure and the total amount of their twenty largest counterparty
exposures “at the consolidated entity level of the counterparty.” ECF No. 256-4, at 9. In
March 2012, the FDIC updated those instructions, adding that counterparty exposures should be
reported on a “fully consolidated basis.” ECF No. 286-2, at 4. In December 2012, the FDIC
published a notice stating that “highly complex institutions should report counterparty credit
exposure on a consolidated entity basis (legal consolidated entity).” 76 Fed. Reg. 77315, 77322
(Dec. 12, 2011). The notice further stated that the “FDIC believes that highly complex institutions
should have the ability to aggregate exposures arising from financial contracts with entities within
a legal consolidated entity and report the exposure as outlined in the final rule.” Id.
6 C. The 2016 Audit
In 2016, an FDIC audit revealed that “BANA had not consolidated its counterparty
exposures to the ultimate parent level as required” for 1Q 2012 through 4Q 2014. 3 ECF No. 248-4
¶ 26. Instead, “BANA reported the amount of its direct exposure to a given counterparty without
adding to that amount its exposures to the counterparty’s subsidiaries or to other members of the
counterparty’s corporate family.” Id. This lowered BANA’s concentration measure, which in turn
considerably lowered the overall amount that BANA paid in assessments for those quarters. After
completing the audit, the FDIC invoiced BANA $1,120,563,178.49 in underpaid assessments.
ECF No. 364, at 15. BANA declined to pay. Id.
II. PROCEDURAL HISTORY
In January 2017, the FDIC filed suit against BANA, alleging that BANA had failed to pay
over $500 million dollars in mandatory assessments for 2Q 2013 through 4Q 2014, as required by
the FDIA. ECF No. 1 ¶¶ 50-51. In April 2017, the FDIC amended its complaint, alleging that
BANA had failed to pay $1.12 billion in mandatory assessments in violation of the FDIA (Count I)
and had unjustly enriched itself at the FDIC’s expense by retaining that money (Count II). ECF
No. 10 ¶¶ 72-94.
BANA moved to dismiss in part, arguing that some of the assessment quarters fell outside
the statute of limitations and that the FDIC could not bring a claim for unjust enrichment. ECF
No. 13. The FDIC responded with a pre-discovery motion for summary judgment. ECF No. 39.
In March 2018, the court (Sullivan, J.) determined that it would be premature to dismiss as
untimely the FDIC’s claims concerning certain quarters and that the FDIC could plead unjust
3 BANA consolidated its counterparty exposures correctly for 2Q 2011 and 3Q 2011, the first two quarters that the 2011 Rule was in effect. See ECF No. 364, at 27; ECF No. 376-2, at 27.
7 enrichment as an alternative theory of liability. Fed. Deposit Ins. Corp. v. Bank of Am., N.A., 308
F. Supp. 3d 197, 204-07 (D.D.C. 2018). The court therefore denied BANA’s motion to dismiss.
Id. at 207. Shortly thereafter, the court denied the FDIC’s motion for summary judgment without
prejudice so that the parties could proceed with discovery. Apr. 9, 2018 Minute Order.
In April 2018, BANA filed an answer and counterclaims, denying the FDIC’s allegations
and raising various challenges to the 2011 Rule under the APA. ECF No. 68. After an initial
round of discovery concluded in 2020, 4 the parties filed cross-motions for summary judgment.
ECF Nos. 247, 257. The court referred the case, first to Magistrate Judge Faruqui and then to
Magistrate Judge Upadhyaya, for full case management. Oct. 13, 2020 Minute Order; Aug. 29,
2022 Minute Order.
In April 2023, Judge Upadhyaya issued a Report & Recommendation (“R&R”),
recommending that both parties’ motions for summary judgment be granted in part and denied in
part. ECF No. 312. On Count I, which concerns BANA’s liability under the FDIA, she concluded
that the FDIC had the better interpretation of the 2011 Rule and that BANA was thus liable for the
unpaid assessment fees, but she found that genuine disputes of material fact warranted a trial on
whether the FDIC’s claims concerning BANA’s underpaid assessments for 1Q 2012 through
1Q 2013 were time-barred. ECF No. 312, at 14, 40-45, 71-72. On Count II, which concerns the
FDIC’s claim for unjust enrichment, Judge Upadhyaya concluded that the claim failed because the
FDIC had an adequate remedy at law and that, even if the FDIC could pursue such a claim, it could
not seek disgorgement as a remedy because the FDIA restricts recovery to the amount of unpaid
4 The court determined that it was proper to bifurcate discovery on BANA’s liability and the FDIC’s disgorgement remedy because “any calculations of a disgorgement award will be unnecessary if the trier of fact finds in favor of BANA on the FDIC’s unjust enrichment claim.” Apr. 2, 2020 Minute Order.
8 assessments. Id. at 46-54, 71. With regard to BANA’s counterclaims, she concluded that the
2011 Rule did not violate the APA, entitling the FDIC to summary judgment without needing to
consider its affirmative defenses (laches, acquiescence, and waiver) to BANA’s counterclaims.
Id. at 56-72 & n.19.
Both parties filed objections to Judge Upadhyaya’s R&R. ECF Nos. 322, 326. BANA
objected to Judge Upadhyaya’s recommendation on Count I, arguing that: (1) there was no need
for a trial because the FDIC’s claims concerning the assessments for 1Q 2012 through 1Q 2013
were time-barred as a matter of law; (2) BANA had the correct reading of the 2011 Rule; and
(3) BANA lacked fair notice of the FDIC’s interpretation of the Rule. ECF No. 322, at 1-2.
BANA also objected to her recommendation on its counterclaims, arguing that: (1) the FDIC’s
scorecards were not risk-based; (2) the 2011 Rule lacked a reasonable evidentiary basis; and
(3) the FDIC’s concentration measure for HCIs was arbitrary and capricious. Id. at 2-3. For its
part, the FDIC objected to Judge Upadhyaya’s statute-of-limitations analysis on Count I, arguing
that its claims related to the assessments for 1Q 2012 through 1Q 2013 were timely. See ECF
No. 326, at 4. It also objected to her recommendation on Count II, arguing that it may pursue a
claim of unjust enrichment and seek disgorgement as a remedy. Id. at 3-4. The parties completed
briefing on their objections in July 2023. ECF Nos. 323 to 325, 327 to 335. In March 2024, Judge
Upadhyaya issued a second R&R concerning an expert dispute that was relevant to her R&R on
summary judgment. ECF No. 340. The parties completed briefing on their objections to that R&R
in May 2024. ECF Nos. 344 to 350.
Meanwhile, the case was reassigned to the undersigned in December 2023. See Dec. 14,
2023 Docket Entry. In June 2024, the court held a status conference where it asked for the parties’
views on whether the court needed to resolve the expert dispute before it could consider
9 Judge Upadhyaya’s R&R on summary judgment and whether the case was likely to be affected by
the Supreme Court’s forthcoming decision in Loper Bright Enterprises v. Raimondo, No. 22-451
(U.S.). See June 7, 2024 Minute Entry. After the hearing, BANA represented that the court could
defer resolving the expert dispute until it had resolved the parties’ objections to Judge Upadhyaya’s
R&R on summary judgment. ECF No. 354.
In July 2024, the Supreme Court decided Loper Bright, 603 U.S. 369 (2024), overruling
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Given the
magnitude of that decision and its potential effect on the case, the court vacated Judge Upadhyaya’s
R&Rs, denied the parties’ outstanding objections as moot, and denied the parties’ cross-motions
for summary judgment without prejudice to refiling. July 1, 2024 Minute Order. The parties filed
new cross-motions for summary judgment, and briefing was completed in October 2024. ECF
Nos. 361, 367, 372, 376. In November 2024, this court held a hearing on the cross-motions.
Nov. 20, 2024 Minute Entry. The motions are ripe for disposition.
III. LEGAL STANDARDS
A. Summary Judgment Generally
Under Federal Rule of Civil Procedure 56, “[a] party is entitled to summary judgment only
if there is no genuine issue of material fact and judgment in the movant’s favor is proper as a matter
of law.” Soundboard Ass’n v. Fed. Trade Comm’n, 888 F.3d 1261, 1267 (D.C. Cir. 2018) (quoting
Ctr. for Auto Safety v. Nat’l Highway Traffic Safety Admin., 452 F.3d 798, 805 (D.C. Cir. 2006));
see Fed. R. Civ. P. 56(a). The moving party bears the burden of demonstrating the “absence of a
genuine issue of material fact” in dispute, Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986),
while the nonmoving party must present specific facts supported by materials in the record that
would be admissible at trial and that could enable a reasonable jury to find in its favor, see
10 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Allen v. Johnson, 795 F.3d 34, 38
(D.C. Cir. 2015) (noting that, on summary judgment, the appropriate inquiry is “whether, on the
evidence so viewed, ‘a reasonable jury could return a verdict for the nonmoving party’” (quoting
Liberty Lobby, 477 U.S. at 248)).
“[C]ourts may not resolve genuine disputes of fact in favor of the party seeking summary
judgment,” Tolan v. Cotton, 572 U.S. 650, 656 (2014) (per curiam), and “[t]he evidence of the
nonmovant is to be believed, and all justifiable inferences are to be drawn in [its] favor,” id. at 651
(first alteration in original) (quoting Liberty Lobby, 477 U.S. at 255). “Credibility determinations,
the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury
functions, not those of a judge.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150-51
(2000) (quoting Liberty Lobby, 477 U.S. at 255); see Burley v. Nat’l Passenger Rail Corp., 801
F.3d 290, 295-96 (D.C. Cir. 2015). For a factual dispute to be “genuine,” the non-moving party
must establish more than “[t]he mere existence of a scintilla of evidence in support of [its]
position,” Liberty Lobby, 477 U.S. at 252, and it cannot rely on “mere allegations” or conclusory
statements, see Equal Rts. Ctr. v. Post Props., Inc., 633 F.3d 1136, 1141 n.3 (D.C. Cir. 2011)
(quoting Sierra Club v. Env’t Prot. Agency, 292 F.3d 895, 899 (D.C. Cir. 2002)). “If the evidence
is merely colorable, or is not significantly probative, summary judgment may be granted.” Liberty
Lobby, 477 U.S. at 249-50 (citations omitted).
When parties file cross-motions for summary judgment, each motion is viewed separately,
in the light most favorable to the nonmoving party, with the court “determining, for each side,
whether a judgment may be entered in accordance with the Rule 56 standard.” Auto-Owners Ins.
Co. v. Stevens & Ricci Inc., 835 F.3d 388, 402 (3d Cir. 2016) (quoting 10A Charles Alan Wright
11 et al., Federal Practice and Procedure § 2720 (3d ed. 2016)); see Fox v. Transam Leasing, Inc.,
839 F.3d 1209, 1213 (10th Cir. 2016); Pac. Indem. Co. v. Deming, 828 F.3d 19, 23 (1st Cir. 2016).
B. Summary Judgment Under the APA
Rule 56’s summary judgment standard does not apply to BANA’s counterclaims arising
under the APA. Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C. Cir. 2001). Instead,
“the district judge sits as an appellate tribunal” and the “‘entire case’ on review is a question of
law.” Id. The court must “decid[e], as a matter of law, whether the agency action is supported by
the administrative record and otherwise consistent with the APA standard of review.” Sierra Club
v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006). This means that the court must “hold unlawful
and set aside” agency actions that are, among other things, “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law,” “in excess of statutory jurisdiction, authority,
or limitations, or short of statutory right,” or “without observance of procedure required by law.”
5 U.S.C. § 706(2)(A), (C), (D).
IV. DISCUSSION
In evaluating the parties’ cross-motions for summary judgment, the court will first consider
BANA’s challenge to the 2011 Rule, because the court need only interpret the rule if it was
lawfully promulgated. The court will then consider BANA’s liability under the 2011 Rule, before
turning to the statutory and equitable remedies available to the FDIC. The court will conclude by
examining the availability of BANA’s equitable defenses.
A. Validity of the 2011 Rule
BANA raises several challenges to the validity of the 2011 Rule under the APA, ECF
No. 367-2, at 24-36, but they collapse into two groups: (1) that the 2011 Rule was inconsistent
12 with the FDIA, id. at 24-27; and (2) that, even if the FDIA permitted the FDIC to promulgate the
2011 Rule, the rule is arbitrary and capricious and procedurally flawed, id. at 27-36. The FDIC
responds that the 2011 Rule was within the boundaries of the broad discretion conferred upon the
FDIC by the FDIA and that it promulgated the rule consistent with the APA’s evidentiary and
procedural requirements. ECF No. 372-2, at 43-58. The court concludes that the 2011 Rule
comported with the FDIA, was based on sufficient evidence, and was properly promulgated under
the APA.
After Loper Bright, “[c]ourts must exercise their independent judgment in deciding
whether an agency has acted within its statutory authority.” 603 U.S. at 412. Even when the
meaning of a statute is unclear, “courts need not and under the APA may not defer to an agency
interpretation of the law simply because a statute is ambiguous.” Id. at 413. That is because
statutes have “a single, best meaning,” id. at 400, and “the final interpretation of the laws [is] the
proper and peculiar province of the courts,” id. at 385 (internal quotation marks omitted) (quoting
The Federalist, No. 78, at 535 (A. Hamilton)).
That said, in many instances, the best reading of a statute may be that Congress intended
for the agency to retain some measure of discretion. Id. at 394. When Congress “delegates
authority to an agency consistent with constitutional limits, courts must respect the delegation,
while ensuring that the agency acts within it.” Id. at 413. This is especially the case where statutes
“‘expressly delegate[]’ to an agency the authority to give meaning to a particular statutory term,”
id. at 394 (alteration in original) (quoting Batterton v. Francis, 432 U.S. 416, 425 (1977)),
“empower an agency to prescribe rules to ‘fill up the details’ of a statutory scheme,” id. at 395
(quoting Wayman v. Southard, 10 Wheat. 1, 43 (1825)), or allow an agency to “regulate subject to
the limits imposed by a term or phrase that ‘leaves agencies with flexibility,’ such as ‘appropriate’
13 or ‘reasonable,’” id. (citation omitted) (quoting Michigan v. Env’t Prot. Agency, 576 U.S. 743, 752
(2015)). In such cases, the task before the court is to “fix[] the boundaries of [the] delegated
authority,” id. (second alteration in original) (quoting H. Monaghan, Marbury and the
Administrative State, 83 Colum. L. Rev. 1, 27 (1983)), and then “ensur[e] the agency has engaged
in ‘reasoned decisionmaking’ within those boundaries,” id. (quoting Michigan, 576 U.S. at 750).
1. The FDIC acted within the bounds of the broad discretion accorded by the FDIA
Applying the above principles, the court concludes that the FDIA confers substantial
discretion on the FDIC to determine the relevant components of a “risk-based assessment system”
as that term is defined in the statute. 12 U.S.C. § 1817(b)(1)(C). As noted, the FDIA states that
the FDIC “shall, by regulation, establish a risk-based assessment system for insured depository
institutions.” Id. § 1817(b)(1)(A). The statute defines a “risk-based” assessment system as one
based on:
(i) the probability that the Deposit Insurance Fund will incur a loss with respect to the institution, taking into consideration the risks attributable to—
(II) different categories and concentrations of liabilities . . . ; and
(III) any other factors the [FDIC] determines are relevant to assessing such probability;
(ii) the likely amount of any such loss; and
Id. § 1817(b)(1)(C). BANA contends that the statutory mandate that the FDIC base its assessment
system on “the risk that a bank will fail in a way that causes losses to the Fund, with attention to
the amount of those losses” precludes the FDIC from considering “‘other policy factors.’” ECF
No. 367-2, at 24-25 (quoting Bridgeport Hosp. v. Becerra, 108 F.4th 882, 887 (D.C. Cir. 2024)).
14 In BANA’s view, the 2011 Rule’s use of “scorecards” that based 80% of an HCI’s assessment rate
on its “performance score” and 20% on its “loss severity score” is inconsistent with the FDIA’s
command because the “statutory factors were being given [only] 20% weight.” Id. at 25-27; see
12 U.S.C. § 1817(b)(1)(C)(i).
The FDIC counters that the scorecards’ performance score component did measure the
probability of an HCI incurring a loss to the Fund, because it “explicitly takes into consideration
the risks attributable to different categories and concentrations of assets, different categories and
concentrations of liabilities, and many other relevant factors regarding loss.” ECF No. 372-2, at 45
(quoting 76 Fed. Reg. at 10701). Therefore, the FDIC argues, the 2011 Rule’s performance score
“falls squarely within the FDIC’s statutory authority,” id., and the court need not “rely on any
deference to [the FDIC’s] statutory interpretation . . . to reject BANA’s . . . claims,” id. at 44. The
court agrees with the FDIC that the 2011 Rule did not exceed the scope of its delegated authority
under the FDIA.
The court begins, as it must, with the plain text of the FDIA. Pac. Gas & Elec. Co. v. Fed.
Energy Regul. Comm’n, 113 F.4th 943, 948 (D.C. Cir. 2024). “To construe th[e] text, [courts]
look to the ordinary meaning of [the statute’s] key terms.” Novartis Pharms. Corp. v. Johnson,
102 F.4th 452, 460 (D.C. Cir. 2024). The FDIA requires that the FDIC “establish a risk-based
assessment system,” 12 U.S.C. § 1817(b)(1)(A), which is defined as a system for calculating
assessments based on (1) “the probability that the Deposit Insurance Fund will incur a loss” by
“taking into consideration the risks attributable to,” id. § 1817(b)(1)(C)(i) (emphasis added), a few
categories and concentrations of assets and liabilities enumerated in the statute, id.
§ 1817(b)(1)(C)(i)(I), (II), as well as “any other factors [that] the [FDIC] determines are relevant
to assessing such probability,” id. § 1817(b)(1)(C)(i)(III) (emphases added) and (2) “the likely
15 amount of any such loss,” id. § 1817(b)(1)(C)(ii). To take a factor into “consideration” is to
“weigh[] or take[] [it] into account when formulating an opinion or plan.” Consideration,
Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). 5 “Any” is a broad term, meaning “one,
some, or all indiscriminately of whatever quantity” or “unmeasured or unlimited in amount,
number, or extent.” Any, Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). To
“determine” is “to find out or come to a decision about by investigation, reasoning, or calculation.”
Determine, Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). Finally, something is
“relevant” when it has “significant and demonstrable bearing on the matter at hand.” Relevant,
Merriam-Webster’s Collegiate Dictionary (10th ed. 1993). Taken together, the plain meanings of
these words confer a great deal of discretion on the FDIC. The agency is called on to incorporate
into its risk-based assessment system as many or as few factors as it wishes, as long as its
“investigation, reasoning, or calculation” leads it to believe that those factors may have “significant
or demonstrable bearing” on the Deposit Insurance Fund’s likelihood of incurring a loss. In other
words, so long as a factor bears on the risk of the Fund incurring a loss, the FDIC has wide latitude
to consider it in designing the assessment system.
In Doolin Security Savings Bank, F.S.B. v. Federal Deposit Insurance Corp., 53 F.3d 1395
(4th Cir. 1995), the Fourth Circuit confirmed that the FDIA’s language confers significant
discretion on the FDIC. There, the court was interpreting an older, but nearly identical, version of
Section 1817(b). Id. at 1400. The court explained that the plaintiff’s “selective emphasis on
certain words in the [FDIA] cannot detract from the fact that the statute expressly gives the FDIC
considerable discretion by allowing the FDIC to consider ‘any other factors the [FDIC] determines
5 The court relies on dictionary definitions from the time Congress added the relevant language to the FDIA. See Truck Ins. Exch. v. Kaiser Gypsum Co., 602 U.S. 268, 278 & n.3 (2024) (looking to ordinary meaning at the time of the statute’s enactment).
16 are relevant’ in calculating an institution’s semiannual assessment.” Id. (second alteration in
original) (emphasis added) (quoting 12 U.S.C § 1817(b)(1)(C)). BANA argues that the FDIC’s
reliance on Doolin is inapposite because that court relied on the now-overruled doctrine of
Chevron deference in arriving at its holding. ECF No. 376-2, at 3. While it may be true that the
court’s ultimate disposition of the case relied on Chevron deference, the court’s conclusion that
the FDIA gives the FDIC considerable discretion was based on its plain-text reading of the
statutory language. See Doolin, 52 F.3d at 1400. Thus, the plain reading of the statute that the
court arrives at today regarding the scope of the FDIC’s discretion in choosing factors to consider
when measuring the likelihood of loss accords with Doolin even in the absence of Chevron
deference.
Under the plain text of the FDIA, as long as the FDIC believes that a factor is relevant to the
determination of a bank’s likelihood of incurring a loss, the FDIC may consider it. Having “fix[ed]
the boundaries of [the] delegated authority,” Loper Bright, 603 U.S. at 395 (second alteration in
original) (quoting H. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27
(1983)), the court concludes that the FDIC had the authority to promulgate the 2011 Rule.
2. The FDIC engaged in “reasoned decisionmaking,” the 2011 Rule is supported by substantial evidence, and the process was not procedurally flawed
Having dispensed with BANA’s argument that the 2011 Rule exceeded the scope of
authority granted to the FDIC by the FDIA, the court considers whether the FDIC engaged in
“reasoned decisionmaking” in arriving at the 2011 Rule. Id. at 396 (quoting Michigan, 576 U.S.
at 750). BANA argues that the rule “lacked any reasonable evidentiary basis,” ECF No. 367-2,
at 24; see id. at 24-27, 34-35; that the FDIC “rel[ied] on flawed and dimly explained statistical
models,” id. at 24; see id. at 30-33, and failed to engage with commenters that pointed this out, id.
17 at 30-33; and that the FDIC failed to explain why it changed one key metric between two versions
of the proposed rule, id. at 35-36. The court disagrees and addresses each in turn.
Evidentiary basis. “[T]he process by which [an agency] reaches [its] result must be logical
and rational,” and “agency action is lawful only if it rests ‘on a consideration of the relevant
factors.’” Michigan, 576 U.S. at 750 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). In assessing the reasonableness of an agency’s
decision-making process, the court must not “substitute its judgment for that of the agency.” State
Farm Mut. Auto. Ins. Co., 463 U.S. at 43. Instead, it must apply the “deferential” arbitrary-and-
capricious standard, Fed. Commc’ns Comm’n v. Prometheus Radio Project, 592 U.S. 414, 423
(2021), and consider whether the agency has “examine[d] the relevant data and articulate[d] a
satisfactory explanation for its action[,] including a ‘rational connection between the facts found
and the choice made,’” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck
Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). The burden of proof rests on the party
challenging the agency’s action as arbitrary and capricious. Pierce v. Sec. & Exch. Comm’n, 786
F.3d 1027, 1035 (D.C. Cir. 2015).
BANA first argues that it is incorrect to understand the FDIC’s performance score as a
“risk-based” measure because “[t]here is an undisputed and material difference” between the
performance of a bank generally and its risk of losses to the Deposit Insurance Fund. ECF
No. 376-2, at 3. BANA explains that, in many instances, poorly performing banks have failed
without any loss to the Fund and that the FDIC has deemed healthy banks to have failed simply
because they received non-fund government support. Id. at 3-4. The FDIC responds that “[t]he
performance score focuses on the probability that a bank will fail,” ECF No. 372-2, at 46, and is
thereby tethered to Section 1817(b)(1)(C)(i)’s “probability that the [Deposit Insurance Fund] will
18 incur a loss,” 12 U.S.C. § 1817(b)(1)(C)(i), “while the loss severity score focuses on the magnitude
of loss in the event of failure,” ECF No. 372-2, at 46, and is tethered to Section 1817(b)(1)(C)(ii)’s
requirement that the FDIC consider “the likely amount of any such loss,” 12 U.S.C.
§ 1817(b)(1)(C)(ii). In the FDIC’s view, both metrics are doing important and independent work
because, for example, “[a] bank that fails (or would have failed without significant government
support) but causes no loss may not shed light on the magnitude of loss, but it can reveal factors
affecting the probability of failure.” ECF No. 372-2, at 46. Taking care not to substitute its
judgment for the agency’s, the court considers whether the FDIC “examine[d] the relevant data
and articulate[d] a satisfactory explanation for its action[,] including a ‘rational connection
between the facts found and the choice made.’” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43
(quoting Burlington Truck Lines, Inc., 371 U.S. at 168).
The court finds compelling the FDIC’s explanation that the performance score inherently
accounts for “risks attributable to different categories and concentrations of assets, different
categories and concentrations of liabilities, and many other relevant factors regarding loss.” ECF
No. 372-2, at 45 (quoting 76 Fed. Reg. at 10701); see 76 Fed. Reg. at 10695-96, 10712-14
(discussing components of the performance score). Examination of the HCI scorecard bears this
out, revealing that many factors used in calculating a bank’s performance score have a “rational
connection,” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc.,
371 U.S. at 168), to its likelihood of incurring a loss.
19 76 Fed. Reg. at 10695. For example, the performance score expressly takes into account a bank’s
ability to withstand asset- and funding-related stress—both variables that the court finds have a
rational connection to the bank’s risk of incurring a loss to the Fund. Similarly, a bank’s
“CAMELS” score, which comprises 30% of the overall performance score and incorporates risk
factors like “[c]apital adequacy,” “[a]sset quality,” and “[l]iquidity,” similarly provides a
reasonable way of assessing the bank’s likelihood of failure. 76 Fed. Reg. at 10709.
BANA points to various historical examples to make the point that there is not always a
clear correlation between a bank’s performance score and its likelihood of incurring a loss. ECF
No. 376-2, at 3-5. But these examples are unavailing. The law does not require the FDIC to
develop a perfect measure of predicting a bank’s risk of incurring a loss—the FDIC is merely
required to develop one that comports with the statutory criteria and demonstrates “reasoned
decisionmaking” evidenced by a “rational connection between the facts found and the choice
made.” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371
U.S. at 168). Accordingly, even if the HCI scorecard is not a perfect measure of the likelihood of
20 loss, the court finds that the FDIC has cleared the bar of explaining the rational connection between
its performance score and a bank’s risk of loss to the Fund. 6
BANA relatedly argues that even if the FDIC is able to articulate a rational connection
between its performance score and risk of a loss to the Fund now, it did not do so at the time it
promulgated the 2011 Rule and also failed to respond to concerns raised by commenters. ECF
No. 367-2, at 25, 27-30. As support, BANA claims that the FDIC “specifically disclaimed any
relationship between the performance score and either of the statutory criteria” when it
promulgated the rule, instead supporting the performance score with “a boilerplate recitation of
the statutory criteria, not a reasoned analysis.” ECF No. 376-2, at 4-5; see Sec. & Exch. Comm’n
v. Chenery Corp., 332 U.S. 194, 196 (1947). The FDIC contests this characterization, pointing to
various parts of the rule in which it explains how the performance score captures risk. ECF
No. 372-2, at 45. The court agrees that the FDIC has consistently maintained that the performance
score captures risk and is not now relying on post-hoc justifications.
“[A] reviewing court . . . must judge the propriety of [agency] action solely by the grounds
invoked by the agency. If those grounds are inadequate or improper, the court is powerless to
affirm the administrative action by substituting what it considers to be a more adequate or proper
6 BANA relatedly argues that it was arbitrary and capricious for the FDIC to “adopt[] an assessment system that shifted the burden of assessments away from smaller institutions and increased the share of overall assessments paid by HCIs, despite undisputed evidence and comments that HCIs pose a lower risk to the Fund.” ECF No. 367-2, at 34-35. However, as described, the FDIC’s focus on the magnitude of loss—reflected in the loss severity score—is tied to the statutory requirement that the FDIC consider “the likely amount of any . . . loss,” in the event of a bank failure, 12 U.S.C. § 1817(b)(1)(C)(ii), not just the probability of failure itself. Because the failure of an HCI has the potential to be far more catastrophic than the failure of a non-HCI, it was not arbitrary and capricious for the FDIC to charge HCIs more in assessments. In other words, there is a clear “rational connection between the facts found and the choice made.” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371 U.S. at 1368).
21 basis.” Chenery Corp., 332 U.S. at 196. Therefore, courts must “look to what the agency said at
the time of the rulemaking—not to its lawyers’ post-hoc rationalizations.” Council for Urological
Ints. v. Burwell, 790 F.3d 212, 222 (D.C. Cir. 2015).
Within the 2011 Rule itself, the FDIC articulated the connection between performance
score and risk, specifically as it related to HCIs:
For a large insured depository institution, the performance score (which explicitly takes into consideration the risks attributable to different categories and concentrations of assets, different categories and concentrations of liabilities, and many other relevant factors regarding loss) . . . [combined with the other scorecard criteria] reasonably represent both the probability that the [Deposit Insurance Fund] will incur a loss with respect to the institution and the likely amount of any such loss.
76 Fed. Reg. at 10701. While BANA claims this is merely a “boilerplate recitation of the statutory
criteria,” ECF No. 376-2, at 4, the court does not agree. Rather, the court reads this explanation
as offering a “rational connection,” State Farm Mut. Auto. Ins. Co., 463 U.S. at 43, between the
aims of the statute—assessing the “probability” and “likely amount” of loss to the Deposit
Insurance Fund, 12 U.S.C. § 1817(b)(1)(C)—and the use of the performance score, which accounts
for various kinds of risks.
Statistical models and engagement with commenters. The “rational connection” between
the HCI scorecard and the FDIC’s mandate to consider the risk of loss to the Deposit Insurance
Fund when setting assessment rates is further supported by the FDIC’s validation methods and
data, which indicate that the HCI scorecard measures exactly what it sets out to measure. BANA
contests the robustness of the FDIC’s validation measures, arguing that the HCI scorecard lacked
a sufficient evidentiary basis because its validation relied on “flawed and dimly explained
statistical models.” ECF No. 367-2, at 24. In BANA’s view, “the ‘expert judgment rankings’”
that were used to validate the HCI scorecard “were nothing more than the personal views of ‘a
22 small group of FDIC staff,’ . . . as to which large banks were ‘risky.’” ECF No. 367-2, at 31
(quoting ECF No. 165, at 18-19; ECF No. 165-2, at 5). BANA further argues that “[t]he FDIC
was required to provide commenters a complete description of its models and their methodology,
and then ‘further opportunity for comment.’” Id. at 33 (quoting Chamber of Com. v. Sec. & Exch.
Comm’n, 443 F.3d 890, 901 (D.C. Cir. 2006)). In BANA’s view, the FDIC’s appendices
supporting the proposed rule were “inadequate” because they “merely explained how the models
worked at a very high level of generality[] or listed their purported results.” ECF No. 367-2,
at 32-33; see Fed. Reg. at 10689, 10720-22, 10727-31.
The FDIC responds that it provided sufficient notice of the methodology it used to develop
the scorecards: “[i]t published two separate notices of proposed rulemakings,” “explained that it
fashioned the performance score using a statistical model that predicted the ‘rank ordering of risk
for large institutions’ ‘based on a consensus view of staff analysts’ . . . following their review of
‘information available through the FDIC’s Large Insured Depository Institution (LIDI) program’
of the relative riskiness of large banks,” and “fully disclosed and explained the methodology and
results of the statistical analysis it used to verify that the selected risk measurements identified by
the expert judgment rankings were correlative and predictive of the risk of bank failure.” ECF
No. 372-2, at 54; 75 Fed. Reg. at 23518, 23548-54, 72614 n.11. The court agrees that the FDIC’s
validation methods were sufficiently robust, and that the FDIC provided sufficient notice of its
methodology to the public.
Courts must not “‘second-guess’ an agency’s [technical] analysis, but will uphold
regulations based on such an analysis if the agency ‘has established in the record a reasonable basis
for its decision.’” In re Core Commc’ns., Inc., 455 F.3d 267, 279 (D.C. Cir. 2006) (quoting Nat’l
Wildlife Fed’n v. Env’t Prot. Agency, 286 F.3d 554, 565 (D.C. Cir. 2002)). “‘[A]n agency’s
23 predictive judgments about areas that are within the agency’s field of discretion and expertise’ are
entitled to ‘particularly deferential’ review, as long as they are reasonable.” Milk Indus. Found. v.
Glickman, 132 F.3d 1467, 1478 (D.C. Cir. 1998) (quoting Int’l Ladies’ Garment Workers’ Union
v. Donovan, 722 F.2d 795, 821 (D.C. Cir. 1983)). Indeed, courts “can reverse only if the model is
so oversimplified that the agency’s conclusions from it are unreasonable.” Small Refiner Lead
Phase-Down Task Force v. Env’t Prot. Agency, 705 F.2d 506, 535 (D.C. Cir. 1983). The agency
need only “examine the relevant data and articulate a satisfactory explanation for its action.” State
Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (quoting Burlington Truck Lines, Inc., 371 U.S. at 168).
The court finds that the FDIC provided a reasonable basis for its decision to utilize expert judgment
rankings as a validation measure for its scorecards.
The 2011 Rule explains in various places the factors that made the FDIC’s reliance on its
expert judgment rankings sufficiently reasonable. First, the data indicates that the measure was a
reasonably reliable one: “[a]ll but one of the risk measures showed a statistically significant
correlation at either the five- or one-percent level across all four years examined, with the
remaining factor showing a statistically significant correlation for two years.” ECF No. 372-2,
at 51; see 76 Fed. Reg. at 10729. The FDIC additionally noted the limitations of its analysis,
admitting that “any statistical analysis is necessarily backward looking and that risks may arise in
the future that are not adequately captured in the scorecard” but that, regardless, “the FDIC feels
that the proposed framework is more comprehensive and reduces the likelihood of such an
occurrence compared to the current system.” 76 Fed. Reg. at 10703. Finally, the FDIC
satisfactorily explains the overall purpose of the expert rankings—use in a regression model to
help the FDIC determine “the risk measures included in the performance score and the weights
assigned to those measures.” Id. at 10702-03.
24 The court also disagrees with BANA’s complaint that the FDIC did not provide enough
notice of its methodology. ECF No. 367-2, at 32-33. An agency’s notice of its methodology “is
sufficient ‘if it affords interested parties a reasonable opportunity to participate in the rulemaking
process,’ and if the parties have not been ‘deprived of the opportunity to present relevant
information by lack of notice that the issue was there.’” Am. Radio Relay League, Inc. v. Fed.
Commc’ns Comm’n, 524 F.3d 227, 236 (D.C. Cir. 2008) (quoting WJG Tel. Co. v. Fed. Commc’ns
Comm’n, 675 F.2d 386, 389 (D.C. Cir. 1982)).
As the 2011 Rule explains, “Appendix 2 contains the detailed description of the scorecard
model, the result of statistical analysis, and the derivation of weights.” ECF No. 372-2, at 54
(quoting 76 Fed. Reg. at 10702); see 76 Fed. Reg. at 10727-31 (Appendix 2). And, in response to
commenters, “the FDIC meaningfully responded by fully disclosing the validation of its
expert-judgment rankings and scorecard with a separate independent verification method: the
bank-failure model.” ECF No. 372-2, at 55; see 76 Fed. Reg. at 10703, 10730, 10732.
The court also finds unconvincing BANA’s related argument that the FDIC “failed to make
public basic methodological information such as: (1) whether staff considered the statutory
criteria; (2) which specific ‘financial performance metrics’ staff used; (3) how staff went about
ranking banks using those metrics; or (4) what assumptions staff used in that process,” ECF
No. 376-2, at 6, because the exclusion of this information did not actually impede commenters’
abilities to analyze and critique the FDIC’s statistical models. The data provided by the FDIC
sufficiently “afford[ed] interested parties a reasonable opportunity to participate in the rulemaking
process,” and the information provided in no way “deprived [commenters] of the opportunity to
present relevant information by lack of notice that the issue was there.” Am. Radio Relay League,
Inc., 524 F.3d at 236 (quoting WJG Tel. Co., 675 F.2d at 389). Commenters were provided with
25 enough information to evaluate the FDIC’s use of expert judgment rankings, as well as the
performance score more broadly—and indeed, they did provide comments pointing out the
problems they perceived. 76 Fed. Reg. at 10703. The FDIC then reasonably responded to these
concerns by referring commenters to the rule’s appendices, which provided more granular data,
and it further justified its reliance on the scorecards by explaining that, for example, “large
institutions with a total [scorecard] score in the top decile as of year-end 2006 represented a
disproportionately high percentage of failures between 2006 and 2009.” Id.
Change in the HCI concentration measure. Finally, BANA takes issue with the FDIC’s
decision to change the HCI concentration measure from the May 2010 proposed rule—which did
not include counterparty exposures—to the November 2010 proposed rule—which did include
counterparty exposures. Compare 75 Fed. Reg. at 23520/2, 23525 tbl. 12, with 75 Fed. Reg.
at 72612. BANA argues that when the FDIC ultimately published the final 2011 Rule, it failed to
explain why it had abandoned the May 2010 measure, explaining only that “recent experience
shows that the concentration of a highly complex institution’s exposures to a small number of
counterparties . . . significantly increases the institution’s vulnerability to unexpected market
events.” ECF No. 367-2, at 35 (quoting 76 Fed. Reg. at 10,696/2). The FDIC counters that, in
effect, BANA is challenging the November 2010 proposed rule for not being a “logical outgrowth”
of the May 2010 proposed rule, but that there is no requirement that a proposed rule be a “logical
outgrowth” of another proposed rule. ECF No. 372-2, at 57. BANA responds that “the
logical-outgrowth doctrine has nothing to do with this case” and that it does not challenge the
changes between the proposed rules, but rather “the FDIC’s failure in the final 2011 Rule to
acknowledge the change in approach and to explain why the new concentration measure was
26 superior to the old one, which the agency continued to use for other large banks.” ECF No. 376-2,
at 8-9. The court finds that the FDIC has the better of the argument.
Final rules must be “logical outgrowth[s]” of proposed rules, a standard which requires that
“interested parties ‘should have anticipated’ that the change was possible, and thus reasonably
should have filed their comments on the subject during the notice-and-comment period.” CSX
Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076, 1080 (D.C. Cir. 2009) (quoting Ne. Md. Waste
Disposal Auth. v. Env’t Prot. Agency, 358 F.3d 936, 952 (D.C. Cir. 2004)). But the “logical
outgrowth” requirement applies only to final rules, not proposed rules. See id. And courts “do not
have authority to review proposed rules.” In re Murray Energy Corp., 788 F.3d 330, 334
(D.C. Cir. 2015).
The court agrees with the FDIC that BANA is effectively challenging the November 2010
proposed rule for not being a “logical outgrowth” of the May 2010 proposed rule. It is indeed true,
as BANA points out, that the concentration measure for HCIs changed between the two proposed
rules. But proposed rules are not “final agency actions” that this court has authority to review.
The 2011 Rule was a “logical outgrowth” of the November 2010 proposed rule, and that is all that
the law requires. CSX Transp., Inc., 584 F.3d at 1080. Thus, the FDIC’s decision to change its
HCI concentration measure from the May 2010 proposed rule to the November 2010 proposed
rule was not arbitrary and capricious.
* * *
For the above reasons, the court concludes that the 2011 Rule was within the scope of the
authority delegated to the FDIC by the FDIA. The court additionally finds that the FDIC complied
with the APA because it exercised “reasoned decisonmaking” when it decided to use banks’
performance scores in the HCI scorecard because it “articulate[d] a satisfactory explanation” that
27 explained the “rational connection” between the performance score and a bank’s likelihood of
incurring a loss to the Deposit Insurance Fund, State Farm Mut. Auto. Ins. Co., 463 U.S. at 43
(quoting Burlington Truck Lines, Inc., 371 U.S. at 168), because its decision to use the scorecards
was backed up by reasonable validation techniques, and because the public had the information
necessary to engage in robust notice-and-comment.
B. BANA’s Liability Under the 2011 Rule
Having concluded that the 2011 Rule was valid, the court now turns to the core question in
this case: whether BANA is liable for failing to comply with the 2011 Rule as it was understood
by the FDIC. Squarely at issue are two paragraphs in the rule’s appendix, which are meant to
define “Top 20 Counterparty Exposure” and “Largest Counterparty Exposure”—two key
measures in the HCI scorecard. The first provision provides that the “Top 20 Counterparty
Exposure” measure is the:
Sum of the total exposure amount to the largest 20 counterparties (in terms of exposure amount) divided by Tier 1 capital and reserves. Counterparty exposure is equal to the sum of Exposure at Default (EAD) associated with derivatives trading and Securities Financing Transactions (SFTs) and the gross lending exposure (including all unfunded commitments) for each counterparty or borrower at the consolidated entity level.
76 Fed. Reg. at 10721 (emphasis added). The second explains that the “Largest Counterparty
Exposure” measure is:
The amount of exposure to the largest counterparty (in terms of exposure amount) divided by Tier 1 capital and reserves. Counterparty exposure is equal to the sum of Exposure at Default (EAD) associated with derivatives trading and Securities Financing Transactions (SFTs) and the gross lending exposure (including all unfunded commitments) for each counterparty or borrower at the consolidated entity level.
28 Id. (emphasis added). While the parties agree that BANA was required to report these two
counterparty exposure measures at the “consolidated entity level” in their quarterly call reports,
they disagree about what that key phrase means.
The FDIC argues that “[b]y instructing HCIs to report their counterparty exposures ‘for
each counterparty or borrower’ at the ‘consolidated entity level,’ the 2011 Rule is clear that an
HCI must report its exposures to all members of a corporate family (each counterparty or borrower)
at the position (level) at which those exposures are joined together into one identifiable whole
(consolidated entity).” ECF No. 364, at 18. In the FDIC’s view, the “plain meaning of
[consolidated entity level]” is therefore unambiguously “the level at which all members of a
corporate family are consolidated into a single entity—that is, the ultimate parent level.” Id.at 17.
In other words, the FDIC interprets “consolidated entity level” to require banks to consolidate up
to the ultimate parent level on the counterparty side of the ledger. While the FDIC principally
argues that the court should look to the plain meaning of “consolidated entity level,” it also
describes the phrase as a “term of art” and encourages the court to adopt the definition from a
program administered by the Federal Reserve Bank of New York that predated the 2011 Rule. See
id. at 19 (“When a term of art is ‘obviously transplanted from another legal source,’ it ‘brings the
old soil with it.’” (quoting George v. McDonough, 596 U.S. 740, 746 (2022))).
In BANA’s view, “consolidated entity level” is a “technical” term of art—rather than a
regulatory term of art—and its meaning should be gleaned from technical dictionaries and
principles. ECF No. 376-2, at 23-24; ECF No. 367-2, at 10. Relying on principles of accounting,
BANA posits that “the best reading of the requirement to report exposures ‘for each counterparty
or borrower at the consolidated entity level’ is that HCIs should cancel out intra-company
transactions using consolidation accounting and, together with the HCIs’ own subsidiaries, report
29 exposures to each counterparty individually.” ECF No. 367-2, at 61 (emphases omitted). In other
words, BANA reads the disputed language as requiring consolidation only on its side of the ledger.
Consistent with that understanding, BANA consolidated its own exposures to a given counterparty
with the exposures of its own subsidiaries rather than consolidating its counterparties’ exposures
up to the ultimate parent level. See ECF No. 376-2, at 23 (“[I]f BANA loaned $1 million to
Counterparty 1, and BANA’s subsidiary also loaned another $1 million to Counterparty 1, then
consolidation accounting requires BANA to report a $2 million exposure.”).
When a regulation is “genuinely ambiguous,” Kisor v. Wilkie, 588 U.S. 558, 574 (2019), a
court may defer to an agency’s “reasonable” interpretation of that regulation, id. at 576. However,
“before concluding that a rule is genuinely ambiguous, a court must exhaust all the ‘traditional
tools’ of construction.” Id. at 575 (quoting Chevron U.S.A. Inc., 467 U.S. at 843 n.9, overruled by
Loper Bright, 603 U.S. 369 (2024)). This means that the “court must ‘carefully consider[]’ the
text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency
[interpretation] to fall back on.” Id. (first alteration in original). “[O]nly when that legal toolkit is
empty and the interpretive question still has no single right answer can a judge conclude that it is
‘more [one] of policy than of law.’” Id. (second alteration in original) (quoting Pauley v.
BethEnergy Mines, Inc., 501 U.S. 680, 696 (1991)). But where a court finds no ambiguity, “[t]he
regulation then just means what it means—and the court must give it effect, as the court would
any law.” Id. Upon consideration of the text, context, history, and purpose of the 2011 Rule, the
court concludes that its use of “consolidated entity level” is unambiguous and requires
consolidation at the ultimate parent level on the counterparty side of the ledger.
30 1. The meaning of “consolidated entity level” is unambiguous
Text and context. The court again begins with the text. As a threshold matter, the court
notes that “[o]rdinary meaning is of limited utility . . . when determining the proper interpretation
of a [technical] term.” Teva Pharms. USA, Inc. v. U.S. Food & Drug Admin., 514 F. Supp. 3d 66,
99 (D.D.C. 2020) (quoting ViroPharma, Inc. v. Hamburg, 898 F. Supp. 2d 1, 19 (D.D.C. 2012)).
Therefore, “‘where a statutory or regulatory term is a technical term of art, defined more
appropriately by reference to a particular industry usage than by the usual tools of statutory
construction,’ [a court] will employ that industry usage.” In re Pharm. Indus. Average Wholesale
Price Litig., 582 F.3d 156, 168 (1st Cir. 2009) (quoting United States v. Lachman, 387 F.3d 42,
53 (1st Cir. 2004)); see La. Pub. Serv. Comm’n v. Fed. Commc’ns Comm’n, 476 U.S. 355, 372
(1986) (“[T]echnical terms of art should be interpreted by reference to the trade or industry to
which they apply[.]”). 7 In interpreting the text, the court therefore looks to technical resources in
order to evaluate what the phrase “consolidated entity level” would have communicated to the
average industry member.
The Oxford Dictionary of Accounting defines “consolidation” as “[t]he process of
combining and adjusting financial information from the individual financial statements of a parent
undertaking and its subsidiaries to prepare consolidated financial statements . . . [that] present
financial information for the group as a single economic entity.” Consolidation, A Dictionary of
7 “[T]his canon of construction requires the disputed term to actually be a technical term of art.” In re Pharm. Indus. Average Wholesale Price Litig., 582 F.3d at 168 (quoting Lachman, 387 F.3d at 53); cf. Kennecott Corp. v. Env’t Prot. Agency, 684 F.2d 1007, 1017 (D.C. Cir. 1982) (finding that “nonferrous” is neither a term of art nor a technical term); Am. Legion v. Derwinski, 54 F.3d 789, 796 (D.C. Cir. 1995) (finding that “results” is neither a term of art nor a technical term). Because “consolidated entity level” is not a phrase “of common parlance,” Am. Legion, 54 F.3d at 796, the court concludes that it is a technical term.
31 Accounting, Oxford University Press (4th ed. 2010) (emphases added). 8 According to the Oxford
Handbook of International Financial Terms, to “consolidate” is to “group[] the accounts of
different legal entities so that the whole position, the consolidated position can be treated as a
whole.” Consolidate, The Handbook of International Financial Terms, Oxford University Press
(1st ed. 1997) (emphasis added). 9 This process “applies to subsidiaries which are more than 50%
owned by the parent or holding company.” Id. The Financial Accounting Standards Board, which
“establishes financial accounting and reporting standards for public and private companies and
not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP)”10
states in its master glossary that a “consolidated group” is “a parent and all its subsidiaries.”
Consolidated Group, Master Glossary, Financial Accounting Standards Board. 11 It also defines
“consolidated financial statements” as “[t]he financial statements of a consolidated group of
entities that include a parent and all its subsidiaries presented as those of a single economic
entity.” Consolidated Financial Statements, Master Glossary, Financial Accounting Standards
Board (emphasis added). 12 Finally, an “entity” is simply “[t]he unit for which accounting records
are maintained and for which financial statements are prepared.” Accounting Entity, A Dictionary
of Accounting, Oxford University Press (4th ed. 2010). 13
Taken together, these definitions of “consolidate,” “consolidated,” and “entity”—gathered
from various industry-specific resources—all paint a similar picture: when “consolidate” is used
8 Available at https://perma.cc/YW8K-JQFD. 9 Available at https://perma.cc/QMA9-9ET3. 10 Available at https://perma.cc/JV7X-LXMN. 11 Available at https://perma.cc/3BAN-KVD5. 12 Available at https://perma.cc/3BAN-KVD5. 13 Available at https://perma.cc/2B95-D5WM.
32 in an accounting context, it refers to grouping a parent and its subsidiaries so that the “whole”
financial position of the unit may be assessed. See Consolidate, The Handbook of International
Financial Terms, Oxford University Press (1st ed. 1997). This “whole” position, which includes
a parent and its subsidiaries, must necessarily be the ultimate parent level.
With this understanding in mind, the court looks at the context in which this language
appears in the 2011 Rule. Specifically, the rule explains that the Top 20 Counterparty Exposure
and Largest Counterparty Exposure were added to the HCI scorecard “because recent experience
shows that the concentration of a highly complex institution’s exposures to a small number of
counterparties . . . significantly increases the institution’s vulnerability to unexpected market
events . . . [and] the top 20 counterparty exposure and the largest counterparty exposure . . .
capture this risk.” 76 Fed. Reg. at 10696. This additional context should have informed regulated
parties that the FDIC was focused on measuring exposures to each counterparty at the
counterparty’s ultimate parent level: if a “small number of counterparties” were “significantly
increas[ing]” institutional vulnerabilities, this implies that the counterparties were being assessed
at the ultimate parent level—otherwise, a small number of counterparties could not have the
“significant[]” impact on institutional vulnerability.
The court also notes that the FDIC’s understanding of “consolidated entity level” is
consistent with that term’s use in other areas of the industry. For example, in April 2012, the
Commodity Futures Tradition Commission (“CFTC”) promulgated a final rule that required risk
management at the “consolidated entity level” because “a top level company may be in the best
position to evaluate risk due to its organization-wide view.” 77 Fed. Reg. 20128, 20173 (Apr. 3,
2012). While that rule did not define “consolidated entity level,” no regulated party questioned
this term during the rulemaking process. The term “consolidated entity level” was also used in a
33 2014 Rule proposed by a variety of financial regulatory agencies, including the FDIC. 79 Fed.
Reg. 57348, 57366 (Sept. 24, 2014). That regulation also does not define the term, although it
does explain how it would apply by way of a hypothetical about how to consolidate to the
counterparty’s parent level. Id. Given this regulatory landscape, the court comfortably concludes
that the term “consolidated entity level” was intelligible to industry members on its face. 14
The FDIC’s understanding of “consolidated entity level” is further supported by its later
rulemaking materials, including its June 2011 and March 2012 Call Report Instructions and its
December 2011 Notice. 15 In the June 2011 Call Report Instructions, the FDIC reiterated the
language of its 2011 Rule, defining “counterparty exposure” as “the sum of [two types of
exposures] for each counterparty or borrower at the consolidated entity level of the counterparty.”
ECF No. 367-2, at 9 (emphasis added) (quoting 76 Fed. Reg. at 10721). Later that year, in a
December 2011 Notice, the FDIC responded to industry comments about the two counterparty
exposure measures and elaborated further on its expectations for reporting. 76 Fed. Reg. at 77322.
Notably, the FDIC specifically addressed a concern, put forward by three bankers’ organizations,
14 BANA argues that these regulations “contain[] definitions and explanations that the 2011 Rule does not, which simply underscores that the phrase ‘consolidated entity level,’ by itself, does not require reporting exposures at the ultimate parent level.” ECF No. 367-2, at 58; see ECF No. 376-2, at 24. The court disagrees. Taking the CFTC rule as an example, the rule noted that risk management should be done at the consolidated entity level because “a top level company may be in the best position to evaluate risk due to its organization-wide view.” 77 Fed. Reg. at 20173. That does nothing to define “consolidated entity level,” but instead explains why such consolidation is warranted. In this way, the CFTC rule is no different than the 2011 Rule, in which the FDIC explained that consolidation was warranted because “a highly complex institution’s exposures to a small number of counterparties . . . significantly increases the institution’s vulnerability to unexpected market events . . . [and] the top 20 counterparty exposure and the largest counterparty exposure . . . capture this risk.” 76 Fed. Reg. at 10696. 15 These documents went through notice-and-comment rulemaking, see, e.g., 76 Fed. Reg. 10688; 76 Fed. Reg. 77315, and therefore carry the force of law, see Aid Ass’n for Lutherans v. U.S. Postal Serv., 321 F.3d 1166, 1174 (D.C. Cir. 2003) (“[T]he [agency]’s disputed regulations in this case were adopted pursuant to notice and comment rulemaking and undoubtedly were intended to carry the force of law.”).
34 that “the term ‘legal consolidated entity,’ as used in th[e] definition in relation to a counterparty,
should be clarified.” Id. In response to the comment, the FDIC stated that it “continues to believe
that, for the purposes of calculating deposit insurance premiums, highly complex institutions
should report counterparty credit exposure on a consolidated entity basis (legal consolidated
entity) . . . [and] that highly complex institutions should have the ability to aggregate exposures
arising from financial contracts with entities within a legal consolidated entity and report the
exposure as outlined in the final rule.” Id. The FDIC further noted that the absence of a particular
proposed system did not “preclude institutions from internally aggregating their exposures to
entities within a legal consolidated entity” as the rule instructed. Id. Thus, although the court
concludes that the 2011 Rule’s use of “consolidated entity level” was sufficiently clear given
industry understandings of the constitutive words, any lingering uncertainty should have been
resolved by the December 2011 Notice’s clarification that reporting counterparty exposures on a
“consolidated entity basis” meant reporting at the level of the “legal consolidated entity”—
especially given the FDIC’s further note that such reporting required “aggregat[ing] exposures
arising from financial contracts with entities within a legal consolidated entity.” Id.
The FDIC provided further clarity in its updated March 2012 Call Report Instructions,
which instructed regulated parties to report several measures, including their Top 20 Counterparty
Exposure and Largest Counterparty Exposure on a “fully consolidated basis.” ECF No. 286-2. To
do something “fully” is to do it “completely.” Fully, Merriam-Webster’s Collegiate Dictionary
(10th ed. 1993). There is no conceivable way to consolidate “fully” without “completely”
consolidating the subsidiaries up to the parent level. Thus, while any reasonably informed industry
member should have been able to properly comprehend what the FDIC meant by “consolidated
entity level” based purely on the technical meanings of “consolidate” and “entity,” see supra
35 pp. 31-33, the March 2012 Call Report Instrnctions made it clear beyond argument that
consolidation must occur and be reported at the ultimate parent level of the counterparty.
BANA offers several points in suppo1t of its argument that the requirement to repoit at the
"consolidated entity level" was unclear, but each fails upon closer scrntiny. First, BANA points
out that . ECF
No. 367-2, at 66. This, in BANA's view, proves that "consolidated entity level" was an ambiguous
tenn. Id. This might help BANA i
_ , 16
ECF No. 248-4 ,I 62.
Id. ,I 63.
16 Pursuant to an agreement previously reached by the parties in this case and the eight other HCis, identifying info1mation in documents regarding the other HCis is redacted and the HCis are refeITed to by anonymous code names. See ECF No. 248-4, at 16 n.1.
36 with the publication of the December 2011 Notice, 76 Fed. Reg. at 77322,
which provided additional clarification about the meaning of the 2011 Rule. 17
Next, BANA offers its own reading of the 2011 Rule in an attempt to provide a plausible
alternative to the FDIC's interpretation. 18 Like the court, BANA relies upon technical definitions
of relevant tenns- specifically as they are used in the consolidation accounting context. See ECF
No. 376-2, at 23-24. As BANA explains, "consolidation" in this context '"requires elimination of
intra-entity ti·ansactions and balances' ... which cancels out exposures among parents and
subsidiaries, and adds up exposures that parents and subsidiaries have to the same counte1paiiies."
Id. at 23. In practice, this meant that BANA was consolidating its own exposures with those of its
subsidiaries, but that it failed to consolidate its counte1paiiies with their subsidiai·ies when it
reported exposures.
The ti·ouble with this reading is that it does not square with the text of the rnle, which
explains that counte1paiiy exposure is "the sum of [three kinds of exposure] for each counte1pa1iy
or boITower at the consolidated entity level." 76 Fed. Reg. at 10721. BANA claims that its process
of not consolidating its counte1paiiy exposures was specifically consistent with the text's
18 Even if BANA now argues that it understood the FDIC's rnle differently, it originally inte1p reted it in line with the FDIC's definition of "consolidated entity level." BANA data analyst Brian Wood testified in Januai·y 2012 that "[t]he request for data at the ' consolidated entity level of the counte1p a1iy' was originally inte1p reted as an ultimate pai·ent level." ECF No. 364, at 21 (quoting ECF No. 287-25, at 3). BANA's 30(b)(6) co1p orate representative, John James, confinned this, testifying that "BANA, in fact, originally inte1preted the consolidation requirement to require consolidation up to the ultimate pai·ent level in 2Q and 3Q 2011." Id. (quoting ECF No. 286-27, at 326:16-20).
37 command to report exposures “for each counterparty or borrower.” ECF No. 376-2, at 23
(emphasis added). However, this reading completely ignores the phrase that immediately follows
“for each counterparty or borrower”: “at the consolidated entity level.” 76 Fed. Reg. at 10721. In
effect, BANA gives “consolidated entity level” no effect, reading it out of the regulation altogether.
It is one thing for BANA to argue that the meaning of “consolidated entity level” is unclear while
highlighting its attempts to understand and comply with the phrase; it is another altogether for
BANA to explain that its preferred interpretation simply ignores the phrase at issue. Because
courts must “give effect, if possible, to every clause and word” of statutes and regulations, Sierra
Club v. Env’t Prot. Agency, 536 F.3d 673, 680 (D.C. Cir. 2008) (quoting United States v.
Menasche, 348 U.S. 528, 538-39 (1955)), BANA’s omission of a key term in its interpretation
makes its argument a non-starter.
Finally, BANA argues that textual changes in the 2014 Rule show that the language in the
2011 Rule was unclear. See ECF No. 367-2, at 20-21; ECF No. 376-2, at 24-25. It is true that the
FDIC changed some of the language regarding the exposure measures in its 2014 Rule.
Specifically, while the 2014 Rule used the same HCI scorecard as the 2011 Rule, in its
explanations of the Top 20 Counterparty Exposure and Largest Counterparty Exposure measures,
the FDIC omitted the term “consolidated entity level” and instead provided:
The total exposure amount is equal to the sum of the institution’s exposure amounts to one counterparty (or borrower) for derivatives, securities financing transactions (SFTs), and cleared transactions, and its gross lending exposure (including all unfunded commitments) to that counterparty (or borrower). A counterparty includes an entity’s own affiliates. Exposures to entities that are affiliates of each other are treated as exposures to one counterparty (or borrower).
79 Fed. Reg. 70427, 70438 (Nov. 26, 2014). BANA argues that the FDIC’s “decision to rewrite
the [r]ule in 2014 confirms that confusion abounded prior to that amendment and that the
38 2011 Rule did not provide regulated parties with fair notice of what the FDIC now says the [r]ule
required.” ECF No. 376-2, at 2. The FDIC counters that “[t]he 2014 Rule is irrelevant[] [because]
it cannot retroactively change the 2011 Rule’s meaning,” ECF No. 372-2, at 11, and that, in any
case, the changes in the 2014 Rule were “‘stylistic,’ not ‘substantive,’” id. (quoting ECF
No. 287-3, at 66:4-13, 67:18-70:2). In BANA’s view, however, this is “beside the point” because
“the 2014 Rule confirms that the 2011 Rule never had the meaning that the FDIC now ascribes to
it—as the agency itself recognized in using completely different language to adopt the new
requirement that it now tries to retroactively impose on BANA.” ECF No. 376-2, at 24.
“[W]hen a legislative or executive body adopts a new clarifying law or rule, it does not
necessarily follow that an earlier version did not have the same meaning.” Baptist Mem’l
Hosp.-Golden Triangle v. Sebelius, 566 F.3d 226, 229 (D.C. Cir. 2009); see Brown v. Thompson,
374 F.3d 253, 259 (4th Cir. 2004) (“A ‘change[] in statutory language need not ipso facto
constitute a change in meaning or effect . . . [and instead may only] make what was intended all
along even more unmistakably clear.’” (quoting United States v. Montgomery County, 761 F.2d
998, 1003 (4th Cir. 1985))). Indeed, if courts understood any revision to the wording of a
regulation as substantively changing its meaning, agencies would be disincentivized from making
improvements to their regulatory language. Here, whether or not the language of the 2014 Rule
might have been clearer than that of the 2011 Rule, the court finds that the language of the
2011 Rule was still sufficiently clear on its own terms. The court therefore declines to view
changes in the 2014 Rule as evidence that the 2011 Rule was unclear.
History and purpose. The FDIC’s interpretation of the 2011 Rule also accords with the
FDIA’s history and purpose. In creating the FDIC, Congress wanted to ensure the solvency of the
banking system in the United States. After the 2008 recession, Congress determined that the
39 FDIC’s regulations did not go far enough in ensuring the stability of the national banking system—
and that this inadequacy was in part driven by a lack of information that made it difficult for the
FDIC to evaluate banks’ vulnerabilities. 76 Fed. Reg. at 10674. In passing the Dodd-Frank Act,
Congress directed the FDIC to reconsider how it assessed banks to make sure assessments were
based on a bank’s total assets. Pub. L. No. 111-203, 124 Stat. 1376, at 1376, 1538; see 76 Fed.
Reg. at 10674. As a result, the FDIC reevaluated its assessment metrics to, among other things,
“revise the large insured depository institution assessment system to better differentiate for risk
and better take into account losses from large institution failures that the FDIC may incur.” Id.
at 10672. To better account for the fact “that the concentration of a highly complex institution’s
exposures to a small number of counterparties . . . significantly increases the institution’s
vulnerability to unexpected market events,” id. at 10696, the FDIC included in the 2011 Rule an
assessment scorecard for HCIs to “capture this risk,” id.
The FDIC’s interpretation of the 2011 Rule, which requires that an HCI consolidate its
exposure to its counterparties, plainly achieves the aim of protecting against the heightened risk
posed by “the concentration of a [HCI]’s exposures to a small number of counterparties.” Id.
at 10672. BANA’s view does not—nor does BANA try to explain how its interpretation best
achieves the aims of the FDIA and the Dodd-Frank Act.
What is more, evaluating institutional risk in the way the FDIC did was not a new concept
at the time the 2011 Rule was promulgated. In 2008, the Federal Reserve Bank of New York
(“FRBNY”) began administering a program called the Top 20 Counterparty Project. ECF No. 360,
at 4; 19 ECF No. 364, at 6. The aim of the program was to “highlight concentrations and changes
in bilateral exposure relationships that warrant further attention,” thereby enabling banks to better
19 Citations to this filing are to the PDF page numbers, rather than to its internal pagination.
40 monitor the “levels, sensitivities, and . . . direction of counterparty exposure” and “execute
appropriate risk mitigation and capital conservation transactions” when needed. ECF No. 360,
at 7. To this end, program participants, including BANA’s parent company Bank of America
Corporation (“BAC”), and the parent companies of several other HCIs, aggregated and reported
their counterparty exposures at the “consolidated entity level.” ECF No. 364, at 6. Aggregation
at the “consolidated entity level” was defined as “aggregation across all connected entities for
which the parent provides an explicit guarantee or implicit support for reputational or other
reasons.” ECF No. 360, at 14.
To be sure, the parties dispute the relevance of the FRBNY program. The FDIC argues
that the program’s definition of “consolidated entity level” is necessary context for the court to
consider as it determines the meaning of the same term in the 2011 Rule. See ECF No. 364, at 19.
BANA responds that the 2011 Rule offers none of the explanation of “consolidated entity level”
that the FRBNY’s instructions did—and that, in any case, the 2011 Rule makes no mention of the
FRBNY program or its definition of “consolidated entity level.” ECF No. 367-2, at 12-13. The
court need not weigh into that dispute because it is not looking to the FRBNY to define
“consolidated legal entity” in the FDIC’s 2011 Rule. Instead, the court merely notes that the
financial industry writ-large was concerned with the heightened risks of having an institution’s
risks highly concentrated in a small number of counterparties. This indicates that the FDIC’s
interpretation of the 2011 Rule best fits with the rule’s purpose.
Accordingly, based on the regulatory landscape at the time the 2011 Rule was being
developed, the FDIC’s stated purposes in promulgating the 2011 Rule, and the fact that other
agencies equated reporting at the “consolidated entity level” with reporting at the ultimate parent
41 level, the court concludes that the relevant history and the purpose of the 2011 Rule support
interpreting “consolidated entity level” to mean “ultimate parent level.”
Because the text, context, history, and purpose of the 2011 Rule all support the reading that
counterparty exposures must be consolidated at the ultimate parent level, this court concludes that
the meaning of the rule is not ambiguous. 20
2. BANA’s fair-notice defense fails
BANA argues, as an affirmative defense, that because the FDIC failed to provide fair notice
of the 2011 Rule, “BANA cannot be held retroactively liable” for its failure to follow it. ECF
No. 367-2, at 37. BANA posits that “[r]egardless of whether the FDIC’s interpretation is
defensible as an interpretive matter, due process requires that agencies provide regulated parties
with fair notice of what the law requires before they impose liability for past conduct.” Id. at 4.
In BANA’s view, because the 2011 Rule caused industry-wide “confusion about the language at
issue,” it did not sufficiently provide fair notice. Id. at 65. In response, the FDIC rests on the plain
language of the rule, arguing that BANA received “notice of the [FDIC]’s interpretation in the
most obvious way of all: by reading the regulations.” Gen. Elec. Co. v. Env’t Prot. Agency, 53
F.3d 1324, 1329 (D.C. Cir. 1995).
“A fundamental principle in our legal system is that laws which regulate persons or entities
must give fair notice of conduct that is forbidden or required.” Fed. Commc’ns Comm’n v. Fox
20 The court recognizes that the FDIC “does not request that its interpretation be accorded [Kisor] deference.” ECF No. 364, at 22. However, had the court found the 2011 Rule ambiguous, the FDIC’s reading would be entitled to deference because it is “reasonable,” the “character and context of the agency interpretation entitle[] it to controlling weight,” the interpretation was an official one made by the FDIC, the interpretation is related to the FDIC’s expertise, and the interpretation reflects the FDIC’s “fair and considered” judgment. Kisor, 588 U.S. at 576-79.
42 Television Stations, Inc., 567 U.S. 239, 253 (2012). This protection is especially crucial “[w]here,
as here, hundreds of millions of dollars are at stake.” SNR Wireless LicenseCo, LLC v. Fed.
Commc’ns Comm’n, 868 F.3d 1021, 1046 (D.C. Cir. 2017). Enforcement of an agency regulation
runs afoul of due process requirements if the “regulation under which it is obtained ‘fails to provide
a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it
authorizes or encourages seriously discriminatory enforcement.’” Fox Television Stations, Inc.,
567 U.S. at 253 (quoting United States v. Williams, 553 U.S. 285, 304 (2008)). But, if “by
reviewing the regulations and other public statements issued by the agency, a regulated party acting
in good faith would be able to identify, with ‘ascertainable certainty,’ the standards with which the
agency expects parties to conform, then the agency has fairly notified a petitioner of the agency’s
interpretation.” Gen. Elec. Co., 53 F.3d at 1329. For this reason, fair-notice defenses are not
available in “case[s] where the agency’s interpretation is the most natural one.” NetworkIP, LLC,
v. Fed. Commc’ns Comm’n, 548 F.3d 116, 125 (D.C. Cir. 2008).
The court agrees with the FDIC that, after reading the text of the 2011 Rule and “acting in
good faith,” BANA should have been able to “identify[] with ‘ascertainable certainty,’ the
standards” it was expected to apply. Gen. Elec. Co., 53 F.3d at 1329 (quoting Diamond Roofing
Co. v. Occupational Safety & Health Rev. Comm’n, 528 F.2d 645, 649 (5th Cir. 1976)). As the
court has explained, the text of the 2011 Rule is unambiguous, see supra Part IV.B.1, and therefore
the FDIC’s “interpretation is the most natural one,” NetworkIP, LLC, 548 F.3d at 124.
Accordingly, BANA “received, or should have received, notice of the agency’s interpretation in
the most obvious way of all: by reading the regulations.” Gen. Elec. Co., 53 F.3d at 1329. Upon
consideration of the FDIC’s “other public statements,” id., including multiple sets of Call Report
43 instructions, and the December 2011 notice, the court cannot find that BANA lacked fair notice of
what was required of it.
Additionally, although BANA claims that it was confused about the meaning of the
2011 Rule, it never sought clarification from the FDIC about how it was meant to be followed.
ECF No. 364, at 28. While a failure to seek clarification is not fatal to a fair-notice defense,
especially where a party did not seek clarification because it believed it understood a rule correctly,
see Gen. Elec. Co., 53 F.3d at 1333, the BANA employee responsible for reporting counterparty
exposures under the 2011 Rule testified that she “d[id] not recall whether she [had] read the
2011 Rule, Call Report Instructions, or December 2011 . . . Notice,” ECF No. 267-3 ¶ 67. A key
BANA employee’s failure to read the relevant regulatory materials, combined with BANA’s
general failure to seek clarification from the FDIC, see ECF No. 248-4 ¶¶ 53-55, dooms its fair-
notice defense.
3. BANA’s liability
BANA does not dispute that it failed to pay the $1.12 billion that the FDIC determined it
had underpaid in assessments for 1Q 2011 through 4Q 2014 under the 2011 Rule, instead
challenging the validity of the rule and the FDIC’s interpretation of it. Because the court
determines that the law is not on BANA’s side—concluding that the 2011 Rule was properly
promulgated and that “consolidated entity level” unambiguously means what the FDIC says it
means—BANA is liable to the FDIC for any unpaid assessments the court determines are
“lawfully payable.” 12 U.S.C. § 1817(g)(1).
C. Remedies
Having established that BANA is liable for underpaying its assessments, the court turns to
the question of remedy. The FDIC seeks both the unpaid assessments under 12 U.S.C.
44 § 1817(g)(1) and disgorgement. See ECF No. 364, at 28-51. BANA counters that the FDIC’s
claims for unpaid assessments for certain quarters are barred by the statute of limitations and that
the FDIC is not entitled to the equitable remedy of disgorgement. See ECF No. 367-2, at 37-54,
70-79. The court concludes that the FDIC may recover unpaid assessments from 2Q 2013 through
4Q 2014, but that its other requests for relief fail.
1. Statutory remedy
Under the FDIA, the FDIC may “recover from any insured depository institution the
amount of any unpaid assessment lawfully payable by such insured depository institution.”
12 U.S.C. § 1817(g)(1). But, barring certain exceptions, “[a]ny action by the [FDIC] to recover
from an insured depository institution the underpaid amount of any assessment shall be brought
within 3 years after the date the assessment payment was due.” Id. § 1817(g)(2). The FDIC
brought this action in January 2017. ECF No. 1. The parties agree that the FDIC’s claims for
2Q 2013 through 4Q 2014 were brought within the FDIA’s three-year statute of limitations, but
BANA argues that the FDIC’s claims related to 1Q 2012 through 1Q 2013 are untimely. ECF
No. 364, at 37; ECF No. 367-2, at 38. The FDIC raises two arguments in an attempt to save its
claims from 1Q 2012 through 1Q 2013: (1) that the statute of limitations for 2Q 2012 through
1Q 2013 reset when the FDIC issued new invoices to BANA after BANA revised its Call Reports
for those quarters, ECF No. 364, at 38; and (2) that the statute of limitations for 1Q 2012 through
1Q 2013 is tolled under Section 1817(g)(2)(C), id. at 38-47. The court is not convinced by either
argument.
Revised call reports. The FDIC notes that, in March 2015, BANA submitted revised Call
Reports for 2Q 2012 through 1Q 2013 (but not for 1Q 2012). ECF No. 364, at 38. While these
revised reports did not report BANA’s counterparty exposures at the consolidated entity level and
45 are largely irrelevant to the case, the FDIC issued BANA new invoices for its assessments for
2Q 2012 though 1Q 2013 based on the revised Call Reports. Id. Those revised invoices were due
on March 30, 2015, and the FDIC argues that it filed suit within three years of when payment was
due on the revised invoices. Id. The court sees three problems with that argument.
First, the FDIC’s argument conflicts with Norwest Bank Minn. National Ass’n v. Federal
Deposit Insurance Corp., 312 F.3d 447 (D.C. Cir. 2002). In that case, the roles were reversed:
Norwest Bank brought suit against the FDIC seeking a refund of assessments it had overpaid
several years earlier, and the FDIC successfully argued that the claim was time-barred under an
older version of Section 1817(g) which had directed that “[n]o action or proceeding shall be
brought . . . for the recovery of any amount paid to the [FDIC] in excess of the amount due to it,
unless such action or proceeding shall have been brought within five years after the right accrued
for which the claim is made.” Id. at 450 n.3 (second alteration in original) (emphasis added)
(quoting 12 U.S.C. § 1817(g) (2006)). The FDIC argued that because eight years had passed since
it had first made the error leading to Norwest Bank’s overpayment, the whole claim was
time-barred. Id. at 451. The bank made a similar argument to the one the FDIC makes here,
contending that “since each assessment is a separate payment, it [could] recover all payments made
within the preceding five-year period.” Id. at 453; see id. at 452 n.5 (“Norwest argues that each
overpayment creates a new cause of action, and so long as a suit for a particular overpayment is
commenced within five years after overpayment, it is timely.”).
In examining the FDIA, the D.C. Circuit concluded that the “triggering event” for the
statute of limitations was when “the right accrued for which the claim is made.” Id. at 451 (quoting
12 U.S.C. § 1817(g) (2006)). Because later assessments could not change the fact that “the wrong
ha[d] been committed” when the FDIC had made its initial mistake eight years prior, the court
46 concluded that all of the bank’s claims were time-barred. Id. at 451-52. The court further
determined that this was the case even though the bank had not had an “immediate financial
incentive” to raise the claim “at the time the claim accrued,” because allowing later assessments
to restart the limitations clock would “effectively suspend the running of the limitations period.”
Id. at 451, 453. While Section 1817(g) has been amended since Norwest Bank was decided—a
claim must now be brought “within 3 years after the date the assessment payment was due,” id.
§ 1817(g)(2)(B)—the same logic applies because the due date of the assessment payment remains
the “triggering event” that starts the statute-of-limitations clock. Norwest Bank, 312 F.3d at 451.21
Next, even if the FDIC could distinguish Norwest Bank, it cannot escape Section 1817(g)’s
plain language. Section 1817(g)(2)(B) directs that “[a]ny action by the [FDIC] to recover [any
unpaid] assessment shall be brought within 3 years after the date the assessment payment was
due.” Id. (emphases added). For each quarter, there was a deadline by which BANA had to pay
that quarter’s assessment. 22 The fact that BANA later submitted a revised Call Report to correct
an error for a particular quarter does not change the fact that the original assessment deadline had
long since passed. Against this, the FDIC relies on implementing regulations, which provide a
mechanism for “payment adjustments in succeeding quarters” based on “factors [such] as
amendments to prior quarterly reports of condition,” 12 C.F.R. § 327.3(e), to argue that “when a
bank files an amended Call Report that triggers a revised assessment for a prior quarter, the due
21 The court further notes that the FDIC appears to still hold the position it took in Norwest Bank. See FDIC, Call Report Amendments & the Statute of Limitations, https://perma.cc/7HJ2-5CP3 (explaining that while “any insured depository institution is free to amend Call Reports for periods outside the statutory limit for the sake of having correct figures on file . . . in order for the [FDIC] to bill for an underpayment, or for any institution to receive a refund of overpayment, Call Report amendments must be made within the three-year statute of limitations period”). 22 Assessment payments are “typically are due three months (i.e., 90 days) after the end of a quarter, and invoices are due 15 days before the payment due date.” ECF No. 372-2, at 27; see 12 C.F.R. § 327.3(b)(1), (2).
47 date for payment of that revised assessment becomes the new ‘date the assessment payment was
due’ under 12 U.S.C. §1817(g)(2)(B).” ECF No. 372-2, at 27. But a regulation cannot change
the plain text of a statute. See Orion Rsrvs. Ltd. P’ship v. Salazar, 553 F.3d 697, 703 (D.C.
Cir. 2009) (“[A] regulation contrary to a statute is void.”). If Congress had wanted the FDIA’s
statute of limitations to account for the possibility of a revised assessments, it would have said so.
Finally, courts routinely reject a party’s effort to tether a stale claim to new developments
to extend the statute of limitations. See Klehr v. A.O. Smith Corp., 521 U.S. 179, 190 (1997)
(explaining that a plaintiff “cannot use an independent, new predicate act as a bootstrap to recover
for injuries caused by other earlier predicate acts that took place outside the limitations period”);
see also Rotella v. Wood, 528 U.S. 549, 554-55 (2000) (similar). That provides the court with an
additional reason to reject the FDIC’s effort to restart the limitations clock based on new invoices.
Gabelli v. Sec. & Exch. Comm’n, 568 U.S. 442, 448-49 (2013).
Section 1817(g)(2)(C). The FDIC also argues that one of the exceptions to
Section 1817(g)(2)(B)’s three-year statute of limitations applies; specifically,
Section 1817(g)(2)(C), which provides that “[i]f an insured depository institution has made a false
or fraudulent statement with intent to evade any or all of its assessment, the [FDIC] shall have until
3 years after the date of discovery of the false or fraudulent statement in which to bring an action
to recover the underpaid amount.” 12 U.S.C. § 1817(g)(2)(C). The FDIC contends that BANA
“made false or fraudulent statements about its counterparty exposures with the intent to evade its
assessments,” which prevented the FDIC from discovering BANA’s wrongdoing until it conducted
an audit in 2016. ECF No. 372-2, at 29. Consequently, the FDIC asks the court to measure the
three-year statute of limitations from the 2016 “date of discovery,” which would render the FDIC’s
48 claims concerning 1Q 2012 through 1Q 2013 timely under Section 1817(g)(2)(C). ECF
No. 372-2, at 29.
BANA vehemently denies that it acted with an intent to evade. ECF No. 367-2, at 38-52.
But it suggests that even if Section 1817(g)(2)(C) applies, the statute of limitations would start
running when “the litigant first knows or with due diligence should know facts that will form the
basis for an action.” ECF No. 367-2, at 39 (quoting Merck & Co. v. Reynolds, 559 U.S. 633, 646
(2010)). In BANA’s view, because the FDIC had the information it needed to “discover” that
BANA was not reporting its counterparty exposures consistent with the 2011 Rule as early as
May 2012, any claims concerning 1Q 2012 through 1Q 2013 would still be time-barred even under
Section 1817(g)(2)(C)’s “intent to evade” exception. ECF No. 367-2, at 39-40.
The court agrees with BANA. Under statutes like Section 1817(g)(2)(C), “[the] cause of
action accrues when the injured party discovers—or in the exercise of due diligence should have
discovered—that it has been injured.” Sprint Commc’ns Co., L.P. v. Fed. Commc’ns Comm’n, 76
F.3d 1221, 1228 (D.C. Cir. 1996). Where a plaintiff argues that it did not discover the injury
because of the defendant’s concealment, it is the defendant’s burden to show that the plaintiff had
sufficient notice. Id. at 1226. Importantly, inquiry notice does not require that “the injured party
has access to or constructive knowledge of all the facts required to support its claim . . . [or] to
calculate its damages.” Id. at 1228. Rather, “[o]nce the prospective plaintiff is on notice that it
might have a claim, it is required to make a diligent inquiry into the facts and circumstances that
would support that claim.” Id. at 1228. And an agency “cannot avoid the statute of limitations by
possessing, but failing to read, the documents that would put them on inquiry notice.” DeBruyne
v. Equitable Life Assurance Soc’y, 920 F.2d 457, 466 n.18 (7th Cir. 1990).
49 In May 2012, after noticing a drop in BANA’s quarterly assessments in 1Q 2012 compared
to 4Q 2011, the FDIC’s Division of Insurance and Research began an investigation into “the
validity of [BANA’s] numbers,” including its counterparty exposures. ECF No. 259-30, at 4.
Because there was doubt that BANA’s “reporting changes [were] legit[imate],” the relevant FDIC
team specifically discussed “following-up with someone about [BANA’s] reported counterparty
numbers.” Id. at 3. In response, Brenda Bruno—a senior FDIC analyst who routinely monitored
BANA—stated that she would “look into these issues along with the others related to BANA.” Id.
Ms. Bruno worked with Chris Cook, the FDIC’s on-site examiner for BANA, to gather information
about the decrease in BANA’s counterparty exposures. See ECF No. 367-5, at 107-14.
Mr. Cook reached out to two individuals at BANA, noting that there had been large drops
in BANA’s Top 20 Counterparty Exposure and the Largest Counterparty Exposure measures
between 4Q 2011 and 1Q 2012 and asking for assistance in gathering information about the reason
for the changes. ECF No. 251-30, at 3. In a follow-up email the next day, Mr. Cook specifically
requested “the data used to fill in the [Call Report] items on counterparty exposure.” Id. at 2.
BANA responded with two one-page spreadsheets detailing its top exposure data for the 4Q 2011
and 1Q 2012 Call Reports, id. at 5-6, which are reproduced below.
50 Above the data on both spreadsheets are two bullets points that say “[e]xposure at the counterparty
level” and “[e]xposure to BANA consolidated legal entity.” Id. at 5-6. The spreadsheets
themselves include several counterparties that clearly have not been consolidated at the ultimate
parent level. See id. For example, three of the top four entries on the December 2011 sheet are
clearly unconsolidated affiliates of each other—“ ”“
,” and “ .” Id.
at 5. Likewise, on the March 2012 spreadsheet, the second and third entries are “
” and “ ”—obviously
unconsolidated affiliates. Id. at 6.
Upon receipt of the spreadsheets, Mr. Cook replied that they were “exactly what [he]
needed to see.” ECF No. 260-5, at 2. He did not inform BANA that it was reporting its data
incorrectly. Mr. Cook then reported back to Ms. Bruno that “[t]he numbers provided for total
exposure and single largest exposure tie back to the C[all] R[eport] submissions.” ECF No. 260-3,
at 3. Importantly, Mr. Cook also wrote: “There was a reduction of of exposure to the
Top 20 between 12.31.11 and 3.31.12. Of that , over was due to reductions in
exposure among . As of 12.31, their largest single
counterparty was to , which was greatly reduced by
3.31.12.” Id. (emphases added). This portion of Mr. Cook’s email made it clear to Ms. Bruno that
the data had not been consolidated at the ultimate parent level of the counterparty—had it been,
BANA would not have been reporting exposures to , nor would its largest single
counterparty be —rather than
. Id.; see
ECF No. 251-30, at 5-6. In her deposition, upon re-examining the spreadsheets, Ms. Bruno
52 admitted that the spreadsheets indicated that BANA was not consolidating at the ultimate parent
level of the counterparty but stated that she had not made that connection in 2012. ECF No. 367-4,
at 252:24-255:22. As a result, Ms. Bruno, like Mr. Cook, failed to inform BANA that it was
reporting its exposures incorrectly.
Based on this information, it is apparent to the court that the FDIC had in its possession
information from which its employees could have concluded that BANA was not consolidating its
counterparties at the ultimate parent level in May 2012. The FDIC cannot argue that it did not
have notice merely because it “fail[ed] to read[] the documents that would put [it] on inquiry
notice.” DeBruyne, 920 F.2d at 466 n.18. Nor can it plausibly argue that it “exercise[d] . . . due
diligence” when it had the relevant information before it—as the result of its own investigation,
no less—but failed to act on it. Sprint Commc’ns Co., 76 F.3d at 1228. Because the FDIC had
inquiry notice beginning in May 2012, its claims regarding underpaid assessments from 1Q 2012
through 1Q 2013 are time-barred even if Section 1817(g)(2)(C)’s intent-to-evade exception
applied. 23
Because the FDIC’s claims concerning 1Q 2012 through 1Q 2013 are time-barred, the
FDIC may only seek to recoup BANA’s underpayments from 2Q 2013 through 4Q 2014. 24
23 Because the claims are time-barred, the court need not determine whether BANA made “false or fraudulent statement[s] with the intent to evade.” 12 U.S.C. § 1817(g)(1)(C). However, given BANA’s repeated disclosures about its reporting method, see supra pp. 50-52, the court is hard-pressed to understand how its actions indicate an intent to evade. 24 The amount of underpaid assessments for 2Q 2013 through 4Q 2014 is $540,261,499.90. See ECF Nos. 249-13, 249-14.
53 2. Equitable remedies
In addition to seeking the FDIA’s statutory remedy, the FDIC brings a claim for unjust
enrichment under both federal law and District of Columbia law, arguing that BANA was unjustly
enriched “by receiving the benefit of federal deposit insurance from the FDIC without paying its
fair share of assessments.” ECF No. 364, at 28. As a result, the FDIC maintains that it is entitled
to disgorgement of the profits that BANA made off that money as an equitable remedy. Id.
at 30-31. BANA responds that the FDIC cannot seek equitable relief because Section 1817(g)
provides it with “a remedy ‘as complete, practical[,] and efficient as that which equity could
afford.’” ECF No. 367-2, at 71 (quoting Terrace v. Thompson, 263 U.S. 197, 214 (1923)). That
is especially so, BANA maintains, because the FDIC is entitled to prejudgment interest, which,
“like disgorgement, is to prevent the unjust enrichment of [the] defendant[].” Id. (quoting Sec. &
Exch. Comm’n v. Shaoulian, No. 00-CV-4614, 2003 WL 26085847, at *5 (C.D. Cal. May 12,
2003)). The FDIC replies that its statutory remedy is not adequate because it would not get at
BANA’s ill-gotten gains and thereby deter BANA from future wrongful conduct, ECF No. 364,
at 35-36, and that Section 1817(h)’s savings clause permits it to seek equitable remedies in
addition to statutory remedies, id. at 32-33. The court concludes that the FDIC may not avail itself
of equitable remedies because it has an adequate statutory remedy and nothing in
Section 1817(h)’s savings clause changes that analysis. 25
“It is a ‘basic doctrine of equity jurisprudence that courts of equity should not act . . . when
the moving party has an adequate remedy at law and will not suffer irreparable injury if denied
25 Because the court holds that disgorgement is not available to the FDIC, it need not determine whether the elements of unjust enrichment—that the “plaintiff conferred a benefit on the defendant,” that the defendant “retain[ed] th[at] benefit,” and that the “retention of the benefit is unjust”—are met. Bregman v. Perles, 747 F.3d 873, 876 (D.C. Cir. 2014) (quoting Fort Lincoln Civic Ass’n, Inc. v. Fort Lincoln New Town Corp., 944 A.2d 1055, 1076 (D.C. 2008)).
54 equitable relief.’” Morales v. Trans World Airlines, Inc., 504 U.S. 374, 381 (1992) (quoting
O’Shea v. Littleton, 414 U.S. 488, 499 (1974)). This principle holds even where the plaintiff is a
government agency. See, e.g., United States v. Bame, 721 F.3d 1025, 1031 (8th Cir. 2013); Fed.
Deposit Ins. Corp. v. Gonzalez-Gorrondona, 833 F. Supp. 1545, 1561 (S.D. Fla. 1993). Likewise,
under District of Columbia law, “[i]t is ‘axiomatic’ that equitable relief will not be granted where
the plaintiff has a complete and adequate remedy at law.” Kakaes v. George Wash. Univ., 790
A.2d 581, 583 (D.C. 2002) (quoting District of Columbia v. Wical Ltd. P’ship, 630 A.2d 174, 184
(D.C. 1993)).
Here, the FDIC has an adequate remedy at law in the form of recouping BANA’s underpaid
assessments along with interest. While the FDIC argues that an unjust enrichment claim “allows
[it] to recover additional amounts, namely the ill-gotten profits BANA earned from its unjust
retention of the assessment amounts,” ECF No. 364, at 34, it fails to explain why that renders its
statutory remedy inadequate. As BANA explains, “[e]quitable relief will virtually always offer a
remedy distinct from or additional to the remedy available under a legal claim,” ECF No. 376-2,
at 32, but that it would be incorrect to consider a statutory remedy inadequate simply because it is
different from potential equitable relief, id.
BANA has the better of the argument. The remedy at law need not be identical to the
equitable remedy; rather, it must be “sufficient” and “as practical and efficient to the ends of
justice.” Watson v. Sutherland, 72 U.S. 74, 78 (1866). The remedy provided by FDIA—the
FDIC’s ability to recoup unpaid assessments for quarters not barred by the statute of limitations,
with interest—reflects Congress’s judgment that the FDIC should be made whole for the losses it
faced due to BANA’s actions. And because the FDIC’s legal and unjust enrichment claims arise
55 from the same facts and circumstances, there is no additional conduct that is addressed by the
unjust enrichment claim.
The court is further not convinced that equitable relief would be more “practical” or
“efficient” at dissuading banks from further wrongdoing. Id. at 76. “[D]isgorgement is an
extraordinary remedy, and if it is ever appropriate, it should be used only in situations where the
deterrence rationale is so important that only disgorgement will serve a socially useful purpose.”
Nat’l R.R. Passenger Corp. v. Veolia Transp. Servs., Inc., 886 F. Supp. 2d 14, 20 (D.D.C. 2012).
The FDIC fails to show how the already substantial sum BANA will have to pay under the FDIA—
which will be over five hundred million dollars, plus interest—would not dissuade future,
intentional wrongdoing. In the absence of an additional “deterrence rationale,” the court does not
find the “extraordinary remedy” of disgorgement appropriate. Id.
Additionally, nothing in Section 1817(h)’s savings clause authorizes equitable relief when
the FDIC already has an adequate remedy at law. To be sure, Section 1817(h) provides that “[t]he
remedies provided in this subsection and in subsections (f) and (g) shall not be construed as
limiting any other remedies against any insured depository institution, but shall be in addition
thereto.” 12 U.S.C. § 1817(h). But, as BANA points out, “Section 1817(h) is a rule of construction
clarifying that other remedies are available”—“it does not override independent legal
requirements,” ECF No. 367-2, at 76, namely, that the FDIC must still meet the ordinary
requirements of eligibility for equitable relief. Because the FDIC cannot show that it lacks an
“adequate” remedy, the court agrees with BANA that the savings clause “does nothing to aid the
FDIC’s argument” that it is entitled to equitable relief. ECF No. 367-2, at 76. 26
26 The parties dispute what the statute of limitations would be for an unjust enrichment claim. The FDIC posits that the relevant statute is 28 U.S.C. § 2415(a), which provides that an “agency” may
56 D. Availability of Equitable Defenses
Finally, BANA raises several affirmative equitable defenses, including acquiescence,
estoppel, and waiver, which it argues each “independently foreclose all of the FDIC’s claims.”27
ECF No. 376-2, at 29. The FDIC responds that “[e]quitable estoppel and acquiescence are
unavailable as a matter of law against the FDIC,” and that in any event, BANA fails to satisfy the
elements of each defense. ECF No. 372-2, at 59-60. The court agrees that, in limited
circumstances, a defendant can assert equitable defenses against a government agency, but that
BANA has failed to substantiate them here.
While the Supreme Court has held that “the Government may not be estopped on the same
terms as any other litigant,” it has repeatedly declined to “rule that estoppel may not in any
circumstances run against the Government.” Heckler v. Cmty. Health Servs. of Crawford Cnty.,
Inc., 467 U.S. 51, 60 (1984). The Supreme Court’s hesitation in Heckler was driven by its
reluctance “to say that there are no cases in which the public interest in ensuring that the
Government can enforce the law free from estoppel might be outweighed by the countervailing
interest of citizens in some minimum standard of decency, honor, and reliability in their dealings
with their Government.” Id. And the D.C. Circuit has held that “the doctrines of unjust enrichment
and of equitable lien . . . are available to private parties seeking equitable relief against the
file a claim founded upon a “contract . . . implied in law” any time “within six years after the right of action accrues.” ECF No. 364, at 37 (quoting 28 U.S.C. § 2415(a)). BANA responds that the three-year limitations period in “Section 1817(g) governs over general, default limitations periods found elsewhere in the U.S. Code.” ECF No. 376-2, at 21. The court need not decide this question because it concludes that equitable relief is not available. While the court would have needed to decide the issue if the FDIC had argued that Section 1817(g)(2)(B)’s three-year statute of limitations rendered its remedy at law inadequate as it pertained to assessment quarters beyond the statute of limitations, the FDIC does not make such an argument. See generally ECF No. 364, at 47-50; ECF No. 372-2, at 18-26, 40. 27 BANA previously asserted a laches defense, ECF No. 67, at 14, which it does not present here. See ECF No. 372-2, at 59; ECF No. 376-2, at 29 n.11.
57 government” because “the ‘sovereign’ nature of an agency’s action does not immunize the agency
from the reach of equity.” ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1113 (D.C. Cir. 1988);
see Trans-Bay Eng’rs & Builders, Inc. v. Hills, 551 F.2d 370, 376 (D.C. Cir. 1976).
However, while equitable defenses are available against the government in some
circumstances, their use is limited. This is because “[t]o allow a private party to assert equitable
doctrines . . . against the government when it is enforcing the interests of the ‘citizenry as a whole’
would be to punish the broader public and undermine enforcement of law ‘because [of] the conduct
of [the government’s] agents.’” Hyatt v. Vidal, No. 05-CV-2310, 2022 WL 17904225, at *6
(D.D.C. Dec. 23, 2022) (third and fourth alterations in original) (quoting Heckler, 467 U.S. at 60).
And “[t]his principle is at its apex when the government is ‘attempting to enforce a congressional
mandate in the public interest.’” Id. (quoting Sec. & Exch. Comm’n v. Gulf & Western Indus.,
Inc., 502 F. Supp. 343, 348 (D.D.C. 1980)). Thus, private parties seeking to assert equitable
defenses against the government must “establish government misconduct rising to such an
egregious level as to overwhelm ‘the public interest in ensuring that the Government can enforce
the law free from estoppel’ with prejudice rising to the degree ‘of a constitutional violation.’” Id.
(quoting Bartko v. Sec. & Exch. Comm’n, 845 F.3d 1217, 1227 (D.C. Cir. 2017)).
Accordingly, while the court concludes that equitable defenses can be asserted against the
government, BANA has not presented the court with any reason to believe that the FDIC’s conduct
was so “egregious” that they are warranted. Hyatt, 2022 WL 17904225, at *6 (quoting Bartko,
845 F.3d at 1227). Indeed, the parties’ briefing on BANA’s equitable defenses is sparse, see ECF
No. 364, at 53-55; ECF No. 367-2, at 70; ECF No. 372-2, at 59; ECF No. 376-2, at 10, 29-30, and
BANA does not substantiate its claim beyond stating that the elements of its three equitable
defenses are satisfied for “all the reasons discussed above with respect to fair notice and intent to
58 evade,” ECF No. 367-2, at 70. The court has already rejected the argument that BANA lacked fair
notice, and BANA’s defense on the FDIC’s intent to evade argument does not carry its affirmative
burden of showing acquiescence, estoppel, or waiver.
V. CONCLUSION
For the foregoing reasons, the court concludes that the 2011 Rule is valid, that BANA is
liable under it, and that the FDIC may seek to recoup BANA’s unpaid assessments from 2Q 2013
through 4Q 2014. Accordingly, the court will grant in part and deny in part the FDIC’s Motion
for Partial Summary Judgment, ECF No. 361, and grant in part and deny in part BANA’s Motion
for Summary Judgment, ECF No. 366, and it will enter judgment in favor of the FDIC and against
BANA in the amount of $540,261,499.90, representing the underpaid assessments from 2Q 2013
through 4Q 2014, plus pre- and post-judgment interest. A contemporaneous order will issue.
LOREN L. ALIKHAN United States District Judge
Date: March 31, 2025
Related
Cite This Page — Counsel Stack
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