SVB Financial Trust v. Federal Deposit Insurance Corporation, as Receiver for Silicon Valley Bank and Silicon Valley Bridge Bank, N.A.

Opinion

SVB FINANCIAL TRUST, Case No. 24-cv-01321-BLF

Plaintiff, ORDER DENYING PLAINTIFF'S v. MOTION THAT THE FDIC-R PLACE $1.71 BILLION IN ESCROW CORPORATION, AS RECEIVER FOR [Re: ECF No. 226, 227] SILICON VALLEY BANK, et al.,

Defendants.

Before the Court is Plaintiff SVB Financial Trust’s (“Trust”) request that the Court order the Federal Deposit Insurance Corporation as receiver for Silicon Vallery Bank (“FDIC-R1”) to place the $1.71 billion owed under the Trust’s breach of contract claim in an interest-bearing escrow account until FDIC-R1’s Preserved Defenses are resolved. ECF 226 (“Mot.”). FDIC-R1 filed an Opposition. ECF 227 (“Opp.”). For the reasons below, the Court DENIES the Trust’s request. On March 5, 2024, the Trust1 filed this action against FDIC-R1 and FDIC as the receiver for Silicon Valley Bridge Bank (“FDIC-R2”) (collectively, “FDIC-Rs”) for blocking access to approximately $1.93 billion of the Trust’s deposits. ECF 1. In the Complaint, the Trust asserted twelve claims for relief: (1) Breach of Contract, id. ¶¶ 139–149; (2) Estoppel, id. ¶¶ 150–153; (3) Turnover of the Account Funds Pursuant to Section 542 of the Bankruptcy Code, id. ¶¶ 154–163;

1 This action and the consolidated SVB Financial Trust v. Federal Deposit Insurance Corp., in its corporate capacity, No. 5:23-cv-06543-BLF (N.D. Cal.) (“FDIC-C Action”) were initially brought by SVB Financial Group (“SVBFG”). See ECF 1; FDIC-C Action, ECF 1. The parties in both this action (4) Violation of the Automatic Stay Under Section 362(a) of the Bankruptcy Code, id. ¶¶ 164–167; (5) Claim Under Sections 1406 and 681 of the California Financial Code (against FDIC-R1 only), id. ¶¶ 168–175; (6) Claim Under Sections 91 and 194 of the National Bank Act (against FDIC-R2 only), id. ¶¶ 176–181; (7) Declaratory Judgment Under 28 U.S.C. § 2201 et seq., id. ¶¶ 182–189; (8) Violation of SVBFG’s Fifth Amendment Rights Under the United States Constitution, id. ¶¶ 190–199; (9) Conversion, id. ¶¶ 200–207; (10) Breach of Contract (against FDIC-R1 only), id. ¶¶ 208–216; (11) Breach of Implied Contract (against FDIC-R1 only), id. ¶¶ 217–224; and (12) Breach of Contract (against both FDIC-Rs), id. ¶¶ 225–231. On November 29, 2024, the Court granted in part and denied in part FDIC-Rs’ motion to dismiss SVBFG’s Complaint. ECF 108. On January 17, 2025, FDIC-Rs filed their Answer to the Trust’s Complaint and asserted twenty-five affirmative defenses. ECF 135 (“Aff. Def.”). The twenty-five affirmative defenses are: (1) Setoff for Aiding and Abetting Breaches of Fiduciary Duty, Aff. Def. ¶¶ 115-26; (2) Setoff for SVBFG’s Liability for Acts of its Agents, id. ¶¶ 127-30; (3) Setoff for Negligence, id. 131-35; (4) Unclean Hands, id. ¶¶ 136-38; (5) Unjust Enrichment, id. ¶¶ 139-41; (6) Constructive Fraudulent Transfer, id. ¶ 142; (7) Failure to State a Claim, id. ¶ 143; (8) Lack of Subject Matter Jurisdiction, id. ¶ 144; (9) Condition Precedent, id. ¶ 145; (10) Precluded by Contract, id. ¶ 146; (11) Immunity, id. ¶ 147; (12) Inconsistent with Governing Statute, id. ¶ 148; (13) Speculative Damages, id. ¶ 149; (14) In Pari Delicto, id. ¶ 150; (15) Estoppel and Waiver, id. ¶ 151; (16) Fault of SVBFG, id. ¶ 152; (17) Fault of Another, id. ¶ 153; (18) Limitation of Liability, id. ¶ 154; (19) Failure of Performance, id. ¶ 155; (20) Material Breach, id. ¶ 156; (21) Failure to Mitigate Damages, id. ¶ 157; (22) Precluded by 12 U.S.C. § 1821(i), id. ¶ 158; (23) Precluded by Documentary Evidence, id. ¶ 159; (24) Failure to Exhaust Administrative Remedies, id. ¶ 160; and (25) Lack of Third Party Beneficiary, id. at 126. On May 29, 2025, the Court granted the Parties’ Stipulation Regarding Resolution of Certain Claims. ECF 208. In the Stipulation, the parties agree that FDIC-R1’s liability for the Trust’s “Breach of Contract claim in Count 1 of the Complaint shall be in the amount of $1,710,000,000 . . . provided, however, to the extent that FDIC-R1 prevails, in whole or in part, on one or more of the Preserved Defenses, the Trust Claim Liability shall be reduced or eliminated to an amount(s) On June 24, 2025, the Court granted in part, denied in part, and terminated in part the Trust’s motion to strike the FDIC-R1’s affirmative defenses with leave to amend. ECF 233. On July 10, 2025, FDIC-R1 filed a case management statement advising the Court that it does not seek to amend its affirmative defenses. ECF 237. A district court has “ample power to make orders for the maintenance of assets, as a condition of leaving them in the control of the government.” United States v. $277,000 U.S. Currency, 69 F.3d 1491, 1496 (9th Cir. 1995). A district court can impose a reasonable condition that “return[s] custody of the funds to the claimant and direct[s] the claimant to place [the funds] in an escrow subject to the ultimate outcome.” Id. It is within a district court’s equitable discretion to enter an escrow order. See United States v. Cal-Almond Inc., 102 F.3d 999, 1004 (9th Cir. 1996). A district court’s “equitable jurisdiction is not to be denied or limited in the absence of a clear and valid legislative command.” Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946). The Trust argues that the Court has “inherent authority” to order FDIC-R1 to place the stipulated liability amount of $1.71 billion into escrow. Mot. at 3-5. The Trust further argues that the Court’s authority to order an escrow in this case is not barred by statute. Mot. at 6-8. In response, FDIC-R1 argues that the Court is expressly barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C § 1821 (“FIRREA”). Opp. at 3-9. FDIC- R1 further argues that a preliminary injunction is unavailable to protect the Trust’s breach of contract claim for money damages. Opp. at 10-11. Additionally, FDIC-R1 contends that the Trust is essentially seeking pre-judgment attachment but fails to meet the standard under California law. Opp. at 11-14. The Court addresses the parties’ arguments in turn. A. The Court Has the Authority to Order an Escrow. The Trust argues that the Court’s “inherent equitable authority extends to ordering an escrow.” Mot. at 3 (citing United States v. $277,000 U.S. Currency, 69 F.3d 1491, 1493-94 (9th Cir. wrongfully seized the Trust’s funds,” and FDIC should not continue to benefit from this wrong. Mot. at 5. In response, FDIC-R1 does not contend that the Court lacks authority to promulgate and enforce rules for the management of litigation and the court’s docket. Opp. at 11 (citing Coleman v. Allison Soc. Worker, No. 19-cv-00964-SI, 2019 U.S. Dist. LEXIS 108131, at *2-3 (N.D. Cal. June 27, 2019)). Rather, FDIC-R1 contends that the Court cannot “enter orders that exceed its jurisdiction or violate applicable statutes.” Opp. at 11 (citing Spurlock v. FBI, 69 F.3d 1010, 1016 (9th Cir. 1995)). The Court agrees with the Trust that in general ordering an escrow is within a district court’s inherent equity power. See $277,000 U.S. Currency, 69 F.3d at 1496. In United States v. $277,000 U.S. Currency, the United States seized a claimant’s property, including cash, but was ultimately found to have no proper claim to the property. Id. at 1492. The Ninth Circuit found that the government generally has no liability for pre-judgment interest because of sovereign immunity. See id. Nonetheless, the Ninth Circuit affirmed the district court’s decision to place the funds-at-issue in an escrow pending the outcome of the case. Id. at 1496. The Ninth Circuit explained that district courts have “ample power” to place the funds “in an escrow subject to the ultimate outcome.” Id. The Ninth Circuit explained that “assets amenable to such treatment should be put to use, with their increase accruing ultimately to whatever party is found to have the right to the property.” Id. at 1497. Similarly, in Cal-Almond, the district court ordered the Almond Board to place the disputed funds into escrow pending the outcome of the appeal. United States v. Cal-Almond Inc., 102 F.3d 999, 1001 (9th Cir. 1996). The Ninth Circuit found the district court appropriately exercised its “equitable discretion” in ordering the escrow because the district court found “unreasonable delay by the Secretary in ruling on a pending petition, or bad faith by the Secretary in bringing the enforcement action.” Cal-Almond Inc., 102 F.3d at 1004. However, regardless of the Court’s general authority to order an escrow pending resolution of a case, the Court cannot issue an order that is barred by statute. See Spurlock v. F.B.I., 69 F.3d 1010, 1016 (9th Cir. 1995) (holding a district court’s “inherent authority . . . does not authorize it to Davis, 2021 U.S. Dist. LEXIS 103848, *2 (D.N.J. June 2, 2021) (holding a district court’s inherent power in a habeas matter cannot bypass the relevant habeas statute). Accordingly, the Court analyzes whether its general equitable authority to order an escrow is barred by statute in this case. B. The Court’s Authority to Order an Escrow In This Case Is Barred. The Trust argues that there is no bar preventing the Court from exercising its equitable authority to order an escrow in this case. Mot. at 5-8. In response, FDIC-R1 argues that the Court’s authority to order declaratory, injunctive, or other equitable relief is barred by Section 1821(j) of FIRREA, among other legal authorities. See Opp. at 1-3. 1. 12 U.S.C. § 1821(j) The Trust argues that, in its motion to dismiss order at ECF 108, the Court has already determined that Section 1821(j) of FIRREA does not apply. Mot. at 6-7. The Trust contends that “FDIC-R has stipulated to its liability for breach of contract” which is “outside the prescribed mechanisms provided by FIRREA.” Mot. at 7 (citing Sharpe v. F.D.I.C., 126 F.3d 1147, 1155 (9th Cir. 1997)). In response, FDIC-R1 argues that ordering it to move funds into escrow is equitable relief that is not allowed by FIRREA. See Opp. at 3-7. In the Order on FDIC-Rs’ motion to dismiss, the Court found that Section 1821(j) does not bar the Trust’s promissory estoppel claim. ECF 108 at 12-13 (citing Sharpe, 126 F.3d at 1155). The Court found that the Trust had plausibly alleged that the FDIC-Rs were “assert[ing] authority beyond that granted to” them as receivers when they ignored their express promises and directives under the systemic risk exception. ECF 108 at 12. Contrary to the Trust’s contention, the Court did not address whether, as here, the Court has the authority under Section 1821(j) to order FDIC-R1 to move funds into an escrow pending the outcome of this action. The Court is also not persuaded by the Trust’s reliance on Sharpe. See Mot. at 7. In Sharpe, the Ninth Circuit held that Section 1821(j) did not bar breach of contract claims against FDIC because “FIRREA does not permit the FDIC to breach contracts at will.” Sharpe, 126 F.3d at 1155. However, the Ninth Circuit did not address whether Section 1821(j) bars the Court’s authority to order an escrow in this case. See id. 12 U.S.C. § 1821(j) provides that “[except in limited circumstances not applicable in this the Corporation as a conservator or a receiver.” Section 1821(j) is "intended to permit the FDIC to perform its duties as conservator and receiver promptly and effectively without judicial interference." Hindes v. FDIC, 137 F.3d 148, 160 (3d Cir. 1998). Courts have interpreted Section 1821(j) as a “sweeping ouster of courts’ power to grant equitable remedies” that bars all “nonmonetary” remedies against the FDIC as receiver. Freeman v. FDIC, 56 F.3d 1394, 1399 (D.C. Cir. 1995); see Sahni v. Am. Diversified Partners, 83 F.3d 1054, 1058 (9th Cir. 1996), as amended (July 24, 1996) ("It is well-established that § 1821(j) bars restraint by the courts on the statutory powers of the FDIC when it acts as receiver."); Henrichs v. Valley View Dev., 474 F.3d 609, 614 (9th Cir. 2007) (“[N]o court may grant equitable relief against the FDIC except as provided by FIRREA.”). Here, it is undisputed that the Trust seeks equitable relief— an order directing FDIC-R1 to move its stipulated liability of $1.71 billion for the Trust’s breach of contract claim into an escrow before FDIC-R1’s Preserved Defenses are adjudicated. See Mot. at 6; Opp. at 4-5. “Section § 1821(j) shields only the exercise of powers or functions Congress gave to the FDIC; the provision does not bar injunctive relief when the FDIC has acted beyond, or contrary to, its statutorily prescribed, constitutionally permitted, powers or functions.” Sharpe, 126 F.3d at 1155 (internal quotation marks and citation omitted). Courts have adopted a two-step inquiry to determine whether a court action is barred by Section 1821(j): “[f]irst, the Court must evaluate whether the action implicates the exercise of an FDIC receivership power or function. If so, the FDIC is protected from all court action that would ‘restrain or affect’ the exercise of those powers or functions. The second step is to determine whether action by the Court would ‘in fact restrain or affect the FDIC as receiver.’” Onebeacon Midwest Ins. Co. v. FDIC, No. 2:12-CV-0106-RWS, 2013 U.S. Dist. LEXIS 44237, at *7-8 (N.D. Ga. Mar. 28, 2013) (citing Bank of Am. Nat’l Ass’n v. Colonial Bank, 604 F.3d 1239, 1243 (11th Cir. 2010)). As to the first step, here, a court order requiring the FDIC-R to place its stipulated liability of $1.71 billion in escrow would interfere with essential FDIC-R powers or functions provided by statute. See, e.g., 12 U.S.C. § 1821(d)(2)(B) (FDIC-R has the power to “preserve and conserve the 1 succeed to “all rights, titles, powers, and privileges of the [failed] insured depository institution.”); 2 12 U.S.C. § 1821(d)(10) CFDIC-R has the power to determine the payment on claims); 12 U.S.C. § 3 1821(d)(13)(E)G) (FDIC-R has the function to “minimize[] any loss realized in the resolution of 4 cases.”). As to the second step, mandating the transfer of the funds into an escrow “restrains or 5 affects the exercise of the FDIC-R’s power” including to liquidate assets and to pay claims based 6 on statutory priority. Harrington v. FDIC, No. 23-cv-06296-HSG, 2024 U.S. Dist. LEXIS 123140, 7 at *9-10 (N.D. Cal. July 12, 2024). For the above reasons, the Court finds that its authority to order 8 an escrow is barred by 12 U.S.C. § 1821q). See Assignment for the Ben. of Creditors of Orion 9 Bancorp, 2010 U.S. Dist. LEXIS 161746, at *5 (M.D. Fla. 2010) ( “Requiring the FDIC to place 10 the proceeds of the tax refund into an escrow account will impermissibly restrain and affect the 11 FDIC’s exercise of receivership powers and functions.”); Michels vy. Resolution Tr. Corp., No. 4- 12 93-1167, 1994 U.S. Dist. LEXIS 6563, at *10 (D. Minn. Apr. 13, 1994) (“A court order mandating 13 or prohibiting certain actions with respect to the mortgage escrow accounts would ‘affect or restrain’ 14 the [] operation of [the failed depository institutions].”). 3 15 Because the Court is statutorily barred from ordering FDIC-R1 to move its stipulated $1.71 a 16 || billion liability into an escrow, the Court need not reach the remainder of the parties’ arguments. 2 17 || IV. ORDER Z 18 For the foregoing reasons, the Court DENIES the Trust’s request that the Court order FDIC- 19 R1 to place the $1.71 billion owed under the Trust’s breach of contract claim in an interest-bearing 20 escrow account until FDIC-R1’s Preserved Defenses are resolved. 21 22 23 Dated: July 16, 2025

TH LABSON FREEMAN 25 United States District Judge 26 27 28