First Republic ex-employees’ lawsuit against US FDIC is dismissed

By Jonathan Stempel

(Reuters) – A federal judge in California dismissed a lawsuit accusing the Federal Deposit Insurance Corp (FDIC) of improperly blocking nearly 170 former employees of the failed First Republic Bank (OTC:) from accessing at least $150 million of retirement funds.

U.S. District Judge Haywood Gilliam ruled on Friday that a federal law enacted after the 1980s savings and loan crisis gave the FDIC broad authority to act as receiver for failed banks, and prevented him from getting involved.

Lawyers for the former employees did not immediately respond to requests for comment. An FDIC spokesman declined to comment.

First Republic failed on May 1, 2023, after a series of Federal Reserve interest rate increases caused large losses in its investment portfolio and led many depositors to move their money elsewhere.

The San Francisco-based bank had catered to wealthy customers. Its $229 billion of assets made the collapse the largest U.S. bank failure since the 2008 financial crisis.

JPMorgan Chase (NYSE:) acquired First Republic’s deposits and nearly all its assets.

In their complaint filed last December, the former First Republic employees alleged that the FDIC had on May 18, 2023, wrongfully stopped making payments under their deferred compensation plan.

They said this made them unsecured creditors who would likely recover “little, if anything” even as depositors were protected, and sought to recover what they said they were owed.

But the Oakland, California-based judge said granting that request would interfere with the FDIC’s statutory powers. Gilliam dismissed the lawsuit with prejudice, meaning it cannot be brought again. The judge said the law “forecloses actions – like this one – which seek to ‘restrain or affect’ the FDIC in fulfilling its receivership duties.”

JPMorgan was not a party to the case. First Republic failed less than two months after the failures of two other lenders, Silicon Valley Bank and Signature Bank (OTC:).

The case is Harrington et al v FDIC, U.S. District Court, Northern District of California, No. 23-06296.