Presenting Bankruptcy Concepts to Juries

But juries can appear where one least expects them. Our firm, Squire, Sanders & Dempsey, recently won a defense verdict in a jury trial involving claims by the Federal Deposit Insurance Corporation (FDIC) against a Chapter 11 debtor and former savings and loan holding company, AmFin Financial Corporation. The FDIC had placed AmFin's subsidiary, AmTrust Bank, into receivership and was seeking to recover at least some of its receivership costs from the bank's parent. Although the full explanation of the bank's deterioration is complicated, as a savings and loan specializing in residential mortgage lending, AmTrust Bank was hit particularly hard by the 2008 (and onward) financial crisis, when its customers began defaulting on their mortgages at record levels.

The FDIC asserted a $500 million “capital maintenance claim” under 11 U.S.C. ' 365(o), and moved to withdraw the reference to the district court on the ground that the case involved substantial issues under Title 12, the United States Code chapter governing banking regulation. Under ' 365(o), if a financial institution holding company makes a “commitment” to its regulator that it will maintain the capital of its subsidiary, the amount of the commitment must be paid “immediately” upon the filing of a Chapter 11 petition. In our case, the district court sua sponte empanelled a 12-member advisory jury for the trial. And, just like that, a motion unique to the Bankruptcy Code ended up in district court being tried to a jury.