By Jonathan Stempel
(Reuters) – A federal judge in California has dismissed a lawsuit accusing the Federal Deposit Insurance Corp (FDIC) of improperly blocking nearly 170 former employees of the failed Bank of the First Republic (OTC:) will not be able to access at least $150 million in pension funds.
U.S. District Judge Haywood Gilliam ruled Friday that a federal law enacted after the savings and loan crisis of the 1980s gave the FDIC broad authority to act as a trustee for failed banks, barring him from becoming involved.
Attorneys for the former employees did not immediately respond to requests for comment. An FDIC spokesperson declined to comment.
First Republic failed on May 1, 2023, after a series of interest rate hikes by the Federal Reserve caused major losses in its investment portfolio and led many savers to move their money elsewhere.
The San Francisco-based bank targeted wealthy customers. With assets worth $229 billion, the collapse was the biggest U.S. bank failure since the 2008 financial crisis.
JPMorgan Chase (NYSE:) acquired First Republic’s deposits and nearly all of its assets.
In their complaint filed last December, the former First Republic employees alleged that the FDIC improperly stopped making payments under their deferred compensation plan on May 18, 2023.
They said this made them unsecured creditors likely to get “little or nothing” back even as depositors were protected, trying to recover what they said they owed.
But the Oakland, California-based judge said granting that request would violate the FDIC’s legal powers. Gilliam dismissed the lawsuit with prejudice, meaning it cannot be refiled. The judge said the law “precludes actions such as this that seek to ‘restrain or influence’ the FDIC from fulfilling its trusteeship duties.”
JPMorgan was not a party to the case. First Republic failed less than two months after the bankruptcy of two other lenders, Silicon Valley Bank and Signature bank (OTC:).
The case is Harrington et al v. FDIC, US District Court, Northern District of California, No. 23-06296.
