Federal Judge Dismisses MBIA Lawsuit Against the FDIC

On October 6, 2011, Judge Amy Jackson of the Federal District Court in the District of Columbia dismissed an action brought by MBIA Insurance Corporation (“MBIA”) against the FDIC, both in its capacity as receiver for IndyMac Bank and in its corporate capacity, arising out of losses MBIA incurred in connection with its agreements to insure investors in certain IndyMac RMBS. MBIA attempted to distinguish itself from other general creditors of IndyMac by arguing that its losses were actually “administrative expenses” of the FDIC, which are entitled to priority distribution. The court granted the FDIC’s motion to dismiss based on lack of subject matter jurisdiction and failure to state a claim, finding that the FDIC had not expressly approved the insuring agreements between MBIA and IndyMac as necessary administrative expenses. It rejected MBIA’s theory that the FDIC had approved the expenses by not specifically repudiating the agreements because “approval by omission” was inconsistent with the applicable statutes and regulations, and potentially could transform all general creditor claims based on unrepudiated obligations of the failed bank into administrative expenses entitled to priority. Opinion.