The FDIC has recently appealed a loss it suffered at trial on the question of whether the debtor in bankruptcy (the holding company of a failed bank) made a “commitment” to maintain the capital of its subsidiary bank under Section 365(o) of the Bankruptcy Code. After a week-long bench trial with an advisory jury, the Northern District of Ohio rejected the FDIC’s claim that a commitment had been made by the holding company to the Office of Thrift Supervision. The FDIC brought the case after being appointed receiver for the bank. This is the first case in the country that has actually been tried under Section 365(o). While there are a handful of judicial decisions interpreting Section 365(o), the Sixth Circuit has yet to address the subject. The case carries significant implications for federal bank regulators seeking to hold holding companies responsible for maintaining the capital of a failed bank, and we expect that this case will be the first one in the Circuit to address the meaning and purpose of Section 365(o) (although since the case is coming from a trial, it is unclear exactly which issues the court will have to reach). Representing the debtor, AmFin Financial Corporation, at trial were Ricky Gurbst, Phil Oliss, and Sarah Rathke.
