With this post, I will attempt to do the impossible (or at least the implausible) -- seemlessly connect 1970's rock and roll, 1990's pop culture, and federal regulatory law into a coherent and informative story.

Todd Rundgren is a well known musician, songwriter, and producer. Most of  his hits came out in the 1970's and early 1980's and are therefore a bit before my time. However, he was thrust back into the limelight when Liv Tyler shot to  fame in the early 1990's as, among other things, the star of Aerosmith's "Crazy" video. (As you may know, Liv Tyler's mom, Bebe Buell, originally told Liv that she was Rundgren's daughter but later revealed to her that she was actually Steven Tyler's daughter.)

Todd Rundgren is also involved in a lawsuit arising out of JPMorgan Chase Bank's efforts to foreclose on a home that he and his wife own in Hawaii. In 2005, the Rundgrens obtained a loan from Countrywide Home Loans, which was secured by a mortgage on their Hawaain home. Three years later, they refinanced the mortgage for around $3 million with Washington Mutual. The Rundgrens allege that the refinance was "tainted  by WaMu's numerous fraudulent acts," including that WaMu overstated the Rundgrens income, secured a false appraisal on the home, and misled the Rundgrens about the terms of the note.

WaMu later failed, was seized by the Office of Thrift Supervision, and placed into the receivership of the FDIC. The FDIC then transferred certain of WaMU's assets, including the Rundgrens' mortgage, to Chase. After Chase determined that the Rundgrens were in default on the loan, they moved to foreclose on the mortgage. In response, the Rundgrens sued Chase in state court alleging that WaMu had defrauded them, therefore the loan was void and unenforceable, and Chase could not foreclose. Chase removed the lawsuit to federal court and then moved to dismiss for lack of jurisdiction. The trial court granted the motion, and the Ninth Circuit affirmed.

The reason the Rundgrens could not sue Chase for WaMu's alleged sins can be found in the Financial Institutions Reform, Recover, and Enforcement Act of 1989 ("FIRREA"). FIRREA governs suits brought by claimants against failed banks that have been placed in receivership.  Among other things, FIRREA strips state and federal courts of jurisdiction over claims against failed banks: “Except as otherwise provided in this subsection, no court shall have jurisdiction over . . . any claim relating to any act or omission of such institution or the Corporation as receiver.”  12 U.S.C.A. §1821(d)(13)(D).  The “otherwise provided” language refers to 12 U.S.C.A. §1821(d)(6), which permits judicial review only after claims have been formally or constructively disallowed in the administrative process.  As a result, anyone with a potential claim against a failed bank that has been placed into receivership with the FDIC must submit their claims to the FDIC for administrative review, and can only sue on those claims if  they are denied by the FDIC. 

Logistically, this is how it works. Once a bank is placed into receivership, the FDIC will publish a notice to all of the bank’s creditors, with instructions on how and when any claims against the bank must be raised. Late claims are not allowed “and such disallowance shall be final.” If, however, a claim is timely filed, but denied by the FDIC, then the creditor can seek administrative review or sue in federal court.

But, if a creditor never makes a claim within the claims period -- which is what happened in the Rundgrens' case -- then the creditor cannot later sue in state or federal court. In fact, every court that has considered this issue has interpreted FIRREA as imposing a statutory exhaustion requirement that serves as a prerequisite to suit.   E.g., Nat. Union Fire Ins. Co. v. City Sav. F.S.B., 28 F.3d 376, 383 (3d Cir. 1994) (“[W]e have characterized the jurisdictional restriction contained in § 1821(d)(13)(D) as a statutory exhaustion requirement: in order to obtain jurisdiction to bring a claim in federal court, one must exhaust administrative remedies by submitting the claim to the receiver in accordance with the administrative scheme for adjudicating claims detailed in §1821(d).”); Henderson v. Bank of New England986 F. 2d 319, 320-21 (9th  Cir. 1993) (“Section 1821(d)(13)(D) strips all courts of jurisdiction over claims made outside the administrative procedures of section 1821 . . . A claimant must therefore first complete the claims process before seeking judicial review.”).

Finally, creditors may not bypass FIRREA’s exhaustion requirement by naming, as an additional or substitute defendant, an entity that acquires the assets and liabilities of a failed bank from the FDIC. E.g., Village of Oakwood v. State Bank & Trust Co., 539 F.3d 373, 386 (6th Cir. 2008 ) (“[P]ermitting claimants to avoid the provisions of [FIRREA] by bringing claims against the assuming bank would encourage the very litigation that FIRREA aimed to avoid.”). So, in the Rundgrens’ case, they could not rescue their claims against WaMu by naming Chase as an additional defendant.