In FDIC v. AmTrustFinancial Corporation, the Sixth Circuit considered the results of the very first trial in the nation under Bankruptcy Code Section 365(o). Section 365(o) is an infrequently litigated provision of the Bankruptcy Code that requires a party seeking Chapter 11 bankruptcy protection to fulfill “any commitment . . . to maintain the capital of an insured depository institution.” Although the Sixth Circuit has never before considered a Section 365(o) case, it had little occasion to dissect the statute because it resolved this matter on basic contract analysis grounds.

The Court initially determined that the district court had correctly concluded that the language in the governing contract was ambiguous. After that ambiguity determination, the district court had convened an advisory jury trial, and the jury had concluded that the parties had not intended to create a capital maintenance commitment, a conclusion with which the district court agreed. Surveying the evidence, the Sixth Circuit affirmed. Only the FDIC presented a case at trial, and the Sixth Circuit concluded that “the FDIC’s witnesses did not help its case.” These witnesses undermined the FDIC’s litigation position, as did a number of the exhibits that were admitted to the record. Although much of the discussion in this case is fact-specific, it assumes significance for the proper approach in litigating Section 365(o) cases. Moreover, the amount at issue – the FDIC’s claim exceeded $500M – was significant and would have wiped out the entirety of the bankruptcy estate if successful. Pierre Bergeron of Squire Sanders argued the case on behalf of AmTrust Financial Corporation.