Builders Bank's appeal of FDIC rating deemed waste of 'a judge's valuable time'

By D.M. Herra | May 2, 2019

CHICAGO – A federal appeals panel has denied a former bank’s attempt to sue the Federal Deposit Insurance Corp. and upbraided the plaintiffs for legal maneuvering that "wasted a judge’s valuable time.”

The suit was brought in 2015 by Builders Bank, after the FDIC assigned the bank a low rating that increased the cost it paid for deposit insurance and exposed it to additional government oversight. Before the case was resolved the bank merged with a non-bank entity, Builders NAB LLC, and left the banking business. The district court then dismissed the suit as moot.

Builders appealed, because while it no longer needed a higher rating, it wanted damages to recover the additional insurance cost it paid.

In an opinion authored by Circuit Judge Frank Easterbrook, the panel of judges from the U.S. Seventh Circuit Court of Appeals found Builders misplaced its reliance on the Administrative Procedure Act.

Circuit Judges Joel Martin Flaum and Diane Sykes concurred in the decision.

While the Act does waive the federal government’s sovereign immunity, Easterbrook wrote that waiver only applies to relief “other than money damages,” not to the financial compensation sought by Builders. The Act also applies only when there is no other remedy, the judge said, though Builders noted itself that another law exists that provides for a refund of overpayment of insurance funds.

“This knocks out Builders’ claim under the APA, but without necessarily entitling it to any relief,” Easterbrook wrote. To use the law, Builders needs a different statute waiving sovereign immunity, but did not bring any alternative remedies to the district court’s attention.

Builders argued that an appellate court can address a remedy forfeited in district court. In an earlier appeal, the court suggested a remedy Builders had not struck upon.

“That experience may have led Builders to think that it could litigate haphazardly in the district court and be bailed out on appeal again,” Easterbrook wrote. “If we conveyed that impression, we regret it.”

Legal arguments must be presented before the district judge acts, not as an afterthought on appeal, Easterbrook said.

“Builders has already received its share (perhaps more than its share) of appellate indulgence,” Easterbrook wrote. “Litigants that do not do their legal research until after losing in the district court have wasted a judge’s valuable time.”

The case failed under its original financial claim under the APA, Easterbrook wrote, and the court refused to allow Builders “to change on appeal both its substantive theory and its asserted waiver of sovereign immunity.” The appeals judges  modified the district court’s judgment to dismiss on the merits of the case rather than on mootness.

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Federal Deposit Insurance Corporation U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois

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