FDIC Notches Win in SVB Financial’s $1.9 Billion Deposit Lawsuit

The Federal Deposit Insurance Corp. defeated most of SVB Financial Group’s claims over a $1.9 billion deposit the firm had in its former subsidiary Silicon Valley Bank.

SVB Financial failed to adequately allege that the FDIC has control over the deposit liabilities and undertook a final agency action, undermining much of its claims, according an opinion Thursday in the US District Court for the Northern District of California. The FDIC moved to dismiss the claims in March.

“The FDIC-C’s motion to dismiss SVBFG’s due process claim is granted because SVBFG fails to allege that the FDIC-C was the government entity that deprived SVBFG of its property interest,” said Judge Beth Freeman. The former Silicon Valley Bank parent had claimed the FDIC violated its Fifth Amendment rights by depriving the firm of property without due process.

The court dismissed three claims but left the door open for the company to amend them.

“At the continued hearing on the motion to dismiss, SVBFG identified further facts that it could allege to show that FDIC-C is an entity that owes a debt that is property of the estate,” Freeman wrote in the opinion. She said an amendment is “not futile” to SVB Financial’s claim that FDIC is legally required to turnover the funds.

SVB Financial lost access to its deposit in March 2023 when Silicon Valley Bank collapsed from a bank run and was forced to sell its long-dated treasury bonds at a steep loss. The FDIC created a bridge bank and, as a receiver of the bank, restricted further withdrawals of the funds.

The company filed for bankruptcy and sued the FDIC soon after. The litigation was initially filed in New York bankruptcy court, but ultimately played out in the California court.

SVB itself was acquired by First Citizens Bank last year. Its former parent secured approval of its bankruptcy exit plan earlier this week. The court denied SVB Financial’s attempt to extinguish the FDIC’s right to set off amounts owed to the firm, leaving the deposit fight unresolved.

SVB Financial didn’t immediately respond to a request for comment.

Sullivan & Cromwell LLP represents SVB Financial. Quinn Emanuel Urquhart & Sullivan LLP represents the FDIC.

The case is SVB Financial Group v. Federal Deposit Insurance Corporation, N.D. Cal., Docket No. 5:23-cv-06543-BLF, 8/8/24.