Action Involving Competing Claims to Proceeds of Failed Securitization of Credit Card Debt - U.S. Second Circuit
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Action Involving Competing Claims to Proceeds of Failed Securitization of Credit Card Debt

Bank of N.Y. v. First Millennium, Inc., No. 09-1628, involved an action asserting competing claims to the proceeds of a failed securitization of credit card debt.  The court of appeals affirmed summary judgment for the Bank of New York and against the Federal Deposit Insurance Corporation (FDIC), holding that 1) the FDIC adduced no evidence to support its contention that the amount due on the notes at their maturity was an "invested amount" by the notes' terms, rather than the unpaid principal amount; 2) the FDIC failed to identify any other provision of the transaction documents that supported its contentions that the amount due on the notes was anything other than their entire unpaid principal; 3) issue preclusion did not apply because a prior action did not consider whether the notes at issue were full recourse or limited recourse obligations of the issuer; and 4) since the Bank of New York asserted no claims against the FDIC as receiver for the failed bank, it was not bound by the jurisdictional limitations or other procedural requirements of 12 U.S.C. section 1821(d).

As the court wrote:  "In this interpleader action, the parties assert competing claims to the dregs of a failed securitization of credit card debt. Appellant, the Federal Deposit Insurance Corporation (the "FDIC"), as well as appellees, First Millennium, Inc., Millennium Partners, L.P. (together, "Millennium") and RMK Advantage Income Fund ("RMK"), seek distribution of the funds held by the interpleader plaintiff, the Bank of New York ("BNY"), as trustee for the NextCard Credit Card Master Note Trust ("the trust"). The FDIC argues that it is entitled to the funds as the receiver for NextBank, N.A., ("NextBank") a now-defunct internet-only bank, which established the trust in order to generate money to lend to credit card holders. Millennium and RMK claim that they are entitled to the funds as owners of notes issued by the trust."

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