It seems that the Veluchamy family just can't win. Literally.
The family behind the Harvey-based Mutual Bank lost control of their bank to the Federal Deposit Insurance Corporation (FDIC) in 2009. As a result of the FDIC-receivership, they also lost their priority claim to about $30 million dollars. And this week, the Veluchamys lost their Administrative Procedure Act (APA) appeal before the Seventh Circuit Court of Appeals.
The Veluchamys may not be the world's best bankers. The 10-branch, $1.7 billion asset bank chain was once considered "well-capitalized" -- the highest and best level of capitalization that an FDIC-insured bank may have. But the bank ran into trouble -- and a downgraded "adequately capitalized" status -- around 2008. The Veluchamys temporarily restored the bank in the FDIC's esteem with a $30 million note purchase. Most of the money for that purchase came from the family.
Shortly before the FDIC took over Mutual Bank in 2009, the Veluchamys twice asked for FDIC-Corporate approval to redeem those notes and recoup their $30 million. The family promised to stash the proceeds on deposit at the bank in an interest-free demand deposit account, which would have given them the same highly-protected status as ordinary depositors when the bank eventually failed. FDIC-Corporate, however, failed to act on their request before the bank went under.
The Veluchamys later sued FDIC-Corporate under the APA, claiming that the FDIC misled them into investing the $30 million in the bank in 2008, and prevented them from retrieveing their money on the eve of insolvency. Their lawsuit asserted that FDIC-Corporate's failure to approve the note redemption injured the plaintiffs, and that FDIC-Corporate should compensate them for that injury in the form of cash and the use of the FDIC's own funds to create personal deposit accounts.
(Specifically, they asked for damages in the form of cash payments and an order directing the FDIC to treat millions in subordinated debt as bank deposits.)
So why did they lose? Because the request for substitute monetary relief constituted a request for "money damages." Which the APA does not authorize.
Though the Veluchamy family argued that their APA claim was not for "money damages" because they merely sought the FDIC-Corporate's (belated) approval of the note redemption so that FDIC-Receiver may effectuate it now, or something to that effect, the appellate court concluded that they waived that argument because it was only raised for the first time during oral arguments.
(Sidebar: For what it's worth, the court acknowledged that "such a request might conceivably overcome the "money damages" jurisdictional bar" if it had been included in the complaint.)
Here, the Seventh Circuit concluded that the APA prohibited the Veluchamys from seeking monetary damages against the FDIC, and affirmed dismissal. If you're representing a client in a case similar to this Mutual Bank litigation, try raising the belated approval argument before oral arguments. Maybe you'll fare better than the Veluchamy family.
- Pethinaidu Veluchamy v. FDIC (Seventh Circuit Court of Appeals)
- Chicago Businessman Veluchamy to Hand Over Passport (FindLaw's Seventh Circuit Blog)
- FDIC Sues Officials of Failed Bank, Alleging Misuse of Funds (Chicago Tribune)