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Flagstar Bank Wins Dismissal of Lawsuit by Former Signature Bank Account Holder

Paul, Weiss secured the dismissal, with prejudice, of claims brought against Flagstar Bank, NA, in the Southern District of New York by HK Capital LLC, a Signature Bank account holder prior to Signature’s entering FDIC Receivership in March 2023.

At the time of Signature’s closure, HK Capital had a pending tort action against Signature relating to funds allegedly stolen from HK Capital’s account years prior. After Signature entered FDIC Receivership, Flagstar Bank acquired HK Capital’s account. At the same time, HK Capital’s claim against Signature became subject to the FDIC’s administrative claims process, and therefore unlikely to result in any recovery for HK Capital. HK then sought to bring new claims against Flagstar Bank and the FDIC, in multiple capacities, on the unprecedented theory that the allegedly stolen funds constituted “deposit liabilities” under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) and that Flagstar Bank was obligated to return those funds under various and obscure provisions of the Uniform Commercial Code (UCC).

In her opinion, Judge Denise Cote rejected HK Capital’s claims that the stolen funds constituted “deposit liabilities,” instead agreeing with Flagstar Bank that the funds had not been on the books and records of HK Capital’s account at the time Flagstar Bank acquired that account, and so could not be sums that Flagstar Bank owed HK Capital. With respect to the UCC claims, which the defendants had moved to dismiss as untimely under the applicable one-year statute of repose, Judge Cote converted the motions to dismiss to motions for summary judgment and held that HK Capital had notice that the funds had been stolen for at least three years prior to bringing suit. Judge Cote also denied HK Capital’s request for leave to amend.

The Paul, Weiss team included partner Christopher Boehning and counsel David Kessler.

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