Sunburst Bank v. Executive Life Insurance

Executive Life Insurance Company (ELIC) sold Municipal Bond Guaranteed Investment Contracts (Muni-GICs) to two banks. When the banks failed, the Federal Deposit Insurance Corporation (FDIC) placed them in receiverships and transferred their assets (including the ELIC Muni-GICs) to successor banks which, in turn, became creditors in ELIC’s subsequent conservatorship proceedings. To obtain priority over other claimants, the banks contend their ephemeral involvement with the FDIC clothed them with the aura of a governmental entity. The trial court disagreed and so do we.

Facts

In 1986, InterFirst Bank Houston, N.A. (a Texas bank) and Capital Bank & Trust Co. (a Louisiana bank), as trustees acting for the benefit of municipal bondholders, invested funds in ELIC’s Muni-GICs. InterFirst invested about $295. million and Capital invested about $150 million.

On October 30, 1987, by court order, Capital was declared insolvent and placed in receivership by the FDIC. That same day, the FDIC organized a “bridge bank,” Capital Bank & Trust Co., N.A. (CBTNA). CBTNA, in turn, entered into a purchase and assumption agreement, pursuant to which Capital’s trust business was transferred…