## Facts

- Kaysville City required subdivision developers to guarantee completion and quality of public improvements and used six “escrow agreements” with Barnes Banking Company to secure those obligations.
- The agreements generally required Kaysville to (1) notify the developer of defects, (2) demand correction, and (3) if necessary, use city resources to correct the defect before demanding reimbursement from the escrow arrangement.
- The escrows were structured primarily as contingent funding mechanisms rather than cash accounts titled to Kaysville, including:
  - a revolving line of credit backed by a developer’s promissory note and real-property security,
  - an authorization allowing the bank to use funds from a developer’s savings account if reimbursement became due, and
  - a straight line of credit backed by an unsecured promissory note.
- Barnes became insolvent in January 2010; the FDIC was appointed receiver and also acted in its corporate capacity as deposit insurer.
- Kaysville filed claims for deposit insurance on the six escrow accounts; the FDIC denied the claims, concluding that most arrangements contained no qualifying deposits and that Kaysville had not shown a matured entitlement because it had not yet incurred reimbursable repair costs under the contract conditions.

## Issues

1. Whether the FDIC acted arbitrarily and capriciously or contrary to law in concluding that the six “escrow” arrangements did not constitute “insured deposits” at the time of the bank’s failure.
2. Whether the FDIC’s written notice denying the claims was legally deficient so as to invalidate the denial or require remand.

## Decision

- The Tenth Circuit affirmed judgment for the FDIC in its corporate capacity.
- The court held that the FDIC reasonably determined that the relevant arrangements were lines of credit or contingent obligations rather than funded deposit accounts subject to deposit insurance.
- The court also upheld the FDIC’s conclusion that Kaysville had not established a present right to payment under the escrow conditions as of the failure date.
- The court rejected Kaysville’s challenge to the adequacy of the FDIC’s notice of disallowance.

## Legal Principles

- FDIC deposit insurance covers “deposits,” not contingent credit instruments such as lines of credit or similar commitments where no present transfer or holding of insured funds for the claimant exists.
- Contractual rights that remain subject to unmet conditions precedent (including incurring specified costs before reimbursement) may not create a matured, insurable claim to funds at the time of a bank failure.
- Agency denial of deposit-insurance claims is reviewed under the Administrative Procedure Act’s arbitrary-and-capricious standard; a court will uphold a reasonable classification of an instrument as non-deposit and a reasonable assessment of entitlement based on the administrative record.
- An FDIC notice of disallowance is sufficient if it identifies the claims and states the basis for denial and review consequences in a manner adequate for administrative and judicial review.

## Conclusion

The court upheld the FDIC’s denial of Kaysville’s insurance claims because the “escrow” arrangements functioned as unfunded credit commitments or conditional access to a developer’s funds rather than insured deposits, and because Kaysville had not satisfied contractual prerequisites to establish a present entitlement to payment when the bank failed.


Kaysville City v. Fed. Deposit Ins. Corp., 557 F. App’x 719 (10th Cir. 2014)