FIRREA Succession Clause Does Not Transfer Investors’ Rule 10b-5 Purchase-and-Sale Claims to the FDIC; No FIRREA Exhaustion for Third-Party Securities Claims

Introduction

Sjunde AP-Fonden v. FDIC (2d Cir. Aug. 19, 2026) arises from the March 2023 failure of Signature Bank, a federally insured, publicly traded bank that pivoted heavily into digital-asset-related banking. Lead plaintiff Sjunde AP-Fonden (“AP7”), on behalf of purchasers of Signature common stock during the class period (Jan. 21, 2021 to Mar. 12, 2023), sued Signature’s former officers and directors and its outside auditor, KPMG LLP, under § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

After Signature was placed into FDIC receivership, the FDIC intervened and sought dismissal on two grounds: (1) AP7 lacked prudential standing because FIRREA’s “Succession Clause” purportedly transferred (“owned”) AP7’s securities-fraud claims to the FDIC; and (2) the court lacked subject-matter jurisdiction because AP7 allegedly failed to exhaust FIRREA’s administrative claims process.

The Second Circuit resolved a question of first impression in the Circuit: whether FIRREA’s Succession Clause causes the FDIC, as receiver, to succeed to a stock purchaser’s private Rule 10b-5 claim. The court held it does not—and further held that FIRREA exhaustion is not required for securities claims brought against third parties (officers/directors and the auditor) rather than against the failed bank or the FDIC as receiver.

Summary of the Opinion

  • No Succession of Rule 10b-5 claims: FIRREA’s Succession Clause transfers only those “rights . . . of any stockholder” that are held as stockholder rights—i.e., rights distinctive to share ownership. A Rule 10b-5 claim is a personal purchase-and-sale claim (a purchaser/seller right), not a right that arises from the shareholder–corporation relationship.
  • Prudential standing exists: Because AP7’s claims were not transferred to the FDIC, AP7 was not asserting the FDIC’s rights; it had prudential standing to sue.
  • No FIRREA exhaustion required: FIRREA’s administrative exhaustion scheme applies to claims against the failed institution or the FDIC as receiver. AP7’s claims sought recovery only from the former officers/directors and KPMG, so exhaustion was not required.
  • Disposition: The Second Circuit vacated the dismissal and remanded.

Analysis

Precedents Cited

1) The controlling interpretive anchor: Collins v. Yellen

The court’s pivotal move was to import the Supreme Court’s interpretation of materially identical succession language in Collins v. Yellen, 594 U.S. 220 (2021). In Collins, the Supreme Court construed HERA’s Succession Clause and held it “effects only a limited transfer” of stockholder rights—only those “held as stockholders”—and not rights shared with non-shareholders. The Second Circuit treated this as the decisive template: FIRREA’s “rights . . . of any stockholder” likewise means rights distinctive to stock ownership, not every claim a stockholder happens to possess.

2) FIRREA and the state-law corporate backdrop: O'Melveny & Myers v. FDIC, Resol. Tr. Corp. v. Diamond, Atherton v. FDIC

The court reinforced Collins with FIRREA’s structural and historical premise that receivership powers operate “against the backdrop” of state corporate law:

  • O'Melveny & Myers v. FDIC, 512 U.S. 79 (1994), and Atherton v. FDIC, 519 U.S. 213 (1997), were used to underscore that FIRREA generally places the FDIC “in the shoes” of the institution and does not displace state corporate-law baselines absent clear statutory direction.
  • Resol. Tr. Corp. v. Diamond, 45 F.3d 665 (2d Cir. 1995), was cited to emphasize that the receiver’s rights are “defined and limited by state law” except where FIRREA says otherwise—supporting the court’s narrow understanding of what counts as a “stockholder right.”

3) What “stockholder rights” are (and why): state and federal corporate-law cases

To define the category of “stockholder rights,” the court drew from classic and modern authority tying such rights to share ownership and the shareholder–corporation relationship:

  • Sawyer v. Hoag, 84 U.S. (17 Wall.) 610 (1873), supplied the foundational premise that shareholder “power of legal control” is proportional to share ownership.
  • Crane Co. v. Anaconda Co., 39 N.Y.2d 14 (1976), illustrated that inspection and related rights are derived from beneficial ownership and the right to protect that investment.
  • In re Facebook, Inc., Initial Pub. Offering Derivative Litig., 797 F.3d 148 (2d Cir. 2015), exemplified a paradigmatic stockholder right: derivative standing depends on contemporaneous ownership.
  • Brookfield Asset Mgmt., Inc. v. Rosson, 261 A.3d 1251 (Del. 2021), and Saba Cap. CEF Opportunities 1, Ltd. v. Nuveen Floating Rate Income Fund, 88 F.4th 103 (2d Cir. 2023), supported the proposition that certain voting/control and direct-injury rights are “legal rights as a stockholder.”

4) Why Rule 10b-5 is not a stockholder right: securities standing and “purchase-and-sale” limitations

The court treated the nature of the Rule 10b-5 private action as dispositive. It relied on:

  • Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975), and the Second Circuit’s own Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952), for the “Birnbaum rule” limiting Rule 10b-5 standing to purchasers and sellers of securities.
  • Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005), and Clark v. John Lamula Invs., Inc., 583 F.2d 594 (2d Cir. 1978), for the economic-loss framework and the proposition that a purchaser may sue even if it later sells—confirming that the claim is personal and transaction-based rather than dependent on continuing shareholder status.
  • In re Activision Blizzard, Inc. S'holder Litig., 124 A.3d 1025 (Del. Ch. 2015), for the characterization of Rule 10b-5 claims as personal, fraud-like claims that “do not travel with the shares” and do not arise out of the shareholder–corporation relationship.

Additional securities-law citations (e.g., Cent. Bank of Denv., N.A. v. First Interstate Bank of Denv., N.A., Ernst & Ernst v. Hochfelder, Janus Cap. Grp., Inc. v. First Derivative Traders, Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., and Lorenzo v. SEC) framed the doctrinal setting of § 10(b)/Rule 10b-5 liability, but the key analytical function here was to identify the Rule 10b-5 claim as a purchaser/seller right—not a stockholder governance/ownership right.

5) FIRREA exhaustion scope: Bank of New York v. First Millennium, Inc. and related cases

On administrative exhaustion, the court found the FDIC’s position foreclosed by Bank of New York v. First Millennium, Inc., 607 F.3d 905 (2d Cir. 2010), which held FIRREA’s administrative procedures apply to claims “against institutions for which the FDIC is receiver” (or against the FDIC as receiver), and rejected an “out of context” reading that would bar any claim merely involving an FDIC act or omission.

The court also cited Resol. Tr. Corp. v. Elman, 949 F.2d 624 (2d Cir. 1991), describing FIRREA’s administrative scheme as one for claims against the institution in receivership, and found support in Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137 (D.C. Cir. 2011), which similarly declined to require exhaustion where the alleged tortfeasor was not the bank/receiver.

Legal Reasoning

1) Statutory interpretation: “rights . . . of any stockholder” is a capacity-based limitation

The Second Circuit avoided the broader circuit split over what “with respect to the institution and the assets of the institution” means (citing the divergent approaches of Zucker v. Rodriguez, 919 F.3d 649 (1st Cir. 2019), and Levin v. Miller, 763 F.3d 667 (7th Cir. 2014)). Instead, it decided the case on the “step one” requirement: the claim must be a “right . . . of any stockholder.”

Using Collins v. Yellen and the neighboring FIRREA provision allowing the FDIC to “operate” the institution “with all the powers of the . . . shareholders” (12 U.S.C. § 1821(d)(2)(B)(i)), the court read FIRREA as transferring shareholder-derived control and asset-related governance powers—rights that flow from owning stock—rather than transferring personal, transaction-based causes of action that shareholders may hold in common with non-shareholders.

2) Claim taxonomy: Rule 10b-5 as a purchaser/seller right, not an ownership right

The court’s functional test was: does the right derive from share ownership (the shareholder–corporation relationship), or from a securities transaction (purchase or sale) induced by deception? Under Blue Chip Stamps v. Manor Drug Stores, only purchasers and sellers can sue; mere shareholders who held (or refrained from selling) cannot. That doctrinal structure shows the right is not “distinctive to shareholders.” Accordingly, even though damages may be measured via stock price decline, the underlying right is not a shareholder right and therefore is not captured by FIRREA succession.

3) Exhaustion: FIRREA is not a universal gatekeeping statute for third-party litigation

The FDIC argued that claims “relating to” acts of the bank require exhaustion even when asserted against third parties. The court rejected this as inconsistent with Bank of New York v. First Millennium, Inc.: FIRREA’s exhaustion and jurisdiction-stripping provisions are tied to claims that could be processed in FIRREA’s administrative regime—claims against the receivership estate (the bank/FDIC as receiver). AP7’s complaint sought recovery solely from non-receivership defendants (officers/directors and the auditor); therefore, the administrative process was inapplicable and exhaustion unnecessary.

Impact

  • Limits FDIC “ownership” arguments in securities class actions: The decision narrows a litigation strategy that, if accepted, could have rerouted private federal securities fraud actions into FDIC control whenever a public bank fails. After this opinion, in the Second Circuit a receiver cannot claim investor Rule 10b-5 purchase-and-sale claims as “stockholder rights” under FIRREA.
  • Preserves parallel remedial tracks: The FDIC retains receivership powers to marshal bank and stakeholder rights that are truly shareholder-derived (e.g., governance/derivative-type claims), while investors retain personal federal securities claims against third parties whose misstatements induced purchases.
  • Clarifies exhaustion boundaries: Plaintiffs suing non-bank defendants in connection with a bank failure have stronger footing to proceed in federal court without FIRREA administrative presentment—at least where they do not seek payment from receivership assets and do not sue the bank/FDIC as receiver.
  • Unresolved questions remain: The court expressly left open (i) the meaning of “with respect to the institution and the assets of the institution,” (ii) how FIRREA might apply in contribution/indemnification scenarios, and (iii) how exhaustion might apply where plaintiffs plead imputed liability theories against the failed bank alongside third-party claims.

Complex Concepts Simplified

FIRREA “Succession Clause”
A statutory transfer rule: when the FDIC becomes receiver, it automatically succeeds to certain rights of the failed bank and certain institution-linked rights of stakeholders (including stockholders). This case holds that the transfer is limited to rights held as stockholder rights, not every claim a person who owns stock might have.
Prudential standing (third-party standing rule)
A court-made limit that generally bars a plaintiff from asserting someone else’s rights. The FDIC argued AP7 was asserting the FDIC’s rights because the FDIC “owned” the claims; the Second Circuit rejected that premise because the claims were never transferred.
Rule 10b-5 “purchase-and-sale” standing (the Birnbaum rule)
Only actual purchasers or sellers of securities can sue under Rule 10b-5 for deception “in connection with” a transaction. That is why a Rule 10b-5 claim is a personal, transaction-based right—not a shareholder governance/ownership right.
FIRREA administrative exhaustion
A mandatory process for presenting claims against the failed bank/receivership estate to the FDIC first. This case holds it does not apply to claims brought only against third parties like officers/directors and auditors.

Conclusion

Sjunde AP-Fonden v. FDIC establishes in the Second Circuit that FIRREA’s Succession Clause does not divest investors of private Rule 10b-5 claims arising from their purchases (or sales) of securities, because those claims are not “rights . . . of any stockholder” held in a stockholder capacity. It also confirms that FIRREA’s administrative exhaustion requirement does not bar securities-fraud suits against non-bank defendants where the claims are not against the failed bank or the FDIC as receiver. The decision preserves the integrity of federal securities remedies notwithstanding bank receivership, while leaving open how FIRREA applies to other categories of shareholder-derived claims and receivership-adjacent third-party disputes.