SAN JOSE, Calif. (CN) - A federal judge questioned Thursday the need for a partial summary judgment regarding a standard of proof required ahead of a bench trial between a failed bank's trust and a receivership that took approximately $1.93 billion in the bank's assets.
The Federal Deposit Insurance Corporation, the government agency responsible for the financial stability of most U.S. banks, became the receiver, or the appointed entity to take control, of Silicon Valley Bank once it collapsed in 2023. It was the largest bank failure since 2008.
The bank's trust, SVB Financial Trust, sued the FDIC in March 2024, claiming wrongful denial by the FDIC of the $1.93 billion to give the money back, saying it was "illegally taken away and withheld" from the trust.
The FDIC asserts the bank's officers and directors were negligent in their conduct before and during the bank's collapse, and seizure of the deposits after the bank's closure and declaration of Chapter 11 bankruptcy was lawful and necessary to ease concerns by depositors and stop widespread panic that could affect the entire banking system.
In a November 2024 mixed bag ruling on a motion to dismiss, breach of contract, estoppel and declaratory judgment actions survived. In July 2025, Freeman denied a motion that the receivership place $1.7 billion in escrow.
The merits of the case were not discussed Thursday as both parties gear up for a bench trial in U.S. District Judge Beth Labson Freeman's court, tentatively scheduled in May.
A motion for partial summary judgment, brought by the FDIC, was argued by defense attorney David Giles, claiming the need for Freeman to decide what the FDIC's standard of proof will be needed for the trial, as the FDIC will be acting more like the plaintiff in this case, where the burden is on the FDIC to show why need to take and hold the funds.
The defense disputes the necessity to meet the Business Judgment Rule, a legal principle that protects corporate directors from liability for good-faith decisions, even if the decisions prove to be poor, for all the officers involved.
"This is why this ruling is ripe," said Giles. "What standard governs officer conduct?"
By asking the judge to rule on summary judgment in their favor, Giles said it would allow a lesser burden of proof for officers' conduct.
"Even when you have the same transaction, standards are different if it's a director or officer," he said.
Freeman seemed to agree with Giles that there are "three buckets" of the bank's decision-makers' conduct, including those by only officers, decisions or approvals made at a higher level that included directors or boards, and choices made jointly by both officers and directors, but was hesitant to decide the motion during the hearing.
"I am not now determining what can come into evidence for the trial," the Barack Obama appointee said.
Plaintiff's attorney Robert Van Nest disputed the FDIC's concept of singling officers out, if only to have to a lesser burden of proof, because the defendant, he claimed, is the holding company, and the Business Judgment Rule would apply.
"It is unwise to decide this in a vacuum," he said. "There are no separate buckets; they are all hybrid."
Van Nest said the partial summary judgment in the defense's favor would essentially be an "advisory opinion on how to try this case."
Additionally, he said a summary judgment is generally given after the "20 depositions and millions of pages of undisputed fact would be presented." However, many of the facts are still in dispute.
Freeman didn't appear convinced by Van Nest's arguments to hold off on a decision about the standard of proof, saying it wouldn't be helpful with regard to the outcome of the trial. She said she needed to give fair warning of the standard of proof she is going to apply to the case, or it could end in a mistrial.
"You're asking to keep something undecided and forcing a level of proof they may not need," she said.
Source: Courthouse News Service
