Elliott v. Federal Home Loan Bank Board

• Decision Date: 22 September 1964
• Docket Number: 63-1230.,63-1107,No. 63-1072,63-1072
• Citation: 233 F. Supp. 578
• Court: U.S. District Court — Southern District of California
• Parties: Sidney ELLIOTT et al., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants, N. Joseph Ross et al., Intervenors. EQUITABLE SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. Sidney ELLIOTT et al., Defendants. Sidney ELLIOTT et al., Cross-Claimants, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants, N. Joseph Ross et al., Intervenors. Sidney ELLIOTT et al., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants. LONG BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION, Cross-Claimants, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants. EQUITABLE SAVINGS AND LOAN ASSOCIATION, Cross-Claimant, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants, N. Joseph Ross et al., Intervenors.

233 F. Supp. 578

Sidney ELLIOTT et al., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants, N. Joseph Ross et al., Intervenors.

EQUITABLE SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. Sidney ELLIOTT et al., Defendants.

Sidney ELLIOTT et al., Cross-Claimants, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants, N. Joseph Ross et al., Intervenors.

Sidney ELLIOTT et al., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD et al., Defendants.

LONG BEACH FEDERAL SAVINGS AND LOAN ASSOCIATION, Cross-Claimants, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants.

EQUITABLE SAVINGS AND LOAN ASSOCIATION, Cross-Claimant, v. FEDERAL HOME LOAN BANK BOARD et al., Cross-Defendants, N. Joseph Ross et al., Intervenors.

Nos. 63-1072, 63-1107, 63-1230.

United States District Court S. D. California, Central Division.

September 22, 1964.

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George W. Trammell, Long Beach, Cal., for Sidney Elliott and Shareholders Protective Committee.

Moore & Lindelof, Los Angeles, Cal., for Equitable Savings & Loan Assn.

Charles K. Chapman, Long Beach, Cal., for Long Beach Federal Savings & Loan Association; Stanley Mosk, Atty. Gen. of California, San Francisco, Cal., for California Savings & Loan Comr.

Francis C. Whelan, U. S. Atty., Donald A. Fareed and James R. Dooley, Asst. U. S. Attys., Carl Eardley, Atty., Dept. of Justice, and Max Wilfand, Los Angeles, Cal., of counsel, for Federal Home Loan Bank Bd. and Federal Deposit Ins. Corp.

Pacht, Ross, Warne, Bernhard & Sears, by Harvey M. Grossman, Los Angeles, Cal., for intervenor N. Joseph Ross.

Blau & Schwartzman, Beverly Hills, Cal., for defendant Joseph Fields.

Fitzpatrick & Wiley, Los Angeles, Cal., for defendant and intervenor Richard Fitzpatrick.

HALL, District Judge.

There are preliminary and peripheral questions of jurisdiction, proper parties, and the like, but, in spite of the proliferation of documents and briefs on the separate motions of each party for summary judgment in these three actions, the central and ultimate question for decision is a limited one: Did the officers and directors of the Long Beach Federal Savings & Loan Association, and the Federal Home Loan Bank Board, or either of them, have the lawful power to alter the equal rights of all the depositors (sometimes called shareholders) in said Association so as to take the share of distributable assets on dissolution of said Association from several groups, and give that share to other groups defined in the Merger Agreement dated June 12, 1963, which groups had not ever been previously defined, or notified in any way at the time of deposit or pledge, by charter, statute, regulation or otherwise? An ancillary question as to whether or not the majority of the shareholders can thus affect the rights of any shareholder is also present.

It is to be noted at the outset that there is no claim of crime, fraud, illegality, or other wrongdoing against either Long Beach or Equitable Association, the officers and directors of either, or the Shareholders Protective Committee, or the shareholders of either Association, or any of them.

In order that the questions may be put in proper setting, it is necessary to recite some facts concerning which there is and can be no dispute.

The Long Beach Federal Savings & Loan Association was chartered as a Federal Mutual Savings and Loan Association on July 10, 1934, under what is now 12 U.S.C. § 1464. Its first charter was replaced by its second charter on July 10, 1937 12 U.S.C. § 1464, under which it has at all times since operated and still exists as a mutual association without any alteration or amendment. The charter was and is in the terms and language prescribed by the Federal Home Loan Bank Board, and was drawn and signed by that Government institution. All passbooks and receipts for deposits contained the terms of the charter by reference. From modest beginnings of $7,500 in deposits in 1934, it grew so that on May 20, 1946, it had deposits by shareholders of over 22 million dollars, and on that date, one Ammann was appointed conservator by the Bank Board, without notice, and he immediately seized the Association and its assets. A run developed at once. It resulted in the withdrawal of approximately ten million dollars from the Association within a few days. Litigation ensued between the newly formed State-licensed Shareholders Protective Committee (Plaintiff in Action No. 63-1072, and Cross-claimant in the other two Actions), the Association, the Bank Board, Ammann, and others.¹ A Congressional investigation also was had. On January 24, 1948 the Association was returned to the shareholders and to the management selected by them, which was the same management as before the seizure, at which time (January 24, 1948) its deposits were down to approximately 13 million dollars, and the Association was heavily in debt. The Association continued under its previous management until April 22, 1960, when it was again seized by an Agent of the Bank Board, without notice. On that date, its deposits by shareholders had grown to 96 million dollars. Immediately after the seizure by the Bank Board's agent, another run occurred to the Association, which resulted in withdrawals which, in a short time, totaled over 60 million dollars, which was approximately 70 per cent of the total shareholders' savings deposits. More litigation and another Congressional investigation ensued, as well as prolonged negotiations for settlement of the various controversies. The negotiations resulted in a Settlement Agreement of about 100 pages in length, which was dated February 14th, 1962. The Agreement, among other things, called for the return of the Association to its former management, and the dismissal of all the suits which concerned the merits of the disputes between the Association and the Bank Board. It provided for the merger of Long Beach with Equitable Savings & Loan Association, a California State-chartered association, the dissolution of Long Beach, and distribution of its surplus on a pro-rata basis to its shareholders. The features of that Agreement concerned with the pending motions will be touched on later. Many, if not all, of the suits to be dismissed were class actions, and under F.R.Civ.P. 23, this Court concluded that the widest possible notice should be given, and it was, and the Court fixed April 2nd, 1962, for the return of the Association. On that date, its total savings deposits were down to approximately 30 million dollars. Upon return of the Association to its management, money again flowed to it as deposits so that in the first two days approximately 24 million dollars had been deposited, some in sums of over $100,000.00 and up. The deposits continued so that on June 30th, 1962, the total was 79 million plus dollars and on December 31st, 1962, the total deposits by the shareholders in the Long Beach Savings & Loan Association amounted to approximately 72 million dollars.

Prior to the April, 1960, seizure of that Association, and in late 1959, Long Beach had indicated to the Bank Board its desire to convert to a California State Building and Loan Association and become a part of the California State-chartered Equitable Savings & Loan Association. The negotiations had proceeded to a point where the California State examiners were in the Association on the date of its second seizure on April 22, 1960. After the seizure and during the negotiations resulting in the Settlement Agreement, the Association continued to indicate its desire to combine with Equitable and dissolve as a Federal mutual Association. Article XV of the Settlement Agreement is devoted to the detail of such conversion and dissolution of Long Beach by joining with Equitable Savings & Loan Association. After the return of the Long Beach Association to its management on April 2nd, 1962, the Association, Equitable and the Bank Board continued to negotiate the matter of such merger and conversion and the ultimate dissolution of Long Beach. The Merger Agreement dated June 12th, 1963, was the result of such negotiations. Until July, 1962, the Bank Board gave no indication of any desire that the shareholders were to share in the distributable assets other than on a pro-rata basis. But beginning in July, 1962, and until April, 1963, the Board "insisted" on a provision in the Agreement excluding all shareholders with over $100,000.00 on deposit from sharing in the distributable surplus, unless they were depositors in that sum on or before the second seizure, viz: April 22nd, 1960.

This was the first indication by the Bank Board to anyone that the Bank Board desired to discriminate against any shareholder or treat any depositor other than on a mutual pro-rata basis as provided in the charter and the Settlement Agreement.

Long Beach officers and directors refused to accept this provision as not being in compliance with its charter or the law or the Settlement Agreement.

Then, in April, 1963, the Bank Board changed its position and, by the admission of the Government, "insisted" on the provisions in the Merger Agreement which are in dispute here, and which would prohibit any depositor for any amount who has pledged his shares on a loan any place, and all depositors of over ten thousand dollars who were not such on April 22nd, 1960 (the date of the second seizure) from sharing at all in the distributable surplus.² The officers and directors of Long Beach refused to accede to this demand until the Bank Board consented to a provision in the Merger Agreement that any shareholder member could take appropriate action to contest the validity of the Merger Agreement or any part thereof. The text of the portion of the Merger Agreement in dispute follows:

"ARTICLE VII

"The rights of Long Beach shareholders to receive stock in Equitable or other benefits under this Agreement shall be computed as follows:

"Long Beach

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