Doolin Sec. Sav. Bank, F.S.B. v. F.D.I.C.

• Decision Date: 18 May 1995
• Docket Number: No. 94-1877,94-1877
• Citation: 53 F.3d 1395
• Parties: DOOLIN SECURITY SAVINGS BANK, F.S.B., Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1395

53 F.3d 1395

63 USLW 2742

DOOLIN SECURITY SAVINGS BANK, F.S.B., Petitioner, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent.

No. 94-1877.

United States Court of Appeals Fourth Circuit.

Argued Dec. 5, 1994.

Decided May 18, 1995.

ARGUED: John Charles Deal, Emens, Kegler, Brown, Hill & Ritter, Columbus, OH, for petitioner. Barbara Susanne Woodall, F.D.I.C., Washington, DC, for respondent. ON BRIEF: Anthony C. White, Emens, Kegler, Brown, Hill & Ritter, Columbus, OH, for petitioner. Ann S. DuRoss, Asst. Gen. Counsel, Robert D. McGillicuddy, Sr. Counsel, Marta W. Berkley, F.D.I.C., Washington, DC, for respondent.

Before RUSSELL and MICHAEL, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

Affirmed by published opinion. Judge DONALD RUSSELL wrote the opinion, in which Judge MICHAEL and Senior Judge PHILLIPS joined.

OPINION

DONALD RUSSELL, Circuit Judge:

Doolin Security Savings Bank, F.S.B. (Doolin), appeals a decision by the Board of Directors of the Federal Deposit Insurance Corporation (Board) to terminate Doolin's insured status. We affirm.

I.

Doolin is a federally chartered savings association, with its principal place of business in New Martinsville, West Virginia. As an "insured depository institution" under the Federal Deposit Insurance Act (FDIA), 12 U.S.C. Sec. 1813(c)(2), Doolin has two regulators: the Office of Thrift Supervision (OTS), which is Doolin's primary federal regulator, and the Federal Deposit Insurance Corporation (FDIC), which has supplemental authority. Doolin pays its deposit insurance assessments to the FDIC under section 7 of the FDIA, 12 U.S.C. Sec. 1817(c)(2), and under 12 C.F.R. Sec. 327.3 (1994). ¹ The FDIC then credits the assessments to the Savings Association Insurance Fund (SAIF).

By letter dated December 1, 1992, the FDIC notified Doolin that it had assigned Doolin an assessment risk classification of "1B" for purposes of determining its annual deposit insurance rate for the six month period beginning January 1, 1993. The notification called for an assessment of $40,651.53, due and payable on January 31, 1993. Doolin believed that its risk classification should have been "1A" rather than "1B," which would have reduced its assessment to $32,677.37. ² Doolin asserted that the FDIC classification was erroneous because in assigning the classification, the FDIC relied in part on a 1992 OTS examination report and composite rating of Doolin, which Doolin believed were also erroneous. ³

Doolin thus paid the FDIC $32,677.37 in January 1993 and withheld the difference. Along with its payment, Doolin submitted an altered version of its certified statement, on which Doolin substituted an annual assessment rate corresponding to a 1A classification. The FDIC notified Doolin on May 18 and July 14, 1993, that it had failed to pay its full semiannual assessment due on January 31, 1993.

The next semiannual assessment of $67,519.24 was due and payable on July 31, 1993. In July 1993, Doolin paid only $59,728.68, again based on its calculation of its assessment as if it had been classified as 1A. Doolin also submitted a second certified statement altered to correspond to a 1A classification. From its two underpayments, Doolin withheld a total of $15,764.80 of its deposit insurance assessment for 1993.

By letter dated September 14, 1993, the FDIC informed Doolin that it had notified the OTS of Doolin's underpayment of insurance premiums and that it would likely proceed under section 8(a) of the FDIA, 12 U.S.C. Sec. 1818(a), to terminate Doolin's insured status unless Doolin remitted the full amount of the insurance premiums assessed. When Doolin continued to contest its risk classification, the FDIC formally began enforcement proceedings on November 18, 1993, pursuant to 12 U.S.C. Sec. 1818(a)(2)(B), by issuing Doolin a Notice of Intention to Terminate its Insured Status, Findings, and Order Setting Hearing. The Notice stated that Doolin had failed to pay the full amount of its semiannual assessments for 1993 in violation of section 7(c)(1) of the FDIA, 12 U.S.C. Sec. 1817(c)(1), and 12 C.F.R. Sec. 327.3. On November 24, 1993, Doolin filed its answer and request for a jury trial.

The FDIC moved for summary disposition with the ALJ on January 19, 1994, pursuant to 12 C.F.R. Sec. 308.29. Under Sec. 308.29(a), the ALJ shall recommend a final order granting such motions when there exists "no genuine issue as to any material fact" and "[t]he moving party is entitled to a decision in its favor as a matter of law." Finding "no material facts in genuine issue," the ALJ issued an order on February 24, 1994, recommending summary disposition in favor of the FDIC. Joint Appendix (JA) at 295 (emphasis in original). The ALJ primarily found that Doolin had not paid its required semiannual assessments and that it was in violation of 12 U.S.C. Sec. 1817(c)(1) and 12 C.F.R. Sec. 327.3. The ALJ also held that his recommendation mooted Doolin's outstanding document requests on the FDIC. Doolin filed exceptions to the recommended decision on March 25, 1994.

On June 29, 1994, the FDIC Board of Directors adopted the ALJ's recommended decision, making additional findings and conclusions, and issued its final Decision and Order to terminate Doolin's insured status on summary disposition. The Board found that section 8(a) of the FDIA, 12 U.S.C. Sec. 1818(a), authorized the FDIC to terminate the deposit insurance of an insured depository institution that violates applicable law and that Doolin violated applicable law by not paying its full insurance assessment. The Board also concluded that summary disposition was appropriate because there were no genuine issues of material fact. ⁴

Doolin's primary dispute before the ALJ and the Board centered on its 1B risk classification assignment and the lawfulness of the procedures by which the FDIC determined that classification. The ALJ concluded that review of those issues was not proper in this proceeding, and the Board agreed, reasoning that Doolin's disagreement with the assessment classification was in fact a basic disagreement with the OTS examination report. ⁵ The Board noted that Doolin was engaged in an effort to have the OTS modify its 1992 examination report but that Doolin had yet to be successful. The Board concluded that Doolin may not use this termination of insurance proceeding to circumvent its dispute with the OTS.

The Board also addressed Doolin's several other challenges to the FDIC's action. The Board rejected Doolin's contention that the FDIC should have sued in federal court to recover its unpaid assessment, rather than initiate this administrative proceeding. The Board also reasoned that the FDIC had acted reasonably in determining to rely, in part, on subjective reports of primary regulators in developing the risk-based assessment scheme. The Board further concluded that Doolin had received due process under the Administrative Procedure Act (APA), 5 U.S.C. Sec. 551 et seq. Finally, the Board rejected Doolin's suggestion that the FDIC could not make an objective determination of whether to maintain Doolin's 1B classification because the FDIC is institutionally biased based on its pecuniary interest in maintaining the insurance fund. Doolin filed a petition for review in this Court on July 8, 1994. By an order dated July 21, 1994, this Court stayed the FDIC Order pending review.

II.

The applicable standard under 12 U.S.C. Sec. 1818(h)(2) requires review "as provided in chapter 7 of Title 5 [of the APA]." Under this standard of review:

[T]his Court, in its review of the final agency action, cannot reverse the FDIC Board action unless the findings upon which it is based are not supported by substantial evidence on the record as a whole, or unless the remedies formulated by the Board constitute an abuse of discretion or are otherwise arbitrary and capricious.

Sunshine State Bank v. FDIC, 783 F.2d 1580, 1584 (11th Cir.1986); see also Bullion v. FDIC, 881 F.2d 1368, 1372-73 (5th Cir.1989) (adopting the same standard for review under Sec. 1818(h)(2) for civil penalty hearings regarding violations of 12 U.S.C. Sec. 1828(j)(4)(D)).

III.

On appeal, Doolin concedes that it underpaid its assessments and thus admits to the material facts that supported the Board's conclusion that Doolin had committed a violation warranting the termination of its insured status. Doolin, however, presents numerous challenges to the Board's decision and raises several issues regarding the legality of the FDIC risk-based assessment scheme and procedural structure under which the FDIC sought to terminate Doolin's insured status. The FDIC promulgated regulations governing the risk-based assessment scheme in 1992 and 1993, and our analysis of these regulations represents a case of first impression in this Circuit. We thus proceed to address Doolin's legal arguments contesting the FDIC's risk-based assessment scheme and its accompanying procedures.

In essence, Doolin's challenges can be grouped into objections based on: (1) the reasonableness of the FDIC's interpretation of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), Pub.L. No. 102-242, 105 Stat. 2236, in establishing the risk-based assessment scheme; (2) the constitutionality of existing FDIC procedures under which insured depository institutions challenge their assessment risk classifications; and (3) the authority of the FDIC to institute an administrative proceeding to terminate Doolin's insured status, as opposed to an action in federal district court.

A.

Doolin first challenges the lawfulness of the FDIC regulations under 12 C.F.R. Sec. 327.3, which establish the FDIC's risk-based assessment scheme. Specifically, Doolin argues that the risk-based assessment regulations are inconsistent with the FDICIA because the regulations allow the FDIC to use subjective, bank-by-bank evaluations, such as those contained in primary regulator examination reports, in determining...