First Nat. Bank & Trust, Wibaux, Mont. v. Department of Treasury, Comptroller of Currency, 94-35283

Citation63 F.3d 894
Decision Date21 August 1995
Docket NumberNo. 94-35283,94-35283
Parties95 Cal. Daily Op. Serv. 6555, 95 Daily Journal D.A.R. 11,221 FIRST NATIONAL BANK & TRUST, WIBAUX, MONTANA; Thomas E. Towe, Trust; Kristin Hartley, Trust; Sara Horsfall, Trust; Andrew C. Towe, Trust; Grant Investments Fund; Irene Koch; Dorothy Tow, Stockholders of First National Bank of Wibaux, Montana, Plaintiffs-Appellants, v. DEPARTMENT OF the TREASURY, The COMPTROLLER OF THE CURRENCY, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

Thomas E. Towe, Towe, Ball, Enright, Mackey & Sommerfield, Billings, MT, for plaintiffs-appellants.

Jacob M. Lewis, U.S. Dept. of Justice, Washington, DC, for defendant-appellee.

Appeal from the United States District Court for the District of Montana.

Before: WRIGHT, SKOPIL and THOMPSON, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

Acting Comptroller of the Currency Stephen L. Steinbrink (the Comptroller) appointed a conservator for First National Bank & Trust (the Bank) pursuant to 12 U.S.C. Sec. 203(a) (Supp. II 1990). The Bank and certain of its shareholders sued the Comptroller to terminate the conservatorship, contending he had violated their rights to procedural due process and had acted arbitrarily and capriciously. On cross-motions for summary judgment, the district court granted judgment for the Comptroller, from which the Bank appeals. We affirm.

FACTS

On January 15, 1987, Edward Towe became president and chief executive officer of First National Bank and Trust, located in eastern Montana. 1 At that time, the Bank was operating under a November 14, 1986 cease and desist order imposed by the Comptroller.

Between 1987 and 1990, the Comptroller issued increasingly critical examination reports of the Bank, pointing out the Bank's noncompliance with certain laws and regulations and with the terms of the cease and desist order.

In a May 5, 1992 letter to the Bank's board of directors, the Comptroller described the Bank's "history of complying with banking laws and regulations, compliance with the Cease and Desist Order and operations of the bank" as "unacceptable," and informed the board that the most recent examination revealed that the Bank's condition "remains a serious supervisory concern." The letter stated that "[d]ue to the seriousness of the matters discussed" in the letter and the accompanying examination report, the board should respond "no later than May 26, 1992."

The board's response consisted of a six-page letter dated May 15, 1992 from Edward Towe as the Bank's president, a four-page letter dated June 1, 1992 from Thomas Towe, as the Bank's attorney and chairman of the board, and a 33-page "Board Response," which was enclosed with Thomas Towe's letter. On June 25, 1992, the Comptroller appointed a conservator for the Bank pursuant to 12 U.S.C. Sec. 203(a) (Supp. II 1990). 2

In his 124-page decision appointing a conservator, the Comptroller criticized the Bank for granting favorable treatment to its affiliated entity, Grant Investments. Also singled out for criticism was the Bank's alleged disregard of regulations governing "other real estate owned" (OREO). The Comptroller found the Bank had exceeded the five-year holding deadline for certain foreclosed properties, and that by refusing to account for those properties in accordance with banking regulations, the Bank had effectively overstated its capital. The Comptroller also found the Bank had violated at least eight of the seventeen articles of the cease and desist order. 3

On July 6, 1992, the Bank and certain of its shareholders sued the Comptroller in district court to terminate the conservatorship pursuant to 12 U.S.C. Sec. 203(b)(1). The Bank also requested a post-seizure evidentiary hearing, which the district court denied. The The parties filed cross-motions for summary judgment. The district court granted summary judgment to the Comptroller. The Bank moved for reconsideration, which the district court denied. This appeal followed.

Comptroller then moved for a protective order limiting review of his decision to the administrative record, which the district court granted over the Bank's opposition.

DISCUSSION
A. Did the lack of predeprivation notice and a hearing violate due process?

The Comptroller is authorized to appoint a conservator for a national bank "without notice or prior hearing" whenever he finds "a violation or violation of laws, rules, or regulations, or any unsafe or unsound practice ... likely to cause insolvency or substantial dissipation of assets or earnings, or ... likely to weaken the bank's condition or otherwise seriously prejudice the interests of its depositors." 12 U.S.C. Sec. 203(a)(5) (Supp. II 1990).

The Bank contends that unless section 203(a) is limited to "extraordinary" circumstances, the Comptroller's appointment of a conservator without notice and a prior hearing is unconstitutional. See United States v. James Daniel Good Real Property, 510 U.S. ----, ----, 114 S.Ct. 492, 501, 126 L.Ed.2d 490 (1993) ("We tolerate some exceptions to the general rule requiring predeprivation notice and hearing, but only in extraordinary situations where some valid governmental interest is at stake that justifies postponing the hearing until after the event.") (quoting Fuentes v. Shevin, 407 U.S. 67, 82, 92 S.Ct. 1983, 1995, 32 L.Ed.2d 556 (1972)). Because the Bank was not afforded notice and a hearing prior to the Comptroller's appointment of the conservator, the Bank argues section 203(a) was unconstitutionally applied to it.

A predeprivation hearing may be postponed "where some valid governmental interest is at stake." Good, 510 U.S. at ----, 114 S.Ct. at 501 (quoting Fuentes, 407 U.S. at 82, 92 S.Ct. at 1995). Whether a situation warrants such a postponement depends on balancing three factors: (1) the importance of the private interest affected by the governmental action, (2) the government's interests, and (3) the risk of erroneous deprivation. Id. (citing Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976)).

It is well-recognized that the government's interest in protecting bank depositors and the public weal justifies the appointment of a conservator without a prior hearing. See Fahey v. Mallonee, 332 U.S. 245, 253-54, 67 S.Ct. 1552, 1555-56, 91 L.Ed. 2030 (1947); Fidelity Sav. & Loan Ass'n v. Federal Home Loan Bank Bd., 689 F.2d 803, 811 (9th Cir.1982); cert. denied, 461 U.S. 914, 103 S.Ct. 1893, 77 L.Ed.2d 283 (1983). The Bank nonetheless dismisses the government's interest here as weak, because the Bank "was not on the verge of collapse." Yet the Bank was obviously troubled; its CAMEL rating, though recently upgraded, was but one grade above the worst. 4 Moreover, less drastic enforcement measures, including the cease and desist order, had been unavailing. Against this background, the government had a strong interest in moving quickly to avoid dissipation of the Bank's assets.

Nor is the private interest in this case as strong as the Bank suggests. The Bank's shareholders had full knowledge "of the extensive regulatory system and the possibility of continuous, in-depth supervision by Bank Board examiners;" the Bank was operating under a cease and desist order and had a poor record of compliance with banking laws and regulations. See Woods v. Federal Home Loan Bank Bd., 826 F.2d 1400, 1411 (5th Cir.1987), cert. denied, 485 U.S. 959, 108 S.Ct. 1221, 99 L.Ed.2d 422 (1988). Finally, as we discuss infra, the availability and nature of postdeprivation review by the district Having weighed the relevant factors, we conclude the Bank's constitutional rights were not violated by the Comptroller's appointment of a conservator without notice and a predeprivation hearing. We next consider the adequacy of the district court's postdeprivation review.

court minimized the risk of an erroneous deprivation.

B. Was the scope of the district court's postdeprivation review consistent with section 203 and the Administrative Procedures Act? 5

Generally, judicial review of an agency decision is limited to the administrative record. Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973) (per curiam). However, the Bank contends section 203 required the district court in this case to depart from this general rule, expand the scope of its review beyond the administrative record, and hold an evidentiary hearing.

Judicial review of the Comptroller's decision to appoint a conservator is afforded by section 203(b)(1). This section permits a bank to file suit in federal district court to terminate the conservatorship, and authorizes "the court, upon the merits [to] dismiss such action or [to] direct the Comptroller to terminate" the conservatorship if it should "find[ ] that such decision was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 12 U.S.C. Sec. 203(b)(1).

Arguing for an expanded scope of review, the Bank relies on several district court cases which have read the phrase "upon the merits" in section 203(b)(1) and in 12 U.S.C. Sec. 1464(d)(6)(A) (1988) (current version at 12 U.S.C. Sec. 1464(d)(2)(B) (1994)), an identically-worded statute applicable to thrifts, as requiring such a hearing. See Collie v. Federal Home Loan Bank Bd., 642 F.Supp. 1147, 1149-52 (N.D.Ill.1986); Telegraph Savings and Loan Assoc. v. FSLIC, 564 F.Supp. 862, 868-70 (N.D.Ill.1981); 6 see also Haralson v. Federal Home Loan Bank Bd., 655 F.Supp. 1550, 1559-60 (D.D.C.1987) (12 U.S.C. Sec. 1464(d)(6)(A) requires postdeprivation hearing in which board carries evidentiary burden), appeal dismissed, 837 F.2d 1123 (D.C.Cir.1988); Fidelity Savings and Loan Assoc. v. Federal Home Loan Bank Bd., 540 F.Supp. 1374, 1377 (N.D.Cal.1982) ("If it means nothing more, the term 'on the merits' reveals that a proceeding under this statute is more in the nature of a de novo review than an appellate review."), rev'd on...

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