Branch v. U.S.

• Decision Date: 13 November 1995
• Docket Number: No. 95-5022,95-5022
• Citation: 69 F.3d 1571
• Parties: Dr. Ben BRANCH, Trustee of Bank of New England Corporation, derivatively and on behalf and in the name of Maine National Bank, Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1571

69 F.3d 1571

64 USLW 2322

Dr. Ben BRANCH, Trustee of Bank of New England Corporation,

derivatively and on behalf and in the name of

Maine National Bank, Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 95-5022.

United States Court of Appeals, Federal Circuit.

Nov. 13, 1995.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

Feb. 7, 1996.

William F. Sheehan, Shea & Gardner, Washington, DC, argued for plaintiff-appellee. Of counsel was Celestine R. McConville, Shea & Gardner.

Jacob M. Lewis, Appellate Staff, Civil Division, Department of Justice, Washington, DC, argued for defendant-appellant. With him on the brief were Frank W. Hunger, Assistant Attorney General, and Mark B. Stern. Of counsel were Thomas A. Schulz, Assistant General Counsel, and Wendy B. Kloner, Counsel, Federal Deposit Insurance Corporation, Washington, DC.

Before PLAGER, CLEVENGER, and BRYSON, Circuit Judges.

BRYSON, Circuit Judge.

This case presents a question of first impression for this court: whether the federal government violated the Takings Clause of the Fifth Amendment when it seized the assets of a bank to offset losses resulting from the failure of another bank owned by the same bank holding company. The Court of Federal Claims held that the seizure of the bank's assets constituted an uncompensated taking and therefore violated the Fifth Amendment. Branch v. United States, 31 Fed.Cl. 626 (1994).

We disagree. The statutory provision at issue in this case directs that when a bank failure causes a loss to the federal Bank Insurance Fund, sister banks that are owned by the same bank holding company may be held liable for the loss. The statute thus creates a special exception to the normal rule of limited corporate liability. We hold that the application of that statutory exception did not result in a prohibited taking of property in this case. We therefore reverse the order of the trial court. In upholding the statute as applied in this case, we join the Second Circuit, the only other court of appeals that has addressed the question of the statute's constitutionality. See Meriden Trust & Safe Deposit Co. v. Federal Deposit Ins. Corp., 62 F.3d 449 (2d Cir.1995).

I

The Maine National Bank was established as a national banking organization in 1889. In 1985, it was acquired by the Bank of New England Corporation (BNEC), a bank holding company that owned several other financial institutions, including the Bank of New England and the Connecticut Bank and Trust Company. At the time it was acquired and thereafter, the Maine National Bank was considered to be in good financial health, and as of 1991 it had a net value of approximately $65 million.

In 1989, responding to a crisis in the savings and loan industry, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (1989). The statute made extensive changes in the regulatory system for both the savings and loan and the banking industries. Several of the changes were designed to ensure the financial soundness of the Bank Insurance Fund, the fund that insures deposits in national banks. One of the innovations introduced by FIRREA was the so-called "cross-guarantee provision," which is codified at 12 U.S.C. Sec. 1815(e). Under the cross-guarantee provision, any bank owned by a bank holding company is liable for losses to the Bank Insurance Fund caused by the failure of a sister bank owned by the same holding company. See 12 U.S.C. Sec. 1815(e)(1)(A).

In the late 1980s, the Bank of New England began experiencing financial problems. Efforts to save the bank failed, and on January 6, 1991, the Comptroller of the Currency declared both the Bank of New England and BNEC insolvent and appointed the Federal Deposit Insurance Corporation (FDIC) as their receiver. On the same day, pursuant to the cross-guarantee provision of FIRREA, the FDIC served the Maine National Bank with a Notice of Assessment of Liability for the entire anticipated loss from the Bank of New England failure, a total of more than $1 billion. Although that sum was later reduced to approximately $99 million, both amounts exceeded the net value of the Maine National Bank. When the Maine National Bank advised the FDIC that it could not pay the assessment, the Comptroller of the Currency declared the Maine National Bank insolvent, closed the bank, and appointed the FDIC as its receiver. On the following day, BNEC filed for bankruptcy.

The FDIC eventually took possession of all the assets of the Maine National Bank, the Bank of New England, and the Connecticut Bank & Trust Company. Most of the assets of the insolvent banks were transferred to "bridge banks," which continued operating the banks until they could be sold. The banks were ultimately sold to Fleet/Norstar Financial Group, Inc.

Plaintiff Branch, the trustee in bankruptcy of BNEC, brought suit in the Court of Federal Claims. Branch alleged that the assessment against the Maine National Bank, followed by the seizure and closure of the bank, constituted a taking within the meaning of the Fifth Amendment, for which the Maine National Bank had to be compensated.

The government moved for summary judgment, but the Court of Federal Claims denied the motion. The court held that the application of the cross-guarantee provision of FIRREA would constitute a taking unless the Maine National Bank and BNEC had disregarded the corporate form in their dealings with one another. The government then moved, pursuant to 28 U.S.C. Sec. 1292(d)(2), for leave to take an interlocutory appeal from the order denying summary judgment. The trial court granted permission for the interlocutory appeal, as did this court.

II

Before reaching the merits, we address a question of jurisdiction. In his complaint, Branch identified himself as the trustee in bankruptcy of BNEC, which in turn was the sole owner of the Maine National Bank. As trustee of BNEC, Branch therefore now holds all the shares of the Maine National Bank. In his capacity as the holder of all the shares of the Maine National Bank, Branch brought what he termed a shareholder derivative action on behalf of and in the name of the bank.

Although the issue was not raised before the Court of Federal Claims, there is a question whether the Court of Federal Claims may entertain shareholder derivative actions. In 1982, the Court of Claims stated that shareholder derivative actions are not within the court's jurisdiction. See Whited v. United States, 230 Ct.Cl. 963, 965, 1982 WL 1408, cert. denied, 459 U.S. 871, 103 S.Ct. 157, 74 L.Ed.2d 131 (1982). The court noted that its rules contain no counterpart to Rule 23.1 of the Federal Rules of Civil Procedure, which permits shareholder derivative actions to be brought in district courts. More recently, the Court of Federal Claims has distinguished the Whited case and held that the absence of a specific rule authorizing shareholder derivative actions does not jurisdictionally bar that court from entertaining claims against the United States that are brought in the form of shareholder derivative suits. Suess v. United States, 33 Fed.Cl. 89, 97 (1995).

This court has not had occasion to address the question whether the Court of Federal Claims has jurisdiction over shareholder derivative actions, and we do not find it necessary to resolve that question in this case. Both parties argue that jurisdiction in this case can be premised on an alternative ground, and we agree.

As trustee in bankruptcy for BNEC, Branch not only holds all the shares of the Maine National Bank, but also represents the interests of the shareholders of BNEC. A judgment favorable to the plaintiff in this case would increase the assets of BNEC and could result in a surplus that would benefit BNEC's shareholders. In a similar setting, this court held in California Housing Securities, Inc. v. United States, 959 F.2d 955, 957 n. 2 (Fed.Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 324, 121 L.Ed.2d 244 (1992), that it was not necessary to determine whether the owner of a savings and loan association could sue derivatively for an alleged taking of the property of the savings and loan, since the complaint could be construed "as filed by a sole shareholder on behalf of a corporation alleging that compensation to the corporation will result in a surplus in which the shareholder possesses a direct interest." The same analysis is applicable here. Because the complaint can be construed as an action by the trustee of BNEC to recover assets for that corporation, the Court of Federal Claims had jurisdiction over the action, regardless of whether the court could properly have exercised jurisdiction on a shareholder derivative theory.

III

In analyzing a takings claim, a court must first determine what was taken. In his complaint and in his argument before this court, Branch characterizes the taking as consisting of the assessment and the consequent seizure and closure of the Maine National Bank. That characterization, however, is too broad, for it does not pinpoint what step in the sequence of events resulting in the closure of the Maine National Bank constituted conduct that the government could not engage in without paying compensation.

The seizure and closure of the bank, once the bank became insolvent, did not constitute a taking. It is well established that it is not a taking for the government to close an insolvent bank and appoint a receiver to take control of the bank's assets. See Golden Pacific Bancorp v. United States, 15 F.3d 1066, 1073-74 (Fed.Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 420, 130 L.Ed.2d 335 (1994); California Housing Sec., Inc., 959 F.2d at 957-60. Banking is a highly regulated industry, and an individual engaged in that industry is deemed to understand that if his bank becomes insolvent or is operated in violation of laws or regulations, the federal government may "take possession of its premises and...