LINCOLN SAV. AND LOAN ASS'N v. Wall, Civ. A. No. 89-1318

• Decision Date: 22 August 1990
• Docket Number: Civ. A. No. 89-1318,89-1323.
• Citation: 743 F. Supp. 901
• Parties: LINCOLN SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. W. Danny WALL, Director, Office of Thrift Supervision, Defendant. AMERICAN CONTINENTAL CORPORATION, et al., Plaintiffs, v. M. Danny WALL, Director, Office of Thrift Supervision, et al., Defendants.
• Court: U.S. District Court — District of Columbia

743 F. Supp. 901

LINCOLN SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. W. Danny WALL, Director, Office of Thrift Supervision, Defendant.

AMERICAN CONTINENTAL CORPORATION, et al., Plaintiffs, v. M. Danny WALL, Director, Office of Thrift Supervision, et al., Defendants.

Civ. A. Nos. 89-1318, 89-1323.

United States District Court, District of Columbia.

August 22, 1990.

Leonard Bickwit, Jr., Robert K. Huffman, Kathryn Bucher, Miller & Chevalier, Ch., Washington, D.C., Michael K. Kennedy, John E. Lundin, Gallagher & Kennedy, P.A., Phoenix, Ariz., Charles M. Stern, Ronald L. Fein, James H. Berry, Jr., Paul Baskett, Wyman Bautzer Kuchel & Silbert, Los Angeles, Cal., for plaintiffs.

James P. Murphy, Paul E. Gutermann, Squire, Sanders & Dempsey, Washington, D.C., for defendants.

MEMORANDUM OPINION

SPORKIN, District Judge.

In this consolidated action, plaintiffs American Continental Corporation and Lincoln Savings and Loan Association seek to regain operational control of Lincoln Savings and Loan Association. Plaintiff American Continental Corporation ("ACC") is an Ohio corporation with its principal place of business in Phoenix, Arizona. Plaintiff Lincoln Savings and Loan Association ("Lincoln") is a California corporation chartered as a savings and loan institution by the State of California Department of Savings and Loans. Lincoln is a wholly owned subsidiary of ACC. The deposits in Lincoln were insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). Defendant Office of Thrift Supervision is the successor agency of the Federal Home Loan Bank Board ("FHLBB" or "Bank Board"). On April 14, 1989, the Bank Board pursuant to its statutory authority appointed a conservator to take over the management of Lincoln. On August 2, 1989, the Bank Board replaced the conservator with a receiver.

I. BACKGROUND

Plaintiffs challenge the decisions of the Bank Board to appoint a conservator and a receiver for Lincoln. Specifically, plaintiffs seek an order requiring the Office of Thrift Supervision, successor to the Bank Board,¹ to remove the conservator that was appointed on April 14, 1989, and the receiver that was appointed on August 2, 1989. The Bank Board possesses the authority to appoint a conservator or a receiver once it makes certain findings. 12 U.S.C. § 1464(d)(6)(A). The decision to appoint a conservator for Lincoln was made after the FHLBB concluded that Lincoln was "in an unsafe and unsound condition to transact business," and that there had been a "substantial dissipation of assets or earnings due to ... violations of law, rules, or regulations, or to any unsafe or unsound ... practices." 12 U.S.C. § 1464(d)(6)(A).² Later, these findings coupled with the Board's conclusion that Lincoln was insolvent resulted in the appointment of a receiver.

The relevant statutory provisions empower the Bank Board to make these appointment determinations ex parte and without notice. Id. The statute also authorizes the Bank Board to replace a conservator with a receiver without further notice or hearing. 12 U.S.C. § 1464(d)(6)(D). Once the Bank Board appoints either a conservator or a receiver, the savings and loan association that is adversely affected may seek judicial review of the action. Thus, the association is accorded the right to contest the Bank Board's actions "upon the merits" in a post-deprivation proceeding in the United States District Court for the District of Columbia or the district in which the association has its home office.³Id. In initiating this action, plaintiffs have availed themselves of this statutory right to judicial review.

Plaintiffs here contend that they at all times managed and operated Lincoln on a sound financial basis. Plaintiffs allege that defendant was not justified in seeking and obtaining their removal from control of Lincoln which was effectuated by the Bank Board's appointment of a conservator and ultimately a receiver for Lincoln. Plaintiffs claim that the Bank Board's actions were arbitrary and capricious and that these actions were so ill founded that they precipitated Lincoln's severe financial crisis.

Plaintiffs further assert that Lincoln would be solvent and operating today if the Bank Board had not taken the precipitous action of placing Lincoln in a conservatorship and then in receivership. It is defendant's contention that plaintiffs engaged in numerous unsafe and unsound banking practices and that as a result of these and other improper practices there had been a substantial dissipation of the thrift's assets. The Bank Board asserts that it was these practices that led to Lincoln's downfall.

In the post-deprivation hearing conducted before this Court, the Board justified its actions by introducing proof on a number of specific transactions which it claims fully sustain its position.⁴ Plaintiffs have countered by alleging that the transactions enumerated were perfectly proper and have introduced expert testimony to demonstrate the accounting treatment afforded these transactions fully conformed with all the professional norms that existed at the time the transactions were effected. Plaintiffs also introduced evidence from their independent auditors which plaintiffs claim fully support the accounting treatment taken.

II. STANDARD OF REVIEW

Here, plaintiffs challenge the decision of the Bank Board, an independent agency of the executive branch, to place Lincoln into a conservatorship and receivership. 12 U.S.C. § 1437. Plaintiffs contend that this Court must review the actions of the Bank Board under a de novo standard. In support of this position, plaintiffs make various statutory and constitutional arguments. Pl.Mem.Dec.Stand. at 4-36. Specifically, plaintiffs place great emphasis upon the language of the statute that affords them the right to initiate this action. The pertinent statutory language provides that once an action challenging the appointment of a conservator or receiver is initiated the "court shall upon the merits dismiss such action or direct the Board to remove such conservator or receiver." 12 U.S.C. 1464(d)(6)(A).⁵

Prior to making a determination that testing of the administrative record was warranted, this Court noted that the purpose of such a hearing would be to determine how good the decision of the Bank Board was, that is "whether it was, in effect, arbitrary and capricious." Motions Hearing Tr. at 84. Thus, the purpose for conducting an evidentiary hearing was to test the accuracy of the record upon which the Bank Board relied when making its decisions.

Arbitrary and capricious review is often utilized when reviewing the decisions of an administrative action. 5 U.S.C. § 706(2)(A). This standard of review requires judicial deference to the agency's judgment. The Court must consider whether the agency's action was based on a consideration of relevant factors or whether there has been a clear error in judgment. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971). "Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." Id. Notwithstanding this deference, the agency must "examine the relevant data and articulate a satisfactory explanation for its action including a `rational connection between the facts found and the choice made.'" Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983) (quoting, Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)). The question of whether an agency has acted in an arbitrary and capricious manner turns on the extent to which the relevant statute restricts the agency's discretion. Kreis v. Secretary of the Air Force, 866 F.2d 1508, 1514 (D.C.Cir.1989). Here, Congress has conferred a great deal of discretion upon the Bank Board. The statute provides that the Board "shall have exclusive power and jurisdiction to appoint a conservator or receiver." 12 U.S.C. 1464(d)(6)(A). The delegation of such authority is consistent with the need for effective regulation of the savings and loan industry. See Woods v. Federal Home Loan Bank Bd., 826 F.2d 1400, 1406-7 (5th Cir.1987), cert. denied, 485 U.S. 959, 108 S.Ct. 1221, 99 L.Ed.2d 422 (1988). This is particularly so where, as here, the accounts of a savings and loan association are insured by the federal government for $100,000 per account. While plaintiff ACC invested some $51 million to purchase Lincoln, the institution's $1 billion in assets came from depositors with federally insured accounts. Thus, by virtue of its insurance of Lincoln accounts, the federal government's interest in Lincoln is many times that of ACC.

Application of arbitrary and capricious review is particularly appropriate where the central issue is whether statutory grounds existed for the appointment of a conservator or receiver at the time the Bank Board acted.⁶ As one court has explained,

The issue, regardless of process, becomes whether the Bank Board had a reasonable factual basis for its opinion that one or more of the statutory grounds existed for the appointment of a conservator or receiver. Thus, the ultimate question is whether one or more of the statutory grounds existed at the time of the appointment of the conservator or receiver. After careful consideration, the Court concludes that the exercise of discretion by the Bank Board to appoint a conservator or receiver for a federally-insured association is a determination reviewable under the arbitrary and capricious standard.

Haralson v. Federal Home Loan Bank Bd., 721 F.Supp. 1344, 1353 (D.D.C.1989).

While this Court is convinced that the Bank Board has satisfied the "arbitrary and capricious" standard, the evidence proffered and received during the hearing satisfied each of the other standards that are...