Villafane-Neriz v. F.D.I.C.

• Decision Date: 09 November 1995
• Docket Number: I,VILLAFANE-NERI,No. 95-1492,95-1492
• Citation: 75 F.3d 727
• Parties: Miguelnsurance Commissioner of Puerto Rico, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants-Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 727

75 F.3d 727

64 USLW 2526

Miguel VILLAFANE-NERIZ, Insurance Commissioner of Puerto Rico, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, et al., Defendants-Appellees.

No. 95-1492.

United States Court of Appeals First Circuit.

Heard Nov. 9, 1995.

Decided Feb. 2, 1996.

As Amended on Denial of Rehearing April 9, 1996.

Appeal from the United States District Court for the District of Puerto Rico; Juan M. Perez-Gimenez, District Judge.

Carlos J. Morales-Bauza, Rio Piedras, PR, with whom Rossello-Rentas & Rabell- Mendez, San Juan, PR, was on brief, for appellant.

J. Scott Watson, Counsel, Federal Deposit Insurance Corporation, Philadelphia, PA, with whom Ann S. DuRoss, Assistant General Counsel and Richard J. Osterman, Jr., Senior Counsel, Federal Deposit Insurance Corporation, Washington, DC, were on brief, for appellee.

Before TORRUELLA, Chief Judge, CAMPBELL, Senior Circuit Judge, and WATSON, ^* Senior Judge.

TORRUELLA, Chief Judge.

This appeal seeks review of a decision of the United States District Court for the District of Puerto Rico, which entered summary judgment on behalf of appellee the Federal

                Deposit Insurance Corporation ("FDIC"), in its corporate capacity.   Appellant Miguel Villafane-Neriz, Insurance Commissioner of Puerto Rico (the "Commissioner") seeks to recover FDIC deposit insurance for the $50,000 value of a certificate of deposit (the "Certificate" or the "CD") purchased by the Guaranty Insurance Company ("Guaranty"), which was assigned to the Commissioner simultaneously with its purchase.   The district court held that the FDIC properly relied on the books and records of an insolvent institution in making its determination that the Commissioner was not entitled to deposit insurance.   The sole issue before us is whether the district court erred in granting summary judgment against the Commissioner in his action against the FDIC in its corporate capacity. 1  For the reasons stated herein, we affirm
                

BACKGROUND

The facts of this case are undisputed. On July 20, 1983, in compliance with the Puerto Rico Insurance Code's statutory deposit requirement, 26 L.P.R.A. §§ 801-809 (1976), Guaranty purchased the six-month CD from the Girod Trust Company ("Girod" or the "Bank") in the principal amount of $50,000. On the same day Guaranty assigned and conveyed its interest in the Certificate to the Commissioner. Girod was not a party to the assignment. Another document was executed on the same date, entitled "Requisition to the Bank." This document stated, inter alia, that Girod would not release the funds represented by the CD, "whether the principal value or income thereof," without the Commissioner's authorization. The Certificate was itself given to, and remains with, the Commissioner.

Less than three months after purchasing the Certificate from Girod, Guaranty executed a loan agreement, unrelated to the CD, pursuant to which it borrowed $600,000 from Girod. A promissory note for that amount, payable to Girod, evidenced the loan, and was due on April 26, 1984. On January 17, 1984, the CD became due, and was "rolled over"--extended for a term of six additional months--at Guaranty's request. In the meantime, Guaranty had fallen behind on payments due to the Bank under the $600,000 loan agreement. On July 16, 1984, the CD came due again. Two days after its maturity, on July 18, $50,000 in proceeds from the Certificate was credited toward Guaranty's outstanding indebtedness under the $600,000 loan agreement.

On August 16, 1984, Girod was declared insolvent and the FDIC was appointed as receiver. Four months later, on December 19, 1984, Guaranty also became insolvent, and the Commissioner was appointed its receiver in turn. As such, on August 25, 1986, the Commissioner filed a proof of claim with the FDIC, seeking payment on the CD. Having received no payment on the claim, the Commissioner filed a complaint against the FDIC in the Superior Court of Puerto Rico on May 22, 1991, seeking to recover the proceeds of the CD. The FDIC removed the action to federal court pursuant to 12 U.S.C. § 1819(b), and the parties filed cross-motions for summary judgment. Without ruling on the motions, the district court requested submission of briefs on the application of 12 U.S.C. § 1823(e). The court then held that that section barred the Commissioner's reliance upon either the Assignment or the Requisition, and ordered summary judgment in favor of the FDIC. On appeal in Villafane-Neriz v. FDIC, 20 F.3d 35 (1st Cir.1994), this Court reversed the judgment of the lower court and remanded the case for further proceedings consistent with its opinion. On February 7, 1995, the district court entered summary judgment dismissing the complaint. It is undisputed that the CD no longer appeared on the bank's books and records at the time the bank failed and that the Certificate itself remains in the Commissioner's possession.

DISCUSSION

A. Standard of Review

This case centers on whether the FDIC, in its corporate capacity, was correct in determining there was no insured deposit. As the essential facts are not in dispute, and all that is before us is a question of law, our review of the district court's decision is de novo. See, e.g., FDIC v. Keating, 12 F.3d 314, 316 (1st Cir.1993). This Circuit has not yet decided which standard a district court should use when reviewing FDIC insurance claim determinations.

There is a dispute among the circuits as to the underlying standard that should apply to the review of an FDIC insurance claim determination. The majority of circuits which have addressed the issue apply the deferential standard set out in Section 706 of the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701-706 (1994). See, e.g., Metro County Title, Inc. v. FDIC, 13 F.3d 883, 886 (5th Cir.1994) (direct petition to court of appeals for review of FDIC determination); Nimon v. RTC, 975 F.2d 240 (1992) (direct petition to court of appeals for review of Resolution Trust Corporation determination); In re Collins Sec. Corp., 998 F.2d 551, 553 (8th Cir.1993) (review of district court decision); Fletcher Village Condominium Ass'n. v. FDIC, 864 F.Supp. 259, 263 (D.Mass.1994). The APA mandates that reviewing courts set aside agency findings that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). Under this deferential standard a court would "review the evidence anew and determine whether the administrative action was arbitrary and capricious." First Nat'l Bank of Fayetteville v. Smith, 508 F.2d 1371, 1374 (8th Cir.1974), cert. denied, 421 U.S. 930, 95 S.Ct. 1655, 44 L.Ed.2d 86 (1975); see, e.g., Hymel v. FDIC, 925 F.2d 881, 883 (5th Cir.1991).

However, a recent decision by the D.C. Circuit creates a second option, holding that review of FDIC determinations, to be undertaken at the district court level, should be de novo rather than under the deferential APA standard. See Callejo v. RTC, 17 F.3d 1497 (D.C.Cir.1994). The Callejo court based its rejection of the APA on its reading of 12 U.S.C. § 1821(f) (1988 & Supp.1991), which provides for judicial review of disputed deposit insurance claims, and its revision under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Callejo, 17 F.3d at 1501 (concluding that § 1821(f)(3) "supplants the APA and sets up a different relationship between the agencies and the courts"); see Pub.L. No. 101-73, 103 Stat. 183 (1989); cf. Pennsylvania v. FDIC, 881 F.Supp. 979, 983 (E.D.Penn.1995) (rejecting Callejo's logic but nonetheless applying de novo standard of review on other grounds). This Circuit has expressly adopted the aspect of the Callejo decision which holds that initial jurisdiction to review claims for insurance benefits lies in the district court rather than in the court of appeals. Massachusetts v. FDIC, 47 F.3d 456, 458 (1st Cir.1995). However, the decision in that case was limited to Callejo's jurisdictional holding. Id. at 460. Thus, Massachusetts v. FDIC does not determine the district court's standard of review in the present case, and our decision to postpone the discussion does not clash with our earlier decision.

The district court did not explicitly state which standard of review it was applying, although it did make an isolated reference, midway through its opinion, to the "arbitrary, capricious and contrary to law" standard. We need not determine which standard the district court should have applied at this time, since we agree with the FDIC that under either the APA "arbitrary and capricious" or the Callejo de novo standard, the district court's decision is correct. Thus we postpone discussion regarding the applicable standard of review in light of Callejo for another day.

B. Was this an insured deposit?

At the core of the parties' dispute is whether the Commissioner was entitled to deposit insurance. That issue depends on whether there was an insured deposit at the time of Girod's failure, a question which in turn hinges on whether and when erroneous bank records are conclusive. It is undisputed that the Bank's account records did not disclose the existence of an account on the In the Federal Deposit Insurance Act, 12 U.S.C. §§ 1811-1831d (1982) (as amended), Congress defined "deposit" to mean "the unpaid balance of money or its equivalent received or held by a bank or savings association in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, ... or which is evidenced by its certificate of deposit...." 12 U.S.C. § 1813(l )(1) (Supp.1995). "Insured deposit" is defined in turn as "the net amount due to any depositor for deposits in an insured depository institution as determined under sections 1817(i) and 1821(a) of this title." 12 U.S.C. § 1813(m)(1) (1988 & Supp.1991).

                date Girod failed, and that the original Certificate is in the possession of the Commissioner, and has been

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