WASH. FED. S. & L. v. Fed. Home Loan Bank Bd.

• Decision Date: 17 July 1981
• Docket Number: No. C80-443.,C80-443.
• Citation: 526 F. Supp. 343
• Parties: WASHINGTON FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

526 F. Supp. 343

WASHINGTON FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD, et al., Defendants.

No. C80-443.

United States District Court, N. D. Ohio.

July 17, 1981.

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William D. Ginn, Timothy F. McMahon, David J. Hooker, Richard Van M. Krotseng, Thompson, Hine & Flory, Cleveland, Ohio, Arthur W. Leibold, Jr., Dechert, Price & Rhoads, Washington, D. C., for plaintiff.

James Smith, John E. Lynch, Jr., Squires, Sanders & Dempsey, Cleveland, Ohio, Lawrence W. Hayes, Associate Gen. Counsel, Federal Home Loan Bank Bd., Washington, D. C., Paul L. Csank, Csank, Csank & Coaxum, Cleveland, Ohio, for defendants.

MEMORANDUM AND ORDER

WILLIAM K. THOMAS, Senior District Judge.

Late in the afternoon of March 18, 1980, the Federal Home Loan Bank Board (FHLBB or Board) appointed the Federal Savings & Loan Insurance Corporation (FSLIC) as receiver for Washington Federal Savings and Loan Association of University Heights, University Heights, Ohio (Washington Federal). In its resolution (80-181) appointing the receiver, the Board determined that grounds existed for the appointment pursuant to section 5(d)(6)(A) of the Home Owners' Loan Act of 1933 ("HOLA"; 12 U.S.C. 1464(d)(6)(A)), specifically:

(1) Washington Federal is in an unsafe and unsound condition to transact business in that it is unable to meet its liabilities or obligations; and

(2) the assets of Washington Federal have been substantially dissipated due to violations of law or regulations and to unsafe or unsound practices.

Later on March 18, by resolution 80-182, the Board authorized the FSLIC as receiver for Washington Federal to sell and transfer certain assets and liabilities to Broadview Savings & Loan Company (Broadview) memorialized by a purchase and assumption agreement. In the same resolution, the Board authorized the FSLIC as receiver to enter into an agreement of sale with the FSLIC in its corporate capacity, pursuant to which the FSLIC as receiver would sell to the FSLIC as corporation certain assets. The corporation would assume certain liabilities of Washington Federal which Broadview did not purchase or assume.

Resolution 80-183 adopted by the Board authorized the FSLIC as corporation to enter into an indemnity agreement with Broadview and the agreement of sale with the FSLIC as receiver.

Representatives of the Board and the FSLIC as receiver on March 18 served "papers" on Washington Federal (presumably 80-181), and employees of Broadview on March 18 took over the main office and branches of Washington Federal on the same day.

Washington Federal filed this action on March 27, 1980 and its amended complaint on April 22, 1980. It rests jurisdiction in part on 12 U.S.C. § 1464(d)(6)(A). In its first cause of action, Washington Federal alleges that the findings of the Board on which the Board based the appointment of the FSLIC as receiver "were clearly erroneous and unsupportable and there were no other facts on March 18, 1980 justifying the FHLBB's action." Washington Federal asserts that:

The ex parte action of the FHLBB in declaring an involuntary receivership for Washington Federal and appointing the FSLIC as the receiver was arbitrary and unreasonable, not supported by valid findings or motivated by proper purposes, and in excess of the FHLBB's authority under 12 U.S.C. § 1464(d)(6)(A).

Washington Federal seeks a mandatory injunction

directing the FHLBB to remove the FSLIC as receiver and to dissolve the receivership and ordering the FHLBB, the FSLIC and Broadview to rescind all actions taken pursuant to the receivership, to reconstitute Washington Federal's business, and to restore to Washington Federal and its depositor owners all of their assets improperly taken from them.

Defendants Bank Board and the FSLIC in their answer, filed June 6, 1980, denied all allegations not admitted to be true and requested dismissal of Count I of the amended complaint. On the same day, defendants moved to dismiss Counts II through X, inclusive, of the plaintiff's amended complaint. This court on August 8, 1980 severed Count I from Counts II through X, ordering the separate trial of Count I.

On December 18, 1980 this court entered a memorandum and order which established the standard of judicial review and placed the burden of proof. In part, it was concluded:

The ultimate issue in the trial of this case is whether Washington Federal has sustained the burden of proving that the Board abused its discretion in reaching its "opinion" that a receiver should be appointed. ...

Manifestly, if Washington Federal shows by a preponderance of the evidence that the Board acted arbitrarily and capriciously, then it has established that the Board abused its discretion.

Testimony and exhibits were received at the trial, which lasted from January 5 through February 12, 1981. Following written submissions and oral argument, the case was taken under advisement on May 25, 1981.

I.

A.

Under section 706 of the Administrative Procedure Act, 5 U.S.C. § 706, a court that reviews agency action is directed to "review the whole record or those parts of it cited by a party." Citizens To Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), a review of informal agency action of the Secretary of Transportation, prescribes that the "whole record" shall be "compiled by the agency" and that this is the "basis for review required by § 706 of the Administrative Procedure Act." Id., at 419, 91 S.Ct. at 825.

The scope of judicial review determined to apply in this case coincides with the language of section 706(2)(A):

The reviewing court shall —

(2) hold unlawful and set aside agency action, findings, and conclusions found to be —

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;....

Nevertheless, section 706's requirement that the administrative agency compile the administrative record, interpreted in Overton Park, is a general statute that does not apply here. Instead, 12 U.S.C. § 1464(d) (6)(A), under which Washington Federal brings this action, controls. In relevant part it provides:

In the event of the appointment of a conservator or receiver for a savings and loan association, the association may, within 30 days thereafter, bring an action in the United States district court ... for an order requiring the Board to remove such conservator or receiver, and the court shall upon the merits dismiss such action or direct the Board to remove such conservator or receiver.

As seen, the statute gives no guidance concerning the nature or composition of a judicial record that is developed in an action brought under this provision; and there has been no prior judicial interpretation of this language.¹

Provision for a district court action perforce allows for the calling of witnesses and the development of a factual judicial record.² What, then, is the permissible content of the administrative record developed in an association action challenging the Board's appointment of a receiver? In its memorandum of December 18, this court required the Board to "assume the initial burden of placing on the record the factual results of any investigation or analysis of the financial condition and business practices of Washington Federal and any other findings upon which the Board based its opinion." In effect, the Board was directed to call witnesses and produce exhibits that would reconstruct the administrative record.

The parties agree, and it is ruled, that the administrative record should include the transcripts of the verbatim tapes of participants' oral statements and proceedings of the Board meetings held on March 14, March 17, and March 18, 1980. Beyond that, there is dispute over the admissibility of oral statements as part of the administrative record.

During the trial, plaintiff challenged the inclusion in the administrative record of the testimony of staff members recounting any briefing session held preceding a Board meeting and attended by Board members, their assistants, and staff members. The issue arose during the testimony of Thomas Timmins, deputy director of the Board's Office of Examination and Supervision (OES).³ It was ruled, "Mr. Timmins may testify and others may testify in terms of what went on in the briefing session...." Thereupon, Mr. Timmins was permitted to testify as to his input into the briefing session on the morning of March 14, 1980, both as to what he said and also as to any documentary materials which he took to the briefing session. While Mr. Timmins and other persons attending the briefing sessions were permitted to testify as to their own statements, none was permitted to report what others said at the briefing session.

In a post-trial brief, Washington Federal specifically argues that oral recollections of Bank Board witnesses who testified as to what they said at the briefing sessions "are not a part of the administrative record and may not form the basis upon which the bank board acted." Defendants counter by saying that the authorities reviewed

demonstrate that in informal decision-making, an agency has the right to rely on its staff in compiling information, and that the information reviewed by staff prior to the staff's communication of its recommendations to the decision makers constitute an appropriate part of the administrative record.

Washington Federal relies primarily upon language from Home Box Office, Inc. v. F.C.C., 567 F.2d 9, 54 (D.C.Cir.1977), which Washington Federal says defines the "administrative record" as the "body of material — documents, comments, transcripts, and statements in various forms declaring agency expertise or policy — with reference to which the agency decision-maker's judgment was exercised." While the court thus defined the administrative record, it is important to note that at another point in the opinion,...