FIDELITY SAV. & LOAN v. Federal Home Loan Bank Bd.

• Decision Date: 04 June 1982
• Docket Number: No. C-82-1592 SW.,C-82-1592 SW.
• Citation: 540 F. Supp. 1374
• Parties: FIDELITY SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. FEDERAL HOME LOAN BANK BOARD, et al., Defendants.
• Court: U.S. District Court — Northern District of California

540 F. Supp. 1374

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

No. C-82-1592 SW.

United States District Court, N. D. California.

May 24, 1982.

On Removal of Receiver June 3, 1982.

On Remedies June 4, 1982.

COPYRIGHT MATERIAL OMITTED

Barry D. Hovis, Thomas G. Reddy, Angell, Holmes & Lea, San Francisco, Cal., Palmer Brown Madden, Stephen L. Kostka, Linda Agerter, Van Voorhis & Skaggs, Walnut Creek, Cal., for Plaintiff Fidelity Savings and Loan Assn.

Kirkpatrick, Lockhart, Hill, Christopher & Phillips, George L. Christopher, Ronald W. Stevens, Washington, D. C., Pillsbury, Madison & Sutro, Charles B. Renfrew, James N. Roethe, San Francisco, Cal., for defendant Federal Home Loan Bank of San Francisco.

Latham & Watkins, Alan N. Halkett, Alan B. Clark, Laurence Hummer, Los Angeles, Cal., for defendants Federal Home Loan Bank Board, Richard T. Pratt, Federal Savings and Loan Insurance Corp., and H. Brent Beesley.

MEMORANDUM AND ORDERS

SPENCER WILLIAMS, District Judge.

Plaintiff Fidelity Savings and Loan Association (Fidelity) brings this action to remove the Federal Savings & Loan Insurance Corporation (FSLIC) as receiver of its assets and for such other equitable relief as it deems is necessary and permissible under the statute to place it in the same position it occupied on the date of the appointment. Defendants Federal Home Loan Bank Board (FHLBB) and FSLIC filed a motion for summary judgment on the ground that there are no material issues of fact concerning the satisfaction of the statutory prerequisites for appointment of a receiver. After careful consideration of the excellent and exceedingly thorough briefs of all parties, the court concludes that the motion must be denied at this time. The following constitutes a brief explanation of the court's reasoning.

APPLICABLE LEGAL STANDARDS

The jurisdiction of this court is predicated on Title 12 U.S.C. § 1464(d)(6)(A) which provides that the FHLBB may appoint a receiver for a savings and loan association ex parte and without notice when it feels, in its opinion, that an adequate ground for such appointment exists under the law. The statute specifically outlines the association's remedy:

In the event of such appointment of a receiver, the association may, within thirty days thereafter, bring an action in the United States district court for the judicial district in which the home office of such association is located, or in the United States District Court for the District of Columbia, for an order requiring the Board FHLBB 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.

The statute further spells out that an action under the above-quoted statute is the sole and exclusive method by which an association may affect removal of the receiver. 12 U.S.C. § 1464(d)(6)(C).

When assessing the propriety of the FHLBB's exercise of power to appoint a receiver, the court must examine the statutory requirements for such an appointment. Title 12 U.S.C. § 1729(c)(2) states that the FHLBB shall have exclusive power and jurisdiction to appoint the FSLIC as the receiver of an insured state savings and loan association if it determines:

(A) that ... (ii) an insured institution (other than a Federal savings and loan association) has been closed by or under the laws of any State;

(B) that one or more the grounds specified in paragraph (6)(A) of section 1464(d) of this title, existed with respect to such institution at the time a conservator, receiver, or other legal custodian was appointed, or at the time such institution was closed, ...; and

(C) that one or more the holders of withdrawable accounts in such institution is unable to obtain a withdrawal of his account, in whole or in part;

Section 1464(d)(6)(A), referred to in subsection (B) of section 1729(c)(2) permits the appointment of a receiver whenever the association is in "an unsafe or unsound condition to transact business."

STANDARD OF REVIEW

The parties to this action dispute the standard by which the court is to review a determination by the FHLBB that the three requirements of section 1729(c)(2) have been met. Fidelity, on the one hand, seeks a trial de novo on both the existence of facts supporting a 1729(c)(2) determination and the exercise of that jurisdictional power by the FHLBB. On the other hand, FSLIC and the FHLBB argue that the court's power of review is limited to a post facto adversarial hearing on whether the statutory grounds were present.

A reasoned analysis of this question begins and ends with an inquiry into the meaning of the term "on the merits" contained in the grant of jurisdiction contained in section 1464(d)(6)(A). Initially, the court concludes, as did Judge Grady in Telegraph Savings & Loan Ass'n v. Federal Savings & Loan Insurance Corp., No. 80 C 2792 (N.D. Ill., filed June 9, 1981), that this phrase necessarily implies that the court's power to review the FHLBB's determination is not bound by the normal limitations applicable to an administrative review of an agency's previous adjudication. See 5 U.S.C. § 706(2)(E). 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. Cf. Horton v. Liberty Mutual Insurance Co., 367 U.S. 348, 354-55, 81 S.Ct. 1570, 1573-74, 6 L.Ed.2d 890 (1961).

Clearly, the ordinary reasons calling for deference to an administrative decision are not present in the instant situation. There were no adversarial hearings before the agency and there was no identifiable administrative record. See generally Washington Federal Savings & Loan Ass'n v. Federal Home Loan Bank Board, 526 F.Supp. 343 (N.D.Ohio 1981). Moreover, the statute giving rise to the agency's jurisdiction in no way contemplates any limitations on this court's powers of review. The statute calls for an expedited hearing on the merits of the Board's decision and allows the court to reverse completely the appointment decision as opposed to remanding the case for further consideration.

Accordingly, the court concludes that, in light of the serious due process considerations, the plaintiff is entitled to a full adversarial hearing on the question whether the three prerequisites listed in section 1729(c)(2) were present in this action. As to this question, the court sits not as an appellate body but as independent reviewer of the evidence. Therefore, Fidelity must be accorded the opportunity to present evidence and cross examine witnesses on the question of whether the FHLBB's conduct met the statutory requirements. Because the agency's decision is entitled to a minimal presumption of correctness, Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1970), the plaintiff bears the burden to show the agency's decision was incorrect by the weight of the evidence.

However, the court's power to reexamine the Board's decision is not unlimited. On the contrary, the normal rule that fundamental policy questions should be resolved by the legislative and executive branches and not by the courts applies with equal force to the present situation. See, e.g., Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, 435 U.S. 519, 558, 98 S.Ct. 1197, 1219, 55 L.Ed.2d 460 (1977). This court is not to substitute itself for the Federal Home Loan Bank Board in the decision to exercise its jurisdiction, if it is present. Rather, once the court determines that the three statutory prerequisites have been satisfied, it will not disturb the decision of the Board to exercise its jurisdiction unless there has been an abuse of discretion in the exercise of that power.

Therefore the issues before this court are (1) whether, when looking at all the evidence that was available to the Board and that information subsequently discovered, the three statutory prerequisites were satisfied; and (2) whether the Board's exercise of jurisdiction constituted an abuse of discretion.

MOTION FOR SUMMARY JUDGMENT

The defendants have moved for summary judgment on the ground that all the facts demonstrate that the decision to appoint a receiver was premised on a supportable factual base. After careful consideration of all the briefs and arguments of counsel and all the evidence presently in the record, the court concludes that the motion must be denied at this time. Questions of fact remain as to Fidelity's financial condition at the time the receiver was appointed. Moreover, the questions of closure and unwithdrawable accounts require a further factual understanding before the questions can be resolved as a matter of law. Like many "fact-law" decisions (e.g. personal jurisdiction), the questions on closing and withdrawals can be resolved once all facts are properly presented to the court.

Accordingly, the court will bifurcate the trial and try the questions of closure and unwithdrawable accounts before the court reaches the issue of "unsafe and unsound condition." After all facts as to the closure and unwithdrawable accounts are presented, the court will determine these questions as a matter of law.

CONCLUSION

IT IS HEREBY ORDERED that the defendants' motion for summary judgment be, and hereby is, denied without prejudice to being renewed at the conclusion of the first part of the bifurcated trial.

IT IS FURTHER ORDERED that the defendants' motion in limine is denied.

IT IS FURTHER ORDERED THAT the trial of this action be bifurcated trying the issues of closure, nonwithdrawable accounts and "unsafe and unsound condition" seriatam.

IT IS SO ORDERED.

ON REMOVAL OF RECEIVER

INTRODUCTION

This action raises extremely important questions concerning the timing of federal intervention in the seizure of a state savings and loan association and the degree to which the Federal Home Loan Bank Board (FHLBB) may...