SARATOGA S & L v. Federal Home Loan Bank

• Decision Date: 07 September 1989
• Docket Number: No. C 88-20656 (SW).,C 88-20656 (SW).
• Citation: 724 F. Supp. 683
• Court: U.S. District Court — Northern District of California
• Parties: SARATOGA SAVINGS AND LOAN ASSOCIATION, et al., Plaintiffs, v. FEDERAL HOME LOAN BANK OF SAN FRANCISCO, et al., Defendants.

724 F. Supp. 683

SARATOGA SAVINGS AND LOAN ASSOCIATION, et al., Plaintiffs, v. FEDERAL HOME LOAN BANK OF SAN FRANCISCO, et al., Defendants.

No. C 88-20656 (SW).

United States District Court, N.D. California.

May 30, 1989.

As Corrected September 7, 1989.

Joseph L. Alioto, Patricia E. Henle, Richard D. Rosenberg, Alioto & Alioto, San Francisco, Cal., for plaintiffs.

Thomas A. Segal, Charlotte M. Kaplow, Edward J. O'Meara, Office of Gen. Counsel, Federal Home Loan Bank Bd., Washington, D.C., for Federal Home Loan Bank Bd.

Elizabeth R. Moore, Trial Atty., U.S. Dept. of Justice, Civ. Div., Torts Branch, Washington, D.C., for Individual defendants.

Pillsbury, Madison & Sutro, James N. Roethe, Bruce A. Ericson, Thomas V. Loran, III, Paula L. Levitan, San Francisco, Cal., for defendant Federal Home Loan Bank of San Francisco.

ORDER GRANTING MOTION TO DISMISS COMPLAINT

SPENCER WILLIAMS, District Judge.

This action came before the court on May 10, 1989, for hearing on the various defendants' motions to dismiss and on the individual defendants' motion to substitute the United States as defendant. At the conclusion of oral argument, the court took the matter under submission. The court now GRANTS the defendants' motions and DISMISSES the complaint.

BACKGROUND:

The complaint in this action is filed by four plaintiffs — Saratoga Savings & Loan Association ("Saratoga"), California Holding Securities, Inc. ("CHS"), and Jess and Donna Rodrigues. CHS is a holding company that owns 100% of Saratoga's issued and outstanding stock. Mr. and Mrs. Rodrigues are the sole shareholders of CHS.

Named as defendants are the Federal Home Loan Bank of San Francisco ("FHLB-SF") and seven FHLB-SF employees.¹ On December 23, 1988, plaintiffs stipulated to the Federal Home Loan Bank Board's ("FHLBB") intervention as to the first and second claims.

Plaintiff Saratoga is a thrift institution whose depositors' accounts are insured by the FSLIC. As a FSLIC-insured institution, Saratoga is subject to examination and supervision by the FHLBB. Congress has invested the FHLBB with broad discretionary powers over FSLIC-insured savings and loan associations to maintain the financial stability of the thrift industry and to protect the thrifts' depositors. In addition, the FHLBB is charged with establishing and administering the Federal Home Loan Bank System, which is comprised of twelve regional Federal Home Loan Banks. The FHLB-SF is the regional Federal Home Loan Bank responsible for Saratoga's district.

Pursuant to 12 U.S.C. § 1437(a), the FHLBB may delegate certain of its examination and supervisory functions, and it has exercised that authority by delegating supervisory and examination duties to persons who are officers and employees of the regional Federal Home Loan Banks, but allegedly it has not delegated that authority to the Banks themselves. The individuals who exercise those delegated powers are referred to as "Supervisory Agents" of the FHLBB. The president of the Bank functions as the "Principal Supervisory Agent."

The allegations of the complaint fall into two categories. First, the complaint attacks the validity of an examination of Saratoga by defendant Cook in October 1985 and the formal action taken by the FHLBB based on that examination. Grounded on defendant Cook's conclusions, the FHLBB issued a Notice of Charges against Saratoga, which ultimately resulted in a cease-and-desist order. Saratoga petitioned the Ninth Circuit for review pursuant to 12 U.S.C. § 1730(j) before filing this action.

Second, plaintiffs complain that a recent examination of Saratoga was unduly lengthy and expensive, resulted in disclosures of confidential information, and was undertaken for retaliatory motives to threaten and harass Saratoga.

All of these allegations are incorporated into each of the complaint's eight purported claims.² The first claim seeks a declaratory judgment that the FHLBB's delegation of examination functions to FHLB-SF employees is unlawful and void and that all actions undertaken pursuant to that delegation are likewise void. The second claim prays for an injunction restraining defendants from threatening further supervisory action against Saratoga or disclosing any information about Saratoga. The third through fifth claims seek $10 million in damages for alleged negligent and intentional interference with Saratoga's FSLIC contract of insurance. The sixth and seventh claims seek treble damages under federal and state antitrust law based on an alleged conspiracy in restraint of trade. Finally, the eighth claim seek damages based on an alleged conspiracy to interfere with plaintiffs' prospective economic advantage as a savings and loan business.

All of the defendants move to dismiss, and the individual defendants' move to substitute the United States as defendant.

DISCUSSION:

I. The FHLB-SF's Motion to Dismiss

Defendant FHLB-SF seeks a dismissal of the claims against it because allegedly the actions of which Saratoga complains were taken not on behalf of the FHLB-SF but solely on behalf of the FHLBB and the FSLIC.

The Federal Home Loan Bank Act expressly authorizes the FHLBB to delegate any of its responsibilities, except rulemaking and formal adjudications, to employees or administrative units of the regional Federal Home Loan Banks. 12 U.S.C. § 1437(a). The FHLBB by regulation has delegated to the Bank Presidents (known as Principal Supervisory Agents) and to individual employees of the Banks (known as Supervisory Agents and Examiners), but not to the Banks themselves, authority to supervise and examine FSLIC-insured thrifts. 12 C.F.R. §§ 500.32(b); 501.10, 501.11 and 561.16c. When performing these delegated functions, Bank employees, by law, act as agents of the FHLBB and FSLIC, and not as agents of the Bank. Neither the Banks, nor their directors, have any responsibility or liability for monitoring or supervising Bank employees performing these functions. 12 C.F.R. § 522.62. As the FHLBB's General Counsel has stated, when Bank employees perform supervisory or examination functions, "such personnel perform their delegated functions exclusively for and under the control of the Board FHLBB and the FSLIC." Op. Off. General Counsel 5 (September 27, 1985). Therefore, under the "borrowed servant" rule, see Standard Oil v. Anderson, 212 U.S. 215, 224-25, 29 S.Ct. 252, 255, 53 L.Ed. 480 (1909), the FHLB-SF is not liable for whatever its employees do in their capacities as Supervisory Agents. In addition, the FHLB-SF's directors, by law, have no responsibility or liability for examination or supervisory functions. 12 C.F.R. § 522.62. Therefore, FHLB-SF's motion to dismiss the claims against it is GRANTED.

II. The FHLBB's Motion to Dismiss

The FHLBB, by stipulation, is only a defendant for counts 1 and 2. Both of these counts must be dismissed, not only as to the FHLBB, but as to the remaining defendants as well.

A. First Cause of Action for Declaratory Relief/Unlawful Delegation

Saratoga alleges that the FHLBB had no authority to delegate to employees of the Federal Home Loan Banks, such as FHLB-SF, the responsibility to examine thrift institutions.³ However, such delegation is specifically statutorily authorized. The Federal Home Loan Bank Act provides that the FHLBB may delegate "any function" of the FHLBB (except the promulgation of rules and regulations, and adjudications) to "any officer, employee, agent or administrative unit" as the FHLBB "deems appropriate." 12 U.S.C. § 1437(a). In fact, in light of the recent difficulties in the savings and loan industry, Congress has encouraged and supported the FHLBB's actions delegating its supervisory and examining functions to its agents at the regional Federal Home Loan Banks. House Committee on Government Operations, H.R. Rep. 1088, 100th Cong., 2d Sess. 90 (1988).

Saratoga takes issue with the fact that the FHLBB failed to follow the Administrative Procedure Act ("APA") notice-and-comment procedures when it issued Resolution 85-186 delegating examination functions. However, matters of "agency management" and "rules of agency organization, procedure or practice" are not subject to the notice and comment requirement of the APA. 5 U.S.C. § 553(a)(2), (b)(A).

As its final attack on the delegation, Saratoga argues that the FHLBB unlawfully delegated the examination and supervision function to Saratoga's competitors, the Directors of the FHLB-SF, and that those competitors used this power to somehow harm Saratoga. However, the Directors of the FHLB-SF have been given no authority to participate in the supervision or examination functions of the FHLBB. The delegation flows not to the FHLB-SF itself or to the Directors, but only to designated employees of the FHLB-SF acting as the FHLBB's agents for those examination and supervision purposes. The examiners are answerable to the FHLB-SF's president in his capacity as the FHLBB's Principal Supervisory Agent, who in this capacity is answerable directly to the FHLBB in Washington, D.C.

If the plaintiffs believe that the Directors of the FHLB-SF have somehow taken advantage of their proximity to the Supervisory Agents and have wrongfully involved themselves in the agency functions of supervision and examination, then plaintiffs may have a cause of action against these directors as individuals. However, none of these individual directors are defendants in this lawsuit. The FHLB-SF cannot be held liable for actions of the directors which are a "substantial deviation from duties for personal reasons," Cordts v. Boy Scouts of America, Inc., 205 Cal.App.3d 716, 720, 252 Cal.Rptr. 629, 631 (1988), nor can the FHLBB be held liable for the exercise of "authority" it never delegated or authorized in any way.

Consequently, as a matter of law, this court holds that the delegation is proper.

B. Second Cause of Action for Injunctive Relief

The second cause of action of the complaint alleges that defendants have harassed Saratoga by...