BISCAYNE FED. SAV. & L. v. Fed. Home Loan Bank Bd.

Citation572 F. Supp. 997
Decision Date09 September 1983
Docket NumberNo. 83-815-CIV-EPS.,83-815-CIV-EPS.
PartiesBISCAYNE FEDERAL SAVINGS & LOAN ASSOCIATION and Kaufman & Broad, Inc., Plaintiffs, v. FEDERAL HOME LOAN BANK BOARD, Richard T. Pratt, Edward Gray, Jamie Jackson, Thomas P. Vartanian, D. James Croft, Federal Savings & Loan Insurance Corporation, H. Brent Beesley, New Biscayne Federal Savings & Loan Association of Miami, Stanley Warranch, Charles T. Babcock, Jr., Kenneth Kamberg, R. Bruce Ricks and Ray M. Shaw, Defendants.
CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida



Bruce W. Greer, Miami, Fla., for plaintiffs.

Eben G. Crawford, Cleveland, Ohio, John Gunther, Washington, D.C., Ana T. Barrett, Don Lynn, Miami, Fla., for defendants.


SPELLMAN, District Judge.


In a closed meeting held on April 6, 1983, the Federal Home Loan Bank Board (FHLBB) adopted two resolutions which form the basis of Plaintiffs' complaint in this case. FHLBB Resolution 83-184 rejected Plaintiffs' recapitalization proposal designed to infuse new capital into the financially troubled Biscayne Federal Savings and Loan Association (Biscayne). FHLBB Resolution 83-185, adopted a short time thereafter, placed Biscayne in receivership under the control of the Federal Savings and Loan Insurance Corporation (FSLIC).1

Within an hour of the promulgation of the FHLBB resolutions, FSLIC officials entered each of Biscayne's 34 branch offices, assumed control of the Association, ousted several of Biscayne's senior officers and transferred Biscayne's assets to the newly formed New Biscayne Federal Savings and Loan Association (New Biscayne).2

Within three hours of the FHLBB's actions, Biscayne and its principal shareholder, Kaufman and Broad, Inc. (KB), filed the complaint in this action accompanied by a motion for a temporary restraining order.3 Plaintiffs prayed for the return of the Association to their control. An immediate hearing was set that evening.

The parties' characterization on April 6 of the FHLBB actions became the dominant recurring theme throughout the litigation. Plaintiffs asserted that the seizure of Biscayne by an army of myrmidons dispatched from Washington, D.C. culminated 16 months of "Janus-faced" and outrageous behavior by the FHLBB towards Biscayne and KB. Such behavior, Plaintiffs argued, drove Biscayne to its knees and caused it to become statutorily insolvent.

Defendants contended that Plaintiffs' histrionics obscured the truth and the simple legal issues before the Court. Defendants averred that although they were under no compunction to negotiate with Plaintiffs, they indulged Biscayne and KB with endless months of negotiations in an effort to solve Biscayne's financial woes. Defendants contend that with Biscayne approaching $30 million negative net worth and insisting that the FHLBB bail out the Association with the infusion of public funds, the FHLBB had no alternative save appointing a receiver. The appointment of a receiver, Defendants argued, was authorized by statute to protect the depositors and the public confidence. Such appointment, Defendants asserted, was one of the risks of doing business with FHLBB and receiving insurance from FSLIC.

The Court denied Plaintiffs' motion for a temporary restraining order on April 6, 1983. Biscayne Federal Savings and Loan Association, et al. v. Federal Home Loan Bank Board, et al., 561 F.Supp. 1046 (S.D. Fla.1983), appeal docketed, No. 83-5432 (11th Cir. June 6, 1983). In compliance with the statutory mandate that this cause be heard on an expedited basis and in recognition that the public interest necessitated a rapid resolution, the Court ordered the immediate commencement of discovery and it scheduled opening arguments in the trial within three weeks.4

In denying the motion for a temporary restraining order, the Court invoked the All Writs Act, 28 U.S.C. § 1651, and instructed Defendants not to undertake any actions in the management of New Biscayne that could drastically alter the financial or organizational structure of Biscayne. Aware that the All Writs Act should not be invoked to circumvent the requirements for a temporary restraining order pursuant to Rule 65(b), Fed.R.Civ.P., the Court felt that the complete transformation of Biscayne during the pendency of the trial could result in a hollow victory for the Plaintiffs should they ultimately prevail. A complete dissipation of assets would effectively deny the Court jurisdiction over the res — the Association and its assets — in this proceeding and prevent the Court from restoring the Association to the Plaintiffs. 561 F.Supp. at 1049-50. See also Florida Medical Association v. U.S. Department of Health, Education and Welfare, 601 F.2d 199 (5th Cir. 1979).

The short amount of time allotted for discovery placed a great strain on the parties as well as on the Court. The parties conducted numerous depositions in Miami, Washington, D.C., and New York. As many as 50,000 pages of documents were exchanged. The efforts of the parties and their response to this Court's demands cannot go without comment. The filing of the complaint through closing arguments after trial consumed a period of only 63 days. This could not have occurred without the full cooperation of the two outstanding law firms and trial counsel for both parties.

The FHLBB based the appointment of a receiver on its powers delineated in 12 U.S.C. § 1464(d)(6)(A).5 The FHLBB cited subsections (i) and (iii) as grounds for the appointment.6 These subsections allow for appointment of a receiver for the following reasons:

(i) insolvency in that the assets of the association are less than its obligations to its creditors and others, including its members;
(iii) an unsafe or unsound condition to transact business.

12 U.S.C. § 1464(d)(6)(A)(i) and (iii).

Plaintiffs' second amended complaint contains nine counts. Counts I through V name the FHLBB, the FSLIC and FHLBB officials in their official capacities. Counts VI through IX name the individuals in their individual capacity under a Bivens claim. See Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). See also Davis v. Passman, 442 U.S. 228, 99 S.Ct. 2264, 60 L.Ed.2d 846 (1979); Carlson v. Green, 446 U.S. 14, 100 S.Ct. 1468, 64 L.Ed.2d 15 (1980).

The Court bifurcated Counts I through V from Counts VI through IX. This opinion concerns Counts I through V.

Counts I through V allege the following:
Count I: Biscayne was statutorily insolvent pursuant to § 1464(d)(6)(A)(i); however, the FHLBB is estopped from asserting insolvency as a basis for the appointment because "defendants, singly and in concert", created that insolvency. Biscayne was not in an unsafe and unsound condition pursuant to § 1464(d)(6)(A)(iii).
Count II: The FHLBB's appointment of a receiver constituted "an abuse of discretion", was "arbitrary and capricious, contrary to prior representations" and "not warranted by the facts and circumstances".
Count III: In view of the sixteen (16) month history of negotiations between the FHLBB/FSLIC and plaintiffs, in view of the absence of any exigent circumstances suggesting that Biscayne Federal was in danger of imminent financial collapse or that the public interest in the integrity of a financial institution required such action, and in view of contrary representations by defendants, the ex parte appointment of a receiver for Biscayne Federal was an abuse of discretion.
Count IV: Defendants' assertions that Biscayne's shareholders had no property interest and that the appointment of a receiver was undertaken to extinguish the cloud of shareholders' interest in Biscayne rendered the ex parte appointment of the receiver a breach of Plaintiffs' due process rights under the Fifth Amendment.
Count V: The defendants have engaged in unequal treatment of similarly situated savings and loan associations who are admittedly insolvent. The defendants' imposition of a receivership over insolvent Biscayne Federal while choosing not to impose a receivership over similarly situated savings and loan associations constitutes unequal treatment under the law in violation of the guarantees of the Fifth Amendment.

Plaintiffs concluded:

WHEREFORE, because defendants' actions as alleged in Counts I, II, III, IV and V in appointing a receiver for Biscayne ex parte were improper, unwarranted, an abuse of discretion, and in violation of the Fifth Amendment, applicable federal statutes and regulations promulgated thereunder, plaintiffs request that this Court enter an Order removing the receiver, restoring the status quo and requiring FHLBB/FSLIC to agree to a plan that would resolve Biscayne Federal's net worth and solvency problems. Plaintiffs also request that this court grant whatever other relief it deems just and proper including, but not limited to, an award of attorneys' fees.

Plaintiffs assert that this case presents two issues for resolution: 1) whether one of the statutory criteria for the appointment of a receiver existed on April 6; and 2) whether, upon the finding that a statutory criterion existed, the FHLBB's decision to appoint a receiver was "proper".

Defendants responded to each amended complaint with a motion to dismiss. The Court reserved ruling on the dismissal motions. Responsive pleadings were filed.

Defendants dispute Plaintiffs' formulation of the triable issues before the Court. They contend that the only reviewable issue for the Court is whether one of the statutory criteria existed on April 6. Defendants argue that once the Court is satisfied that the FHLBB's decision finding the existence of one of the criteria was not an abuse of discretion, Plaintiffs' cause must fail.

Defendants contend that the FHLBB's decision to appoint a receiver, once one of the criteria is met, is an exercise of its discretion which is beyond the permissible scope of judicial scrutiny. See ...

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