Smallwood v. Office of Thrift Supervision, Dept. of Treasury

• Decision Date: 26 March 1991
• Docket Number: No. 90-3183,90-3183
• Citation: 925 F.2d 894
• Parties: Connie H. SMALLWOOD, Superintendent of Savings and Loan Associations for the State of Ohio, Petitioner, v. OFFICE OF THRIFT SUPERVISION, DEPARTMENT OF the TREASURY, Respondent.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 894

925 F.2d 894

Connie H. SMALLWOOD, Superintendent of Savings and Loan Associations for the State of Ohio, Petitioner, v. OFFICE OF THRIFT SUPERVISION DEPARTMENT OF the TREASURY, Respondent.

No. 90-3183.

United States Court of Appeals Sixth Circuit.

Argued Nov. 6, 1990.

Decided Feb. 7, 1991.

Rehearing and Rehearing En Banc

Denied March 26, 1991.

Daniel A. Malkoff (argued), Office of the Atty. Gen. of Ohio, Columbus, Ohio, for petitioner.

M. Danny Wall, Office of the Dept. of Treasury, Harvey A. Levin (argued), Umana & Levin, Martin Jefferson Davis, Office of Thrift Supervision, Washington, D.C., for respondent.

Robert T. Williams, Cleveland, Ohio, for amicus curiae.

Before GUY and BOGGS, Circuit Judges; and BERTELSMAN, District Judge. ^*

BOGGS, Circuit Judge.

Petitioner Connie Smallwood, Superintendent of Savings and Loan Associations for the State of Ohio, has filed a petition for review of Order No. 90-246 of the Director of the Office of Thrift Supervision ("Director"). This order waived the requirements of Ohio Revised Code Sec. 1151.36 when the Gem Savings Association ("Gem") converted itself from a state-chartered, mutually-owned savings association to a Federally-chartered, stock-owned association. Petitioner contends that this order effectively pre-empted O.R.C. Sec. 1151.36, and is therefore both inconsistent with the Director's statutory authority and arbitrary and capricious. For the following reasons, we disagree with petitioner and hold that the Director's order pre-empting O.R.C. Sec. 1151.36 is within his authority and is not arbitrary and capricious.

I

In late 1989, Gem was a state-chartered mutual savings and loan association. As a mutual savings and loan, Gem was owned by its account holders. Gem had approximately 177,000 account holders in late 1989.

Despite its status as a state-chartered institution, Gem's accounts were insured by the Federal government. While Gem became Federally insured by the Federal Savings and Loan Corporation ("FSLIC") in October 1935, its accounts were insured in 1989 by the Savings Association Insurance Fund ("SAIF") within the Federal Deposit Insurance Corporation ("FDIC"). This change in the source of Gem's Federal insurance was accomplished by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), which abolished the FSLIC and created the SAIF to provide uninterrupted Federal insurance to Federally-insured savings associations.

Gem and the OTS became aware in 1989 that Gem was insolvent, with a negative net worth. In order to rescue itself, Gem negotiated a deal with National City Corporation ("NCC") providing that NCC would purchase Gem. Part of this deal involved Gem converting from a state-chartered, mutually-owned association to a Federally-chartered, stock-owned association. NCC agreed to purchase 100% of Gem's stock after conversion was approved, thereby simultaneously acquiring and recapitalizing Gem.

Gem and NCC filed an application for conversion with the OTS on November 8, 1989. Gem also sought Ohio's approval for conversion from a mutual to a stock form of ownership pursuant to O.R.C. Sec. 1155.27. Ohio approved this application on January 25, 1990. Gem subsequently amended its application to the OTS, but not to the petitioner, on December 27, 1989 to include a request to convert from a state to a Federally-chartered association. This request was made pursuant to sections 5(i) and 5(p) of the Home Owners' Loan Act ("HOLA"), as amended by FIRREA, 12 U.S.C. Secs. 1464(i) and (p). This amendment also requested the Director to exercise his authority under Sec. 5(p) to waive the applicability of O.R.C. Secs. 1151.36, 1151.66, and 1155.27 in approving the conversion.

The Director approved Gem's changes of charter and ownership form and its acquisition by NCC in Order 90-246, dated January 30, 1990. The Director also waived the provisions of the Ohio Revised Code as requested by Gem. The Director found in the Order that the conversions, waivers, and acquisition were necessary "to prevent the probable default of [Gem]." Petitioner filed, pursuant to Sec. 10(j) and Sec. 5(i) of the HOLA, a timely petition for review of the Director's exercise of his authority under Sec. 5(p).

II

A

Conversions from state to Federally-chartered status are authorized by Sec. 5(i) of the HOLA, 12 U.S.C. Sec. 1464(i). This conversion was performed according to the specific provisions of Sec. 5(p) of the HOLA. Section 5(p) currently reads, in relevant part:

(p) Conversions

(1) Notwithstanding any other provision of law, and consistent with the purposes of this chapter, the Director may authorize ... the conversion of any mutual savings association ... that is insured by the Corporation into a Federal stock savings association....

(2) Authorizations under this subsection may be made only--

(A) if the Director has determined that severe financial conditions exist which threaten the stability of an association and that such authorization is likely to improve the financial condition of the association,

(B) when the [FDIC] has contracted to provide such assistance to such association under [12 U.S.C. Sec. 1823], or

(C) to assist an institution in receivership.

12 U.S.C. Sec. 1464(p). The Director has promulgated a regulation under which he may waive the applicability of state laws concerning conversions. The regulation reads in relevant part as follows:

(c) Conflicts with state law.

(1) In the event an applicant finds that compliance with any provision of this part would be in conflict with applicable State law, the applicant may file a written request for waiver of compliance with such provision by the Office....

12 C.F.R. Sec. 563b.1(c) (1990).

The Ohio statute involved here, O.R.C. Sec. 1151.36, requires that a meeting of the stockholders (in the case of Gem, the account holders) of the association seeking conversion must be held to "convert itself into a federal savings and loan association as authorized by the acts of congress described in section 1151.35 of the Revised Code, and pursuant to the rules and regulations prescribed thereunder." O.R.C. Sec. 1151.36. Affected stock or account holders must be given at least twenty days notice of the meeting, O.R.C. Sec. 1151.36(A), and a resolution authorizing the conversion must be approved by the eligible stock or account holders. O.R.C. Sec. 1151.36(B). The petitioner must then be given two copies of the new Federal charter and a copy of the resolution authorizing the conversion within eight months of the meeting, O.R.C. Sec. 1151.36(D), after which the petitioner is required to approve the conversion and the petitioner's authority over the association "shall terminate." O.R.C. Sec. 1151.36(E).

B

Petitioner contends that the Director's order is invalid because Sec. 5(p) does not authorize the Director to pre-empt state law in the process of authorizing conversions unless the state law directly prevents the Director from authorizing a conversion. The Director responds that Sec. 5(p) explicitly authorizes pre-emption, and also implicitly pre-empts state law because of the dominant Federal interest in handling troubled savings and loans ("S & L's") at the lowest possible cost to the Federal deposit insurance program.

There are many ways that Congress can invoke its power under the Supremacy Clause and pre-empt state law. Congress may expressly state its intention to pre-empt State laws. Hillsborough County, Florida v. Automated Medical Laboratories, 471 U.S. 707, 713, 105 S.Ct. 2371, 2375, 85 L.Ed.2d 714 (1985); Jones v. Rath Packing Co., 430 U.S. 519, 97 S.Ct. 1305, 51 L.Ed.2d 604 (1977). Congress may also demonstrate its intent to pre-empt state law by implication. Such "implied pre-emption" may be found when the Federal legislation is "sufficiently comprehensive to make reasonable the inference that Congress 'left no room' for supplementary state regulation," International Paper Co. v. Ouellette, 479 U.S. 481, 491, 107 S.Ct. 805, 811, 93 L.Ed.2d 883 (1987) (citations omitted), or where the "federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject." Rice v. Santa Fe Elevator Corporation, 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581 (1941). Finally, a Federal statute may pre-empt state law when the state law "actually conflicts with federal law." Automated Labs, 471 U.S. at 713, 105 S.Ct. at 2375. Such a conflict can occur when "compliance with both federal and state regulations is an impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." International Paper, 479 U.S. at 492, 107 S.Ct. at 811-12 (citations omitted). " 'The relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail.' " Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982) (quoting Free v. Bland, 369 U.S. 663, 666, 82 S.Ct. 1089, 1092, 8 L.Ed.2d 180 (1962)).

Federal regulations may also displace state law. "Where Congress has directed an administrator to exercise his discretion, his judgments are subject to judicial review only to determine whether he has exceeded his statutory authority or acted arbitrarily.... [a] pre-emptive regulation's force does not depend on express authorization to displace state law." Fidelity Federal, 458 U.S. at 153-54, 102 S.Ct. at 3022-23.

C

We will not decide whether Sec. 5(p) expressly pre-empts O.R.C. Sec. 1151.36 or if the two provisions are in "actual conflict." We do this only because we believe that the FIRREA and its legislative...