Aviva Life & Annuity Co. v. Fed. Deposit Ins. Corp..

• Decision Date: 16 August 2011
• Docket Number: No. 10–3163.,10–3163.
• Citation: 654 F.3d 1129
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: AVIVA LIFE & ANNUITY COMPANY; American Investors Life Insurance Company, Plaintiffs–Appellants,v.FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant–Appellee.

654 F.3d 1129

AVIVA LIFE & ANNUITY COMPANY; American Investors Life Insurance Company, Plaintiffs–Appellants,

v.FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant–Appellee.

No. 10–3163.

United States Court of Appeals, Tenth Circuit.

Aug. 16, 2011.

Jodi M. Hoss (Bruce E. Baty, with her on the briefs), SNR Denton US LLP, Kansas City, MO, for Plaintiffs–Appellants.Minodora D. Vancea, Counsel, Federal Deposit Insurance Corporation, Arlington, VA (Barry R. Grissom, United States Attorney, and Jackie A. Rapstine, Assistant United States Attorney, District of Kansas, Department of Justice, Topeka, KS; Colleen J. Boles, Assistant General Counsel, and Lawrence H. Richmond, Senior Counsel, Federal Deposit Insurance Corporation, Arlington, VA, with her on the brief), for Defendant–Appellee.Before MURPHY, McKAY, and O'BRIEN, Circuit Judges.MURPHY, Circuit Judge.

Aviva Life & Annuity Company and American Investors Life Insurance Company (together, “Plaintiffs”) contend the Federal Deposit Insurance Corporation (“FDIC”) acted in an arbitrary and capricious manner in rendering insurance determinations concerning certain of Plaintiffs' bank deposit accounts. They appeal from the district court's order upholding the FDIC's determinations. Exercising jurisdiction pursuant to 28 U.S.C. § 1291, this court AFFIRMS.

I. Background

The pertinent facts are undisputed. On August 22, 2008, the Kansas Bank Commissioner closed Columbian Bank & Trust Company (“Columbian”) and appointed the FDIC as receiver. At that time, Plaintiffs maintained twelve deposit accounts at Columbian, containing approximately $11.3 million. The bulk of those funds were held in two accounts (the “Challenged Accounts”): the “Aviva Life & Annuity Operating Account,” containing $4,242,854.60; and the “American Investors Life Ins Co Inc. Operating Account,” containing $7,098,344.56. The remaining accounts contained either $1000 or $10,000 each and bore a variety of titles. Shortly after its appointment as receiver, the FDIC determined that Plaintiffs' respective accounts identified as “operating” accounts, which included the Challenged Accounts, would be aggregated as corporate accounts pursuant to 12 C.F.R. § 330.11. The FDIC further determined that the accounts designated as “benefits” accounts would be separately insured as annuity contract accounts pursuant to 12 C.F.R. § 330.8.

Plaintiffs filed the underlying action, asserting that the FDIC's insurance determination was arbitrary and capricious because the Challenged Accounts should properly have been treated as annuity contract accounts. The district court issued a written order rejecting Plaintiffs' arguments, affirming the FDIC's determination, and dismissing the action. It is from this order that Plaintiffs now appeal.

II. Standard of Review

Under 12 U.S.C. § 1821(f)(4), “[a] final determination made by the [FDIC] regarding any claim for insurance coverage shall be a final agency action reviewable in accordance with” the Administrative Procedure Act (“APA”). The APA provides that the reviewing court shall “hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). Review under this standard is “highly deferential” to the agency's determination. Ecology Ctr., Inc. v. U.S. Forest Serv., 451 F.3d 1183, 1188 (10th Cir.2006). “The duty of a court reviewing agency action under the ‘arbitrary and capricious' standard is to ascertain whether the agency examined the relevant data and articulated a rational connection between the facts found and the decision made.” Citizens' Comm. to Save Our Canyons v. Krueger, 513 F.3d 1169, 1176 (10th Cir.2008) (quotation omitted). A presumption of validity attaches to agency action, and the burden is on the party seeking review to establish that the challenged agency action is arbitrary or capricious. Id. Furthermore, “[j]ust as we defer to an agency's reasonable interpretations of [its authorizing] statute when it issues regulations in the first instance, the agency is entitled to further deference when it adopts a reasonable interpretation of regulations it has put in force.” Fed. Express Corp. v. Holowecki, 552 U.S. 389, 397, 128 S.Ct. 1147, 170 L.Ed.2d 10 (2008) (citation omitted).

III. Regulatory Framework and the FDIC's Determination

The FDIC serves as an insurance company created by Congress to promote stability and soundness in the nation's banking system. Jones v. FDIC, 748 F.2d 1400, 1402 (10th Cir.1984). Accordingly, one of the FDIC's principal duties when it acts as receiver is to make insurance payments to the depositors of the failed institution. Id. The FDIC is required by the Federal Deposit Insurance Act to “aggregate the amounts of all deposits in the insured depository institution which are maintained by a depositor in the same capacity and the same right,” and insure them up to the standard maximum deposit insurance amount (“SMDIA”). 12 U.S.C. § 1821(a)(1)(C).¹ The statute, however does not define “capacity” or “right.” Instead, Congress authorized the FDIC to promulgate regulations to define any terms necessary to implement the statute. Id. § 1819(a).

The FDIC chose to effectuate its congressional mandate by erecting a regulatory framework based on “ownership rights and capacities”:

The insurance coverage provided by the Act ... is based upon the ownership rights and capacities in which deposit accounts are maintained at depository institutions. All deposits in an insured depository institution which are maintained in the same right and capacity ... shall be added together and insured in accordance with this part. Deposits maintained in different rights and capacities, as recognized under this part, shall be insured separately from each other.

12 C.F.R. § 330.3(a). The deposit account “rights and capacities” recognized in the FDIC's regulations pertinent to the instant appeal are (i) corporate accounts, id. § 330.11(a); and (ii) annuity contract accounts, id. § 330.8. Deposit accounts falling into the corporate account category “shall be added together and insured up to the SMDIA in the aggregate.” Id. § 330.11(a)(1). By contrast, “[f]unds held by an insurance company or other corporation in a deposit account for the sole purpose of funding life insurance or annuity contracts and any benefits incidental to such contracts, shall be insured separately in the amount of up to the SMDIA per annuitant,” provided certain additional requirements are satisfied.²

Id. § 330.8 (emphasis

added). That is to say, corporate accounts are only eligible for insurance coverage up to the SMDIA, while funds held in an annuity contract account could potentially be insured for many multiples of that amount.

Shortly after Columbian went into receivership, the FDIC began an investigation to determine the insurance treatment appropriate for Plaintiffs' various accounts. Plaintiffs indicated the Challenged Accounts were maintained for and on behalf of their annuity customers, to fund annuity contracts and the benefits incidental to such contracts, and that they therefore constituted annuity contract accounts, entitled to per annuitant insurance under 12 C.F.R. § 330.8. The FDIC, however, concluded the Challenged Accounts would be insured according to their denomination on the Bank's records: because the Challenged Accounts were each entitled “operating account,” they were to be aggregated as corporate accounts and insured, together with Plaintiffs' other respective corporate accounts, up to the SMDIA of $100,000. Consequently, the approximately $11.3 million in deposits contained in the Challenged Accounts were entitled to merely $200,000 total insurance, with the remainder to be paid on a pro rata basis from Columbian's liquidated assets. Had the Challenged Accounts been deemed eligible for per annuitant coverage under § 330.8, it appears they would have been insured in the total amount of $8,605,261.94.

The FDIC's final determination does not explicitly state as much, ³ but the parties agree its conclusion was predicated upon an application of 12 C.F.R. § 330.5(a)(1), which provides that:

[I]n determining the amount of insurance available to each depositor, the FDIC shall presume that deposited funds are actually owned in the manner indicated on the deposit account records of the insured depository institution. If the FDIC, in its sole discretion, determines that the deposit account records of the insured depository institution are clear and unambiguous, those records shall be considered binding on the depositor, and the FDIC shall consider no other records on the manner in which the funds are owned. If the deposit account records are ambiguous or unclear on the manner in which the funds are owned, then the FDIC may, in its sole discretion, consider evidence other than the deposit account records of the insured depository institution for the purpose of establishing the manner in which the funds are owned. Despite the general requirements of this paragraph ... if the FDIC has reason to believe that the insured depository institution's deposit account records misrepresent the actual ownership of deposited funds and such misrepresentation would increase deposit insurance coverage, the FDIC may consider all available evidence and pay claims for insured deposits on the basis of the actual rather than misrepresented ownership.“Deposit account records” are defined as “account ledgers, signature cards ... and other books and records of the insured depository institution ... which relate to the insured depository institution's deposit taking function.” 12 C.F.R. § 330.1(e). In the case of the Challenged Accounts, the signature cards indicated that the “ownership of the account” was a “corporation” for “business purpose,” and Columbian's account ledgers described the Challenged Accounts as “operating” accounts. Exercising its...