Baer v. Abel, No. C85-1581R.

• Court: United States District Courts. 9th Circuit. United States District Court (Western District of Washington)
• Citation: 648 F. Supp. 69
• Docket Number: No. C85-1581R.
• Parties: Homer H. and Vivian BAER, et al., Plaintiffs, v. Robert W. ABEL and Jane Doe Abel, et al., Defendants.
• Decision Date: 21 March 1986

648 F. Supp. 69

Homer H. and Vivian BAER, et al., Plaintiffs,
v.
Robert W. ABEL and Jane Doe Abel, et al., Defendants.

No. C85-1581R.

United States District Court, W.D. Washington, at Seattle.

March 21, 1986.

648 F. Supp. 70

COPYRIGHT MATERIAL OMITTED

648 F. Supp. 71

John Hathaway, Edwards & Barbieri, Seattle, Wash., for plaintiffs

Marco J. Magnano, Jr., Foster, Pepper & Riviera, Seattle, Wash., for defendants Woodruffs.

William A. Helsell, Helsell, Fetterman, Martin, Todd & Hokanson, Seattle, Wash., for defendants Comforts and Dennises.

Evan L. Schwab, Bruce Lamka, Davis, Wright, Todd, Riese & Jones, Seattle, Wash., for defendants Leckenbys.

Richard Clinton, Guy Michelson, Bogle & Gates, Seattle, Wash., for Praters, Smiths, Jensens, Hogans & Littles.

Katherine Hendricks, Hendricks & Lewis, Seattle, Wash., for Abels.

Ronald M. Gould, Perkins, Coie, Stone, Olsen & Williams, Seattle, Wash., for Westside (FSLIC).

T. Dennis George, Laurie D. Kohli, George, Hull & Porter, Seattle, Wash., for Kings.

Dennis Smith, Reed, McClure, Moceri, Thonn & Moriarty, Seattle, Wash., for Westside Service Corp. and Wesfed Mortgage Corp.

ORDER GRANTING FLSIC'S MOTIONS TO DISMISS AND REALIGN AS PLAINTIFF

ROTHSTEIN, District Judge.

THIS MATTER comes before the court on a motion to dismiss and to realign as plaintiff by Federal Savings & Loan Insurance Corporation, as receiver for defendant Westside Federal Savings & Loan Association. Having considered the memoranda, affidavits and exhibits submitted in support of and in opposition to the motion, together with the records and files herein, the court finds and rules as follows:

I. FACTUAL BACKGROUND

Plaintiff shareholders commenced this action against defendant Westside Federal Savings & Loan Association ("Westside") in August of 1985. They alleged that Westside violated federal and state securities laws, the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1968, and the Washington State Consumer Protection Act, RCW 19.86.010 et seq. in connection with the sale of stock in Westside. Plaintiffs also alleged fraud, misrepresentation, and negligence by Westside.

On August 30, 1985, the Federal Home Loan Bank Board ("FHLBB" or "Board") appointed the Federal Savings and Loan Insurance Corporation ("FSLIC") as receiver for Westside. FSLIC thereby succeeded to all the rights, powers and privileges of Westside. 12 C.F.R. § 547.7 (1985). FSLIC now asks the court to dismiss plaintiffs' claims against FSLIC based on sovereign immunity and lack of subject matter

648 F. Supp. 72

jurisdiction. FSLIC contends that the statutes governing its conduct of a receivership establish an administrative process for adjudicating all claims against the Association, and that only after that process is completed can the court exercise jurisdiction over plaintiffs' claims. Moreover, FSLIC argues that, as a federal agency, it is immune from suit absent a specific waiver of that immunity by the United States. FSLIC asserts that Congress has not waived FSLIC's immunity and, furthermore, has specifically prohibited suits against FSLIC as receiver

Plaintiffs oppose FSLIC's motion on several grounds. They allege that the pendency of plaintiffs' claims in federal court will not affect FSLIC's functions as receiver, that FSLIC is amenable to suit when it stands in the shoes of an association in receivership, and that Congress statutorily waived FSLIC's immunity. Plaintiffs also challenge the constitutionality of the administrative scheme as described by FSLIC.

II. STATUTORY FRAMEWORK

Two federal statutes control in the instant case: the Home Owners' Loan Act of 1933 ("HOLA"), as amended, 12 U.S.C. §§ 1461-1468, which created the Federal Savings and Loan Association system, and Title IV of the National Housing Act of 1934 ("NHA"), as amended, 12 U.S.C. §§ 1724-1730, which created the Federal Savings and Loan Insurance Corporation.

Through the HOLA, Congress established the savings and loan system to insure that the public would have investment opportunities and sources for home financing, and placed the system under the control of the FHLBB. 12 U.S.C. § 1464(a). The Board was given broad discretionary powers to control the operation of the system, see 12 U.S.C. § 1464, including the discretion to appoint a receiver or conservator for any institution if the Board determined that statutory grounds existed. 12 U.S.C. § 1464(d)(6); 12 C.F.R. § 547.1-547.3. The Board was also authorized to promulgate rules and regulations governing the liquidation of an association and the conduct of receiverships. 12 U.S.C. § 1464(d)(11). No court may interfere in a receivership unless expressly authorized by the statute or the Board. 12 U.S.C. § 1464(d)(6)(C).

Through the NHA, Congress created FSLIC as a corporation, an agency, and an instrumentality of the United States, and placed it under the direction of the Board. 12 U.S.C. §§ 1725(c), 1730(k)(1). FSLIC was empowered to make contracts, sue and be sued, insure accounts of savings and loan associations, and take other actions in furtherance of its purpose. See, 12 U.S.C. §§ 1725-1730. Civil actions to which FSLIC is a party are deemed to arise under federal law, and the federal district courts are given jurisdiction. 12 U.S.C. § 1730(k)(1).

FSLIC's purpose is to maintain the financial stability of the savings and loan system and to protect the depositors and creditors of savings institutions. 12 U.S.C. §§ 1724, 1726(b), 1729(f), 1730. To accomplish this purpose, Congress gave FSLIC broad powers to supervise and control financial institutions together with their officers and directors. See, 12 U.S.C. §§ 1726(b), 1727(b), (c), (h), 1729(f), 1730. The NHA also authorizes FSLIC to function as receiver of an association, directing FSLIC to liquidate the association or to proceed as it deems appropriate and in the best interests of the association, its depositors and FSLIC itself, 12 U.S.C. § 1729(b). As receiver, FSLIC can settle, compromise or release claims against the institution, subject only to the regulation of the FHLBB. 12 U.S.C. § 1729(d).

The FHLBB has published regulations governing FSLIC's conduct of a receivership, 12 C.F.R. §§ 548.2, 549, including its specific powers and duties with regard to creditors' claims. 12 C.F.R. § 549.4-549.8. "Any claim" must be presented to FSLIC and "proved to its satisfaction." 12 C.F.R. § 549.4(b). FSLIC may disallow part or all of "any creditor claim ... not so proved." Id. This determination is appealable to the Board. See, 12 C.F.R. § 549.4(b)-(d).

648 F. Supp. 73

III. LEGAL ARGUMENT

A. Power to Adjudicate Claims

FSLIC contends that when Congress established the legislative framework for the regulation of the savings and loan association system in the HOLA and the NHA, it authorized FSLIC as receiver to initially adjudicate plaintiffs' claims. The statutory language empowers FSLIC to resolve claims against the failed institution and to do anything necessary in connection with its liquidation, subject only to the regulation of the FHLBB. 12 U.S.C. § 1729(d). In addition, the statutes prohibit any court from restraining or affecting the exercise of powers or functions of a receiver. 12 U.S.C. § 1464(d)(6)(C). A claimant who is dissatisfied with FSLIC's determination can seek administrative review by the FHLBB, followed by judicial review under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701-706. See North Mississippi Savings & Loan Association v. Hudspeth, 756 F.2d 1096, 1103 (5th Cir.1985), cert. denied, ___ U.S. ___, 106 S.Ct. 790, 88 L.Ed.2d 768 (1986); First Savings & Loan Association v. First Federal Savings & Loan Association, 531 F.Supp. 251, 254 (D.C.Hawaii 1981). Thus, according to FSLIC, the plain language of the legislation establishes an administrative procedure for resolution of claims against the receiver, and precludes federal court jurisdiction until the administrative process is complete. See Hudspeth, 756 F.2d at 1101-03.

Plaintiffs oppose this interpretation of the statutes on several grounds. First, they assert that the statutes do not empower FSLIC as receiver to adjudicate claims arising under federal and state laws or under the common law. Plaintiffs emphasize that both the current federal regulations and proposed expanded regulations detailing FSLIC's powers as receiver include only powers traditionally granted to receivers, such as the power to carry on the business of a failed institution, to collect and pay off creditors' claims, and to establish priorities as to claims against the association. See 12 C.F.R. §§ 548.2, 549.4; Proposed 12 C.F.R. §§ 569c.6, 569c.11, at 50 Fed.Reg. 48,991, 48,995 (Nov. 27, 1985). The regulations do not authorize FSLIC to adjudicate plaintiffs' legal claims. In fact, both the current and the proposed regulations expressly empower FSLIC to "maintain, defend, intervene, and otherwise participate in any legal proceeding by or against the ... association ..." 12 C.F.R. § 548.2(f), 549.3(a); Proposed 12 C.F.R. § 569c.6(c)(3) at 50 Fed.Reg. 48,991 (Nov. 27, 1985). Plaintiffs allege, therefore, that Congress intended FSLIC to participate in and defend lawsuits instead of adjudicating them, and, furthermore, that FSLIC's defense of this lawsuit would not interfere with its ability to fulfill any of its traditional functions as receiver.

Unfortunately for plaintiffs, the plain language of 12 U.S.C. § 1729(d) specifies that FSLIC has the power to resolve all claims against the association, subject only to the regulation of the FHLBB. Furthermore, Board regulations expressly authorize FSLIC to hear all claims and to allow only those proved to its satisfaction. See 12 C.F.R. § 549.4(b). Administrative review by the Board of FSLIC's rulings is available. See, 12 C.F.R. §§ 549.4(b), (d). Following the Board's review, a claimant can appeal the determination to federal court. See Hudspeth, 756 F.2d at 1103. In the interim, no court...