Baskes v. Federal Sav. and Loan Ins. Corp.
| Decision Date | 16 December 1986 |
| Docket Number | No. 85 C 9608.,85 C 9608. |
| Citation | 649 F. Supp. 1358 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | Roger S. BASKES, Plaintiff, v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Defendant. |
William Biederman, Marjorie E. Schaffner, Katz, Randall & Weinberg, Chicago, Ill., for plaintiff.
Anton R. Valukas, U.S. Atty. by Mary S. Rigdon, Asst. U.S. Atty., Chicago, Ill., Charlotte A. Reid, Don W. Joe, Office of Gen. Counsel, Washington, D.C., for defendant.
The matter before this court concerns defendant's motions to dismiss and for summary judgment on Counts I and II of plaintiff's complaint. For the reasons stated herein, defendant's motions are granted.
This case arises out of a dispute between the plaintiff, Roger Baskes ("Baskes"), and the defendant, Federal Savings and Loan Insurance Corporation ("FSLIC"), concerning insurance claims on two $100,000 certificates of deposit issued by and deposited with Empire Savings and Loan Association of Mesquite, Texas ("Empire"). As the issues raised by the parties focus on the validity and application of certain FSLIC recordkeeping rules, this court will briefly review relevant statutory and regulatory provisions impacting on the parties' claims before turning to a discussion of the facts in this case.
In 1932, Congress created the Federal Home Loan Bank System to assist in the financing of the purchase and construction of homes. The system is administered by the Federal Home Loan Bank Board ("Board") which exercises administrative powers over thrift and mortgage institutions. Through the enactment of the Home Owners' Loan Act ("HOLA") and the National Housing Act ("NHA"), Congress vested the Board with authority to regulate and supervise federally insured savings and loan associations to ensure the soundness of their operations for the protection of depositors, creditors and general public. HOLA, 12 U.S.C. § 1464 et seq.; NHA, 12 U.S.C. § 1724 et seq. The Board also operates and directs the FSLIC, which insures the accounts of eligible institutions. 12 U.S.C. §§ 1437, 1725(a), (c) and 1730(k)(1).
Pursuant to HOLA and NHA, the Board maintains broad discretion and exclusive authority to appoint, ex parte and without notice, a conservator or receiver to take over the affairs of a federally insured savings and loan if, in the opinion of the Board, the association (1) is insolvent, or (2) has substantially dissipated its assets and earnings due to illegal or unsound practices, or (3) is in an unsafe or unsound condition to transact business. See 12 U.S.C. § 1464(d)(6)(A); 12 U.S.C. § 1729. If an insured savings and loan is believed insolvent, the Board is authorized to appoint the FSLIC as receiver. 12 U.S.C. § 1464(d)(6)(A); 12 U.S.C. §§ 1724(b), (c). Acting in the appointed capacity of receiver, the FSLIC has broad authority to operate such an association, merge it with another association, proceed to liquidate its assets, or make such other disposition of the matter as it deems appropriate. 12 U.S.C. § 1729(b).
In the event of a default by an insured institution, the FSLIC in its corporate capacity is required to make payment on each insured account pursuant to 12 U.S.C. § 1728(b). In § 1728(a), Congress authorizes the FSLIC to develop and adopt regulations to define terms and to create classifications and exceptions for determining the extent of insurance coverage provided under § 1724(b).
Section 1724(b) states in relevant part:
funds held in a fiduciary capacity, when invested in an insured institution, shall be insured in an amount not to exceed $100,000 for each trust estate, and notwithstanding any other provisions of this chapter, such insurance shall be separate from and additional to that covering other investments by the owners of such trust funds or the beneficiaries of such estates.
Pursuant to this congressional directive, the Board, as operating head of the FSLIC, adopted recordkeeping rules for determining whether deposited funds are insurable under principles applying to trust accounts. These recordkeeping rules are set forth in 12 C.F.R. § 564.2(b) and state:
The purpose of these regulations is to prevent post-default creation of separate trust accounts which would fraudulently increase insurance coverage and to provide the FSLIC with quick access to information necessary to settle insurance claims in an expedient fashion. See 50 Fed.Reg. 19, 188 (1985). The signature card requirement set forth in subsection (3) was added by the Board due to the fact that separate insurance coverage afforded trusts was more likely to be abused than insurance afforded other account relationships. Id.
Applying the foregoing regulations to insurance claims on funds allegedly held in a fiduciary capacity, the FSLIC maintains the policy that each of the recordkeeping requirements must be shown to exist before a trust account will be recognized for purposes of insurance coverage. Id. In the case where the institutions' records do not contain the information and/or documents required under 12 C.F.R. § 564.2(b), the FSLIC allows the claiming party to show by clear and convincing evidence that the recordkeeping requirements were in fact met.
In December of 1983, $100,000 was wired to Empire from another banking institution to be placed in an account for the benefit of the LJ, SZ and JB trusts. Although Baskes, the trustee, was required under FSLIC regulations to execute a signature card and disclose the identity of the trustee, settlor, and beneficiaries, Baskes failed to do so. However, Bernard Zell, the settlor of the trust, did complete a signature form indicating his signature to be the authorizing signature on the account. Empire designated the LJ, SZ and JB trusts as the accountholders of certificate of deposit XXXXXXXXX (hereinafter referred to as "LJ trusts account").
In January of 1984, $100,000 was wired to Empire to be placed in an account for the benefit of the RZ trust. Empire designated the RZ trust as the accountholder of certificate of deposit number XXXXXXXXX (hereinafter referred to as "RZ trust account"). Although Empire's records do not contain a signature card for this account, the trustee, Baskes, claims to have executed such a form at the time the account was opened. Both certificates of deposit issued for the trust accounts were in nonnegotiable form.
On March 14, 1984 the Board determined that grounds existed for appointment of a receiver for Empire. The FSLIC was appointed receiver for the purpose of liquidating Empire pursuant to 12 U.S.C. § 1729(c)(1)(B), and directed in its corporate capacity to issue payments on each insured account at Empire pursuant to 12 U.S.C. § 1728(b). In carrying out this direction, the FSLIC notified the accountholders of their rights concerning payment of insurance on their accounts. Responding to the FSLIC's notification, Baskes, as trustee, filed two insurance claims for $100,000 each on the LJ trusts account and the RZ trust account.
Considering Baskes' insurance claims in light of governing insurance regulations, the FSLIC took the position that Baskes was entitled to only $50,000 of coverage on each of the two accounts. The FSLIC determined Baskes failed to sufficiently prove he executed signature cards for the trust accounts as required by 12 C.F.R. § 564.2(b)(3). As a consequence, the FSLIC refused to insure the accounts as separate trust accounts. Instead, the FSLIC treated the accounts as the individual accounts of Baskes and apportioned the maximum insurance of $100,000 between the two accounts, i.e., $50,000 each. Aside from the insurance proceeds, Baskes was issued two certificates of claims in liquidation representing the uninsured balance of each account ($50,000 plus accrued interest as of the date of default).
On July 29, 1985, the Director of the FSLIC ruled on Baskes' request for reconsideration and affirmed the agency's initial determination. Believing he had exhausted all prerequisites to judicial review under the Administrative Procedures Act (APA), 5 U.S.C. § 701 et seq., Baskes filed a two-count complaint seeking damages against the FSLIC on the ground the insurance determination was incorrect. Count I seeks judicial review of the insurance determination by the FSLIC pursuant to the APA. Count II asserts a negligence claim against the receivership estate seeking the uninsured amount of the accounts. Baskes contends this court is vested with subject matter jurisdiction to hear his negligence claims under the NHA, 12 U.S.C. § 1725(c)(4); APA, 5 U.S.C. § 701; and Declaratory Judgment Act, 28 U.S.C. § 2201.
The standard of review for analyzing the final determination of the FSLIC is established by the APA. 5 U.S.C. § 706. When reviewing administrative decisions, courts are authorized to set aside agency decisions only when they are: (1) unconstitutional, (2) arbitrary, capricious, an...
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