Biscayne Federal Sav. & Loan Ass'n v. Federal Home Loan Bank Bd.

• Decision Date: 29 November 1983
• Docket Number: 83-5654,Nos. 83-5432,s. 83-5432
• Parties: BISCAYNE FEDERAL SAVINGS & LOAN ASSOCIATION, et al., Plaintiffs-Appellees, Cross-Appellants, v. FEDERAL HOME LOAN BANK BOARD and Federal Savings & Loan Insurance Corp., Defendants-Appellants, Cross-Appellees, Richard T. Pratt, et al., Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1499

720 F.2d 1499

BISCAYNE FEDERAL SAVINGS & LOAN ASSOCIATION, et al., Plaintiffs-Appellees, Cross-Appellants, v. FEDERAL HOME LOAN BANK BOARD and Federal Savings & Loan

Insurance Corp., Defendants-Appellants, Cross-Appellees,

Richard T. Pratt, et al., Defendants.

Nos. 83-5432, 83-5654.

United States Court of Appeals, Eleventh Circuit.

Nov. 29, 1983.

Squire, Sanders & Dempsey, Christopher D. Jackson, Miami, Fla., J. Michael Nifong, James A. Smith, Cleveland, Ohio, for defendants-appellants, cross-appellees.

Alston & Bird, Sidney O. Smith, Ben F. Johnson, III, Atlanta, Ga., Harvey Simon, John E. Gunther, Washington, D.C., Eben G. Crawford, Cleveland, Ohio, for Federal Home Loan Bank Bd.

Arky, Freed, Stearns, Watson & Greer, P.A., Bruce W. Greer, Peter W. Homer, Miami, Fla., for Biscayne Federal S & L.

Stanley Marcus, U.S. Atty., Ana Barnett, Asst. U.S. Atty., Miami, Fla., for other interested party.

Appeals from the United States District Court for the Southern District of Florida.

Before FAY and HENDERSON, Circuit Judges, and TUTTLE, Senior Circuit Judge.

FAY, Circuit Judge:

This case is a consolidated appeal from two orders entered in the United States District Court for the Southern District of Florida. It has its origin in a dispute over the Federal Home Loan Bank Board's (FHLBB or "the Board") appointment, pursuant to 12 U.S.C. Sec. 1729(b) (1982), of the Federal Savings and Loan Insurance Corporation (FSLIC) as federal receiver for a federally chartered association, Biscayne Federal Savings and Loan Association ("Biscayne"). The appointment of the FSLIC triggered an action by Biscayne and its majority shareholder pursuant to 12 U.S.C. Sec. 1464(d)(6)(A) seeking an order requiring the Board to remove the receiver. The FHLBB and the FSLIC, defendants below and appellants here, appeal from the district court's April 12, 1983 order, 561 F.Supp. 1046, issued in the nature of a preliminary injunction, which prevented the defendants from disposing of Biscayne's assets pending a trial on the merits of the propriety of the Board's intervention. The FHLBB and the FSLIC also appeal from the district court's September 9, 1983 holding, issued subsequent to a bench trial, that they improperly seized Biscayne and from that court's accompanying order that the FHLBB and the FSLIC should therefore devise a plan whereby the FSLIC would be removed as receiver and the assets held by the receiver returned to Biscayne. The September 9 order in effect continues the April 12 injunction, as it prohibits the FSLIC from taking any further action with regard to Biscayne. Because we find that the Board and the FSLIC satisfied the statutory requirements for the appointment of a federal receiver under 12 U.S.C. Secs. 1729(b) and 1464(d)(6)(A) and that the district court therefore had no authority to remove the FSLIC as receiver or force a return of Biscayne's assets to its shareholders, we reverse and vacate both orders of the district court.

FACTS AND PROCEDURAL BACKGROUND ¹

Biscayne began experiencing financial difficulties with the rise of interest rates in the late 1970's. These difficulties were endemic to the savings and loan ("S & L") industry, as the historical practice by S & Ls of accepting savers' deposits, paying interest at low fixed rates on those deposits and then reinvesting the deposits in long-term loans with slightly higher fixed rates left the S & Ls vulnerable to the effects of the recent inflationary spiral. Many of Caught up amid the industry upheaval, Biscayne in July 1981 reported the first annual loss in its history, and its positive net worth of $31,850,000 began to erode. In light of the continuing losses projected, Kaufman & Broad, Inc., a multinational corporation and Biscayne's majority shareholder, contacted the FHLBB to discuss possible strategies for recapitalizing Biscayne. From July of 1981 through March of 1983, Biscayne, through Kaufman & Broad, and the Board negotiated unsuccessfully in search of a mutually acceptable plan to save Biscayne from receivership. During that time, Biscayne's net worth dropped from a positive $24 million to a negative $30 million. ²

these institutions were unable to overcome the changes in the financial market which resulted from the rising interest rates and widespread deregulation of that market. Investors in the late 1970's began moving their funds out of S & Ls and into other liquid investments which produced higher rates of return. As funds were depleted from the S & Ls, most of those institutions were unable to make new loans and were forced to borrow money elsewhere at high market rates to support their existing loan commitments.

At 2:05 p.m. on April 6, 1983, after Biscayne's net worth had dropped below a record negative $30 million, the Board appointed the FSLIC as receiver for Biscayne pursuant to 12 U.S.C. Sec. 1729(b) (1982) on the grounds that Biscayne was insolvent and in an unsafe and unsound condition. It is undisputed that Biscayne's negative net worth as of this date constituted statutory insolvency as defined in 12 U.S.C. Sec. 1464(d)(6)(A)(i) (1982). ³ Shortly thereafter, the FSLIC as receiver took possession of the property and assets of Biscayne and conveyed them to a new federal mutual association, New Biscayne Federal Savings and Loan Association of Miami ("New Biscayne"). Within hours after the FSLIC had taken possession, Biscayne and Kaufman & Broad as its principal shareholder filed an action pursuant to 12 U.S.C. Sec. 1464(d)(6)(A) seeking an order requiring the Board to remove the receiver. Joined as defendants were the Board and the FSLIC in both its receivership and corporate capacities. The plaintiffs also filed a motion for a temporary restraining order (TRO) which would prevent the Board from acting upon Biscayne's assets. On April 12, 1983, after conducting several hearings on preliminary motions, the district court entered an order which denied Biscayne's motion for a TRO ⁴ but which enjoined the Board and the FSLIC from selling or otherwise disposing of Biscayne's assets pending the outcome of a trial on the merits. The defendants FHLBB and the FSLIC immediately appealed from that order.

Pursuant to statutory preference the matter was expedited and from April 28, 1983 through June 14, 1983, the district court, sitting without a jury, conducted a trial on the merits as to the propriety of the Board's appointment of a receiver. On September 9, 1983, the district court entered a The district court found in favor of Biscayne under Count II of the complaint which alleged that the Board's appointment of a receiver constituted "an abuse of discretion, was arbitrary and capricious, was undertaken contrary to prior representation, and was not warranted by the facts and circumstances." The Board and the FSLIC contend that this was error because the court did not have the jurisdictional power to rule on this issue. It was this malfeasance of the Board that the district court used as the predicate for its conclusion that the Board was not authorized to appoint a receiver for Biscayne. We reverse the district court's order as to Count II and direct that the court enter judgment for the defendants. The court held the contention under Count III, that the Board should have availed itself of a less drastic remedy than receivership, to be without merit. ⁶ In a cross-appeal, Biscayne challenges as erroneous the district court's entry of judgment in favor of defendants as to Count III. We agree with the district court as to this count.

                memorandum opinion, examining allegations of wrongdoing on the part of the Board and the FSLIC, which Biscayne had brought under five counts, and ruling that Biscayne should be returned to its shareholders. 5   On September 21, 1983, the Board and the FSLIC filed their notice of appeal from the September 9 order.  On September 29, 1983, this court granted defendants-appellants' motion to expedite this appeal and to consolidate it with the appeal from the April 12 order.  Briefs were filed and oral argument conducted on November 15, 1983
                

THE ISSUES

A. THE BOARD'S CAPACITY TO ACT

The district court reviewed in detail the entire course of conduct engaged in by the FHLBB staff throughout its twenty months of negotiations with Kaufman & Broad and Biscayne, particularly the staff's refusal to seriously consider proposals made by Kaufman & Broad to alleviate Biscayne's financial crisis. It found that the conduct of the staff during the period from late in 1982 to April 6, 1983 was arbitrary, capricious and an abuse of discretion. Specifically, the court found, inter alia, that on several occasions the Board's staff had deliberately misrepresented the Board's position with regard to a branch sale proposal made by Kaufman & Broad in hopes of generating working capital. As Board approval was a prerequisite for any action taken by Biscayne during the relevant period of negotiations, such deception by the Board's staff was found to have caused the plaintiffs much needless time and expense. The court characterized the Board's conduct as "outrageous," "outlandish," "egregious" and "wrapped in a shroud of deception." ⁷ Recognizing that the district court found a pattern of outrageous conduct on the part of the Board's staff, and without reviewing whether or not that finding is clearly erroneous, we hold that the trial court as a The statutory scheme which prescribes the procedure for the appointment of a conservator or receiver for federal savings and loan institutions is unambiguous. 12 U.S.C. Sec. 1729(b) (1982) authorizes the FSLIC to be appointed as conservator or receiver of any federal savings and loan institution which is in default. It further authorizes the FSLIC, once the receivership has been established, to take "such action as may be necessary to put [the institution] in a sound and solvent condition." Section 1464 of the same statute complements the grant of authority under Sec. 1729(b), as...