Board of Governors of Federal Reserve System v. DLG Financial Corp.
| Decision Date | 15 August 1994 |
| Docket Number | 94-20013 and 94-10078,Nos. 93-2944,s. 93-2944 |
| Citation | 29 F.3d 993 |
| Parties | BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Plaintiff-Appellee, v. DLG FINANCIAL CORP. and Daniel S. De La Garza, Defendants-Appellants. DLG FINANCIAL CORPORATION and Daniel S. De La Garza, Plaintiffs-Appellants, v. FEDERAL RESERVE SYSTEM OF the UNITED STATES, Board of Governors, Federal Reserve Bank of Dallas and The Federal Deposit Insurance Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Emil Lippe, Jr., Lippe & Perry, Dallas, TX, for appellants.
Andrea M. Sharrin, Peter D. Coffman, Anthony J. Steinmeyer, Arthur R. Goldberg, Civ. Div., Dept. of Justice, Washington, DC, for appellees in Nos. 93-2944 and 94-20013.
Andrea M. Sharrin, Peter D. Coffman, Jennifer E. Kaplan, Attys., U.S. Dept. of Justice, Anthony J. Steinmeyer, Asst. Branch Manager, James L. Truitt, James L. Baldwin, Jr., U.S. Dept. of Justice, Washington, DC, for appellees in No. 94-10078.
Appeals from the United States District Court for the Southern District of Texas.
Appeal from the United States District Court for the Northern District of Texas.
Before GOLDBERG, KING and WIENER, Circuit Judges.
These consolidated appeals stem from two separate actions, one filed in the federal district court for the Northern District of Texas (hereafter the Dallas Court), and the other filed in the federal district court for the Southern District of Texas (hereafter the Houston Court). In the Dallas action, Appellants DLG Financial Corporation ("DLG") and Daniel S. De La Garza ("De La Garza") appeal the Dallas Court's decision to dismiss various state and federal claims they brought against the Board of Governors of the Federal Reserve System ("Board"), the Federal Reserve Bank of Dallas ("FRBD"), and the Federal Deposit Insurance Corporation ("FDIC"). As we conclude that these claims are precluded by the Federal Deposit Insurance Act ("FDIA"), the Federal Tort Claims Act ("FTCA"), and the Tucker Act, we affirm the dismissal of these claims.
In the Houston action, DLG and De La Garza appeal the Houston Court's issuance of a restraining order and a preliminary injunction, pursuant to FDIA Sec. 1818(i)(4), that encumbered certain of their assets. Finding the restraining order to be unappealable, we dismiss the appeal of that order. With respect to the appeal of the preliminary injunction, we conclude that DLG and De La Garza were afforded due process and that the Board made the requisite showing; we therefore affirm the Houston Court's order granting injunctive relief.
DLG is a company engaged in the business of buying discount promissory notes and other assets of failed commercial entities and reselling them at a profit. De La Garza is the president, CEO, and sole shareholder of DLG. On October 30, 1990, DLG entered into a letter agreement to purchase two promissory notes from NCNB Texas National Bank, N.A., which was acting on behalf of the FDIC. These notes were executed by International Bancorporation, Inc. ("IBI") and were secured by a pledge of all outstanding common stock of International Bank, N.A. The security agreement provided that if the notes came into default the noteholder could exercise all of the voting rights and corporate powers concerning the pledged stock without having to foreclose on the notes.
Between the execution of the letter agreement and the acquisition of the promissory notes by DLG, the relationship between the parties grew contentious. Ultimately, DLG and De La Garza were forced to sue the FDIC to compel performance under the letter agreement. On March 17, 1992, pursuant to a settlement agreement, DLG acquired the promissory notes for $1,000,000. At the time of acquisition, the notes were already in default.
Shortly after DLG obtained the notes from the FDIC, another fiscal agency of the federal government, the FRBD--the entity that supervises bank holding companies in Texas on behalf of the Board--wrote to DLG stating that its purchase of the promissory notes and the concomitant acquisition of bank voting rights appeared to violate the Bank Holding Company Act ("BHCA"), 1 which, inter alia, generally prohibits an entity from becoming a bank holding company without obtaining prior approval from the Board. 2 The DLG and De La Garza, however, insist that DLG did not become a bank holding company by purchasing the notes, and therefore prior Board approval was not required. Accordingly, they responded to the letter from the FRBD by turning to the courts.
letter from the FRBD instructed DLG to file immediately either (1) an application for approval to acquire the notes or (2) a divestiture plan. 3
On October 9, 1992, DLG and De La Garza filed suit in the Dallas Court against the Board, the FRBD, and the FDIC. In this action, DLG and De La Garza sought declaratory and injunctive relief to (1) establish their rights with respect to the promissory notes, (2) prevent interference with those rights, and (3) preclude the Board from asserting jurisdiction over DLG as a bank holding company under the BHCA. DLG and De La Garza also sought monetary damages and attorney's fees for breach of contract, tortious interference with contract, tortious interference with prospective contractual and business relations, fraud, conspiracy to commit fraud, and violations of the Due Process Clause of the Fifth Amendment.
On March 30, 1993, the Dallas Court dismissed DLG's and De La Garza's claims for declaratory and injunctive relief, reasoning that such relief was explicitly precluded by 12 U.S.C. Sec. 1818(i)(1). As for the monetary claims, the court dismissed (1) DLG's and De La Garza's state-law tort claims against the Board and the FDIC, holding that such claims must be brought against the United States pursuant to the FTCA 4; (2) a constitutional takings claim against the Board, finding that the Tucker Act granted the Court of Federal Claims exclusive jurisdiction over such an action 5; (3) a motion to dismiss a takings claim against the FDIC 6; and (4) a breach of contract claim against the FDIC, but granted an opportunity to replead. DLG and De La Garza amended their complaint, but, late in 1993, voluntarily dismissed all remaining claims and filed this appeal.
In May 1993, IBI redeemed the promissory notes for $2,000,000. De La Garza instructed IBI to wire the payment to a recently formed entity (Southwest Underwood Company) headed by his wife, which had no previous connection with the promissory note transaction.
On September 22, 1993, a state grand jury sitting in Travis County, Texas returned an indictment charging De La Garza and others with misapplication of approximately $9,000,000 in insurance company assets. 7 This indictment and De La Garza's decision to have the proceeds of the sale of the notes wired to Southwest Underwood Company precipitated, in part, the Board's decision to commence litigation in the Houston Court.
In October 1993, pursuant to its authority under the FDIA, 8 the Board commenced an On November 1, 1993, the Board filed a motion in the Houston Court, seeking a restraining order to freeze De La Garza's and DLG's assets to prevent their dissipation. 10 As noted, the Board relied, in part, on De La Garza's alleged "diversion" of the proceeds from the sale of the promissory notes to Southwest Underwood Company, and on his recent indictment for misapplying insurance company assets, as justification for seeking such an order.
administrative proceeding against DLG and De La Garza. In this proceeding, the Board made the same allegation asserted earlier by the FRBD--namely, that the acquisition of the promissory notes made DLG a bank holding company, and therefore the failure to obtain Board approval prior to the purchase of the notes violated the BHCA. Based on this charge, the Board assessed civil penalties totaling $1,000,000--$500,000 each against DLG and De La Garza 9 but provided that the fines were payable only after an opportunity for an adversary administrative enforcement proceeding and the exhaustion of appeals therefrom.
Based on the evidence presented by the Board, which included a sworn declaration by an agency official, the court found that the Board had made a prima facie showing that DLG and De La Garza had violated the BHCA and that civil penalties were justified. 11 The court immediately issued an "Order to Show Cause and Temporary Restraining Order," commanding DLG and De La Garza to appear in court on November 3, 1993, and show cause why they should not be enjoined from "withdrawing, transferring, removing, dissipating, or disposing of" their assets ("November 1 Order"). Pending further order of the court, the November 1 Order also prohibited DLG and De La Garza, or any of their employees, from withdrawing, transferring, removing, dissipating, or disposing of any of their assets. DLG and De La Garza appeal this order.
Two days later, on November 3, 1993, a hearing was conducted by the Houston Court during which it received evidence and heard arguments from both sides. From the bench Chief Judge Black then orally issued a preliminary injunction ("November 3 Injunction") that substantially modified and limited the November 1 Order, imposing a lien of $1,000,000 on but three among a number of properties owned by DLG. A slightly modified version of this preliminary injunction was issued in written form on December 23, 1993 ("December 23 Injunction"), replacing the November 3 Injunction entirely. De La Garza and DLG appeal from the December 23 Injunction.
On March 17, 1994, the district court again modified its injunction, but unlike the December 23 Injunction, this March 17 modification was just that--a modification--which did not supplant the prior injunction. DLG and De La Garza have appealed the March 17 modification, but the appeal of this modification was not consolidated with...
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