Collie v. Federal Home Loan Bank Bd.

• Citation: 642 F. Supp. 1147
• Decision Date: 09 September 1986
• Docket Number: No. 85 C 6707.,85 C 6707.
• Parties: C.C. COLLIE, James A. Hess, David Holsey, John F. Rosch, John G. Vondrak, and Glen Ellyn Savings and Loan Association, a State-Chartered Savings and Loan Association, Plaintiffs, v. The FEDERAL HOME LOAN BANK BOARD, Defendant.
• Court: U.S. District Court — Northern District of Illinois

642 F. Supp. 1147

C.C. COLLIE, James A. Hess, David Holsey, John F. Rosch, John G. Vondrak, and Glen Ellyn Savings and Loan Association, a State-Chartered Savings and Loan Association, Plaintiffs, v. The FEDERAL HOME LOAN BANK BOARD, Defendant.

No. 85 C 6707.

United States District Court, N.D. Illinois, E.D.

September 9, 1986.

Michael A. Braun, Craig P. Ehrlich, Braun & Rivkin, Chicago, Ill., for plaintiffs.

John L. Rogers, III, William J. McKenna, Jr., John F. Zabriskie, Hopkins & Sutter, Linda A. Wawzenski, Asst. U.S. Atty., Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

Plaintiffs are stockholders in Glen Ellyn Savings and Loan Association (Glen Ellyn), a thrift institution chartered by the State of Illinois. On September 19, 1985, the Federal Home Loan Bank Board (FHLBB), defendant here, appointed the Federal Savings and Loan Insurance Corporation (FSLIC) receiver of Glen Ellyn pursuant to section 122 of the Garn-St. Germain Depository Institutions Act of 1982, 12 U.S.C. § 1729(c)(1)(B). The plaintiffs bring this action—both individually and derivatively on behalf of Glen Ellyn—under 12 U.S.C. § 1729(c)(3)(A) to challenge that appointment.¹

I. Background

The statute provides that the FHLBB may place a state-chartered institution into receivership when it finds the existence of any of three grounds: insolvency; substantial dissipation of assets or earnings due either to violation of law, rules or regulations, or to unsafe or unsound practices; or an unsafe or unsound condition to transact business. 12 U.S.C. § 1464(d)(6)(A)(i)-(iii), incorporated by reference into 12 U.S.C. § 1729(c)(1)(B). The statute dictates that the Board first seek the approval of the state official with jurisdiction over the institution. That approval was given here. In the instant case, the FHLBB found the existence of all three statutory grounds, as well as repeated and continuing disregard for cease-and-desist orders. See FSLIC v. Glen Ellyn Savings & Loan Ass'n, 606 F.Supp. 91 (N.D.Ill.1984).

Plaintiffs, however, contest the determination of insolvency. To take the single most controversial transaction, they contend that the property which secured four Florida land development loans which Glen Ellyn made, appraised for the FHLBB at under $5 million, should in fact be appraised at over $19 million. They argue that both the statute and the standard of review for the FHLBB's action requires a trial, so that a trier of fact can determine which sets of appraisals are correct.

Under 12 U.S.C. § 1729(c)(3)(A), if the FSLIC is appointed receiver for a state-chartered institution, section 101 of the Financial Institutions Supervisory Act of 1966 (FISA), 12 U.S.C. § 1464(d), applies, with the institution having rights identical to those of a federally-chartered association under 12 U.S.C. § 1464(d)(6)(A). The relevant sentence of that section reads:

In the event of such appointment, the association may, within thirty days thereafter, bring an action in the United States district court for the judicial district in which the home office of such association is located ... for an order requiring the Board to remove such conservator or receiver, and the court shall upon the merits dismiss such action or direct the Board to remove such conservator or receiver.

II. Standard of Review

The Board contends that under this statute our review is limited to whether its act was arbitrary, capricious or an abuse of discretion. It has submitted the administrative record, six massive volumes, and moves for summary judgment. Plaintiffs, however, seize on the phrase "upon the merits." It is not entirely clear from their memoranda whether they construe this phrase as requiring a de novo hearing or merely de novo review. But they certainly appear to be arguing that the statutory standard of review means that summary judgment is never appropriate when there is a challenge to the appointment of a receiver for a thrift institution.

An arbitrary and capricious standard seems unlikely. It is true, as all authorities agree and plaintiffs concede, that the only question on a challenge to the appointment of a receiver is whether one of the statutory grounds for appointment existed at the time the appointment was made. Telegraph Savings & Loan Ass'n v. Schilling, 703 F.2d 1019, 1026 (7th Cir.), cert. denied, 464 U.S. 992, 104 S.Ct. 484, 78 L.Ed.2d 681 (1983); Biscayne Federal Savings & Loan Ass'n v. FHLBB, 720 F.2d 1499, 1504 (11th Cir.1983), cert. denied, 467 U.S. 1215, 104 S.Ct. 2656, 81 L.Ed.2d 363 (1984); Fidelity Savings & Loan Ass'n v. FHLBB, 689 F.2d 803, 809 (9th Cir.1982), cert. denied, 461 U.S. 914, 103 S.Ct. 1893, 77 L.Ed.2d 283 (1983). The wisdom of the Board's decision to act is not before us. Biscayne, 720 F.2d at 1504.

However, an arbitrary or capricious standard would be the same standard used under the Administrative Procedure Act (APA), and it also seems likely that our review is not identical to review under the APA. Washington Federal Savings & Loan Ass'n v. FHLBB, 526 F.Supp. 343, 350 (N.D.Ohio 1981). Before the passage of FISA in 1966, appointment of a receiver for a thrift institution was governed by section 503 of the Housing Act of 1954, Pub.L. 83-560, 68 Stat. 634. That statute provided for notice to the association and an opportunity for an administrative hearing before the appointment was made, with the hearing subject to judicial review under the Administrative Procedure Act. See S.Rep. No. 1472, 83d Cong., 2d Sess., reprinted in 1954 U.S.Code Cong. & Ad. News 2723, 2766. However, Congress rewrote the statute in 1966. Although section 101 of FISA tracks the language of the prior statutory provision in several respects, Congress expressly omitted that portion of the prior statute which referred to the administrative hearing and judicial review of it under the APA. That cannot have been an oversight. The legislative history of FISA pointedly refers to APA review for the cease and desist and removal orders, but not for appointment of a receiver. S.Rep. No. 1482, 89th Cong., 2d Sess., reprinted in 1966 U.S.Code Cong. & Ad.News 3532, 3541, 3545-3546. Instead, section 101 of FISA uses the unusual phrase, "upon the merits." FISA § 101 ¶ 6, 12 U.S.C. § 1464(d)(6)(A). Given this context, Congress cannot have intended review "upon the merits" to be the equivalent of review on an arbitrary or capricious standard.

Unfortunately, Congress did not provide any further clues as to what it meant by that phrase. Plaintiffs argue that under the statute a thrift institution is entitled to "at least one opportunity to contest the facts upon which the bank board concluded that the statutory grounds for a receivership existed." (Plaintiffs' response to defendant's motion for summary judgment, p. 4.) They arrive at that proposition in the following manner. Even though Congress deleted the reference to a hearing before appointment of a receiver, they contend, Congress cannot have meant to deprive thrift institutions of the equivalent procedural protections. Rather, according to plaintiffs, the protections were transferred to the court proceeding. As long as any factual dispute exists between the association and the Board, the plaintiffs maintain, then the association must have an opportunity to present its own evidence and oral testimony, and to cross examine the Board's witnesses (plaintiffs' response at 3-4). In support, they cite the district court decision which the Seventh Circuit affirmed in Telegraph, Telegraph Savings & Loan Ass'n v. FSLIC, 564 F.Supp. 862, 869 (N.D.Ill.1981), where Judge Grady of this district granted an association challenging the appointment of a receiver a full trial. Plaintiffs conclude that since a dispute exists between their appraisers and the Board's appraisers on the valuation of several pieces of real estate, and the difference is large enough that if their appraisers are correct Glen Ellyn was not insolvent, this case must go to trial.

That construction of the governing statute, however, is at odds with both the plain language of the statute and its legislative history. The statute as written does not mention a hearing. By the ordinary rules of statutory construction that would mean that no hearing is required. We also know that Congress had the prior version of the statute, which included a hearing, before it. The logical inference is that Congress intended to eliminate any entitlement to an adversary hearing as of right.

A further look at the legislative history of FISA explains why. The 1954 Act provided the FHLBB only two remedies which it could use against associations being managed in a careless or unsound manner: putting the institution in receivership, or withdrawal of federal insurance for depositors. In practice, those remedies proved both too drastic for many of the situations which the Board encountered and too cumbersome to make prompt correction possible. Larimore v. Comptroller of the Currency, 789 F.2d 1244, 1250 (7th Cir.1986); S.Rep. No. 1482, supra, 1966 U.S.Code Cong. & Ad.News at 3533, 3537. The purpose of FISA was to provide intermediate remedies, such as cease-and-desist orders, and orders to suspend or remove an individual director, officer or other employee. Id. With these remedies available, appointment of a receiver now became something of a last resort, to be used for the most part only after the intermediate remedies had failed to correct the problem. Id. at 3545. Both cease-and-desist proceedings and removal proceedings include administrative hearings under the APA with the right to judicial review. FISA § 101 ¶¶ 2, 4, 5, 7, 12 U.S.C. § 1464(d)(2), (4), (5), (7); S.Rep. No. 1482, supra, 1966 U.S.Code Cong. & Ad. News at 3541-3542, 3546. An administrative hearing at the receivership stage thus became no longer necessary because adequate procedural protections attach to the intermediate remedies. The statute was not intended to give plaintiffs an...