Com. of Mass. v. F.D.I.C.

• Decision Date: 04 November 1996
• Docket Number: No. 96-1548,96-1548
• Citation: 102 F.3d 615
• Parties: COMMONWEALTH OF MASSACHUSETTS, Plaintiff, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Federal Deposit Insurance Corporation, as Receiver for Bank Five for Savings, et al., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 615

102 F.3d 615

65 USLW 2420

COMMONWEALTH OF MASSACHUSETTS, Plaintiff, Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION and Federal Deposit

Insurance Corporation, as Receiver for Bank Five

for Savings, et al., Defendants, Appellees.

No. 96-1548.

United States Court of Appeals, First Circuit.

Heard Nov. 4, 1996.

Decided Dec. 19, 1996.

Thomas O. Bean, Assistant Attorney General, Boston, MA, with whom Scott Harshbarger, Attorney General of Massachusetts, was on brief, for plaintiff-appellant.

Mitchell E.F. Plave, Counsel, Washington, DC, with whom Ann S. DuRoss, Assistant General Counsel, and Colleen B. Bombardier, Senior Counsel, were on brief for defendant-appellee FDIC, in its corporate capacity.

Leslie Randolph, Counsel, Washington, DC. with whom Ann S. DuRoss, Assistant General Counsel, and Robert D. McGillicuddy, Senior Counsel, were on brief for defendant-appellee FDIC, as Receiver for Bank Five for Savings, et al.

Before SELYA, CYR and LYNCH, Circuit Judges.

LYNCH, Circuit Judge.

Against the backdrop of a general economic decline and tightened federal bank regulations, Massachusetts suffered forty-eight bank failures between 1987 and 1994. This case is part of the aftermath of that financial crisis. At issue is whether the Commonwealth of Massachusetts, acting under its abandoned property statute, may obtain either the federal deposit insurance proceeds or the pro rata distributions from abandoned accounts in failed Massachusetts banks. Considerable sums are at stake.

I.

The Federal Deposit Insurance Corporation was created by the Banking Act of 1933, Pub.L. No. 73-66, § 8, 48 Stat. 162, to alleviate hardships caused by bank failures. See S.Rep. No. 584, 72d Cong., 1st Sess. 10 (1932). ¹ The agency in its corporate capacity ("FDIC-Corporate") offers insurance on depositors' accounts for up to $100,000. 12 U.S.C. § 1821(a)(1)(B). Participating banks and thrifts pay premiums to the FDIC. Those premiums are used to maintain two insurance funds, the Bank Insurance Fund and the Savings Association Insurance Fund. Id. § 1821(a)(5), (6). When a bank fails, FDIC-Corporate draws money from one of these funds and either pays the insurance proceeds directly to depositors as an insured deposit or transfers the money to a new bank as a transferred deposit, using whichever method is more cost effective. Id. § 1821(f). Upon payment to the depositors, FDIC-Corporate becomes subrogated to the depositors' rights against the failed banks. Id. § 1821(g)(1).

The FDIC acting as a receiver ("FDIC-Receiver") winds up the affairs of failed banks and distributes any remaining assets pro rata to the bank's creditors. Id. §§ 1821(c)(2)(A)(ii); 1821(d)(11)(A). FDIC-Corporate may bring a claim against FDIC-Receiver for the insured depositors' pro rata shares of any distributed liquidated assets. See id. § 1821(g)(1).

Before 1988, FDIC-Corporate had generally honored claims by states, pursuant to their abandoned property acts, for the insured value of abandoned deposits at failed banks. ² Treatment of Abandoned Deposits and Property in Failed Depository Institutions: Hearing Before the Subcomm. on Financial Institutions Supervision, Regulation and Insurance of the House Comm. on Banking, Finance and Urban Affairs, 102d Cong., 2d Sess. 149 (1992) (Letter of Alice C. Goodman, Acting Director, Office of Legislative Affairs, FDIC). FDIC-Receiver continues to permit states that file timely claims pursuant to the provisions governing general creditors of the receivership estate to act on behalf of absent depositors and to claim those depositors' pro rata shares of any distributed liquidated assets. Id. at 95 (Testimony of Alfred J.T. Byrne, General Counsel, FDIC). However, after 1988, FDIC-Corporate began declining to pay states the insured value of abandoned accounts. Id. at 97-98. FDIC-Corporate asserted that its original policy was inconsistent with the plain language of the pre-1993 version of 12 U.S.C. § 1822(e), which provided that insurance funds not claimed by a depositor within eighteen months of the appointment of a receiver reverted back to the FDIC. Id; see also 12 U.S.C. § 1822(e) (1989) (current version enacted 1993).

The states, with Massachusetts in the vanguard, fought back. They lobbied Congress, leading to the enactment of compromise legislation, the Unclaimed Deposits Amendments Act of 1993 ("UDAA"), Pub.L. No. 103-44, 107 Stat. 220 (1993), under which the states receive the insured value of abandoned deposits for a 10-year period. If a depositor fails to make a claim during this time, the insurance proceeds on the abandoned account must be returned to the FDIC and all rights of the depositor are extinguished. 12 U.S.C. § 1822(e)(5); see infra note 7.

However, the UDAA expressly made the former version of § 1822(e) applicable to banks placed in receivership between January 1, 1989 and June 28, 1993, with one additional proviso. Claims by insured depositors at such banks made prior to the termination of the receivership estate are not time-barred. Pub.L. No. 103-44, § 2(b) (1993). Thus, depositors at banks placed in receivership between January 1, 1989 and June 28, 1993 have the longer of eighteen months or until the termination of the receivership estate to file claims with FDIC-Corporate for the insured value of their accounts. Id.

Massachusetts also turned to the federal judicial system for redress, claiming it is entitled to the insurance proceeds and the pro rata distributions from abandoned deposits in thirty-three failed Massachusetts banks for which the FDIC was appointed receiver between May 1990 and December 1992. ³

II.

The Commonwealth has its own comprehensive legal framework, the Massachusetts Abandoned Property Act ("MAPA"), Mass. Gen. L. ch. 200A, for dealing with abandoned property. The federal government has a similarly intricate statutory and regulatory scheme relating to bank failures. The dispute between the Commonwealth and the FDIC involves the intersection of these two bodies of law.

The MAPA was enacted both to protect the rights of true owners when and if they appear and to bring additional revenues to the Commonwealth's treasury. Treasurer & Receiver Gen. v. John Hancock Mut. Life Ins. Co., 388 Mass. 410, 446 N.E.2d 1376, 1383 (1983). It creates a presumption that deposits are abandoned unless the owner has, during the past three years, either communicated with the deposit holder or engaged in certain other activities. Mass. Gen. L. ch. 200A, § 3. Deposit holders, including banks, are required to submit annual reports to the State Treasurer listing the names and addresses of depositors deemed to have abandoned accounts valued at more than $100. Id. § 7. The banks must send letters to the owners of such accounts at least sixty days before filing the report, giving notice that the deposits are about to be surrendered to the custody of the Commonwealth. Id. § 7A.

Unless a depositor claims an abandoned account, the bank must deliver the funds into the custody of the State Treasurer, who publishes a notice that the accounts are deemed abandoned. Id. §§ 8A, 8. The money is then placed in an Abandoned Property Fund and used for the benefit of the Commonwealth. Id. § 9(e). The owner of an abandoned account has an unlimited period to submit a claim for the funds. Id. § 10(a). If the State Treasurer determines that the claim is valid, the owner receives the value of the account plus a small amount of monthly interest. ⁴ Id. § 10(e). However, only about 25% of abandoned accounts are ever claimed; the rest are retained by the Commonwealth.

The dispute over deposits held in failed banks and deemed abandoned under the MAPA arose in early 1992. ⁵ Following unsuccessful attempts to achieve a settlement, Massachusetts filed a complaint against FDIC-Receiver in federal district court in January 1994 seeking the pro rata value of the deposits from the failed banks' remaining assets. In March 1994, Massachusetts also filed an administrative claim with FDIC-Corporate for the insured value of the unclaimed deposits, arguing that it was entitled to these funds under the MAPA. ⁶

FDIC-Corporate rejected the claim, stating that the MAPA was pre-empted by 12 U.S.C. § 1822(e) (1989) (current version enacted 1993). ⁷ Massachusetts petitioned this court directly for review of the administrative claim. This court held that it lacked jurisdiction and transferred the case to the district court for a ruling on the merits. Massachusetts v. FDIC, 47 F.3d 456, 457 (1st Cir.1995) (initial jurisdiction to hear appeals from the FDIC's disposition of claims for insurance benefits lies not in the court of appeals, but in the district court). The cases against FDIC-Corporate and FDIC-Receiver were consolidated in October 1995 by agreement of the parties.

FDIC-Corporate moved to dismiss, reasserting that the MAPA is pre-empted by federal statute. FDIC-Corporate moved in the alternative for summary judgment, arguing that its decision to deny Massachusetts' claim was a proper exercise of discretion. At the same time, FDIC-Receiver moved to dismiss on the ground that Massachusetts' claim for deposit funds was time-barred because it had not been filed within the 90-day period for general creditors set forth in 12 U.S.C. § 1821(d)(5). Massachusetts responded with a motion for summary judgment against FDIC-Corporate. Massachusetts v. FDIC, 916 F.Supp. at 57.

The district court, in a carefully reasoned opinion, dismissed the insurance claim against FDIC-Corporate and entered summary judgment for FDIC-Receiver on the creditor claim. Id. at 61. ⁸ The allowance of both motions is reviewed de novo. Villafane-Neriz v. FDIC, 75 F.3d 727, 730 (1st Cir.1996); Heno v. FDIC, 20 F.3d 1204, 1205 (1st Cir.1994). We affirm.

III.

The Commonwealth argues two bases for its claim against FDIC-Corporate for the insured value of deposits abandoned in failed Massachusetts banks: its abandoned property statute and FDIC...