F.D.I.C. v. Garner

• Decision Date: 11 September 1997
• Docket Number: Nos. 96-56710,96-56754,s. 96-56710
• Citation: 125 F.3d 1272
• Parties: 97 Cal. Daily Op. Serv. 7317, 97 Daily Journal D.A.R. 11,810 FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of American Commerce National Bank, Plaintiff-Appellee, v. Gerald J. GARNER; Joan Garner, Defendants-Appellants. FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of American Commerce National Bank, Plaintiff-Appellee, v. Daniel GARNER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1272

125 F.3d 1272

97 Cal. Daily Op. Serv. 7317, 97 Daily Journal

D.A.R. 11,810

FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of American Commerce National Bank, Plaintiff-Appellee, v. Gerald J. GARNER; Joan Garner, Defendants-Appellants.

FEDERAL DEPOSIT INSURANCE CORPORATION, in its capacity as Receiver of American Commerce National Bank, Plaintiff-Appellee, v. Daniel GARNER, Defendant-Appellant.

Nos. 96-56710, 96-56754.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 6, 1997.

Decided Sept. 11, 1997.

Carol L. Newman, Los Angeles, CA; Gerald J. Garner, in Pro Se, Newport Beach, CA; Charles W. Tourdot, Norwalk, CA; and Robert M. Silverman, Los Angeles, CA, for defendants-appellants.

Jaclyn C. Tanner, FDIC, Washington, DC, Richard B. Noulles, Gable Gotwals Mock Schwabe Kihle Gaberino, Tulsa, OK, for plaintiff-appellee.

Appeals from the United States District Court for the Central District of California; George H. King, District Judge, Presiding. D.C. No. CV-96-02668-GJK.

Before: BROWNING, BRUNETTI, and TROTT, Circuit Judges.

BRUNETTI, Circuit Judge:

This is a consolidated appeal from the district court's decision to grant a preliminary injunction requested by the Federal Deposit Insurance Corporation freezing Gerald and Joan Garner's assets and appointing a trustee over those assets. The court imposed the injunction during the pendency of a lawsuit filed by the FDIC against the Garners. In the underlying suit, the FDIC seeks to recover damages for torts and statutory violations in connection with the Garners' management of the American Commerce National Bank. The principal legal question we address is whether the FDIC may invoke a preliminary injunction asset freeze in their suit against the Garners under the Taxpayer Recovery Act absent allegations of fraudulent conduct.

We affirm the grant of the preliminary injunction.

I. FACTS

A. Joan and Gerald Garner's Appeal

On April 30, 1993, the Office of the Comptroller of the Currency ("OCC") closed the American Commerce National Bank ("Bank") pursuant to 12 U.S.C. § 1821(c)(5) because of unsafe and unsound banking practices, including insider abuses. On April 1, 1996, the Federal Deposit Insurance Corporation ("FDIC"), acting as receiver for the bank, brought suit against Gerald Garner, the former Chairman and Chief Executive Officer of the Bank and his wife, Joan, also a former Bank Director. Joan Garner had also borrowed significant amounts of money from the Bank. The FDIC charged the Garners with negligence, gross negligence, breach of fiduciary duty, and lending limit violations, and sought over ten million dollars in damages. In the same complaint, the FDIC sued Gerald Garner's brother, Daniel Garner, also a former Bank Officer.

In the complaint, the FDIC listed numerous "illustrative transactions" of the "types of failures, breaches and violations of duty committed by the [defendants] which damaged the bank." The FDIC alleged that the Bank made numerous imprudent loans to Joan Garner "simply because she was a bank director and was married to Bank Chairman, Gerald Garner." At the time of the Bank's closing, Joan Garner owed the bank over one million dollars. The FDIC claimed that the Bank made three imprudent loans to Gerald Garner's brother, Harvey, resulting in losses of approximately $185,000. The complaint also alleged that the Bank imprudently honored over 5,000 overdraft checks drawn on an account held by Coast Plaza Doctors Hospital ("CPDH"), a business owned and controlled by Gerald Garner. On the date that the OCC closed the Bank, CPDH owed over $1.2 million for these overdrafts. In total, the complaint detailed eleven imprudent transactions resulting in damages to the Bank in excess of ten million dollars.

On July 22, 1996, the FDIC applied to the district court for an ex parte temporary restraining order ("TRO") freezing the Garners' assets and appointing a temporary trustee while it prosecuted the underlying suit; it also applied for an order to show cause why a preliminary injunction should not issue. The motion relied on 12 U.S.C. §§ 1821(d)(18) and (19), which constitute the asset freeze provisions of the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act ("TRA"). In seeking the proposed preliminary injunction, the FDIC argued that the Garners had transferred assets to their family members, trusts, and other entities controlled by them and "appear to have engaged in efforts to transfer, dissipate or otherwise place their assets beyond the reach of their creditors."

The FDIC submitted two declarations in support of the application for the TRO and preliminary injunction. First, the declaration of Todd Menenberg, an experienced certified public accountant, listed over eighty loans which the Bank imprudently and negligently approved. The FDIC attached over eighty pages of narrative summaries, summaries of deficiencies, and details about the Garners' involvement in granting these loans. The FDIC culled this information from Bank records and depositions. Overall, the declaration addressed loans to nine different entities in painstaking detail. The exhibits listed the amounts and dates of loans, the loan numbers, whether the loans were secured by collateral, and other relevant information. According to Menenberg, the exhibits revealed a consistent practice of improper banking procedures through "imprudently and negligently" approved loans.

The FDIC also submitted the declaration of Pamela Playdon, a senior attorney for the Corporation. Playdon's thirty-nine-page declaration set forth a myriad of improper banking and financial activities by the Garners and echoed many of the charges maintained in the Menenberg declaration. Listed improprieties included: payment of excessive salaries to both Gerald and Joan Garner, payment by the Bank of over $100,000 of the Garners' personal expenses, improper loans to family members, friends, and related business entities, and numerous other questionable financial dealings. In addition, Playdon's declaration set forth the basis for the FDIC's fear of a dissipation of assets by the Garners. This included numerous instances where the Garners failed to comply with subpoenas requesting information on their assets and over fifty examples of asset transfers among the Garners and their family members, trusts, and related business entities. The FDIC supported the Playdon declaration with 186 exhibits which included the Garners' tax statements, sales receipts, checking account statements, and other financial documents.

On July 26, 1996, the district court entered a minute order under seal declining to rule on the request for a TRO and requesting further briefing from the FDIC on the issues of the standard and scope of the injunctive relief, the constitutionality of the temporary restraining order and whether the defendants' rights were adequately protected under the temporary restraining order. The court noted that the:

FDIC has made a sufficient showing of its likelihood of success on the merits of its breach of fiduciary duty and negligence claims in the underlying lawsuit. However, it is far from clear that the FDIC has properly applied the standard for a TRO motion brought pursuant to 12 U.S.C. § 1821(d)(18) and (19) to the case at bar.

On August 15, after the FDIC had submitted further briefing addressing the legal basis for injunctive relief, the district court issued an order denying the FDIC's application without prejudice to its reassertion. The court concluded that subsections 1821(d)(18) and (19) did not authorize the court to issue an asset freeze order unless the FDIC either brought a fraudulent conveyance claim under subsection 1821(d)(17), asserted an alternative fraud claim, or sought to collect a prior judgment based on fraudulent activities. The court also held that, alternatively, the FDIC had failed to demonstrate adequately that it was entitled to injunctive relief under the standards set forth in FSLIC v. Sahni, 868 F.2d 1096, 1097 (9th Cir.1989).

On August 27, the FDIC reapplied for a temporary restraining order and submitted additional briefing on the scope of available injunctive relief. On October 29, the court granted the FDIC's Second Amended Proposed Temporary Restraining Order and set the FDIC's Application for a Preliminary Injunction and Appointment of a Trustee for a show cause hearing.

At the show cause hearing, the court explained that although it had concluded previously that subsections 1821(d)(17), (18), and (19) were to be applied as a package, it was

now satisfied that a basis for the type of relief sought, putting aside the scope of the relief, exists within the title--the act that is within 12 U.S.C. section 1821(d)(18) and (19), so those sections can provide the type of relief sought by the FDIC separate and apart from any allegation of fraud or fraudulent activity or fraudulent conveyances which may otherwise give rise to claims or actions under 1821(d)(17).

The court also found that the FDIC had made a sufficient showing both of the likelihood of success on the merits of the underlying suit and of the possibility of dissipation of assets by the Garners. Consequently, the court granted the preliminary injunction freezing the Garners' assets.

To ensure that the asset freeze was as narrow as possible, the court ordered the parties to negotiate the terms of the order and to set forth their respective positions on any provisions that could not be agreed upon. On November 25, the parties submitted their proposed order, including annotations and objections from the Appellants. On December 3, the court entered the Preliminary Injunction and Order Appointing a Trustee and ordered the Garners to turn over certain property to the trustee by December 10. The Garners filed a notice of appeal of the asset freeze order with the Ninth Circuit on December 5. The district court denied their application...