Federal Deposit Ins. Corp. v. Bank of Coushatta, 90-4577
| Decision Date | 13 May 1991 |
| Docket Number | No. 90-4577,90-4577 |
| Citation | 930 F.2d 1122 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff-Appellee, v. BANK OF COUSHATTA, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
John C. Deal, O. Judson Schaef, Emens, Hurd, Kegler & Ritter, Columbus, Ohio, James G. Bethard, Bethard & Davis, Coushatta, La., for defendants-appellants.
Gary Lindsay Newport, Sr. Atty., Patricia Riddick, Staff Atty., La. Office of Financial Institutions, Baton Rouge, La., for amicus curiae.
John A. Broadwell, Asst. U.S. Atty., Joseph S. Cage, Jr., U.S. Atty., Shreveport, La., Thomas L. Holzman, FDIC, Trial Cnsl. Sec., Washington, D.C., for plaintiff-appellee.
Appeal from the United States District Court for the Western District of Louisiana.
Before WISDOM, KING, and BARKSDALE, Circuit Judges.
The Federal Deposit Insurance Corporation issued a capital directive to the Bank of Coushatta and its directors (Board). After they failed to comply, the FDIC obtained an ex parte order from the district court to enforce the directive. The Bank and Board appeal from the order; they contend, pursuant to the Administrative Procedure Act (APA), 5 U.S.C. Sec. 551, et seq., and Fifth Amendment due process, that they were entitled to an agency hearing and judicial review in conjunction with issuance of the directive. We AFFIRM.
Chartered by Louisiana, 1 the Bank is federally insured, subject to the Federal Deposit Insurance Act, 12 U.S.C. Sec. 1811, et seq., and FDIC rules and regulations. In July, 1989, it was operating under the FDIC capital forbearance program in an attempt to bring its capital to a minimum level. Under its second capital forbearance plan, the Bank had agreed to bring its primary capital ratio to 5.49% by year end. The FDIC determined that the Bank could not comply with the plan, because its loss classifications exceeded amounts projected for all of 1989. As a result, in July 1989, the FDIC issued a notice of intent, with preliminary findings of fact and conclusions of law, stating that the Bank's primary capital was lower than required by regulation and that the FDIC proposed to issue a capital directive requiring the Bank by December 31, 1989, to increase that capital by not less than $725,000 and to achieve ratios of primary and total capital to total assets of not less than 5.5% and 6.0% respectively.
Accompanying the notice was a letter to the Board, which discussed the financial condition of the Bank, the reasons for its deteriorating status, and the intent of a capital directive action. 2 Also enclosed was the report on the examination of the Bank conducted as of April 1989 by the FDIC and a state examiner.
Any response to the notice was due within 14 days after receipt and was to
state any basis for relief from the proposed CAPITAL DIRECTIVE, and may seek modification of its terms, or seek other appropriate relief. Such response shall include any information, mitigating circumstances, documentation, or other relevant evidence which supports the Bank's position, and may include a plan for attaining the minimum capital requirement.
By only a 1 1/2 page letter in August 1989, the Board responded; it noted its efforts to find additional capital, its lack of financial capacity, and the weakened nature of the Louisiana economy, stating that "[t]he main reason for failure to achieve the goals in the Capital Forbearance Plan is loan losses and the deterioration of the parcels held as Other Real Estate." The Board did not dispute any of the FDIC's classifications of assets or its calculations. Nor did it submit any proposal for meeting the FDIC requirements, stating only that "[t]he Board believes it will have sufficient earning[s] to have a capital ratio in excess of 4% by year end, and will continue its efforts to find additional capital." The Board acknowledged the "capital deficiency" and requested modification of the capital forbearance plan in lieu of a capital directive.
The FDIC issued the directive in September 1989, with supporting findings of fact and conclusions of law and a cover letter to the Board. The Bank was directed (1) by December 31, 1989, to restore its ratio of primary capital to total assets to at least 5.5% and enhance that capital by at least $725,000; and (2) within 30 days, to submit a plan for achieving the capital level. The directive stated that it was binding upon "the Bank [and] its directors," among others.
Because the Bank failed to comply, the FDIC filed a letter in May 1990, in the United States District Court in Louisiana, pursuant to 12 U.S.C. Sec. 1818(i), requesting an order enforcing the directive against the Bank and Board. Attached to the letter was a Petition for Enforcement of Administrative Order, stamped filed on June 14, 1990. On July 13, 1990, the district court issued the requested ex parte order. The Bank, its officers and directors were ordered to comply with the directive and to submit a report within 30 days The Bank and Board filed an appeal from that order and a motion for stay pending appeal; the district court and this court denied the stay.
The FDIC's authority to issue capital directives is one of its regulatory tools for dealing with troubled banks. Most of these methods are set forth in 12 U.S.C. Sec. 1818; however, authority for a directive is found in the International Lending Supervision Act of 1983 (ILSA), 12 U.S.C. Sec. 3907, which provides in part:
(a)(1) Each appropriate Federal banking agency shall cause banking institutions to achieve and maintain adequate capital by establishing minimum levels of capital for such banking institutions and by using such other methods as the appropriate Federal banking agency deems appropriate.
(2) Each appropriate Federal banking agency shall have the authority to establish such minimum level of capital for a banking institution as the appropriate Federal banking agency, in its discretion, deems to be necessary or appropriate in light of the particular circumstances of the banking institution.
(Emphasis added.) Moreover, failure to maintain the requisite capital "may be deemed by the appropriate Federal banking agency, in its discretion, to constitute an unsafe and unsound practice...." 12 U.S.C. Sec. 3907(b)(1) (emphasis added).
If a bank fails to maintain the required capital, the agency may issue a directive:
(B)(i) Such directive may require the banking institution to submit and adhere to a plan acceptable to the appropriate Federal banking agency describing the means and timing by which the banking institution shall achieve its required capital level.
(ii) Any such directive issued pursuant to this paragraph ... shall be enforceable under the provisions of Section 1818(i) ... to the same extent as an effective and outstanding order issued pursuant to Section 1818(b) ... which has become final.
12 U.S.C. Secs. 3907(b)(2)(B)(i) and (ii).
The above referenced Sec. 1818(b) governs cease-and-desist proceedings. Cease-and-desist orders are issued only after an agency hearing, Secs. 1818(b)(1) and (h)(1), and "become effective at the expiration of thirty days after the service of such order ... and shall remain effective and enforceable ..., except to such extent as it is stayed, modified, terminated, or set aside by action of the agency or a reviewing court." 12 U.S.C. Sec. 1818(b)(2). Such orders may be reviewed in a court of appeals within thirty days after service of the order. Sec. 1818(h)(2).
And, Sec. 1818(i), also referenced above in Sec. 3907, provides:
The appropriate Federal banking agency may in its discretion apply to the United States district court ... for the enforcement of any effective and outstanding notice or order issued under this section, and such courts shall have jurisdiction and power to order and require compliance herewith; but except as otherwise provided in this section no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under this section, or to review, modify, suspend, terminate, or set aside any such notice or order.
Accordingly, a capital directive may be enforced in the district court under Sec. 1818(i). But, as also referenced above, the district court's jurisdiction is limited. "[S]ection 1818(i) ... evinces a clear intention that [the] regulatory process is not to be disturbed by untimely judicial intervention, at least where there is no 'clear departure from statutory authority.' " Groos Nat'l Bank v. Comptroller of Currency, 573 F.2d 889, 895 (5th Cir.1978) (citation omitted). Furthermore, the hearing requirements for cease-and-desist orders are not incorporated in the procedures for capital directives.
Section 3907 was enacted to provide "a stronger, unambiguous statutory directive to the regulators to strengthen banks' capital positions." H.R.Rep. No. 98-175, 98th Cong., 1st Sess. 45, reprinted in 1983 U.S.Code Cong. & Admin.News 1768, 1928.
The [Senate Banking and Finance] Committee's amendment explicitly makes failure to maintain established capital levels an "unsafe and unsound practice...." The amendment requires regulators to demand that institutions below the required capital levels submit and adhere to an acceptable plan to achieve prescribed levels.
Another congressional purpose behind Sec. 3907 was in response to this court's decision in First Nat'l Bank of Bellaire v. Comptroller of Currency, 697 F.2d 674 (5th Cir.1983), where the portion of a cease-and-desist order requiring a capital ratio was set aside as not being supported by substantial evidence. Id. at...
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