Federal Deposit Ins. Corp. v. Henderson

• Citation: 940 F.2d 465
• Decision Date: 29 July 1991
• Docket Number: No. 90-35499,90-35499
• Parties: 57 Empl. Prac. Dec. P 41,012 FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for Liberty Bank of Seattle, Plaintiff, v. Sim HENDERSON, et al., Defendants. J. Thomas WOOD; Barbara Wood, husband and wife, Defendants-Counter- Claimants-Plaintiffs-Appellants, v. Thomas OLDFIELD, Counter-Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 465

940 F.2d 465

57 Empl. Prac. Dec. P 41,012

FEDERAL DEPOSIT INSURANCE

CORPORATION, as receiver for Liberty Bank of Seattle, Plaintiff, v. Sim HENDERSON, et al., Defendants.

J. Thomas WOOD; Barbara Wood, husband and wife, Defendants-Counter- Claimants-Plaintiffs-Appellants, v. Thomas OLDFIELD, Counter-Defendant-Appellee.

No. 90-35499.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 6, 1991.

Decided July 29, 1991.

Kathleen L. Albrecht, Culp, Guterson & Grader, Seattle, Wash., for defendants-counter-claimants-plaintiffs-appellants.

Betty Edwards, Asst. Atty. Gen., Olympia, Wash., for counter-defendant-appellee.

Appeal from the United States District Court for the Western District of Washington.

Before WIGGINS, BRUNETTI and NELSON, Circuit Judges.

WIGGINS, Circuit Judge:

Thomas Wood appeals the district court's order granting Thomas Oldfield's motion for summary judgment on Wood's Sec. 1983 equal protection and due process claims. Wood argues on appeal that genuine issues of material fact exist as to each claim, making summary judgment inappropriate. The district court had jurisdiction under 12 U.S.C. Sec. 1819(b)(2) and 28 U.S.C. Sec. 1331. We have jurisdiction over this timely appeal under 28 U.S.C. Sec. 1291, and we affirm.

BACKGROUND

Thomas Wood was the President and CEO of Liberty Bank, a single-branch, minority-owned bank located in Seattle, from August 1984 until December 1987. Thomas Oldfield is the Supervisor of Banking for the State of Washington, a position he has held since November 1985. Wood, who is black, alleges that Oldfield's actions toward Wood and Liberty violated his rights to equal protection and due process. We recount the facts in some detail.

Liberty was chartered in 1968. In July 1984, the month before Wood took office, an examination by the Federal Reserve Bank ("FRB") indicated that Liberty was in fair condition; while the level of primary capital to total assets was adequate and "compare[d] favorably with the peer group," the total amount of classified assets had more than doubled since the previous examination. ¹ The report stated that "[m]anagement must take all necessary steps to reverse the decline in asset quality and ensure that extensions of credit are supported by adequate credit information and proper documentation."

Though the precise timing is not exactly clear, Wood determined early in his tenure that the Bank's position would be greatly improved if it could accomplish two things: (1) Wood and the Board wanted to open a downtown branch, in the hope of attracting more sizeable deposits and more favorable lending opportunities than its current low-income neighborhood could provide; and (2) they hoped to inject substantial capital into the Bank through a stock recapitalization plan. Both moves required the approval of the state Supervisor of Banking. ² Neither request had been approved by the time Oldfield was appointed Supervisor in November 1985.

In June 1985, the FRB conducted another examination of Liberty. That report began by stating that "the overall condition of the bank has deteriorated and is now considered to be unsatisfactory." Classified assets totalled $1,524,000, or fully 100% of the Bank's capital funds. The FRB examiners concluded that:

[t]he unsatisfactory condition of the bank is a direct result of inadequate leadership and supervision by the Board of Directors and senior management, both past and present. Management must redirect its priorities and take more aggressive corrective action to improve the condition of the bank if long-term goals of expansion and service to the community are to be met.

The report further noted that the poor loan portfolio was "a direct result of unsound In response to the Bank's declining status, Acting Supervisor of Banking Malmberg (Oldfield's predecessor) and officials from the FRB in San Francisco decided to adopt a coordinated regulatory approach to Liberty. The resulting Written Agreement, the terms of which were largely negotiated before Oldfield assumed office, was signed on December 17, 1985 by Wood, Oldfield and the Vice-President of the FRB of San Francisco. The Agreement was an aggressive, action-oriented plan designed to improve Liberty's loan evaluation and monitoring procedures, to place limits on the type and amount of loans it could make, and to institute management reforms. The ten members of Liberty's Board of Director's also signed the Agreement.

lending practices and inadequate supervision of the lending area by management, both past and present," and concluded that the regulators would "need to meet with the board of directors to discuss the implementation of formal supervisory action."

The record does not indicate that Oldfield denied Liberty's application to open a downtown branch on any particular occasion; apparently, the application, while never approved, was pending for the remainder of Wood's tenure at the Bank. Under state law, a bank with paid-in capital of $200,000 may, with the approval of the Supervisor, open a new branch office. Wash.Rev.Code Sec. 30.40.020. The Supervisor's approval is expressly made to depend upon the ability of the proposed location to support the new office. It was Oldfield's contention that, while Liberty had the requisite funds, and while downtown Seattle surely could support a branch office, Liberty should not be allowed to open a new office until it had adequately addressed the concerns that the recent examinations had revealed, concerns that the tripartite Agreement addressed. By contrast, Wood contends that Oldfield's refusal to permit Liberty to open the branch office was motivated by racial animus; Wood alleges that Oldfield once asked him who would bank with Liberty downtown--"After all, you're a minority bank." ³

In October 1986, the FRB released the results of yet another examination of Liberty. ⁴ Again finding that the overall condition of the Bank was unsatisfactory, the report urged the directorate "to redirect its priorities away from expansion and concentrate its efforts toward restoring the bank to a satisfactory condition." As of September 1986, classified assets had climbed to 193% of the Bank's total capital. The report also noted that the Bank was in noncompliance with portions of the Written Agreement, mentioning especially that loans were being made in excess of the established limits and without proper documentation.

As Oldfield became increasingly concerned about the Bank's condition, he instructed State Bank Examiner John Burke, who was in charge of monitoring Liberty, to pay particularly close attention to Wood's actions. At one point in April 1987, Oldfield, noting that Liberty had "too many problems and poor management response," told Burke to "keep on Tom Wood's back ... Write down all conversations." In June 1987, Burke arranged to conduct another examination of Liberty, this one in conjunction with the FDIC. Again, there is no report in the record, but an Assistant Supervisor of Banking wrote in July 1987 that the examination indicated that "[t]he condition of the bank is precarious at best. If the problem loans, liquidity, and funds management deteriorate further, the bank could fail."

For several years, but especially during 1987, Wood, aware that the new branch application depended largely upon the Bank's need for capital infusion, worked to implement a stock recapitalization plan. On October 21, 1987, the Shamania Investment Company sent a letter to Wood, Andrew Branch and Jerome Crawford committing Documents accompanying the application indicated that the loan from Shamania was secured in part by Liberty Bank stock. Too, three sizeable Bank loans appear to have found their way into the escrow account that Wood, Branch and Crawford established to fund their purchase of Liberty stock. Oldfield argues in his brief that these and other facts concerned him because state law prohibits a bank from lending money to purchase its own stock. Wash.Rev.Code Sec. 30.04.120.

to lend the three men $1,450,000. On October 27, Wood, Branch and Crawford sent a packet to Mary Faulk, the Director of Washington state's Department of General Administration (of which the Department of Banking is a part) containing Change of Ownership papers, offering to purchase $870,000 in Liberty stock, and a Branch Application. The men conditioned the stock purchase upon State approval of the branch application.

Wood asserts in his brief that these concerns are in fact post hoc rationalizations by Oldfield for his refusal to grant the request for change of the Bank's control. The appellant further argues that Oldfield could not have known all of these facts until some time later. But whatever the state of Oldfield's knowledge of these facts at the time, no change of control of a bank may take place until thirty days after filing the appropriate documents, Wash.Rev.Code Sec. 30.04.405, and before those thirty days were up, a new FRB examination revealed that the Bank was insolvent, and the application was never granted.

Early in November 1987, the FRB examiners arrived at Liberty to conduct an examination. Wood was apparently very upset by the exam, and on November 18 the Board of Directors held a special meeting to discuss possible litigation to stop the examination. That same day, the Bank's attorney sent a letter to the FRB and Mary Faulk, requesting that the examination be suspended, and threatening to file a "Federal discrimination action on behalf of the Bank against the staff of the State Banking Division and the relevant Federal regulatory agencies."

Though the final report was not issued until February 29, 1988, the exam began on November 16, 1987. Oldfield spoke with the federal examiners in November and December, and so was aware of the exam's initial findings. ⁵ The FRB concluded that Liberty was "technically insolvent as a result of assets classified loss in a total amount which exceeds the bank's...