Federal Deposit Ins. Corp. v. Mallen

• Decision Date: 29 May 1987
• Docket Number: No. C 87-3053.,C 87-3053.
• Citation: 661 F. Supp. 1003
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. James E. MALLEN and Farmers State Bank, Kanawha, Iowa, Defendants.
• Court: U.S. District Court — Northern District of Iowa

661 F. Supp. 1003

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. James E. MALLEN and Farmers State Bank, Kanawha, Iowa, Defendants.

No. C 87-3053.

United States District Court, N.D. Iowa, C.D.

May 29, 1987.

Paul C. Lillios, Asst. U.S. Atty., Cedar Rapids, Iowa, James A. Clark, Sr. Atty., FDIC, Washington, D.C., Gerald F. Lamberti, Regional Counsel, FDIC, Kansas City, Mo., for plaintiff.

Mary E. Curtin, Lindquist & Vennum, Minneapolis, Minn., David Siegrist, Britt, Iowa, for defendants.

ORDER

HANSEN, District Judge.

This matter is before the court on plaintiff Federal Deposit Insurance Corporation's (FDIC) motion for preliminary injunction and motion for temporary restraining order, filed April 16, 1987. Hearing on the FDIC's motions was held on May 1, 1987. The court has reviewed the arguments of the parties as presented in their briefs and at the hearing, and enters the following order.

I. Background

Defendant James E. Mallen is the President and the Secretary of the defendant Farmers State Bank, Kanawha, Iowa (the Bank). Additionally, he holds the offices of President and Secretary of the Kanawha Investment Holding Company, which owns 92% of the Farmers State Bank corporate stock. Mr. Mallen is the largest stockholder in the holding company and is also a member of the Boards of Directors of the holding company and the Bank.

On December 10, 1986, an indictment was returned by the Federal Grand Jury in Cedar Rapids, Iowa, charging Mr. Mallen with two counts for alleged criminal offenses involving his activities in connection with his employment at and dealings with the Bank. United States v. Mallen, No. CR 86-3017 (N.D.Iowa). Count 1 attempted to allege a violation of 18 U.S.C. § 1014, making a false statement in a financial statement for the purpose of influencing the actions of the FDIC, and Count 2 alleged a violation of 18 U.S.C. § 1001, making a false statement to a federal agency.

Following the indictment and pursuant to 12 U.S.C. § 1818(g), the FDIC, on January 26, 1987, suspended Mr. Mallen from further participation in the conduct of the affairs of the Bank. Mr. Mallen challenged his suspension in this court in Mallen v. FDIC, No. C87-3016 (N.D.Iowa). On February 17, 1987, Chief Judge Donald E. O'Brien issued a preliminary injunction which declared the FDIC's temporary suspension of Mallen to be null and void and ruled that the suspension section, 12 U.S.C. § 1818(g), was unconstitutional on the grounds that it did not provide for a sufficiently prompt post-suspension hearing where oral evidence could be presented, and did not provide for prompt disposition.

On March 24, 1987, a federal trial jury returned guilty verdicts on both counts of the indictment. Subsequently, on March 26, 1987, the FDIC regional director advised the Farmers State Bank that, in the opinion of the FDIC, Mr. Mallen was ineligible to continue as an officer, director or employee of the Bank without the written consent of the FDIC. Upon the advice of the Bank's counsel, Mr. Mallen, however, remained, and remains, in his positions with the Bank. On April 16, 1987, the FDIC brought this present action against Mallen and the Bank, seeking Mallen's removal as director, officer and employee of the Bank, and seeking the assessment of the $100 per day penalty against the Bank provided for in 12 U.S.C. § 1829. The FDIC sought immediate relief through a temporary restraining order and preliminary injunction pursuant to Fed.R.Civ.P. 65.

Mr. Mallen was sentenced on May 1, 1987, prior to the hearing in this matter. At the time of sentencing, the court dismissed Count 1 of the indictment for failure to allege a crime, and imposed a period of incarceration followed by probation as to Count 2. The court declined the United States' request to make a condition of probation, pursuant to 18 U.S.C. § 3651, that Mallen disassociate himself from the Bank.¹

Hearing thereafter was held on the FDIC's attempt to remove Mr. Mallen pursuant to 12 U.S.C. § 1829. Since both parties were given adequate notice and were represented by counsel, the court treats this matter as a request for a preliminary injunction pursuant to Fed.R.Civ.P. 65(a).

II. Preliminary Injunction

Whether a preliminary injunction should be issued involves consideration of (1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest. Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir.1981). The court finds that each of these factors weighs in favor of granting the preliminary injunctive relief. Since defendants' arguments turn essentially on the third factor, it is appropriate to analyze the probability that movant will succeed on the merits first.

A. Probability that movant will succeed on the merits

The FDIC seeks relief pursuant to 12 U.S.C. § 1829 (Section 19 of the Federal Deposit Insurance Act). The defendants maintain that relief cannot be granted on the basis of § 1829 for the reasons that § 1829 is inapplicable to Mr. Mallen and the Bank, and that § 1829 is unconstitutional.

1. Construction of 12 U.S.C. § 1829

Title 12, U.S.C. § 1829 provides:

Conditions governing employment of personnel

Except with the written consent of the Corporation, no person shall serve as a director, officer, or employee of an insured bank who has been convicted, or who is hereafter convicted, of any criminal offense involving dishonesty or a breach of trust. For each willful violation of this prohibition, the bank involved shall be subject to a penalty of not more than $100 for each day this prohibition is violated, which the Corporation may recover for its use.

The language of § 1829 literally suggests that the Farmers State Bank may no longer retain Mr. Mallen, since Mallen has been convicted of a crime of dishonesty or a breach of trust, namely making a false statement or entry to a federal agency, and since the Bank does not have written consent of the FDIC to allow Mallen to serve as director, officer, or employee.² The defendants argue, however, that this literal reading of § 1829 is incorrect in light of 12 U.S.C. § 1818(g) which provides for the removal of bank directors and officers who have been convicted of criminal offenses involving dishonesty or breach of trust. Thus, the defendants argue, if a director or officer is removed pursuant to § 1829 following conviction, the provisions in § 1818(g) that allow the FDIC to remove a director or officer after the appeal process following conviction has expired would be superfluous. Since statutes should not be interpreted as though Congress enacted superfluous provisions, Conway County Farmers Ass'n v. United States, 588 F.2d 592, 598 (8th Cir.1978), and since statutes should be reconciled, Owens v. Heckler, 753 F.2d 675, 679 (8th Cir.1985), defendants suggest another interpretation for § 1829 is required. Specifically, the defendants would construe § 1829 so that it only applies to prospective directors, officers or employees rather than to current directors, officers or employees, and that it only applies after a judgment of conviction is no longer subject to further appellate review.

Under the defendants' first interpretation of § 1829, only § 1818(g) allows the FDIC to remove convicted current directors and officers, while § 1829 prevents persons convicted of crimes described in the statute from ever becoming directors and officers. This dichotomy is supported by Manges v. Camp, 474 F.2d 97 (5th Cir.1973), and the FDIC's own regulations, both of which indicate that § 1818(g) only applies to sitting directors and officers. The FDIC's published regulations concerning § 1829 deal only with applications for directors, officers, and employees who have been convicted in the past.

Under the defendants' second interpretation of § 1829, "conviction" in § 1829 would be modified by § 1818(g) to mean a judgment of conviction which is not subject to further appellate review. Thus, defendants argue, the more specific language of § 1818(g) would control the more general language of § 1829.

These interpretations, however, are not supported by the unambiguous language of § 1829. The maxim of statutory construction that statutes should be construed so as to give effect to all provisions does not override the primary rule of statutory construction that a statute's plain meaning should be given priority in its construction. W.U. Tel. Co. v. F.C.C., 665 F.2d 1126, 1137 (D.C.Cir.1981).

The phrase "no person shall serve," (emphasis added) applies to both a current director, officer or employee, as well as prospective employees. Congress's intent to have the statute apply to both current officers and prospective officers is reflected in the House Report on the Federal Deposit Insurance Act which states:

Section 19 adds a provision to existing law to prohibit any person, except with the Corporation's consent, from serving as a director, official or employee of an insured bank who has been, or is, convicted of any criminal offense involving dishonesty or breach of trust.

H.R.Rep. No. 2564, 81st Cong., 2d Sess., reprinted in 1950 U.S.Code Cong.Service 3765, 3775 (emphasis added).

This explanation strongly indicates that § 1829 applies to a current director or official who is convicted. This view is supported by a three-judge district court opinion in Feinberg v. Federal Deposit Ins. Corp., 420 F.Supp. 109 (D.D.C.1976), which found that § 1829 would be applicable to a sitting director and officer. Unlike Manges, which dealt only with § 1818(g), the Feinberg court considered the interplay between § 1829 and § 1818(g).

The result in Manges did not dictate, or even imply that § 1829 was applicable only to prospective directors and officers. Nor are the FDIC's own regulations determinative of the issue. While those...