Federal Home Loan Bank Bd. v. Hague

• Decision Date: 16 June 1987
• Docket Number: Civ. A. No. 87-0547.
• Citation: 664 F. Supp. 245
• Parties: FEDERAL HOME LOAN BANK BOARD, Washington, D.C. v. James D. HAGUE, San Antonio, Texas.
• Court: U.S. District Court — Western District of Louisiana

664 F. Supp. 245

FEDERAL HOME LOAN BANK BOARD, Washington, D.C. v. James D. HAGUE, San Antonio, Texas.

Civ. A. No. 87-0547.

United States District Court, W.D. Louisiana, Lake Charles Division.

June 16, 1987.

Richard H. Harvey, Jr., Marianne E. Roche, Washington, D.C., Robert S. Rooth, New Orleans, La., for petitioner.

Geoffrey Judd Vitt, Washington, D.C., for respondent.

EDWIN F. HUNTER, Jr., Senior District Judge.

This proceeding began with a petition by the Federal Home Loan Bank Board (FHLBB) to enforce a Cease and Desist Order that was issued by the Bank Board under Section 5(d)(2) of the Home Owners' Loan Act of 1933, as amended, (hereinafter, "HOLA"), see, 12 U.S.C. § 1464(d)(2) (1982), against Liberty Federal Savings and Loan Association (hereinafter, "Liberty Federal"). Specifically, the Bank Board invokes the Court's jurisdiction under § 5(d)(8)(A) of the HOLA, see, 12 U.S.C. § 1464(d)(8)(A), and seeks an order compelling James D. Hague, former officer, director and controlling stockholder of Liberty Federal, to comply with Paragraph 37 of the order by depositing $861,525.00 with the Association in the form of a pledged savings account.

In his response to the FHLBB's petition, Hague raised nine affirmative defenses. His contention is that he is not in violation or else that he should be excused from the requirements of that provision. Hague also asserted five (5) counterclaims against the Bank Board and the Federal Savings and Loan Insurance Corporation (FSLIC) seeking, inter alia, to have the entire cease and desist order declared null and void and to permanently enjoin the Bank Board from seeking to enforce the order. The asserted jurisdictional basis for Hague's claim against the Corporation is 12 U.S.C. § 1730(k)(1).¹

The Bank Board and the Corporation have moved pursuant to Rules 12(b)(1) & (6), Fed.R.Civ.P., to dismiss Hague's counterclaims for, respectively, lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. In addition, the Corporation has moved to dismiss the counterclaims against it under Rules 12(b)(4) and 12(b)(5) for insufficiency of process and insufficiency of service of process.

ISSUES PRESENTED

The Bank Board's petition to enforce the cease and desist order together with Hague's response espousing nine affirmative defenses brings into question the nature and scope of a federal district court's jurisdiction under 12 U.S.C. § 1464(d)(8)(A). Also at issue is whether a valid jurisdictional basis exists upon which Hague may assert his counterclaims against the Bank Board and the Corporation.

BANK BOARD'S PETITION TO ENFORCE UNDER 12 U.S.C. § 1464(d)(8)(A)

On May 5, 1986, the Bank Board approved and issued a final order to cease and desist² against Liberty Federal including a stipulation and consent agreement which was executed by a majority of the Bank's directors including Hague. The order was extensive and required Liberty Federal to take specific actions to secure sound business practices and, in some instances, to seek prior approval of the Bank Board. The provision of the order which the Bank Board now seeks to enforce is Paragraph 37 which falls under the caption of the order entitled "Dividends and Stock". Hague's consent to entry of the order and the enforceability thereafter was unequivocal.

Pursuant to Paragraph 37, Hague agreed to deposit $861,525.00 with Liberty Federal in the form of a pledged savings account within fifteen days of the effective date of the order. The deposit was to remain pledged to Liberty Federal until the sale of Parker Square Shopping Center³ in accordance with Paragraph 40.⁴ By the terms of Paragraph 37, the Bank Board sought repayment of a dividend that Hague had received in December of 1985. The proposed exchange of Liberty stock for Hague's equity interest in Parker Square was approved by Liberty's board of directors on July 31, 1985. Hague contributed his equity in return for 200,000 shares of Liberty. Liberty took title to Parker Square subject to existing liens of approximately $8,800,000. This resulted in Hague owning 86.3% of the stock of Liberty Federal. On December 30, 1985 the Board of Liberty voted to declare a dividend of $998,000 of which Hague received $861,525. In early 1986 due to Liberty's deteriorated financial condition, the FHLBB began administrative proceedings against Liberty and Hague to obtain a cease and desist order. On May 5, 1986, (approximately four (4) months after Hague had received the $861,525), the Consent Order to Cease and Desist was issued.

Instead of complying with the literal terms of the order, Hague tendered to Liberty Federal in escrow two promissory notes the face amount of which exceeded 1.1 million dollars. The Bank Board notified Hague that the promissory notes were not in compliance with the order and would be rejected. On March 12, 1987, the Bank Board initiated the present action seeking an order requiring Hague to comply with the terms of Paragraph 37 by depositing $861,525.00 in a pledged savings account.⁵ In response to the Bank Board's petition to enforce Paragraph 37, Hague has asserted nine affirmative defenses.

Hague's first defense, entitled "Failure of Consideration", is that the Bank Board violated the order and consent agreement by initiating administrative litigation against him,⁶ by failing to require Liberty Federal to use its best effort to sell Parker Square⁷ and by closing Liberty Federal. Hague's next defense, labeled "Failure to Mitigate Damages", alleges that the Bank Board erred by refusing to allow Liberty Federal to accept the two promissory notes in lieu of the cash deposit of $861,525.00 as required by Paragraph 37. Under this defense, Hague also asserts that the Bank Board failed to use its best efforts to sell Parker Square which had the effect of preventing the bank from recovering proceeds from the sale of the shopping center. Hague also alleges in this defense that the Bank Board failed to prevent foreclosure of Parker Square by not requiring Liberty Federal to cure the default and by refusing to allow the second lienholder to refinance the underlying loan. Hague's next defense is that the Bank Board acted in bad faith by blocking Hague's effort to borrow the $861,525.00 from other institutions. Hague's fourth defense is that his obligation under Paragraph 37 was conditioned on the obligation of Liberty Federal to sell Parker Square at a net profit under Paragraph 40. The failure of Liberty Federal to sell Parker Square, Hague contends, extinguished his obligation to comply with Paragraph 37. In like manner, Hague asserts that his duty under Paragraph 37 was conditioned upon the Bank Board's forbearance of initiating administrative litigation against him and from closing Liberty. Hague argues that the Bank Board's failure to fulfill these conditions excuses his obligation to make the requisite deposit. Hague's fifth defense is one of material compliance in that he fulfilled his obligation under Paragraph 37 by tendering two promissory notes the face amount of which exceeded one million dollars. His sixth defense, entitled "Impracticability and Frustration", is that the depressed real estate and financial markets in the area and certain unexplained actions on the part of the FHLBB operated in a manner to frustrate his efforts to comply with the order and made it impossible for him to obtain the $861,525.00 as required by Paragraph 37. While such a claim may be a defense to a later attempt by the FHLBB to seek contempt for violation of the order, it is clearly not relevant at this time. Hague's seventh defense, which is essentially a rehash of his fourth defense, is that his obligation under Paragraph 37 was discharged by the Bank Board's failure to perform its obligations. Hague's final defenses, "Waiver and Estoppel", assert that the Bank Board's actions and inactions have resulted in a waiver of its right to require compliance with Paragraph 37. There is no material fact issue on waiver. No compelling reason is offered to apply estoppel here. Heckler v. Community Health, 467 U.S. 51, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984).

JURISDICTION UNDER 12 U.S.C. § 1464(d)(8)(A)

As indicated, the Bank Board clearly has authority to issue the type of cease and desist order involved here. 12 U.S.C. § 1464(d)(2). Reference is made to 12 U.S.C. § 1464(d)(8)(A):

The Bank Board may in its discretion apply to the United States District Court, for the United States Court of any territory, within the jurisdiction of which the home office of the association is located, for the enforcement of any effective and outstanding notice or order issued by the Board under this subsection (d), and such courts shall have jurisdiction and power to order and require compliance therewith; but except as otherwise provided in this subsection no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under this subsection, or to review, modify, suspend, terminate, or set aside any such notice or order. (emphasis added)

The language "but except as otherwise provided in this subsection" refers to Section 1464(d)(7)(A) and (B) which provide, in pertinent part:

Judicial review of any such order shall be exclusively as provided in this Paragraph 7. Unless a petition for review is timely filed in a Court of Appeals of the United States, as hereinafter provided in subparagraph (B) of this paragraph, ... the Board may at any time, upon such notice and in such manner as it shall deem proper, modify, terminate or set aside any such order ...

Any party to the proceeding, or any person required by an order issued under this subsection to cease and desist from any of the violations or practices stated therein, may obtain a review of any order served pursuant to sub-paragraph (A) of this paragraph (other than an order issued with the consent of the association or the director or officer or

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