Federal Sav. and Loan Ins. Corp. v. Oldenburg, Civ. No. C-85-1418W.

• Decision Date: 28 August 1987
• Docket Number: Civ. No. C-85-1418W.
• Citation: 671 F. Supp. 720
• Parties: FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, in its corporate capacity as an instrumentality of the United States, Plaintiff, v. J. William OLDENBURG, et al., Defendants.
• Court: U.S. District Court — District of Utah

671 F. Supp. 720

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, in its corporate capacity as an instrumentality of the United States, Plaintiff, v. J. William OLDENBURG, et al., Defendants.

Civ. No. C-85-1418W.

United States District Court, D. Utah, C.D.

August 28, 1987.

Herschel J. Saperstein, Glen E. Davies, Salt Lake City, Utah, John R. Gall, David W. Alexander, Columbus, Ohio, for plaintiff.

Merlin O. Baker, Jonathan A. Dibble, Salt Lake City, Utah, Henry F. Field, Ronald A. Damashek, Chicago, Ill., for defendant American Federal Sav. and Loan.

Tim Dalton Dunn, Edward L. Clissold, II, Salt Lake City, Utah, for defendants MGIC Indem. Corp. American Cas. Ins. of Reading CNA Ins. Companies.

Robert A. Peterson, Salt Lake City, Utah, for defendants Eugene Miller, James R. Kennedy.

Rodney G. Snow, Neil A. Kaplan, Salt Lake City, Utah, for defendant Nicholas L. Muccino.

John H. Boone, San Francisco, Cal., Bryan L. McDougal, Salt Lake City, Utah, for defendant J. William Oldenburg.

Philip E. Handin, San Francisco, Cal., Bert L. Dart, Salt Lake City, Utah, for defendant Martin L. Mandell.

Stewart M. Hanson, Jr., Salt Lake City, Utah, Michael P. Comiskey, Chicago, Ill., for defendant Federal Ins.

Harold G. Christensen, Max D. Wheeler, Salt Lake City, Utah, David E. Bordon, Michael B. McGeehon, San Francisco, Cal., Richard S. Nemelka, Salt Lake City, Utah, for other defendants.

James W. Rossetti, pro se.

James W. Rossetti, pro se.

Anthony T. Pontarelli, pro se.

Nicholas L. Muccino, pro se.

Charles H. Burgardt, pro se.

Bryan O. Wilkinson, pro se.

MEMORANDUM DECISION AND ORDER

WINDER, District Judge.

Federal Insurance Company ("Federal") has filed a motion to dismiss plaintiff's, Federal Savings and Loan Insurance Corporation ("FSLIC"), complaint. This court heard the motion on August 21, 1987. Plaintiff was represented by John R. Gall. Defendant was represented by Michael P. Comiskey. Prior to the hearing the court had read all memoranda filed for and against the motion. After taking the motion under advisement, this court has further considered the law and the facts relating to this motion and now renders the following memorandum decision and order.

Federal's motion to dismiss is based on Fed.R.Civ.P. 12(b)(6) which provides for the dismissal of any complaint which fails "to state a claim upon which relief can be granted." It is only proper to dismiss a complaint for failure to state a claim when the plaintiff can prove no set of facts which would entitle the plaintiff to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33, 81 L.Ed.2d 59 (1984).

Federal contends that FSLIC's claim is based entirely on an insurance contract which Federal issued to State Savings,¹ and the insurance policy does not provide coverage in this case. The parties have raised four issues in this motion and this court will consider the four issues in the order they were presented.

Discussion

Issue 1. Whether endorsement 2 of the insurance policy prohibits any claim made by FSLIC.

Endorsement No. 2 of the Federal/State Savings Insurance policy provides:

It is understood and agreed that the company shall not be liable to make any payment for loss in connection with any claim made against the directors or officers based upon or attributable to any claim, action or proceeding brought by or on behalf of the Federal Home Loan Bank Board, any other similar organization, or any other national or state bank, regulatory agency, whether such claim, action or proceeding is brought in the name of such regulatory agency or by or on behalf of such regulatory agency in the name of any other entity.

Federal Insurance Company contends that endorsement No. 2 entirely and absolutely bars any claim made by the FSLIC and the capacity in which FSLIC claims it is suing does not effect the applicability of the exclusion. Thus, Federal is contending that since FSLIC is bringing this suit endorsement No. 2 bars this action.

The government in response to Federal's claim contends that: (1) the language in endorsement No. 2 is ambiguous and does not preclude claims by FSLIC and (2) endorsement No. 2 if construed as Federal wishes the endorsement construed is void for public policy reasons. Because construing endorsement No. 2 as Federal construes the endorsement violates public policy this court will not consider the ambiguity argument.

The Public Policy Argument

The Federal Home Loan Bank Board has the express statutory authority to make rules and regulations for associations in conservatorship and receivership. 12 U.S.C. § 1464(d)(11) (Supp.1987). Pursuant to this authority, it has adopted regulations pertaining to the powers and rights of conservatorships and receiverships. These regulations state in pertinent part:

A conservator shall have all the powers of the association's members, officers, and directors; a receiver shall, without further action, succeed to the rights, titles and privileges of the association. 12 Cfr. § 547.7.

The conservator shall immediately collect all obligations in money due the association and may ... exercise all rights and powers of the association or execute, acknowledge and deliver any instrument necessary or proper for any purpose, and any instruments so executed shall be as valid and effectual as if it had been executed by the association's officers by authority of its Board of Directors. 12 Cfr. § 548.2(b) and (h).

The receiver shall collect all obligations and money due the association. The receiver may with respect to the association, exercise the powers which a conservator of a federal association may exercise under paragraphs (a) through (f) of section 548.2. 12 Cfr. § 54.3

These provisions like all duly promulgated regulations have the full force and effect of law. See First Federal Savings and Loan Association v. Myrick, 533 F.Supp. 1041, 1045 (W.D.Ark.1982); FHLBB v. Superior Court of Arizona, 494 F.Supp. 924, 925 (D.C.Ariz.1980).

Furthermore, the enabling legislation for FSLIC recognizes the rights of the FSLIC as a conservator or receiver to succeed to all the rights of the insured institution. Specifically, section 1729 provides:

Liquidation of insured institutions

(b) Powers of Corporation (FSLIC) on default of Federal Savings and Loan Associations

(1) In the event that a Federal association is in default, the Corporation shall be appointed as conservator or receiver and as such —

(A) is authorized —

(i) to take over the assets of and operate such association;

(ii) to take such action as may be necessary to put it in a sound solvent condition;

(iii) to merge it with another insured institution;

(iv) to proceed to liquidate its assets in an orderly manner; or

(v) to make such other disposition of the matter as it deems appropriate; whichever it deems to be in the best interest of the association, its savers, and the Corporation; and

(B) shall pay all valid credit obligations of the association.

* * * * * *

(d) Additional powers of Corporation

In connection with the liquidation of insured institutions, the Corporation shall have power to carry on the business of and to collect all obligations to the insured institutions, to settle, compromise, or release claims in favor of or against the insured institutions, and to do all other things that may be necessary in connection therewith, subject only to the regulation of the Federal Home Loan Bank Board.... 12 U.S.C. § 1729 (1935) (emphasis added)

Thus, there is a strong policy expressed by not only the statute but by applicable federal regulations that the FSLIC as receiver have all the rights and claims that State Savings would have had.

Federal has argued that State Savings bargained away the rights of the FSLIC to bring a policy claim. Federal's argument misses the point. The question is not whether State Savings attempted to bargain away the rights of the FSLIC to carry out its statutory function; the question is whether public policy will allow State Savings to bargain away the rights of the FSLIC to carry out its statutory function.

Contractual provisions which are contrary to the terms and policy of a statute are illegal and unenforceable. Connolly v. Union Sewer Pipe Company, 184 U.S. 540, 22 S.Ct. 431, 46 L.Ed. 679 (1902). See also, Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 83-84, 102 S.Ct. 851, 859-60, 70 L.Ed.2d 833 (1982). This is especially true with respect to provisions in insurance policies. Imperial Enterprises, Inc. v. Fireman's Fund Insurance, 535 F.2d 287, 290 (5th Cir.1976); Farmers Insurance Exchange v. Call, 712 P.2d 231 (Utah 1985).

In Farmers Insurance Exchange the insured injured her son in an automobile accident. The insured had an automobile policy with Farmers which excluded claims by members of the insured's household. When the insured's husband brought a claim on behalf of the injured child Farmers refused coverage based on the household exclusion. In an action against Farmers the court refused to enforce the household exclusion because of Utah's Safety Responsibility Act, Utah Code Ann. 41-12-21 (1981), which mandates minimum liability coverage for all insurance policies used as security for the registration and operation of motor vehicles in Utah. Farmers in that case argued that since the contract between the parties contained a household exclusion the court should not rewrite the contract and require the insurance company to pay for a risk which they did not assume. The court in Farmers, while acknowledging that an insurer has the right to contract with an insured as to the risks it will or will not assume, refused to apply the household exclusion. The court specifically held that if a statutory law or public policy is violated the court can refuse to enforce an exclusion in an insurance policy.

This case is similar to Farmers in that the contract between the parties contains a FSLIC Exclusion. Generally this court would give the parties the right to decide what risks will or will...