First Am. Bank & Trust Co. v. Ellwein, 8967

• Decision Date: 28 June 1974
• Docket Number: No. 8967,8967
• Citation: 221 N.W.2d 509
• Court: North Dakota Supreme Court
• Parties: FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation, et al., Appellees, v. G. W. ELLWEIN, State Examiner and Commissioner, Department of Banking and Financial Institutions, et al., Appellants. Civ.

Page 509

221 N.W.2d 509

FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation,

et al., Appellees,

v.

G. W. ELLWEIN, State Examiner and Commissioner, Department

of Banking and Financial Institutions, et al.,

Appellants.

Civ. No. 8967.

Supreme Court of North Dakota.

June 28, 1974.

Rehearing Denied Aug. 1, 1974.

Syllabus by the Court

1. The statutory scheme for the regulation of banks is constitutional.

2. Due process of law presupposes a fair and impartial hearing before a fair and impartial tribunal.

3. An administrative board is not a judicial tribunal and due process does not require a judicial trial; the combination of investigative, accusative, and adjudicative functions in one board is not, of itself, a denial of due process.

4. A presumption exists that the Board's official duty was regularly performed.

5. The Rule of Necessity, whereby otherwise disqualified officers may serve if there is no other tribunal, is applicable to State administrative agencies.

6. It is not a violation of due process to sit on a case after an officer expresses his opinion that certain types of conduct are prohibited by law.

7. The fundamental requirement of due process is opportunity to be heard.

8. Substantial evidence to support the findings of an administrative board will cause this court to affirm that board's orders.

Frederick E. Saefke, Jr., Lundberg & Nodland, Bismarck, for appellees.

Allen I. Olson, Atty. Gen., Bismarck, Frank F. Jestrab and John R. Gordon, Special Asst. Attys. Gen., Williston, for appellants.

JAMES H. O'KEEFE, District Judge.

This case has a long, entangled past. There will be no attempt to summarize in detail all of the various forms of litigation and hearings. We will sketch a broad outline that will assist in understanding this opinion. The prior procedures are a maze of false starts, personal attacks, unbelievable allegations, and a series of appeals. We view this case in that context. The central fact is that the State Banking Board (hereinafter referred to as the 'Board') has undertaken a massive administrative and legal effort to close down the operations of First American Bank & Trust Company, a Bismarck corporation (hereinafter referred to as 'FAB').

The immediate case is an appeal from the findings of the Board on December 12, 1972, ordering a receiver be appointed to liquidate FAB on the basis of insolvency.

The administrative hearing leading to this order began on June 19, 1972, continued through June 29, 1972, and resumed again for two days in September. The transcript from such hearing is literally voluminous. The Honorable M. C. Fredricks, District Judge, reversed the decision of the Board and found that FAB was not afforded a fair hearing, and that the findings of insolvency were not supported by the evidence.

Here is the case-by-case appellate history:

(1) State ex rel. Holloway v. FAB, 186 N.W.2d 573 (N.D.1971). The State Securities Commissioner and the State Examiner in 1970 began injunctive proceedings against FAB alleging bad practices in the conduct of its business. The case was remanded to District Court for further proceedings.

(2) State ex rel. Holloway v. FAB, 197 N.W.2d 14 (N.D.1972). A second appeal from a pre-trial order was made. Upon the remand, the trial court appointed a special master to examine FAB records. The State Examiner, after this action commenced, found FAB to be insolvent and such report was filed with an approval by the State Banking Board on June 28, 1971. FAB then asked to amend the pleadings to raise the issue of solvency. The trial court denied the request and the Supreme Court agreed.

(3) FAB v. Ellwein, 198 N.W.2d 84 (N.D.1972). The State Examiner issued two orders: 1. to have FAB relinquish all records, and 2. to in effect stop doing business or in the alternative show cause before the Board on July 1, 1971 why a receiver should not be appointed. The trial court found both orders void and the State Examiner then appealed. District Judge C. F. Kelsch, writing for this Court, said Order No. 1 was within the power of the State Examiner, acting for the Board. He then said, however, that FAB could obtain a hearing on both orders before the full Board, that is, an ex parte order of the State Examiner is subject to review by administrative hearing before the Board and the Board's decision is a subject of District Court appeal.

(4) FAB v. Ellwein, 8 Cir., 474 F.2d 933 (C.A.1973). FAB sought injunctive relief against a hearing by the Board. The Eighth Circuit remanded the case back to Federal District Court to reflect absention from action rather than a decision on the merits. The net effect was to leave open the question of a 'fair hearing' and see how the state courts viewed it.

(5) Securities & Exchange Commission v. FAB, 481 F.2d 673 (8 C.A.1973). SEC sought an injunction against FAB. The Eighth Circuit did agree partly with the contentions made by SEC but we cannot see where the decision had a bearing on our issues.

There are three issues presented by this appeal:

1) Is the Board properly constituted and thus able to act?

2) Did FAB receive a fair hearing before the Board?

3) If so, was there sufficient evidence to sustain the findings of the Board declaring insolvency?

If the answer to either of the first two issues is in the negative, our work is ended because, obviously, it would then make no difference as to what the findings of the Board were. Numerous charges of conspiracy, wrongdoing and impropriety have been leveled at State officials, Board members and others. This writer and other judges questioned in oral argument how this Court could consider statements indicating a conspiracy to down FAB that were made outside of the record. We shall not repeat these charges, because to do so would be insulting, and, moreover, we are not going to deal with them in our decisional process. The trouble is, none of the charges are supported by the record we have before us. The evidence considered by the District Court and by this Court shall be confined to the record filed with the Court. 28--32--19, N.D.C.C. To consider unrebuttable charges would violate the fundamental concept of fair play and due process that FAB urges upon us.

The District Court has said that the makeup of the Board is 'all wrong.' FAB makes the point that bankers should not judge bankers. No matter how chosen, a board rarely can be ideally constituted. Should we have no bankers on the board? There is no inherent reason why a banking board should not have bankers sitting just as a bar grievance committee has lawyers. We do not think the statutory scheme of regulation is unconstitutional. Our laws seem to provide a sensible requirement for the appointment to the Board. 6--01--03, N.D.C.C. This statute was amended in 1969 to broaden membership on the Board to loan associations. The recent case of Gibson v. Berryhill, 411 U.S. 564, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973), upheld a contention that the Alabama Board of Optometry was unconstitutionally constituted and so did not provide an adequate administrative remedy. The Supreme Court agreed with the conclusion that the State Board was so biased by prejudgment and pecuniary interest that it could not constitutionally conduct hearings looking toward the revocation of a license to practice optometry. There were two sources of possible bias--prejudgment of the facts or personal interest in the outcome by the board members. The Supreme Court said that those with substantial pecuniary interests in legal proceedings should not adjudicate those disputes.

The logic of this holding applies with some force in our case. Gibson, supra, determined there was a serious question of personal financial stake in the matter in controversy because the board excluded from membership a large group of salaried optometrists and sought to enjoin them from practicing their profession. We think the pecuniary interest of our Board in this case is rather vague and certainly slight. It stretches the point to say that a Board member from, say, Kindred, North Dakota, is going to be benefited by putting FAB out of business. The 'interest' of the Board would arise from taking a prior position which, in the nature of things, is hard to reverse. We are, therefore, not saying, as did the trial judge, that the Board, as composed, is ipso facto unconstitutional because it has banker-members. We cannot say that the requirements for membership on the Board are irrational, or that they bear no reasonable relationship to the function of the Board, or that they exclude a segment of the banking community.

FAB argues that it really had no hearing on the merits and desperately wants one. At best this is a fragile argument for two reasons: They did indeed have a hearing and they did participate in it by extensive examination of witnesses. The fact that they made a 'special appearance' and did not perhaps participate to the full extent available was a matter of their choice. The danger of abstention was a risk they knowingly undertook and even though it may not have changed the result they shall not now be heard to say they have had no hearing. The role of Mr. Saefke, FAB's attorney, was more in the nature of a general appearance. But see Northern Pac. Ry. Co. v. McDonald, 77 N.D. 194, 42 N.W.2d 321 (N.D.1950). The question of the type of appearance is not now important because the Board did have jurisdiction and, as shall be seen, it did conduct the hearing within due process guidelines.

Aside from their role, or non-role in the hearing, was it 'fair'? FAB says, in a colorful display of verbiage, the hearing that was held was designed in the great tradition of the Old West to be a fair trial before the hanging. The Board had already been deeply embroiled in efforts to declare FAB insolvent. The State Examiner is chairman of that Board. These efforts took the form of various legal actions in Federal and State courts as previously referred to. It is apparent...