First Am. Bank & Trust Co. v. Ellwein

• Decision Date: 12 April 1972
• Docket Number: No. 8747,8747
• Parties: FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation, et al., Respondents, v. G. W. ELLWEIN, State Examiner and Commissioner, Department of Banking andFinancial Institutions, et al., Appellants.
• Court: North Dakota Supreme Court

Page 84

198 N.W.2d 84

FIRST AMERICAN BANK & TRUST COMPANY, a domestic corporation et al., Respondents, v. G. W. ELLWEIN, State Examiner and Commissioner, Department of Banking andFinancial Institutions, et al., Appellants.

No. 8747.

Supreme Court of North Dakota.

April 12, 1972.

Rehearing Denied May 18, 1972.

Syllabus by the Court

1. Section 6--05--28, North Dakota Century Code, by reference requires the State Examiner to exercise all of the powers he has under § 6--07--04 in his supervision of banks organized under Chapter 6--05.

2. In passing on the validity of a legislative enactment every reasonably presumption is in favor of its constitutionality unless it clearly violates some provisions of our State Constitution or the Federal Constitution.

3. Whenever possible statutes must be interpreted in accordance with constitutional principles of law so as to give to all interested parties reasonable notice and a fair hearing upon the merits, to adduce evidence and grant a judicial review of any order or decision upon appeal therefrom.

4. When the validity of a statute is assailed and there are two possible interpretations, by one of which the statute would be unconstitutional, and by the other 5. The State Examiner while acting independently in his official capacity has the authority: (1) To make an administrative finding that the bank which he has examined is insolvent; and (2) To issue an ex parte order appointing an examiner from his department to act as temporary receiver or conservator, as distinguished from a permanent receiver, to collect and conserve its assets and business for the protection of its depositors and creditors and thereby preserve the status quo during the pendency of regular proceedings before the State Banking Board to determine its insolvency, and if found insolvent to appoint a permanent receiver with the power to liquidate its business and to distribute its assets.

of which it would be valid, the Court will adopt a construction which will sustain its validity.

6. The State Banking Board must comply with the requirements of Chapter 28--32, North Dakota Century Code, relating to administrative agencies practice.

Helgi Johanneson, Atty. Gen., Bismarck, and Frank F. Jestrab, Sp. Asst. Atty. Gen., Williston, for appellants.

Frederick E. Saefke, Jr., and Thompson, Lundberg & Nodland, Bismarck, for respondents.

C. F. KELSCH, District Judge (On Reassignment).

This is an appeal from a judgment of the district court of Burleigh County entered August 20, 1971, wherein it determined and adjudged that the two Orders issued by the State Examiner on the 28th day of June, 1971, were in all things null and void.

The record shows, without dispute,

(1) That on the 28th day of June, 1971, G. W. Ellwein, as State Examiner, issued an Order directed to the First American Bank & Trust Company which, omitting the title, reads as follows:

Whereas, the Report of Examination of First American Bank & Trust Company, Bismarck, North Dakota, as of May 14, 1971 shows, and the undersigned finds that the First American Bank & Trust Company is insolvent. The report of insolvency has been certified to the State Banking Board.

Now therefore, you the duly directed to immediately relinquish possession of First American Bank & Trust Company's books, records and other property to Mr. Victor Abraham, Bank Examiner for the State of North Dakota.

By order of the Commissioner, Department of Banking and Financial Institutions, this 28th day of June, 1971.

/s/ G. W. ELLWEIN

G. W. Ellwein, Commissioner

Department of Banking and

Financial Institutions

and

(2) That the State Examiner issued a second Order on the same day wherein he found, among other things:

(a) That the actual cash market value of all of its assets are insufficient to pay its liabilities;

(b) That notwithstanding such fact said Bank continued to receive and accept deposits and by reason thereof he directed said Bank to forthwith cease accepting deposits, cease disbursing funds, call in numerous loans, cease certain advertising of investment programs, follow approved accounting practices, file the required statements, furnish $400,000.00 in new capital and divest the present stockholders of their ownership and control, or in the alternative, show cause before the State Banking Board at the office of the State Examiner in the State Capitol at Bismarck, North Dakota, on Thursday, the 1st day of July, 1971, at Dated this 28th day for June, 1971, at Bismarck, North Dakota.

9:30 a.m., or at such other time as may be allowed, why a receiver for the First American Bank & Trust Company should not be appointed as provided by law.

/s/ G. W. Ellwein

G. W. Ellwein, State Examiner and Commissioenr

(3) That both of said Orders were served upon said Bank on the same day, whereupon it applied for and obtained a temporary injunction from the district court of Burleigh County

(a) Restraining the enforcement of both of said orders,

(b) Requiring the State Examiner and the State Banking Board to show cause why the temporary injunction should not be made permanent, and

(c) Why they should not be enjoined and restrained from issuing any further orders against said Bank.

(4) That upon the hearing on the 2nd of August, 1971, the court found and determined that both of said Orders were null and void ab initio. That judgment was entered accordingly on the 20th day of August, 1971, from which the State Examiner has taken this appeal.

Since both of these Orders were issued on the same day by the State Examiner we shall hereinafter, for the purpose of brevity, refer to the first, or short Order, as Order No. 1, and to the long Order in the alternative as Order No. 2.

Obviously the basic issue before us, in general terms, is the validity of the two Orders set out herein, but more precisely stated the crucial questions for decision are:

(1) Whether the State Examiner has the power and authority under § 6--07--04, N.D.C.C., to make an administrative finding that a bank or trust company which he has examined is insolvent, and if so to issue an ex parte order appointing a temporary receiver to take possession of all of its property to collect and conserve its assets and business for the benefit of its depositors and creditors, and

(2) Whether his administrative finding of insolvency and ex parte order appointing a temporary receiver are valid and binding upon the financial institution so examined:

(a) without regular proceedings having first been had before the State Banking Board upon the filing of a proper complaint alleging it to be insolvent and fixing a time for the hearing thereof upon the merits;

(b) without giving said bank reasonable notice thereof and affording it an opportunity to present evidence upon the issue of its insolvency;

(c) without making specific findings of fact and separate conclusions of law upon which its decision of insolvency is based;

(d) without the right of appeal and judicial review thereof; and

(e) without a substantial compliance with the principles of law applicable to administrative action and the fundamental requirements of due process of law.

Manifestly the answers to all of these questions will depend primarily upon the interpretation of all of our statutes applicable thereto, and therefore we believe that a proper evaluation of the public importance and the far-reaching consequences of our decision require that we set out and consider all of the pertinent provisions of our statutes relating:

(1) To the powers and duties of the State Banking Board;

(2) To the powers and duties of the State Examiner (3) To the procedural provisions of our Administrative Agencies Practice Act; and

(4) To the relevant canons of statutory construction; in order to determine the constitutioanl validity of both of said Orders.

We proceed first to a consideration of our statutes which create the State Banking Board and define its powers and duties.

The State Department of Banking and Financial Institutions was created by § 6--01--01, N.D.C.C., as amended by Chapter 96, Session Laws 1969. The Board consists of five members, and the State Examiner acts as chairman thereof. It is required to hold four annual meetings and such special meetings as the State Examiner may call upon proper notice.

The Board is expressly authorized by statute:

(1) To make all rules and regulations for the government of all banks and financial institutions (§ 6--01--04, N.D.C.C.);

(2) To receive and approve all reports made by financial institutions under its jurisdiction;

(3) To appoint receivers; and

(4) To make and enforce such orders as in its judgment may be necessary or proper to protect the public, depositors and creditors (§§ 6--01--04 and 6--01--09, N.D.C.C.).

We next consider the powers and duties of the State Examiner. On this issue our statutes provide in substance:

(1) That the State Examiner shall serve as chairman of the State Banking Board;

(2) That he shall exercise constant supervision over the business affairs of all financial institutions placed within the jurisdiction of the Board;

(3) That he shall make periodic examinations of all banks and financial institutions, without previous notice, verify its assets and liabilities; he shall examine the validity of mortgages, investigate methods of operation and their system of accounting to ascertain whether such methods conform to law and sound banking usage and principles; and

(4) He shall report all infringements by such institutions to the State Banking Board and report their financial conditions, with his recommendations and suggestions, and the Board may take such action as, in its discretion, the exigencies may demand. Finally, if the State Examiner has reasonable cause to believe that a bank or financial institution which he has examined is insolvent then it is his mandatory duty to seize its property, books and records, collect moneys due it and conserve its assets and business for the...