First American Sav. Bank v. WESTSIDE FEDERAL SAV. AND LOAN

• Decision Date: 04 February 1986
• Docket Number: No. C85-1087C.,C85-1087C.
• Citation: 639 F. Supp. 93
• Parties: FIRST AMERICAN SAVINGS BANK, F.S.B., a federally chartered savings bank having its principal office in the State of North Carolina, and Security Savings Bank, F.S.B., a federally chartered savings bank having its principal office in the State of New Mexico, Plaintiffs, v. WESTSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION, a federally chartered association having its principal office in the State of Washington, in its own capacity and as Trustee, Defendants.
• Court: U.S. District Court — Western District of Washington

639 F. Supp. 93

FIRST AMERICAN SAVINGS BANK, F.S.B., a federally chartered savings bank having its principal office in the State of North Carolina, and Security Savings Bank, F.S.B., a federally chartered savings bank having its principal office in the State of New Mexico, Plaintiffs, v. WESTSIDE FEDERAL SAVINGS AND LOAN ASSOCIATION, a federally chartered association having its principal office in the State of Washington, in its own capacity and as Trustee, Defendants.

No. C85-1087C.

United States District Court, W.D. Washington.

February 4, 1986.

COPYRIGHT MATERIAL OMITTED

E. Michele Moquin, Jones, Grey & Bayley, P.S., Seattle, Wash., for plaintiffs.

John D. Alkire, Perkins Coie, Seattle, Wash., for Federal Sav. and Loan Ins. Corp.

ORDER ON MOTIONS

COUGHENOUR, District Judge.

THIS MATTER comes before the Court on a number of cross-motions by plaintiffs and the Federal Savings and Loan Insurance Corporation (hereinafter "FSLIC"). Having considered the pleadings, memoranda in support of the respective motions, the oral argument of the parties, and the record herein, the Court finds and concludes as follows:

This civil case arises out of a $9 million construction loan in which defendant Westside sold participating interests to plaintiffs. In June, 1983, First American Savings Bank and Security Savings Bank each entered into "Loan Participation Sales, Trust and Servicing Agreements" (hereinafter "Loan Participation Agreement") with Westside pursuant to which plaintiffs allegedly purchased "in the aggregate a 1/3 undivided participating ownership in the $9 million loan, in all security therefor and in all documents in possession of Westside relating to the loan. Westside undertook administration of the loan as trustee for the benefit of the Participants." The loan was an 18-month construction loan to Environmental Construction Company (hereinafter "Environmental") to be rolled into a 36-month permanent loan. The construction loan was secured by real property in Scottsdale, Arizona, on which Environmental was to construct two mid-rise condominium buildings.

Plaintiffs filed their complaint June 17, 1985. Plaintiffs pleaded causes of action for breach of trust, breach of contract, fraud, misrepresentation, violations of United States, New Mexico, and North Carolina securities laws, and claims under state laws for trade violations. The conduct that allegedly formed the basis of the complaint included releasing Environmental from direct liability under the construction loan without notifying plaintiffs; allowing Environmental to materially alter the construction plan, again without notifying plaintiffs; failing to notify plaintiffs of defaults under the loan by Environmental, and taking a deed in lieu of foreclosure against the express wishes and advice of plaintiffs.

On August 30, 1985, the Federal Home Loan Bank Board (hereinafter "FHLBB") appointed FSLIC as receiver for Westside. FSLIC filed a motion for substitution of parties, which this Court took under advisement. FSLIC filed a motion to dismiss. Plaintiffs then filed two cross-motions, including a motion to strike FSLIC's motion to dismiss and a motion to continue FSLIC's motion to dismiss. Before reaching the merits of FSLIC's motion to dismiss, the Court will consider the three remaining pending motions.

FSLIC has moved to be substituted for Westside as party defendant pursuant to Fed.R.Civ.P. Rule 25(c). Rule 25(c) provides "in case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party." A motion under this rule is directed to the sound discretion of the court, taking into account the exigencies of the situation. McComb v. Row River Lumber Co., 177 F.2d 129 (9th Cir.1949). It is within the discretion of the court to continue the action in its original posture, to order substitution of the party to whom interest has been transferred, or to join the transferee of the interest as a party. Sun-Maid Raisin Growers v. California Packing Corp., 273 F.2d 282 (9th Cir.1959); FDIC v. Tisch, 89 F.R.D. 446, 448 (E.D.N.Y.1981).

Upon consideration of the circumstances, the Court concludes that FSLIC should be substituted as party defendant for Westside. Even in the absence of formal pleadings, it is apparent that FSLIC, appointed as receiver for Westside by the FHLBB, is already a party to the proceedings. See North Mississippi Savings & Loan Ass'n v. Hudspeth, 756 F.2d 1096, 1100 (5th Cir.1985); Farina v. Mission Investment Trust, 615 F.2d 1068, 1074-75 (5th Cir.1980) (formal intervention or joinder of receiver not necessary). Although Westside has not been formally liquidated and dissolved, for the practical purposes of this suit, it has ceased to exist. Substitution of FSLIC, rather than joinder, is appropriate.

Plaintiffs moved to strike FSLIC's motion to dismiss on the ground that it was filed by an entity not a party to this action. Plaintiffs' motion to strike will be DENIED for the reasons stated in the preceding paragraph.

Before deciding FSLIC's motion to dismiss, the Court will consider plaintiffs' motion to continue FSLIC's motion to dismiss. Plaintiffs offer two grounds for continuing the motion to dismiss: (1) inconsistent interpretations of several statutory provisions make it advisable for the Court to await congressional clarification of the relevant statutory provisions; and (2) the continuance is necessary to allow plaintiffs to conduct discovery relating to factual issues that they claim bear on FSLIC's motion to dismiss.

With respect to the asserted need for congressional clarification, plaintiffs argue that the interpretation of statutes offered by FSLIC in this case renders the statutory scheme internally inconsistent. Furthermore, plaintiffs assert FSLIC has made arguments to courts in other cases that contradict the arguments it has made in the present action. Plaintiffs point out that one of the statutes under which FSLIC claims authority to adjudicate the claims that are the subject of this action, 12 U.S.C. § 1729(d), is due to expire April 15, 1986. Plaintiffs ask the Court, considering inconsistent arguments made by the FSLIC in this Court and contradictory arguments made by FSLIC in other courts, to await definitive congressional action before considering FSLIC's motion to dismiss.

The Court declines plaintiffs' invitation to await congressional "clarification." It is the role of this Court to interpret and construe congressional legislation as it stands. The unsubstantiated possibility that at some time in the future, Congress will amend the statutes, implicitly changing the result in this case, is not a cognizable basis for granting a motion to continue.

Plaintiffs also seek to continue the motion to dismiss pending discovery of factual issues relating to the transfer of assets from Westside to FSLIC, the disposition of those assets, compliance by FSLIC with regulations requiring FSLIC to transfer trust assets to a substitute custodian, FSLIC and FHLBB procedures for the adjudication of claims, and making an administrative record for review under the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. The Court agrees with FSLIC that the motion to dismiss presents purely legal questions that do not require discovery of the nature contemplated by plaintiffs for their resolution. With respect to plaintiffs' desire to discover facts relating to the disposition of assets, procedures for adjudication, etc., these concerns will be adequately protected by and addressed in judicial review proceedings under the Administrative Procedure Act. See Hudspeth, 756 F.2d at 1102-03; Rembold v. Gibralter Savings and Loan Ass'n, 624 F.Supp. 1006 (W.D. Wash.1985).

FSLIC'S MOTION TO DISMISS

FSLIC has moved to dismiss the claims plaintiffs filed against Westside. FSLIC argues that Congress has provided for administrative adjudication of claims against an insured federal institution that has been placed in FSLIC receivership. Only after a "claimant" has exhausted administrative remedies may that party appeal an adverse final decision under the Administrative Procedure Act. Plaintiffs have raised a number of arguments to compel this Court to retain jurisdiction of the matter. The Court is persuaded that in establishing the legislative framework for the regulation of the nation's savings and loan associations, Congress intended claims of the nature plaintiffs make to be adjudicated initially before FSLIC in its capacity as receiver for a failed institution.

Two particular provisions form the basis of the congressional grant of authority to adjudicate claims against an institution in receivership. 12 U.S.C. § 1729(d) provides in part:

"In connection with the liquidation of insured institutions, the Corporation shall have power ... to settle, compromise, or release claims in favor of or against the insured institutions...."

FSLIC construes this provision to confer upon it authority to adjudicate claims against an insured institution, such as plaintiffs' claims in this matter. FSLIC also points to 12 U.S.C. § 1464(d)(6)(C), which states "no court may ... except at the instance of the Board, restrain or affect the exercise of powers or functions of a conservator or receiver." According to FSLIC, the pendency of this action in the district court will "restrain or affect" the exercise of FSLIC's powers as adjudicator of claims against the insured institution, Westside.

FSLIC relies upon the decision of the Fifth Circuit Court of Appeals in Hudspeth, supra, which accepted the same argument made by FSLIC here. In Hudspeth, the North Mississippi Savings and Loan Association ("Old North") filed an action in state chancery court seeking a declaratory judgment that its deferred compensation agreement with its former president either did not exist or was...