First Nat. Bank of Chicago v. Comptroller of Currency of U.S.

• Decision Date: 14 February 1992
• Docket Number: 91-3245,Nos. 91-3244,s. 91-3244
• Citation: 956 F.2d 1360
• Parties: , 21 Fed.R.Serv.3d 1456 FIRST NATIONAL BANK OF CHICAGO, as Trustee of Institutional Real Estate Fund F, Petitioner-Appellee-Cross-Appellant, v. COMPTROLLER OF THE CURRENCY OF THE UNITED STATES and Office of the Comptroller of the Currency, Respondents-Appellants-Cross-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1360

956 F.2d 1360

60 USLW 2531, 21 Fed.R.Serv.3d 1456

FIRST NATIONAL BANK OF CHICAGO, as Trustee of Institutional

Real Estate Fund F, Petitioner-Appellee-Cross-Appellant, v. COMPTROLLER OF THE CURRENCY OF THE UNITED STATES and Office

of the Comptroller of the Currency,

Respondents-Appellants-Cross-Appellees.

Nos. 91-3244, 91-3245.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 7, 1992.

Decided Feb. 14, 1992.

Harold C. Hirshman, Sonnenschein, Nath & Rosenthal, William F. Conlon, James J. Carroll, Sidley & Austin, Chicago, Ill., for First Nat. Bank of Chicago in No. 91-3244.

Thomas P. Walsh, Eileen M. Marutzky, Asst. U.S. Attys., Fred Foreman, U.S. Atty., Crim. Div., Chicago, Ill., Irene M. Solet (argued), Dept. of Justice, Civ. Div., Appellate Section, L. Robert Griffin, Susan R. Trippi, Office of the Comptroller of the Currency, Washington, D.C., for Comptroller of the Currency of the U.S. and Office of the Comptroller of the Currency, an agency of the U.S. in No. 91-3244.

Harold C. Hirshman (argued), Roger C. Siske, Sonnenschein, Nath & Rosenthal, William F. Conlon, James J. Carroll, Mark B. Blocker, Sidley & Austin, Lynn A. Goldstein, Robert V. Herbert, First Nat. Bank of Chicago, Chicago, Ill., for First Nat. Bank of Chicago in No. 91-3245.

Thomas P. Walsh, Eileen M. Marutzky, Asst. U.S. Attys., Fred Foreman, U.S. Atty., Crim. Div., Chicago, Ill., Douglas Letter, Irene M. Solet (argued), Dept. of Justice, Civ. Div., Appellate Section, L. Robert Griffin, Susan R. Trippi, Office of the Comptroller of the Currency, Washington, D.C., for Comptroller of the Currency of the U.S., Office of the Comptroller of the Currency, an agency of the U.S. and Robert L. Clarke in No. 91-3245.

Before POSNER and EASTERBROOK, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

POSNER, Circuit Judge.

First National Bank of Chicago, as trustee of a real estate investment fund, brought this suit in federal district court against the Comptroller of the Currency to challenge his refusal to allow the bank to distribute individual properties owned by the fund to withdrawing investors in lieu of either cashing them out or giving them proportional interests in the fund's entire portfolio of properties. Do not confuse this fund with a "Real Estate Investment Trust" (REIT), also a method of pooling real estate investments but one with special conditions not claimed to be satisfied here and an emphasis on tax avoidance that is irrelevant here because the participants in the fund are tax-exempt employee benefit plans. William A. Kelley, Jr., "How to Qualify a Real Estate Investment Trust (Part 1)," 6 Practical Tax Lawyer 31 (1991); Gregory W. Goff, "REIT Revival--An Overview of Real Estate Investment Trusts as an Investment Vehicle," 39 Major Tax Planning, ch. 19 (U.S.C. Law Center Tax Institute 1987). This is a bank-managed "collective investment fund," also known as a "common trust fund," which has been helpfully defined as "a group of investments managed by a bank in accordance with a written plan on behalf of several individual fiduciary accounts whose assets are lawfully contributed to the fund." William P. Wade, "Bank-Sponsored Collective Investment Funds: An Analysis of Applicable Federal Banking and Securities Laws," 35 Business Lawyer 361 (1980). See also Investment Company Institute v. Camp, 401 U.S. 617, 621-22, 91 S.Ct. 1091 28 L.Ed.2d 367 (1971); Investment Company Institute v. Conover, 790 F.2d 925, 928 (D.C.Cir.1986). Our fund happens to invest in real estate rather than in securities but that is an idiosyncrasy of this fund rather than a part of the definition of a collective investment fund. National banks are empowered to manage collective investment funds and engage in other fiduciary activities by virtue of 12 U.S.C. § 92a(a).

The Comptroller based his refusal to permit the bank to compensate withdrawing investors in the proposed manner on two regulations of his office governing the fiduciary powers of national banks. One provides that distributions to a withdrawing investor in a collective investment fund "may be made in cash or ratably in kind, or partly in cash and partly in kind." 12 C.F.R. § 9.18(b)(6). The Comptroller interprets this to bar the form of distribution proposed by the fund, under which a withdrawing participant could be made to accept an individual parcel (or parcels) of real estate in exchange for his shares in the fund rather than receiving a proportional interest in all the fund's properties. The other regulation provides that a fund that invests in real estate or other assets that are not readily marketable may require one year's prior notice of withdrawals from it--but no more. 12 C.F.R. § 9.18(b)(4).

Institutional Real Estate Fund F was established in 1972 and has 45 participants--all substantial, sophisticated employee benefit plans, whose investments in the fund range from $50,000 to $100 million. In 1990 the fund had $59 million in cash and cash equivalents plus some sixty commercial real estate properties having an aggregate appraised value of $490 million. Yet the fund was worth less than it had been. The commercial real estate market had faltered as the decade of the 1980s came to a close. The value of the fund's real estate holdings had declined by 10 percent, and withdrawal requests by investors in the fund had increased to the point where, by December 1989, the requests exceeded the fund's cash. The bank suspended further withdrawals and distributions. It could have sold some of the fund's properties to raise additional cash to fund withdrawals, but it didn't want to do this, because of what it considered to be the depressed state of the market for commercial real estate. In March 1990, with fifteen withdrawal requests, aggregating $135 million, pending, the bank proposed to the participants a restructuring of the fund whereby any investor that wanted to make an immediate withdrawal would receive "in-kind distributions of the whole ownership in certain real properties." Of the 45 participants, 37, owning in the aggregate 80 percent of the shares in the fund, agreed to the proposal.

The bank asked the Comptroller to rule that the proposal did not violate either of the regulations we have quoted, or in the alternative to grant a waiver from the regulations. The Comptroller wrote the bank that in his view the proposal violated both regulations and that he would not waive either of them. This lawsuit ensued. The district judge decided it on the pleadings--and rightly so, for although nominally an injunctive proceeding, in reality this is a proceeding to review agency action, and such proceedings are (with immaterial exceptions) decided on the record compiled before the agency. Cronin v. United States Department of Agriculture, 919 F.2d 439, 443-44 (7th Cir.1990). The judge held that the regulation governing the form of distributions does not bar the proposed restructuring of the fund, but that the one-year limitation on notice of withdrawals does. Both parties have appealed.

There is jurisdictional underbrush to be cleared away before we can address the merits. First is the question of our appellate jurisdiction. The district court did not enter a separate judgment order, as required by Rule 58 of the Federal Rules of Civil Procedure. For when the judge ruled, a third count in the bank's complaint was unresolved, so the judgment was not final and a Rule 58 order would have been premature. Later the parties agreed to drop the third count and an order dismissing it was duly entered on the docket sheet. But the clerk who entered it evidently did not realize that the order dismissing the remaining count made the earlier judgment final.

Although the parties should have realized this and asked the judge to enter a Rule 58 order, the absence of the order is not fatal to our jurisdiction. The applicable statute requires a final judgment, 28 U.S.C. § 1291 ("final decision" is the statutory term, but the cases usually speak of the "final judgment" rule), and the requirement is jurisdictional, and therefore not waivable. But the statute does not say that the final judgment must be in the form prescribed by Rule 58. Compliance with the rule makes it easier to determine whether there is a final judgment, but if we know from other sources that there is one, we have jurisdiction. Bankers Trust Co. v. Mallis, 435 U.S. 381, 98 S.Ct. 1117, 55 L.Ed.2d 357 (1978) (per curiam); F. & H.R. Farman-Farmaian Consulting Engineers Firm v. Harza Engineering Co., 882 F.2d 281, 283 (7th Cir.1989); Soo Line R.R. v. Escanaba & Lake Superior R.R., 840 F.2d 546, 549 (7th Cir.1988).

Which is not to say that Rule 58 is one of those useless technicalities that bedevil and confuse the law. Compliance with it in this case might have avoided considerable confusion--might have told us for example who actually won in the district court (and therefore should be the appellant) and who lost (and therefore should be the appellee). Cf. American Interinsurance Exchange v. Occidental Fire & Casualty Co., 835 F.2d 157 (7th Cir.1987). Remarkably, this is quite unclear. One interpretation of the judgment is that the losing party in the district court was the bank, because the court refused to vacate the Comptroller's refusal to permit the proposed restructuring to go forward. On this interpretation, only the bank should have appealed. The Comptroller should have defended the judgment as appellee, Byron v. Clay, 867 F.2d 1049, 1050-51 (7th Cir.1989), albeit on a different ground from the district court's. Different because the Comptroller believes that his interpretation of the form-of-distribution regulation is correct and bars the restructuring, but that the one-year notice limitation, on the basis of which the district court upheld his refusal to permit the restructuring to proceed, has no independent significance. The reason is that if the form of distribution proposed by the bank is valid, the...