First Nat. Bank of Scotia v. United States

• Decision Date: 15 January 1982
• Docket Number: Civ. A. No. 81-1905.
• Citation: 530 F. Supp. 162
• Parties: The FIRST NATIONAL BANK OF SCOTIA, et al., Plaintiffs, v. UNITED STATES of America, et. al., Defendants.
• Court: U.S. District Court — District of Columbia

530 F. Supp. 162

The FIRST NATIONAL BANK OF SCOTIA, et al., Plaintiffs, v. UNITED STATES of America, et. al., Defendants.

Civ. A. No. 81-1905.

United States District Court, District of Columbia.

January 15, 1982.

COPYRIGHT MATERIAL OMITTED

C. Westbrook Murphy, Lee T. Ellis, Jr., Rebecca L. Jackson, Washington, D. C., for plaintiffs.

Rebecca L. Ross, Asst. U. S. Atty., Washington, D. C., for defendants.

MEMORANDUM OPINION

NORMA HOLLOWAY JOHNSON, District Judge.

In this action the First National Bank of Scotia and two of its principal officers seek review of a decision reached by the Comptroller of the Currency which denied plaintiffs' request for modification of a final "cease and desist" order issued under the provisions of the Financial Institutions Supervisory Act of 1966, as amended, 12 U.S.C. § 1818 (1976) ("FISA"). The Comptroller's final order to cease and desist from certain unsafe and unsound banking practices has already been reviewed and affirmed by the United States Court of Appeals for the Second Circuit pursuant to 12 U.S.C. § 1818(h)(2); however, that court is currently entertaining plaintiffs' appeal from the Comptroller's denial of their request for modification of the same cease and desist order. The matter is currently before the Court on defendants' motion to dismiss this action for lack of subject matter jurisdiction. See Fed.R.Civ.P. 12(b)(1). Plaintiffs have in turn moved for a stay of proceedings pending disposition of their petition for review by the Court of Appeals for the Second Circuit. After carefully examining the motions filed by the parties, the memoranda of points and authorities in support and opposition thereto, and the entire record of this action, the Court concludes that it has no jurisdiction to review or otherwise affect by injunction the Comptroller's ruling on plaintiffs' motion to modify the aforementioned final order to cease and desist from certain unsound banking practices. Accordingly, defendants' motion to dismiss will be granted, and plaintiffs' motion for a stay of proceedings will be denied.

BACKGROUND

On February 12, 1980, the Comptroller of the Currency initiated cease and desist proceedings against plaintiffs by serving them with a notice alleging numerous unsafe and unsound banking practices and violations of 12 U.S.C. § 371d (1976). See 12 U.S.C. § 1818(b). After plaintiffs had been accorded an adversary hearing, an administrative law judge recommended that the Comptroller enter a cease and desist order against them. That order was signed by the Comptroller on November 20, 1980, and became effective on December 24, 1980.

Shortly thereafter plaintiffs filed a petition for review of the Comptroller's final order to cease and desist in the United States Court of Appeals for the Second Circuit. In this petition plaintiffs argued that the Comptroller's findings were unsupported by substantial evidence, and that the remedial measures ordered by the Comptroller were beyond the scope of his statutory powers. However, on April 9, 1981, the Court of Appeals rejected their arguments by affirming the cease and desist order in all respects.¹ See The First National Bank of Scotia v. United States, 659 F.2d 1059 (2d Cir. 1981). And on November 9, 1981, the United States Supreme Court denied plaintiffs' petition for certiorari.

The second round in this litigation began on May 18, 1981, when plaintiff filed a motion with the Comptroller seeking modification of his final order to cease and desist in the following respects: 1) a reduction in the amount of additional capital injection from $1.5 million to $750,000; 2) an extension of time in which to raise the new capital; and 3) elimination of references to any violation of 12 U.S.C. § 371d. Counsel for the Comptroller's Enforcement and Compliance Division opposed plaintiffs' motion but submitted a cross-motion to modify which proposed to reduce the additional capital figure to $750,000 and require the Bank to maintain an equity capital to total asset ratio of eight percent. On June 29, 1981, the Comptroller entered an order granting the relief requested by counsel for the Comptroller's Enforcement and Compliance Division and denying plaintiffs' motion for modification.²

On July 12, 1981, plaintiff filed a petition in the United States Court of Appeals for the District of Columbia Circuit pursuant to 12 U.S.C. § 1818(h)(2), seeking review of the Comptroller's June 29 order denying plaintiffs' motion for modification of the original cease and desist order. That petition was subsequently transferred to the Court of Appeals for the Second Circuit pursuant to the Comptroller's motion, and it is currently under review by that court.

Finally, on August 12, 1981, plaintiffs filed the instant action for declaratory and injunctive relief pursuant to 5 U.S.C. §§ 701-706 (1976) and 28 U.S.C. §§ 2201, 2202 (1976), seeking duplicative review of the Comptroller's final order of June 29, 1981. Subject matter jurisdiction was premised upon the general federal jurisdictional statutes, 28 U.S.C. §§ 1331, 1332, 1337, 1346, and 1361 (1976). Plaintiffs contend that the Comptroller's June 29 order is arbitrary and capricious and unsupported by substantial evidence; they also assert that the Comptroller's denial of their request for an oral hearing and for consideration of settlement is violative of their due process rights and inconsistent with the procedure established by statute and by the Comptroller's own regulations. The defendants have responded with a motion to dismiss the complaint on the ground that 12 U.S.C. § 1818(h)(2), (i) deprive federal district courts of subject matter jurisdiction to review, modify, or enjoin this type of administrative enforcement action.

The Court originally granted plaintiffs' motion to enlarge the time to respond to the defendants' motion to dismiss until ten days after the Court of Appeals for this Circuit acted on the Comptroller's separate motion to dismiss or transfer the parallel petition filed by plaintiffs which seeks appellate review of the Comptroller's denial of plaintiffs' request for a modification of the original cease and desist order. The Court of Appeals granted the Comptroller's motion to transfer the petition for review on November 12, 1981, and plaintiffs have now moved to stay all further proceedings in this court pending final disposition of their petition for review, which is currently being considered by the Court of Appeals for the Second Circuit. The defendants oppose any further stay and argue that the motion to dismiss the action should be granted immediately.

DISCUSSION

The statutory scheme set out in FISA grants federal agencies such as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Board wideranging supervisory and enforcement authority over our nation's banking system. See 12 U.S.C. § 1813(q). These agencies are charged with the task of overseeing that banking system for the protection of the public and the national economy as a whole, and not for the benefit or protection of individual banking institutions. In re Franklin National Bank Securities Litigation, 478 F.Supp. 210, 215 (E.D.N.Y.1979). The most significant of their supervisory powers is the capacity to issue and enforce cease and desist orders. 12 U.S.C. § 1818. The agencies may draw upon this power to prevent a bank from violating any agreements with the Comptroller; to remedy violations of any "law, rule, or regulation, or any condition imposed in writing by the agency in connection with the granting of any application or other request by the bank," 12 U.S.C. § 1818(b)(1); or to prohibit any banking practice or procedure that the Comptroller deems to be "unsafe or unsound." Id. In short, cease and desist orders can be utilized to regulate virtually every aspect of a bank's business. See, e.g., Groos National Bank v. Comptroller of the Currency, 573 F.2d 889 (5th Cir. 1978).

Given the magnitude of the public and private interests that are impacted by such extensive agency regulation of financial institutions, it is not surprising that Congress has seen fit to prescribe a specific statutory mechanism for obtaining judicial review of agency enforcement actions in this area. The procedure outlined in 12 U.S.C. § 1818(h)(2) places judicial review of agency cease and desist orders firmly in the hands of the United States Circuit Courts of Appeal.³ At the same time, however, Congress has provided the federal district courts with limited jurisdiction over three types of controversies stemming from the issuance of cease and desist orders. First, under 12 U.S.C. § 1818(c)(2), the district courts are granted jurisdiction to issue injunctive relief "setting aside, limiting, or suspending the enforcement, operation, or effectiveness" of temporary cease and desist orders issued by a supervisory agency. Second, the district courts may, upon application of the appropriate agency, issue an injunction designed to enforce the terms of such temporary cease and desist orders. See 12 U.S.C. § 1818(d). Third, the district courts may exercise jurisdiction to order the enforcement of any outstanding notice or order issued by an agency under section 1818. See 12 U.S.C. § 1818(i). Aside from these carefully delineated circumstances where federal district courts are granted jurisdiction over cease and desist controversies, Congress has categorically determined that "no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under this section, or to review, modify, suspend, terminate, or set aside any such notice or order." Id.

It is apparent to the Court that this scheme of judicial review established by Congress and codified in 12 U.S.C. § 1818(h), (i) deprives it of subject matter jurisdiction over the instant action. It is by now well-established that all federal courts, with the exception...