Franklin Sav. v. Dir. of Office of Thrift Super.

Decision Date22 June 1990
Docket NumberNo. 90-4054-S.,90-4054-S.
Citation740 F. Supp. 1535
CourtU.S. District Court — District of Kansas
PartiesFRANKLIN SAVINGS ASSOCIATION and Franklin Savings Corporation, Plaintiffs, v. DIRECTOR OF the OFFICE OF THRIFT SUPERVISION, Defendant, and United States of America, Defendant-Intervenor.

COPYRIGHT MATERIAL OMITTED

Charles W. German, David E. Everson, Jr., Brant M. Laue, Richard F. Hunter, Stinson, Mag & Fizzell, Kansas City, Mo., Roger D. Stanton, Stinson, Mag & Fizzell, Overland Park, Kan., Cheryl Johnson, Graham & James, Los Angeles, Cal., for plaintiffs.

Thomas J. Segal, Assoc. Chief Counsel, Elizabeth R. Moore, Sr. Trial Atty., James Hendrickson, Trial Atty., Office of Thrift Supervision, Washington, D.C., Nancy L. Ulrich, Asst. Atty. Gen., Topeka, Kan., Paul W. Grace, Steven W. Dimmick, Mary Boney Denison, Linda Hitt Thatcher, Paul J. Kennedy, Graham & James, Washington, D.C., Lee Thompson, U.S. Atty., Topeka, Kan., Stuart M. Gerson, Asst. Atty. Gen., Theodore C. Hirt, Mark Batten, Gary Orseck, Attys., Dept. of Justice, Civ. Div., Thomas J. Loughran, Susan B. Bovee, H. Lowell Brown, Finkelstein, Thompson & Loughran, Washington, D.C., Jan Hamilton, Hamilton, Peterson, Tipton & Keeshan, Topeka, Kan., for defendant.

MEMORANDUM AND ORDER

SAFFELS, District Judge.

This matter is before the court on plaintiffs' first motion for summary judgment (doc. 56); defendant Director of Office of Thrift Supervision ("OTS") and defendant-intervenor United States of America's ("USA") joint motion to dismiss, or for summary judgment (doc. 169); defendant OTS's amended motion to dismiss for mootness (doc. 178); plaintiffs' motion to strike pleadings of, or to dismiss, defendant USA as a party (doc. 201); defendant OTS's motion to dismiss, or for summary judgment on, Counts IX-X, XIII-XX of the supplemental complaint (doc. 232); and plaintiffs' third motion for summary judgment (doc. 239). These motions involve the validity and effect of the action taken by Director T. Timothy Ryan ("Director Ryan") on June 1, 1990, or the constitutionality of the appointment of M. Danny Wall as Director of OTS. On June 1, 1990, Director Ryan issued an order purporting to accomplish three things: (1) ratification of Director Wall's appointment of conservator for Franklin on February 15, 1990, based on the administrative record considered by Director Wall in February 1990; (2) ratification of the February 15, 1990, appointment based on a new expanded administrative record which included matters discovered after February 15, 1990; and (3) the appointment of the Resolution Trust Corporation ("RTC") as a new conservator as of June 1, 1990, based on the expanded administrative record.

A moving party is entitled to summary judgment only when the evidence indicates that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c); Maughan v. SW Servicing, Inc., 758 F.2d 1381, 1387 (10th Cir.1985). In these motions, the parties seek resolution of the following issues: (1) whether Director Ryan had the authority to ratify Director Wall's February 15, 1990, appointment of a conservator for Franklin, and thus cure any constitutional defect that may have tainted Director Wall's action; (2) whether Director Wall was constitutionally appointed, and whether his action on February 15, 1990, is constitutionally valid; and (3) whether Director Ryan had the authority to appoint the Resolution Trust Corporation ("RTC"), a second time, as conservator during the pendency of the February 15, 1990, conservatorship. The material facts that the court must consider in resolving these issues are not in dispute. Also, these issues are strictly legal questions. Thus, these issues are ripe for summary judgment.

I. DIRECTOR RYAN'S PURPORTED RATIFICATION OF DIRECTOR WALL'S APPOINTMENT OF CONSERVATOR.
A. Background.

M. Danny Wall was the chairman of the Federal Home Loan Bank Board ("FHLBB") on August 9, 1989, the date on which the Financial Institution's Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted. Chairman Wall was appointed to the office of Director of OTS under the "transitional provision" of Section 301 of FIRREA. This provision provides, in part:

the Chairman of the Federal Home Loan Bank Board on the date of enactment of the Financial Institutions Reform, Revisions, and Enforcement Act of 1989, shall be the director of OTS until the date on which the individual's term as Chairman of the Federal Home Loan Bank Board would have expired. Public Law No. 101-73, § 301, 103 Stat. 183, 278 (to be codified at 12 U.S.C. § 1462a(c)(5)).

Pursuant to this provision, Wall was acting as director of OTS when he appointed the RTC as conservator of Franklin on February 15, 1990. (See OTS Order 90-368).

Prior to the appointment of conservatorship, Director Wall had announced his intentions to resign his position as director of OTS. On March 23, 1990, President Bush nominated T. Timothy Ryan for the position of director of OTS. On April 4, 1990, the United States Senate confirmed Ryan's nomination and he was sworn into office on April 9, 1990. On June 1, 1990, Director Ryan issued an order ratifying the February 15, 1990, appointment of conservator for Franklin. (OTS Order No. 90-1036).

B. Can Director Ryan Ratify the Appointment of Conservator Made by Director Wall?

Defendants jointly move to dismiss, as moot, Count V of plaintiffs' complaint, which contends that Director Wall lacked constitutional authority to appoint a conservator for Franklin. Defendants move to dismiss since Director Ryan, an undisputed constitutionally appointed officer, has now ratified the February 15, 1990, appointment. Plaintiffs contend, however, that Director Ryan lacks the authority to ratify the appointment made by his predecessor and the attempted ratification is invalid. Plaintiffs have moved for summary judgment on Count XX of their supplemental complaint, which contends that Director Ryan's attempted ratification is invalid.

First, plaintiffs argue that Director Ryan's decision to ratify Wall's earlier appointment of conservator is nothing more than a litigation tactic, which attempts to destroy this court's jurisdiction to review the original appointment. Although the timing of Director Ryan's action is curious,1 the court declines the invitation to rule that the June 1, 1990, ratification is a litigation tactic to destroy jurisdiction and thus invalid. Instead, the court chooses to address the more substantive arguments regarding Director Ryan's action on June 1, 1990.

With regard to the substantive arguments, plaintiffs argue that since Director Ryan did not have the power as of February 15, 1990, to appoint the conservator, he cannot retroactively ratify such action which occurred on that date. The concept of ratification is rooted in the law of agency. Ratification has been defined as the

"affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him."

Restatement (Second) of Agency, Section 82, at 210 (1957). It is recognized that a public officer may ratify the act of another officer. See United States v. Heinszen & Co., 206 U.S. 370, 382, 27 S.Ct. 742, 745, 51 L.Ed. 1098 (1907). ("That the power of ratification as to matters within their authority may be exercised by Congress, state governments, or municipal corporations, is also elementary.") Nevertheless, for a ratification to be effective, the ratifying person or entity must have had authority to do the underlying act both at the time of the original act and at the time of ratification. Restatement (Second) of Agency, § 84(2) at 213 (1957). ("An act which, when done, the purported ... principal could not have authorized, he cannot ratify...."); see also Western Nat'l Bank v. Armstrong, 152 U.S. 346, 352, 14 S.Ct. 572, 575, 38 L.Ed. 470 (1894) ("It is scarcely necessary to say that a ratification, to be efficacious, must be made by a party who had power to do the act in the first place....")

The court agrees with plaintiffs that since Director Ryan had no power to appoint a conservator for Franklin on February 15, 1990, he lacked the power on June 1, 1990, to ratify the earlier appointment. Moreover, Director Ryan is not and never was Director Wall's principal, and thus, cannot ratify Director Wall's act.

Defendant OTS argues that the proper analysis of the ratification, in the present case, is to view both Directors Wall and Ryan as agents and the principal being Congress. Citing Restatement (Second) of Agency § 93 at 242, OTS contends that Ryan is authorized to ratify for his principal the unauthorized acts of another agent (Wall). The court cannot accept this proposed analysis, for Congress has never authorized Ryan to ratify the appointment of conservator made by his predecessor.

Finally, in his ratification order of June 1, 1990, Director Ryan indicated that the ratification was made pursuant to his authority as director of OTS and "pursuant to the authority delegated to me by the President of the United States and the Secretary of the Treasury." OTS Order 90-1036. The court finds that any authority delegated to Director Ryan from either President Bush or Secretary Nicholas Brady did not include the authority to ratify the appointment of a conservator for Franklin. Congress did not delegate the power to appoint a conservator to either the President or to the Department of Treasury, but instead specifically delegated this authority solely to the director of the Office of Thrift Supervision. Section 301 of FIRREA states:

"Notwithstanding any other provision of law, the Director of OTS shall have the power and jurisdiction to appoint a conservator or receiver for an insured State savings association, if the Director determines that any of the ... grounds for the appointment of a conservator or receiver exists...."

Public Law 101-73, 103 Stat. at 291 (to be...

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