Hindes v. F.D.I.C.

Decision Date19 February 1998
Docket NumberNo. 97-1354,97-1354
Citation137 F.3d 148
PartiesGary E. HINDES, Samuel Rappaport, Raymond Perelman, Gary Erlbaum, Daniel Neduscin, individually and derivatively for Meritor Savings Bank, f/k/a The Philadelphia Savings Fund Society, Appellants, v. The FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and as receiver for Meritor Savings Bank, f/k/a The Philadelphia Savings Fund Society; John/Jane Does 1-10, Directors, Officers, Agents, and Employees of the Federal Deposit Insurance Corporation; and Richard C. Rishel, in his official capacity as the Secretary of Banking of the Commonwealth of Pennsylvania.
CourtU.S. Court of Appeals — Third Circuit

Ken Carroll (Argued), Kortney Kloppe-Orton, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Dallas, TX, Richard L. Bazelon, A. Richard Feldman, Bazelon & Less, Philadelphia, PA, for Appellants.

Ann S. DuRoss, Assistant General Counsel, Maria Beatrice Valdez, Acting Senior Counsel, Thomas C. Bahlo (Argued), Counsel,Federal Deposit Insurance Corporation, Washington, DC, for Appellee Federal Deposit

Insurance Corporation in its Corporate Capacity.

David Smith, Rolin P. Bissell, Theresa E. Loscalzo, Schnader, Harrison, Segal & Lewis, Philadelphia, PA, John J. Graubard (Argued), Colleen J. Boles, Charlotte M. Kaplow, David A. Birch, Federal Deposit Insurance Corporation Legal Division, East Hartford, CT, for Appellee Federal Deposit Insurance Corporation as Receiver for Meritor Savings Bank.

D. Michael Fisher, Daniel J. Doyle (Argued), Calvin R. Koons, John G. Knorr, III, Office of Attorney General Litigation Section, Harrisburg, PA, for Appellee Secretary of Banking of the Commonwealth of Pennsylvania.

Before: GREENBERG, ROTH, and SEITZ, Circuit Judges.


GREENBERG, Circuit Judge.


Gary E. Hindes, and other shareholders of Meritor Savings Bank ("Meritor"), appeal from various district court orders dismissing their claims against the Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Secretary of Banking ("Secretary"). Appellants contend that the appellees wrongfully seized Meritor, thereby depriving them of their substantive due process rights. More particularly, appellants allege that the FDIC reneged on an agreement with Meritor with respect to the computation of its capital base, ignored Meritor's actual financial condition when seizing Meritor, and engaged in a conspiracy with state officials to close the bank. Appellants also assert that the FDIC violated certain of its statutory duties as receiver.

The district court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1367 and 12 U.S.C. §§ 1819(b)(2)(A) and 1821(d)(6)(A). We have jurisdiction to review the final orders of the district court pursuant to 28 U.S.C. § 1291. We exercise plenary review over the issues on this appeal, as they all require review of the district court's interpretation and application of legal precepts. See Turner v. Schering-Plough, Corp., 901 F.2d 335, 340 (3d Cir.1990).


The Secretary 1 closed Meritor, the largest savings bank in Pennsylvania, on December 11, 1992, and appointed the FDIC as its receiver. The majority of appellants' allegations concern the events leading up to that closing, as they primarily object to the propriety of the seizure of Meritor. Because the district court disposed of all of appellants' claims on either motions to dismiss or for summary judgment, we accept as true their allegations, and therefore base our recitation of the facts on the allegations in the complaint.

In 1982, at the FDIC's request, Meritor assumed the deposit liabilities of Western Savings Fund Society of Philadelphia ("Western"). To induce Meritor to assume these liabilities, the FDIC granted Meritor the right to amortize, over a 15-year period, $796 million of "goodwill" resulting from the Western transaction ("grand-fathered goodwill"), thereby increasing Meritor's regulatory capital base. This transaction saved the FDIC and its Bank Insurance Fund $400 million. The FDIC and Meritor evidenced this regulatory goodwill inducement in a written agreement dated April 3, 1982. For over ten years, the FDIC and Meritor abided by that agreement.

In an agreement dated April 5, 1991, the FDIC reaffirmed the 1982 agreement and further agreed to renegotiate Meritor's capital requirements if at any time Congress prohibited Meritor from considering this goodwill as a capital component. This 1991 agreement was prompted when Meritor proposed that its 12% Subordinated Capital Noteholders ("Noteholders") exchange their notes for stock and cash in order to infuse Meritor with more than $100 million of additional capital. Because the Noteholders would become shareholders, the continuation of the goodwill as a regulatory asset of Meritor was crucial to them. Therefore, before agreeing to the proposal, representatives of the Noteholders met with senior management of the FDIC, who assured them that the FDIC had no plans to disallow the grand-fathered goodwill. In fact, the FDIC encouraged the Noteholders to participate in the exchange. The exchange was completed in 1991, resulting in a $108 million increase in Meritor's capital.

On December 19, 1991, Congress adopted the FDIC Improvements Act of 1991, requiring the FDIC to adopt new rules regulating bank capital. The FDIC published draft regulations in the summer of 1992 which clearly permitted Meritor's grand-fathered goodwill to continue to be included in its capital. When the FDIC adopted final regulations in September 1992, however, the regulations differed from the proposals so as to create doubt as to whether Meritor's grand-fathered goodwill would remain as capital. The FDIC refused Meritor's request to clarify the uncertainty. The confusion created by the regulations resulted in a withdrawal of over $300 million in deposits from Meritor.

The appellants allege that, by mid-September, the FDIC and the Secretary had begun to devise a plan to seize Meritor in mid-December 1992, which was approximately the time the new regulations would take effect, and to sell its assets to one of Meritor's most aggressive competitors.

On December 11, 1992, the FDIC hand-delivered a letter to Meritor reneging on its 1982 agreement and formally notifying Meritor that, under the new regulations, the grand-fathered goodwill no longer would be included in its capital base. On the same day, the FDIC also hand-delivered Meritor a "Notification to Primary Regulator" ("Notification") which stated that the FDIC Board of Directors had found that Meritor was in violation of its 1991 agreement regarding capital maintenance, was in an unsound condition, and had inadequate capital. In the Notification, the FDIC asserted that it immediately would institute proceedings to cancel Meritor's insurance if Meritor did not promptly satisfy certain capitalization requirements. Because insurance was a prerequisite to Meritor's continued operation, the demand created a crisis. The Secretary, who the FDIC notified of these matters prior to notifying Meritor, used the crisis to justify the immediate closing of the bank on the same afternoon. At that time, he appointed the FDIC as receiver of Meritor. Neither Meritor nor the appellants challenged the appointment under the state procedure available for that purpose. See Pa. Stat. Ann., tit. 71, § 733-605 (West 1990).

The appellants also allege that the FDIC and the Secretary disregarded circumstances which rendered the closing of Meritor inappropriate. In particular, eight days before the closing of the bank, Meritor sold a subsidiary bringing in capital which put it in compliance with the capital maintenance agreement. In addition, on December 9, 1992, two days prior to the closing of the bank, the FDIC received a bid of $181.3 million for Meritor's remaining operations and deposits.

In August 1994, appellants filed this action against the FDIC, both in its corporate capacity ("FDIC-Corporate") and as receiver of Meritor ("FDIC-Receiver"), various unidentified agents and employees of the FDIC ("the Doe defendants"), and the Secretary. In general, the complaint alleges that these appellees deprived the appellants of their substantive due process rights 2 and asserts claims under 42 U.S.C. § 1983, Bivens v. Six Unknown Federal Bureau of Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), and the Administrative Procedure Act ("APA"). The complaint also alleges that the FDIC violated various statutory duties.

By order entered March 1, 1995, the district court dismissed the due process claims, embodied in Count I, against the FDIC and the Secretary as well as appellants' APA claim in Count IV against FDIC-Corporate on the grounds that 12 U.S.C. § 1821(j) deprived it of jurisdiction to adjudicate those claims. The district court also dismissed the section 1983 claim against the FDIC, finding that the FDIC was not a "person" under that statute.

By order entered September 6, 1995, the district court dismissed the claims against the FDIC for the enforcement of its statutory duties. On November 8, 1996, the district court approved a Stipulation of Dismissal of the remaining claims against the Secretary in his individual capacity, which the court entered on November 27, 1996. Thus, following the district court's order of November 27, 1996, appellants' only remaining claims were against the Doe defendants.

On November 15, 1996, appellants moved the district court to certify its March 1, 1995 order for an interlocutory appeal. They argued that the claims involving the Doe defendants were substantially the same as those against the FDIC and an immediate appeal would avoid the waste that would occur if this court eventually overturned the district court's order. FDIC-Receiver and FDIC-Corporate objected to the certification of the March 1, 1995 order, in part because the...

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