James Madison Ltd. by Hecht v. Ludwig, 95-5126

• Decision Date: 03 July 1996
• Docket Number: No. 95-5126,95-5126
• Citation: 317 U.S. App. D.C. 281,82 F.3d 1085
• Parties: , 64 USLW 2763 JAMES MADISON LIMITED, by Norman F. HECHT, Sr., Assignee, Appellant v. Eugene A. LUDWIG, Comptroller of the Currency, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1085

82 F.3d 1085

317 U.S.App.D.C. 281, 64 USLW 2763

JAMES MADISON LIMITED, by Norman F. HECHT, Sr., Assignee, Appellant v. Eugene A. LUDWIG, Comptroller of the Currency, et al., Appellees.

No. 95-5126.

United States Court of Appeals District of Columbia Circuit.

Argued Dec. 5, 1995.

Decided May 3, 1996.

Suggestion for Rehearing In Banc Denied July 3, 1996.

As Amended on Denial of Rehearing July 3, 1996.

Appeal from the United States District Court for the District of Columbia (No. 93cv00792).

William J. Smith, Washington, DC, argued the cause and filed the briefs for appellant.

Ellen M. McElligott, Senior Trial Attorney, Office of the Comptroller of the Currency, with whom L. Robert Griffin, Director of the Litigation Division, was on the brief, argued the cause for appellee Comptroller of the Currency. Joan M. Bernott, Assistant Director of the Litigation Division, Washington, DC, entered an appearance.

Thomas L. Holzman, Counsel, Federal Deposit Insurance Corporation, with whom Thomas A. Schulz, Assistant General Counsel, Colleen J. Bombardier, Senior Counsel and Charles L. Cope, II, Senior Counsel, Washington, DC, were on the brief, argued the cause for appellee Federal Deposit Insurance Corporation.

Before: GINSBURG, ROGERS, and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge TATEL.

TATEL, Circuit Judge:

After examining the financial condition of Madison National Bank and Madison National Bank of Virginia, the Comptroller of the Currency declared the banks insolvent and appointed the Federal Deposit Insurance Corporation receiver of the two institutions. The banks' holding company sued, charging that the federal agencies abused their discretion, acted arbitrarily and capriciously, and failed to follow statutorily prescribed procedures in taking over the banks. The holding company later sought leave to amend its original complaint to add counts alleging that the statute authorizing the government seizure of the banks and the seizure itself violated the Fifth Amendment's due process guarantee. The district court granted summary judgment for the Government on the claims in the original complaint and denied the motion to amend.

Rejecting the FDIC's argument that federal district courts lack jurisdiction to grant any of the relief the holding company seeks, we reach the merits of this appeal. Because we agree with the district court that the question of whether the Government acted arbitrarily in seizing the banks presents no genuine issues of material fact and that the Government is entitled to judgment as a matter of law, we affirm the district court's grant of summary judgment for the Government. And because the undisputed facts show that the banks received all the process they were due under the Fifth Amendment, we agree with the district court that amending the complaint would have been futile and so affirm its denial of the motion to amend.

I.

The Office of the Comptroller of the Currency, a bureau of the United States Department of the Treasury, is headed by the Comptroller of the Currency and is the primary regulator of federally chartered commercial banks, known as national banks. The OCC periodically examines national banks. See 12 U.S.C. § 481 (1994). Upon determining that a national bank is insolvent, the Comptroller may appoint either a conservator or a receiver of the institution. Id. § 191 (authorizing appointment of receiver); id. § 203 (authorizing appointment of conservator). If the Comptroller chooses to appoint a conservator of a national bank, the statute allows the appointment of the FDIC; but if the Comptroller appoints a receiver, the statute requires the appointment of the FDIC. 12 U.S.C. § 1821(c)(2)(A)(i)-(ii) (1994). The principal difference between a conservator and receiver is that a conservator may operate and dispose of a bank as a going concern, while a receiver has the power to liquidate and wind up the affairs of an institution. 12 U.S.C. § 1821(d)(2) (1994); H.R.CONF.REP. No. 209, 101st Cong., 1st Sess. 398 (1989).

In January 1991, the OCC conducted a limited review of Madison National Bank, Madison National Bank of Virginia, and United National Bank--three banks owned by James Madison Ltd., a bank holding company. The investigation focused on the banks' aggregate allowance for loan and lease losses, a reserve that banks maintain to absorb losses they are likely to incur because of an inability to recover the full value of the loans and leases on their books. See Interagency Policy Statement on the Allowance for Loan and Lease Losses, BB 93-60, 1993 WL 542562 (Dec. 21, 1993). This reserve may be critical to a bank's financial condition. Banks treat additions to their reserves as expenses, charging them first against current earnings; if earnings are inadequate to cover the cost of an addition to the reserve, the addition is charged against the bank's equity capital. Thus, a relatively large addition to the reserve might not only eliminate all of a bank's current earnings, but also deplete a bank's accumulated capital, rendering the institution insolvent.

At the conclusion of its January review, the OCC informed the Madison banks that it had found serious weaknesses in their methodology for establishing their loan loss allowance and that it would return to conduct a more detailed examination of the adequacy of the banks' reserves. That second examination lasted from mid-February through the end of April, during which United National Bank, along with a state-chartered institution, Madison Bank of Maryland, merged into Madison National Bank, leaving James Madison Ltd. as the owner of two national banks: Madison National Bank and Madison National Bank of Virginia. Determining that the loan loss allowances for the two resulting banks were inadequate, the OCC directed the banks on May 1 to add approximately $31.6 million to their allowances, leaving the institutions insolvent with a combined net worth of minus $15.8 million. At the same time, the OCC gave the banks an opportunity to submit a capital plan showing how they would return to financial health by the end of the year. After rejecting the banks' subsequently filed capital plan and acting pursuant to 12 U.S.C. § 191, the Comptroller declared the banks insolvent and appointed the FDIC as receiver. The FDIC began immediately disposing of the banks' assets and liabilities.

Having filed for bankruptcy, James Madison, Ltd. sued the Comptroller, the OCC, and the FDIC in the United States District Court for the District of Columbia. Count I of Madison's complaint alleged that, by failing to follow the agency's own guidelines in conducting the examination, the OCC examiners abused their discretion in violation of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) (1994). Count II claimed that, because the examiners lacked a rational basis for requiring $31.6 million in additional reserves, they acted arbitrarily and capriciously also in violation of 5 U.S.C. § 706(2)(A). Counts III and IV alleged that, by failing to conduct a "due examination" of the affairs of the banks prior to appointing the receiver under 12 U.S.C. § 191, the Comptroller abused his discretion and failed to observe procedures required by law in violation of 5 U.S.C. § 706(2)(A) and (D). As a remedy, Madison sought an injunction removing the FDIC as receiver; returning bank assets that the FDIC still had in its possession, as well as the proceeds from the FDIC's prior sales of the banks' assets; restoring the banks' charters to allow them to resume business; and returning the banks' files.

The Government moved for dismissal or, alternatively, for summary judgment. While the agencies' motions were pending, Madison filed a motion for leave to amend its complaint to add several new claims, two of which are at issue in this appeal: count IX, alleging that 12 U.S.C. § 191 on its face violates the due process guarantee of the Fifth Amendment by allowing the government to seize national banks without an adequate hearing; and count X, making the same due process challenges as applied in this case. As the remedy for these two alleged due process violations, Madison sought declaratory relief and an injunction similar to the one it sought for counts I through IV, or alternatively, monetary damages.

Shortly after filing its complaint, Madison requested discovery. Without objection from Madison, the court granted the Government's motion to stay discovery pending the outcome of its dispositive motions. In support of its motion for summary judgment, the Government submitted a statement of undisputed material facts describing events leading up to the seizure and liquidation of the banks, as well as a voluminous administrative record containing contemporaneous reports by the examiners regarding their findings during the 1991 examinations. Madison failed to file a statement of controverted material facts as required by Local Rule 108(h), submitting instead a list of questions along with affidavits of former bank officers and consultants challenging the reserves that the government required the banks to establish. Together with the pleadings and legal memoranda, this was the record before the district court.

The district court granted summary judgment to the Government, ruling that the OCC acted in accordance with the requirements of the Administrative Procedure Act in requiring the banks to add $31.6 million to their loan loss allowances and in declaring the banks insolvent. The district court also denied Madison's motion to amend its complaint, concluding that the two due process claims were "futile." In response to Madison's motion for reconsideration, the district court stood by its rulings. Madison now appeals the grant of summary judgment on counts I through IV and the denial of its motion to add counts IX and X, based not only on the merits of the district court's rulings, but also on the adequacy of the record...