Life Bancshares, Inc. v. Fiechter, Civ. A. No. 93-88-B.
| Decision Date | 03 November 1993 |
| Docket Number | Civ. A. No. 93-88-B. |
| Citation | 847 F. Supp. 434 |
| Parties | LIFE BANCSHARES, INC., et al. v. Jonathan FIECHTER, Acting Director, Office of Thrift Supervision. |
| Court | U.S. District Court — Middle District of Louisiana |
Etta Kay Hearn, Law Firm of Etta Kay Hearn, Ernest L. Johnson, Steven Young, I, Baton Rouge, LA, for Life Bancshares Inc., Rupert Richardson, Ernest Johnson and Gloria London.
John Joseph Gaupp, Dept. of Justice, Office of the U.S. Atty., Baton Rouge, LA, Dirk S. Roberts, Frances M. Recio, Office of Chief Counsel, Office of Thrift Supervision, Washington, DC, for Jonathan Fiechter.
RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on defendant's motion for summary judgment. For reasons which follow, the Court finds that the motion should be granted.
Life Savings Bank ("Life") was a minority-owned savings association located in Baton Rouge, Louisiana. Life was chartered in August, 1990, and was wholly owned by Life Bancshares, Inc., ("Bancshares").1 The Office of Thrift Supervision ("OTS"), which was designated by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") as the primary regulator of savings associations, began its yearly examinations of Life in May, 1991.2
Following the first examination in 1991, OTS assigned Life a rating of four, which is a category reserved for institutions with an inadequate level of capital or a combination of other factors that are poor.3 As a result of this poor rating, OTS required Life to execute a Supervisory Agreement with the OTS.4 Primarily, the Supervisory Agreement placed restrictions on Life's lending practices. The agreement further required Life to adopt and implement lending and interest-rate risk policies and procedures, to comply with OTS regulations, and to retain an independent accounting firm to study and evaluate Life's records.5
In March of 1992, OTS began another examination of Life. In its second examination, the OTS determined that Life had failed to meet two of three statutory capital requirements.6 The OTS further found that Life's Board of Directors had not properly addressed the financial difficulties of the association. Following the examination, OTS prepared an examination report and provided a copy of the report to Life. A summary of the report, also prepared by the OTS, provided:
In addition to Life's failure to comply with statutory capital requirements, OTS also identified 35 additional regulatory violations at Life.8 As a result of this second examination, OTS assigned Life a rating of five, which is a category reserved for those institutions with an "extremely high immediate or near-term probability of failure" and for which "immediate corrective action and constant supervisory attention" is required.9 OTS further notified Life that a Capital Directive would be issued and that Life was required to submit a Capital Plan acceptable to the OTS by July, 1992.10
On August 4, 1992, Life's board of directors executed a Stipulation and Consent to the Entry of a Capital Directive. The OTS issued a Capital Directive on the same day.11 The Directive reaffirmed Life's obligation to submit a Capital Plan acceptable to the OTS. Furthermore, pursuant to the Directive, Life consented to the appointment of a conservator or receiver if, in fact, an acceptable plan was not timely and properly submitted.12
Life submitted a Capital Plan to the OTS. The OTS reviewed the plan and found it unacceptable because it lacked support for the proposed increases in capital, and because of numerous other deficiencies.13 The OTS notified Life that its Capital Plan was unacceptable on August 25, 1992.
On October 5, 1992, following a consultation with the Louisiana State Commissioner, the regional director of the OTS drafted a Supervisory Memorandum to be forwarded to OTS officials in Washington. This memorandum reviewed in detail the history of Life and its financial condition. The memorandum further described the results of the 1992 examination of Life, and the failure of Life to comply with its regulatory capital requirements.14 The regional director concluded that statutory grounds existed for the appointment of a receiver for Life, and recommended that a receiver be appointed.15
The regional director supplemented the Supervisory Memorandum on October 15, 1992. In this addendum to the October 5, 1992 memorandum, the director noted that the Federal Deposit Insurance Corporation ("FDIC") was considering terminating federal insurance for the depositors' accounts at Life. The director further stated that Life had incurred losses which had substantially depleted its capital, with no reasonable prospect for the institution to replenish capital without Federal assistance.16 Although these additional factors militated in favor of receivership, the OTS did not appoint a receiver in order to review its own efforts to provide technical and educational assistance to Life.17
In November of 1992, Life submitted a second Capital Plan to the OTS. This plan called for the infusion of an additional $300,000 into the institution through the sale of stock or by a personal contribution of capital by Life's directors.18 The OTS reviewed the plan and found it unacceptable. When it denied the plan, the OTS noted that a $300,000 infusion would be inadequate to increase the institution's capital to required levels. Furthermore, the proposed plan did not demonstrate: (1) that the market could support the sales of stock anticipated by Life, or (2) that the institution's directors had the financial ability to contribute $300,000.19
In a second supplement to the Supervisory Memorandum, the regional director advised Washington officials that Life's second Capital Plan was deficient, and would not be accepted.20 Although statutory grounds existed for the appointment of a receiver, the transfer of Life to the RTC was again delayed to allow Life to consider and act upon a tentative proposal by Home Savings of America to acquire Life and a proposed infusion of capital by Life's directors.21
In November of 1992, FDIC bank examiners discovered serious discrepancies in Life's records, including a $481,349 discrepancy between Life's Federal Home Loan Bank account balance and its general ledger.22 The FDIC then requested both OTS and state bank examiners to review Life's records and to help reconcile the inconsistencies.23 After a thorough review of Life's records, numerous inconsistencies remained unexplained. An independent accounting firm which was hired by Life also concluded that Life's accounts were out of balance.24
The OTS notified Life on December 21, 1992, that it had been classified as a "critically undercapitalized" institution, and directed Life to submit an acceptable Capital Plan by January 15, 1993.25 Life's board of directors failed to timely submit a Capital Plan by that date.
The FDIC, the OTS, and the state bank examiners concluded their examination of Life in January, 1993, and drafted a joint memorandum. The agencies determined that: (1) Life's cash account was overstated by $811,550 on the general ledger; (2) there were serious inconsistencies in Life's records; and, (3) entries in the general ledger were delinquent by at least 60 days.26
On January 27, 1993, the Regional Director of the OTS affirmed his prior recommendation that Life be placed in receivership in a third supplement to the Supervisory Memorandum.27 Thereafter, the Acting Chief Counsel of OTS then prepared a separate memorandum which reviewed the regional director's findings, and also recommended that Life be placed in receivership. The memoranda of the regional director and of the Acting Chief Counsel were made part of the administrative record, and were considered by Jonathan Fiechter, the Acting Director of the OTS ("Director"). After reviewing the administrative record, the Director determined that four separate grounds existed to appoint a receiver for Life.28 Therefore, the Director appointed the RTC as receiver for Life on January 29, 1993.
This suit was then filed by Life Bancshares, Inc., Rupert Richardson, Ernest L Johnson, and Gloria London to remove the receiver who was appointed for Life. The Director has now filed a motion for summary judgment in which he contends: (1) plaintiffs have no standing to challenge the OTS's appointment of a receiver for Life, and (2) the determination by the OTS to appoint a receiver for Life was supported by the administrative record and was not arbitrary and capricious.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") gives the OTS additional authority to take action against poorly capitalized institutions.29 In section 131 of FDICIA, Congress established the following capital categories for institutions: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized.30 FDICIA further authorized the OTS to set regulatory capital standards for each of these five categories.31
Under FDICIA, if an institution is deemed critically undercapitalized, the...
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