Lyons Sav. and Loan Ass'n v. Westside Bancorporation, Inc.
| Decision Date | 05 June 1987 |
| Docket Number | No. 86-1793,86-1793 |
| Citation | 828 F.2d 387 |
| Parties | , RICO Bus.Disp.Guide 6758 LYONS SAVINGS AND LOAN ASSOCIATION, an Illinois association, Plaintiff, and Alabama Federal Savings and Loan Association, et al., Intervening Plaintiffs- Appellants, v. WESTSIDE BANCORPORATION, INC., a Delaware corporation, Westside Federal Savings and Loan Association, a Washington association, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
David I. Herbst, Portes, Sharp, Herbst & Kravets, Chicago, Ill., for intervening plaintiff-appellants.
John L. Rogers, III, Hopkins & Sutter, Chicago, Ill., for defendants-appellees.
Before CUMMINGS and FLAUM, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
In 1983, Westside Federal Savings & Loan Association made a $35 million loan to Hanalei Development Corp. to finance the construction of condominiums in Hawaii. Westside subsequently sold participation interests in the loan to seven other savings and loan associations while retaining a twenty-percent interest in the loan. Each of the participants advanced their pro rata share of the monies due Hanalei under the loan participation agreement.
Under the terms of the agreement, Westside was designated as the "lead lender" for the loan participants and was authorized to exercise the powers, duties, and responsibilities attendant upon servicing and administering the loan. Paragraph 7 of the agreement gave Westside broad discretion in performing these tasks:
It is agreed that the exclusive right to decide how the loan shall be serviced and what to do and how to do it, when to approve assumptions or similar third party undertakings, when to accelerate the entire balance due on the loan for any reason permissible, when to foreclose or otherwise to acquire the property security and the manner thereof, whether or not to obtain a deficiency judgment, whether or not to bid in at a foreclosure sale and for how much, and how to administer any foreclosed or otherwise acquired real estate or other property, including maintaining, improving, or selling the same, is hereby vested in Seller [Westside], as trustee for all the owners of participation interests hereunder.
As lead lender, Westside held legal title to the loan as trustee for the other participants and was entitled to retain fees for servicing the loan in addition to any default penalties or late charges assessed against Hanalei.
On July 19, 1985, Lyons Savings & Loan Association, of Hinsdale, Illinois, and one of the seven loan participants, filed a complaint against Westside and eight individual principals of Westside in federal district court alleging numerous violations of the federal securities laws and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968. The basis for the suit was Lyons' charge that Westside had breached the participation agreement by failing to disclose its purchase of an equity interest in the condominiums. Shortly thereafter, on August 30, 1985, the Federal Home Loan Bank Board declared Westside insolvent and pursuant to 12 U.S.C. Sec. 1464(d)(6)(A) appointed the Federal Savings and Loan Insurance Corporation ("FSLIC") as receiver for Westside. The FSLIC was then substituted for Westside as a party to Lyons' action.
On September 25, 1985, six of the other loan participants filed an intervenors' complaint against the FSLIC as receiver for Westside and against the other eight defendants named in the Lyons suit. Their complaint sought a declaration that the intervening loan participants possessed the right to elect a new substitute lead lender, that the lead lender could be elected by the vote of a majority in interest of the participants, and that the new lead lender would have all of the powers, duties and responsibilities previously held by Westside. The intervenors sought no affirmative relief against the FSLIC as receiver or against the receivership estate but, as they concede, granting the declaratory judgment would necessarily mean removing the FSLIC as lead lender.
Pursuant to motion by the FSLIC, the district court dismissed both Lyons' and the intervenors' complaints against the FSLIC as receiver for Westside for lack of subject matter jurisdiction. 636 F.Supp. 576 (N.D.Ill.1986). Relying on 12 U.S.C. Secs. 1464(d)(6)(C) and 1729(d), the court held that the claims against Westside set out in both Lyons' and the intervenors' complaints could not be judicially reviewed until after they had first been presented to the FSLIC pursuant to the administrative claims procedure established by the Federal Home Loan Bank Board. The six intervenors have appealed that portion of the district court's order dismissing their complaint. 1
The Federal Home Loan Bank Board (the "Bank Board") is the federal authority that regulates and supervises federally insured savings and loan associations to ensure the soundness of their operations for the protection of depositors, creditors, and the general public. See 12 U.S.C. Secs. 1437, 1464, and 1724-1730g. The Bank Board also operates and directs the FSLIC, which insures the accounts of eligible institutions. See 12 U.S.C. Secs. 1437, 1725(a)-(c), and 1730(k)(1). When the Bank Board determines that an insured savings and loan association is insolvent, it may appoint the FSLIC as receiver of the institution. See 12 U.S.C. Secs. 1464(d)(6)(A), 1729(b)-(c). The FSLIC has broad authority to operate the institution, to merge it with another institution, to organize a new institution to take over its assets, to liquidate its assets in an orderly manner, or to make such other disposition of the matter as it deems appropriate. 12 U.S.C. Sec. 1729(b)-(c).
To facilitate the reorganization, operation, or dissolution of a failed institution, judicial review of the FSLIC's actions as receiver is largely prohibited. 12 U.S.C. Sec. 1464(d)(6)(C) provides:
Except as otherwise provided in this subsection, no court may take any action for or toward the removal of any conservator or receiver, or, except at the instance of the Board, restrain or affect the exercise of powers or functions of a conservator or receiver.
12 U.S.C. Sec. 1729(d) specifically addresses the FSLIC's powers in liquidating an insured institution:
In connection with the liquidation of insured institutions, the Corporation shall have power to carry on the business of and to collect all obligations to the insured institutions, to settle, compromise, or release claims in favor of or against the insured institutions, and to do all other things that may be necessary in connection therewith, subject only to the regulation of the Federal Home Loan Bank Board.... 2
In 12 U.S.C. Sec. 1464(d)(11), Congress empowered the Bank Board "to make rules and regulations for the ... liquidation, and dissolution of associations ... and for the conduct of conservatorships and receiverships." Pursuant to this directive, the Board has promulgated regulations establishing an administrative procedure for initially adjudicating claims against the assets of a savings and loan association in receivership. As receiver, the FSLIC is authorized to approve "any seasonably filed claim proved to its satisfaction." 12 C.F.R. Secs. 549.4(b), 549.5-1(b)(2) (federal associations); id. Sec. 569a.8(b) (). The FSLIC may wholly or partially disallow any claim not so proved, but must notify the claimant of the disallowance and the reasons why. Id. The FSLIC's determination is subject to administrative review by the Bank Board, id. Secs. 549.4(b), 549.5-1(b)(2), 569a.8(d), and a claimant may seek judicial review of the Board's final decision in federal court under the provisions of the Administrative Procedure Act, 5 U.S.C. Secs. 701-706. 3
The FSLIC contends that it has exclusive jurisdiction to adjudicate claims against the assets of an insolvent savings and loan association placed in a FSLIC receivership and that judicial oversight is limited to reviewing the agency's determinations under the Administrative Procedure Act. The intervenors respond that the declaratory relief which they seek would not "restrain or affect" the FSLIC in the exercise of its powers and functions as receiver in contravention of Sec. 1464(d)(6)(C), or otherwise adversely affect the orderly liquidation of Westside. Furthermore, they argue that the administrative claims procedure on which the FSLIC relies applies only to monetary claims against a failed institution and hence has no bearing on their claim for non-monetary, declaratory relief.
The Fifth Circuit has consistently adopted the position advanced by the FSLIC. In North Mississippi Savings & Loan Ass'n v. Hudspeth, 756 F.2d 1096 (5th Cir.1985), certiorari denied, 474 U.S. 1054, 106 S.Ct. 790, 88 L.Ed.2d 768, that court held that the district court was without subject matter jurisdiction over an action by an ex-president of a failed institution to enforce a deferred compensation agreement against the institution. In concluding that Hudspeth was required to petition the Bank Board for review of the FSLIC's termination of the compensation contract before seeking judicial review under the Administrative Procedure Act, the court emphasized that in enacting Sections 1464(d)(6)(C) and 1729(d):
Congress wanted the FSLIC to be able to act quickly and decisively in reorganizing, operating, or dissolving a failed institution, and intended that the FSLIC's ability to accomplish these goals not be interfered with by other judicial or regulatory authorities.
Id. at 1101. In setting aside the contract with Hudspeth, the FSLIC was unquestionably exercising its powers as a receiver, and any court ruling that the contract was enforceable would "restrain or affect" the FSLIC's powers as a receiver in violation of Sec. 1464(d)(6)(C).
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