McAllister v. Federal Sav. and Loan Ins. Corp.
| Decision Date | 27 March 1989 |
| Docket Number | Civ. A. 88-572-B. |
| Citation | 709 F. Supp. 697 |
| Parties | Earl W. McALLISTER, et al. v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION. |
| Court | U.S. District Court — Middle District of Louisiana |
Richard S. Dunn, Trial Atty., Watson, Blanche, Wilson & Posner, Baton Rouge, La., for plaintiffs.
John J. Gaupp, Trial Atty., Asst. U.S. Atty., Baton Rouge, La., Christine A. Wardell, Trial Atty., Thomas J. Segal, Assoc. Gen. Counsel, Colleen Bombardier, Asst. Gen. Counsel, Office of the General Counsel, Washington, D.C., for defendants.
RULING ON CROSS MOTIONS FOR SUMMARY JUDGMENT
Earl W. McAllister, Inc. established a retirement plan ("Retirement Plan") for its employees in which Earl W. McAllister was the sole participant. All of the funds belonging to the retirement plan were held in a trust ("Retirement Trust"), of which Earl W. McAllister was the sole trustee. A portion of these trust funds was invested in two accounts at Community Savings & Loan Association ("Community"). One account was in the name of "Earl McAllister, Inc. Employee Pension Plan." The other was in the name of "Earl McAllister, Inc. Pension Plan." On June 20, 1986, the Federal Home Loan Bank Board determined that Community was insolvent and appointed the Federal Savings and Loan Insurance Corporation ("FSLIC") as sole receiver of Community. At the time Community was placed in receivership, Earl McAllister, Inc. Employee Pension Plan held $92,910.12 in one account (hereinafter referred to as Account # 1), and Earl McAllister, Inc. Pension Plan held $25,094.66 in another account (hereinafter referred to as Account # 2), for a total of $118,004.78. FSLIC determined that a total of $100,000 in the two accounts was insured. Plaintiffs requested a reconsideration of this decision. Reconsideration was granted and, in a June 15, 1987 decision, FSLIC reaffirmed its determination that a total of $100,000 was insured, leaving $18,004.73 uninsured.
The plaintiffs, Earl W. McAllister, Betty L. McAllister, and Earl McAllister, Inc., have now filed this suit to recover the uninsured amounts in the plaintiffs' accounts. Cross-motions for summary judgment have been filed by the parties.
This case presents three issues for the Court to decide:
Plaintiffs maintain that the proper standard of review by a district court of a decision rendered by FSLIC on an insurance claim is de novo review.1 The defendant contends that the plaintiffs' only basis for relief is under the Administrative Procedure Act, 5 U.S.C. §§ 701-706 (1977), which requires this Court to affirm FSLIC's decision unless FSLIC acted arbitrarily or capriciously.2 The standard of review to be applied by the Court in this case is of no practical significance. In general, an agency's interpretation of its own rules is entitled to considerable deference.3 Nevertheless, an agency interpretation must be rejected when it is plainly erroneous or inconsistent with its regulations.4 Thus, this Court must simply decide whether FSLIC applied the proper regulations in the proper manner under the facts of this case.
FSLIC based its determination that only $100,000 of the deposits were insured on 12 C.F.R. § 564.10 (1988) which requires that "all trust estates for the same beneficiary ... created by the same settlor (grantor) shall be added together and insured up to $100,000 in the aggregate...." FSLIC concluded that the Earl McAllister, Inc. Employee Pension Plan was a trust created by Earl McAllister, Inc. for the benefit of Earl W. McAllister. Applying § 564.10, FSLIC aggregated the amounts deposited in each trust account and paid $100,000 which was the maximum insurance coverage for those two accounts.
Plaintiffs contend FSLIC erred in applying § 564.10 because the retirement trust established to hold pension funds was terminated by resolution of the Board of Directors of Earl McAllister, Inc. on December 31, 1985, and was not in effect when Community was placed in default. Plaintiffs further contend that if no trust was in existence on the date of bank's default, the funds in question could not be insured pursuant to § 564.10. Upon termination of the trust, plaintiffs maintain that the ownership of the accounts should be determined by reference to state community property law and not § 564.10 which pertains to trusts.
FSLIC concedes that the Retirement Plan was terminated on December 31, 1985. However, FSLIC contends that the Retirement Trust was not terminated at that time because Earl W. McAllister continued to act as trustee after December 31 and the money in the trust accounts was not disbursed. Thus, FSLIC contends that § 564.10 does apply because the Retirement Trust and the trust accounts were still in existence when Community was placed into receivership.
The Court finds that the Retirement Plan and the Retirement Trust were terminated by resolutions adopted by the Board of Directors of Earl McAllister, Inc. on December 20, 1985. Therefore, FSLIC erred in applying § 564.10 under the facts of this case.
The Retirement Plan provides in pertinent parts as follows:
Paragraph 2 of Article IX of the Retirement Trust provides:
This agreement and trust may be terminated by the Employers at any time by delivering to the trustee evidence of the formal action, in the manner described in Paragraph 7 of Article VII hereof, on the part of each Employer then a party to this agreement and trust specifying that (a) the plan is being terminated or (b) contributions thereunder are being discontinued. This agreement and trust shall automatically terminate when no cash or other property remains in the trust.
Paragraph 7 of Article VII of the Retirement Trust provides in pertinent part as follows:
... any formal action herein permitted or required to be taken by an Employer shall be ... if and when a corporation, by resolution of its board of directors or other governing board or by written instrument executed by a person or group of persons who has been authorized by resolution of its board of directors or other governing board as having authority to take such action....
The Board of Directors of Earl McAllister, Inc. adopted the following two resolutions at its meeting held on December 20, 1985:
Based on the foregoing provisions, it is clear that the Retirement Plan for Employees of Earl McAllister, Inc. was terminated by the Board of Directors of Earl McAllister, Inc. effective December 31, 1985. These resolutions satisfy the requirements for "formal action" which is set forth in Section 6.7 of the Retirement Plan and in Paragraph 7 of Article VII of the Retirement Trust. When the Plan was terminated as of December 31, 1985, the trust was also terminated as of that date in accordance with Paragraph 2 of Article IX of the Retirement Trust. Thus, the Retirement Trust was terminated prior to the time Community became insolvent on June 20, 1986.
When the plan and trust were terminated on December 31, 1985, the assets of the Retirement Trust were not distributed, but were withheld pending receipt of a favorable qualification letter from the Internal Revenue Service.5 The mere fact that there was no distribution of benefits to plan participants pending receipt of a favorable qualification letter from the Internal Revenue Service does not alter the fact that both the Retirement Plan and the Retirement Trust were terminated on December 31, 1985. Ownership of the assets contained in the trust vested in the former plan participant, Earl W. McAllister, upon termination of the trust.6 Therefore, the Court concludes that FSLIC should not have applied § 564.10 to determine the amount of insurance coverage in this case.
Plaintiffs contend that upon termination of the trust, state law should be applied to determine the ownership of trust assets. In this regard, plaintiffs claim that upon termination of the trust, the accounts at issue became owned in indivision by Earl W. McAllister and his wife, Betty L. McAllister, under Louisiana's community property law. Plaintiffs also argue that this husband-wife relationship was ascertainable from the records of Community and Earl McAllister, Inc. Finally, plaintiffs contend that since each spouse individually owns his or her undivided one-half interest in both accounts and since the total interest of each spouse in both accounts does not exceed $100,000, the total funds in both accounts should be fully insured.
In response to the plaintiffs' contentions, FSLIC argues that the husband-wife relationship between Mr. and Mrs. McAllister was not...
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