MCorp Financial, Inc. v. Board of Governors Federal Reserve System of U.S., 89-2816

• Decision Date: 15 May 1990
• Docket Number: No. 89-2816,89-2816
• Citation: 900 F.2d 852
• Parties: , 22 Collier Bankr.Cas.2d 1770, 21 Bankr.Ct.Dec. 641, Bankr. L. Rep. P 73,393 MCORP FINANCIAL, INC., MCorp Mgt. and MCorp, Plaintiffs-Appellees, and Official Creditors' Committee of MCorp, MCorp Financial, Inc., and MCorp Mgt., Intervenors-Appellees, v. BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM OF the UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 852

900 F.2d 852

58 USLW 2693, 22 Collier Bankr.Cas.2d 1770,

21 Bankr.Ct.Dec. 641, Bankr. L. Rep. P 73,393

MCORP FINANCIAL, INC., MCorp Mgt. and MCorp, Plaintiffs-Appellees and Official Creditors' Committee of MCorp, MCorp Financial Inc., and MCorp Mgt., Intervenors-Appellees, v. BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM OF the UNITED STATES of America, Defendant-Appellant.

No. 89-2816.

United States Court of Appeals Fifth Circuit.

May 15, 1990.

Jeffrey Clair, William Kanter, Asst. Attys. Gen., Dept. of Justice, Civil Div., Washington, D.C., for defendant-appellant.

Alan B. Miller, Harvey R. Miller, D.J. Baker, Weil, Gotsal & Manges, New York City, Howard N. Cayne, Arnold & Porter, Washington, D.C., for MCorp., et al.

Robert J. Rosenberg, Latham & Watkins, New York City, John P. Lynch, Deborah Corthier Paskin, Latham & Watkins, Chicago, Ill., for Official Creditors', et al.

Appeal from the United States District Court for the Southern District of Texas.

Before GARZA, WILLIAMS and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

The Board of Governors of the Federal Reserve appeals an order of the district court, sitting in bankruptcy, enjoining the Board from pursuing its enforcement actions against MCorp without district court approval. 101 B.R. 483. Because the Board's source of strength proceedings exceed its statutory authority, we remand with instructions to enjoin the Board from further prosecution of these charges. Because the district court lacks subject matter jurisdiction to enjoin the Board's actions on the remaining charges, we vacate the injunction as to these charges.

I.

In October 1988, the Board of Governors of the Federal Reserve (the Board), the primary regulator for bank holding companies, issued a notice of charges and of hearing against MCorp, a Texas-based bank holding company. The Board alleged that MCorp was engaging in unsafe and unsound practices, "likely to cause substantial dissipation of the assets of MCorp that could be used to allow MCorp to serve as a source of financial strength for the subsidiary Banks." A week later the Board issued an Amended Notice of Charges, which sought, among other things, to require MCorp to "implement[ ] an acceptable capital plan that would ensure that all of MCorp's available assets are used to recapitalize the Subsidiary Banks that are suffering capital deficiencies." MCorp's subsidiary banks were suffering heavy losses from real estate and energy loans.

In March 1989, three creditors of MCorp commenced an involuntary bankruptcy proceeding against MCorp in the U.S. Bankruptcy Court for the Southern District of New York. The Comptroller of the Currency (OCC), the primary regulator for national banks, subsequently declared a total of twenty of MCorp's subsidiary banks (MBanks) insolvent; OCC appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, divesting MCorp of control of these banks. MCorp was left with five banks. MCorp and two of its subsidiaries, MCorp Financial and MCorp Management then filed voluntary Chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the Southern District of Texas. The bankruptcy proceedings against MCorp and its subsidiaries (hereafter collectively referred to as MCorp) were consolidated into one jointly administered proceeding in the Texas forum.

In March 1989, by notice of charges and hearing the Board also commenced further administrative proceedings against MCorp. The March charges accused MCorp and MCorp management of violations of Sec. 23A of the Federal Reserve Act, alleging MCorp caused MBank Houston and MBank Preston, two of the closed banks, to provide MCorp management "unsecured extensions of credit." In late May the Board issued a second amended notice of charges, relating to the October notice of charges, alleging that MCorp had failed to act as a source of financial strength to its remaining subsidiary banks.

MCorp initiated an adversary proceeding against the Board in May 1989, and filed an Emergency Motion for a TRO and preliminary injunction, seeking to enjoin the Board from prosecuting its administrative proceedings against the debtors, and from initiating further administrative proceedings against the debtors without prior approval of the bankruptcy court. The bankruptcy court denied the TRO request. The Board moved the district court to withdraw the reference of the adversary proceeding to the bankruptcy court. The district court granted the Board's motion and placed the case on its own docket.

In June 1989, the district court entered a preliminary injunction granting the relief sought by the debtors. The district court preliminarily enjoined the Board from prosecuting its pending administrative proceedings and

using its authority over bank holding companies or banks to attempt to effect, directly or indirectly, a reorganization of the MCorp group or its components or to interfere, except through participation in the bankruptcy proceedings, with the restructuring being developed in the bankruptcy proceeding.

The district court stated that the preliminary injunction left completely unaffected the Board's "general execution, supervisory and examination duties of the operations of MCorp and its bank subsidiaries and ... central bank duties as they affect MCorp in common with all other institutions." The court established a procedure for future Board proceedings, where the Board was first required to present to MCorp any new administrative proceedings, notices of charges or temporary cease and desist orders before their issuance. If the Board and MCorp could not agree whether a proposed proceeding was subject to the preliminary injunction, the Board could then present that issue to the district court. If the court decided the Board's proposed action related to the banks' "operations," the court proposed to exempt this action from the restraint of the preliminary injunction; if however the Board's proposed action affected the reorganization, the district court proposed to stay this action in deference to the bankruptcy court.

The Board appealed the preliminary injunction to this court.

II.

A.

The Board contends first that the district court, sitting in bankruptcy, has no jurisdiction to enjoin the Board's prosecution of its administrative actions, because of 12 U.S.C. Sec. 1818(i) (the Financial Institutions Supervisory Act of 1966 (FISA) as amended), which provides:

except as otherwise provided in this section no court shall have jurisdiction to affect by injunction or otherwise the issuance or enforcement of any notice or order under this section, or to review, modify, suspend, terminate, or set aside any such notice or order.

As we stated in Groos National Bank v. Comptroller of Currency, 573 F.2d 889 (5th Cir.1978), "section 1818(i) in particular evinces a clear intention that this regulatory process is not to be disturbed by untimely judicial intervention, at least where there is no 'clear departure from statutory authority.' " Id. at 895, quoting Manges v. Camp, 474 F.2d 97, 99 (5th Cir.1973). Thus, under 12 U.S.C. Sec. 1818(h) and the Administrative Procedure Act (APA), a bank holding company is not ordinarily entitled to judicial review until the Board issues a final order.

MCorp's principal argument that the district court properly exercised subject matter jurisdiction is predicated on 28 U.S.C. Secs. 1334(b) and (d). MCorp argues that these sections of the Bankruptcy Code effectively supersede the Board's exclusive jurisdiction under Sec. 1818(i)(1) to prosecute its enforcement actions, and therefore empower the court to enjoin prosecution of those actions. The district court presumably agreed and concluded that Sec. 1818(i) conflicted with Secs. 1334(b) and (d) of the Bankruptcy Code.

Section 1334(b) provides:

Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

The plain language of Sec. 1334(b) does not purport to give the district court exclusive jurisdiction over matters arising under Title 11 to the exclusion of administrative agencies; rather, Sec. 1334(b) grants the district court concurrent jurisdiction over matters that otherwise would lie within the exclusive jurisdiction of another court.

The legislative history of Sec. 1334(b) also supports the view that the section was intended to prevent another court from exercising exclusive jurisdiction over a matter brought within the Bankruptcy Code. The Commission on the Bankruptcy Laws of the United States, quoted at length in the House Judiciary Committee report, stated that "[the] first and most important objection to the present dispensation is the division of labor between the bankruptcy court and other courts." H.R.Rep. No. 595, 95th Cong., 1st Sess. 43 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6005. Under the prior bankruptcy law, the jurisdiction of the bankruptcy court was limited by the concepts of possession and consent. The House report adopted the reasoning of the Commission that the old law was undesirable because of "the frequent, time-consuming, and expensive litigation of the question whether the bankruptcy court has jurisdiction of a particular proceeding." Id. at 45, U.S.Code Cong. & Admin.News 1978, p. 6007. Under the prior jurisdictional scheme, " 'When a "summary" proceeding in the bankruptcy court is appropriate and when a plenary suit is required is one of the most involved and controversial questions in the entire field of bankruptcy,' " the Committee observed. Id. at 45, U.S.Code Cong. & Admin.News 1978, p. 6007. We are persuaded therefore that it was this division of jurisdiction between bankruptcy courts and other courts which the jurisdictional changes of the new law were intended to address.

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