Meriden Trust and Safe Deposit Co. v. F.D.I.C.

• Decision Date: 02 August 1995
• Docket Number: D,No. 1368,1368
• Parties: The MERIDEN TRUST AND SAFE DEPOSIT COMPANY, Cenvest, Inc. of Meriden, Connecticut, and Shareholders of the Meriden Trust and Safe Deposit Company, Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Hoyle L. Robinson, and John W. Stone, Defendants-Appellees. ocket 94-6219.
• Court: U.S. Court of Appeals — Second Circuit

Page 449

62 F.3d 449

The MERIDEN TRUST AND SAFE DEPOSIT COMPANY, Cenvest, Inc. of Meriden, Connecticut, and Shareholders of the Meriden Trust and Safe Deposit Company Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Hoyle L. Robinson and John W. Stone, Defendants-Appellees.

No. 1368, Docket 94-6219.

United States Court of Appeals Second Circuit.

Argued April 17, 1995.

Decided Aug. 2, 1995.

Thomas J. Groark, Jr., Hartford, CT (Charles W. Fortune, Kathleen N. Dondero, Day, Berry & Howard, Hartford, CT, of counsel), for appellants.

Thomas L. Holzman, F.D.I.C., Washington, DC (Ann S. DuRoss and Thomas A. Schulz, Asst. Gen. Counsel, Colleen B. Bombardier and Robert G. Clark, Sr. Counsel, F.D.I.C., Washington, DC, of counsel), for appellees.

Before: MESKILL, ALTIMARI and CALABRESI, Circuit Judges.

MESKILL, Circuit Judge:

Meriden Trust and Safe Deposit Company (Meriden Trust), Cenvest, Inc. of Meriden, Connecticut (Cenvest), and the shareholders of Meriden Trust appeal a judgment of the United States District Court for the District of Connecticut, Covello, J., affirming the assessment by the Federal Deposit Insurance Corporation (FDIC) of the full amount of the losses resulting from the failure of a commonly owned bank. We conclude, in a case of first impression in this Circuit, that the assessment was proper under the Federal Deposit Insurance Act's cross-guarantee provision, 12 U.S.C. Sec. 1815(e), and did not constitute an unconstitutional taking. Accordingly, we affirm.

BACKGROUND

Cenvest, a bank holding company, acquired Central Bank, a bank and trust company chartered by Connecticut and insured by the FDIC, on September 22, 1987. Cenvest subsequently acquired Meriden Trust, another state-chartered bank insured by the FDIC, on November 22, 1988, and immediately transferred all of Meriden Trust's assets and liabilities, except for those related to its trust operations, to Central Bank. Meriden Trust ceased its day-to-day commercial banking operations after the transfer. Meriden Trust did not, however, dispense with its deposit-taking activities entirely. Meriden Trust accepted a $100,000 deposit in the name of Central Bank on February 13, 1989, the certificate for which later was renewed for a two year term to mature on February 13, 1992. Meriden Trust also held a $100,000 deposit in the name of Cenvest until May 1992.

Following the transfer, Meriden Trust's officers decided to maintain the bank's deposit insurance with the FDIC to protect its two deposits and to retain the abilities, if not the functions, of a full service bank. The decision also would save Meriden Trust the time and expense of reapplying for insurance from the FDIC if it later decided to renew its commercial banking operations. Meriden Trust continued to pay its deposit insurance premiums, and regularly filed the required "call reports," even after it informed the FDIC in January 1992 that it no longer deemed itself to be an "insured depository institution" under the Federal Deposit Insurance Act. Meriden Trust formally relinquished its insured status on July 16, 1992.

Central Bank experienced financial difficulties shortly after acquiring Meriden Trust's commercial banking activities, and on October 18, 1991 Connecticut's banking commissioner declared Central Bank insolvent and appointed the FDIC as its receiver. The FDIC then determined that Central Bank's expected liabilities exceeded its assets by approximately $152 million, and on October 16, 1992 the FDIC assessed this amount against Meriden Trust under the cross-guarantee provision of the Federal Deposit Insurance Act, 12 U.S.C. Sec. 1815(e). This provision essentially holds liable any financial depository institution insured by the FDIC for any loss the FDIC incurs in connection with the default of a commonly controlled bank.

Meriden Trust filed this action in the district court shortly thereafter to challenge

the FDIC's Notice of Assessment, and the bank also sought administrative review pursuant to 12 U.S.C. Sec. 1815(e)(3)(B). The parties then consented to a stay of the action in federal court pending the administrative appeal before the FDIC. An Administrative Law Judge for the FDIC then issued a recommended decision on May 10, 1993 affirming the assessment, which was adopted by the Board of Directors of the FDIC on September 21, 1993. With its administrative remedies exhausted Meriden Trust renewed its action in federal court, amending its complaint also to challenge the Board of Directors' decision. The parties filed cross-motions for summary judgment, and the district court (adopting the recommended ruling of a magistrate judge) ultimately granted summary judgment in the FDIC's favor on June 1, 1994. The assessment having rendered Meriden Trust insolvent, on July 6 the FDIC took possession of its business and property. Cenvest, ¹ Meriden Trust and Meriden Trust's shareholders now appeal, arguing that Meriden Trust was not an "insured depository institution" subject to cross-guarantee liability under 12 U.S.C. Sec. 1815(e), and that the application of this provision constituted a taking without just compensation in violation of the Takings Clause of the Fifth Amendment to the United States Constitution.

DISCUSSION

I. Applicability of the Cross-Guarantee Provision

Appellants primarily challenge the judgment below on the ground that the FDIC improperly applied the cross-guarantee provision to Meriden Trust. This provision provides in pertinent part as follows:

Any insured depository institution shall be liable for any loss incurred by the [FDIC], or any loss which the [FDIC] reasonably anticipates incurring, after August 9, 1989 in connection with--

(i) the default of a commonly controlled insured depository institution; or

(ii) any assistance provided by the [FDIC] to any commonly controlled insured depository institution in danger of default.

12 U.S.C. Sec. 1815(e)(1)(A). The Act defines a "commonly controlled insured depository institution" as any institution controlled by the same holding company or one such institution controlled by another, see 12 U.S.C. Sec. 1815(e)(9), and appellants do not contest that Cenvest controlled both Meriden Trust and Central Bank during the relevant time period. Rather, appellants argue that Meriden Trust was not an "insured depository institution" within the meaning of the section, and thus was not subject to cross-guarantee liability.

While we review de novo the entry of summary judgment, see Heilweil v. Mt. Sinai Hospital, 32 F.3d 718, 721 (2d Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1095, 130 L.Ed.2d 1063 (1995), the district court here entered judgment by affirming an administrative assessment made by the Board of Directors of the FDIC. We thus review that decision under the Administrative Procedure Act's judicial review provisions, 5 U.S.C. Sec. 701 et seq. See 12 U.S.C. Sec. 1815(e)(3)(A) ("Actions of the [FDIC] shall be reviewable pursuant to chapter 7 of Title 5."). These provisions require us first to determine whether the statute at issue expresses clearly the intent of Congress. Where Congress has spoken directly to a question, "the court, as well as the agency, must give effect to th[at] unambiguously expressed intent." Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984); see also INS v. Cardoza-Fonseca, 480 U.S. 421, 447-48, 107 S.Ct. 1207, 1221, 94 L.Ed.2d 434 (1987) ("The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.") (quotation omitted). Where congressional intent is difficult to discern from the words of the statute, however, or where the statute does not address the issue directly, our review is limited to "whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843, 104 S.Ct. at 2782. Thus we will only reverse the FDIC's interpretation of the Federal Deposit Insurance Act if "it appears from the statute or its legislative history that the [FDIC's] interpretation is contrary to Congress's intent." Osorio v. INS, 18 F.3d 1017, 1022 (2d Cir.1994) (quotation omitted).

The cross-guarantee provision applies to any "insured depository institution," which the Federal Deposit Insurance Act defines as "any [State] bank or savings association the deposits of which are insured by the [FDIC]." 12 U.S.C. Sec. 1813(c)(2). Because Meriden Trust clearly was not a "savings association" we must look to the Act's definition of "State bank," which includes "any bank [or] trust company ... which ... (A) is engaged in the business of receiving deposits, other than trust funds." 12 U.S.C. Sec. 1813(a)(2)(A). It is undisputed that Meriden Trust held two $100,000 deposits, and that it maintained its deposit insurance with the FDIC, prior to and following the collapse of Central Bank. Meriden Trust fit the Act's definition of a State bank, and thus was an "insured depository institution" during the period in question. Accordingly, it fell under the unambiguous terms of the cross-guarantee provision.

Appellants argue that Meriden Trust nonetheless did not constitute a "bank" under the above definition because it no longer received public deposits. In effect, appellants argue that a financial institution's status under the Federal Deposit Insurance Act must be determined by its activities, and thus Meriden Trust's status as an "insured depository institution" ceased in November 1988 after the transfer of its commercial banking operations to Central Bank. This argument assumes that the Act recognizes some form of financial institution that receives no public deposits but continues to be insured, thereby retaining the ability to receive deposits from the public at any time without further FDIC approval. The Act, however, recognizes only two types of institutions: either...