Raine v. Reed

• Decision Date: 17 February 1994
• Docket Number: No. 92-8619,92-8619
• Citation: 14 F.3d 280
• Parties: Eve RAINE, Plaintiff-Appellant, v. Anthony Ray REED, etc. et al., Defendants, National Bank, etc., Defendant-Appellee, FDIC, etc., Intervenor-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 280

14 F.3d 280

Eve RAINE, Plaintiff-Appellant, v. Anthony Ray REED, etc. et al., Defendants National Bank, etc., Defendant-Appellee FDIC, etc., Intervenor-Appellee.

No. 92-8619.

United States Court of Appeals Fifth Circuit.

Feb. 17, 1994.

Charles F. Holmans, Dallas, TX, for plaintiff-appellant.

Kathleen V. Gunning, Washington, DC, for FDIC.

Stuart Smith, Naman, Howell, Smith & Lee, Waco, TX, for National Bank.

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

Before GOLDBERG, JONES, and DUHE, Circuit Judges. ¹

GOLDBERG, Circuit Judge:

Petitioner Eve Raine asks this court to set aside a decision of the Federal Deposit Insurance Corporation ("FDIC") denying her federal deposit insurance on a portion of funds deposited in the now insolvent Peoples Bank, Hewitt, Texas ("Peoples"). Because the FDIC's denial was not arbitrary or capricious, we uphold its decision and affirm the dismissal of this action by the district court.

I. Facts

In October of 1990, Eve Raine's fiance, Anthony Ray Reed, made a series of unauthorized withdrawals from a Peoples' account jointly held by Raine and her mother. The withdrawals, totaling $12,571.25, were procured through the use of an automated teller machine ("ATM") card which Reed had allegedly stolen from Raine's mother.

In early December of that same year, Raine timely notified Peoples of the unauthorized withdrawals. By May of 1991, Peoples had yet to recredit Raine's account for the missing amounts. Raine, therefore, filed suit in Texas state court against the bank (and others) to have the money returned to her account. ²

In June of 1991, Peoples was declared insolvent and the FDIC took over as receiver of the bankrupt institution. Pursuant to a purchase and assumption agreement, the FDIC transferred many of Peoples' deposit accounts to National Bank ("National"). ³ In assuming these accounts, National expressly disclaimed liability for all claims based upon the actions (or inactions) of Peoples prior to its closing, and the FDIC specifically promised to indemnify National for any costs incurred related to defending against such claims.

At the time of Peoples' failure, Raine's suit to recover the unauthorized ATM withdrawals was continuing in the state court. Meanwhile, the bank had yet to recredit the amount withdrawn from Raine's account. Therefore, when the FDIC transferred Raine's account to National under the purchase and assumption agreement, it did not include the unauthorized withdrawals in the amount transferred to Raine's new account.

The FDIC in its receivership capacity notified Raine, and all other creditors, of the need to file any and all claims maintained against Peoples with the FDIC. Raine did not file her claims against Peoples with the FDIC and thus failed to follow the procedures established by the receiver for obtaining relief for her complaint against the insolvent bank.

In June of 1991, the FDIC intervened in Raine's pending state court proceeding and removed the case to federal court. The case was remanded back to state court when Raine obtained an order non-suiting Peoples. Raine then amended her state court petition to include National Bank as a defendant. The FDIC, in both its corporate and receivership capacities subsequently intervened and removed this case back to federal court.

In federal court, the FDIC moved to dismiss the action arguing that Raine's claim to reimbursement for the ATM withdrawals was not covered by deposit insurance nor was the disputed amount transferred to National under the purchase and assumption agreement. The district court agreed and granted the motion to dismiss. 1992 WL 565268.

Moreover, the court found that in order to recover the lost monies, Raine had to comply with the FDIC's administrative claims procedures. See United Bank of Waco, N.A. v. First Republic Bank Waco, N.A., 758 F.Supp. 1166 (W.D.Tex.1991). Because she failed to follow the required procedures, the court found that it lacked jurisdiction to consider her claims against National and the FDIC. The court then remanded the remaining state law claims to the Texas state court. Raine appeals the finding that the amount of the unauthorized withdrawal was not on deposit with Peoples and thus not covered by deposit insurance at the time the bank failed.

II. Legal Analysis

Raine argues that the money taken from her account was a deposit liability for purposes of deposit insurance. She relies upon the definition of deposit Congress set out in creating the FDIC. This definition includes "the unpaid balance of money or its equivalent received or held by a bank or savings association in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to a ... checking ... account." 12 U.S.C. Sec. 1813(l )(1). In the instant case, Raine also relies on the Electronic Fund Transfer Act ("EFTA"), 15 U.S.C. Secs. 1693-1693r, which places on banks the burden of proving that the customer rather than the bank is liable for any unauthorized transaction covered by the EFTA. 15 U.S.C. Sec. 1693g(b). Raine concludes that Congress intended that funds which are withdrawn from a customer's account without authorization should be deemed to be on deposit until the bank can show that the customer was liable for the unauthorized withdrawal. Because EFTA defines an unauthorized withdrawal to be an error which the bank is required to correct by recrediting the account, Raine argues that the money removed by Reed without authorization in effect always remained on deposit in her account. See 15 U.S.C. Sec. 1693f (defining unauthorized withdrawal as bank error).

More specifically, Raine relies on 12 C.F.R. Sec. 205.11 which obligates a bank which has been notified of an alleged unauthorized withdrawal to investigate the error within ten days of having been notified. If the bank is not able to promptly investigate and transmit the results to the customer, the bank can extend the time period for investigation to up to 45 days from the time of receiving notice of the error. However, the bank may take advantage of this extension only if the "financial institution provisionally recredits the consumer's account in the amount of the alleged error (including interest where applicable) within 10 business days after receiving notice of error." 12 C.F.R. Sec. 205.11(c)(2)(i); see also 15 U.S.C. Sec. 1693f(c) (mandating provisional recredit of account pending conclusion of investigation lasting greater than ten days). Raine argues that the requirement of provisional recrediting essentially dictates that all unauthorized withdrawals must be credited to a depositor's account within ten days after adequate notification has been given unless the bank can prove that the customer was responsible for the withdrawal. As such, Raine asserts that she should not be bound by the bank's failure to comply with the EFTA regulations and that she should be able to take advantage of the deposit insurance which would have been available had the bank acted in accordance with those regulations.

Finally, Raine argues that the dictates of public policy require that she not be precluded from coverage by federal deposit insurance because of an error made by her bank. She contends that depositors should not be left at the mercy of a bank's capacity for accurate record keeping in questions of deposit insurance. She should not, Raine argues, be held responsible for the bank's errors. Such a result, she contends, would allow banks to commit errors removing deposits from the account records of the bank in order to unfairly minimize the FDIC's deposit insurance liabilities.

While Raine's argument is long on pathos, it comes up disappointingly short on logos. Raine is unable to refer this court to any case authority supporting her argument, and our look at the precedents in the area reveals that our prior decisions support exactly the opposite conclusion from the one urged by Raine. ⁴

Deposit insurance determinations are reviewable under the Administrative Procedure Act and we must affirm the FDIC's decision unless it is "found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." Nimon v. Resolution Trust Corp., 975 F.2d 240, 244 (5th Cir.1992). In conducting this review, "we consider whether the agency followed its governing regulations." Kershaw v. Resolution Trust Corp., 987 F.2d 1206, 1208 (5th Cir.1993). In addition, we are required to accord "a great deal of deference to the FDIC's interpretation of what these regulations do and do not include within their definition of 'deposit.' " Federal Deposit Ins. Corp. v. Philadelphia Gear Corp., 476 U.S. 426, 438, 106 S.Ct. 1931, 1938, 90 L.Ed.2d 428 (1986).

To begin with, the FDIC regulations provide that the amount of an insured deposit at the closing of a failed...