Rapaport v. U.S. Dept. of Treasury, Office of Thrift Supervision, 93-1811

• Decision Date: 11 July 1995
• Docket Number: No. 93-1811,93-1811
• Citation: 59 F.3d 212
• Parties: Robert D. RAPAPORT, Petitioner, v. UNITED STATES DEPARTMENT OF the TREASURY, OFFICE OF THRIFT SUPERVISION, Respondent.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 212

59 F.3d 212

313 U.S.App.D.C. 216

Robert D. RAPAPORT, Petitioner, v. UNITED STATES DEPARTMENT OF the TREASURY, OFFICE OF THRIFT SUPERVISION, Respondent.

No. 93-1811.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 31, 1995.

Decided July 11, 1995.

Petition for Review of an Order of the Office of Thrift Supervision.

Frank J. Eisenhart argued the cause for petitioner. With him on the briefs were Arthur W. Leibold, Jr., Neil R. Crowley, and Jeffrey D. Fisher.

Aaron B. Kahn, Counsel, Office of Thrift Supervision, argued the cause for respondent. With him on the brief were Thomas J. Segal, Deputy Chief Counsel, and Richard L. Rennert, Atty., Office of Thrift Supervision. Elizabeth R. Moore entered an appearance.

Before GINSBURG, RANDOLPH, and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Opinion concurring in part and concurring in the judgment filed by Circuit Judge ROGERS.

GINSBURG, Circuit Judge:

Robert D. Rapaport was the majority shareholder of a savings and loan association that failed. Thereafter the Office of Thrift Supervision, as successor to the Federal Savings and Loan Insurance Corporation, ordered him to pay approximately $1.5 million pursuant to his agreement personally to maintain the capital in the institution at no less than the minimum required by regulation. We hold that because the OTS has not shown that Rapaport was "unjustly enriched," it may not enforce the agreement against him in an administrative (as opposed to judicial) proceeding. Accordingly, we grant Rapaport's petition for review and set aside the agency's order.

I. Background

Great Life Savings Association of Sunrise, Florida, a state-chartered institution, applied to the FSLIC for deposit insurance in April 1984. While Great Life's application was pending, the Federal Home Loan Bank Board--the governing body of the FSLIC--promulgated a regulation requiring that any individual who owned 25% or more of the stock of a newly insured savings association "personally guarantee the maintenance of the association's net worth at the regulatorily required level." See 49 Fed.Reg. 41237, 41244 (Oct. 22, 1984), codified at 12 C.F.R. Sec. 571.6(c)(4)(i) (1985). Accordingly, when the FHLBB approved Great Life's application, it did so upon the condition that Rapaport, who planned to purchase 74% of the Great Life's shares, enter into a Net Worth Maintenance Agreement with the FSLIC.

Rapaport ultimately purchased 69.9% of Great Life's stock. In March 1985 he entered into a five-year Agreement that provided:

[I]n consideration of the FSLIC granting insurance of accounts to the Association, the Acquiror agrees ... pursuant to the requirements of 12 C.F.R. Sec. 571.6(4), or any successor regulation thereto, to maintain the Association's net worth in compliance with the Net Worth Requirement applicable to the Association, computed in accordance with 12 C.F.R. Sec. 563.13, or any successor regulation then in effect.

The FHLBB approved Great Life's insurance application and the thrift opened for business in May 1985.

Owing primarily to the number of non-performing commercial real estate loans on its books, Great Life, like many thrift institutions in the late 1980s, began to experience capital deficiencies. In November 1989 the OTS notified Rapaport that Great Life's capital was deficient by $152,000 and asked him to contribute $106,248 (69.9% of the total) pursuant to the Agreement. Rapaport responded that he was expending "great effort"--but not by actually contributing any capital--to improve Great Life's financial health. After further investigation, the OTS determined that Great Life's capital deficiency amounted to some $3.5 million as of December 31, 1989. In June 1990 the Resolution Trust Corporation was appointed receiver of Great Life, which has since been liquidated.

The OTS began an administrative proceeding against Rapaport in July 1990. In April 1993 an Administrative Law Judge found that: (1) Rapaport's role in the activities of Great Life "was limited solely to that of a stockholder"; (2) Rapaport was "unjustly enriched within the meaning of [12 U.S.C. Sec. 1818(b)(6)(A)(i) ]" because he received the benefit of Great Life's having deposit insurance while retaining the capital he was supposed to contribute under the Agreement; and (3) under the Agreement Rapaport was obliged to contribute $1,946,000 to help cover Great Life's capital deficiency.

The Acting Director of the OTS affirmed the ALJ's decision, though he corrected it insofar as the ALJ had suggested that the benefit of insurance received by Great Life, rather than Rapaport's retention of what the Agreement allegedly required him to pay, was the basis for holding that Rapaport had been "unjustly enriched." (He also reduced Rapaport's liability to $1,536,675 based upon a revised valuation of one of Great Life's loans.) Like the ALJ, the Acting Director based his decision that Rapaport was liable for his unjust enrichment upon Rapaport's personal responsibility, as a stockholder, for Great Life's capital shortfall; he did not rely upon any role that Rapaport might have played in the management of Great Life.

Before this court Rapaport faults the Acting Director's decision in four respects. First, he claims that the OTS does not have statutory authority to bring this action against him. Instead, he submits that the Federal Deposit Insurance Corporation--as the manager of the FSLIC Resolution Fund--is the only agency (if any) that can pursue a claim based upon the Agreement. Second, Rapaport claims that the OTS failed to show that he was "unjustly enriched," as required by this court's decision in Wachtel v. OTS, 982 F.2d 581 (D.C.Cir.1993). If the court rejects his first two arguments, then Rapaport claims, third, that the Agreement expired in November 1989 when the regulation requiring such agreements was amended to exclude state-chartered institutions, and he is not responsible for any capital deficiency occurring thereafter. Finally, Rapaport claims that the OTS miscalculated Great Life's capital deficiency because it improperly valued certain loans.

II. Analysis

Though we conclude that the OTS does have the authority administratively to enforce an agreement to which the FSLIC was a party, we also hold that the OTS failed in this case to make the required showing that Rapaport was "unjustly enriched." We therefore set aside the agency's decision without addressing Rapaport's last two arguments.

A. OTS's Authority to Enforce the Agreement

Rapaport argues that if any federal agency has the authority to enforce the Agreement, it is the FDIC rather than the OTS. Section 1818(b)(1) of 12 U.S.C. authorizes "the appropriate Federal banking agency" to enforce any condition imposed "by the agency" or any agreement entered into "with the agency." ^* The OTS cannot bring this action, according to Rapaport, because it was not "the agency" that entered into the Agreement, which was with the FSLIC (as opposed to the FHLBB, the governing body of the FSLIC). Further, because "all assets and liabilities of the [FSLIC]" were transferred to the FSLIC Resolution Fund, see 12 U.S.C. Sec. 1821a(a)(2)(A), and the FSLIC Resolution Fund is managed by the FDIC, he claims that only the FDIC may proceed against him for any deficiency. See also CityFed Financial Corp. v. OTS, 58 F.3d 738 (D.C.Cir.1995) (holding OTS has jurisdiction to enforce cease and desist order against holding company affiliated with failed savings and loan).

Not so. Rapaport entered into the Agreement with the FSLIC, and when the Congress abolished the FSLIC and the FHLBB, see Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No. 101-73, Sec. 401(a), 103 Stat. 183 (August 9, 1989) (FIRREA); see also Historical Note at 12 U.S.C.A. Sec. 1437 (West Supp.1994), it also passed savings provisions stating that their abolition would "not affect the validity of any right, duty, or obligation" of those agencies. FIRREA Sec. 401(f)-(g). Indeed, the Congress specifically provided that all "orders, resolutions, determinations, and regulations" of the FSLIC and of the FHLBB--which would include the regulations requiring and supporting the Agreement--"shall be enforceable by or against the Director of the [OTS], the [FDIC], the Federal Housing Finance Board, or the [RTC], as the case may be." FIRREA Sec. 401(h). Hence, one of those four agencies must be able to enforce the Agreement.

Under 12 U.S.C. Sec. 1818(b), it is "the appropriate Federal banking agency"--a defined term--that may institute proceedings requiring a party "to [ ] make restitution or provide reimbursement, indemnification, or guarantee against loss if [that] party was unjustly enriched in connection with [a] violation [of 'any law, rule, or regulation, or any condition imposed in writing by the agency in connection with the granting of any application or other request'] or [an unsafe or unsound banking] practice." 12 U.S.C. Sec. 1818(b)(1), (6). "Appropriate Federal banking agency" is defined, "in the case of any savings and loan association," as "the Director of the [OTS]." 12 U.S.C. Sec. 1813(q)(4) (also noting there may be more than one appropriate agency per case). The OTS is therefore the appropriate agency to enforce the Agreement between Rapaport and the FSLIC.

Moreover, the FIRREA provisions dealing with the powers and duties of the OTS provide specifically that: "[t]he Director [of the OTS] shall have all powers which [ ] were vested in the [FHLBB] (in the Board's capacity as such) ... and were not [ ] transferred to the [FDIC or another agency]." 12 U.S.C. Sec. 1462a(e). Thus the FIRREA not only gives the OTS general authority to enforce an agreement with a savings and loan, it also provides that the OTS succeeds to certain powers originally vested in the FHLBB and not transferred elsewhere.

Nonetheless Rapaport points out that the assets of the FSLIC...