Reich v. Webb

• Decision Date: 18 August 1964
• Docket Number: No. 18457.,18457.
• Citation: 336 F.2d 153
• Parties: Bernard REICH and Sylvia Reich, Depositors and members of the Beverly Hills Federal Savings and Loan Association, individually and in behalf of Beverly Hills Federal Savings and Loan Association and the other members of said association similarly situated, Appellants, v. Eugene WEBB, Jr., et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

336 F.2d 153 (1964)

Bernard REICH and Sylvia Reich, Depositors and members of the Beverly Hills Federal Savings and Loan Association, individually and in behalf of Beverly Hills Federal Savings and Loan Association and the other members of said association similarly situated, Appellants, v. Eugene WEBB, Jr., et al., Appellees.

No. 18457.

United States Court of Appeals Ninth Circuit.

August 18, 1964.

Jack Corinblit, Vaughan, Brandlin, Robinson & Roemer, Los Angeles, Cal., for appellants.

Glen R. Miller, Beverly Hills, Cal., Thomas N. Dowd, Robert B. Hankins, Washington, D. C., for appellee Beverly Hills Federal Savings & Loan Ass'n.

Rodney K. Potter, O'Melveny & Myers, Los Angeles, Cal., for appellee Lytton Financial Corp.

Rodney K. Potter, O'Melveny & Myers, Los Angeles, Cal., for appellees Bart Lytton, and others.

Richard P. Byrne, Los Angeles, Cal., MacCracken, Collins & Hawes, Philip R. Collins, Washington, D. C., for appellee Federal Home Loan Bank Board.

John P. Pollock, Max F. Deutz, Pollock & Deutz, Los Angeles, Cal., for appellees Webb, Matthews and others.

Before BARNES, MERRILL and KOELSCH, Circuit Judges.

KOELSCH, Circuit Judge.

The narrow question before us on this appeal is whether the district court properly refused appellant's motion to intervene as a matter of right pursuant to Rule 24(a) (2) or (3), F.R.Civ.P. The answer depends upon whether the Federal Home Loan Bank Board has the power to enforce by court action common law fiduciary responsibilities of savings and loan association officers and directors. For reasons hereafter appearing, we conclude that the order of the district court was correct.

The facts are undisputed. Appellants are depositors and members of the Beverly Hills Federal Savings and Loan Association. By various court actions they have challenged the transfer of controlling interest in the Association from a combine headed by Eugene and Marguerite Webb (the Webb group) to one headed by Bart and Beth Lytton (the Lytton group). Appellants allege that the Webb group has personally profited in connection with the transfer of proxies, directorships and control of the Association to the Lytton group; their theory is that these personal profits derived from "sale of office" and "sale of control" and as such belong to the entire Association because of an alleged breach of fiduciary duty. They contend that they, as depositors and members of the Association, may assert the claim on its behalf in a derivative action.

The present dispute arose when the Federal Home Loan Bank Board (Bank Board), a body charged by Congress with the supervision and regulation of federal savings and loan associations, instituted administrative proceedings challenging the same transactions attacked by appellants. These proceedings were terminated when the Association filed a suit against the Bank Board, pursuant to § 5(d) (1) of the Home Owners' Loan Act of 1933, as amended 12 U.S.C. § 1464(d) (1), to have the validity of the challenged transaction judicially determined and to obtain an injunction staying further Bank Board proceedings. The Association later amended its complaint, impleading members of the Webb and Lytton groups.

At this juncture, appellants moved to intervene in the action as parties plaintiff under Rule 24(a), F.R.Civ.P.¹ They urged that their interests as depositors in the Association would not be adequately represented by the Association because of alleged domination by the Lytton group. They further asserted that the Bank Board could not adequately represent them for the reason that it lacked power to enforce the fiduciary obligations of the Association directors and officers by court action. In either event they claimed they would or might be bound by the result. As an independent ground supporting intervention as a matter of right, appellants contended they might be adversely affected by a distribution or other disposition of property, subject to the control or disposition of the court. The Association, the Webb group, the Lytton group and the Bank Board all opposed the proposed intervention. Following a hearing, appellants' motion was denied but they were granted leave to file briefs as amicus curiae.

The district court rested its decision² on a determination that the Bank Board had power to adequately represent appellants. Alternative and independent bases for this power were found: (1) In Congressional authorization 12 U.S.C. § 1464(d) (1) and (2); (2) inherent in the Bank Board by virtue of the doctrine of Parens Patriae.

Appellants assert error and appeal. Jurisdiction to review an order denying intervention as a matter of right lies in this court. 28 U.S.C. §§ 1291, 1294; Brotherhood of Railroad Trainmen v. Baltimore & Ohio Railroad Co., et al., 331 U.S. 519, 524, 67 S.Ct. 1387, 1389, 91 L.Ed. 1646 (1947).

Intervention under Rule 24(a) (2), F.R.Civ.P. depends upon a dual showing by the party seeking it that: (1) he is or may be inadequately represented and (2) that he would or might be bound by a judgment in the action. Farmland Irrigation Co. v. Dopplmaier, 220 F.2d 247, 248 (9th Cir. 1955). The Supreme Court,³ as well as commentators,⁴ have perceived the inherent dilemma confronting would-be intervenors in class suits under this branch of Rule 24. As applicable here it would mean that if, as appellants assert, the Bank Board lacks the power to represent them, then they would "not be bound" by operation of the doctrine of res judicata. Sutphen, Inc. v. United States, 342 U.S. 19, 21, 72 S.Ct. 14, 16, 96 L.Ed. 19 (1951); Formulabs, Inc. v. Hartley Pen Co., 275 F.2d 52, 55 (9th Cir. 1960); if, on the other hand, the Bank Board possesses the necessary power, appellants may not intervene as a matter of right because they are "adequately represented." But we need not saddle appellants on the horns of this dilemma to refute their right to intervene. For we conclude that the Bank Board has power by virtue of 12 U.S.C. § 1464(d) (1) to secure all relief sought by appellants,⁵ and therefore they are "adequately represented" so as to preclude intervention as a matter of right under Rule 24(a) (2), F.R.Civ.P.

The Federal Home Loan Bank Board is an administrative body created by Act of Congress. Its powers are broadly declared in several sections of the Act, one of which is 12 U.S.C. § 1464(d) (1). So far as pertinent, that section provides:

"The Board shall have power to enforce this section and rules and regulations made hereunder. In the enforcement of any provision of this section or rules and regulations made hereunder, or any other law or regulation, and in the administration of conservatorships and receiverships as provided in paragraph (2) of this subsection, the Board is authorized to act in its own name and through its own attorneys." (Emphasis supplied).

Authority to apply to the district court for the enforcement of these provisions is then conferred:

"Upon the giving of notice of alleged violation of law or regulation as herein provided, either the Board or the association affected may, within thirty days after the service of said notice, apply to the United States district court for the district where the association is located for a declaratory judgment and an injunction or other relief with respect to such controversy, and said court shall have jurisdiction to adjudicate the same as in other cases and to enforce its orders."

Appellants first urge that "the term `or any other law or regulation' in the procedural provisions of § 5(d) (1) 12 U.S.C. § 1464(d) (1) obviously must be construed in light of the doctrine of ejusdem generis." They contend that:

"under this doctrine that term must necessarily refer to `any other law or regulation\' which Congress has expressly directed the Board to enforce and which covers the same subject matter as is contained in the statute and regulations of the Board. But they note that there is no contention that Congress has expressly directed the Board to enforce liability of directors for the breach of their fiduciary duties to members and the Board has not in 30 years of administering the Act ever adopted any regulations on that subject."

They conclude "* * * this provision * * * is not relevant here."

Appellants read too narrowly. In support of their contention that the doctrine of ejusdem generis limits the Bank Board's enforcement powers to those expressly covered by Congressional directives or Bank Board regulations, they cite Federal Home Loan Bank Board v. Greater Delaware Valley Federal Savings & Loan Association, 176 F.Supp. 24, 29 (D.C.E.D.Pa.1959). In that case the Bank Board sought a declaratory judgment voiding the conversion of a Federal Savings and Loan Association from a federal to a state charter until the approval of the Bank Board was obtained. No duty on the part of the Association to obtain Bank Board approval existed either at common law, by statute or by Bank Board regulations. In holding against the Bank Board in that case, the district court incorporated as part of its rationale an application of the doctrine of ejusdem generis in the manner suggested by appellants. In affirming, the Third Circuit concluded that "* * * Board approval is not required by the statute * * *" and expressly declined to affirm on the ground urged here by appellants, saying "* * * We do not reach this argument and express no opinion on it." Federal Home Loan Bank Board v. Greater Delaware Valley Savings & Loan Association, 277 F.2d 437, 440 (3d Cir. 1960). Basically the holding stands for nothing more than a declaration that substantive liability cannot be created by the Bank Board apart from statute, a proposition with which we fully agree.

Here, however, are several considerations pointing to a broad construction of the Bank Board's power to secure legal redress under 12 U.S.C. § 1464(d) (1). Absent is the necessity of a narrowing construction so as to sustain constitutionality. And in cases involving conflict...