Silverman v. Maryland Deposit Ins. Fund Corp.

Citation317 Md. 306,563 A.2d 402
PartiesDennis M. SILVERMAN et al., Trustees v. MARYLAND DEPOSIT INSURANCE FUND CORPORATION et al. 16 Sept. Term 1989.
Decision Date12 September 1989
CourtCourt of Appeals of Maryland

Per Curiam on Motion for Reconsideration filed Nov. 15, 1989.

Benjamin Rosenberg (Rosenberg Proutt Funk & Greenberg, Lawrence S. Greenwald, Nancy E. Paige, Jeffrey Schwaber, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, Baltimore, Sidney L. Meyer, New York City, John M. Brickman, Peirez, Ackerman & Levine, Great Neck, N.Y.), on brief, for appellant.

Dennis M. Sweeney, Deputy Atty. Gen. and Mark D. McCurdy, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Martha Vestal Clarke, Asst. Atty. Gen., on brief), Baltimore, for appellees.

Argued before MURPHY, C.J., and ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS and BLACKWELL, JJ.

RODOWSKY, Judge.

Appellants are fiduciaries who deposited trust funds in Old Court Savings and Loan, Inc. (Old Court), a Maryland chartered association, where deposits were then insured by Maryland Savings-Share Insurance Corporation (MSSIC). Both Old Court and MSSIC became insolvent. One of the appellees, State of Maryland Deposit Insurance Fund Corporation (MDIF), is a governmental corporation and agency of the State of Maryland which has assumed the insurance obligations of MSSIC. A dispute exists between appellants and MDIF, acting through its director, the other appellee, Lloyd W. Jones (Jones), over the method of computation of the amount of insurance payable by MDIF to appellants. Appellees successfully argued in the Circuit Court for Baltimore City, and argue here, that their contract constructions are correct and, in any event, that sovereign immunity as to MDIF, and a statutory immunity as to Jones, prevent courts from considering whether appellees have misconstrued the insurance plan they administer. We shall hold, as explained below, that the constructions by the appellees are generally correct, but that appellants are permitted to attempt to show that Old Court has mistakenly or unauthorizedly recorded the number of appellant's deposit accounts.

This is another lawsuit arising out of the 1985 savings and loan crisis in Maryland. The development of the crisis is described in detail in W. Preston, Report of the Special Counsel on the Savings & Loan Crisis (1986) (Preston). Aspects of the response by the State of Maryland to the crisis may be found in Md.Code (1980, 1986 Repl.Vol., 1988 Cum.Supp.), §§ 9-701 through 9-712 of the Financial Institutions Article (FI), relating to receiverships and conservatorships of state chartered savings and loan associations, and in FI §§ 10-101 through 10-121, relating to MDIF. Aspects of the State's response to the crisis also have been Procedurally we have here two appeals in one record. Each action below was a complaint for declaratory judgment, mandamus and other appropriate relief against MDIF and Jones. In one action the plaintiffs are the trustees of United Wire, Metal & Machine Pension Fund (Pension Fund) and in the other action the plaintiffs are the trustees of United Wire, Metal & Machine Health & Welfare Fund (Welfare Fund). We shall refer to Pension Fund and Welfare Fund collectively as United Wire. United Wire had in excess of $16 million on deposit at Old Court when Old Court failed.

described in United Wire, Metal & Machine Health & Welfare Fund v. Board of Savings & Loan Ass'n Comm'rs, 316 Md. 236, 558 A.2d 379 (1989); State v. Hogg, 311 Md. 446, 535 A.2d 923 (1988); United Wire, Metal & Machine Health & Welfare Fund v. State Deposit Ins. Fund, 307 Md. 148, 512 A.2d [563 A.2d 404] 1047 (1986); and Chevy Chase Savings & Loan v. State, 306 Md. 384, 509 A.2d 670 (1986). We shall not recount that history here.

MDIF's role in the factual background of this appeal is twofold. It is the court appointed receiver of Old Court and it is the insurer of accounts at Old Court. The latter capacity results from the statutory merger of MSSIC into MDIF which expressly included the transfer to MDIF of all of the assets and all of the liabilities, including insurance liabilities, of MSSIC. See Acts of the First Special Session of 1985, Ch. 6, § 4 (uncodified). Funds for the payment of MDIF's outstanding liabilities as insurer are or may be made available from the assets of MSSIC and from public funds which have been or in the future may be appropriated pursuant to the policy declared in FI § 10-116. It reads:

"It is the policy of this State that funds will be appropriated to [MDIF] to the extent necessary to protect holders of savings accounts in member associations, and to enable [MDIF] to meet its obligations under a hardship withdrawal plan or partial distribution of assets."

In general, and grossly oversimplified, the limit of MSSIC's insurance liability was $100,000 per account, as United Wire then filed the instant complaints against MDIF, as insurer and as receiver, to which Jones was added by amendment as a defendant, both individually and as Director of MDIF. The complaints raise claims under state nonconstitutional law and under federal and state constitutional law to which the defendants responded by motions to dismiss or, in the alternative, summary judgment. United Wire's nonconstitutional claims were rejected both on immunity grounds and on the merits. The constitutionally based claims were rejected on the merits. United Wire appealed, and we issued the writ of certiorari on our own motion prior to consideration of the matter by the Court of Special Appeals.

opposed to $100,000 per depositor. Old Court's records reflected some $8.4 million of deposits by Pension Fund in forty-three accounts. MDIF determined that nearly $700,000 of Pension Fund's total deposits were uninsured. Old Court's records reflected some $8.5 million of deposits by Welfare Fund in twenty-nine accounts. MDIF determined that some $5.6 million of Welfare Fund's total deposits were uninsured. These determinations by MDIF were explained in its letters dated October 21, 1987, to United Wire and were based in part on information submitted by United Wire to MDIF.

United Wire raises the following issues. We have revised the order of presentation of these issues because we choose to address the merits first, and to consider sovereign immunity only as to any meritorious claims.

I. Whether the lower court erred in dismissing the trustees' claim that MDIF and Jones are violating the trustees' rights under the statutory scheme:

A. Whether in addition to insurance of $100,000 for each beneficiary of the Pension Fund, the trustees are entitled to insurance of $100,000 for each Pension Fund account.

B. Whether the trustees are entitled to insurance of $100,000 for each beneficiary of the Welfare Fund.

C. Whether the trustees are entitled to be reimbursed for loss up to $100,000 per account after liquidation proceeds have been applied to each account.

D. Whether the trustees have the right to prove at trial the correct number of accounts which they would have held in Old Court but for the mistakes of Old Court.

II. Whether the lower court erred in holding that sovereign immunity bars this action.
III. Whether the lower court erred in dismissing the trustees' claims under the Constitution and 42 U.S.C. § 1983:

A. Whether MDIF and Jones are taking the trustees' property without just compensation.

B. Whether MDIF and Jones are depriving the trustees of property without due process of law.

C. Whether the trustees have stated a valid claim against Jones under 42 U.S.C. § 1983.

I

Statutes and MSSIC by-laws govern the specific contentions of United Wire concerning computation of the amount of insurance payable. Chapter 6 of the Acts of the First Special Session of 1985, § 6 (uncodified) provided that "any account established on or before [May 18, 1985] shall be subject to the same terms and conditions of insurance under [MDIF] as that account was subject under [MSSIC]."

The overarching limitation on MSSIC's insurance liability was set forth in Md.Code (1980), FI § 10-105(b) which read:

"The amount of loss to be protected against for each separate savings account may not exceed the limit established from time to time in [MSSIC's] bylaws, rules, and regulations. This limit may not exceed by more than $10,000 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation [FSLIC]."

The parties and the circuit court have accepted that the amount MSSIC established as its limit is $100,000. 1

A

With respect to Pension Fund's deposits at Old Court, MDIF, in its October 21, 1987, letter to Pension Fund, took the position that there was insurance

"for the greater of (1) up to $100,000 per account, or (2) aggregating the accounts, up to $100,000 per participant or beneficiary of the [Pension] Fund based on the ascertainable interest of each such participant or beneficiary, plus up to $100,000 to the extent of the amount in the accounts not attributable to such ascertainable interests."

The ratio of the total value of all accrued benefits of participants in the Pension Fund to the total assets of the Pension Fund was .905271195 as of December 31, 1985. MDIF has aggregated the Pension Fund accounts, applied the foregoing percentage to the total on deposit of $8.4 million and considered the product, some $7.6 million, to be insured. Pension Fund does not challenge this approach to that point. MDIF further considers that it additionally insures $100,000 of the approximately $800,000 difference. MDIF says that the remaining $700,000 is uninsured because it is not attributable to ascertainable interests. Pension Fund submits that it, as the fiduciary of these trust accounts, is also insured in each and every account, over and above the beneficiaries of ascertainable interests, for a separate and additional $100,000 per account.

Resolution of the dispute turns on the construction of by-law § 3-703 which reads in full as follows:

"Mem...

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