Spawn v. Western Bank Westheimer

• Decision Date: 04 May 1993
• Docket Number: No. 91-6200,BANK--WESTHEIME,D,91-6200
• Parties: Coy U. SPAWN, Jr., Plaintiff-Appellee, v. WESTERNefendant, Federal Deposit Insurance Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 830

989 F.2d 830

61 USLW 2678

Coy U. SPAWN, Jr., Plaintiff-Appellee, v. WESTERN BANK--WESTHEIMER, Defendant Federal Deposit Insurance Corporation, Defendant-Appellant.

No. 91-6200.

United States Court of Appeals Fifth Circuit.

May 4, 1993.

Daniel H. Kurtenbach, Washington DC, for FDIC.

H. Gray Burks, IV, Houston, TX, for Spawn.

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

Before KING and EMILIO M. GARZA, Circuit Judges, and HALL, ^* District Judge.

KING, Circuit Judge:

The FDIC, in its corporate capacity as insurer of bank deposits, appeals from the district court's final judgment, which awarded Coy Spawn prejudgment interest and attorney's fees in connection with his claim for deposit insurance. As discussed below, we conclude (a) that the FDIC is immune from awards of prejudgment interest in the context of its decisions regarding deposit insurance, and (b) that the district court abused its discretion in determining that the FDIC's position was not substantially justified for purposes of the Equal Access to Justice Act. We therefore reverse the district court's judgment to the extent it awarded Spawn prejudgment interest and reasonable attorney's fees.

I. BACKGROUND

On July 7, 1986, Coy Spawn and his sister, Bernadette Spawn, each deposited $100,000 in 91-day certificate of deposit accounts at Western Bank-Westheimer of Houston (Western Bank). The bank records for the first account, certificate of deposit number 55386 (COD 55386), reveal that (1) the DEPOSITOR was "Coy U. Spawn, Jr. or Bernadette A. Spawn," (2) LEGAL TITLE to the account was held by "Coy U. Spawn, Jr. or Bernadette A. Spawn," (3) only Coy Spawn's social security number was provided for TAX ID purposes, (4) both Coy Spawn and his sister Bernadette signed the signature card for the account, (5) the social security numbers of both Coy Spawn and his sister Bernadette appeared on the signature card, and (6) the account was denominated as being JOINT W/RIGHT OF SURVIVORSHIP. The bank records for the second account, certificate of deposit number 55387 (COD 55387), contain substantially similar information, except that (1) the names of Coy and Bernadette were in reverse order in records revealing who was DEPOSITOR and who held LEGAL TITLE to the account, and (2) only Bernadette Spawn's social security number was provided for TAX ID purposes.

Almost three months after the Spawn siblings had deposited their money in COD 55386 and COD 55387, the Texas State Banking Commissioner declared Western Bank insolvent and appointed the FDIC as receiver. The FDIC, in turn, approved the transfer of Western Bank's insured deposits to Charter National Bank-Houston. Thus, the FDIC, in its corporate capacity as insurer of bank deposits, began reviewing Western Bank's account records to determine the amount of deposits that were federally insured.

After reviewing the bank records of COD 55386 and COD 55387, the FDIC determined that, under its regulations, the certificates of deposit were "jointly owned accounts" of Coy Spawn and his sister Bernadette. See 12 C.F.R. § 330.9 (1989) (pre-FIRREA). ¹ The FDIC therefore aggregated the two accounts in calculating deposit insurance coverage. Because the funds in the two "jointly owned accounts" exceeded the statutory maximum of $100,000 for deposit insurance coverage, the FDIC determined that COD 55387 (the one listing Bernadette's social security number for TAX ID purposes) was insured up to $100,000, but that COD 55386 (the one listing only Coy's social security number for TAX ID purposes) was uninsured. The FDIC made no inquiry as to whether, despite the information contained in the bank records, the two certificates of deposit accounts were "in fact" separately owned.

On March 30, 1989, Coy Spawn (Spawn) filed a complaint in federal district court against the FDIC in its corporate capacity as insurer of bank deposits. Under the judicial review provisions of the Administrative Procedure Act, Spawn sought a determination that COD 55386 was not an uninsured "jointly owned account," as previously determined by the FDIC, but rather a fully insured account owned solely by him. Spawn further sought prejudgment interest and attorney's fees.

The FDIC filed a motion for summary judgment, alleging that it was entitled to rely solely on bank records for purposes of determining whether COD 55386 was a "jointly owned account" of Spawn and his sister under its regulations. The district court granted the motion. It concluded that the FDIC did not have to go "behind the failed bank's deposit records and ... make a factual determination as to the ownership interest in insured deposit account records." According to the district court, "in making the determination of ownership, the FDIC properly looked at the deposit records and signature cards which show that both Coy and Bernadette Spawn have a right to withdraw both accounts."

On appeal, this court reversed. See Spawn v. Western Bank-Westheimer, 925 F.2d 885 (5th Cir.1991) (Spawn I ). Based on our review of the FDIC's regulations regarding "jointly owned account" determinations, we concluded that the FDIC had acted "arbitrarily and capriciously" in refusing to look behind the bank records to determine whether COD 55386 was in fact jointly owned by Coy and his sister Bernadette. We stated:

[T]he FDIC's interpretation of the regulations at issue contradicts the unambiguously expressed directions they contain. We may not defer to that erroneous interpretation, which is not "in accordance with the law." 5 U.S.C. § 706(2)(A). Spawn must be permitted to prove that the certificate of deposit at issue, although styled as a joint tenancy with right of survivorship, was in fact an account separately owned by him and separately insurable by the FDIC. Because the facts necessary to Spawn's position were not proved or conceded, we must remand the case for further proceedings.

925 F.2d at 889.

On remand, the FDIC considered numerous records submitted by Spawn and, based on these records, determined that COD 55386 was "in fact" individually owned by Spawn. The only remaining issues, therefore, were whether Spawn was entitled to prejudgment interest, attorney's fees, and costs. After holding a trial on these issues, the district court concluded that (a) Spawn was entitled to recover prejudgment interest, and (b) because the FDIC's decision to deny insurance coverage was not "substantially justified," Spawn was entitled to recover attorney's fees under the Equal Access to Justice Act. The FDIC now appeals. ²

II. ANALYSIS

A. The Prejudgment Interest Award

The FDIC first argues that the district court erred in awarding Spawn prejudgment interest. The FDIC specifically contends that, in its corporate capacity as insurer of deposit accounts, it is immune from awards of prejudgment interest for erroneous deposit insurance determinations. For the following reasons, we agree.

1. The "No-Interest" Rule and Its Exceptions

In Library of Congress v. Shaw, 478 U.S. 310, 311, 106 S.Ct. 2957, 2960, 92 L.Ed.2d 250 (1986), the Supreme Court reaffirmed the viability of the no interest rule, which provides "that interest cannot be recovered in a suit against the Government in the absence of an express waiver of sovereign immunity from an award of interest." The Court explained:

In the absence of express congressional consent to the award of interest separate from a general waiver of immunity to suit, the United States is immune from an interest award. This requirement of a separate waiver reflects the historical view that interest is an element of damages separate from damages on the substantive claim.

Id. at 314, 106 S.Ct. at 2961. In holding that a separate, express waiver of immunity to interest is usually required, however, the Court in Shaw also noted that the "no interest rule is ... inapplicable where the Government has cast off the cloak of sovereignty and assumed the status of a private commercial enterprise." Id. at 317 n. 5, 106 S.Ct. at 2963 n. 5 (citing Standard Oil Co. of New Jersey v. United States, 267 U.S. 76, 79, 45 S.Ct. 211, 212, 69 L.Ed. 519 (1925)).

We have read Shaw and subsequent cases to establish a general rule prohibiting an award of interest with at least two exceptions. As we stated in McGehee v. Panama Canal Commission, 872 F.2d 1213 (5th Cir.1989):

We begin with the general proposition that sovereign immunity bars an interest award against the United States. The rule admits of exceptions, two of which are relevant in this case. The United States may be ordered to pay interest when Congress has expressly consented to such an award, ... and when Congress has shed the cloak of sovereignty and given an agency the status of a commercial operation.

Id. at 1214-15. "The focus of the first exception," we explained, "is whether the legislation giving rise to the cause of action expressly subjects the government to interest payments." Id. at 1215. "The second exception," we continued, "turns on whether Congress, in creating the agency, intended a waiver of immunity from interest awards." Id. Thus, in McGehee we made it clear that Congress' intent to waive an agency's immunity from interest can be gleaned from either the statute creating the cause of action or the statute creating the agency. The ultimate question with regard to both of the exceptions, however, is whether Congress intended to waive the government's immunity from interest awards.

2. Applying the "No-Interest Rule" and Its Exceptions in the Context of FDIC Deposit Insurance Determinations

The FDIC argues that neither of the exceptions to the no interest rule applies to its deposit insurance determinations. The FDIC specifically contends that no provision of the Federal Deposit Insurance Act, 12 U.S.C. §§ 1811 et seq., expressly waives its immunity from interest awards. The FDIC further contends that, even though Congress gave the FDIC the power to "sue and be...