Texas American Bancshares, Inc. v. Clarke, 90-1674

• Decision Date: 27 February 1992
• Docket Number: No. 90-1674,90-1674
• Citation: 954 F.2d 329
• Parties: TEXAS AMERICAN BANCSHARES, INC., et al., Plaintiffs-Appellees, v. Robert Logan CLARKE, The Comptroller of the Currency, et al., Defendants, Federal Deposit Insurance Corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 329

954 F.2d 329

TEXAS AMERICAN BANCSHARES, INC., et al., Plaintiffs-Appellees, v. Robert Logan CLARKE, The Comptroller of the Currency, et al., Defendants Federal Deposit Insurance Corporation, Defendant-Appellant.

No. 90-1674.

United States Court of Appeals Fifth Circuit.

Feb. 27, 1992.

John L. Rogers, III, Hopkins & Sutter, Chicago, Ill., Robert F. Reklaitis, Hopkins & Sutter, Richard J. Osterman, Jr., Sharon P. Sivertsen, Colleen B. Bombardier, Robert G. Clark, Washington, D.C., for FDIC.

Marvin S. Sloman, Peter Tierney, Carrington, Coleman, Sloman & Blumenthal, Dallas, Tex., Bruce E. Clark, Patricia A. Connell, Mark V. Holmes, Tariq Mundiya, Sullivan & Cromwell, New York City, for plaintiffs-appellees.

Thomas W. Luce, III, Kim J. Askew, R. Doak Bishop, Jeffrey C. King, Hughes & Luce, Dallas, Tex., John D. Hawke, Jr., Howard N. Cayne, Arnold & Porter, Washington, D.C., for amicus curiae, MCorp, MCorp Financial, Inc. and MBank New Brunfels, N.A.

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

Before POLITZ, Chief Judge, JOHNSON and GARWOOD, Circuit Judges.

GARWOOD, Circuit Judge:

This is a suit by a bank holding company and some of its subsidiary banks against the Federal Deposit Insurance Corporation (FDIC), both in its corporate capacity and as receiver of the holding company's insolvent lead bank, challenging the FDIC's structuring of a purchase and assumption transaction of the failed lead bank in such a way that some lead bank creditors receive one hundred percent of the sums owed them, while certain affiliated creditors, including plaintiffs, receive only what they would have received if the lead bank had instead been liquidated. All of the parties below moved for summary judgment on the basis of stipulated facts. The district court granted the motion of the plaintiffs-appellees and entered judgment against the FDIC in the agreed upon, liquidated amount of $5 million. 740 F.Supp. 1243. The FDIC brings this appeal. We hold that under the stipulated facts the FDIC is not shown to have violated any requirement of law in its structuring of the instant purchase and assumption agreement in this fashion. We accordingly reverse.

Facts and Proceedings Below

Plaintiff-appellee Texas American Bancshares, Inc. (TAB) is a Texas corporation and registered bank holding company. In July 1989, it was the sole owner of twenty-two national banks located in Texas and of two Texas state banks. The deposits of each of these twenty-four banks were insured by the FDIC. In May 1989, the TAB subsidiary banks had assets of almost $5 billion. Of these subsidiary banks, the lead bank, TAB Fort Worth, was a national bank located in Fort Worth that had over forty-six percent of the total assets of all the TAB subsidiary banks as of December 1988. During the period at issue, July 1989, TAB Fort Worth had outstanding obligations to the other TAB subsidiary banks of over $800 million in the form of federal funds, certificates of deposit, and other deposit obligations. Over $675 million of these obligations were in the form of federal funds purchased from other TAB subsidiary banks.

The financial condition of TAB Fort Worth began to deteriorate in 1988. In an attempt to prevent further financial decline, TAB began discussions with National Bancshares Corp. (NBC), another bank holding company experiencing financial difficulties, about formulating a restructuring, involving recapitalization by an outside private investor and assistance by the FDIC. The FDIC solicited proposals, and in July of 1988 announced that it had accepted a conditional proposal regarding TAB and NBC. The transaction, however, fell through. Later that year, in October 1988, the FDIC announced that it had reopened the bidding process for a consolidated purchase and assumption of TAB and NBC by outside private investors. Neither TAB nor its subsidiaries participated in the bidding or negotiations. The financial decline of TAB continued throughout the last quarter of 1988 and the first two quarters of 1989. In response, the FDIC initiated the process to form a bridge bank in March 1989. On June 9, 1989, a private investor, Ronald Steinhart, submitted a proposal to acquire all of the TAB banks on behalf of Deposit Guaranty Bank. On July 18, 1989, the FDIC formally accepted and approved the Steinhart proposal. On July 20, 1989, the Comptroller of the Currency (the Comptroller) declared TAB Fort Worth insolvent. The FDIC was appointed as its receiver. On the same day, the Comptroller granted the bridge bank a charter under the name of Texas American Bridge Bank, N.A. (Bridge Bank).

As receiver of TAB Fort Worth, the FDIC (FDIC Receiver) entered a Purchase and Assumption Agreement with the Bridge Bank and a Contract of Sale with the FDIC in its corporate capacity (FDIC Corporate). ¹ After these transactions were approved by a federal district court, FDIC Receiver transferred most of the assets of TAB Fort Worth to the Bridge Bank, and the latter assumed most of TAB Fort Worth's obligations. Specifically not included in the obligations assumed by the Bridge Bank, however, were those for the federal funds sold to TAB Fort Worth by other TAB subsidiary banks and the certificates of deposit other TAB subsidiaries had purchased from TAB Fort Worth, the face amounts of all of which totalled over $800 million.

The FDIC contemporaneously notified the Comptroller that the other TAB subsidiary banks would receive from the TAB Fort Worth receivership only sixty-seven percent of the face amount of obligations owed them by TAB Fort Worth. The Comptroller, in response, determined on July 20, 1989, that because of such valuation, all of the other TAB subsidiary national banks were insolvent, ordered them closed, and appointed the FDIC as receiver for each. ² The FDIC then arranged coordinated purchase and assumption transactions for each of the twenty-three remaining subsidiary banks on similar terms, with the same, single ultimate purchaser as for TAB Fort Worth. FDIC Corporate, to facilitate this purchase and assumption of the entire TAB system, provided approximately $250 million in operating funds and related costs to the Bridge Bank. Bridge Bank agreed to pay to FDIC Receiver any excess of the value ultimately realized from the assets transferred to it by FDIC Receiver over the amount necessary to pay the assumed liabilities and to reimburse FDIC Corporate for the referenced operating funds and related costs advanced it by FDIC Corporate. Bridge Bank's successor in interest, Deposit Guaranty Bank, contributed approximately $175 million in capital pursuant to the agreement. FDIC Corporate has also since provided direct assistance of approximately $900 million to Deposit Guaranty Bank to permit Deposit Guaranty Bank to assume the liabilities of TAB Fort Worth (and the other TAB subsidiary banks), which were assumed by Bridge Bank. This $900 million is essentially the shortfall between the assets and liabilities of TAB Fort Worth (and the other TAB subsidiary banks), which were transferred to and assumed by Bridge Bank.

The parties agree that if the federal funds sold to and certificates of deposit purchased from TAB Fort Worth by thirteen of the other TAB subsidiaries had been assumed or paid in full, the Comptroller (the Texas Banking Commissioner in the case of the two state banks) would not have declared them insolvent and closed them. ³ These thirteen subsidiaries, plus TAB itself (their sole shareholder), are the plaintiffs-appellees in this suit. The parties have also stipulated that if TAB Fort Worth had been liquidated, its creditors would have received not more than sixty-seven cents on the dollar.

On July 20, 1989, these thirteen TAB subsidiary banks (plaintiff TAB banks) initiated this suit, moving for a temporary restraining order in the United States District Court for the Northern District of Texas, Dallas division. The district court denied that request on July 21, 1989. The parties agreed to allow the sale of the TAB system to proceed and submitted the case for disposition on cross-motions for summary judgment and stipulated facts. The parties also agreed that if judgment were rendered in favor of TAB, the FDIC would pay it liquidated damages in the total amount of $5 million in lieu of any other recovery by plaintiffs. The district court granted summary judgment for TAB, and entered final judgment in its favor, and against FDIC Corporate and FDIC Receiver, in the total amount of $5 million and costs of court, and denied all other relief. The FDIC, in both capacities, appeals to this Court.

Today, the former TAB banks have been returned to private ownership, and each is providing services to the community under the name of TEAM Bank.

Discussion

I. Background: Purchase and Assumption Transactions

This controversy arises in a context presenting an all too familiar scenario: the insolvency and subsequent closing by the FDIC of a large federally insured bank. Congress created the FDIC during another era of banking crisis to promote stability and maintain confidence in the national banking system. To this end, the FDIC as insurer of bank deposits pays depositors to the extent of insurance coverage when an insured bank fails. See 12 U.S.C. § 1821. In fulfilling this duty to pay depositors, the FDIC has two primary alternatives: liquidation or a purchase and assumption. ⁴

A liquidation involves closing the insolvent bank, selling its assets, paying depositors their insured amounts, and covering any shortfall with insurance funds. Liquidations may have substantial disadvantages: "[a]ccounts are frozen, checks are returned unpaid, and a significant disruption of the intricate financial machinery results." Gunter v. Hutcheson, 674 F.2d 862, 865 (11th Cir.1982), cert. denied 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982). The probability that uninsured deposits or liabilities will be paid in any substantial part...