Texas American Bancshares, Inc. v. Clarke

• Decision Date: 25 June 1990
• Docket Number: Civ. A. No. 3-89-1864-H.
• Parties: TEXAS AMERICAN BANCSHARES, INC., et al., Plaintiffs, v. Robert Logan CLARKE, Comptroller of the Currency, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

740 F. Supp. 1243

TEXAS AMERICAN BANCSHARES, INC., et al., Plaintiffs, v. Robert Logan CLARKE, Comptroller of the Currency, et al., Defendants.

Civ. A. No. 3-89-1864-H.

United States District Court, N.D. Texas, Dallas Division.

June 25, 1990.

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

Robert W. Patterson, Robert F. Reklaitis & Nancy J. Anglin, Hopkins & Sutter, Dallas, Tex., for defendant FDIC.

MEMORANDUM OPINION AND ORDER

SANDERS, Chief Judge.

The case is before the Court on cross-motions for summary judgment by Plaintiffs and the FDIC.

I. FACTUAL BACKGROUND

Stipulated Facts

The following facts are taken from the Stipulation of Undisputed Facts, filed October 5, 1989 ("Stipulated Facts").

1. Plaintiff Texas American Bancshares, Inc. ("TAB Holding") is a bank holding company registered under the Bank Holding Company Act of 1956, 12 U.S.C. §§ 1841 et seq. It was the sole owner of 22 national banks and two Texas state-chartered banks and several nonbanking subsidiaries. Ten of the TAB national bank subsidiaries are denominated here as the "Plaintiff National Bank Subsidiaries." The two Texas state-chartered banks are denominated "Plaintiff State Bank Subsidiaries." TAB Holding, the Plaintiff National Bank Subsidiaries, and the Plaintiff State Bank Subsidiaries are the plaintiffs in this action; they are referred to collectively as "Plaintiffs."

2. Defendant Robert Logan Clarke, the Comptroller of the Currency (the "Comptroller"), is an official of the United States government within the Department of the Treasury. Plaintiffs originally sued the Comptroller for wrongfully declaring the Plaintiff Banks insolvent.

3. Defendant Kenneth W. Littlefield is the Banking Commissioner of Texas (the "Commissioner").

4. The Federal Deposit Insurance Corporation ("FDIC") was created by the Banking Act of 1933. As of July 20, 1989, the critical date in this action, the FDIC was authorized and operated pursuant to the Federal Deposit Insurance Act ("FDIA"), 12 U.S.C. § 1811 et seq. Plaintiffs sue the FDIC in its corporate capacity and as receiver for the TAB Plaintiff Banks.

5. As of July 20, 1989, each of the Plaintiff National Bank Subsidiaries was subject to the regulatory jurisdiction of the Comptroller. Each of the Plaintiff State Bank Subsidiaries was subject to the regulatory jurisdiction of the Commissioner. Deposits in the Plaintiff Banks were insured by the FDIC in its corporate capacity.

6. The lead TAB subsidiary bank was TAB/Ft. Worth ("TAB/FTW") which had 46% of the total assets of the TAB subsidiary banks as of December 31, 1988.

7. TAB/FTW maintained obligations in the form of Fed funds, certificates of deposit ("CDs"), and other deposit obligations or a combination thereof, to other TAB subsidiary banks, as well as to other creditors outside the TAB system, in the following approximate¹ amounts:

a. over $675 million in the form of Fed funds purchased from other TAB subsidiary banks;

b. over $10 million in the form of Fed funds purchased from non-affiliated banks;

c. over $84 million in the form of additional short term borrowed funds from non-affiliates;

d. over $120 million in the form of CDs sold to other TAB subsidiary banks;

e. over $54 million in the form of demand deposits of other banks, including but not limited to other TAB subsidiary banks; and

f. over $1.12 billion in the form of additional deposits of non-affiliates.

8. Certain of the TAB subsidiaries were in poor financial shape in 1988. In October 1988, after the failure of an initial restructuring plan in which TAB Holding and its subsidiaries participated, the FDIC began soliciting bids for a purchase and assumption ("P & A") agreement from private investors to buy all or part of the TAB banking system. TAB Holding and its subsidiaries did not participate in the bidding process or in the negotiations.

9. In March 1989, the Comptroller commenced an on-site examination at all the TAB subsidiary national banks. On June 30, 1989, the Comptroller sent TAB Holding and each of its national bank subsidiaries the Reports of Supervisory Activity produced in the course of that examination. The Comptroller conducted no further examination activity prior to the closing of the TAB national bank subsidiaries on July 20, 1989.

10. On June 9, 1989, the FDIC received a proposal from Ronald Steinhart to acquire all the TAB banks on behalf of Deposit Guaranty Bank (the "Steinhart Proposal"). The Steinhart Proposal contemplated that all the TAB bank subsidiaries would be closed.

11. On July 18, 1989, the FDIC Board of Directors formally accepted and approved the Steinhart proposal from among four proposals submitted to the Board. The terms of the other three proposals do not appear in the record. At that time the FDIC Board also resolved that upon the closing of TAB/FTW, the FDIC would arrange a P & A transaction with the Bridge Bank that would result in the payment in full of the probable claims of all the non-subordinated general creditors of TAB/FTW except for the obligations owed to creditors who were TAB Holding subsidiaries.

12. On July 20, 1989, the Comptroller declared each of the TAB subsidiary banks, except those suing here, insolvent and appointed the FDIC as receiver of each. The parties agree that the TAB subsidiary banks that are not suing here were insolvent.

13. In connection with the insolvency of TAB/FTW, the FDIC obtained court approval for the transactions set forth in a P & A agreement, an indemnity agreement, and a contract of sale. Pursuant to those documents, all the obligations of TAB/FTW were assumed in full by the Bridge Bank except for (1) the Fed funds sold to TAB/FTW by other TAB subsidiary banks; (2) the CDs in excess of $100,000 purchased from it by other TAB subsidiary banks; and (3) certain contingent and off-book liabilities.

14. On that same day, July 20, 1989, the FDIC gave the Comptroller a statement that the TAB subsidiary banks would receive no more than 67% of the face amount of the TAB/FTW liabilities owed to each TAB subsidiary bank.

15. Thereafter, the Comptroller decided that each of the ten Plaintiff National Bank Subsidiaries was insolvent, and appointed the FDIC as receiver for each.

16. If the liabilities of TAB/FTW to the Plaintiff National Bank Subsidiaries had been paid or assumed in full, the Comptroller admits that he would not have declared any of the Plaintiff National Bank Subsidiaries insolvent.

17. Prior to the closing of the TAB subsidiary banks on July 20, 1989, the Texas Banking Commissioner was in contact with the FDIC. The FDIC informed the Commissioner of the substance of the decisions made by the FDIC Board of Directors on July 18, 1989.

18. On July 20, 1989, the FDIC informed the Commissioner of the closing of TAB/FTW, and that the TAB/FTW liabilities owed to the Plaintiff State Banking Subsidiaries would only be paid at 67% of their face value.

19. The Commissioner thereupon declared each of the Plaintiff State Bank Subsidiaries insolvent and appointed the FDIC as receiver for each.

20. If the liabilities of TAB/FTW to the Plaintiff State Bank Subsidiaries had been paid or assumed in full, the Commissioner admits that he would not have declared either of them insolvent on that date.

21. On July 20, 1989, Plaintiffs moved for a temporary restraining order from this Court to prevent the declaration of their insolvency and sale. After a conference with counsel, the Court denied the TRO request on July 21, 1990.

22. Subsequently, the parties agreed to allow the sale of the TAB system to go forward, and to submit the case for disposition on cross-motions for summary judgment and stipulated facts. The parties further agreed that if the FDIC is held liable to the Plaintiffs, Plaintiffs will recover $5 million in lieu of other recovery.

Further Allegations by Plaintiffs

Plaintiffs assert that in effect, the FDIC assessed TAB Holding and its solvent affiliates for the losses the FDIC expected to incur in connection with the failure of the "truly insolvent" TAB bank subsidiaries. The real reason behind the exclusion of Plaintiffs' claims from the assumption agreement, Plaintiffs contend, was a need by the FDIC to fulfill its contractual commitment to Deposit Guaranty to sell the entire TAB banking system as a package, including the solvent banks. The only way the FDIC could sell the solvent banks was to declare them insolvent, and the only way to do that was to devalue their assets placed in TAB/FTW. This allegation is strongly supported by the following evidence:

(1) the Comptroller is a member of the FDIC Board of Directors and participated in the meetings and decisions of the FDIC's Board of Directors leading up to the events of July 20, 1989, Stipulated Facts at ¶ 7;

(2) the Comptroller investigated and reported upon the status of the Plaintiff banks shortly before July 20, and did not criticize the Fed funds bought from, or the CDs on deposit with, TAB/FTW in that report, Stipulated Facts at ¶ 23; Affidavit of Joseph M. Grant, filed October 30, 1989, at ¶ 3;

(3) TAB Holding's chairman alleges that he was advised that he should keep the level of interbank obligations steady to avoid the FDIC taking action to close all the banks, Affidavit of Joseph M. Grant, filed October 30, 1989, at ¶¶ 5-7;

(4) the Steinhart Proposal, accepted by the FDIC before the closure of any of the banks, assumed that all of the TAB banks would be sold as a package;

(5) the Comptroller and the Commissioner both have admitted that if the assets of the Plaintiff Banks in TAB/FTW had been paid in full, they would not have declared the Plaintiff Banks insolvent.

The FDIC argues in response that the decision to exclude the TAB-affiliated claims was designed to further its statutory mission to preserve confidence in the banking system...