United W. Bank v. Office of the Comptroller of the Currency
| Decision Date | 05 March 2013 |
| Docket Number | Civil Action No. 11–0408(ABJ). |
| Citation | 928 F.Supp.2d 70 |
| Parties | UNITED WESTERN BANK, Plaintiff, v. OFFICE OF THE COMPTROLLER OF THE CURRENCY, et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
OPINION TEXT STARTS HERE
Andrew L. Sandler, Samuel John Buffone, Liana R. Prieto, Buckleysandler LLP, Kirby D. BehreLawrence Kaplan, Paul Hastings LLP, Michael R. Williams Buckleysandler LLP, Washington, DC, Theodore J. Abariotes, United Western Bancorp, Inc., Denver, CO, for Plaintiff.
Christopher A. Sterbenz, Gregory F. Taylor, Office of The Comptroller of The Currency, Washington, DC, for Defendants.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) grants the Director of the Office of Thrift Supervision (“OTS” or “the agency”) “exclusive power and jurisdiction” to appoint a receiver or conservator for a savings association “if the Director determines, in the Director's discretion, that 1 or more of the grounds specified in section 1821(c)(5) of this title exists.” 12 U.S.C. § 1464(d)(2)(A)-(B) (2006) (amended July 21, 2011). Although the agency's decision to appoint a receiver is highly discretionary, it is not immune from judicial review. In the event of the appointment of a receiver, “the association may, within 30 days thereafter, bring an action ... in the United States District Court for the District of Columbia, for an order requiring the Director to remove such conservator or receiver.” Id. § 1464(d)(2)(B).
In this case, plaintiff United Western Bank (“the Bank” or “the association”) asks the Court to set aside the January 21, 2011 decision by the Acting Director of OTS to appoint the Federal Deposit Insurance Corporation (“FDIC”) as receiver for the Bank. Compl. [Dkt. # 1] ¶ 1; see also United Western Bank's Mot. for Summ. J. (“Pl.'s Mot.”) [Dkt. # 99] at 1. The Bank has moved for summary judgment contending that OTS's appointment decision should be overturned because it “was arbitrary, capricious, an abuse of discretion, and not in accordance with FIRREA's requirements.” See Mem. in Supp. of Pl.'s Mot. for Summ. J. (“Pl.'s Mem.”) [Dkt. # 99] at 2.
Defendants—the Office of the Comptroller of the Currency (“OCC”) and Thomas Curry, Comptroller of the Currency—oppose the motion, and they have filed their own cross-motion for summary judgment. They assert that placing the Bank into receivership was a proper exercise of discretion under the FIRREA because the Acting Director's decision was based on three independent statutory grounds and supported by the administrative record. Defs.' Mem. in Supp. of their Mot. for Summ. J. and in Opp. to Pl.'s Mot. for Summ. J. ( ) [Dkt. # 111] at 1, 9. Because the Court finds that the Bank has failed to show that OTS's decision was arbitrary or capricious, the Court will deny the Bank's motion and grant defendants' cross-motion.
The Bank contends that it was not “necessary” for the agency to take the drastic step of placing the Bank into receivership on the date that the Acting Director issued his decision. Tr. [Dkt. # 112] 26:8–12. But that is not the proper inquiry. The law does not invite the Court to make its own judgment about whether it would have been feasible, appropriate, or even preferable, for the agency to wait; the sole question presented by this case is whether the agency action was unreasonable.
In forcefully worded pleadings, the Bank passionately insists that the agency's attitude took a “sudden” and inexplicable turn in December of 2011, and that the regulators surprised the bank with unrealistic deadlines and unnecessary requirements. Pl.'s Mem. at 36–37; Reply in Supp. of Pl.'s Mot. for Summ. J. (“Pl.'s Reply”) [Dkt. # 106] at 5. But any change in the regulators' approach was prompted by the seismic changes in the nation's economy, and more particularly, by the ongoing and significant deterioration of the Bank's financial condition. The review of the administrative record in its entirety reveals that the agency's decision was the culmination of a steady progression and not, as the Bank would have the Court conclude, a sudden wrenching of gears. In early to mid–2009, the Bank had begun to suffer substantial losses, and the agency began voicing concerns about the adequacy of the Bank's capitalization, its reliance on institutional investors, its liquidity, and its investment in mortgage-backed securities. The same concerns that led to the receivership were the focus of a 2009 Report of Examination, a Memorandum of Understanding between the Bank and the agency entered into in December of 2009, a January 2010 examination, and even a cease and desist order agreed to by the Bank in June of 2010. The Bank emphasizes that the record is devoid of evidence of criminal activity or malfeasance on the part of the Bank's managers, and the Court has little doubt that they sincerely believed in their ability to save the institution until the moment the door was closed. But the absence of those factors cannot alter the result compelled by the review of the record under the deferential standard the Court is required to apply.
United Western Bank is a federally chartered savings association under 12 U.S.C. § 1464(a)(2) that was wholly owned by United Western Bancorp, Inc. (“the holding company”) at all times relevant to this case. Administrative Record (“AR”) 11. With primary operations in Colorado, the Bank originated construction, land, commercial real estate, and non-mortgage commercial loans, maintained a large portfolio of non-agency mortgage-backed securities, and relied on institutional custodial deposits as its primary source of funding.1AR 11, 23. The Bank's largest institutional depositors were: Equity Trust Company (“ETC”), Matrix Settlement and Clearing Services, LLC (“MSCS”), Legent Clearing, and Lincoln Trust Company (“LTC”). AR 32.
During the relevant period, the Office of Thrift Supervision was the primary regulator for savings associations, and as such, was responsible for their “examination, safe and sound operation, and regulation.” 12 U.S.C. § 1463(a)(1) (2006) (amended July 21, 2011); 2see also12 C.F.R. § 563.170(a) (). During its examinations, OTS evaluated the financial health of savings associations using a variety of metrics. The agency rated the associations' Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk (“CAMELS”) on a scale of one to five with one being the best rating. See AR 22 n.1, 100. Banks received a separate rating for each of the CAMELS categories as well as a composite CAMELS rating reflecting the bank's overall condition. See, e.g., United Western Bank 2007 Report of Examination, AR 55. In addition to the CAMELS rating, OTS also classified the adequacy of a bank's capital according to the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), a portion of which was later codified at 12 U.S.C. § 1831 o, and is commonly known as the Prompt Corrective Action (“PCA”) statute. The PCA divides bank capital levels into five different categories, ranging from “well capitalized” to “critically undercapitalized.” 12 U.S.C. § 1831 o(b)(1). Negative ratings under these metrics can expose a bank to certain statutorily mandated regulatory responses.
The administrative record in this case confirms that prior to early 2009, the Bank enjoyed “an unbroken 16 years of profitability” and correspondingly high CAMELS and PCA capital ratings. AR 1474. As a result of the global financial crisis, the Bank's earnings, asset quality, and capital ratios deteriorated, and one of its largest sources of liquidity began withdrawing its funds. AR 11–12, 2475. The Bank based its hope for survival on the consummation of a highly contingent private sector recapitalization plan. AR 972–1091. The plan depended upon the agency's agreement to lift certain requirements it had previously imposed, AR 1185–90, but the agency declined to do so, AR 4. Ultimately, the agency determined that there were three statutory grounds supporting placing the Bank into receivership. AR 5–7; see also Recommendation for Appointment of the Federal Deposit Insurance Corporation (FDIC) as Receiver for United Western Bank, (“S–Memo”), AR 21–44. Based on this recommendation, on January 21, 2011, the Acting Director of OTS appointed the FDIC as a receiver for the Bank pursuant to 12 U.S.C. § 1464(d)(2)(A). AR 2–8.
The chronology of the events that led to the imposition of the receivership is as follows:
I. October 2007 OTS Examination
Between October 2007 and January 2008, OTS conducted a comprehensive risk-focused examination of the Bank's operations during the fifteen-month period ending on June 30, 2007. AR 51–52, 55. The 2007 Report of Examination (“2007 ROE”) was overall positive. In the report, the OTS examiners concluded that the Bank's asset quality, earnings, and liquidity sources were satisfactory, and they gave the Bank a CAMELS composite rating of 2, which meant that the Bank was “fundamentally sound[,] ... stable and ... capable of withstanding business fluctuations.” AR 56–57, 60, 100. The report also noted that as of June 30, 2007, approximately 73% of the Bank's total deposits were attributable to four institutional depositors. AR 81. Although the agency cautioned that the Bank “continue[d] to face risk from its concentration in institutional deposits,” it tempered this statement by concluding that the Bank's continued efforts to increase its retail deposits and its “contractual agreements with some of the largest of these depositors help[ed] protect the institution's liquidity position.” AR 57. Additionally, the OTS examiners stated that although the Bank was “well capitalized” under PCA standards, it had to “remain cognizant” of its concentration in institutional deposits and “continue to maintain a prudent level of capital above the ‘well...
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