VanLEEUWEN v. Farm Credit Admin.

• Decision Date: 28 December 1984
• Docket Number: Civ. No. 83-1413-PA.
• Citation: 600 F. Supp. 1173
• Parties: George VANLEEUWEN, Herbert C. Coleman, William A. Kessi, Ed Ammon, and Fred Kaser, Plaintiffs, v. The FARM CREDIT ADMINISTRATION; Donald J. Wilkinson; the Federal Intermediate Credit Bank of Spokane, Washington; Larry K. Butterfield; Twelfth Farm Credit District; and Ronald Bokma, Defendants.
• Court: U.S. District Court — District of Oregon

600 F. Supp. 1173

George VANLEEUWEN, Herbert C. Coleman, William A. Kessi, Ed Ammon, and Fred Kaser, Plaintiffs, v. The FARM CREDIT ADMINISTRATION; Donald J. Wilkinson; the Federal Intermediate Credit Bank of Spokane, Washington; Larry K. Butterfield; Twelfth Farm Credit District; and Ronald Bokma, Defendants.

Civ. No. 83-1413-PA.

United States District Court, D. Oregon.

December 28, 1984.

William D. Brandt, Ferder, Ogdahl & Brandt, Salem, Or., Henry A. Carey, Henry A. Carey, P.C., Portland, Or., for plaintiffs.

Clifford N. Carlsen, Jr., R. Alan Wright, Richard A. Edwards, Miller, Nash, Wiener, Hager & Carlsen, Portland, Or., for defendants The Federal Intermediate Credit Bank of Spokane, Wash., Larry K. Butterfield, Twelfth Farm Credit Dist., and Ronald Bokma.

Charles H. Turner, U.S. Atty., Jack G. Collins, Asst. U.S. Atty., Portland, Or., Richard K. Willard, Acting Asst. Atty. Gen., Sandra M. Schraibman, Stanley Dalton Wright, Wendy B. Kloner, U.S. Dept. of Justice, Civ. Div., Washington, D.C., for defendants The Farm Credit Ass'n and Donald J. Wilkinson.

PANNER, Chief Judge.

Plaintiffs are five shareholders and former directors of the Willamette Production Credit Association (WPCA). Defendants are The Farm Credit Association (FCA); its Governor, Donald J. Wilkinson; The Federal Intermediate Credit Bank of Spokane, Washington (FICB); its President, Larry K. Butterfield; the Twelfth Farm Credit District; and the Chairman of its Board, Ronald Bokma. Plaintiffs' initial complaint alleged that the FCA improperly devalued security on loans and charged off assets when performing a special audit of the WPCA's books. On October 5, 1983, I restrained defendants from appointing a receiver for the WPCA and from beginning its liquidation. On October 26, 1983, I granted a preliminary injunction which declared the FCA's June 30, 1983, special audit to be null and void, set aside the August 10, 1983, order of the FCA governor, enjoined defendants from soliciting or assisting any WPCA borrower to transfer to the Central Oregon Production Credit Association, and restored the status quo of the WPCA to what it was as of August 9, 1983. This restoration included reinstatement of plaintiffs as WPCA directors, reinstatement of the WPCA's bylaws, and withdrawal of a finding of impairment of the WPCA's stock. See generally VanLeeuwen v. The Farm Credit Assoc., 577 F.Supp. 264 (D.Or.1983).

On May 15, 1984, I dismissed this action with prejudice based on a stipulated agreement. See Appendix I, Stipulation and Agreement of Dismissal. The parties agreed that the WPCA was in default and insolvent. They further agreed that, based on an adequate second examination of the WPCA, the FCA had the authority to place the WPCA into involuntary liquidation. The WPCA requested the FCA approve the board's March 8, 1984, resolution except for item 2 and place the WPCA in voluntary liquidation in accord with that resolution. The FCA agreed to approve the charter of a new production credit association in accordance with the terms of a May 4, 1984, letter of Governor Wilkinson. The parties agreed to a dismissal with prejudice.

On December 5, 1984, nunc pro tunc, as of November 29, 1984 at 8:30 A.M., I granted plaintiff's motion to set aside the judgment pursuant to Fed.R.Civ.P. 60(b)(6) for the purpose of determining, through an evidentiary hearing, whether the defendants violated the settlement agreement as alleged by plaintiffs. 600 F.Supp. 1161. I also issued a temporary restraining order (TRO) enjoining any further effort toward the liquidation of the WPCA and litigation proceeding in the Circuit Court for the State of Oregon (Willamette Production Credit Assoc., et al. v. Kaser, Civil No. 84-7-98). I renewed this TRO on December 11, 1984. On December 21, 1984, I issued a preliminary injunction enjoining any further steps in the liquidation of the WPCA pending issuance of this more formal decision. I also denied defendants' motions for a stay pending appeal and the posting of a bond by plaintiffs.

For the reasons stated below, I find the defendants have not violated the settlement agreement, and I reinstate the initial judgment of dismissal with prejudice. The preliminary injunction issued on December 21, 1984, is dissolved effective Wednesday, January 2, 1985, at 5:00 P.M.

THE BOARD RESOLUTION OF MARCH 8, 1984

It is necessary first to determine whether or not the March 8, 1984 WPCA Resolution is part of the settlement agreement. Title 12 U.S.C. § 2183(a) provides, in part:

No institution of the System shall go into voluntary liquidation without the consent of the FCA and with such consent may liquidate only in accordance with regulations prescribed by the FCA.

The only regulation promulgated by the FCA dealing with liquidation is 12 C.F.R. § 611.1130 which states, in part:

The board of directors of an association, by the adoption of an appropriate resolution, may place an association in voluntary liquidation, subject to approval of the bank board and the FCA....

(Emphasis added).

The statute states that the only way for a production credit association (PCA) to voluntarily liquidate is in accordance with the FCA regulations. The only regulation dealing with liquidation states that the procedure for voluntary liquidation must be by a resolution of the board of the PCA. The statute and the regulation require a board resolution as part of any agreement to voluntarily liquidate a PCA.

The March 8, 1984 Resolution adopted by the WPCA Board pursuant to 12 C.F.R. § 1130 states that it will voluntarily liquidate the WPCA subject to a number of conditions. This Resolution makes it clear that any agreement by the WPCA to voluntarily liquidate was specifically conditioned upon the acceptance of these conditions by the FICB and the FCA.

The settlement agreement filed with the court in this case states, in part:

The board of directors of the WPCA has requested the Governor of the Farm Credit Administration to approve the board's resolution to place the WPCA in voluntary liquidation in accord with the terms of said resolution, with the exception of Item # 2 thereof....

(Appendix I, at pp. 4-5, emphasis added.) In a May 4, 1984 letter from Governor Wilkinson filed as part of the settlement agreement, he stated: "In connection with the dismissal, FCA will approve the action of the board to place the Willamette PCA in voluntary liquidation." (Appendix I at p. 12.)

The plain meaning of the statute, regulation, and settlement agreement show that:

(1) A voluntary liquidation of a PCA can only proceed after adoption of an appropriate resolution by the PCA's board;

(2) The appropriate WPCA resolution contained certain conditions which had to be met before the WPCA would agree to voluntary liquidation;

(3) The May 4, 1984 letter of the Governor approved the board's action, thereby approving the conditions of voluntary liquidation as well as the fact of voluntary liquidation itself;

(4) The settlement agreement states that any approval of the liquidation by the Governor must be in accord with the terms of the March 8, 1984 Resolution; and

(5) The board's resolution was attached to the stipulated settlement.

If the Governor was unwilling to accept the board's conditions, he had the option to reject them and either obtain a new resolution for voluntary liquidation or act under subparagraph (b) of section 2183 to effect an involuntary liquidation.

The board resolution is part of the settlement agreement.

DISCUSSION

The violations of the settlement agreement alleged by plaintiffs in their motion to set aside the judgment were:

(1) Lack of properly promulgated regulations;

(2) A "fire-sale" approach to liquidation caused, in part, by a lack of properly promulgated regulations;

(3) Filing an action against plaintiffs in state court;

(4) Violation of the court's protective order of May 10;

(5) Failure to provide required reports;

(6) Fraudulent representations about Class Two loans; and

(7) Defendants' intention never to form a viable PCA and secret plan to centralize.

I. Lack of Properly Promulgated Regulations.

The language of the statute authorizing voluntary liquidation of a PCA allows liquidation to occur only in accordance with FCA regulations. 12 U.S.C. § 2183(a). This statutory language clearly contemplates that the FCA must enact regulations governing liquidation and the FCA has conceded this at the preliminary injunction hearing. The one FCA regulation dealing with liquidation is 12 C.F.R. § 611.1130, supra. This regulation essentially restates the statute and allows an association to go into voluntary liquidation, subject to approval of the bank board and the FCA. It does not supply the essential procedures and substantive standards necessary to comply with the statutory mandate. See Curry v. Block, 738 F.2d 1556 (11th Cir. 1984) (Consolidated Farm and Rural Development Act created a right to uniform procedures and substantive standards so agency mandated to adopt regulations); United States v. Markgraf, 736 F.2d 1179 (7th Cir.1984); and Matzke v. Block, 732 F.2d 799 (10th Cir.1984). There is a serious question about whether the FCA can liquidate a PCA without having properly promulgated regulations. This lack of regulations may be posing hardships to the individual farmers whose loans are being foreclosed. The question before me, however, is whether the settlement agreement was procured by fraud or violated so as to justify setting aside the stipulation and the judgment of dismissal.

The settlement agreement states that the liquidation of the WPCA will be pursuant to section 1130 of the Farm Credit Regulations. (Appendix I at p. 4.) Plaintiffs agreed to the liquidation pursuant to this one regulation. The agreement does not require further regulations prior to the WPCA liquidation. The evidence shows that plaintiffs were aware of the existence of the Southern Idaho PCA Liquidation Plan when they signed the agreement and...