Wachtel v. Office of Thrift Supervision
| Decision Date | 15 January 1993 |
| Docket Number | 91-1590,Nos. 91-1580,91-1591 and 91-1600,s. 91-1580 |
| Parties | , 61 USLW 2439 David K. WACHTEL, Jr. and Hickory Investments, Inc., Petitioners, v. OFFICE OF THRIFT SUPERVISION, Respondent. David K. WACHTEL, Jr., John W. Haley, Charles W. Bone, W.L. Bone, J. Thomas Holland, II, and Hickory Investments, Inc., Petitioners, v. Timothy RYAN, Director, Office of Thrift Supervision, Respondent. John W. HALEY, Petitioner, v. OFFICE OF THRIFT SUPERVISION, Respondent. J. Thomas HOLLAND, II, Petitioner, v. OFFICE OF THRIFT SUPERVISION, Respondent. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
John C. Deal, Columbus, OH, with whom Robert J. Walker, Bob F. Thompson, Bennett L. Ross, Aubrey B. Harwell, Jr., and Ronald G. Harris, Nashville, TN, Attorneys, were on the joint brief, for petitioners David K. Wachtel Jr., John W. Haley, and Hickory Investments, Inc. J. Houston Gordon, Covington, TN, and Joseph N. Barker, Nashville, TN, Attorneys, were on the joint brief for petitioners Charles W. Bone, W.L. Bone, and J. Thomas Holland, II.
Dirk S. Roberts, Acting Asst. Chief Counsel, Office of Thrift Supervision, with whom Harris Weinstein, Chief Counsel, Carolyn B. Lieberman, Senior Deputy Chief Counsel, Thomas J. Segal, Deputy Chief Counsel, Geraldine Gennet, Sr. Trial Atty., and Frances M. Recio, Trial Atty., Office of Thrift Supervision, Washington, DC, were on the brief, for respondent. Steven W. Dimmick and Jory M. Hochberg, Washington, DC, also entered an appearance for respondent.
Before: SILBERMAN, BUCKLEY, and D.H. GINSBURG, Circuit Judges.
Opinion for the Court filed by Circuit Judge SILBERMAN.
Petitioners, a savings bank's holding company and its stockholders, seek review of an order issued by the Office of Thrift Supervision (OTS). The order directs petitioners to pay OTS $5.3 million on the ground that they were subject to a condition imposed in writing which required them to maintain the net worth of the savings bank subsidiary. Petitioners deny the existence of an enforceable agreement and alternatively contend that 12 U.S.C. § 1818 requires OTS to demonstrate either unjust enrichment or reckless disregard of their legal obligations before it can impose such an order. OTS has interpreted the statute not to require either showing. We reject OTS's rather bizzare construction of the statute. Absent a finding of the requisite misconduct to seek relief under § 1818(b)(6)(A), we believe OTS lacks authority to issue its order, and, therefore, we grant the petition for review.
Hickory Investments, Inc. is a holding company that owns 94% of Investors Federal Savings Bank of Nashville, Tennessee (the bank). 1 The individual petitioners, David K. Wachtel, Jr., John W. Haley, Charles W. Bone, W.L. Bone, and J. Thomas Holland, together own all of Hickory's stock. In 1977, before any of the individual petitioners purchased Hickory stock, the bank applied to have the Federal Savings and Loan Insurance Corporation (FSLIC) insure its accounts. Hickory filed an application with the Federal Home Loan Bank Board (FHLBB) to retain control of the bank, pursuant to former 12 U.S.C. § 1730a(e) (). Both applications were approved on March 4, 1977. FHLBB conditioned its approval on Hickory's agreement to "stipulate" that it would cause the net worth of the bank to be maintained in accord with the requirements of 12 C.F.R. § 563.13 (currently codified at 12 C.F.R. § 567.2) "as now or hereinafter in effect" and would "infuse sufficient and additional equity capital to effect compliance with such requirement." Hickory's board, thereupon, passed two resolutions that mirrored the language of the FHLBB approval notice (the 1977 stipulations).
Two years later, the first of the individual petitioners, Charles W. Bone, invested in Hickory. He bought 11% of Hickory's common stock and became a director of the bank. The ownership structure of Hickory further changed in 1984 when the four other individual petitioners purchased shares. Hickory, pursuant to former 12 U.S.C. §§ 1730(q) and 1730a(e) (both repealed by FIRREA), sent a "Notice of Change in Control" to the FHLBB regional office in Cincinnati, Ohio. Since Hickory simultaneously wanted to increase its stake in the bank from 73% to 90% and proposed to borrow funds to finance this acquisition, it also filed a debt application (Form H-(g)) with the FHLBB. The regional office approved Hickory's change of control but conditioned approval of the debt application on the provision of certain stipulations. The individual petitioners were required to affirm Hickory's obligation to maintain the bank's net worth under the 1977 stipulations and to stipulate further that they would cause the bank's net worth to be maintained in accord with the requirements of 12 C.F.R. § 563.13 "as now or hereinafter in effect" and would "infuse sufficient and additional equity capital to effect compliance with such requirement." In response, the individual petitioners sent a letter dated August 21, 1984, to the regional director, furnishing the requested stipulation (the 1984 stipulations). On that date, all of the individual petitioners became directors of Hickory, and all but W.L. Bone became directors of the bank.
By June of 1986, the bank had fallen short of its regulatory net worth requirements by $256,000. Hickory planned to borrow additional capital to cure the deficiency and, accordingly, filed a second debt application on September 10, 1986. The regional director once again conditioned approval on the individual petitioners making certain stipulations, including the net worth maintenance agreement. Petitioners furnished the stipulation but added a parenthetical describing their obligation to maintain the bank's net worth as "on a best efforts basis as it relates to the use of personal assets." (The 1986 stipulations). The regional director, however, did not accept the "best efforts" language. The individual petitioners signed personal guarantees to the lender to secure the loan.
After Hickory had injected the borrowed funds downstream as bank capital, the bank maintained its regulatory net worth levels throughout 1987 and 1988. But by early 1989, the bank was again suffering a net worth deficiency. Several times during 1989, FHLBB, and then its successor agency, OTS, criticized the bank's net worth shortfall and requested that Hickory and the individuals take corrective actions. While Hickory and the individuals searched for a source of additional capital through an acquisition or merger, the bank's net worth condition further deteriorated. OTS filed a Notice of Charges against Hickory and the individuals under its cease and desist authority, 12 U.S.C. § 1818(b)(1), on January 30, 1990, citing their failure to maintain the bank's net worth. And, on March 9, 1990, OTS placed the bank under the Resolution Trust Corporation's receivership. At that time, the bank had a net worth deficit of $5.3 million, and the individual petitioners owed $2 million because of their personal guarantees of the 1986 loan.
OTS alleged that Hickory and the individuals had violated a condition imposed in writing by the agency to maintain the bank's net worth--a necessary predicate for OTS to issue a cease and desist order. 12 U.S.C. § 1818(b)(1). OTS also alleged that all the petitioners had been unjustly enriched and that the individual petitioners had acted in reckless disregard of their legal obligations. These allegations, if established, would have satisfied the requirements for the imposition of a monetary remedy under 12 U.S.C. § 1818(b)(6)(A). The ALJ, after a hearing, recommended against a cease and desist order because, in his view, none of Hickory's applications or accompanying stipulations constituted written agreements. Furthermore, the ALJ found no evidence to support a finding of reckless conduct or unjust enrichment necessary for the OTS to order payments under § 1818(b)(6)(A). The OTS Director rejected the ALJ's recommended decision and determined that the requests for the 1977, 1984, and 1986 stipulations were conditions imposed in writing. Without finding unjust enrichment or reckless disregard of legal obligations, he ordered the petitioners to pay $5.3 million to rectify the bank's net worth deficiency. Hickory and the individual directors petition for review.
Petitioners present us, through the auspices of two law firms, with a veritable blizzard of arguments (including even constitutional claims) challenging OTS' order. Perhaps the most vexing question that emerges is whether petitioners ever violated a "condition imposed in writing by the agency" or a "written agreement" with OTS--only then would OTS have authority under § 1818(b)(1) to impose a cease and desist order of any kind. The parties argue extensively as to whether the various communications between OTS' predecessors and Hickory (or the individual petitioners) constitute written agreements or conditions within the meaning of the statute, or whether they should properly be thought of as more informal understandings. We do not have to decide this issue, however, because assuming, arguendo, that OTS' view on this matter (that the agreements to stipulate are conditions imposed in writing) is correct, we agree with petitioners that OTS wholly lacked authority to issue the order directing petitioners to pay the government $5.3 million. 2
The relevant sections of the statute, §§ 1818(b)(1) and 1818(b)(6), are as follows:
12 U.S.C. § 1818(b)(1):
If ... the agency has reasonable cause to believe that the depository institution or any institution-affiliated party ... is violating or has violated, or the agency has reasonable cause to believe that the depository institution or any institution-affiliated par...
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