-
USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 95-1492
MIGUEL VILLAFA E-NERIZ,
INSURANCE COMMISSIONER OF PUERTO RICO,
Plaintiff - Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,
Defendant - Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. P rez-Gim nez, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Campbell, Senior Circuit Judge, ____________________
and Watson,* Senior Judge. ____________
_____________________
Carlos J. Morales-Bauz , with whom Rossell -Rentas & Rabell- _______________________ _________________________
M ndez was on brief for appellant. ______
J. Scott Watson, Counsel, Federal Deposit Insurance __________________
Corporation, with whom Ann S. DuRoss, Assistant General Counsel _____________
and Richard J. Osterman, Jr., Senior Counsel, Federal Deposit _________________________
Insurance Corporation, were on brief for appellee.
____________________
February 2, 1996
____________________
____________________
* Of the United States Court of International Trade, sitting by
designation.
TORRUELLA, Chief Judge. This appeal seeks review of a TORRUELLA, Chief Judge. ___________
decision of the United States District Court for the District of
Puerto Rico, which entered summary judgment on behalf of appellee
the Federal Deposit Insurance Corporation ("FDIC"), in its
corporate capacity. Appellant Miguel Villafa e-Neriz, Insurance
Commissioner of Puerto Rico (the "Commissioner") seeks to recover
FDIC deposit insurance for the $50,000 value of a certificate of
deposit (the "Certificate" or the "CD") purchased by the Guaranty
Insurance Company ("Guaranty"), which was assigned to the
Commissioner simultaneously with its purchase. The district
court held that the FDIC properly relied on the books and records
of an insolvent institution in making its determination that the
Commissioner was not entitled to deposit insurance. The sole
issue before us is whether the district court erred in granting
summary judgment against the Commissioner in his action against
the FDIC in its corporate capacity.1 For the reasons stated
herein, we affirm.
BACKGROUND BACKGROUND
The facts of this case are undisputed. On July 20,
1983, in compliance with the Puerto Rico Insurance Code's
statutory deposit requirement, 26 L.P.R.A. 801-809 (1976),
Guaranty purchased the six-month CD from the Girod Trust Company
____________________
1 In its corporate capacity, the FDIC functions as a bank
regulator and insurer of bank deposits. 12 U.S.C. 1818,
1821(a) (1988 & Supp. 1991). The Commissioner does not seek
review of that part of the district court decision that dismissed
the complaint as against the FDIC as receiver of the former Girod
Trust Company.
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("Girod" or the "Bank") in the principal amount of $50,000. On
the same day Guaranty assigned and conveyed its interest in the
Certificate to the Commissioner. Girod was not a party to the
assignment. Another document was executed on the same date,
entitled "Requisition to the Bank." This document stated, inter _____
alia, that Girod would not release the funds represented by the ____
CD, "whether the principal value or income thereof," without the
Commissioner's authorization. The Certificate was itself given
to, and remains with, the Commissioner.
Less than three months after purchasing the Certificate
from Girod, Guaranty executed a loan agreement, unrelated to the
CD, pursuant to which it borrowed $600,000 from Girod. A
promissory note for that amount, payable to Girod, evidenced the
loan, and was due on April 26, 1984. On January 17, 1984, the CD
became due, and was "rolled over" -- extended for a term of six
additional months -- at Guaranty's request. In the meantime,
Guaranty had fallen behind on payments due to the Bank under the
$600,000 loan agreement. On July 16, 1984, the CD came due
again. Two days after its maturity, on July 18, $50,000 in
proceeds from the Certificate was credited toward Guaranty's
outstanding indebtedness under the $600,000 loan agreement.
On August 16, 1984, Girod was declared insolvent and
the FDIC was appointed as receiver. Four months later, on
December 19, 1984, Guaranty also became insolvent, and the
Commissioner was appointed its receiver in turn. As such, on
August 25, 1986, the Commissioner filed a proof of claim with the
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FDIC, seeking payment on the CD. Having received no payment on
the claim, the Commissioner filed a complaint against the FDIC in
the Superior Court of Puerto Rico on May 22, 1991, seeking to
recover the proceeds of the CD. The FDIC removed the action to
federal court pursuant to 12 U.S.C. 1819(b), and the parties
filed cross-motions for summary judgment. Without ruling on the
motions, the district court requested submission of briefs on the
application of 12 U.S.C. 1823(e). The court then held that
that section barred the Commissioner's reliance upon either the
Assignment or the Requisition, and ordered summary judgment in
favor of the FDIC. On appeal in Villafa e-Neriz v. FDIC, 20 F.3d _______________ ____
35 (1st Cir. 1994), this Court reversed the judgment of the lower
court and remanded the case for further proceedings consistent
with its opinion. On February 7, 1995, the district court
entered summary judgment dismissing the complaint. It is
undisputed that the entire amount of the Certificate was set off
against Guaranty's indebtedness, that the CD no longer appeared
on the bank's books and records at the time the bank failed, and
that the Certificate itself remains in the Commissioner's
possession.
DISCUSSION DISCUSSION
A. Standard of Review A. Standard of Review __________________
This case centers on whether the FDIC, in its corporate
capacity, was correct in determining there was no insured
deposit. As the essential facts are not in dispute, and all that
is before us is a question of law, our review of the district
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court's decision is de novo. See, e.g., FDIC v. Keating, 12 F.3d _______ ___ ____ ____ _______
314, 316 (1st Cir. 1993). This Circuit has not yet decided which
standard a district court should use when reviewing FDIC
insurance claim determinations.
There is a dispute among the circuits as to the
underlying standard that should apply to the review of an FDIC
insurance claim determination. The majority of circuits which
have addressed the issue apply the deferential standard set out
in Section 706 of the Administrative Procedure Act ("APA"), 5
U.S.C. 701-706 (1994). See, e.g., Metro County Title, Inc. v. ___ ____ ________________________
FDIC, 13 F.3d 883, 886 (5th Cir. 1994) (direct petition to court ____
of appeals for review of FDIC determination); Nimon v. RTC, 975 _____ ___
F.2d 240 (1992) (direct petition to court of appeals for review
of Resolution Trust Corporation determination); In re Collins ______________
Sec. Corp., 998 F.2d 551, 553 (8th Cir. 1993) (review of district __________
court decision); Fletcher Village Condominium Ass'n. v. FDIC, 864 ___________________________________ ____
F. Supp. 259, 263 (D. Mass. 1994). The APA mandates that
reviewing courts set aside agency findings that are "arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law." 5 U.S.C. 706(2)(A). Under this
deferential standard a court would "review the evidence anew and
determine whether the administrative action was arbitrary and
capricious." First Nat'l Bank of Fayetteville v. Smith, 508 F.2d ________________________________ _____
1371, 1374 (8th Cir. 1974), cert. denied, 421 U.S. 930 (1975); ____________
see, e.g., Hymel v. FDIC, 925 F.2d 881, 883 (5th Cir. 1991). ___ ____ _____ ____
However, a recent decision by the D.C. Circuit creates
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a second option, holding that review of FDIC determinations, to
be undertaken at the district court level, should be de novo __ ____
rather than under the deferential APA standard. See Callejo v. ___ _______
RTC, 17 F.3d 1497 (D.C. Cir. 1994). The Callejo court based its ___ _______
rejection of the APA on its reading of 12 U.S.C. 1821(f) (1988
& Supp. 1991), which provides for judicial review of disputed
deposit insurance claims, and its revision under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989.
Callejo, 17 F.3d at 1501 (concluding that 1821(f)(3) "supplants _______
the APA and sets up a different relationship between the agencies
and the courts"); see Pub. L. No. 101-73, 103 Stat. 183 (1989); ___
cf. Pennsylvania v. FDIC, 881 F. Supp. 979, 983 (E.D. Penn. 1995) ___ ____________ ____
(rejecting Callejo's logic but nonetheless applying de novo _______ __ ____
standard of review on other grounds). This Circuit has expressly
adopted the aspect of the Callejo decision which holds that _______
initial jurisdiction to review claims for insurance benefits lies
in the district court rather than in the court of appeals.
Massachusetts v. FDIC, 47 F.3d 456, 458 (1st Cir. 1995). _____________ ____
However, the decision in that case was limited to Callejo's _______
jurisdictional holding. Id. at 460. Thus, Massachusetts v. FDIC ___ _____________ ____
does not determine the district court's standard of review in the
present case, and our decision to postpone the discussion does
not clash with our earlier decision.
The district court did not explicitly state which
standard of review it was applying, although it did make an
isolated reference, midway through its opinion, to the
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"arbitrary, capricious and contrary to law" standard. We need
not determine which standard the district court should have
applied at this time, since we agree with the FDIC that under
either the APA "arbitrary and capricious" or the Callejo de novo _______ __ ____
standard, the district court's decision is correct. Thus we
postpone discussion regarding the applicable standard of review
in light of Callejo for another day. _______
B. Was this an insured deposit? B. Was this an insured deposit? ____________________________
At the core of the parties' dispute is whether the
Commissioner was entitled to deposit insurance. That issue
depends on whether there was an insured deposit at the time of
Girod's failure, a question which in turn hinges on whether and
when erroneous bank records are conclusive. It is undisputed
that the Bank's account records did not disclose the existence of
an account on the date Girod failed, and that the original
Certificate is in the possession of the Commissioner, and has
been since July 1983. The FDIC argues that under its regulations
and the applicable case law, it is justified in relying solely on
the failed Bank's account records, so that its refusal to provide
insurance was proper. The Commissioner counters that under
Puerto Rico law the FDIC should have known the setoff was
improper, because the Certificate was not in the bank's
possession. Because we agree with the FDIC, we affirm the
decision of the court below.
In the Federal Deposit Insurance Act, 12 U.S.C.
1811-1831(d) (1982) (as amended), Congress defined "deposit" to
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mean "the unpaid balance of money or its equivalent received or
held by a bank or savings association in the usual course of
business and for which it has given or is obligated to give
credit, either conditionally or unconditionally, . . . or which
is evidenced by its certificate of deposit . . . ." 12 U.S.C.
1813(l)(1) (Supp. 1995). "Insured deposit" is defined in turn as
"the net amount due to any depositor for deposits in an insured
depository institution as determined under sections 1817(i) and
1821(a) of this title." 12 U.S.C. 1813(m)(1) (1988 & Supp.
1991).
The FDIC contends that it is entitled to rely
exclusively on the account records of the failed institution --
and so it did not have to look further afield to track down the
Certificate. Our analysis of the FDIC regulations, the body of
case law, and the policy concerns underlying these regulations
leads us to agree. First, the FDIC regulations, promulgated
under congressional authorization, Abdulla Fouad & Sons v. FDIC, _____________________ ____
898 F.2d 482, 484 (5th Cir. 1990), themselves provide that the
amount of an insured deposit at the closing of a failed bank
shall be "the balance of principal and interest unconditionally
credited to the deposit account as of the date of default of the
insured depository institution." 12 C.F.R. 330.3(i)(1) (1995).
Indeed, the regulations specify that, while ownership under state
law is one prerequisite for insurance coverage, the deposit
account records are controlling:
Deposit insurance coverage is also a
function of the deposit account records
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of the insured depository institution, of
recordkeeping requirements, and of other
provisions of this part, which, in the
interest of uniform national rules for
deposit insurance coverage, are
controlling for purposes of determining
deposit insurance coverage.
12 C.F.R. 330.3(h) (including regulatory exceptions not
relevant here). Reviewing courts have treated these regulations
implementing and interpreting the statutory provisions dealing
with deposit insurance with some deference.2 See FDIC v. ___ ____
Philadelphia Gear Corp., 476 U.S. 426, 437-38 (1986); see, e.g., _______________________ ___ ____
Raine v. Reed, 14 F.3d 280, 283 (5th Cir. 1994); Collins, 998 _____ ____ _______
F.2d at 555; cf. Chevron U.S.A. Inc. v. Natural Resources Defense ___ ___________________ _________________________
Council, Inc., 467 U.S. 837, 842-44 (establishing doctrine ______________
treating agency's view of a statute with deference when the
statute is ambiguous), reh'g denied, 468 U.S. 1227 (1984). ____________
Second, a series of policy considerations underlie the
FDIC's practice of relying on the books and records in making
deposit insurance determinations. In purchase and assumption
transactions,3 the FDIC often must make its determinations
____________________
2 The Commissioner asks us to note that "deposit account
records" are defined to include certificates of deposits and
"other books and records of the insured depository institution, .
. . which relate to the insured depository institution's deposit
taking function." 12 C.F.R. 330.1(d) (1995). This language
proves unhelpful, however, since it is undisputed that there was
no Certificate among the Bank's records at the time of failure.
Had the Certificate remained in the records, this case would
likely not have arisen.
3 A purchase and assumption transaction occurs when, in its
capacity as receiver, the FDIC sells a failed bank's healthy
assets to a purchasing bank in exchange for that bank's promise
to pay the depositors of the failed bank. FDIC-receiver next
sells the 'bad' assets to itself as FDIC-corporate. FDIC-
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overnight. See Raine, 14 F.3d at 283 ("We will not undermine the ___ _____
speed and efficiency of bank takeovers by imposing a requirement
upon the FDIC to locate and evaluate every possible avenue of
disputed liability in implementing the takeover of a failed
bank."); McCloud v. FDIC, 853 F. Supp. 556, 559 (D. Mass. 1994). _______ ____
Making quick determinations both facilitates the public's access
to its savings, Abdulla Fouad, 898 F.2d at 485, and maintains the _____________
going concern value of the failed bank, Raine, 14 F.3d at 283. _____
Finally, the regulations also avoid fraudulent increases in
insurance coverage by preventing the creation of separate trust
accounts after default has occurred. See Baskes v. FSLIC, 649 F. ___ ______ _____
Supp. 1358, 1360 (N.D. Ill. 1986).
Third, there is "a well-grounded history of permitting
the FDIC to rely exclusively on the books and records of an
insolvent institution in effectuating the takeover of banks and
in making the many deposit insurance determinations which are
necessary to that task." Raine, 14 F.3d at 283; see McCloud, 853 _____ ___ _______
F. Supp. at 559 (describing the "seemingly solid phalanx of law
establishing the conclusiveness of bank account records"); see ___
also Abdulla Fouad, 898 F.2d at 484 (providing statutory and ____ _____________
regulatory basis for FDIC reliance on deposit account records).
____________________
receiver uses the money received to pay the purchasing bank to
make up the difference between what the purchasing bank was
willing to pay for the good assets and what it must pay out to
the failed bank's depositors. FDIC-corporate then tries to
collect on the bad assets. This purchase and assumption
generally needs to be executed with speed, often overnight.
Timberland Design, Inc. v. First Serv. Bank For Sav., 932 F.2d ________________________ ___________________________
46, 48 (1st Cir. 1991).
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This reliance on the books and records draws on the FDIC
regulations: the "FDIC's longstanding practice of looking
primarily at the failed bank's deposit account records in
determining insurance claims is clearly a permissible
interpretation of [its] statutory mandates." Collins, 998 F.3d _______
at 554. Indeed, the case law the FDIC cites states that a bank's
closing is "the seminal point" of the FDIC's determination.
"That event not only trigger[s] the liquidation process, but it
also cast[s] in stone the relationship of [plaintiff] to the
bank." FDIC v. McKnight, 769 F.2d 658, 661 (1985), cert. denied ____ ________ ____________
sub nom., All Souls Episcopal Church v. FDIC, 475 U.S. 1010 _________ ___________________________ ____
(1986).
In fact, the case law supports the FDIC's dependence on
the books and records of the Bank at the time of failure even
though the balance was a result of alleged unauthorized
activity.4 See Abdulla Fouad, 898 F.2d at 484-85 (finding that ___ ______________
plaintiff's position that the FDIC should have searched bank
credit files and other records before denying a claim goes
against statutory and regulatory authority); Fletcher Village, ________________
____________________
4 This circuit has not previously reached the issue of whether a
bank's correctly recorded but unauthorized activity precludes an
insurance claim. See FDIC v. Fedders Air Conditioning, 35 F.3d ___ ____ ________________________
18, 23 (1st Cir. 1994). Indeed, in the present case's first
appearance before this court, we noted we had not decided
"whether or to what extent we would be willing to follow the
Eighth Circuit's holding in In re Collins." Villafa e-Neriz, 20 _____________ _______________
F.3d at 40 n.6. In affirming the district court's decision
today, we adopt much of the logic of the Collins decision, as _______
well as the decisions of the district court for Massachusetts
which have decided similar cases. See Fletcher Village, 864 F. ___ ________________
Supp. at 265 (adopting the reasoning of Collins); McCloud, 853 F. _______ _______
Supp. at 559.
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864 F. Supp. at 265 ("To hold the FDIC liable for the errors and
omissions inherent in almost any routine banking transaction
would divert the FDIC from its core mission of protecting the
banking system from an ultimate catastrophe."). In their
analysis, "[t]hese cases reflect the severe tension between two
values: the legitimate expectations of the depositor and the
regulator's desire to rely upon existing records to expedite the
handling of bank emergencies." Fedders Air Conditioning, 35 F.3d ________________________
at 23.
The Eighth Circuit's analysis in the factually similar
In re Collins proves illustrative. In that case, as here, the _____________
purchaser of a certificate assigned the proceeds to a third
party, Collins. The proceeds, however, were paid to the
purchaser's account, and the CD account was reflected on the
institution's account records as closed. Collins, 998 F.2d at _______
552-53. The trustee for the bankrupt Collins sought to recover
from the institution for paying out the CD account despite the
assignment, alleging negligence and breach of contract.
Following the institution's insolvency, the FDIC in its corporate
capacity denied deposit insurance, and the trustee sought
judicial review of its denial. Id. at 553. The court of appeals ___
held that the FDIC properly relied on the books and records of
the failed institution to deny deposit insurance, noting that the
institution's "mistaken payment may not have affected Collins's
rights against the bank, but it did extinguish the insured
amount." Id. at 554. In short, it reasoned that "[d]eposit ___
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insurance protects depositors from loss due to the bank's
insolvency, not loss from the bank's pre-insolvency mistakes."
Id. at 555. We find the Eighth Circuit's reasoning convincing in ___
the present case as well.
The Commissioner seeks to differentiate Collins on _______
several bases. First, he argues that the mistake in Collins was _______
a simple bank error, id. at 552-53, while the "cancellation" in ___
the current case is not a simple mistake, but rather was illegal
on its face. We do not find the distinction relevant. In both
cases, the account was cancelled without regard to the CD's
assignment, and the bank's records had not reflected the
assignment. Second, he finds it significant that the decision in
Collins noted not only that the account in controversy been _______
closed at least a full year before the bank was declared
insolvent, but also that the insolvent bank had not paid deposit
insurance premiums for the account. See id. at 553-54. Here, ___ ___
the Commissioner contests, Girod paid deposit insurance premiums
on the CD account, which was cancelled less than a month before
the bank was taken over and a few days after the Treasury
Department of Puerto Rico conducted the investigation that led to
the bank's closing. Again, we are not convinced of the
distinction. In Collins, the court's determination was based on _______
the fact that the records of a failed bank indicated the amounts
that were insured, and the accounts for which the FDIC collected
deposit insurance premiums. The length of time that the account
was closed, or the insurance premiums unpaid, was not the key:
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the crucial factor was the reasonableness of the FDIC reliance on
the records. See id. at 554. Collins noted that the CD account ___ ___ _______
was not an insured deposit for which premiums were paid, and
found that Collins' trustee had "confus[ed] the right to recover
from the bank with the right to withdraw from an insured
account." Id. ___
Raine v. Reed offers another example of an analysis _____ ____
upholding the FDIC's exclusive reliance on the books and records
of a failed institution. Raine was a victim of unauthorized
withdrawals from automatic teller machines, who notified her bank
of the withdrawals and sought to have her account re-credited
pursuant to the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C.
1693-1693r. Raine, 14 F.3d at 281-82. At the time of its _____
failure, the bank had not provisionally re-credited the account
pending final resolution of her request, as required by
regulations implementing the EFTA. Raine contended she was
entitled to deposit insurance on the basis that she should not
suffer because of the bank's mistakes. Id. at 282. However, the ___
Fifth Circuit found that
[t]he disputed amount was simply not
credited to her account at all,
conditionally or otherwise. Thus, the
account cannot be covered by deposit
insurance because no credit for the
amounts withdrawn was entered on the
bank's books at the time of failure.
Id. at 283. The court relied on the "well-grounded history" of ___
allowing the FDIC to rely exclusively on an insolvent
institution's books and records, even where the bank itself has
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committed a mistake, as well as the policy rationales discussed
above, in upholding the FDIC's use of the books and records. Id. ___
According to the court, "[t]he regulations are clear and simple,
either the amount is credited to the account, in which case it is
covered by deposit insurance, or the amount is not on the books,
in which case it becomes a general liability of the bank." Id. ___
at 284.
The Commissioner offers no authority contradicting our
analysis of the FDIC regulations, policy considerations, and case
law supporting the use of the failed bank's records. Instead,
the Commissioner counters with two arguments. First, he
contends that even if the FDIC relied on Girod's existing records
at the time of its failure in 1984, it should have concluded that
the Certificate had not been properly cancelled. The
Commissioner relies on 7 L.P.R.A. 3 (1981), which states, in
pertinent part, that
[t]he term "deposit certificate" shall
mean any deposit which has been evidenced
by a receipt or written agreement
containing the term for which such
deposit has been made and which also
requires presentation at the bank for its _________________________________________
collection. __________
(emphasis added). He concludes from this language that since
Puerto Rico law mandates that the original of a certificate of
deposit be presented to the bank for collection, an FDIC official
reviewing Girod's records regarding the CD's "cancellation" had
to be alerted that the Certificate was still valid by the simple
fact that the original was not contained in the customer profile.
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By failing to do so, the Commissioner contends, the FDIC did not
give the proper weight to these Puerto Rican recordkeeping
requirements.
We do not find this argument convincing. On its face,
the statute sets out the requirements for presentation for
collection, which is not at issue here. We are concerned with
what records should remain in the bank after a setoff, and the
language is silent on this point. The sole case the Commissioner
cites to support its argument that the statute should be read to
require that the original of a certificate must be presented for
setoff, Walla Corp. v. Banco Commercial de Mayaguez, 114 D.P.R. ___________ _____________________________
216 (1983) (holding that where bank set off loan with
certificates effectively assigned to third party, bank could
compensate the CDs with the loans debtor had with it), does not
mention the statute. We could find no case law on point. Given
the plain meaning of the statute, and the absence of evidence to
support the Commissioner's reading of the statute, we reject his
position.
The Commissioner's second argument relies on an
exception to the general rule that the records of a failed Bank
are conclusive. That exception states that "records that would
otherwise be conclusive evidence may be attacked as fraudulent."
Collins, 998 F.2d at 555; see, e.g., Jones v. FDIC, 748 F.2d _______ ___ ____ _____ ____
1400, 1405 (10th Cir. 1984); McCloud, 853 F. Supp. at 559. The _______
Commissioner argues to this court that there was fraud in the
transaction assigning the Certificate, and therefore he is
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entitled to attack the conclusiveness of Girod's records.
However, we refuse to consider the Commissioner's
argument, since he raises it for the first time on appeal.5 It
is well established that this court will not consider an argument
presented for the first time on appeal. See Clauson v. Smith, ___ _______ _____
823 F.2d 660, 666 (1st Cir. 1987) (collecting cases). While
exceptions to this rule exist, they apply only "'in horrendous
cases where a gross miscarriage of justice would occur,'"
Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894 (1st Cir. 1979) ________ __________________
(quoting Newark Morning Ledger Co. v. United States, 539 F.2d __________________________ _____________
929, 932 (3d Cir. 1976)), and this is not such a case. That the
Commissioner's argument involves no new facts, just a new theory,
is irrelevant. See Ondine Shipping Corp. v. Cataldo, 24 F.3d ___ ______________________ _______
353, 355 (1st Cir. 1994) ("This assertion is neither original nor
persuasive.").
Therefore, since we find that under either the
____________________
5 We note in passing that the Commissioner argues on the basis
of fraud in the transaction underlying the records, since there
is no question that the records themselves were accurate.
However, the cases the Commissioner seeks to rely on in his
argument -- McCloud, Abdulla Fouad, and Collins -- all discuss an _______ _____________ _______
exemption based on fraud in a bank's recordkeeping. See Collins, ___ _______
998 F.2d at 556 (noting that there was "no allegation of fraud"
where the bank's records "accurately reflected payout of $100,000
to the wrong party."); Abdulla Fouad, 898 F.2d at 485-86 ______________
(refusing to extend exception to include proof directed to the
deposit account recording); McCloud, 853 F. Supp. at 560 _______
(concluding that, where there was evidence that the records of
deposits were altered during the course of fraudulent conduct by
the bank president, "it was arbitrary, capricious and contrary to
law for the agency to consider the customer profile as of the day
of the bank's default as conclusive" (footnote omitted)). Thus
we question whether the Commissioner would have met with success,
even if he had both raised this argument in the court below and
demonstrated that there was fraud in the transaction.
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arbitrary and capricious standard or a more demanding de novo __ ____
review the FDIC was correct in relying solely on Girod's records,
and reject the Commissioner's arguments based on Puerto Rico
banking law and fraud, we affirm the district court's holding on
these issues.
C. Application of the McCarran-Ferguson Act C. Application of the McCarran-Ferguson Act ________________________________________
The Commissioner raises one final argument against the
FDIC's insurance determinations, based on Section 2(b) of the
McCarran-Ferguson Act. 59 Stat. 33, 34 (1945), as amended, 15
U.S.C. 1012(b). Section 2(b) states, in pertinent part:
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance, or
which imposes a fee or tax upon such
business, unless such Act specifically
relates to the business of insurance
. . . .
15 U.S.C. 1012(b) (1994). This statute creates "a form of
inverse preemption, letting state law prevail over general
federal rules--those that do not 'specifically relate[] to the
business of insurance.'" NAACP v. American Family Mut. Ins. Co., _____ _____________________________
978 F.2d 287, 293 (7th Cir. 1992), cert. denied, ___ U.S. ___, _____________
113 S. Ct. 2335, 124 L.Ed.2d 247 (1993); see United States Dep't ___ ___________________
of the Treasury v. Fabe, ___ U.S. ___, ___, 113 S. Ct. 2202, ________________ ____
2211, 124 L.Ed.2d 449 (1993) (noting that the Act "transformed
the legal landscape by overturning the normal rules of
preemption."). As the Supreme Court has explained, "'Congress'
purpose was broadly to give support to the existing and future
state systems for regulating and taxing the business of
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insurance.'" Fabe, 113 S. Ct. at 2207 (quoting Prudential Ins. ____ _______________
Co. v. Benjamin, 328 U.S. 408, 429 (1946)). Indeed, the quoted ___ ________
language of Section 2(b) "impos[es] what is, in effect, a clear-
statement rule, a rule that state laws enacted 'for the purpose
of regulating the business of insurance' do not yield to
conflicting federal statutes unless a federal statute
specifically requires otherwise." Id. at 2211. ___
The Commissioner seizes on Section 2(b) to contend that
the district court's decision "renders meaningless" the Puerto
Rico Insurance Code provisions requiring that insurance companies
make statutory deposits. See 26 L.P.R.A. 801-809. Because ___
Guaranty assigned the CD to the Commissioner in order to comply
with this statute, the Commissioner concludes that the district
court's decision upholding the FDIC's refusal of deposit
insurance impairs the Commissioner's ability to regulate the
business of insurance in Puerto Rico, and therefore violates
Section 2(b). The decision, the Commissioner contends,
particularly impairs "obtaining eligible deposits from insurance
companies to comply with the statutory deposit requirement of the
Insurance Code, whose ultimate aim is to protect policyholders in
case of the insurer's insolvency." (Appellant's Brief, at 20).
The Supreme Court has set out the factors required for
a federal statute to fall within the McCarran-Ferguson Act.
First, the federal statute must "invalidate, impair, or
supersede" the state act. Second, the federal statute must not
"specifically relat[e] to the business of insurance." Finally,
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the state law must have been enacted "for the purpose of
regulating the business of insurance." Fabe, 113 S. Ct. at 2208. ____
We need go no further than the first factor in our analysis, as
the Commissioner's argument that the application of the Puerto
Rico Insurance Code is impaired fails.
The Supreme Court faced the question of when an
"impairment" occurs in SEC v. National Sec., Inc., 393 U.S. 453 ___ ___________________
(1969). In that case, the SEC sought to unwind the merger of two
insurance companies which had been approved by the state of
Arizona, on the basis that the merger was obtained through use of
fraudulent misrepresentations. Arizona argued that the SEC's
action would violate the McCarran-Ferguson Act. The Supreme
Court, finding that the essential question was "whether the
McCarran-Ferguson Act bars a federal remedy which affects a
matter subject to state insurance regulation," id. at 462, ___
disagreed.
The gravamen of the complaint was the
misrepresentation, not the merger. . . .
Nevertheless, [the state] contend[s] that
any attempt to interfere with a merger
approved by state insurance officials
would "invalidate, impair, or supersede"
the state insurance laws . . . . We
cannot accept this overly broad
restriction on federal power.
It is clear that any "impairment" in
this case is a most indirect one.
Id. at 462-63. The courts have relied on this logic to conclude ___
that "application of a federal law [will] be precluded only
where the federal law expressly prohibit[s] acts permitted by
state law, or vice versa." Merchants Home Delivery Serv., Inc. ____________________________________
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v. Frank B. Hall & Co., 50 F.3d 1486, 1492 (9th Cir. 1995) ______________________
(holding that application of a federal law which prohibited acts
also prohibited by state insurance law did not invalidate,
impair, or supersede state law, despite their differing
remedies), cert. denied sub nom., Prometheus Funding Corp. v. ______________________ _________________________
Merchants Home Delivery Serv., Inc., ___ U.S. ___, 116 S. Ct. ____________________________________
418, ___ L.Ed.2d ___ (1995); see American Family Mut. Ins. Co., ___ ______________________________
978 F.2d at 296-97 (drawing on analogies to the principles
governing federal preemption of state law).
Application of this "direct conflict" test quickly
defeats the Commissioner's argument. In short, nothing in the
district court opinion -- or the FDIC regulations -- impairs the
Commissioner's authority or ability to obtain deposits from
insurance companies to comply with the statutory deposit
requirement. The opinion and regulations merely set out what
records the FDIC may rely on in making insurance determinations.
The Commissioner's loss is the product of events, not a conflict
between federal and Commonwealth statutes. In the absence of a
direct prohibition, we refuse to hold that there has been an
impairment merely because in this circumstance a CD assigned to
the Commissioner was set off against the insurance company's
indebtedness. Cf. Merchants Home Delivery, 50 F.3d at 1492 ("The ___ _______________________
language of 2(b) is inconsistent with a congressional intent to
allow states to preempt the field of insurance regulation.").
CONCLUSION CONCLUSION
For the reasons stated above, we affirm. affirm. ______
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Document Info
Docket Number： 95-1492
Filed Date： 2/2/1996
Precedential Status： Precedential
Modified Date： 9/21/2015