DocketNumber: Civ. A. No. 93-88-B
Citation Numbers: 847 F. Supp. 434
Judges: Polozola
Filed Date: 11/3/1993
Status: Precedential
Modified Date: 11/26/2022
RULING ON DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on defendant’s motion for summary judgment. For reasons which follow, the Court finds that the motion should be granted.
I. Facts and Procedural History
Life Savings Bank (“Life”) was a minority-owned savings association located in Baton Rouge, Louisiana. Life was chartered in August, 1990, and was wholly owned by Life Bancshares, Inc., (“Bancshares”).
Following the first examination in 1991, OTS assigned Life a rating of four, which is a category reserved for institutions with an inadequate level of capital or a combination of other factors that are poor.
In March of 1992, OTS began another examination of Life. In its second examination, the OTS determined that Life had failed to meet two of three statutory capital requirements.
The Institution is in poor financial condition due to the continued trend of operating losses and the future viability of the Institution is at question unless immediate action is taken to curb operating losses —
The amount of capital remaining after various examination adjustments will reduce the capital level to a point that the Institution will fail to meet the Core and Risk-Based requirements by $171,000 and $118,-000, respectively____
Asset classifications total $338,000, a figure representing 6.70 percent of the total loan portfolio and 93.60 percent of adjusted tangible capital. The past due level is 11.7 percent. These unsatisfactory ratios are primarily due to the past poor lending practices related to commercial and consumer loans.7
In addition to Life’s failure to comply with statutory capital requirements, OTS also identified 35 additional regulatory violations at Life.
On August 4, 1992, Life’s board of directors executed a Stipulation and Consent to the Entry of a Capital Directive. The OTS issued a Capital Directive on the same day.
Life submitted a Capital Plan to the OTS. The OTS reviewed the plan and found it unacceptable because it lacked support for the proposed increases in capital, and because of numerous other deficiencies.
On October 5, 1992, following a consultation with the Louisiana State Commissioner, the regional director of the OTS drafted a Supervisory Memorandum to be forwarded to OTS officials in Washington. This memorandum reviewed in detail the history of Life
The regional director supplemented the Supervisory Memorandum on October 15, 1992. In this addendum to the October 5, 1992 memorandum, the director noted that the Federal Deposit Insurance Corporation (“FDIC”) was considering terminating federal insurance for the depositors’ accounts at Life. The director further stated that Life had incurred losses which had substantially depleted its capital, with no reasonable prospect for the institution to replenish capital without Federal assistance.
In November of 1992, Life submitted a second Capital Plan to the OTS. This plan called for the infusion of an additional $300,-000 into the institution through the sale of stock or by a personal contribution of capital by Life’s directors.
In a second supplement to the Supervisory Memorandum, the regional director advised Washington officials that Life’s second Capital Plan was deficient, and would not be accepted.
In November of 1992, FDIC bank examiners discovered serious discrepancies in Life’s records, including a $481,349 discrepancy between Life’s Federal Home Loan Bank account balance and its general ledger.
The OTS notified Life on December 21, 1992, that it had been classified as a “critically undercapitalized” institution, and directed Life to submit an acceptable Capital Plan by January 15, 1993.
The FDIC, the OTS, and the state bank examiners concluded their examination of Life in January, 1993, and drafted a joint memorandum. The agencies determined that: (1) Life’s cash account was overstated by $811,550 on the general ledger; (2) there were serious inconsistencies in Life’s records; and, (3) entries in the general ledger were delinquent by at least 60 days.
This suit was then filed by Life Bancshares, Inc., Rupert Richardson, Ernest L Johnson, and Gloria London to remove the receiver who was appointed for Life. The Director has now filed a motion for summary judgment in which he contends: (1) plaintiffs have no standing to challenge the OTS’s appointment of a receiver for Life, and (2) the determination by the OTS to appoint a receiver for Life was supported by the administrative record and was not arbitrary and capricious.
II. Applicable Law and Standard of Review
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) gives the OTS additional authority to take action against poorly capitalized institutions.
Under FDICIA, if an institution is deemed critically undercapitalized, the OTS must appoint a receiver for the institution, unless the OTS determines that another action would better resolve the problems of the institution at the least possible long-term loss to the deposit insurance fund. Section 1831o(h)(3)(A) of Title 12 provides:
The appropriate Federal banking agency shall, not later than 90 days after an insured depository institution becomes critically undercapitalized—
(i) appoint a receiver ... for the institution; or
(ii) take such other action as the agency determines, with the concurrence of the Corporation, would better achieve the purpose of the section, after documenting why the action would better achieve that purpose.32
In addition, the Director may appoint a receiver for a savings association if the Director determines that one or more of the grounds specified in 12 U.S.C.A. § 1821(c)(5) exists.
The Director’s decision to appoint a receiver for Life must be reviewed on the basis of the administrative record under an arbitrary and capricious standard of review. The Fifth Circuit set forth the standard which must be followed by the district court in Woods v. Federal Home Loan Bank Board,
The Fifth Circuit held that the trial court correctly applied the arbitrary and capricious standard of review.
The grounds for the appointment of a conservator or receiver for an association shall be one or more of the following:
If, in the opinion of the Board, a ground for the appointment of a conservator or receiver as herein provided exists, the Board is authorized to appoint ex parte and without notice a conservator or receiver for the association. In the event of such appointment, the association may, within thirty days thereafter, bring an action in the United States district court ... for an order requiring the Board to remove such conservator or receiver, and the court shall upon the merits dismiss such action or direct the Board to remove such conservator or receiver42
After concluding that section 1464(d)(6)(A) did not set forth an applicable standard of review, the Fifth Circuit held that the Bank Board’s decision should be reviewed on the basis of the administrative record in accordance with the APA’s arbitrary and capricious standard of review.
Under § 706(2)(A), plaintiffs have the burden to show that the Bank Board’s decision to appoint a receiver was arbitrary and capricious. The Bank Board’s decision is entitled to a ‘presumption of regularity.’ A court’s review of the Bank Board’s decision is ‘confined to the administrative record.’ The arbitrary and capricious standard of review requires a reviewing court to ‘consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency.’44
In order to create the OTS and the position as Director, Congress recently amended several sections of the Home Owners’ Loan
(A) Grounds for appointing conservator or receiver for insured savings association
The Director ... may appoint a conservator or receiver for any insured savings association if the Director determines, in the Director’s discretion, that 1 or more of the grounds specified in ... [12 U.S.C.A. § 1821(c)(5)] exists.
(B) Power of appointment; judicial review
If, in the opinion of the Director, a ground for the appointment of a conservator or receiver for a savings association exists, the Director is authorized to appoint ex parte and without notice a conservator or receiver for the savings association. In the event of such appointment, the association may, within 30 days thereafter, bring an action in the United States district court ... for an order requiring the Director to remove such conservator or receiver, and the court shall upon the merits dismiss such action or direct the Director to remove such conservator or receiver.45
Therefore, the application of an arbitrary and capricious standard of review is supported by the language of both 12 U.S.C. § 1464(d)(6)(A), before its amendment, and the recently enacted 12 U.S.C.A. §§ 1464(d)(2)(A) and (B).
Both the prior and the amended versions of the statute provide that the decision to appoint a receiver for a savings association lies within the discretion of the specified governmental agency. Under the FIRREA amendments, this authority has now been conferred upon the Director. Compelling reasons exist for this grant of authority to the Director. A savings association’s assets consist principally of depositors’ funds. Assets can be quickly dissipated and liabilities may just as quickly be created. If there is inadequate capital to absorb losses, the losses must be initially absorbed by the FDIC, and then by taxpayers if these funds are depleted. In enacting the legislation, Congress made it clear that it expects the Director to be vigilant and responsive. FIR-REA and its legislative history demonstrate that it is essential for the Director to act promptly in appointing a receiver once he finds that there is statutory authority to do so. The close supervision, broad discretion, and quick response mandated by FIRREA dictates a narrow and limited scope of judicial review that gives deference to the Director’s judgment, knowledge and expertise.
Because of the similarities between the present and prior versions of 12 U.S.C. § 1464, the Court finds that, under Woods, the Director’s decision to appoint a receiver for Life is subject to review by this Court under an arbitrary and capricious standard. Furthermore, the Court’s review of the Director’s decision is confined to the administrative record.
III. Discussion
A. Congress’ Limited Waiver of Sovereign Immunity
The Director first contends in his motion for summary judgment that the plaintiffs’ action should be dismissed because Life is not a plaintiff in the present action. The Director relies on 12 U.S.C. § 1464(d)(2)(B),
“It is elementary that ‘[t]he United States, as sovereign, is immune from suits save as it consents to be sued ... and the terms of its consent to be sued in any court define that court’s jurisdiction to entertain the suit.’ ”
The Sixth Circuit’s opinion in Marietta Franklin Securities. Co. v. Muldoon
Therefore, the Court finds that Congress’ explicit waiver of sovereign immunity in section 1464(d)(2)(B) authorizes the savings association to seek review of the Director’s decision to appoint a receiver in a federal district court within 30 days after the appointment of the receiver. This authorization and waiver of sovereign immunity does not permit the association’s directors, officers, or principal shareholders to file an action instead of the association. Since the association did not file this action, this suit must be dismissed pursuant to the clear and explicit language of section 1464(d)(2)(B).
B. Application of the Arbitrary and Capricious Standard to the Director’s Decision to Appoint a Receiver
Even if the Court determines that it has jurisdiction to entertain the plaintiffs’ suit, the Court finds that based on a review of the administrative record, the Director’s decision to appoint a receiver was not arbitrary and capricious. The Director based his decision to appoint a receiver for Life on four grounds. The Director first determined that Life was in an unsafe or unsound condition to transact business in violation of 12 U.S.C. § 1821(c)(5)(C). The Director reached this conclusion because Life did not have adequate books, records, or internal controls, and because Life failed to meet applicable capital requirements.
The Court finds that the Director’s determination that Life was in an unsafe or unsound condition to do business was not arbitrary or capricious. During the FDIC’s examination of Life in November, 1992, bank examiners discovered serious discrepancies in Life’s records, including a $481,349 discrepancy between Life’s Federal Home Loan Bank account balance and its general ledger.
As a second ground for the appointment of a receiver for Life, the Director determined that Life’s capital was depleted, and there was no reasonable prospect of the institution becoming adequately capitalized without Federal assistance.
There was also no reasonable prospect of the replenishment of Life’s capital without Federal assistance. The administrative record demonstrates that, because of continuing losses, Life was unable to generate sufficient earnings to become adequately capitalized.
As a third basis for the appointment of a receiver for Life, the Director found that Life was a “critically undercapitalized” institution as defined in 12 U.S.C. § 1831o(b)(l).
Finally, the Director determined that Life consented to the appointment of a receiver pursuant to 12 U.S.C. § 1821(c)(5)(I). In August, 1992, Life, through its board of directors, executed a Stipulation and Consent to Entry of a Capital Directive with the OTS.
Plaintiff contends that genuine issues of fact exist in relation to several issues which preclude summary judgment as a matter of law. Plaintiff first cites section 308 of FIRREA, which provided:
The Secretary of the Treasury shall consult with the Director ... on methods for best achieving the following goals:
(1) Preserving the present number of minority depository institutions.
‡ iK ❖ sH #
(3) Providing technical assistance to prevent insolvency of institutions not now insolvent.
(4) Promoting and encouraging creation of new minority depository institutions.
(5) Providing for training, technical assistance, and educational programs.63
This section, which was to be codified at 12 U.S.C. § 1463, does not appear in the text of the statute. Instead, the section is contained within the “Historical and Statutory Notes” following the text of the statute in the 1993 pocket part.
Section 308 does not provide plaintiffs with any substantive rights or grounds for challenging the appointment of a receiver for Life. Instead, the provision sets forth goals to be attained by federal regulatory agencies. Furthermore, these goals were realized by the OTS. The OTS delayed the transfer of Life to a receiver on two separate occasions. The transfer to the RTC was originally scheduled for October 16, 1992, but was delayed to allow those involved to review the efforts made by the OTS to provide technical assistance to Life.
Plaintiffs further contend that Life, as a state-chartered institution, is not a “savings association” under 12 U.S.C. § 1464(d)(2)(B). Therefore, plaintiffs argue that the Director’s appointment of a receiver for the institution was improper. This contention is without merit. Section 1464(d)(5) defines a savings association as “any 2 savings association or former savings association that retains deposits insured by the Corporation, notwithstanding termination of its status as an institution insured by the Corporation.”
Plaintiff further contends that, pursuant to 12 U.S.C. § 1464(d)(2)(D), the Director is required to obtain the consent of the State Commissioner before appointing a receiver for a state-chartered institution. If such consent is not obtained, plaintiffs contend that the Director must delay the appointment of the receiver for 30 days. This contention is also without merit. The former section 1464(d)(2)(D) was repealed, effective December 19, 1992. The OTS appointed the RTC as receiver for Life on January 29, 1993. Under 12 U.S.C. § 1821(c)(9)(A), the OTS is only required to consult with the State Commissioner, and not obtain his consent, before appointing a receiver. In accordance with this section, the OTS did consult with the State Commissioner before appointing a receiver for Life.
Finally, plaintiffs contend that the OTS was precluded from appointing a receiver for Life until February 2, 1993, because the OTS notified Life that the association would have until that date to file an acceptable Capital Plan. Plaintiffs base this contention on a November 23, 1992, letter from the OTS which stated that any institution which was not “adequately capitalized” would have until February 2, 1993, to file a Capital Plan.
IV. Conclusion
The United States is immune from suits unless it consents to be sued. In order to challenge the appointment of a receiver, a savings association must comply with 12 U.S.C. § 1464(d)(2)(B). Life did not join as a plaintiff in the present action. Therefore, the Court does not have jurisdiction to entertain this suit.
Furthermore, even if the Court had jurisdiction, the Director’s actions in appointing a receiver for Life were fully supported by the administrative record, and were not arbitrary and capricious.
Therefore:
IT IS ORDERED that the defendant’s motion for summary judgment be and it is hereby GRANTED.
Judgment shall be entered dismissing plaintiffs’ suit with prejudice.
. Administrative Record at 87.
. Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183-553 (1989).
. Administrative Record at 88.
. Administrative Record at 88.
. Administrative Record at 768-81.
. The capital standards set forth in FIRREA have three components: (1) A leverage limit requiring core capital in an amount not less than three percent of the savings association’s total assets; (2) a tangible capital requirement in an amount not less than 1.5 percent of the savings association's total assets, and; (3) A risk-based capital requirement-which may not result in materially lower levels of capital being required of savings associations under the risk-based capital requirement than would be required under the risk-based capital standards applicable to national banks. See 12 U.S.C.A. § 1464(t) (West Supp. 1993).
. Administrative Record at 100.
. Administrative Record at 121.
. Administrative Record at 101.
. Administrative Record at 143-44. A Capital Directive is an order by the OTS directing an institution to comply with capital requirements and placing other restrictions on the operations of the institution. A Capital Plan is a plan submitted by the institution to the OTS specifically setting forth how capital will be replenished at the institution.
. Administrative Record at 389 — 405.
. Administrative Record at 398-99.
. Administrative Record at 89.
. Administrative Record at 85-94.
. Administrative Record at 85.
. Administrative Record at 425-27.
. Administrative Record at 638, 793-800.
. Administrative Record at 1406-18, 1452.
. Administrative Record at 1505-07.
. Administrative Record at 497-500.
. Administrative Record at 638-39.
. Administrative Record at 3.
. Administrative Record at 579.
. Administrative Record at 564.
. Administrative Record at 532, 537.
. Administrative Record at 544-46.
. Administrative Record at 525-30.
. Administrative Record at 11-12.
. Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.L. No. 102-242, 105 Stat. 2236 (1991).
. 12 U.S.C.A. § 1831o(b)(l) (West Supp.1993).
. 12 U.S.C.A. § 1831o(c)(2) (West Supp.1993).
. 12 U.S.C.A. § 183 lo(h)(3)(A) (West Supp. 1993); see also 12 U.S.C.A. § 1831o(a)(l) for the definition of "purpose” as referred to in § 1831o(h)(3)(A).
. 12 U.S.C.A. §§ 1464(d)(2)(A)-(B) (West Supp. 1993).
.12 U.S.C.A. § 1821(c)(5)(C) (West Supp. 1993).
. 12 U.S.C.A. § 1821(c)(5)(G) (West Supp. 1993).
. 12 U.S.C.A. § 1821(c)(5)(I) (West Supp.1993).
. 12 U.S.C.A. § 1821(c)(5)(L) (West Supp.1993).
. 826 F.2d 1400 (5th Cir.1987).
. Under the statutory scheme in effect at the time of Woods, the Bank Board was charged with the administration of the Home Owners’ Loan Act. 12 U.S.C.A. §§ 1461-1468 (West Supp. 1993). Congress created the OTS in 1989 and transferred the enforcement power of the Bank Board to the OTS under FIRREA.
. 5 U.S.C.A. §§ 701-706 (West 1977 & Supp. 1993).
. Woods, 826 F.2d at 1403, 1408-09.
. 12 U.S.C. § 1464(d)(6)(A) (1987), amended by 12 U.S.C.A. § 1464 (West Supp.1993).
. Woods 826 F.2d at 1408.
. Woods, 826 F.2d at 1408-09 (citations omitted).
. 12 U.S.C.A. §§ 1464(d)(2)(A)-(B) (West Supp. 1993).
. Franklin Sav. Ass’n v. Director, Office of Thrift Supervision, 934 F.2d 1127, 1137 (10th Cir.1991).
. Woods, 826 F.2d at 1409.
. 12 U.S.C.A. § 1464(d)(2)(B) (West Supp.1993) (emphasis added).
. Broussard v. United States, 989 F.2d 171, 174 (5th Cir.1993) (quoting United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1352, 63 L.Ed.2d 607 (1980)); see also Transohio Sav. Bank v. Director, Office of Thrift Supervision, 967 F.2d 598, 606 (D.C.Cir.1992).
. 972 F.2d 128 (6th Cir.1992).
. Marietta, 972 F.2d at 129.
. Administrative Record at 3-5, 11.
. Administrative Record at 564.
. Administrative Record at 4, 11, 89, 768-81.
. See 12 U.S.C.A. § 1821(c)(5)(G) (West Supp. 1993).
. Administrative Record at 5, 426.
. Administrative Record at 5, 89.
. Administrative Record at 5.
. 12 U.S.C.A. § 1821(c)(5)(L) (West Supp.1993); see also Section II of this opinion.
. Administrative Record at 532.
. Administrative Record at 6, 389-405.
. Administrative Record at 89.
. Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 353 (codified at 12 U.S.C. § 1463nt (1993)).
.See 12 U.S.C.A. § 1463 (West Supp.1993).
. Administrative Record at 638, 793-800.
. Administrative Record at 638-40.
. 12 U.S.C.A. § 1464(d)(5) (West Supp.1993).
. See Franklin Sav. Ass’n v. Director, Office of Thrift Supervision, 934 F.2d 1127, 1133, 1150-51 (10th Cir.1991) (The Tenth Circuit held that appointment of a receiver for a state-chartered institution was not arbitrary and capricious and, therefore, dismissed action by the institution challenging the appointment).
. Administrative Record at 87.
. Administrative Record at 1505-07.
. Administrative Record at 571-74.
. Administrative Record at 532-33.
. Administrative Record at 537.