Ridder, Willem v. OTS

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 6, 1998 Decided July 17, 1998

No. 97-5181

Willem Ridder, et al.,

Appellants

v.

Office of Thrift Supervision and

Ellen S. Seidman, Director,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 95cv01656)

Richard Harrington argued the cause for appellants, with

whom James H. McGrew was on the briefs.

Dirk S. Roberts, Assistant Chief Counsel, Office of Thrift

Supervision, argued the cause for appellees, with whom

Thomas J. Segal, Deputy Chief Counsel, and Jacqueline H.

Fine, Trial Attorney, were on the brief.

Before: Wald, Sentelle and Randolph, Circuit Judges.

Opinion for the Court filed by Circuit Judge Sentelle.

Sentelle, Circuit Judge: Four former bank officers appeal

the district court's dismissal of a lawsuit they initiated to

enjoin the enforcement of a temporary order to cease and

desist issued by the Office of Thrift Supervision. We agree

with the district court that it lacked jurisdiction to consider

this case, and affirm.

I. Background

A.

In 1989, Congress enacted the Financial Institutions Re-

form, Recovery, and Enforcement Act, Pub.L. No. 101-73,

103 Stat. 183 ("FIRREA"), in part " '[t]o improve the supervi-

sion of savings associations by strengthening capital, account-

ing and other supervisory standards' and to 'promote,

through regulatory reform, a safe and stable system of af-

fordable housing finance.' " Transohio Sav. Bank v. Di-

rector, OTS, 967 F.2d 598, 603 (D.C. Cir. 1992) (quoting

FIRREA s 101(1) & (2), 103 Stat. 187, 12 U.S.C. s 1811

note). In addition to establishing stricter capital require-

ments for thrifts, FIRREA also consolidated many of the

powers and duties of two prior regulatory bodies in a newly-

created entity, the Office of Thrift Supervision ("OTS"). See

American Fed'n of Gov't Employees v. FLRA, 46 F.3d 73, 74

(D.C. Cir. 1995); CityFed Fin. Corp. v. OTS, 58 F.3d 738, 741

(D.C. Cir. 1995). Under this statutory regime, when OTS

determines that "any insured depository institution ... or

any institution-affiliated party is engaging or has engaged ...

in an unsafe or unsound practice in conducting the business of

such depository institution, or is violating or has violated ...

a law, rule, or regulation, or any condition imposed in writing

by the agency," it may "issue and serve upon the depository

institution or such party a notice of charges ... [which] shall

contain a statement of the facts constituting the alleged

violation ... and shall fix a time and place at which a hearing

will be held to determine whether an order to cease and

desist therefrom should issue against the depository institu-

tion or the institution-affiliated party." 12 U.S.C.

s 1818(b)(1).

OTS is statutorily empowered to "issue a temporary order

requiring the depository institution or such party to cease and

desist from any ... violation or practice [charged in a section

1818(b)(1) proceeding] and to take affirmative action ...

pending completion of such proceedings." 12 U.S.C.

s 1818(c)(1). It may issue such an order if it

determine[s] that the violation or threatened violation or

the unsafe or unsound practice or practices, specified in

the notice of charges served upon the depository institu-

tion or any institution-affiliated party pursuant to para-

graph (1) of subsection (b) of this section, or the continu-

ation thereof, is likely to cause insolvency or significant

dissipation of assets or earnings of the depository institu-

tion, or is likely to weaken the condition of the depository

institution or otherwise prejudice the interests of its

depositors prior to the completion of the proceedings

conducted pursuant to paragraph (1) of subsection (b) of

this section....

Id.

Congress prohibited courts from reviewing regulated enti-

ties' challenges to OTS-initiated proceedings under most cir-

cumstances. See 12 U.S.C. s 1818(i)(1); CityFed Fin. Corp.,

58 F.3d at 741-42. However, the "depository institution

concerned or any institution-affiliated party" may appeal to a

United States district court from a temporary cease-and-

desist order within ten days after being served with the

order. 12 U.S.C. s 1818(c)(2). On appeal, a district court

may enjoin such an order in whole or in part. Id.

B.

In 1984, CityFed Financial Corporation ("Holding Compa-

ny"), a savings and loan holding company, was created in

order to acquire City Federal Savings Bank ("Bank"), a

federally insured savings institution. City Collateral and

Financial Services, Inc. ("Subsidiary") is a second tier subsid-

iary of Bank. Appellants Willem Ridder, Lyndon C. Merkle,

John T. Hurst, and Gregory DeVany are former officers of

Subsidiary. See Complaint pp 1-4.

When Holding Company acquired Bank, Holding Compa-

ny--at the insistence of pre-FIRREA regulatory agency Fed-

eral Home Loan Bank Board--agreed to maintain Bank's net

worth at a level consistent with regulatory requirements, and

also agreed to infuse additional equity capital into Bank if

necessary. Holding Company did not live up to these prom-

ises. Thus, in 1989, OTS declared Bank insolvent, and ap-

pointed the Resolution Trust Corporation ("RTC") as Receiv-

er for Bank.

In 1994, pursuant to 12 U.S.C. s 1818(b)(1), OTS brought

administrative enforcement proceedings against Holding

Company and seven of its current and former directors. A

Notice of Charges and Hearing ("Notice of Charges")

charged them with letting Bank's net worth plunge below

regulatory requirements by approximately $118 million. The

Notice of Charges sought restitution of the $118 million, and

demanded payment of over $2 million in civil penalties. Ap-

pellants were not named in the Notice of Charges.

Holding Company's assets dwindled considerably after

Bank was placed in receivership. Thus, in June 1994, pursu-

ant to 12 U.S.C. s 1818(c)(1), OTS issued a temporary cease-

and-desist order ("Temporary Order") which restricted Hold-

ing Company's use of its assets. OTS justified its issuance of

the Temporary Order by concluding that Holding Company

was "likely to cause ... significant dissipation of assets or

earnings of the depository institution." 12 U.S.C.

s 1818(c)(1). Under the Temporary Order, which remains in

effect, Holding Company is entitled to a $15,000 per month

allowance to cover its operating expenses, and may dip into

its assets to pay reasonable legal expenses incurred in its own

defense. The Temporary Order also contains a "hardship"

provision permitting Holding Company to petition for relief if

the order's enforcement "threatens to cause undue hardship

to [Holding Company] in conducting its business or affairs." 1

Appellants were not named in the Temporary Order.

In 1992 (two years before the Temporary Order issued),

the RTC sued appellants for fraud and breach of fiduciary

duty. These claims had nothing to do with the earlier

administrative proceedings initiated by OTS. Invoking a

provision in Holding Company's bylaws requiring Holding

Company to pay the legal fees and expenses of former

officers and directors, appellants asked Holding Company to

front them the attorney fees and costs they expected to incur

in the RTC fraud litigation. When Holding Company re-

fused, appellants sued it in New Jersey district court to

compel it to pay the fees. The district court denied appel-

lants' motions for a preliminary injunction and summary

judgment. Ridder v. CityFed Fin. Corp., 853 F. Supp. 131

(D.N.J. 1994). The Third Circuit reversed, ruling that Hold-

ing Company must advance appellants' litigation expenses,

and remanded to the district court for entry of an appropriate

injunction. 47 F.3d 85 (3rd Cir. 1995). The Third Circuit,

however, did not address whether the Temporary Order

might have an impact on its ruling, noting that such matters

were "a matter for other tribunals to decide," and "purely

speculative" on the record before it. Id. at 87-88.

Meanwhile, in a separate action, Holding Company and its

directors brought a lawsuit in the United States District

Court for the District of Columbia, seeking to enjoin enforce-

__________

1 On February 1, 1996, an Administrative Law Judge granted

OTS's motion for partial summary disposition of its net worth

maintenance claim against Holding Company, recommending that

the Director of OTS issue an order forcing Holding Company to pay

nearly $120 million in restitution to the RTC, as Receiver for Bank.

Holding Company appealed. On appeal, the Director of OTS

vacated the ALJ's order, and remanded to the ALJ for further

proceedings. In doing so, the Director concluded that additional

factual development was required to determine whether Holding

Company was unjustly enriched by retaining funds belonging to

Bank.

ment of the Temporary Order. The district court ruled

against Holding Company, CityFed Fin. Corp. v. OTS, 919

F. Supp. 1 (D.D.C. 1994), and we affirmed, 58 F.3d 738 (D.C.

Cir. 1995). Among other things, we upheld OTS's authority

to issue the Temporary Order, and concluded that Holding

Company and its directors had failed to show irreparable

harm warranting the injunctive relief they were seeking.

On remand from the Third Circuit, the New Jersey district

court entered an injunction requiring Holding Company to

advance appellants their legal expenses. Holding Company

applied to OTS for payment, but OTS refused, stating that

the Temporary Order only permitted the disbursement of

funds to relieve hardship to Holding Company itself. Hold-

ing Company appealed from the district court's injunction,

and the Third Circuit ruled in its favor. The Third Circuit

rather colorfully characterized Holding Company's dilemma

as follows:

[Holding Company] is ... caught between Scylla and

Charybdis; it stands squarely between two diametrically

opposed rulings of two United States Courts of Appeals.

The first, a ruling from this Court, directed it to pay

[appellants'] legal expenses. The second, a decision from

the Court of Appeals for the District of Columbia Circuit,

upheld the validity of [the Temporary Order] which

prevents [Holding Company] from paying those ex-

penses.

Ridder v. CityFed Fin. Corp., No. 95-5558, slip op. at 4-5 (3rd

Cir. Apr. 18, 1996) (unpublished opinion). Recognizing that

the Temporary Order made it impossible for Holding Compa-

ny to comply with the district court's order, the Third Circuit

vacated the district court's order, and remanded to the dis-

trict court for further proceedings.

Shortly after we issued our decision in CityFed Fin. Corp.,

Holding Company asked OTS for permission to pay appel-

lants' litigation expenses. OTS refused, stating that neither

our decision nor that of the Third Circuit compelled it to

grant the requested hardship relief. It added that payments

to appellants were not entitled to any priority over the claims

of Holding Company's other creditors, and that no such

payments could be made until Holding Company met its net

worth maintenance obligations.

Finally, we arrive at the lawsuit that gave rise to this

appeal. Appellants filed this case in August 1995 in the

United States District Court for the District of Columbia,

seeking an injunction prohibiting OTS from enforcing its

Temporary Order and requiring OTS to authorize Holding

Company to disburse approximately $450,000 to them for

attorney fees and costs. OTS and its Director were named as

defendants in that lawsuit, and are appellees before us.

In a Memorandum and Order, the district court concluded

that it lacked subject matter jurisdiction to consider appel-

lants' claims. The court determined that appellants did not

qualify as the "depository institution concerned" or an

"institution-affiliated party" under the statutory provision

permitting judicial review of temporary cease-and-desist or-

ders. 12 U.S.C. s 1818(c)(2). In reaching this conclusion,

the court observed that appellants were not parties to the

underlying administrative proceeding, that they had not been

charged with violations under section 1818(b)(1), and that

they had not been served with a temporary cease-and-desist

order under section 1818(c)(1). After concluding that section

1818 "does not recognize an independent right to challenge

the validity of OTS enforcement orders," the district court

dismissed the case for want of jurisdiction. Memorandum

and Order at 8.

Appellants filed a timely appeal from the district court's

dismissal of their case.2

__________

2 We note in passing that the district court's Memorandum and

Order is procedurally defective because it fails to satisfy Rule 58's

requirement that "[e]very judgment shall be set forth on a separate

document." Fed. R. Civ. P. 58. This defect, however, has no

practical effect on this appeal because it is clear that the district

court intended to render a final, appealable judgment. See Memo-

randum and Order at 9 (ordering "that plaintiffs' complaint be and

it is hereby dismissed"); see also Spann v. Colonial Village, Inc.,

899 F.2d 24, 32 (D.C. Cir. 1990) ("mechanical application of the

separate-judgment rule should not be used to require the pointless

II. Discussion

We review the district court's legal conclusion that it lacked

subject-matter jurisdiction to consider appellants' claims de

novo. See United States ex rel Findley v. FPC-Boron Em-

ployees' Club, 105 F.3d 675, 681 (D.C. Cir.), cert. denied, 118

S.Ct. 172 (1997).

A.

"To prevent regulated parties from interfering with the

comprehensive powers of the federal banking regulatory

agencies, Congress severely limited the jurisdiction of courts

to review ongoing administrative proceedings brought by

banking agencies." CityFed Fin. Corp., 58 F.3d at 741.

Indeed, no court may review such proceedings unless section

1818 specifically provides for judicial review:

[E]xcept as otherwise provided in this section no court

shall have jurisdiction to affect by injunction or otherwise

the issuance or enforcement of any notice or order under

[section 1818], or to review, modify, suspend, terminate,

or set aside any such notice or order.

12 U.S.C. s 1818(i)(1) (emphasis added).

Appellants renew their claim that they qualify as

"institution-affiliated" parties under subsection 1818(c)(2)--an

exception to section 1818(i)(1)'s general prohibition of judicial

review--and that their claims are therefore subject to the

jurisdiction of the district court. If appellants do not qualify

under subsection (c), the only statutory exception they have

asserted, "no court shall have jurisdiction" to hear their

challenge to the Temporary Order. 12 U.S.C. s 1818(i)(1);

see also Henry v. OTS, 43 F.3d 507, 513 (10th Cir. 1994) ("In

section 1818(i), Congress ... explicitly preclud[ed] jurisdic-

tion in any situation except where it had specifically provided

__________

formality of returning to the district court for ministerial entry of

judgment") (citation omitted). Nonetheless, we again "emphasize

that, to avoid dispute and promote certainty, it is the better practice

for the district court to assure as a matter of course the entry of

each judgment as a separate document." Id.

for a particular court to exercise jurisdiction.") (citing Board

of Governors v. MCorp Fin., Inc., 502 U.S. 32, 44 (1991));

United States v. Spiegel, 995 F.2d 138, 140 (9th Cir. 1993)

("This statutory language leaves no room to doubt that

Congress provided only one avenue for challenging the terms

of an OTS restraining order--an action brought under 12

U.S.C. s 1818."); Carlton v. Firstcorp, Inc., 967 F.2d 942, 946

(4th Cir. 1992) ("[I]t seems clear to us that by devising a

comprehensive scheme governing the oversight of financial

institutions, from administrative control through judicial re-

view of the administrative agency's actions, and by explicitly

making the scheme exclusive, Congress intended to exclude

other methods of interfering with the regulatory action.").

Appellants propose the following justification for their con-

clusion that they are "institution-affiliated parties" under 12

U.S.C. s 1818(c)(2). The statute defines "institution-affiliated

party" to include "any director, officer, employee, or control-

ling stockholder (other than a bank holding company) of, or

agent for, an insured depository institution." 12 U.S.C.

s 1813(u). According to appellants, Bank was the only "in-

sured depository institution" affected by the Temporary Or-

der. They assert that Holding Company--the entity named

in the Notice of Charges and served with the Temporary

Order--could not be the "depository institution concerned"

for purposes of the statute, because it is a savings and loan

holding company, not an "insured depository institution" un-

der section 1813(u). Appellants also assert that three of their

number were former officers of Bank. (No such claim was

made in their complaint, which alleges only that appellants

are former officers of Subsidiary.) As "officers, directors,

employees or agents" of Bank, then, appellants claim to be

eligible to bring suit as "institution-affiliated" parties.

We shall assume for purposes of this discussion that appel-

lants were indeed employees of (and "affiliated" with) Bank,

an insured depository institution. Subsection (c)(2), the pro-

vision upon which appellants rely, provides that "the deposito-

ry institution concerned or any institution-affiliated party"

must appeal within ten days after being served with a tempo-

rary cease-and-desist order. In other words, the statute

contemplates that "the depository institution concerned or

any institution-affiliated party" must be served with a tempo-

rary cease-and-desist order in order to challenge it in court

pursuant to subsection (c)(2). In this case, neither appellants

nor Bank were served with the Temporary Order.

Furthermore, OTS commences administrative proceedings

by filing and serving a "notice of charges" on a depository

institution or institution-affiliated party. See 12 U.S.C.

s 1818(b)(1) ("If ... any insured depository institution ... or

any institution-affiliated party is engaging ... in an unsafe or

unsound practice ... the agency may issue and serve upon

the depository institution or such party a notice of charges in

respect thereof."). Neither appellants nor Bank were named

in or served with the Notice of Charges.

Because appellants were not served with (or named in) the

Notice of Charges or the Temporary Order, they are not

institution-affiliated parties as required by subsection (c)(2).

See BLACK'S LAW DICTIONARY 1122 (6th ed. 1990) ("A

'party' to an action is a person whose name is designated on

record as plaintiff or defendant."). Thus, they are statutorily

ineligible to file suit under that subsection.

We reject appellants' attempt to characterize themselves as

"institution-affiliated parties" because they were affiliated

with what they call "the only depository institution con-

cerned" in this case, namely Bank. No matter how profoundly

the Temporary Order may have affected it, Bank could not be

the "depository institution concerned" in this case. Under

subsection (c)(2), a depository institution must have been

served with the notice of charges and the temporary cease-

and-desist order to challenge that order on appeal. See 12

U.S.C. s 1818(c)(2). It is undisputed that Bank met neither

of these statutory prerequisites. Even if Bank were a "de-

pository institution concerned" in this case, however, that

would not alter the fact that appellants were not served with

the Notice of Charges or the Temporary Order, as they must

be to prosecute an appeal under subsection (c)(2).

Appellants also argue that, although subsection (c)(2) uses

the term "depository institution," Holding Company cannot fit

this category because it is a savings and loan holding compa-

ny. This a non sequitur. Not only does the statute provide

that OTS may issue temporary cease-and-desist orders to

"any bank holding company," 12 U.S.C. s 1818(b)(3), we have

already concluded that Holding Company was a proper sub-

ject of the Temporary Order and, as such, entitled to appeal

pursuant to subsection (c)(2). CityFed Fin. Corp., 58 F.3d at

741-43.

B.

Anticipating that the plain language of section 1818(i)(1)

might bar their claims, appellants argue in the alternative

that the district court should have exercised jurisdiction

pursuant to Leedom v. Kyne, 358 U.S. 184 (1958), and its

progeny. Under Kyne, they argue, district courts may re-

view agency action, even when Congress intended otherwise,

if a plaintiff makes a "strong and clear" showing that the

agency has acted contrary to its statutory authority or de-

prived the plaintiff of constitutional rights. McCulloch v.

Libbey-Owens-Ford Glass Co., 403 F.2d 916, 917 (D.C. Cir.

1968). Here, appellants argue that the district court should

have exercised jurisdiction notwithstanding section 1818(i)

because the statutory ban on judicial review allowed a taking

of their property without just compensation in violation of the

Fifth Amendment to the Constitution. In particular, appel-

lants complain that the restrictions of the Temporary Order

forbade Holding Company from disbursing attorney fees and

costs to them, even though the Third Circuit had concluded

that they were entitled to such payments.

In Board of Governors v. MCorp Fin., Inc., the Supreme

Court disallowed a district court's exercise of jurisdiction

under Kyne in a case that involved section 1818(i)'s preclusion

of judicial review. 502 U.S. 32, 44 (1991). MCorp, a bank

holding company, filed a lawsuit against the Board of Gover-

nors of the Federal Reserve System ("Board") that sought to

enjoin the Board's prosecution of two administrative proceed-

ings against it. The district court entered the requested

injunction, and the Board appealed. The Fifth Circuit deter-

mined that the Board had exceeded its statutory authority

when it promulgated one of the regulations MCorp was

charged with violating, and ruled that Kyne authorized the

district court to enjoin the administrative proceedings that

had been conducted purportedly without statutory authoriza-

tion.

The Supreme Court rejected the Fifth Circuit's reading of

Kyne, and ruled that the district court lacked jurisdiction to

enjoin the administrative proceedings pending against

MCorp. The Court concluded that Congress spoke "clearly

and directly" when it enacted section 1818(i). Id. at 44. This

provision, continued the Court, contrasted with the statutory

scheme at issue in Kyne, in which the petitioner had asked

the court to imply preclusion of judicial review from legisla-

tive silence on the point. The Court read Kyne to "stand[ ]

for the familiar proposition that only upon a showing of clear

and convincing evidence of a contrary legislative intent should

the courts restrict access to judicial review," and determined

that section 1818(i) "provides us with clear and convincing

evidence that Congress intended to deny the District Court

jurisdiction to review and enjoin the Board's ongoing adminis-

trative proceedings." Id. (citation and internal punctuation

omitted). The Court further noted that, unlike the petitioner

in Kyne, MCorp had adequate means of review upon a final

determination by the agency. Id. at 43-44.

We conclude that MCorp, not Kyne, controls this case.

First, section 1818(i) unambiguously precludes judicial review.

See MCorp, supra; see also Hindes v. FDIC, 137 F.3d 148,

164 (3rd Cir. 1998) ("emphasiz[ing] that an integral factor in

determining the applicability of the exception is the clarity of

the statutory preclusion"). Appellants also have failed to

make a "strong and clear" showing that the issuance of the

Temporary Order violated their constitutional rights. See

McCulloch, 403 F.2d at 917.

Appellants make the case that the Temporary Order de-

prived them of their right to receive attorney fees and costs

from Holding Company without notice and a hearing; this

action, conclude appellants, violates the Fifth Amendment's

Due Process Clause. It has long been settled, however, that

the Fifth Amendment's Due Process Clause "does not apply

to the indirect adverse effects of government action." O'Ban-

non v. Town Court Nursing Ctr., 447 U.S. 773, 789 (1980).

That provision " 'has always been understood as referring

only to a direct appropriation, and not to consequential

injuries resulting from the exercise of lawful power.' " Id.

(emphasis added) (quoting Legal Tender Cases, 79 U.S. 457,

551 (1871)). The Temporary Order was a lawful exercise of

OTS's regulatory authority, see CityFed Fin. Corp, 58 F.3d at

743, that had no direct effect on appellants. It was issued

against Holding Company in order to restrict Holding Com-

pany's use of its assets pending completion of administrative

proceedings that OTS had commenced against Holding Com-

pany. As we have emphasized above, appellants were not

named in the Temporary Order, nor did the Temporary

Order serve to restrict appellants' use of their own assets.

Accordingly, any harm the appellants have suffered from the

issuance of the Temporary Order was a consequential result

of a lawful action OTS directed towards Holding Company,

and therefore was no due process violation.

The Supreme Court has recognized that a person who is

indirectly affected by government action may have a right to

a hearing under limited circumstances: "Conceivably, ... if

the Government were acting against one person for the

purpose of punishing or restraining another, the indirectly

affected individual might have a constitutional right to some

sort of hearing." Town Court, 447 U.S. at 789-90 n.22.

Appellants assert that OTS was indeed targeting them when

it issued the Temporary Order, but this unsupported asser-

tion does not meet the standard of a "strong and clear"

showing of a deprivation of constitutional rights. In any

event, Town Court also observed that parties suffering an

indirect adverse effect of government action "clearly have no

constitutional right to participate in the enforcement proceed-

ings" when the directly regulated party had a "strong finan-

cial incentive to contest [the government's] enforcement deci-

sion." Id. Here, Holding Company, the directly regulated

party, similarly had a strong interest in challenging the

Temporary Order, as evidenced by its separate lawsuit chal-

lenging the order.

Appellants propose another route to judicial review: the

Administrative Procedure Act. They ask us to invalidate the

challenged OTS orders as "arbitrary, capricious, an abuse of

discretion" under the APA. See 5 U.S.C. s 706. However,

the APA does not confer jurisdiction when another statute

denies it. See 5 U.S.C. s 702 ("Nothing herein ... confers

authority to grant relief if any other statute that grants

consent to suit expressly or impliedly forbids the relief which

is sought."). Accordingly, in light of our conclusion that

section 1818(i)(1) precludes judicial review of the Temporary

Order, we reject appellants' APA claims. Accord Henry v.

OTS, 43 F.3d 507, 511-12 (10th Cir. 1994).

III. Conclusion

Because appellants did not meet the statutory require-

ments for filing this lawsuit, the district court lacked jurisdic-

tion to hear it. Accordingly, we affirm the judgment of the

district court dismissing for lack of subject-matter jurisdic-

tion.