Opposition Brief — First Federal Savings Bank & Trust v. Director, Office of Thrift Supervision

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OFFIGE OF THE CLERK

Ou the Supreme Court of the United Stax —

OCTOBER TERM, 1991

No. 91-160

FIRST FEDERAL SAVINGS BANK & TRUST, ET AL.,

PETITIONERS

V .

DIRECTOR, OFFICE OF THRIFT SUPERVISION, ET AL.

ON PETITION FORA WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

KENNETH W. STARR

Solicitor General

STUART M. GERSON

Assistant Attorney General

DOUGLAS N. LETTER

JACOB M. LEWIS

Attorneys

Department of Justice

HARRIS WEINSTEIN Washington, D.C. 20530

Chief Counsel (202) 514-2217

THOMAS J. SEGAL

Deputy Chief Counsel

AARON B. KAHN

Assistant Chief Counsel

Office of Thrift Supervision

Washington, D.C. 20552

QUESTION PRESENTED

12 U.S.C. 1464(d) (2) (E) authorizes challenges to

the appointment of a federal conservator or receiver

“within 30 days [a]fter [it is appointed],” and

Section 1464(d)(2)(G) otherwise precludes courts

from taking ‘‘any action for or toward the removal

of any conservator or receiver or, * * * to restrain

or affect the exercise of powers or functions of a con-

servator or receiver.”’ The question in this case is

whether these provisions permit a federal savings

association to obtain a prospective injunction pre-

venting any future appointment of a receiver or

conservator.

(1)

TABLE OF CONTENTS

Page

casi ere oespranseephcsamucdoesihiermimenenes 1

a TR Sy eR 1

8 RE Sieh STEER SR A Ne a 2

SE SES ado Ree RD ea oe aoe Ne ee 6

EEG I I el AP De ee 12

TABLE OF AUTHORITIES

Cases:

Abbott Laboratories v. Gardner, 387 U.S. 136

a ainipibainbbnioters 3

Block v. North Dakota, 461 U.S. 273 (1983)........ 9

Century Federal Savings Bank v. United States,

745 F. Supp. 1863 (N.D. Ill. 1990) ...........0........ 9

Delta Air Lines, Inc. Vv. August, 450 U.S. 346

hy Tagen AR ARE ees a 11

Fahey Vv. Mallonee, 332 U.S. 245 (1947) ~.............. 5, 10

Far West Federal Bank v. OTS, 930 F.2d 883

RS Ce a 11

First English Evangelical Lutheran Church Vv.

County of Los Angeles, 482 U.S. 304 (1987)... 12

Franklin Savings Ass’n Vv. Office of Thrift Super-

vision, 934 F.2d 1127 (10th Cir. 1991) _.............. 11

FTC v. Standard Oil Co., 449 U.S. 232 (1980) ...... . 8

Fuentes v. Shevin, 407 U.S. 67 (1972) .................. 5

Greater Delaware Valley Federal Sav. & Loan

Ass’n V. FHLBB, 262 F.2d 371 (3d Cir. 1958) .. 7

Haralson v. Federal Home Loan Bank Board, 837

eR 10

Herb Vv. Pitcairn, 324 U.S. 117 (1945) ......0000000000.... 6

The Monrosa Vv. Carbon Black Export, Inc., 359

RTS RR Ne ee 6

Woods v. Federal Home Loan Bank Board, 826

F.2d 1400 (5th Cir. 1987), cert. denied, 485 U.S.

I adnan 10, 11

Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.

i eo sc oc ionsbesnnioaalinibecunlan 12

(III)

IV

Constitution and statutes: Page

U.S. Const. Amend. V (Just Compensation

GN EAA Ne IRR ALR eR OR nto 11,12

I eaves -elensiedes 2

Re I oscoesadeicecteciccsccaswecceeesnovmcerndnscsennnceons 7,8

pr B58 PRT LS ) eens 5, 8,9, 11

De vi crcieccesecsnccnseorncsnnsecseotunbaies 7,9

Be ee I I GID veces ce scccnsceveccsvecerecsseswacecses 2

12 U.S.C. 1464(d) (2) (E) ......00 ee... 2,4, 5, 7, 8,9, 11

12 U.S.C. 1464 (d) (2) (G) ....................... ...2, 4, 5, 6, 7, 9, 10

ee I I I oobi eccesepeerstconecnens Figen eee eee 11

Miscellaneous:

R. Stern, E. Gressman & S. Shapiro, Supreme

Court.Practice (6th ed. 1986) ..000000 00. 9

In the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-160

FIRST FEDERAL SAVINGS BANK & TRUST, ET AL.,

PETITIONERS

Vv.

DIRECTOR, OFFICE OF THRIFT SUPERVISION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

“OR THE SIXTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-

32a) is reported at 927 F.2d 1345.

JURISDICTION

The judgment of the court of appeals was entered

on March 12, 1991. A petition for rehearing was

denied on May 21, 1991. Pet. App. 39a. The peti-

tion for a writ of certiorari was filed on July 26,

1991. The jurisdiction of this Court is invoked un-

der 28 U.S.C. 1254(1).

(1)

2

STATEMENT

1. The Director of the Office of Thrift Supervision

(“OTS”) generally is “authorized * * * to provide

for the organization, incorporation, examination,

operation, and regulation of associations to be known

as Federal savings associations.” 12 U.S.C. 1464(a).

One of the Director’s most important powers is his

ability to appoint a conservator or receiver for a fed-

eral savings association, which he can do for any of

ten separate reasons, including “insolvency,” an “un-

safe or unsound condition to transact business,” a

likely inability to “meet the demands of its depositors

cr pay its obligations in the normal course,” or de-

pletion of “all or substantially all of its capital.’ Sec-

tion 1464(d)(2)(A). Recognizing the need for

prompt action to avert further losses by failing in-

stitutions, Congress has granted the Director the ‘“‘ex-

clusive power and jurisdiction” to appoint a conserv-

ator or receiver for a federal savings association, and

“authorized [the Director] to appoint [a conserva-

tor or receiver] ex parte and without notice.” Sec-

tion 1464(d) (2) (E).

To afford judicial review of these appointments,

Section 1464(d)(2)(E) provides: “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 Direc-

tor to remove such conservator or receiver.”’ Section

1464(d)(2)(G) expressly forecloses other avenues

for judicial review: “Except as otherwise provided

in [Section 1464(d) (2) (E)], no court may take any

action or toward the removal of any conservator or

receiver for or, except at the request of the Director,

to restrain or affect the exercise of powers or func-

tions of a.conservator or receiver.”

3

~2. Petitioners in this case are First Federal Sav-

ings Bank & Trust (First Federal), a federal savings

association subject to the Director’s regulation, to-

gether with its parent holding company and two of

its subsidiaries. Petitioners filed suit in the United

States District Court for the Eastern District of

Michigan, seeking, inter alia, a preliminary injunc-

tion that would prohibit the Director from appoint-

ing a conservator or receiver for First Federal,

chiefly on the ground that the Director was not en-

titled to disregard so-called “supervisory goodwill” as

an asset in determining First Federal’s financial con-

dition.’ The district court denied petitioners’ request,

explaining orally that it was “without authority to

enjoin the appointment, and to do so would circum-

vent the legislative scheme.” Pet. App. 36a.

3. The court of appeals affirmed the district

court’s denial of a preliminary injunction. Pet.

App. 27a.

a. First, relying on Abbott Laboratories vy. Gard-

ner, 387 U.S. 136 (1967), the court held (Pet. App.

13a-19a) that the dispute was not ripe for adjudica-

tion because the issues were not yet fit for judicial

1 Supervisory goodwill is the accounting term for an in-

tangible ‘“‘asset’” that is created under certain circumstances

in the merger and acquisition of tarift institutions. See Pet.

App. 8a n.4. Petitioners contended that they had entered into

an agreement with the Federal Home Loan Bank Board, a

federal regulatory agency that preceded OTS, allowing peti-

tioners to treat such goodwill as an asset for regulatory pur-

poses for au extended period, and that their agreement was

preserved notwithstanding changes in federal law restricting

the use of such goodwill for thrifts generally. The govern-

ment contended that there had been no such agreement, and,

even if there had been, that subsequent changes in federal law

had overridden the agreement. As the court of appeals rec-

ognized, these disagreements were “for the most part, irrele-

vant to the outcome of this dispute.” Pet. App. 1la.

4

decision, and because postponing consideration would

not cause the parties undue hardship. The court of

appeals first noted that in order to resolve the dis-

pute it would have to resolve the “intensely factual

issues” surrounding the “financial status of the sav-

ings and loan,” which would be “fully developed”

only at the time an enforcement action actually oc-

curred. Jd. at 15a. Indeed, the court observed, any

determination that it might make before a conserva-

tor or receiver actually had been appointed ‘could

become outdated.” Jd. at 16a. In short, the court

stated, ‘“[t]here is just no way that we can be sure,

as of now, that the OTS will ever choose to appoint

a conservator or receiver, or the circumstances under

which it would do so.” Jd. at 17a.

The court then held that withholding judicial re-

view would not impose an undue hardship on the

parties. Although petitioners “may feel nervous

about the possibility of the appointment of a con-

servator or receiver,” the court concluded that the

mere risk of appointment does not “affect [their]

behavior in any legally cognizable sense,” because the

mere possibility of appointment does not require pe-

titioners to “make any investments or take any ac-

tions to meet regulatory requirements.” Pet. App.

18a.

b. The court also determined (Pet. App. 19a-23a)

that Section 1464(d)(2)(G) would preclude adjudi-

cation of petitioners’ claims even if they were ripe.

The court noted that the congressional grant of “ex-

clusive power and jurisdiction to appoint a conserva-

tor or receiver” to the Director of OTS, 12 U.S.C.

1464(d) (2) (E), would be rendered “essentially mean-

ingless” if federal thrifts ‘could run to the nearest

federal court and get an injunction upon the potential

5

threat of having a conservator or receiver appointed.”

Pet. App. 20a. The language of the Section, which

provides for review “[i]n the event ci such appoint-

ment” within 30 days “thereafter,” also suggested to

the court “that review is only available after a con-

servator or receiver has been appointed.” Jd. at 21la

(emphasis added). The court found “further sup-

port” in 12 U.S.C. 1464(d)(2)(G), which prohibits

interference with the actions of a conservator or re-

ceiver, except in accordance with the post-appoint-

ment review provisions of subsection (E). In its

view, the availability of pre-appointment injunctions

“would render the anti-injunction provision nuga-

tory.” Pet. App. 21a.’

ce. Finally, the court found that the statutory

scheme did not deprive petitioners of procedural due

process by preventing pre-appointment review of the

decision to appoint a receiver. The court noted that

this Court had rejected a similar challenge in Fahey

v. Mallonee, 332 U.S. 245 (1947). It then proceeded

to apply the three-prong test set forth in Fuentes vy.

Shevin, 407 U.S. 67, 91 (1972), and concluded that

the statute provides all the process that is due under

the Constitution. The court noted the strong public

interest in the safety of the banking system, the need

for prompt action in dealing with failing depository

institutions, and the specific procedures in the statute

that govern the Director’s decision to appoint a re-

ceiver. Pet. App. 25a-26a. The court rejected peti-

2 Judge Contie dissented. Pet. App. 27a-3la. Relying on 12

U.S.C. 1464(d) (1) (A), he argued that the district court had

the power to issue an injunction preventing “appointment of

a receiver on the ground that OTS’s enforcement of its regu-

lations concerning supervisory goodwill abrogates First Fed-

eral’s prior contract with the FHLBB.” Pet. App. 3la.

6

tioners’ claims that the post-deprivation remedy was

inadequate, noting that petitioners can seek immedi-

ate removal of the receiver and that they also can

seek damages if the appointment is wrongful. Jd. at

26a.°

ARGUMENT

1. Petitioners do not challenge the court of appeals’

determination that their suit is not “ripe for review.”

Pet. App. 13a-19a. Thus, whatever the strength of

petitioners’ other arguments, review is not warranted

because those arguments offer little or no basis for

disturbing the judgment of the court of appeals. See

The Monrosa v. Carbon Black Export, Inc., 359 U.S.

180, 183-184 (1959) (dismissing a writ of certiorari

as improvidently granted) ; cf. Herb v. Pitcairn, 324

U.S. 117, 126 (1945) (the Court’s power ‘“‘is to cor-

rect wrong judgments, not to revise opinions’’).

_ 2. Petitioner’s principal contention (Pet. 14-27)*

is that the court of appeals erred in determining that

3 The Director has not yet appointed a receiver or con-

servator for First Federal.

4 Contrary to petitioners’ contention (Pet. 11-14), their

petition does not properly present the issues regarding the

application of recently enhanced thrift capital standards

raised by the petitioners in No. 90-1881, Franklin Federal

Savings Bank v. Director, Office of Thrift Supervision. Be-

cause the court of appeals found that petitioners’ request for

an injunction against appointment of a receiver was both

unripe and barred by Section 1464(d) (2) (G), and because

that request was the only issue raised on the appeal, it had

no occasion to consider their claim that OTS’s refusal to ap-

prove their capital plan violated an agreement with the Fed-

eral Home Loan Bank Board regarding the appropriate ac-

counting treatment of supervisory goodwill, see note 1, supra.

In any event, for the reasons discussed in our brief in opposi-

tion in Franklin Federal, at 7-11, this claim does not merit

7

Section 1464(d)(2) does not permit a court pros-

pectively to enjoin the Director from appointing a

conservator or receiver for a federal savings associa-

tion. Because the court below was the first court of

appeals to address the issue,” there is no reason for

the Court to review the issue at this time. In any

event, the decision of the court of appeals is correct.

a. 12 U.S.C. 1464(d) (2) (G) states that “no court

may take any action for or toward the removal of any

conservator or receiver or, except at the request of

the Director, to restrain or affect the exercise of

powers or functions of a conservator or receiver,” ex-

cept as provided in “this subsection.” The only ap-

plicable exception is contained in Section 1464(d)

(2)(E), which provides that, “fi]n the event of

such appointment, the association may, within 30

days thereafter, bring an action * * * to remove such

conservator or receiver” (emphasis added). Because

an order barring appointment of a receiver would

“restrain or affect the exercise of powers * * * of a

* * * receiver’—by totally barring any exercise of

powers—and because petitioners did not bring their

action within 30 days after such an appointment

(because no such appointment has been made), the

court of appeals correctly concluded that Section

1464(d) bars the relief sought by petitioners.

review by this Court. We have provided counsel for peti-

tioners a copy of our brief in opposition in Franklin Federal.

5 The Third Circuit considered a related issue in Greater

Delaware Valley Federal Sav. & Loan Ass’n v. FHLBB, 262

F.2d 371, 373-374 (1958). That case turned on whether an

earlier version of Section 1464(d) permitted prospective chal-

lenges to the appointment of a similar official (a “Supervisory

Representative in Charge’’), and concluded that judicial in-

tervention before appointment was not permitted.

8

This common-sense reading of Section 1464(d) is

bolstered by the first sentence of Section 1462(d) (2)

(E), which grants the Director the “exclusive power

and jurisdiction to appoint a conservator or receiver

for a Federal savings association,” and authorizes

the Direc.ior to make such appointments “ex parte

and without notice.” The court of appeals correctly

noted that allowing federal thrifts to seek an injunc-

tion against the appointment of a conservator or re-

ceiver would “totally undermin[e] th[is] statutory al-

location of authority.” Pet. App. 2la. Taken in

context, these provisions demonstrate that Congress

did not intend to permit district courts to grant the

relief petitioners sought in the district court.

Petitioners assert (Pet. 15-17) that the court of

appeals’ application of the statute is inconsistent

with the “strong presumption that Congress intends

judicial review of administrative action,” Pet. 15.

But nothing in the court of appeals’ opinion fore-

closes judicial review of the Director’s decision to

appoint a receiver. That court recognized that Sec-

tion 1464(d)(2)(E) explicitly authorizes courts to

review such an appointment at any time within the

30 days immediately after the appointment. Pet.

App. 20a. A court does not preclude judicial review

when it requires a claimant to seek review in accord-

ance with the time constraints adopted by Congress.

See FTC v. Standard Oil Co., 449 U.S. 232, 244-245

(1980).

Nor is there merit in petitioners’ claim (Pet. 16-

17) that Section 1464(d)(1)(A) grants the district

court jurisdiction to issue a prospective injunction

prohibiting the Director from appointing a receiver.

Section 1464(d)(1){A) does not address challenges

to the appointment of a receiver. It merely states:

9

Except as otherwise provided, the Director shall

be subject to suit * * * by any Federal savings

association * * * with respect to any matter

under this section or any other applicable law,

or regulation thereunder, in the United States

district court for the judicial district in which

the savings association’s home office is located, or

in the United States District Court for the Dis-

trict of Columbia.

It is implausible to argue that this general waiver of

immunity should control the specific provisions in

Section 1464(d)(2) barring pre-appointment chal-

lenges to the Director’s decision to appoint a receiver;

to use the words of subsection (1) (A), surely Con-

gress has “otherwise provided” in subsections (2)

(E) and (G) where it specifically addresses judicial

challenges to the appointment of a receiver. Cf. Block

v. North Dakota, 461 U.S. 273, 285 (1983) (‘a pre-

cisely drawn, detailed statute pre-empts more general

remedies’’) .°

b. Petitioners also contend (Pet. 18-27) that the

court of appeals’ conclusion barring pre-appointment

® Petitioner relies (Pet. 17) on the district court decision

in Century Federal Savings Bank v. United States, 745 F.

Supp. 1363 (N.D. Ill. 1990). The district court in that case

stated in dictum that Section 1464(d) (1) (A) offers an in-

dependent source of jurisdiction to issue a prospective injunc-

tion prohibiting the Director from appointing a receiver, 745

F. Supp. at 1366-1367, but declined to issue an injunction in

that case, id. at 1367-1370. Because the Century Federal

court reached the same result as the court below, the conflict

between their analyses is considerably attenuated. In any

event, the existence of a conflict between the decision of a

district court and a court of appeals generally is not an ade-

quate basis for issuance of a writ of certiorari. See R. Stern,

E. Gressman & S. Shapiro, Supreme Court Practice § 4.8 (6th

ed. 1986).

10

challenges must be incorrect because it leaves peti-

tioners with a remedy that is “constitutionally unac-

ceptable,” Pet. 18, either because it fails to accord

petitioners a pre-deprivation hearing, or because the

scope of review in the post-deprivation hearing is

unduly narrow. Both of these contentions are merit-

less.

It is well settled that the Constitution permits

seizure of an unsuccessful financial institution with-

out a pre-deprivation hearing. Over 40 years ago, in

Fahey v. Mallonee, 332 U.S. 245 (1947), this Court

rejected a claim that federal regulatory authorities

had deprived the owners of a failed thrift of due

process by applying regulations that provided for a

hearing to challenge the appointment of a conserva-

tor or receiver “after the conservator takes possession

instead of before,” id. at 253. As the Court explained,

the delicate nature of the institution and the im-

possibility of preserving credit during an inves-

tigation has made it an almost invariable custom

to apply supervisory authority in this summary

manner. It is a heavy responsibility to be exer-

cised with disinterestedness and restraint, but in

light of the history and customs of banking we

cannot say it is unconstitutional.

Id. at 253-254. Because of the strong public interest

in prompt action, and the availability of prompt post-

deprivation review, federal courts regularly have up-

held provisions similar to Section 1464(d) (2) (G).

See Haralson v. Federal Home Loan Bank Board, 837

F.2d 1123, 1126-1127 (D.C. Cir. 1988); Woods v.

Federal Home Loan Bank Board, 826 F.2d 1400,

1410-1413 (5th Cir. 1987), cert. denied, 485 U.S.

959 (1988); Pet. App. 25a (“the insolvent savings

and loan is one of the classic situations in which

prompt action is necessary”’).

11

Petitioners also claim in this Court (Pet. 20-22,

27) for the first time that the statutory framework

deprives petitioners of due process by limiting post-

deprivation review to the administrative record. Put-

ting to one side this Court’s general practice of not

passing on arguments that were not presented to the

court of appeals, see, e.g., Delta Air Lines, Inc. v.

August, 450 U.S. 346, 362 (1981), this claim is not

persuasive. See Franklin Savings Association v. Of-

fice of Thrift Supervision, 934 F.2d 1127, 1140 (10th

Cir. 1991) (concluding that post-appointment review

on OTS’s administrative record is adequate) ; Woods,

826 F.2d at 1410-1413 (rejecting a similar challenge

to an earlier version of 12 U.S.C. 1464(d) (2) (E)).

As these courts have recognized, the statutory proce-

dures provide petitioners a full and fair opportunity

to defend themselves.

ce. Petitioners also contend (Pet. 27-30) that the

court of appeals’ conclusion that prospective injunc-

tive relief is not available under Section 1464(d) (1)

(A) conflicts with the Federal Circuit’s decision in

Far West Federal Bank v. Office of Thrift Super-

vision, 930 F.2d 883 (1991). Nothing in that case

conflicts with the decision of the court of appeals in

this case; in Far West the Federal Circuit considered

whether the relief sought from the FDIC and OTS in

that case could be sought only in the Claims Court

under 28 U.S.C. 1491(a) (1), 930 F.2d at 888. The

Federal Circuit’s conclusion that certain claims did

not constitute claims within the exclusive jurisdiction

of the Claims Court—and thus could be presented to

the regional district courts—says nothing about the

merits of the claims raised by the institution in that

case or by petitioners here.’

7 Petitioners also seem to suggest (Pet. 27-28, 30) that the

Just Compensation Clause of the Fifth Amendment requires

12

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

STUART M. GERSON

Assistant Attorney General

DOUGLAS N. LETTER

HARRIS WEINSTEIN JACOB M. LEWIS

Chief Counsel Attorneys

THOMAS J. SEGAL

Deputy Chief Counsel

AARON B. KAHN

Assistant Chief Counsel

Office of Thrift Supervision

SEPTEMBER 1991

prospective injunctive relief against an anticipated taking,

and that the decision of the court of appeals contravenes this

principle. This suggestion is meritless. As the Court ex-

plained in First English Evangelical Lutheran Church Vv.

County of Los Angeles, 482 U.S. 304 (1987), the Just Com-

pensation Clause “does not prohibit the taking of private

property, but instead places a condition on the exercise of

that power.” Jd. at 314. “This basic understanding of the

Amendment makes clear that it is designed not to limit the

governmental interferences with property rights per se, but

rather to secure compensation in the event of otherwise

proper interference amounting to a taking.” Id. at 315. Peti-

tioners’ reliance (Pet. 30) on Youngstown Sheet & Tube Co.

v. Sawyer, 343 U.S. 579 (1952), for a contrary rule is in-

explicable. That case did not hold that injunctive relief is

available to remedy a wrongful taking; it held that the Presi-

dent’s action was an unconstitutional usurpation of legislative

authority.

WU. S. GOVERNMENT PRINTING OFFICE; 1991 262061 45066