Petition for Writ of Certiorari — Telegraph Savings & Loan Ass'n v. Federal Savings & Loan Insurance

g6 1788

No. JOSEPH F. SPANIO J

CLERK 7

In THE

Supreme Court of the United States

Octroser Term, 1986

a ——

— —-

TELEGRAPH SAVINGS & LOAN ASSOCIATION;

WILLIAM E. STRASSER, EARL C. ROSE;

PETER VAN OOSTERHOUT; A. R. GROVER;

BAKER & McKENZIE,

Petitioners,

V.

FEDERAL SAVINGS AND LOAN INSURANCE

CORPORATION as an insurance corporation and as

RECEIVER of the seized assets and business of Telegraph

Savings & Loan Association; FEDERAL HOME LOAN

BANK BOARD; WILLIAM T. SCHILLING,

individually and as Commissioner of savings and

loan associations for the State of Illinois,

Respondents.

—-

a

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

LEONARD M. RING *

LEONARD M. RING & ASSOCIATES

111 West Washington Street

Chicago, Illinois 60602

(312) 332-1765

Attorney for Petitioners

* Counsel of Reeord

Midwest Law Printing Co., Chicago 60611, (312) 321-0220

i

QUESTIONS PRESENTED

1. Whether the “prevailing party’”’ requirement for a

fee award in the private attorney general context of

Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), must

also be “read” into a statute authorizing the seizure by

a federal agency of private property without notice, where

the statute plainly authorizes a fee award to the challeng-

ing party; or does such a construction deny a citizen

an opportunity to be heard in a meaningful manner and

constitute a taking of his property in violation of Fifth

Amendment due process.

2. Whether the sale of the assets and liabilities of a

seized savings and loan association by the Federal Savings

and Loan Insurance Corporation without complying with

the prior public notice of sale and minimum waiting periods

required by 12 C.F.R. §569a, and the subsequent reten-

tion of the resulting excess asset recovery of $17,550,000,

violates the Fifth Amendment by depriving plaintiffs of

their property without due process of law.

il

TABLE OF CONTENTS

QUESTIONS PRESENTED ..................

TABLE OF AUTHORITIES .................

tgii 2 es Bperrrrerrrre rer crys:

iat by ee er rr rrr Pee

CONSTITUTIONAL PROVISION, STATUTES

AND REGULATION INVOLVED ..........

STATEMENT OF THE CASE ...............

REASONS FOR GRANTING THE WRIT:

I.

THE SEVENTH CIRCUIT’S EXTENSION OF

RUCKLESHAUS’ PREVAILING PARTY RE-

QUIREMENT OF PRIVATE ATTORNEY GEN-

ERAL LITIGATION TO SEIZURE OF PRIVATE

PROPERTY WITHOUT NOTICE LITIGATION

IS AN UNWARRANTED EXTENSION OF

RUCKELSHAUS WHICH VIOLATES FIFTH

AMENDMENT DUE PROCESS ............

Il.

THE SEVENTH CIRCUIT’S VIEW THAT

REGULATION 569a’S PUBLIC NOTICE AND

WAITING PERIOD FOR SALE OF SEIZED

PROPERTY WAS INAPPLICABLE, AND ITS

REFUSAL TO ORDER FSLIC TO TURN OVER

THE $17,550,000 EXCESS ASSET RECOVERY

TO TELEGRAPH’S SHAREHOLDERS, IS IN-

CONSISTENT WITH THE PLAIN WORDS OF

REGULATION 569a AND DEPRIVED TELE-

GRAPH OF ITS PROPERTY WITHOUT DUE

eg Lh re Prrrere ry rere re Eye

ARSENIO 2 00x54 00 cena need neneenee eae

15

19

ill

APPENDIX

Opinion and Judgment of the Court of Appeals,

I ir a bw ee Oe Ke ae Oe la

Order of the Court of Appeals Denying Rehear-

Re yr 9a

Opinions of the District Court, December 6, 1984. 10a

TABLE OF AUTHORITIES

Cases PAGE

Arizona Grocery Co. v. Atchison Topeka and Santa

Pe Bey ee US. BIO (IGE) 2... ccc cece ceees 17

Arnett v. Kennedy, 416 U.S. 134 (1974) ....... 12

Bimetallic Inc. Co. v. State Board of Equalization,

os ee err rrrerrT Terre re eeee 10

Boddie v. Connecticut, 401 U.S. 371 (1971) .... 12

Chrysler Corp. v. Brown, 441 U.S. 281 (1979) ... 16

Fahey v. Mallone, 3382 U.S. 245 (1947) ........ 12

Lassiter v. Department of Social Services, 452 U.S.

ER PER 13

Londoner v. Denver, 210 U.S. 373 (1908) ...... 10

Mathews v. Eldridge, 424 U.S. 319 (1956) ..... 13

Parratt v. Taylor, 451 U.S. 527 (1981) ........ 13

Pocius v. Halvorsen, 30 lil. 2d 73, 195 N.E.2d 137

et, CT ROSE, Ee 14

1V

Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983) . 7, 9, 10

Service v. Dulles, 354 U.S. 363 (1957) ......... 16

Telegraph v. Schilling, 703 F.2d 1019 (7th Cir.

1983), cert. denied, 104 S. Ct. 51 (1983) .. 6,17, 18

Telegraph Savings and Loan Association v. Fed-

eral Savings and Loan Insurance Corporation

et al., 564 F.Supp. 862 (1981) ............. 6

Vargas v. Trainor, 508 F.2d 485 (7th Cir. 1974) . 8

Vitarelli v. Seaton, 359 U.S. 535 (1949) ....... 16

Washington Federal Savings and Loan Association

v. Federal Home Loan Bank Board, et al., No.

80C-443 (N.D. Ohio, Sept. 4, 1981, unreported) . 1]

Other Authorities

OR ee ek are ee ere 3

Be Ma PRN nob inc de cca caucus waa 6,9

ME ee er ry ree 3, 7,9

Pe Ris OE reo F535 een eek eek es 5

ete SOT os oo eb eae dee Wee 5

re I on ae ee we eae ks 3, 4

et ek. Crs er er ere 4,6

ee ra ND i ap oe 5a ES ew 2

ee as | I oo ooo ahead acne ire ood 45h a 4 oo ee 9

ce es ss a sr here ab akkweks 5

§3158, 89th Cong., 2d Sess. (1966) ............ 11, 12

S. Rep. No. 1482, 89th Cong., 2d Sess. (1966) ... 12

In THE

Supreme Court of the United States

OctosBer Term, 1986

a

ae

TELEGRAPH SAVINGS & LOAN ASSOCIATION;

WILLIAM E. STRASSER, EARL C. ROSE;

PETER VAN OOSTERHOUT; A. R. GROVER;

BAKER & McKENZIE,

Petitioners,

Vv.

FEDERAL SAVINGS AND LOAN INSURANCE

CORPORATION as an insurance corporation and as

RECEIVER of the seized assets and business of Telegraph

Savings & Loan Association; FEDERAL HOME LOAN

BANK BOARD; WILLIAM T. SCHILLING,

individually and as Commissioner of savings and

loan associations for the State of Illinois,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioners Telegraph Savings and Loan Association,

William E. Strasser, Earl C. Rose, Peter Van Oosterhout,

A. R. Grover and Baker & McKenzie respectfully pray

that a writ of certiorari issue to review the judgment and

opinion of the United States Court of Appeals for the

Seventh Circuit which entered an order on December 5,

1986, affirming the entry of two orders by the United

States District Court for the Northern District of Illinois.

~

OPINIONS BELOW

The opinion of the Court of Appeals for the Seventh

Circuit affirming the judgments of the district court is

reported at 807 F.2d 590 (7th Cir. 1987). The opinions of

the United States District Court for the Northern District

of Illinois rendering summary judgment dismissal of Count

VII and denying Petitioners motion for attorney fees are

reprinted in the appendix hereto, at pp. 10a-16a.

JURISDICTION

Petitioners brought their action in the district court in-

voking federal jurisdiction under 12 U.S.C. §1464(d\6A),

§$1464(dX1) together with §1729(cX3XA); 5 U.S.C. §702; 12

U.S.C. §1725(cX4) and §1730(KX1); 28 U.S.C. §1331, §1337,

§1343, §1346(b) and §1391(e); 42 U.S.C. §1983; the Fifth

and Fourteenth Amendments to the Constitution of the

United States; the federal receivership; and the doctrine

of pendent jurisdiction.

On December 6, 1984, the district court granted respon-

dents’ motion for summary judgment on Count VII and

denied petitioners’ motion for attorneys fees and costs.

On petitioners’ appeal, the Seventh Circuit entered judg-

ment and opinion on December 5, 1986, affirming the deci-

sions of the district court. Petitioners filed this petition

for a writ of certiorari within 90 days following denial,

on February 2, 1987, of petitioners’ request for a rehear-

ing.

Petitioners invoke the jurisdiction of this Court under

28 U.S.C. §1254(1).

=

CONSTITUTIONAL PROVISION, STATUTES

AND REGULATIONS INVOLVED

Constitutional Provision

The Fifth Amendment to the Constitution of the United

States of America provides in pertinent part that:

“No person shall be . . . deprived of . . . property,

without due process of law;”

Statutes

12 U.S.C. §1464(d\8\A)—the unamended statute:

Any court having jurisdiction of any proceeding in-

stituted under this subsection by an association or

a director or officer thereof, may allow to any such

party such reasonable expenses and attorneys fees

as it deems just and proper; and such expenses and

fees shall be paid by the association or from its

assets.

12 U.S.C. §1464(d\8)(A)—as amended October 15, 1982:

Any court having jurisdiction of any proceeding in-

stituted under this subsection by an association or

a director or officer thereof, may allow to any such

party, which prevails, such reasonable expenses and

attorneys fees as it deems just and proper; and such

expenses and fees shall be paid by the association

or from its assets.

Regulations

12 C.F.R. §569a.6(c\(3):

(c) Assets, claims and contracts. The Receiver

shall have power te:

* * *

seals

(3) Reject or repudiate any lease or contract which

it considers burdensome. Prior to the final acceptance

of any offer relating to the disposition of assets or

property of any kind having an appraised value in ex-

cess of $25,000, but a book value of less than $100,000

or where the transaction involves consideration of

more than $25,000, the Receiver shall publish a notice

of such proposed transaction in a newspaper printed

in the English language and of general circulation in

the city or country in which the home office of the

institution is located, inviting interested persons to

submit in writing any comments or additional offer

no later than 15 days from the date of publication, or

such longer period as the Receiver may deem desirable.

If no substantive objection from an interested person

or additional offer is received, the proposed transaction

may be consummated by the Receiver. * * *

[33 FR 14366, Sept. 24, 1968, as amended at 40 FR

46096, Oct. 6, 1975]

12 C.F.R. §569a.13:

§569a.13 Purchase and assumption transactions.

The requirements set forth in §§569a.5(a), 569a.6(cX3),

569a.8, 569a.9 and 569a.10 shall not apply to the Cor-

poration as receiver for an institution that becomes

the subject of a purchase and assumption transaction.

[45 FR 76653, Nov. 20, 1980]

~ a

STATEMENT OF THE CASE

1. Facts

On May 22, 1980, the Illinois Commissioner of Savings

and Loan Associations (“‘Commissioner’’) took immediate,

unannounced custody of Plaintiff Telegraph Savings and

Loan Association (‘“‘Telegraph’’) without giving notice. In

so doing the Commissioner purported to act under the

provisions of Ill. Rev. Stat. ch. 32, §848.

At the same time the Commissioner took custody, the

Federal Home Loan Bank Board (‘“FHLBB” or “Bank

Board”), pursuant to 12 U.S.C. §1729(cX2), acting in ex

parte proceedings and in concert with the Commissioner,

appointed the Federal Savings Loan Insurance Corpora-

tion (“FSLIC”’) Receiver of Telegraph. The Commissioner

transferred Telegraph to FSLIC, acting in its Receiver

capacity, immediately upon taking custody.

The Receiver immediately sold the business of Tele-

graph by entering into a “purchase and assumption agree-

ment” pursuant to 12 U.S.C. §1729(fX2) whereby selected

assets and the depositor accounts of Telegraph were sold

to First Federal Savings and Loan Association of Chicago

for “a premium of $17,550,000”, which sum was desig-

nated by the Bank Board as “a premium .. . for the

value of Telegraph as a going concern”.

Telegraph received no prior written notice of the seizure

action the-Commissioner intended to take as was required

by Ill. Rev. Stat. Ch. 32, §848, nor any prior notice of

the action of the FHLBB.

= a

2. The Proceedings Below

On June 2, 1980 Telegraph, together with an officer,

directors and shareholders, filed a multi-count complaint

pursuant to 12 U.S.C. §1464(d)(6XA) to challenge custody,

the receivership and the purchase and assumption trans-

action.

The District Court found in favor of the Bank Board

and FSLIC on the central issue of Count III at the trial—

the rationale of the Bank Board’s standard of insolvency—

and the Court of Appeals for the Seventh Circuit affirmed,

Telegraph v. Schilling, 703 F.2d 1019 (7th Cir. 1983), cert.

denied, 104 S. Ct. 51 (1988) (hereafter ‘“Telegraph’’).

Both the District Court and the Seventh Circuit found

that Telegraph had been seized without notice having

been given. Telegraph Savings and Loan Association v.

Federal Savings and Loan Insurance Corporation et al.,

564 F. Supp. 862, 867 (1981); Telegraph at 1021.

On December 6, 1984, the District Court granted FSLIC’s

motion for summary judgment on the challenge to the pur-

chase and assumption agreement asserted in reserved

Count VII of the complaint and the Seventh Circuit af.-

firmed. See Appendix p. la.

Though the prior notice and waiting provisions of the

Regulation which Telegraph relied on were in effect years

before and after Congress authorized purchase and as-

sumption agreements, the Seventh Circuit did not view

this as determinative. It stated “Granted, it was not until

several months after the transaction in this case that the

Federal Home Loan Bank Board got around to issuing

a regulation, 12 C.F.R. §569a.13 (1981), that expressly

makes the provisions of section 569a on which Telegraph

relies inapplicable to purchase and assumption transac-

tions; but the new regulation merely makes explicit what

was already implicit.’”” See Appendix p. 3a.

Also on December 6, 1984, the District Court denied

Telegraph’s motion for an award of attorney’s fees filed

27 months after suit was filed and following trial on the

insolvency issue. The motion was brought under 12 U.S.C.

§1464(d\8XA) which provided that in a suit under the

Home Owners Loan Act by an association, or a director

or an officer of an association, the court “may allow to

any such party such reasonable expenses and attorneys

fees as it deems just and proper; and such expenses and

fees shall be paid by the association or from its assets.”’

See Appendix p. 5a.

The Seventh Circuit, without reference to the legislative

history of the unamended fee statute, held that the Amer-

ican rule that each litigant bears his legal expenses ap-

plied, and concluded that “prevailing”? must be read into

12 U.S.C. §1464(dX8\A) between “‘any such” and “party”

in the unamended statute on the authority of Ruckelshaus

v. Sierra Club, 463 U.S. 680 (1983) (hereafter ‘‘Ruckels-

haus’’). The Seventh Circuit stated:

“This language [in Ruckelshaus] suggested as broad

a delegation to the court as the language of the pres-

ent statute; yet that did not prevent the Court from

(in effect) inserting ‘to the prevailing party’ between

‘award’ and ‘costs.’ ”’

See Appendix p. 7a.?

1 Congress added “which prevails” to 12 U.S.C. §1464(d8XA)

twenty-eight months after the Complaint was filed and seven

months after Telegraph’s fee motion was brought. Though the

Seventh Circuit found the amendment consistent with its conclu-

sion, the decision of the Seventh Circuit was based on the un-

amended statute and Ruckelshaus.

~

REASONS FOR GRANTING THE WRIT

‘

THE SEVENTH CIRCUIT’S EXTENSION OF RUCKLES-

HAUS’ PREVAILING PARTY REQUIREMENT IN

PRIVATE ATTORNEY GENERAL LITIGATION TO

SEIZURE OF PRIVATE PROPERTY WITHOUT NOTICE

LITIGATION IS AN UNWARRANTED EXTENSION OF

RUCKELSHAUS WHICH VIOLATES FIFTH AMEND-

MENT DUE PROCESS.

The scope of due process in deprivation of property

cases is in issue in this case in stark profile. If left un-

reviewed and uncorrected, the decision of the Seventh Cir-

cuit below will enormously expand the power of federal

agencies who are charged with regulation of businesses;

it will effectively insulate them from judicial review of

the most drastic action—seizure of private property with-

out notice—within the agencies’ arsenal of remedies. In

short, any effective check on the power of regulatory

agencies to seize property—whether done with the best

of intentions or something less—will disappear.

It is not contended that in 1980 financial institutions run

for profit should have been immune from searching over-

sight of their day-to-day operations. It is contended that

in 1980 when events called for regulatory intervention by

federal agencies that the regulated institution should have

been given an opportunity to rebut the agencies inter-

vention in a meaningful manner. Government agencies do

_make mistakes. Vargas v. Trainor, 508 F.2d 485, 490 (7th

Cir. 1974).

Here Telegraph experienced the now well understood

interest rate “squeeze” of the early 1980’s when it was

forced to pay high rates of interest to obtain funds for

ere

=

operation while earning far lesser sums from long term,

low interest rate mortgage loans to home owners. The

industry-wide result of the interest squeeze was a month

by month depletion of net worth. The Bank Board and

FSLIC were understandably concerned about Telegraph.

So was Telegraph. Though Telegraph was highly liquid

and well able to pay its obligations as they came due, its

monthly balance sheet reflected a dropping net worth.

Telegraph found an investor who made a proposal to in-

fuse fresh capital on reasonable, negotiable terms, and

Telegraph requested approval of the proposal from the

Bank Board.

In response, the Bank Board abruptly rejected the pro-

posal, participated in the seizure without notice to Tele-

graph and informed Telegraph’s deposed officers and direc-

tors of the rejection of the recapitalization proposal after

the association was seized.

After Telegraph sued and lost on the issue of whether it

was insolvent within the meaning of 12 U.S.C. §1464(dX6A)

it was denied the right to compensate its attorneys out

of its own assets?—not public funds—on the “prevailing

party” rationale of the private attorney general statute

in issue in Ruckelshaus.

The differences between the attorney fee statute of

Ruckelshaus, Section 307(f) of The Clean Air Act, 42

U.S.C. §7607(f), and the attorney fee statute here in issue,

12 U.S.C. §1464(dX8XA), and the underlying issues, are

Constitutionally distinguishable.

In Ruckelshaus, adequate notice was provided to the

concerned segment of the public; time was provided to

2 held by the Receiver, FSLIC

oe NB

marshall resources to contest the agency action. Here, the

agency action occurred without notice, and control of the

only realistic source of funds, the assets of the associa-

tion, passed out of the owner’s hands simultaneously with

seizure. The association, its officers and directors were

unexpectedly and effectively deprived of the means of

meaningfully contesting the agency action.

In Ruckelshaus, the plaintiffs sought compensation from

public monies. Here, the plaintiffs seek only to use their

own assets to pay their attorney’s fees.®

In Ruckelshaus, the plaintiffs were voluntarily combat-

ting the rule-making authority of an administrative agency

in order to further the interests of the public in environ-

mental protection. Telegraph, on the other hand, is at-

tempting to exercise its statutorily created and constitu-

tionally mandated rights to challenge meaningfully an ex

parte seizure without notice. This Court has long recog-

nized that the interests of the public-at-large are vastly

different than those of individuals affected by a special

administrative act. Londoner v. Denver, 210 U.S. 373

(1908). Compare Bimetallic Inc. Co. v. State Board of

Equalization, 239 U.S. 441 (1915) (Londoner distinguished

on basis of a small number of people who were ‘‘excep-

tionally affected, in each case upon individual grounds.”’).

In Ruckelshaus the majority believed the legislative his-

tory underlying the fee statute was susceptible of differ-

ing interpretations from which this court concluded ‘when

appropriate’ meant “prevailing’’.

3 Telegraph’s assets included over $100,000,000 of mortgage notes

which generated large amounts of revenue month after month in

the hands of the Receiver.

wii tn

Here, the legislative history of the Financial Institu-

tions Supervisory Act of 1966 (‘1966 Act”), which added

§1464(d\8\A) to the HOLA, clearly shows that Congress

intended reasonable expenses and attorneys’ fees to be

awarded to associations contesting the FHLBB’s appoint-

ment of a receiver in just and proper litigation without

regard to success.4

Specifically:

Prior to the 1966 Act, supervisory action by the FHLBB

required a prior hearing with advance notice: the FHLBB~

could not seize the association’s assets until after the hear-

ing. Thus, an association wishing to challenge the FHLBB’s

actions could simply pay its expenses and attorneys’ fees

out of its assets, to which the association continued to

have access during the pendency of the hearing.

As originally introduced in the Senate, the 1966 Act

made no provision for the award of reasonable expenses

and attorneys’ fees. §3158, 89th Cong., 2d Sess. (1966).

However, the U.S. League of Savings Associations argued

before the subcommittee of the Senate Committee on

Banking and Currency that attorneys’ fees were neces-

sary,

[iIn order that the exercise of such rights [the right

to challenge the imposition of a Federal receivership]

4 In approving a $600,000 award of attorneys fees which was not

appealed by FSLIC, the only other court presented with this issue

expressly held that the unamended statute embodied no “‘prevail-

ing party” requirement. “Hence, it is concluded that a reasonable

construction of the attorney fee provision cannot and does not re-

quire the condition that attorneys fees and expenses will only be

awarded to the association if it prevails{.]” Washington Federal

Savings and Loan Association v. Federal Home Loan Bank

Board, et al., No. 80C-448, transcript at 37-38 (N.D. Ohio, Sept.

4, 1981, unreported).

=" =

shall not be unfairly impeded by the omission of pro-

vision for the payment of costs and expenses of such

proceedings from the assets of the association af-

fected, the league requests this committee to insert

in the bill a provision . . . which would provide for

such expenses as may be approved by the court.

Id. at 186 (statement of W.O. Duvall). The intent of the

Senate in adopting the provision is made clear from the

Senate report accompanying the bill:

Any court having jurisdiction of any proceeding insti-

tuted under the proposed amended section 5(d) by

any association or director or officer, could allow to

any such party such reasonable expenses and attor-

neys’ fees as the court deems just and proper, to be

paid by the association or from its assets.

S. Rep. No. 1482, 89th Cong., 2d Sess., 15 (1966).

Given the complexity of the issues and the vast govern-

mental resources available to the FHLBB and FSLIC,

the denial of Telegraph’s right to use its own resources

to defend the seizure of its assets constitutes a taking

of property without due process of law and violates the

Fifth Amendment. Due process requires that no property

be taken without “an opportunity . . . granted at a mean-

ingful time and in a meaningful manner. . . for [a] hear-

ing appropriate to the nature of the case[.]” Boddie v.

Connecticut, 401 U.S. 371, 378 (1971) (citations omitted;

emphasis added). Due process generally requires that the

hearing must be conducted prior to the taking of prop-

erty. Only in situations where this predeprivation hear-

ing is impractical or impossible, and some valid govern-

mental interest is at stake, may the hearing be postponed

until after the taking. Arnett v. Kennedy, 416.U.S. 134

(1974); Fahey v. Mallone, 332 U.S. 245 (1947). A post-

deprivation remedy satisfies procedural due process re-

quirements only where the necessity of quick action or

rr

=; =

the impracticality of providing a meaningful predeprivation

hearing is coupled with the availability of some “mean-

ingful opportunity . . . for a determination of rights and

liabilities.” Parratt v. Taylor, 451 U.S. 527, 541 (1981).

The due process standard to be applied in evaluating

a judicial or administrative procedure is one of “fundamen-

tal fairness.”’ Lassiter v. Department of Social Services,

452 U.S. 18, 24 (1981). In determining what “fundamental

fairness” requires; this Court has adopted a fact balanc-

ing approach in determining whether the requirements of

due process have been met. This requires consideration

of three factors, Mathews v. Eldridge, 424 U.S. 319, 335

(1956).

The first due process factor is the private interest as-

serted by Telegraph. Telegraph’s interest is one of consti-

tutional foree—the deprivation of property without due

process of law.

The second due process factor requires examination of

the risk of erroneous deprivation and probable value of

additional safeguards. Since any deprivation under the

draconian act of seizure without notice potentially may

be erroneous, meaningful judicial review is constitutionally

mandated. The intricate circumstances surrounding all

seizures of associations make any such seizure prone to

great risk of error. The probable value of additional

safeguards is, in contrast, extremely high.°®

The third due process factor, the government interest,

is not impinged by the attorney’s fees requirement. The

5 The fee statute has contained a ‘“‘just and proper” condition

since its enactment which provides the district court with the

means to guard against abuse.

satin.

attorneys’ fees are payable out of the assets of the seized

association and not out of taxpayers’ dollars.

A balancing of the three factors in the due process

analysis compels the conclusion that Telegraph was de-

prived of due process of law.

The notion of the Seventh Circuit in this case that

Telegraph, its officers, directors and shareholders do not

need provision for payment of counsel regardless of the

outcome is unrealistic.6 The facts known to Telegraph and

its counsel at the start of litigation were that Telegraph’s

assets had been removed from its control and the opposing

party was a U.S. government agency with vast economic

resources and a staff of in-house and retained counsel of

great skill and experience. Many issues to be decided were

complex and required vigorous discovery, and many of

the issues were issues of first impression.

To suggest that lawyers were available to Telegraph on

a contingency fee basis does not recognize business reali-

ties. Common sense dictates that no lawyer with suffi-

cient skill to recognize the issues and to draft a complaint

would take such litigation on a contingent fee basis.

The panel failed to appreciate the difference between

anti-trust and creditors rights litigation and this litigation.

In the anti-trust and creditors rights fields an established

§ Indeed, the Seventh Circuit even considered Telegraph’s counsel

to have accepted representation on a contingent fee. However, the

Seventh Circuit misinterpreted the fee agreement in this litiga-

tion. The agreement provided for a bonus for a successful outcome

in this highly complex, meritorious and unique litigation, a com-

mon occurrence. But the underlying compensation is an hourly rate

regardless of outcome. A contingent fee contract in Illinois means

if there is no recovery, there is no fee. Pocius v. Halvorsen, 30

Ill. 2d 73, 195 N.E.2d 187 (1964).

= =

body of law exists from which a judgment of the likelihood

of success can be made on known, or reasonably discover-

able, facts. Here, no guidelines, factual or legal, existed.

Here, Telegraph faced 10 day and 30 day statutes of limi-

tations to bring suit; time periods far shorter than gen-

erally available to anti-trust claimants. Neither the facts

nor logic support the conclusion that counsel would have

been available to Telegraph if the fee statute included a

“prevailing” qualification.

The legal issues involved in seizure litigation, especial-

ly at the time of the instant seizure, are far beyond the

knowledge, skill and judgment of the most sophisticated

businessman as the record of this litigation shows; repre-

sentation by able counsel is a necessity. If no mechanism

existed to ensure that the enormous legal time and effort

required to challenge seizure actions would have been

compensated, the victims of seizures will simply have gone

unrepresented.

The need to define the reach of Ruckelshaus warrants

the granting of the petition for a writ of certiorari in this

case.

Il.

THE SEVENTH CIRCUIT’S VIEW THAT REGULATION

569a’S PUBLIC NOTICE AND WAITING PERIOD FOR

SALE OF SEIZED PROPERTY WAS INAPPLICABLE,

AND ITS REFUSAL TO ORDER FSLIC TO TURN OVER

THE $17,550,000 EXCESS ASSET RECOVERY TO TELE-

GRAPH’S SHAREHOLDERS, IS INCONSISTENT WITH

THE PLAIN WORDS OF REGULATION 569a AND DE-

PRIVED TELEGRAPH OF ITS PROPERTY WITHOUT

DUE PROCESS.

The Seventh Circuit’s conclusion that Regulation 569a

was not applicable to the quick sale of Telegraph’s busi-

-_ =

ness cannot be squared with the principle that an agency

must follow its own regulations, Service v. Dulles, 354

U.S. 363, 77 S. Ct. 1152, 1 L. Ed. 2d 1403 (1957). By de-

ferring to the agency’s interpretation of a regulation which

the agency obviously found inconvenient to its immediate

purpose, the Seventh Circuit altered the industry rules

without warning to the affected parties, Telegraph and

its shareholders.

The prior public notice and 15 day waiting period of

Regulation 569a were plainly designed to maximize the

consideration received by FSLIC on the disposal of the

business of a seized association. The stake of Telegraph

_ and its shareholders in maximization of the proceeds of

disposal of its business is significant since recoveries over

and above the amount needed to make FSLIC whole be-

longed to Telegraph and its shareholders. Had prospec-

tive bidders for the pieces of Telegraph’s business been

aware of the availability of Telegraph and had they had

15 days to prepare carefully considered bids, a much

higher bid might have been obtained. -

Regulation 569a had the force and effect of law since

its publication in the Federal Register and was therefore

binding on the Bank Board and FSLIC until it was offi-

cially and publicly changed, Chrysler Corp. v. Brown, 441

U.S. 281 (1979). Since the sale of Telegraph was made in

violation of Regulation 569a, it was illegal and of no effect,

Vitarelli v. Seaton, 359 U.S. 535, 545 (1949).

The Seventh Circuit’s approval of the agency’s unpub-

lished sale on the ground the regulation was “‘not promul-

gated with such [purchase and assumption] transactions

in mind” is unavailing. See Appendix p. 3a. When Con-

gress adds new substantive provisions to an existing stat-

utory scheme for which regulations are already in place,

a

it must be assumed that Congress intended those regula-

tions to apply to the new provisions because an agency

is as much bound by its own properly promulgated rules

as the persons affected by them. Arizona Grocery Co. v.

Atchison Topeka & Santa Fe Ry., 284 U.S. 370 (1932).

The $17,550,000 excess asset recovery which FSLIC ex-

perienced as a result of the three party purchase and as-

sumption transaction can be understood by the following

simplified representation of the transaction.

[FSLIC]_$178,500,000 assets (i.e.: cash) [First Federal]

[Telegraph]

Using the book value method of accounting which was

earlier mandated in Telegraph, at pp. 1027, 1028 and

focusing on funds transferred in and out of FSLIC, it will

be seen that FSLIC received $196,000,000 mortgage notes

secured by mortgages on homes, and paid out $178,500,000

in cash; the difference is $17.5 million. The third party,

First Federal Savings and Loan Association of Chicago,

experienced a book value deficit of $17.5 million on the

transaction. However, First Federal willingly entered into

the agreement because it was common knowledge at the

time of the transaction that First Federal could earn more

—18—

from Telegraph’s five business locations, its experienced

staff, customer base, good will, and the $178.5 million cash

it received from FSLIC than it would have to pay out

on the $196 million of Telegraph’s deposit accounts which

it assumed.

The Seventh Circuit explained away FSLIC’s $17.5

million excess asset recovery by stating that the mortgage

notes were worth less than face value when evaluated by

a market value standard. This holding is inconsistent with

the decision of a prior panel of the Seventh Circuit that

the book value method of accounting governs this litiga-

tion. Telegraph, at pp. 1027, 1028.

The need to clarify now far a federal agency may go

in failing to follow regulations which are clear on their

face when application of those regulations may be incon-

venient to the agency, and the need to clarify the appro-

priate accounting standard, book value or market value,

to be used in supervisory action cases administered by

the Bank Board, warrant the granting of the petition for

a writ of certiorari in this case.

—_ =

CONCLUSION

For these reasons, petitioners request this Court to

issue a writ of certiorari to review the holding of the

United States Court of Appeals for the Seventh Circuit.

Respectfully submitted,

LEONARD M. RING *

LEONARD M. RING & ASSOCIATES

111 West Washington Street

Chicago, Illinois 60602

(312) 332-1765

Attorney for Petitioners

* Counsel of Record

APPENDIX

—ig—

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 85-1041

TELEGRAPH SAVINGS AND LOAN ASSOCIATION, et al.,

Plaintiffs-Appellants,

Vv. =

WILLIAM J. SCHILLING, FEDERAL HOME LOAN

BANK BOARD, and FEDERAL SAVINGS AND LOAN

INSURANCE CORPORATION,

Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 80 C 2792—John F. Grady, Judge.

ARGUED SEPTEMBER 9, 1986—DeEcIDED DECEMBER 5, 1986

Before POSNER and FLauM, Circuit Judges, and FAIR.

CHILD, Senior Circuit Judge.

POSNER, Circuit Judge. In 1980 the Federal Home

Loan Bank Board determined that Telegraph Savings &

Loan Association was insolvent and appointed the Federal

Savings & Loan Insurance Corporation (FSLIC), the fed-

eral agency that insures deposits in savings and loan

associations, as receiver. On the same day FSLIC entered

into a “purchase and assumption” transaction with First

Federal Savings & Loan Association, whereby First Fed-

eral agreed, effective the next day, to assume Telegraph’s

liabilities (mainly to its depositors) in exchange for a cash

—~2a—

payment from FSLIC plus Telegraph’s “good” assets (fur-

niture, fixtures, etc.). FSLIC was left to try to recoup

the cash payment it had made to First Federal from Tele-

graph’s loan portfolio, which FSLIC retained. Telegraph

brought this suit against FSLIC, challenging the deter-

mination of insolvency, the appointment of the receiver,

and the legality of the purchase and assumption transac-

tion, and seeking the return of its assets. (There are other

parties on both sides, but they are not important to this

appeal.) The district court resolved all issues against

Telegraph. In a previous appeal we upheld the court’s rul-

ings with respect to the determination of insolvency and

the appointment of the receiver. Telegraph Savings &

Loan Ass’n v. Schilling, 703 F.2d 1019 (7th Cir. 1983).

The present appeal is from the district court’s rejection

of Telegraph’s challenge to the legality of the purchase

and assumption transaction, and from its refusal to award

Telegraph some $500,000 in attorney’s fees for Telegraph’s

strenuous though unsuccessful efforts in this litigation.

The purchase and assumption method of liquidating an

insolvent savings and loan association is expressly autho-

rized by 12 U.S.C. § 1729(f\(2), passed in 1978 and modeled

on a statute applicable to and frequently used by the Fed-

eral Deposit Insurance Corporation in dealing with bank

failures. See 12 U.S.C. § 1823(f); H.R. Rep. No. 1383, 95th

Cong., 2d Sess. 40 (1978); Burgee, Purchase and Assump-

tion Transactions Under the Federal Dezosit Insurance

Act, 14 Forum 1146, 1154-60 (1979); cf. S. Rep. No. 536,

97th Cong., 2d Sess. 7 (1982). Instead of paying the de-

positors—a procedure that both is time-consuming and

does nothing for depositors insofar as their deposits ex-

ceed the insured limit—the FDIC or FSLIC, as the case

may be, persuades another financial institution to assume

the insolvent institution’s liabilities to depositors. See, e.g.,

Corbin v. Federal Reserve Bank of New York, 475 F.

Supp. 1060, 1063-65 (S.D.N.Y. 1979), aff'd, 629 F.2d 233

(2d Cir. 1980). Whether the agency pays the depositors

directly or pays another financial institution to assume

liability to them, the agency seeks to recoup the payment

—fR—-

out of the assets of the insolvent institution. The advan-

tage to the agency of the purchase and assumption tech-

nique is that it preserves the going-concern value of the

failed institution and thus reduces the agency’s loss by

the excess of that value over the liquidation value of the

institution. The disadvantage is that the agency makes

a whole beyond the limits of its insurance liability

to them.

Telegraph does not question the legality of the purchase

and assumption transaction as such but insists that there

must be 15 days’ public notice of it. A regulation of the

Federal Home Loan Bank Board, 12 C.F.R. § 569a (1980),

requires such notice in the case of a sale of the assets

of a savings and loan association by a receiver; and such

a sale took place here. But we do not think the regula-

tion is applicable. It was promulgated ten years before

F'SLIC was authorized by 12 U.S.C. § 172%f2) to engage

in purchase and assumption transactions, and not only was

it not promulgated with such transactions in mind, but,

if applied to them, it would frustrate them. A purchase

and assumption transaction will not work unless it is com-

pleted before the depositors know that their savings and

loan association is insolvent and in receivership. For once

they find out, they will begin withdrawing their deposits,

and there will be little or nothing for the assuming asso-

ciation (First Federal here) to assume. In re Franklin

Nat'l Bank, 381 F. Supp. 1390, 1392, 1393 (E.D.N.Y.

1974); In re American City Bank & Trust Co., 402 F.

Supp. 1229, 1231 (E.D. Wis. 1975). Blocking withdrawals

will anger the depositors, making it difficult to induce

them to transfer their loyalties to the assuming institu-

tion; so FSLIC will lose the going-concern premium to

which it looks to reduce its losses on the transaction.

Deposit insurance will not necessarily prevent a “run,”

since it takes time to collect and since some depositors

have deposits in excess of the insurance limit.

Granted, it was not till several months after the trans-

action in this case that the Federal Home Loan Bank

Board got around to issuing a regulation, 12 C.F.R.

—49—

§ 569a.13 (1981), that expressly makes the provisions of

section 569a on which Telegraph relies inapplicable to pur-

chase and assumption transactions; but the new regula-

tion simply makes explicit what was already implicit. For

we think it more sensible to view the statute, 12 U.S.C.

§ 1729(fX2), as limiting the scope of a previously issued

regulation than to view the previously issued regulation

as preventing the board (unless and until it expressly

changed the regulation) from effectuating the policy of the

subsequently enacted statute.

It may seem that without some sort of public notice

there can be no assurance that the receiver will strike

the most advantageous bargain for the disposition of the

insolvent institution’s assets. But FSLIC knows which

savings and loan associations might be interested in as-

suming an insolvent association’s liabilities, and before

making a purchase and assumption transaction it shops

the interested associations, seeking the best deal. Only

it does so quietly, without tipping off the depositors. Pub-

lic notice would not produce better deals; it would kill

the possibility of any deal; it would nullify the purchase

and assumption device that Congress has expressly autho-

rized FSLIC to use.

We add that FSLIC has a greater interest in arrang-

ing an orderly liquidation than the stockholders of the in-

solvent association. When the Federal Home Loan Bank

Board declared Telegraph insolvent, the market value of

its liabilities exceeded that of its assets by between $30

and $37 million. This meant that the stockholders had

been wiped out and that FSLIC, as the insurer of the

principal creditors of the association (the depositors), faced

a potential loss of that magnitude. By its deal with First

Federal, FSLIC managed to reduce its expected loss to

roughly $12.5 million. Had it been able to find another

association willing to accept an even smaller amount in

exchange for assuming Telegraph’s liabilities, it would

have done so. It may have driven too hard a bargain, be-

cause First Federal itself later went broke and another

purchase and assumption transaction had to be arranged.

—

But what is hardly plausible is that by giving public notice

F'SLIC could have driven an even harder bargain; prob-

ably it would not have been able to drive any bargain.

The other issue in this appeal is whether the district

court erred in refusing to order FSLIC to pay the attor-

ney’s fees that Telegraph incurred in this unsuccessful

litigation to recover Telegraph’s assets. Prior to its

amendment in 1982 (the parties agree that the unamended

statute governs this case), 12 U.S.C. § 1464(dX8XA) pro-

vided that in a suit under the Home Owners’ Loan Act

by an association, or a director or officer of an associa-

tion, the court ‘“‘may allow to any such party such rea-

sonable expenses and attorneys’ fees as it deems just and

proper; and such expenses and fees shall be paid by the

association or from its assets.’”’ The district judge refused

to award attorney’s fees to Telegraph on two grounds:

the statute does not authorize an award of fees to the

losing party; in any event the just and proper award is

zero because the lawsuit was “completely lacking in

merit.” We agree with the first ground, so need not con-

sider the second.

The statute was amended in 1982 by inserting “which

prevails” after “any such party.” Telegraph argues that

this shows that the unamended statute allows an award

of attorney’s fees to the losing party. It adds that since

the winning party can always pay himself his fee out of

the association’s assets, the statute must be for the ben-

efit of the losing party, or it has no force. Of course, if

the second argument were correct, it would mean that

the 1982 amendment was senseless; but it is not correct.

Receivership contests are not the only type of litigation

under the Home Owners’ Loan Act, and in most other

types of litigation under the Act the plaintiff will not con-

trol the association’s assets even if he wins the suit. The

plaintiff may not be the association, but an officer or direc-

tor. And even if the plaintiff is the association, it may

obtain relief without recovering all of its assets, and in

such a case it may have a claim for attorney’s fees to

be paid out of the assets remaining in the receiver’s

hands.

—§a—

As for the 1982 amendment, there is no indication that

Congress thought it was changing the existing law rather

than merely clarifying it. If all amendments were deemed

to change the existing law, Congress would find it hard

to make merely clarifying amendments. The only pertinent

legislative history is the following statement in the Senate

Report: “This section would clarify that a court may as-

sess attorneys’ fees against the Bank Board only in the

event the agency loses a lawsuit.” S. Rep. No. 536, 97th

Cong., 2d Sess. 59 (1982) (emphasis in original). We are

given no reason not to take this language at face value.

We realize the danger in relying on postenactment legis-

lative history. A later Congress, more realistically a com-

mittee of a later Congress, seeking to undo a deal struck

by an earlier one without passing retroactive legislation,

may, by describing prospective legislation as “clarifying,”

seek to give it a retroactive effect by influencing judicial

interpretation of the original law. But if that is a possibil-

ity here, Telegraph must persuade us so; and it has not

carried this burden. Cf. In re Tarnow, 749 F.2d 464, 467

(7th Cir. 1984).

Telegraph’s last argument, which is not only unper-

suasive but shows the basic error of its position, is that

unless the association can pay its attorneys out of the

association’s assets whether it wins or loses the case, it

will not be able to finance litigation challenging FSLIC’s

seizure of its assets. Contingent-fee contracts exist to

finance litigation in which the plaintiff has no assets other

than what the litigation may yield him if he wins; and

in fact Telegraph had a contingent-fee arrangement with

its lawyers in this case, under which they would have re-

ceived up to 25 percent of the value of the assets recov-

ered by the suit if any had been recovered. If a firm is

snuffed out by a competitor and brings an antitrust suit,

it can obtain legal representation, even though it has no

assets other than its antitrust claim, by signing a contingent-

fee contract. If, coming closer to home, a creditor seizes

all of a debtor’s assets, the debtor, if he thinks the seizure

was wrongful, will hire a lawyer on a contingent-fee basis

to contest it.

= {Q—

Telegraph is contending for a reading of the statute

under which losing plaintiffs would routinely recover their

attorney’s fees from winning defendants. So startling a

reversal of the traditional rules of the game should not

be lightly imputed to Congress. The standard American

rule is that even a winning litigant must bear his legal

expenses, Alyeska Pipeline Service Co. v. Wilderness

Soc’y, 421 U.S. 240, 247 (1975); it would be grotesque to

suppose that he must bear the loser’s as well. That would

be the effect of giving Telegraph its attorney’s fees. Not

only would FSLIC have incurred its own legal expenses

in defending the seizure of Telegraph’s assets; those

assets, out of which it seeks to recoup the expense of pay-

ing First Federal to assume Telegraph’s liabilities, would

be further depleted by being applied to defray Telegraph’s

legal expenses. By making litigation a free good to Tele-

graph, this approach would encourage Telegraph to per-

sist, as it has done, in a losing lawsuit. This is not what

Congress had in mind when it enacted the fee-shifting

statute. It meant to lighten the burden of meritorious

litigation to the winner.

In Ruckelshaus v. Sierra Club, 463 U.S. 680 (1983), the

Supreme Court rejected the argument that a court could

award the loser his attorney’s fees under a statute (42

U.S.C. § 7607(f), part of the Clean Air Act) which provided

that “in any judicial proceeding under this section, the

court may award costs of litigation (including reasonable

attorney and expert witness fees) whenever it determines

that such award is appropriate.” This language suggested

as broad a delegation to the court as the language of the

present statute; yet that did not prevent the Court from

(in effect) inserting “to the prevailing party” between

“award” and “costs.” In Bittner v. Sadoff & Rudoy In-

dustries, 728 F.2d 820, 829 (7th Cir. 1984) (dictum), we

made a similar insertion in a statute (29 U.S.C. § 1132(g\1),

part of ERISA) which provides that “in any action... ,

the court in its discretion may allow a reasonable attor-

ney’s fee and costs of action to either party.’’ See also

Avoyelles Sportsmen’s League v. Marsh, 786 F.2d 631,

—8a—

634 (5th Cir. 1986); Fase v. Seafarers Welfare & Pension

Plan, 589 F.2d 112, 116 (2d Cir. 1978) (dictum) (Friendly

J.).

There is only a superficial appeal to Telegraph’s argu-

ment that it should be entitled to contest the seizure of

“its” assets. It was allowed to contest the seizure, and

very vigorously has it done so. The litigation has shown

that the assets are not its assets but FSLIC’s. As the

representative of Telegraph’s principal unsecured cred-

itors, the depositors, FSLIC has—much like a trustee in

bankruptcy—seized the assets of its insolvent creditor in

an effort to minimize its losses. And losses there have

been. Although Telegraph speaks loosely, indeed wildly,

of FSLIC having made a “‘profit”’ by arranging the pur-

chase and assumption transaction with First Federal, the

transaction yielded not a profit but a reduction in loss.

The loss will still be in the millions. We can think of no

reason why that loss should be augmented by forcing

FSLIC to pay the legal expenses incurred by its debtor

in litigation in which the debtor has unsuccessfully sought

to prevent FSLIC from minimizing FSLIC’s loss.

AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Severxth Circuit

—

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

February 2, 1987.

Before

Hon. RICHARD A. POSNER, Circuit Judge

Hon. JOEL M. FLAuM, Circuit Judge

Hon. THOMAS E. FAIRCHILD, Senior Circuit Judge

TELEGRAPH SAVINGS AND LOAN ASSOCIATION, et al.,

Plaintiffs-Appellants,

No. 85-1041 v.

WILLIAM J. SCHILLING, FEDERAL HOME LOAN

BANK BOARD, and FEDERAL SAVINGS AND LOAN

INSURANCE CORPORATION,

Defendants-A ppellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 80 C 2792—John F. Grady, Judge.

ORDER

On January 6, 1987, plaintiffs-appellants filed a petition

for rehearing with suggestion for rehearing en banc. All

of the judges on the original panel have voted to deny

the petition, and none of the active members of the court

has requested a vote on the suggestion for rehearing en

bane. The petition is therefore DENIED.

—10a—

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

TELEGRAPH SAVINGS AND LOAN ASSOCIATION,

Plaintiff,

No. 80 C 2792 Vv.

FEDERAL SAVINGS AND LOAN

INSURANCE CORPORATION, et al.,

Defendants.

JUDGMENT ORDER

Defendants have moved to dismiss Count VII of the sec-

ond amended complaint and have supported their motion

with the affidavits of Lawrence W. Hayes and Gene L.

Hall, so that the motion is now converted to one for sum-

mary judgment. Based upon the affidavits, and the memo-

randa of law submitted by the parties, the court finds that

the purchase and assumption agreement carried out in this

case was not subject to the notice requirement of 12 C.F.R.

§ 569a6(cX3). The purchase and assumption transaction in

this case did not violate any statute or regulation called

to the court’s attention and appears to have been proper

in all respects.

Accordingly, summary judgment is entered in favor of

the defendants and against the plaintiffs on Count VII

of the second amended complaint.

DATED: DEC 6 1984

ENTER: /s/ JOHN F. GRADY

United States District Judge

—lla—

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

TELEGRAPH SAVINGS AND LOAN ASSOCIATION, et al.,

Plaintiffs,

No. 80 C 2792 Vv.

FEDERAL SAVINGS AND LOAN

INSURANCE CORPORATION, et al.,

Defendants.

ORDER

Plaintiffs have filed a motion for an award of interim

attorneys fees and expenses, totalling $498,168.21 through

January 31, 1982. They seek recovery under 12 U.S.C.

§ 1464(dX8XA), which, before its amendment on October

15, 1982, provided in pertinent part:

Any court having jurisdiction of any proceeding insti-

tuted under this subsection by an association or a

director or officer thereof, may allow to any such

party such reasonable expenses and attorneys fees

as it deems just and proper; and such expenses and

fees shall be paid by the association or from its

assets.

Since this statute authorizes payment of fees and expenses

only from assets of the association, and plaintiffs seek pay-

ment only from such assets, a threshold question is whether

there are any remaining assets of Telegraph Savings and

Loan Association. Defendants contend that the associa-

tion no longer exists and that its former assets were pur-

chased by First Federal Savings and Loan Association.

Moreover, in the defendants’ view, Telegraph has no

“assets” in any event, since it was insolvent at the time

—12a— -

the receiver took over. Plaintiffs argue, on the other hand,

that funds properly belonging to Telegraph are in the

hands of the FSLIC and are assets of the association from

which payment of fees and expenses can be made.

I would need further development of this issue before

I could determine whether there are any assets of the

association still available at this time. But even if there

were assets available, I have determined that plaintiffs’

motion for fees and expenses should be denied, for two

reasons.

I.

The government argues that the statute contemplates

awards of fees and expenses only to parties who “prevail”

in litigation. Plaintiffs counter with Judge Thomas’ obser-

vations in the Washington Federal case to the effect that,

if the receivership is set aside the association could pay

the fees itself from the assets that would be returned to

it. No court order would be necessary. Defendants cite

a number of examples of situations where they say the

statute could be relied upon to pay the fees and expenses

of successful litigants, but in most of those examples it

seems to me that the association would have the author-

ity to pay even if there were no statute. Surely the pay-

ment of litigation expenses is not so extraordinary that

statutory authorization is required.

There is, however, a better argument for defendants on

this question of whether the statute contemplates only

prevailing parties. On October 15, 1982, the statute was

amended to say precisely that. It now provides that the

court

. may allow to any such party, which prevails,

such reasonable expenses and attorneys’ fees as it

deems just and proper; and such expenses and fees

shall be paid by the association or from its assets.

The only legislative history cited by either party on the

amendment is Senate Report No. 97-536, on the Depository

—13a—

Institutions Amendments of 1982, 97th Cong. 2d Sess. p.

59, which states:

Section 351. Payment of Attorneys’ Fees—This sec-

tion would clarify that a court may assess attorneys’

fees against the Bank Board only in the event the

agency loses a lawsuit.

Defendants argue that this ‘clarification’? makes clear

what was intended all along.’ Plaintiffs take the opposite

view, arguing that the amendment brings the prevailing

party requirement into the statute for the first time.

Plaintiffs further contend that the amendment can be

given effect only prospectively. They also argue that the

amendment would be unconstitutional if applied to Tele-

graph, since to deny Telegraph access to its own funds

to pay litigation fees and expenses would deprive it of

the right to be heard “in a meaningful manner.”

It seeks to me that the defendants have the better of

this argument. I recognize the apparent anomoly pointed

out by Judge Thomas and might be persuaded by his analysis

in the absence of any strong judicial or legislative author-

ity supporting the defendants’ view. But I believe the lan-

guage of both the majority and dissenting opinions in

Ruckelshaus v. Sierra Club, ___ U.S. ___, 108 S.Ct.

3274 (1983), and the 1982 amendment of the statute itself

require me to find that the statute, even prior to amend-

ment, was limited to prevailing parties.

In Ruckelshaus, the statute in question (the Clean Air

Act) provided that the court could award attorney’s fees

‘‘whenever it determines that such an award is appropri-

ate,’’ without expressly limiting recovery to prevailing

parties. 103 S.Ct. at 3276. The Supreme Court held that

by using the word ‘appropriate,’ Congress intended to

limit recovery to parties who had prevailed on at least

some significant aspect of the case. 103 S.Ct. at 3281. The

dissenting opinion, written by Justice Stevens and con-

curred in by three other justices, took the view that it

would be “appropriate” within the meaning of the statute

to award fees to a nonprevailing party under certain limited

conditions:

—1l4a—

_, . 1 cannot agree with the Court’s interpretation

of the statutory language. Congress decided that in

exceptional circumstances it might be ‘“appropriate”’

to award attorney’s fees to nonprevailing parties. Of

course, as the Court of Appeals recognized, it would

be unreasonable to presume, against the background

of attorney’s fees statutes generally, that Congress

intended fees to be awarded to every nonprevailing

party who has litigated a nonfrivolous challenge to

an EPA regulation. (citation omitted) The degree of

success or failure should certainly be weighed in the

balance to determine whether it is appropriate to re-

quire the Government to bear its adversary’s costs

of litigation. In my view it would be an abuse of

discretion for the Court of Appeals to award fees to

a nonprevailing party unless its contribution to the

process of judicial review, or to the implementation

of the Act by the agency, had truly been substan-

tial and had furthered the goals of the Clean Air Act.

103 S.Ct. at 3290.

It appears to me that the language “such reasonable ex-

penses and attorneys’ fees as it deems just and proper... ,”

appearing in 12 U.S.C. § 1464(dX8XA), are the substantial

equivalent of “whenever it determines that such an award

is appropriate” in the Clean Air Act, 42 U.S.C. § 7607(f),

involved in Ruckelshaus. Even if it were not, the word

“appropriate” seems fairly implied in the language used

in § 1464(dX8XA); it would be a startling argument to say

that the court should make an award that is “inappropri-

ate.” Ruckelshaus, therefore, seems to compel the con-

clusion that, even before the amendment, § 1464(dX8\A)

was not a departure “from the long established rule that

complete winners need not pay complete losers for suing

them.” 103 S.Ct. at 3279.

Added to Ruckelshaus, however, is the 1982 amend-

ment, which, according to the Senate Report, “clarifies”

rather than changes the meaning of the statute. Even

without the Senate Report, the amendment seems better

construed as a clarification than a change. See Brown v.

—l5a—

Marquette Sav. and Loan Ass’n., 686 F.2d 608, 615 (7th

Cir. 1982).

As far as plaintiffs’ due process argument is concerned,

they raise it in the wrong case. Their claims have been

exhaustively considered both here and on appeal. If their

attorneys were worried about being paid, that worry was

= — in any reluctance to prosecute the case to

the hilt.

II.

If the statute did permit an award to a nonprevailing

party, I would still deny plaintiffs’ motion. The statute

provides that the court “may” award such fees and ex-

penses as it “deems just and proper,” and thus an exer-

cise of the court’s sound discretion is called for. Several

factors prompt me to deny relief in this case.

First, the plaintiffs’ lawsuit was completely lacking in

merit. While questions of “first impression’ were raised,

the resolution of those questions was the total and uni-

form rejection of every theory put forward by the plain-

tiffs. I denied summary judgment and held a trial only

because plaintiffs represented that they were going to

offer evidence that defendants’ projections of insolvency

were unreasonable. At the trial, that theory was totally

abandoned and instead plaintiffs offered an array of argu-

ments supported only by makeshift accounting theories

that seemed to develop as the case went along. The trial

resulted in a judgment for defendants on Count III. Judg-

ment was also entered against plaintiffs on numerous

other counts,? and they appealed. Telegraph Sav. & Loan

Ass’n v. Schilling, 703 F.2d 1019 (7th Cir. 1983). The

Court of Appeals noted that “. . . Telegraph attempts to

support its position with a myriad of arguments, some of

which are unsupported by legal authority,” (703 F.2d at

1023); that “citing no authority supporting its position,

Telegraph would have us believe that it is always entitled

to challenge a FSLIC receivership in state court.” (Jd.

at 1024); and that Telegraph “cites no authority for its

contention that the rights involved in this case are prop-

—l6a—

erty and contract rights requiring strict scrutiny.” Jd. at

1029. The Court of Appeals dealt only in a footnote with

plaintiffs’ arguments concerning the dismissal of six addi-

tional counts of the complaint, and, without even describ-

ing what the arguments were, held them ‘‘to be without

merit.” Jd. at 1030 n. 9.

It has taken a great deal of time and effort to dispose

of this case, but that is a comment on plaintiffs’ persist-

ence, not the merit of their claims. This is not a case

where it can be said, as did the dissent in Ruckelshaus,

that the contribution of a nonprevailing party to the process

of judicial review, or to the implementation of the Act

by the agency, had truly been substantial and had fur-

thered the goals of the [Act].” 103 S.Ct. at 3290.

Another factor I consider is that a fee award in this

case might well encourage other insolvent financial institu-

tions to go to court when they have no prayer of a suc-

cessful defense to governmental intervention. Granting

that the decision in this case forecloses a number of possi-

ble arguments that might be made against future receiver-

ships, it would be rash to suppose that there is a limit

to the number of additional arguments that could be con-

ceived and, of course, a receivership is only one kind of

governmental action that can be challenged in court.

CONCLUSION

Plaintiffs’ motion for an award of attorneys’ fees and

expenses is denied.

DATED: DEc 6 1984

ENTER: /s/ JOHN F. GRADY

United States District Judge

1 The statement in the Senate Report is not altogether helpful,

inasmuch as it describes the statute as authorizing the assessment

of attorneys’ fees “against the Bank Board.” The award, of course,

is paid “by the association or from its assets.”

2 Judgment is being entered on another one, Count VII, today.