York Bank & Trust Co. v. Federal Savings & Loan Insurance

OPINION OF THE COURT MANSMANN, Circuit Judge. This appeal by York Bank and Trust Company raises issues concerning the na [638] ture of a claim against the Federal Savings and Loan Insurance Corporation and the scope of judicial review available when the FSLIC is sued as an insurer. For the reasons discussed below we determine that the district court erred in construing York Bank’s complaint against the FSLIC as a complaint against FSLIC as the receiver of a failed savings and loan institution. We conclude as well that judicial review of a determination by the FSLIC as insurer is subject to review by the district court under the standards enunciated in the Administrative Procedure Act. We will, therefore, remand for proceedings consistent with this opinion. I. In 1983 York Bank and Trust Company, a banking corporation chartered under the laws of Pennsylvania, purchased five certificates of deposit from Empire Savings and Loan of Mesquite, Texas. The total face value of these “jumbo CDs” was $1,241,-000.1 Accounts at Empire were insured by the FSLIC. On or about March 14, 1984 Empire was placed into receivership by the FSLIC. On March 15, 1984 York filed a claim with the FSLIC pursuant to 12 U.S.C. § 1724 for the recovery of the insurance on these certificates. This claim was denied by the FSLIC except for an aggregate total of $100,000. At that time York was also provided with claim certificates enabling it to receive a pro-rata share of Empire’s assets, upon final distribution of those assets. On November 16, 1984 York filed for reconsideration of the FSLIC’s determination, and that petition was denied as well. Thereafter, on March 12, 1986 York Bank brought an action in the United States District Court for the Middle District of Pennsylvania, seeking the full amount of the CDs plus interest and attorney’s fees. The complaint named the FSLIC, First United Fund Limited, Inc. and P.V. Anderson, Inc. as defendants.2 The FSLIC then filed a Motion to Dismiss the federal defendants on the grounds that the district court had no subject matter jurisdiction in the case. The district court granted the motion and dismissed the case against the FSLIC 663 F.Supp. 1100. This appeal followed. II. We review the district court’s dismissal of the complaint under a plenary standard of review. D.P. Enterprises, Inc. v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir.1984). We will first examine the existence vel non of subject matter jurisdiction over the federal defendants. If York Bank’s complaint is construed as an attempt to state a claim against the FSLIC and the Federal Home Loan Bank Board (FHLBB) as receiver of Empire Bank rather than as an insurer, then York’s failure to exhaust its administrative remedies would result in a lack of subject matter jurisdiction.3 We observe, however, that before this court, York Bank has not wavered from its position that the suit against the FSLIC was in the FSLIC’s capacity as insurer. We therefore conclude that the district court misconstrued the nature and intent of York Bank’s complaint. [639] In its complaint4 filed in the district court York specifically refers to Empire as an “insured institution” pursuant to National Housing Act, Subchapter IV. Insurance of Savings and Loan Accounts, 12 U.S.C. §§ 1724-1730a (1982 & Supp. IV 1986). York also specifically refers to its claim against the FSLIC as being the same claim for insurance proceeds that York had previously pressed before that agency. We note as well that the communications between York Bank, the FSLIC and the FHLBB prior to the commencement of suit all refer to the underlying problem as involving the insurance of York’s deposits at Empire Bank. In addition, the pleadings do not allege an attempt to reach the assets of Empire either through a claim in receivership or by any other means. The district court essentially assumed that York sued the FSLIC solely as receiver of Empire Bank’s assets and not as the insurer of the certificate of deposit. The court founded this assumption on assertions in York Bank’s brief, filed in the district court, opposing the federal defendant’s Motion to Dismiss. This district court brief, although alluded to in appellant’s brief, was not among the papers presented to this court. Even if it were, we consider the allegations and averments of the complaint more fundamentally important in that the complaint alerts and informs the defendant as to the nature of the claims being asserted. In this ease, FSLIC understood from the complaint that it was being sued for insurance proceeds. Responding to the complaint, FSLIC admitted that a claim for insurance proceeds had been presented to it, and FSLIC tendered to the court for review the administrative record pertaining to that claim. In this case, we find that the complaint stated with sufficient precision that York Bank sued the FSLIC in its corporate capacity as insurer of funds deposited with Empire Bank. Therefore, the district court erred in its determination that the FSLIC was being sued in its receivership capacity and we will remand for proceedings consistent with this opinion. III. Given our determination that York Bank stated a claim against the FSLIC as insurer and our remand for a determination on the merits, we next assess the standard of review under which the district court will evaluate the claim. The FSLIC, as an agency of the United States, adjudicates claims through an administrative procedure pursuant to regulations promulgated by the FHLBB. Lyons Sav. & Loan Assoc. v. Westside Bancorporation, Inc., 828 F.2d 387, 390 (7th Cir. 1987). The FSLIC insists that its decisions on the claims are subject to review in a district court under the Administrative Procedure Act, 5 U.S.C. §§ 551-559, 701-706 (1982 & Supp. IV 1986), utilizing the arbitrary and capricious standard of review, 5 U.S.C. § 706(2). The FSLIC asserts that, absent a congressional directive to conduct de novo review, consideration must be confined to the administrative record. To support its position the FSLIC cites Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 414, 91 S.Ct. 814, 822, 28 L.Ed.2d 136 (1971). In that case the Supreme Court found that when a district court reviews federal agency action subject to the provisions of the APA, the arbitrary and capricious standard applies. When agency action is taken pursuant to a rule-making provision of the APA or when agency action is based on a public adjudicatory hearing, the reviewing court utilizes [640] the substantial evidence test. De novo review is authorized for review of an adjudicatory action in which the agency fact-finding procedures are inadequate. York Bank relies principally on Jugum v. FSLIC, 637 F.Supp. 1045 (W.D.Wa.1986), which upheld the right of a depositor to enforce a claim against the FSLIC but did not limit that right to review under the provisions of the APA. The court in Ju-gum noted that under 12 U.S.C. § 1725(c)(4), the FSLIC has the authority to sue or be sued in any court of competent jurisdiction. Id. at 1047. Under 12 U.S.C. § 1728(b), the FSLIC must pay insurance on insured accounts, but it may require the judicial determination of liability before paying claims. Moreover, 12 U.S.C. § 1728(c) provides a statute of limitations for actions against FSLIC as insurer. Id. The district court evaluated these provisions and determined that it had the authority to decide such actions on the merits. The district court also reasoned that no statutory provision required the exhaustion of administrative remedies prior to judicial action and that the statute of limitations provision in § 1728(c) implied that administrative action need not be taken. Id. The court in Jugum concluded by noting that limitations on administrative procedures available to FSLIC claimants “suggest that Congress intended that those claimants would have access to an independent judicial determination of their entitlement to insurance.” Id. at 1048. Although the court in Jugum relied heavily on the provisions of 12 U.S.C. § 1728(b) and (c) to support its position that an aggrieved depositor was not limited to judicial review under the APA, we find no language in those provisions which authorizes review under a different standard. We begin our own analysis with the regulations promulgated by the FHLBB, Amendment of Part 564 — Settlement of Insurance, 50 Fed.Reg. 49,527 (1985) (codified at 12 C.F.R. § 564.1). In general 12 C.F.R. § 564.1 (1988) provides for the payment of insurance to accountholders of insured institutions. If the Director of the Insurance Division determines that all or a portion of an account is not insured, the Director shall notify the accountholder and provide the accountholder with a certificate of claim in liquidation to enable the accountholder to share in the proceeds, if any, of liquidation. Id. at § 564.1(d)(2). The accountholder may request reconsideration of the initial determination, id. at § 564.1(d)(3), and the FSLIC must either grant or deny the request within 60 days, id. at § 564.1(d)(3)(iii)(c). The Director must issue a decision regarding the accountholder’s claim for insurance within 180 days thereafter. Id. at § 564.1(d)(4). An ac-countholder’s failure to request reconsideration constitutes a failure to exhaust administrative remedies and all objections to the initial determination are deemed to be waived. Id. at § 564.1(d)(5)(b)(iii). Section 564.1(d)(5) permits judicial review of final agency actions taken under Section 564.1(d)(4). Thus the regulations provide for judicial review, anticipated as a necessary part of the FSLIC legislative scheme. We find, however, that the judicial review envisioned by this insurance and banking legislation is subject to the provisions of the Administrative Procedure Act. 5 U.S.C. § 551-559 (1982 & Supp. IV 1986). Chapter Seven of the Act codifies and defines not only what agency decisions are judicially reviewable, but what the standard of review should be. 5 U.S.C. §§ 701-706 (1982 & Supp. IV 1986). We begin by noting that the Act applies to agency actions except to the extent that— (1) statutes preclude judicial review; or (2) agency action is committed to agency discretion by law. 5 U.S.C. § 701(a).5 Specifically, agency actions subject to judicial review are either those made reviewable by statute or those final agency ac [641] tions for which no other adequate remedy remains in a court. On the review of a final agency action, preliminary, procedural or intermediate agency rulings that are not directly reviewable are subject to review. 5 U.S.C. § 704. Finally, the APA provides that a reviewing court shall decide all relevant questions of law and shall (2) hold unlawful and set aside agency action, findings, and conclusions found to be— (A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; .... 5 U.S.C. § 706. We conclude, therefore, that final FSLIC decisions, while certainly reviewable by the district court, must be reviewed under the “arbitrary and capricious” standard of the APA. We find support for this position in the recent case of Baskes v. Federal Sav. and Loan Ins. Corp., 649 F.Supp. 1358 (N.D.Ill.1986). Bashes also involved insurance claims on funds deposited at Empire Savings and Loan of Mesquite, Texas. In Bashes, a depositor who believed he had not received full insurance payments to which he was entitled from the FSLIC filed a complaint in the district court seeking, inter alia, judicial review of the insurance determination. The district court stated: The standard of review for analyzing the final determination of the FSLIC is established by the APA. 5 U.S.C. § 706. When reviewing administrative decisions, courts are authorized to set aside agency decisions only when they are: (1) unconstitutional, (2) arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law, (3) not authorized by statute, (4) violative of established procedure, or (5) unsupported by substantial evidence. In the present case, [the plaintiff] asserts the decision of the FSLIC refusing trust account coverage on the two insurance claims as trustee was arbitrary and capricious. Finally, a court reviewing an administrative decision is not permitted to hold a de novo hearing, but must restrict its inquiry to evidence contained in the administrative record. Atlantic Refining Co. v. FTC, 381 U.S. 357, 367, 85 S.Ct. 1498, 1505, 14 L.Ed.2d 443 (1965). Bashes, 649 F.Supp. 1361-62. We note as well the Fifth Circuit’s adherence to the proposition that “the FSLIC’s determination on insurance must be challenged by seeking review pursuant to the Administrative Procedure Act.” Godwin v. Fed. Sav. and Loan Ins. Corp., 806 F.2d 1290, 1292 (5th Cir.1987). We find that determinations made by the FSLIC in regard to insurance of depositors’ accounts are judicially reviewable under the provisions of the Administrative Procedure Act. The judgment of the district court is vacated and the cause remanded for proceedings consistent with this opinion. Footnotes [1] The certificates of deposit purchased were as follows: Account Face Dated Account No. Amount Purchased Holder 49-1010990 $104,000 10/5/83 Yorst & Co. c/o York Bank and Trust Co. 49-1012780 537,00010/20/83 49-1016187 370,00011/28/83 49-1016831 130,00012/12/83 49-1018035 100,00012/30/83 Yorst & Co. [2] First United Fund and P.V. Anderson were the broker-dealers through whom York Bank purchased the CDs at issue. The claims against these parties were settled and do not form any portion of this appeal. [3] We note a conflict between the Courts of Appeals for the Fifth and Ninth Circuits on the issue of subject matter jurisdiction. In North Mississippi Sav. & Loan Ass'n v. Hudspeth, 756 F.2d 1096 (5th Cir.1985), cert. denied, 474 U.S. 1054, 106 S.Ct. 790, 88 L.Ed.2d 768 (1986), the court held that the sole remedy against the FSLIC consists of administrative procedures followed by judicial review under the APA. A panel of the Court of Appeals for the Ninth Circuit disagreed in Morrison-Knudsen Co., Inc. v. CHG Int’l, Inc., 811 F.2d 1209 (9th Cir.1987), determining that, although in some cases exhaustion of administrative remedies may be prudent, failure to do so will not deprive a district court of jurisdiction. We also note that a subsequent panel of the Ninth Circuit has implicitly overruled Morrison-Knudsen. See Fidelity Financial Corp. v. FSLIC, 834 F.2d 741 [639] (9th Cir.1987). Finally we note that ten days before this court heard argument in this case, the Supreme Court granted certiorari in Coit Independence Joint Venture v. Firstsouth F.A., 829 F.2d 563 (5th Cir.1987), cert. granted, — U.S. —, 108 S.Ct 1105, 99 L.Ed.2d 267 (1988). In Coit the court followed Hudspeth and rejected Morrison-Knudsen on the issue of FSLIC’s exclusive jurisdiction. [4] The relevant paragraphs of the complaint read as follows: 17. Empire was at all times herein mentioned, an "insured institution” as provided in 12 U.S.C. §§ 1724-1730a. * * * * * * 19. On March 15, 1984, York Bank filed a claim with FSLIC for the recovery of the aforesaid deposits. FSLIC failed and refused to pay the amount due and owing. The FSLIC still fails and refuses to pay such claim except for $100,000.00, which was paid without prejudice to the position of either of the parties. [5] By definition, an "agency” is an authority of government, but does not include: "(b) For the purpose of this chapter— (A)the Congress; (B) the courts of the United States; (C) the governments of the territories or possessions of the United States; [641] (D) the government of the District of Columbia; (E) agencies composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them; (F) courts martial and military commissions; (G) military authority exercised in the field in time of war or in occupied territory; or (H) functions conferred by sections 1738, 1739, 1743, and 1744 of title 12; chapter 2 of title 41; or sections 1622, 1884, 1891-1902, and former section 1641(b)(2), of title 50, appendix; and....”