Rebecca Otwell BAGGETT, Teressa Latrelle Otwell, Frances Otwell Bagby, Plaintiffs-Appellants, v. FIRST NATIONAL BANK OF GAINESVILLE, Defendant-Appellee.
No. 96-8019.
United States Court of Appeals, Eleventh Circuit.
July 28, 1997.
Appeal from the United States District Court for the Northern District of Georgia. (No. 1:95-CV-684-FMH), Frank Hull, Judge.
Before HATCHETT, Chief Judge, TJOFLAT, Circuit Judge, and CLARK, Senior Circuit Judge.
We have reviewed plaintiffs/appellants’ complaint filed in district court, appellants’ brief, the applicable statutes, and the Congressional History of the Bank Holding Company Act and we agree with the district court‘s holding that the Act does not grant federal court jurisdiction of a lawsuit brought by the heirs of a decedent challenging a bank‘s actions as Trustee and Executor of the decedent‘s estate.
Since the opinion of the district court amply describes the issues and controlling law, we hereby adopt the district court‘s opinion of November 28, 1995, attached hereto as Exhibit A.
AFFIRMED.
Exhibit A
Rebecca Otwell Baggett, Teressa Latrelle Otwell, and Frances Otwell Bagby, Plaintiffs, v. First National Bank of Gainesville, Defendant.
CIVIL ACTION NO. 1:95-CV-684-FMH.
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION.
November 28, 1995
ORDER
This case is before the Court on the Defendant First National Bank of Gainesville‘s Motion to Dismiss for want of subject matter jurisdiction [3-1]. After reviewing the record and hearing oral argument from counsel for the parties, the Court grants Defendant‘s Motion to Dismiss.
I. FACTS
Plaintiffs Rebecca Otwell Baggett, Teressa Latrelle Otwell, and Frances Otwell Bagby (“Plaintiffs“) are beneficiaries of the Estate of Roy P. Otwell, Sr. and contingent beneficiaries under certain testamentary trusts created under the Last Will and Testament of Roy P. Otwell, Sr. The Defendant First National Bank of Gainesville (“Defendant“) serves as (a) Executor of the Last Will and Testament of Roy P. Otwell and Trustee of the testamentary trust under that Will; (b) Trustee of a trust created by the Will and a consent order entered in a state court action consented to by all parties herein; and (c) as Trustee of an Inter Vivos Trust created by Roy P. Otwell in 1984 for the benefit of Roy P. Otwell, Jr., an incompetent son of Roy P. Otwell, Sr. Plaintiffs are contingent beneficiaries of the 1984 Inter Vivos Trust and beneficiaries of the testamentary trust under the Last Will and Testament.
Plaintiffs contend, inter alia, that Defendant breached its fiduciary duties as trustee and committed acts of mismanagement, neglect and self-dealing, by specifically (a) failing to fund properly a testamentary trust for Roy Otwell, Jr.; (b) by overvaluing the real estate assets in the estate thereby causing the estate to pay unnecessary taxes and administration fees; (c) engaging in self-dealing by making a loan to the estate at an excessive rate of interest; (d) spending excessive amounts of money remodeling a house for Roy Otwell, Jr.; (e) transferring an easement to the City of Cumming for little or no consideration over Plaintiffs’ objections; and (f) charging attorneys’ fees to the estate that should have been paid by Defendant. According to Plaintiffs, this alleged pattern of misconduct resulted in a pecuniary gain to Defendant.
Plaintiffs assert that their Complaint presents a federal question under the Bank Holding Company Act (“BHCA” or “Act“),
The jurisdiction of the federal courts is limited to the jurisdiction which Congress has prescribed. Local Division 732, Amalgamated Transit Union v. Metropolitan Atlanta Rapid Transit Authority, 667 F.2d 1327, 1330 (11th Cir.1982); accord Taylor v. Appleton, 30 F.3d 1365 (11th Cir.1994). In determining whether Congress intended to confer a private right of action, congressional intent is the dispositive inquiry. Amalgamated Transit Union, 667 F.2d at 1334-35; see also Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d 82 (1979) (“[O]ur task is limited solely to determining whether Congress intended to create the private right of action.“). Congressional intent to create a private right of action will not be presumed. There must be clear evidence of Congress‘s intent to create a cause of action. Touche Ross, 442 U.S. at 570, 99 S.Ct. at 2486 (“[I]mplying a private right of action on the basis on congressional silence is a hazardous enterprise, at best.“); Amalgamated Transit Union, 667 F.2d at 1335 (“In order for us to infer a private right of action, or federal jurisdiction, we must have before us clear evidence that Congress intended to provide such a remedy....“). Thus, the Court first examines the legislative history of the BHCA.
A. Legislative History Of The Bank Holding Company Act
1. The Anti-Tying Provisions of the BHCA
The BHCA was enacted in 1956. The original focus of the BHCA was the regulation of the power of bank holding companies to prevent a small number of powerful banks from dominating commerce and to ensure a separation of economic power between banking and commerce. Parsons Steel v. First Alabama Bank of Montgomery, 679 F.2d 242, 244 (11th Cir.1982); S.Rep. No. 91-1084, 91st Cong., 2d Sess., reprinted in 1970 U.S.C.C.A.N. 5519, 5535 (1970); 116 Cong.Rec. 32127 (1970). In 1970, Congress amended the Act to reach the anti-competitive practices of even smaller banks, which notwithstanding their comparative size, were able to exert economic power over businesses because of their control over credit.
Against this backdrop, Congress drafted a one paragraph, five subpart section prohibiting certain tying arrangements. The present incarnation of these provisions comprise
(1) A bank shall not in any manner extend credit, lease or sell property of any king, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement—
(A) that the customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service;
(B) that the customer shall obtain some additional credit, property, or service from a bank holding company of such bank, or from any other subsidiary of such bank holding company;
(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
(D) that the customer provide some additional credit, property, or service to a bank holding company of such bank, or to any other subsidiary of such bank holding company; or
(E) that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.
The Board may by regulation or order permit such exceptions to the foregoing prohibition as it considers will not be contrary to the purposes of this chapter.
Any person who is injured in his business or property by reason of anything forbidden in section 1972 of this title may sue therefor in any district court of the United States in which the defendant resides or is found or has an agent, without regard to the amount in controversy, and shall be entitled to recover three times the amount of the damages sustained by him, and the cost of suit, including reasonable attorney‘s fees.
In enacting the anti-tying provision of the BHCA, and providing a private right of action in favor of individuals injured by violations thereof, Congress was targeting anti-competitive banking practices. The Act proscribes anti-competitive ties which condition the extension of credit on a condition designed to increase the economic power of the bank and to reduce competition. Such a tie can manifest itself in many different forms. The bank can refuse to extend credit unless the consumer agrees to purchase a separate, unrelated bank service (a quintessential tie); the bank can condition the extension of credit on the consumer providing the bank with a specific product or service unrelated to the extension of credit (a reciprocal tie); or the bank can condition the extension of credit on the consumer‘s agreement not to engage in any transactions with one of the bank‘s competitors (an exclusive dealing arrangement). A tie can manifest itself in a number of other ways, but the touchstone for actionability under the anti-tying provision of the BHCA is that the arrangement be designed to lessen competition and increase the economic power of the creditor bank. Davis v. First Nat‘l Bank of Westville, 868 F.2d 206, 208 (7th Cir.1989) (“The antitrust laws are concerned with tie-ins and reciprocity agreements when they enable a party with sufficient power in one market to avoid the standard market criteria of price, quality, and service in another market and thereby lessen competition.“).
The purpose and effect of the anti-tying provisions of
2. Regulation of Insider Activities
In the mid-1970s, the banking industry again was the subject of allegations of financial misconduct. This time, however, banks were not accused of activities injuring individual consumers, but rather insider activities harming the banking industry itself. Prompted in part by revelations of insider activities, the House Committee on Banking, Finance and Urban Affairs ordered the General Accounting Office to conduct a study of all three federal banking agencies and the Committee itself launched a massive series of studies and hearings on the structure, powers, and operations of financial institutions and the regulatory system. H.R.Rep. No. 95-1383, 95th Cong., 2d Sess. 9, reprinted in 1978 U.S.C.C.A.N. 9273, 9281 (1978). After reviewing these studies, the Committee concluded that insider activities carried on between correspondent banks were a principal vehicle of abuse by banks resulting in bank failures. H.R.Rep. No. 95-1383, reprinted in 1978 U.S.C.C.A.N. 9273, 9281 (1978).
In response to the study‘s findings, Congress enacted the Garn-St. Germain Depository Institutions Act of 1982, officially titled the Financial Institutions Regulatory and Interest Rate Control Act of 1978 (“FIRIRCA“). H.R.Rep. No. 95-1383, reprinted in 1978 U.S.C.C.A.N. 9273 (1978). FIRIRCA proscribed banks from engaging in certain insider activities; specifically, FIRIRCA prohibited certain loans to banks where correspondent accounts or insiders were involved. These proscriptions formed the second paragraph within
(2)(A) No bank which maintains a correspondent account in the name of another bank shall make an extension of credit to an executive officer or director of, or to any person who directly or indirectly or acting through or in concert with one or
more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, such other bank or to any related interest of such person unless such extension of credit is made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features. (B) No bank shall open a correspondent account at another bank while such bank has outstanding an extension of credit to an executive officer or director of, or other person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, the bank desiring to open the account or to any related interest of such person, unless such extension of credit was made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.
(C) No bank which maintains a correspondent account at another bank shall make an extension of credit to an executive officer or director of, or to any person who directly or indirectly acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, such other bank or to any related interest of such person, unless such extension of credit is made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.
(D) No bank which has outstanding an extension of credit to an executive officer or director of, or to any person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10 per centum of any class of voting securities of, another bank or to any related interest of such person shall open a correspondent account at such other bank, unless such extension of credit was made on substantially the same terms, including interest rates and collateral as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.1
When these proscriptions were placed within
Any bank which violates or any officer, director, employee, agent, or other person participating in the conduct of the affairs of such bank which violates any provision of [§ 1972(2)(A)-(D) ] shall forfeit and pay a civil penalty of not more than $1,000 per day for each day during which such violation continues.
P.L. No. 95-630, 92 Stat. 3690, 3691 (1978) (amended by Financial Institutions Reform, Recovery and Enforcement Act of 1989).
The purpose of the civil money penalty was to deter banks from engaging in the insider activities which injured the banking industry. H.R.Rep. No. 95-1383, reprinted in 1978 U.S.C.C.A.N. 9273, 9282-88 (1978). It is undisputed
The BHCA was amended a second time in 1982. The 1982 amendment to the BHCA made certain technical changes in the language of the Act and provided for regulations to be issued by the appropriate agencies. The 1982 amendment left intact the prohibition against anti-tying arrangements and correspondent and insider loans and the penalties therefor.
3. Response to the Savings & Loans Crisis
Notwithstanding the overhaul in banking laws by FIRIRCA, the American banking industry suffered financial problems again in the early 1980s during the thrift and savings and loan debacle. The acute and massive financial crisis of the thrift industry and the Federal Savings and Loan Insurance Corporation was caused in large part by fraud and more insider abuse. H.R.Rep. No. 101-54(I), 101st Cong., 1st Sess. 294, 300-01, reprinted in 1989 U.S.C.C.A.N. 86, 90, 96-97 (1989). Thus, Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA“), P.L. 101-73, 103 Stat. 183. FIRREA amended
The pertinent language of
(F) Civil money penalty
(i) First tier. Any bank which, and any institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who, violates any provision of this paragraph shall forfeit and pay a civil penalty of not more than $5,000 for each day during which such violation continues.
(ii) Second tier. Notwithstanding clause (i), any bank which, any institution affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who—
(I)(aa) commits any violation described in clause (i);
(bb) recklessly engages in an unsafe or unsound practice in conducting the affairs of such bank; or
(cc) breaches any fiduciary duty;
(II) which violation, practice or breach—
(aa) is part of a pattern of misconduct;
(bb) causes or is likely to cause more than a minimal loss to such bank; or
(cc) results in pecuniary gain or other benefit to such party,
shall forfeit and pay a civil penalty of not more than $25,000 for each day during which such violation, practice, or breach continues.
(iii) Third tier. Notwithstanding clauses (i) and (ii), any bank which, and any institution-affiliated party (within the meaning of section 1813(u) of this title) with respect to such bank who—
(I) knowingly—
(aa) commits any violation describe in clause (i);
(bb) engages in any unsafe or unsound practice in conducting the affairs of such bank; or
(cc) breaches any fiduciary duty; and
(II) knowingly or recklessly causes a substantial loss to such bank or a substantial pecuniary gain or other benefit to such party by reason of such violation, practice or breach,
shall forfeit an pay a civil penalty in an amount not to exceed the applicable maximum amount determined under clause (iv) for each day during which such violation, practice or breach, continues.
The amended version of
B. Section 1972(2)(F) Does Not Create A Private Cause Of Action For Breaches Of Fiduciary Duties
First,
Under the first tier of
Second, the legislative history of
Third, the language Congress used in drafting
Plaintiffs do not rely on any of the prohibitions in
Fourth, interpreting
Fifth, the statutory scheme Congress utilized in drafting
This section increases the maximum amount for civil money penalties (“CMPs“); expands the grounds for imposing them; provides for judicial review under the Administrative Procedure Act; and authorizes the banking agencies to take action to collect CMPs. It creates three tiers of civil penalties, based on the seriousness of the misconduct. By greatly expanding the scope of misconduct covered by the civil penalty provisions and by making substantial increases to the penalty amounts, the Conferees intend for the Federal banking agencies to aggressively utilize this new authority, whenever it is justified in law and by the facts.
1989 U.S.C.C.A.N. 86, 479 (1989). In other words,
Considering the foregoing, the clarity of Congress‘s purpose in amending
Subparagraph (F) as originally enacted did not create a cause of action, but only authorized the sanction of fines against banks which engaged in insider activities. Subparagraph (F) as it currently exists does not create a right of action where one previously did not exist, but only enhanced the fines which already existed. Thus, the Court finds that the legislative history of the BHCA reveals no congressional intent to create a cause of action to private parties arising out of the conduct outlined in
C. Application Of The Cort Factors To The BHCA Supports The Conclusion That Congress Did Not Intend To Create A Cause Of Action For Breaches of Fiduciary Duties
Additionally, an application of the Cort factors supports the conclusion that Congress did not intend to create a cause of action in favor individuals harmed by conduct outlined in the civil penalty provision of the BHCA. In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the United States Supreme Court set out a four-factor test to assist in determining whether Congress intended to create a cause of action in a given statutory provision. The four factors are as follows:
- Whether the plaintiff is a member of the class for whose benefit the statute was enacted;
- Whether there is any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one;
- Whether the creation of a cause of action is consistent with the underlying purposes of the legislative scheme to imply such a remedy; and
- Whether the cause of action is one traditionally relegated to state law so that it would be inappropriate to infer a cause of action based solely on federal law.
Id. at 80-85, 95 S.Ct. at 2089-91. Each of these factors counsels against implying a right of action arising out of the commission of acts outlined in the civil money penalty provision of the BHCA.
First, although breaches of fiduciary duties clearly injure consumers, it is clear from the legislative history of the BHCA that subparagraph (F) of
For the foregoing reasons, the Court finds that Plaintiff‘s Complaint fails to state a cause of action under the BHCA, and accordingly, the Court dismisses Plaintiff‘s claim under the BHCA for lack of subject matter jurisdiction.
III. PLAINTIFFS’ STATE LAW CLAIMS
Plaintiffs’ only remaining claims against Defendant are state law claims. The Court sua sponte may raise a jurisdiction defect at any time. Barnett v. Bailey, 956 F.2d 1036, 1039 (11th Cir.1992); Fitzgerald v. Seaboard System R.R., Inc., 760 F.2d 1249, 1251 (11th Cir.1985). The Court, sua sponte, will examine whether it continues to have jurisdiction over this action.
Since Plaintiffs are Georgia domiciliaries and Defendant is a Georgia corporation, diversity does not exist. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L.Ed. 435 (1806). Thus, there is no basis for original federal jurisdiction over Plaintiffs’ state law claims against Defendant. The state law claims previously were before the court properly as supplemental claims supported by Plaintiffs’ federal question claim. See
The Court must now inquire into whether a jurisdictional basis exists to support Plaintiffs’ state law claims in federal court. The Court‘s inquiry is twofold. First, the Court must decide whether it has the power to hear the state law claims. Second, if the Court does have the power to hear the state claims, the Court must decide whether, in its discretion, it will retain jurisdiction over the state claims. United Mine Workers v. Gibbs, 383 U.S. 715, 725-26, 86 S.Ct. 1130, 1138-39, 16 L.Ed.2d 218 (1966).
The question whether subject matter jurisdiction exists is measured as of the time the Complaint was filed. In re Carter, 618 F.2d 1093 (5th Cir.1980), cert. denied sub nom. Sheet Metal Workers’ Int‘l Ass‘n, AFL-CIO v. Carter, 450 U.S. 949, 101 S.Ct. 1410, 67 L.Ed.2d 378 (1981). When Plaintiffs filed their Complaint, Plaintiffs were Georgia domiciliaries and Defendant was a Georgia corporation. When Plaintiffs filed his Complaint, Plaintiffs had a federal question claim against Defendant and Plaintiffs’ state law claims against Defendant were a proper exercise of the Court‘s supplemental jurisdiction. See
As the Eleventh Circuit made clear in Palmer, once a court decides that it has power to exercise supplemental jurisdiction under
Resolution of Plaintiffs’ state law claims depends on determinations of state law. State courts, not federal courts, should be the final arbiters of state law. Hardy v. Birmingham Bd. of Educ., 954 F.2d 1546, 1553 (11th Cir.1992). When coupled with the Court‘s discretion to exercise supplemental jurisdiction under
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Defendant‘s Motion to Dismiss [3-1] Plaintiffs’ claim under the BHCA for want of subject matter jurisdiction. The Court DISMISSES Plaintiff‘s state law claims WITHOUT PREJUDICE.
The Clerk is directed to enter final judgment in favor of Defendant on Plaintiffs’ claim under federal law. The Clerk is directed to dismiss Plaintiffs’ claims under state law.
It is SO ORDERED, this 28th day of November, 1995.
/s/ Frank M. Hull
Frank M. Hull
United States District
Judge
Notes
(E) For purposes of this paragraph, the term “extension of credit” shall have the meaning prescribed by the Board pursuant to section 375b of this title and the term “executive officer” shall have the same meaning given it under section 375a of this title.