CHARTER FEDERAL SAVINGS BANK, Plaintiff-Appellee,
v.
OFFICE OF THRIFT SUPERVISION, Director, in his own official
capacity and as successor in interest of Federal Home Loan
Bank Board; Federal Deposit Insurance Corporation, in its
оwn capacity and as successor in interest to Federal Savings
and Loan Insurance Corporation, Defendants-Appellants. (Two Cases).
Nos. 91-2647, 91-2708.
United States Court of Appeals,
Fourth Circuit.
Argued March 2, 1992.
Decided Sept. 25, 1992.
As Amended Nov. 2, 1992.
Aaron Baer Kahn, Asst. Chief Counsel, Office of Thrift Supervision, Washington, D.C., argued (Harris Weinstein, Chief Counsel, Thomas J. Segal, Associate Chief Counsel, David H. Enzel, Sr. Trial Atty., Laurie Romanowich, Office of Thrift Supervision, on the brief), for defendant-appellant OTS.
Jacob Matthew Lewis, Civ. Div., U.S. Dept. of Justice, Washington, D.C., argued (Stuart M. Gerson, Asst. Atty. Gen., Douglas Letter, Civ. Div., U.S. Dept. of Justice, Washington, D.C., E. Montgomery Tucker, U.S. Atty., Roanoke, Va., Thomas A. Schulz, Asst. Gen. Counsel, Loretta R. Pitt, Sr. Counsel, Colleen Bombardier, Sr. Counsel, Thomas L. Holzman, F.D.I.C., Washington, D.C., on the brief), for defendant-appellant F.D.I.C.
Thomas Matthews Buchanan, Winston & Strawn, Washington, D.C., argued (Eric W. Bloom, Winston & Strawn, on the brief), for plaintiff-appellee.
Before RUSSELL, Circuit Judge, BUTZNER, Senior Circuit Judgе, and SIMONS, Senior United States District Judge for the District of South Carolina, sitting by designation.
OPINION
DONALD RUSSELL, Circuit Judge:
The Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC), defendants in the action below, appeal on jurisdictional and substantive grounds the district court's declaratory judgment in this case. At issue here is whether enforcement of the strict capital requirements of the recently enacted Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (1989) (codified in various sections of 12 U.S.C.), abrogates prior agreements permitting use of supervisory goodwill as capital. The district court ruled that the Federal Home Loan Bank Board (FHLBB), predecessor of OTS, had contraсted with Charter Federal Savings Bank (Charter) to permit Charter to treat supervisory goodwill as an asset for statutory capital reporting requirements in return for Charter's acquisition of certain failing thrifts. Subsequent to entering into the contracts, Congress enacted FIRREA, which severely restricted use of supervisory goodwill as capital. The court decided that if OTS were to enforce FIRREA's more restrictive capital requirements and if its enforcement substantially burdened Charter's operations, Charter could rescind the contracts and, consequently, rescind its acquisitions of failing thrifts.
We affirm the district court's jurisdiction to decide this case, except as to the FDIC as a party. We conclude that the claims as against the FDIC are not ripe for review and, therefore, dismiss it as a party. We reverse the district court's decision on the merits and hold that the FHLBB did not contractually obligate itself (or its successor agencies) to permit Charter to use supervisory goodwill to meet capital requirements in the face of contrary new regulations. Therefore, OTS may enforce FIRREA's supervisory goodwill requirements against Charter without consequence.
I.
Around 1980, in response to the large number of financially troubled savings and loan institutions, the FHLBB began encouraging healthy financial institutions to acquire financially troubled thrifts. See Transohio Sav. Bank v. Director, Office of Thrift Supervision,
In June 1981, agents of the Atlanta Federаl Home Loan Bank (FHLB) contacted Charter in an effort to persuade Charter to acquire First Federal Savings & Loan Association of New River Valley (New River). New River had a deficit net worth of $13.5 million. Charter initially declined to pursue the merger because it considered the merger financially imprudent.1 Several months later, supervisory agents again contacted Charter. This time they encouraged Charter to acquire both New River and Peoples Federal Savings and Loan Association (Peoples). Through negotiations, the FHLB agents assured Charter that it could treat the combined negative net worth of these two thrifts ($47.1 million) as supervisory goodwill and amortize it over forty years. Charter then agreed, but only after receiving permission to use the purchase method of accounting2 and thereunder treat supervisory goodwill as an intangible asset.
Charter signed a merger agreement with the two acquired institutions dated December 8, 1981. The FHLBB subsequently approved the merger through a written resolution, subject to several conditions. One of those conditions was:
That [Charter] shall furnish analyses, accompanied by a concurring opinion from its independent accountant, satisfactory to the Supervisory Agent and to the Office of Examinations and Supervision, which (a) specifically describe, as of the effective date of the merger, any intangible assets, including goodwill, or discount оn assets arising from the merger to be recorded on [Charter's] books and (b) substantiate the reasonableness of amounts attributed to intangible assets, including goodwill, and the discount of assets and the related amortization periods and methods[.]
(J.A. at 53.) In response, Charter's independent accountant, A.M. Pullen & Co., submitted a letter detailing Charter's method of accounting for the merger. The letter described Charter's treatment of negative net worth as follows:
(9) The difference between the fair values ... of New River's and Peoples' assets less liabilities were recorded as intangible assets and goodwill.
In evaluating the factors prescribed by generally accepted accounting princiрles and the guidelines described in FHLB Memorandum R-31(b), goodwill will be amortized over forty years. The straight-line method of amortization will be used.
(J.A. at 61.) The FHLBB accepted Charter's treatment of the acquired negative net worth as supervisory goodwill and formally approved the merger. Charter has since treated the supervisory goodwill as an asset for regulatory capital requirements, offsetting an amortized amount each year from income without objection from the FHLBB.3
In early 1985, the FHLB again approached Charter about acquiring a failing thrift, New Federal Savings and Loan (New Federal).4 Charter agreed, conditioned upon obtaining the same terms as governed the 1982 acquisition. That is, Chartеr conditioned acquisition on inter alia permission to treat supervisory goodwill as an asset for purposes of capital regulatory requirements. At the time of the acquisition, New Federal had negative net worth of approximately $15 million.
As in the previous transaction, Charter signed a merger agreement with New Federal and received subsequent approval of the merger by resolution of the FHLBB. Charter's independent accountants again submitted a letter to the FHLBB describing the method of accounting for the merger and specifically outlining treatment of supervisory goodwill as an asset to be amortized over fifteen years. The FHLBB issued a forbearance letter to Charter stating that the FHLBB would not enforce any net worth requirements for a period of five years (until 1990), provided that deficiencies in those requirements were due to the acquisition of New Federal.
Later that year, the FHLBB approached Charter about acquiring yet another thrift, Magnolia Federal Savings and Loan Association (Magnolia). Magnolia had nominal negative net worth of approximately $24,000. The acquisition was consummated in June 1985, on substantially the same terms as the prior acquisitions. Charter treated the $24,000 as supervisory goodwill, amortized over fifteen years, which it listed as an asset on its subsequent monthly reports to the FHLBB.
Congress enacted FIRREA in August 1989, seven years after Charter's first acquisitiоn. One purpose of FIRREA was to restore public confidence in the savings and loan industry by strengthening the soundness of individual institutions. Pub.L. No. 101-73, § 101(2),
An institution that fails to meet FIRREA's new capital standards must submit a plan to the OTS "describ[ing] the manner in which the savings association will increase its capital so as to achieve compliance with capital standards." 26 U.S.C. § 1464(t)(6)(A)(ii)(II). Since Charter did not meet the new requirements,6 it submitted a capital plan on January 5, 1990, with revisions submitted March 30 and November 8 of that year. The OTS disapproved Charter's plan because it did "not adequately address the institution's need for capital" and it was based on "optimistic operating projections." (J.A. at 17.) The OTS also refused to grant Charter a discretionary exemption pursuant to § 1464(t)(7). Consequently, the OTS imposed statutorily mandated restrictions prohibiting Charter from making any new loans or investments except with the prior written approval of the OTS.7 In addition, OTS requested that Charter sign within fifteen days a Consent Agreement authorizing the appointment of a conservator or receiver to negotiate a plan of merger or reorganization on behalf of Charter. See § 1464(d)(2)(B) (authorizing OTS to apрoint a conservator or receiver where board of directors consents). Charter refused to sign the Consent Agreement.
Charter then brought an action in the district court for declaratory judgment and injunctive relief against OTS and the Federal Deposit Insurance Corporation (FDIC). The complaint alleged that Charter and the federal agencies (or their predecessors) entered into binding contracts in the course of the 1982 and 1985 acquisitions, in which the FHLBB had promised Charter continued use of supervisory goodwill to meet capital regulatory requirements for specified amortization periods. Based on this allegation, Charter sought several alternative declarations from the court, inter alia: (1) that § 401(g) of FIRREA, which preserves the obligations of the FHLBB incurred prior to enactment of FIRREA, obligates the OTS to abide by prior contractual promises to Charter regarding supervisory goodwill; or (2) in the event that FIRREA mandates enforcement of its capital requirements without exception, that FIRREA constitutes an intervening act which frustrates the purpose of the contracts, permitting rescission; or (3) that abandoning contractual promises constitutes a taking. The OTS countered that a contract never existed between the parties. Moreover, the OTS challenged the district court's jurisdiction to decide Charter's claims. It argued that the Tucker Act vested exclusive jurisdiction over contract actions in the Claims Court. The OTS also argued that the claims against the FDIC were not ripe for review because the FDIC had not threatened action against Charter and Charter had no other basis on which to assert an immediate threat of injury from the FDIC.
The district court asserted jurisdiction over the OTS and the FDIC pursuant to 12 U.S.C. § 1464(d)(1)(A), which grants federal courts jurisdiction over suits against the OTS, and § 1819(a), which grants federal courts jurisdiction over suits against the FDIC. It dismissed the ripeness challenge by the FDIC, finding that Charter was under an immediate threat of being placed into receivership under the FDIC. The court then ruled that the parties had entered into contractual relationships wherein Charter agreed to take over several failing thrifts in exchange for promises by the FHLBB to permit Charter to use supervisory goodwill as a capital asset over the specified amortization periods. The court accepted OTS's interpretation of FIRREA § 301, holding that FIRREA's new capital requirements abrogated prior supervisory goodwill agreements with the FHLBB. It also accepted OTS's interpretation that § 401(g) did not save the agreements and that no other nondiscretionary saving exceptions existed in FIRREA. Because of the conflict these findings produced, the court declared that if the OTS were to enforce FIRREA's new capital requirements against Charter and not grant it a discretionary exemрtion under § 1464(t)(7), the 1982 and 1985 contracts would be rescinded and the acquired thrifts severed from Charter. The OTS would then have to treat the acquired thrifts as separate entities for purposes of capital requirements. Charter Fed. Sav. Bank v. Director, Office of Thrift Supervision,
The OTS and FDIC appeal the district court's judgment. They contend on appeal that the district court did not have jurisdiction to decide these claims, that the court erroneously ruled that a contract existed between Charter and the FHLBB, and that, assuming an implied contract, the court erred in declaring a remedy of rescission.
II.
We turn first to the jurisdictional issues. Appellants raise three jurisdictional challenges: (1) Charter's claims аgainst the FDIC are not ripe for a declaratory judgment; (2) Charter's claims are reviewable only by the Claims Court under the Tucker Act; and (3) the district court did not have jurisdiction to issue a de facto injunction. Jurisdictional questions are questions of law properly reviewed de novo. In regard to Appellants' first challenge, we recognize that varying standards of review have been applied by Circuit Courts in reviewing district courts' exercises of jurisdiction vel non in declaratory judgment actions.8 The decision whether to exercise jurisdiction in a declaratory judgment case is within the sound discretion of the district court. 28 U.S.C. § 2201 (1988). We have chosen to follow those Circuits which review such decisions de novo. Mitchеson v. Harris,
A. Appellants contend that the FDIC should have been dismissed as a party to this case because it had taken no action nor threatened any action against Charter. Federal courts may issue declaratory judgments only in cases of actual controversy. 28 U.S.C. § 2201 (1988). The controversy must be "ripe" for judicial resolution, that is, in the context of an administrative case, there must be "an administrative decision [that] has been formalized and its effects felt in a concrete way by the challenging parties." Pacific Gas & Elec. v. Energy Resources Comm'n,
Applying the Abbott test in this case, we believe the tentative nature of the FDIC's involvement renders Charter's claims not ripe as to the FDIC. The FDIC has two possible avenues of involvement here. First, it could be appointed by the OTS as conservator or receiver for Charter. See 12 U.S.C. § 1821(c) (Supp. II 1990). However, since the OTS has not yet appointed the FDIC, the only party against whom Charter's claim lies is the OTS. The FDIC has no authority to appoint itself as receiver or conservator. Second, the FDIC has authority to terminate Charter's status as an insured depository. See 12 U.S.C. § 1818(a)(2). Yet, before terminating Charter's status, the FDIC must first determine that Charter is "in an unsafe or unsound condition [аnd should not] continue operations as an insured institution." § 1818(a)(2)(A)(ii). It must then give notice for the purpose of correcting the offending practices, § 1818(a)(2)(A), and if a satisfactory change is not made, give a second notice stating its intent to terminate insurance. § 1818(a)(2)(B). Finally, the FDIC must conduct a hearing before its Board of Directors, subject to judicial review. § 1818(a)(3), (5). Thus, several contingencies separate Charter from a threat of final agency action in this case. See 10A Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 2757, at 586-87 (3d ed. 1983) (suggesting that cases posing a double contingency may not be appropriate for declaratory judgment). Although we realize that "finаl agency action" in this context does not mean that all administrative procedures must have been satisfied, see Frozen Food Express v. United States,
In Pacific Gas & Elec., the Supreme Court declared not ripe for review a constitutional challenge to a California energy statute. In so holding, the Court reasoned that because "determinations under § 25524.1(b) [are made] on a case by case basis," and because " 'we cannot know whether the Energy Commission will ever find a nuclear plant's storage capacity to be inadequate,' judicial consideration of this provision should await further developments."
B. Appellants next argue that jurisdiction in this case lies exclusively in the Claims Court under the Tucker Act. They contend that the only waiver of sovereign immunity applicable to this action is in the Tucker Act, which grants jurisdiction to the Claims Court over all contract claims against the United States. See 28 U.S.C. § 1491(a)(1) (1988). Section 1346(a)(2) provides the one exception and grants concurrent jurisdiction to district courts over Claims Court actions where claims do not exceed $10,000. 28 U.S.C. § 1346(a)(2). Appellants contend that, "[a]lthough Charter does not place a dollar value on its claim, given the amounts of money involved, it appears that, if properly framed, it would exceed $10,000." Joint Brief for Appellants at 22.
We easily dispose of this claim because Charter seeks a declaratory judgment concerning its contractual rights and not money damages pursuant to a contract. The Tucker Act does not forbid a district court from issuing a declaratory judgment with respect to contractual rights, even if that judgment later serves as a basis for money damages. Laguna Hermosa Corp. v. Martin,
C. The government characterizеs the district court's declaratory judgment as a de facto injunction enjoining the OTS from enforcing its regulations.10 As such, they assert, it would violate 12 U.S.C. § 1818(i), which prohibits district courts from issuing injunctions against the United States to enforce banking regulations. Since we reverse the district court's declaratory judgment, we dismiss this claim without deciding whether the district court order was in fact an injunction.
III.
We now consider the substantive issues in this case. Our review is limited to whether a contract existed between Charter and FHLBB (or its replacement agency, OTS); and, if so, whether the contract provided that Charter could treat supervisory goodwill as capital during the entire specified amortization period. If we find that such a contrаct exists, we must then determine whether rescission is appropriate.
We do not render an interpretation of the FIRREA provisions involved here. The district court accepted the position of OTS, which Charter appears to concede on appeal, that FIRREA's strict capital requirements abrogate any prior agreements with the FHLBB permitting long-term use of supervisory goodwill as capital. See Thrift Bulletin 38-2 (Jan. 9, 1990) (stating OTS's interpretation of FIRREA § 301). The OTS also takes the position, which the district court accepted, that FIRREA contains no exceptions to its capital requirements for prior supervisory goodwill agreements. This interpretation has been adopted by all the Circuits ruling on the issue. As of this writing, six Circuits have decided similar cases involving supervisory goodwill. All found that the plain language of § 301, as well as the legislative history of FIRREA, justify the OTS's position that FIRREA's new requirements supersede prior supervisory goodwill agreements without exception. See Security Sav. and Loan Ass'n v. Director, Office of Thrift Supervision,
A. We note initially that no express, written contract exists between the parties.11 1] The written merger agreements were between Charter and the acquired institutions. The resolutions issued by the FHLBB in connection with the mergers merely granted that agency's approval of the merger and the accounting practices employed by Charter in connection therewith. In this regard, we find our case differs from similar supervisory goodwill cases, which have all involved written agreements between the complaining thrift and the FHLBB or FSLIC. For example, in one of the first supervisory goodwill cases decided by the appellate courts, the Eleventh Circuit assumed the existence of a contract between the plaintiff financial institution and the FHLBB where the parties had entered into a written agreement stating, " 'This Agreement shall be deemed a contract made under and governed by Federal law.' " Guaranty Fin. Services, Inc.,
Since our case involves no written expressions of intent to contract nor any written contracts between the parties, we are reluctant to rule that a contract exists. However, we need not decide the contract issue because we find, in any event, that the FHLBB did not promise to exempt Charter from future capital regulations. We can assume, then, without deciding, the existence of an implied contract between the FHLBB (or OTS) and Charter and resolve the case on the issue of contract interpretation.
B. Charter contends that the FHLBB promised Charter permission to use supervisory goodwill as capital for regulatory purposes over the entire specified amortization periods, regardless of intervening regulations. Charter argues that it would never have agreed to take on the failing thrifts without such an assurance.
Where the federal government is a party to a contract, courts should apply an additional, special rule of contract construction. As stated by the Supreme Court:
While the Federal Government, as sovereign, has the power to enter contracts that confer vested rights, and the concomitant duty to honor those rights, see Perry v. United States,
Bowen v. Public Agencies Opposed to Social Sec. Entrapment,
In the context of supervisory goodwill cases, the D.C. and Eleventh Circuits, relying on Bowen, have "interpret[ed] the contract provisions at issue to mean that the agencies would allow [the thrift] to treat supervisory goodwill as regulatory capital only as long as the regulatory regime permitted the agencies to do so." Transohio, at 620; accord Guaranty,
In our case, like Transohio and Guaranty, the FHLBB never expressly waived its right to enforce future regulations governing supervisory goodwill. The FHLBB approved Charter's use of supervisory goodwill under its then statutory discretion to permit such accounting practices, but made no explicit promise to Charter of continued aрproval throughout the life of the amortization period. In other words, the FHLBB assured Charter that its use of supervisory goodwill was permissible under the then current law and that the FHLBB would approve such practices under such law. Without a more explicit promise, we will not enlarge the scope of guarantees given to Charter.
Furthermore, the highly regulated nature of the savings and loan industry convinces us that, absent an explicit statement to the contrary, the FHLBB would not have intended to promise Charter continued treatment of supervisory goodwill as capital for the life of the amortization period. The savings and loan industry has been closely regulated by the government since the еarly 1930's with the creation of the FHLBB and the FSLIC. Regulations govern " ' "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave." ' " Transohio, at 601 (citing Fidelity Fed. Sav. & Loan Ass'n v. De La Cuesta,
Charter contends that it is absurd to believe a healthy thrift would merge with a troubled one without assurances that the surviving institution could treat supervisory goodwill as regulatory capital over the lifetime of the amortization period. However, we presume that Charter could have accounted for the risk of regulatory change in making its decisions to acquire failing thrifts. At the time of its first acquisition, Charter operated as a savings and loan. It certainly was cognizant of the regulatory intrusions into this business. If Charter wanted to avoid the risk of regulatory change, it could have demanded more explicit assurances. " 'Those who do business in the regulated field cannot object if the legislative scheme is buttressed by subsequent amendments to achieve the legislative end.' " Connolly v. Pension Benefit Guaranty Corp.,
C. Given оur holding, we need not rule on the appropriateness of rescission as a remedy.
IV.
In summary, we find that this case does not present any ripe controversy as to the FDIC, and we dismiss that party as a defendant. The district court did have jurisdiction over this case as to the OTS pursuant to § 301(d)(1)(A) of FIRREA. In considering the merits of Charter's case, we find that the FHLBB did not contract to exempt Charter from FIRREA's capital regulatory requirements. Rather, it agreed only to permit such use of supervisory goodwill as was lawful under the regulations. Accordingly, we reverse the district court's declaratory judgment ordering recision as a remedy for enforcement by OTS of FIRREA's new regulatory requirements.
AFFIRMED IN PART AND REVERSED IN PART.
Notes
At that time, Charter had a positive nеt worth of only $7.69 million. Thus, it could not have fully absorbed the $13.5 million negative net worth of New River
Under the purchase method of accounting, assets are valued at fair market value on the date of sale. For example, a $100,000 mortgage loan with a fixed 9% interest rate would be valued at a discount if current interest rates were higher than 9%, or at a premium if current interest rates were lower. A resulting positive net worth would be capitalized as goodwill and depreciated; a resulting negative net worth would be treated as an asset (supervisory goodwill) and amortized against income
When Charter converted from a mutual to a federal stock savings and loan association in 1984, it informed prospective investors of the accounting arrangement. As part of the conversion arrangements with the government, Charter reduced the amortization period from 40 years to 25 years
New Federal was actually a combination of five failed thrifts located in Tennessee, packaged as one institution by the FSLIC and managed by an FSLIC-appointed receiver
Section 301(t)(3)(A) provides:
The amount of qualifying supervisory goodwill that may be included may not exceed the applicable percentage of total assets set forth in the following table:
For the following period: The applicable percentage is: Prior to January 1, 1992 ........................... 1.500 percent January 1, 1992"December 31, 1992 .................. 1.000 percent January 1, 1993"Dеcember 31, 1993 .................. 0.750 percent January 1, 1994"December 31, 1994 .................. 0.375 percent Thereafter ............................................. 0 percent
With supervisory goodwill excluded, Charter had a negative net worth of approximately $19 million
Under FIRREA, the OTS must restrict the asset growth of noncomplying institutions. 12 U.S.C. § 1464(t)(6)(B)(i). FIRREA also requires the OTS to issue capital directives to noncomplying institutions, which may include dividend and compensation restrictions. § 1464(t)(B)(ii)
Compare Cincinnati Ins. Co. v. Holbrook,
Section 1464(d)(1)(A) provides in part:
[T]he Director [of OTS] shall be subject to suit (other than suits on claims for money damages) by any Federal savings association or director or officer thereof with respect to any matter under this section or any other applicable law, or regulation thereunder, in the United States district court....
They assert that separation of the merged financial institutions is next to impossible, thus rendering the district court's option of rescinding the 1982 and 1985 contracts and enforcing OTS regulations against the individual institutions a null choice
The FHLBB expressly agreed in connection with the New Federal acquisition to forbear for a period of five years (until 1990) from enforcing net worth requirements which Charter might fail to meet due to its acquisition of New Federal. See Letter from FHLBB to Charter (April 2, 1985) (copy in J.A. at 127). While this may constitute an express agreement, its terms have expired and it is now moot for purposes of this case
We also distinguish on these facts our case from two recent supervisory goodwill cases decided by the Claims Court. Unlike the Circuit Courts, the Claims Court has directly ruled on the issue of whether contracts exist in supervisory goodwill cases. See Statesman Sav. Holding Corp. v. United States,