Robert D. RAPAPORT, Petitioner, v. UNITED STATES DEPARTMENT OF THE TREASURY, OFFICE OF THRIFT SUPERVISION, Respondent.
No. 93-1811.
United States Court of Appeals, District of Columbia Circuit.
Argued Jan. 31, 1995. Decided July 11, 1995.
Frank J. Eisenhart argued the cause for petitioner. With him on the briefs were Arthur W. Leibold, Jr., Neil R. Crowley, and Jeffrey D. Fisher.
Aaron B. Kahn, Counsel, Office of Thrift Supervision, argued the cause for respondent. With him on the brief were Thomas J. Segal, Deputy Chief Counsel, and Richard L. Rennert, Atty., Office of Thrift Supervision. Elizabeth R. Moore entered an appearance.
Before GINSBURG, RANDOLPH, and ROGERS, Circuit Judges.
Opinion concurring in part and concurring in the judgment filed by Circuit Judge ROGERS.
GINSBURG, Circuit Judge:
Robert D. Rapaport was the majority shareholder of a savings and loan association that failed. Thereafter the Office of Thrift Supervision, as successor to the Federal Savings and Loan Insurance Corporation, ordered him to pay approximately $1.5 million pursuant to his agreement personally to maintain the capital in the institution at no less than the minimum required by regulation. We hold that because the OTS has not shown that Rapaport was “unjustly enriched,” it may not enforce the agreement against him in an administrative (as opposed to judicial) proceeding. Accordingly, we grant Rapaport‘s petition for review and set aside the agency‘s order.
I. Background
Great Life Savings Association of Sunrise, Florida, a state-chartered institution, applied to the FSLIC for deposit insurance in April 1984. While Great Life‘s application was pending, the Federal Home Loan Bank Board—the governing body of the FSLIC—promulgated a regulation requiring that any individual who owned 25% or more of the stock of a newly insured savings association “personally guarantee the maintenance of the association‘s net worth at the regulatorily required level.” See 49 Fed.Reg. 41237, 41244 (Oct. 22, 1984), codified at
Rapaport ultimately purchased 69.9% of Great Life‘s stock. In March 1985 he entered into a five-year Agreement that provided:
[I]n consideration of the FSLIC granting insurance of accounts to the Association, the Acquiror agrees ... pursuant to the
requirements of 12 C.F.R. § 571.6(4) , or any successor regulation thereto, to maintain the Association‘s net worth in compliance with the Net Worth Requirement applicable to the Association, computed in accordance with12 C.F.R. § 563.13 , or any successor regulation then in effect.
The FHLBB approved Great Life‘s insurance application and the thrift opened for business in May 1985.
Owing primarily to the number of nonperforming commercial real estate loans on its books, Great Life, like many thrift institutions in the late 1980s, began to experience capital deficiencies. In November 1989 the OTS notified Rapaport that Great Life‘s capital was deficient by $152,000 and asked him to contribute $106,248 (69.9% of the total) pursuant to the Agreement. Rapaport responded that he was expending “great effort“—but not by actually contributing any capital—to improve Great Life‘s financial health. After further investigation, the OTS determined that Great Life‘s capital deficiency amounted to some $3.5 million as of December 31, 1989. In June 1990 the Resolution Trust Corporation was appointed receiver of Great Life, which has since been liquidated.
The OTS began an administrative proceeding against Rapaport in July 1990. In April 1993 an Administrative Law Judge found that: (1) Rapaport‘s role in the activities of Great Life “was limited solely to that of a stockholder“; (2) Rapaport was “unjustly enriched within the meaning of [
The Acting Director of the OTS affirmed the ALJ‘s decision, though he corrected it insofar as the ALJ had suggested that the benefit of insurance received by Great Life, rather than Rapaport‘s retention of what the Agreement allegedly required him to pay, was the basis for holding that Rapaport had been “unjustly enriched.” (He also reduced Rapaport‘s liability to $1,536,675 based upon a revised valuation of one of Great Life‘s loans.) Like the ALJ, the Acting Director based his decision that Rapaport was liable for his unjust enrichment upon Rapaport‘s personal responsibility, as a stockholder, for Great Life‘s capital shortfall; he did not rely upon any role that Rapaport might have played in the management of Great Life.
Before this court Rapaport faults the Acting Director‘s decision in four respects. First, he claims that the OTS does not have statutory authority to bring this action against him. Instead, he submits that the Federal Deposit Insurance Corporation—as the manager of the FSLIC Resolution Fund—is the only agency (if any) that can pursue a claim based upon the Agreement. Second, Rapaport claims that the OTS failed to show that he was “unjustly enriched,” as required by this court‘s decision in Wachtel v. OTS, 982 F.2d 581 (D.C. Cir. 1993). If the court rejects his first two arguments, then Rapaport claims, third, that the Agreement expired in November 1989 when the regulation requiring such agreements was amended to exclude state-chartered institutions, and he is not responsible for any capital deficiency occurring thereafter. Finally, Rapaport claims that the OTS miscalculated Great Life‘s capital deficiency because it improperly valued certain loans.
II. Analysis
Though we conclude that the OTS does have the authority administratively to enforce an agreement to which the FSLIC was a party, we also hold that the OTS failed in this case to make the required showing that Rapaport was “unjustly enriched.” We therefore set aside the agency‘s decision without addressing Rapaport‘s last two arguments.
A. OTS‘s Authority to Enforce the Agreement
Rapaport argues that if any federal agency has the authority to enforce the Agreement, it is the FDIC rather than the OTS.
Not so. Rapaport entered into the Agreement with the FSLIC, and when the Congress abolished the FSLIC and the FHLBB, see Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No. 101-73, § 401(a), 103 Stat. 183 (August 9, 1989) (FIRREA); see also Historical Note at
Under
Moreover, the FIRREA provisions dealing with the powers and duties of the OTS provide specifically that: “[t]he Director [of the OTS] shall have all powers which [] were vested in the [FHLBB] (in the Board‘s capacity as such) ... and were not [] transferred to the [FDIC or another agency].”
Nonetheless Rapaport points out that the assets of the FSLIC were transferred to the FSLIC Resolution Fund, see
First, regardless of the enforcement authority of the FSLIC, the Agreement would certainly have been enforceable by the FHLBB, and as noted above, the OTS is the presumptive heir (via
Second, we reject Rapaport‘s claim that the OTS is barred from enforcing the Agreement against him because it is not in privity of contract with him. This is not a suit for breach of contract and we express no view upon what would be required if it were; the OTS is here pursuing an administrative remedy and need only have some affirmative grant of authority to do so. That, as we have seen, it has.
B. Unjust enrichment
In order for the OTS to order a party to undertake any “affirmative action to correct conditions resulting from any violations or practices,” it must show either that the party has been “unjustly enriched” or that his conduct “involved a reckless disregard for the law or any applicable regulations or prior order of [a] Federal banking agency.”
The Acting Director‘s sole basis for concluding that Rapaport had, in fact, been unjustly enriched was simply that Rapaport “retain[ed] funds ... belong[ing] to [Great Life]“—i.e., the contested capital contribution—“while [Great Life] received the benefits of deposit insurance.” Rapaport claims that this is insufficient to make out a case of unjust enrichment within the meaning of
As a preliminary matter, the OTS argues that we should defer to its construction of
“Unjust enrichment” is a term of art at common law and we must presume that the Congress used it as such, mutatis mutandis, when it imported the term into the field of bank regulation. Turning to a commentary upon the common law, we learn that the fundamental characteristic of unjust enrichment is “that the defendant has been unjustly enriched by receiving something ... that properly belongs to the plaintiff, [thereby] forcing restoration to the plaintiff.” Dobbs, LAW OF REMEDIES § 4.1(2). The law of Florida is typical: The elements of a cause of action based upon unjust enrichment are that: (1) the plaintiff conferred a benefit upon the defendant; (2) the defendant accepted and retained the benefit; and (3) it would be unjust for the defendant not to pay the plaintiff the value of the benefit. See, e.g., Hillman Construction Corp. v. Wainer, 636 So. 2d 576, 577 (Fla.App. 1994).
The agency‘s argument that Rapaport was “unjustly enriched” by his failure to pay the amount he allegedly owed under the Agreement is deeply flawed, for it fails to satisfy even the first element of a claim for unjust enrichment. If Rapaport “benefitted” from his failure to contribute capital to Great Life—and that is at best an odd way to describe what happened—it was not because the OTS or its predecessor conferred something upon him. Nor did Rapaport profit from Great Life‘s continued operation because of anything that the agency did to shore up the institution. Rapaport just failed to pay up as allegedly required by his contract. A breach of contract might give rise to liability for damages measured by the loss to the plaintiff, but unjust enrichment simply does not lie when the plaintiff has not bestowed some sort of benefit upon the defendant.
At best, the FSLIC conferred an indirect benefit upon Rapaport in that it allowed him to own more than 25% of the shares in a federally insured institution (the direct beneficiary of the Agreement being Great Life). In other words, Rapaport got the opportunity to invest more than otherwise would have been allowed. (Ultimately, of course, his investment was worth nothing, but Rapaport‘s opportunity to invest was presumably of some value ex ante.) Nothing in either the ALJ‘s or the Acting Director‘s decision indicates that Rapaport received any other benefit from the FSLIC or from Great Life (at which he held no office).
There are two problems with the opportunity-to-invest-more concept of “benefit,” however. First, it was not advanced in the decision of the OTS. Second, we doubt whether it would be sufficient in any event to establish that Rapaport was unjustly enriched.
Though the decisions of the ALJ and the Acting Director are somewhat opaque on the nature of the benefit, we know that they did not consider Rapaport‘s opportunity to invest more the benefit that he received because the OTS has maintained throughout this proceeding that the amount of the benefit to Rapaport is the amount that he would have had to contribute to Great Life had he complied with the Agreement to the agency‘s satisfaction. That amount, however, bears no relation whatever to the value to Rapaport of the FSLIC insuring Great Life‘s deposits, either at the outset or at the time of his alleged default. The $1.5 million Rapaport was allegedly required to contribute may arguably approximate the amount of the agency‘s loss attributable to Rapaport‘s alleged breach, but no principle in the law of restitution is more clear than this: “Restitution is measured by the defendant‘s unjust enrichment, not by the plaintiff‘s loss.” Dobbs, Restitution at § 4.5(1). The Acting Director actually paid lip service to this prin
What makes this case even harder to square with any recognizable notion of unjust enrichment is that Rapaport‘s alleged obligation to contribute more funds did not even arise until the value of Rapaport‘s right to hold stock in excess of 25 percent had become, for reasons not attributable to Rapaport himself, little more than the right to lose that much more money. Whatever the value of the opportunity that Rapaport received from the OTS in 1985, he had neither realized any benefit from nor even retained it as of late 1989, when the OTS came calling for more funds; there was by then simply no benefit that he could be required to disgorge. See RESTATEMENT OF RESTITUTION § 142, Comment a (1937) (“When events are such that a loss must be suffered by one of the parties ... justice does not require that the recipient should bear this loss where he is guilty of no greater fault than that of the claimant“).
In short, the OTS has failed to demonstrate either that Rapaport was enriched or, if he was, why that enrichment was unjust. With only the Acting Director‘s ipse dixit to support the agency‘s claim, we see no reason to conclude that Rapaport was “unjustly enriched” by his failure to contribute capital to Great Life.
Even if we were to read the term “unjustly enriched” in
require [a party] to cease and desist from the same, and, further, to take affirmative action to correct the conditions resulting from any such violation or practice.
In Larimore, the directors of a bank had repeatedly approved loans in excess of the bank‘s statutory lending limit. Id. at 1246-47. The Comptroller argued that he could impose personal liability upon the directors in an administrative proceeding held pursuant to
The court did allow for an exception, however, upon the basis of the legislative history of the statute, “where an insider has unjustly enriched himself at the expense of the institution.” Larimore, 789 F.2d at 1252 (quoting S.Rep. No. 95-323, 95th Cong., 1st Sess. 7 (1977)). Thus, while the usual course of action would be for the regulatory agency to proceed under
When the Congress passed the FIRREA a few years later, it took pains to clarify, in the wake of Larimore, when a bank regulatory
We set out much of this same exegesis in Wachtel. There the OTS had failed to find even to its own satisfaction that the individual it held liable had been unjustly enriched. Id. at 583. The agency was reduced to arguing that it could support its order notwithstanding the straightforward requirements of
Yet this is precisely what the OTS asks us to do. In Larimore, the directors of a bank had approved loans in violation of the law. This contributed to the bank‘s losses, but neither the court nor the Congress thought that the directors had been “unjustly enriched.” See 789 F.2d at 1252 (“there is absolutely no proof of personal enrichment“); H.R.Rep. No. 54 at 468, U.S.Code Cong. & Admin.News 1989, p. 264 (”Larimore ... did not involve unjust enrichment“). Here Rapaport allegedly failed to abide by his Agreement to contribute capital; this might have contributed to (or at least accelerated) Great Life‘s insolvency, but it certainly did not enrich Rapaport.
In essence, the OTS would have us approve the administrative assessment of personal liability in every case where a party agrees, but ultimately fails, to maintain the required level of capital, regardless whether he gains personally from the operation of the institution. The Congress clearly contemplated something more than failing to uphold one‘s end of a contract when it required that a party have been “unjustly enriched” before he can be held personally liable in an administrative proceeding.
Akin v. OTS, 950 F.2d 1180 (5th Cir. 1992), is not necessarily to the contrary. Akin, like Rapaport, had agreed to maintain the required level of capital at a thrift institution that ultimately failed. Id. at 1182. Unlike Rapaport, however, Akin had been the sole shareholder, President, Chief Executive Officer, and Chairman of the Board of the failed institution. Id. at 1181. Had Rapaport received the benefits of office as Akin did, he may well have been “unjustly enriched,” at least to that extent, and that distinction may be enough to reconcile the two cases. See
To the extent that Akin‘s enrichment does not serve to reconcile these two cases, we respectfully disagree with the Fifth Circuit. Responding to Akin‘s claim that he had not been unjustly enriched, that court acknowledged that the OTS‘s position did not “dovetail[] neatly into a pattern of transfer of a benefit and restitution of that benefit from a party wrongfully retaining it,” but it refused to require “a precision fit” between the OTS‘s position and “black letter contract law.” Id. at 1184. Rather, the court thought that the terms of the particular provision
We are mindful that Rapaport made an agreement with the FSLIC that (unless his third argument is well founded) he appears to have breached. Federal bank regulators are not without means to force a contract party to live up to his obligations, however. The Congress has simply made their “remedy of choice,” to use the Fifth Circuit‘s phrase, a suit in district court under
III. Conclusion
The OTS has the authority under the FIRREA to enforce a capital maintenance or other agreement in an administrative proceeding only against a party who has either been unjustly enriched or has acted with reckless disregard for some aspect of federal regulation. Rapaport‘s alleged failure to contribute as agreed in order to maintain Great Life‘s required level of capital does not amount to such unjust enrichment. Accordingly, we grant his petition for review and set aside the agency‘s final order.
So ordered.
ROGERS, Circuit Judge, concurring in part and concurring in the judgment:
In rejecting OTS‘s contention that the court should defer to its construction of
In Wachtel, a bank holding company sought review of OTS‘s order, pursuant to
court rejected OTS‘s position as “almost frivolous,” and proceeded to observe that even if Chevron deference were applicable, OTS‘s interpretation would fail because the statute was not ambiguous and OTS‘s interpretation was arbitrary. Id. While the court suggested that Chevron was inapplicable because OTS administered
Although the court has stated that it does not defer to an agency‘s construction of a statute interpreted by more than one agency, e.g., Association of Am. Physicians & Surgeons, Inc. v. Clinton, 997 F.2d 898, 913 (D.C. Cir. 1993), the cases other than Wachtel itself appear readily distinguishable. For example, in Clinton, 997 F.2d at 913, which involved the Federal Advisory Committee Act, the court cited two cases involving statutes that apply to all agencies. See FLRA v. United States Dep‘t of Treasury, 884 F.2d 1446, 1451 (D.C. Cir. 1989) (no deference to FLRA‘s interpretation of the Freedom of Information Act (“FOIA“) and the Privacy Act because “the FLRA is not charged with a special duty to interpret” these statutes), cert. denied, 493 U.S. 1055, 110 S.Ct. 863, 107 L.Ed.2d 947 (1990); Reporters Comm. for Freedom of the Press v. United States Dep‘t of Justice, 816 F.2d 730, 734 (D.C. Cir. 1987) (no deference to any agency interpretation of FOIA because “it applies to all government agencies, and thus no one executive branch entity is entrusted with its primary interpretation“), rev‘d on other grounds, 489 U.S. 749, 109 S.Ct. 1468, 103 L.Ed.2d 774 (1989). Similarly, in Wachtel, the court relied on Professional Reactor Operator Soc‘y v. United States Nuclear Regulatory Comm‘n, 939 F.2d 1047, 1051 (D.C. Cir. 1991), in which the court declined to defer to Commission‘s interpretation of the Administrative Procedure Act because the statute applies to all agencies and is not within the Commission‘s area of expertise. Even more readily distinguished are cases in which the court has declined to defer to an agency‘s interpretation of a statute whose administration is entrusted to another agency. E.g., Illinois Nat‘l Guard v. FLRA, 854 F.2d 1396, 1400 (D.C. Cir. 1988); Department of Treasury v. FLRA, 837 F.2d 1163, 1167 (D.C. Cir. 1988). At the same time, the court has acknowledged that where two agencies were charged with administering a statute, there “might well be a compelling case to afford deference if it were necessary for decision [where] both agencies agree as to which of them has exclusive jurisdiction.” CF Indus., Inc. v. FERC, 925 F.2d 476, 478 n. 1 (D.C. Cir. 1991) (dictum); see also Suramerica de Aleaciones Laminadas, C.A. v. United States, 966 F.2d 660, 665 n. 6 (Fed. Cir. 1992).
Consequently, it appears too facile to conclude that deference is inappropriate simply because more than one agency is involved in administering a statute. The question of whether deference is due more likely depends on the nature of the statute and how Congress has decided it shall be administered. Under FIRREA, Congress provided for joint decisions among the several administering banking agencies on the allocation of transferred functions. FIRREA § 403(b)(1), 103 Stat. 183, 360-61 (1989) (codified at
Thus, while Wachtel correctly reminds that consideration be given to the fact that more than one agency administers the statute, 982 F.2d at 585 n. 4, deference may nonetheless be appropriate where only expert banking agencies administer the statute and there is no disagreement among them about their respective responsibilities or the agency position under review. See generally Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 651-52 (1990) (“[Practical agency expertise
The instant case does not require the court to decide whether Chevron deference should apply to OTS‘s interpretation of
Accordingly, notwithstanding the majority‘s interpretation of Wachtel and its observations regarding conditions for deference, id. at 216-17, I concur in granting the petition for review.
Notes
If, in the opinion of the appropriate Federal banking agency, any insured depository institution, depository institution which has insured deposits, or any institution-affiliated party is engaging or has engaged, or the agency has reasonable cause to believe that the depository institution or any institution-affiliated party is about to engage, in an unsafe or unsound practice in conducting the business of such depository institution, or is violating or has violated, or the agency has reasonable cause to believe that the depository institution or any institution-affiliated party is about to violate, a law, rule, or regulation, or any condition imposed in writing by the agency in connection with the granting of any application or other request by the depository institution or any written agreement entered into with the agency, the agency may issue and serve upon the depository institution or such party a notice of charges in respect thereof. The notice shall contain a statement of the facts constituting the alleged violation or violations or the unsafe or unsound practice or practices, and shall fix a time and place at which a hearing will be held to determine whether an order to cease and desist therefrom should issue against the depository institution or the institution-affiliated party.... [I]f upon the record made at any such hearing, the agency shall find that any violation or unsafe or unsound practice specified in the notice of charges has been established, the agency may issue and serve upon the depository institution or the institution-affiliated party an order to cease and desist from any such violation or practice. Such order may, by provisions which may be mandatory or otherwise, require the depository institution or its institution-affiliated parties to cease and desist from the same, and, further, to take affirmative action to correct the conditions resulting from any such violation or practice.
The authority to issue an order under this subsection ... which requires an insured depository institution or any institution-affiliated party to take affirmative action to correct or remedy any conditions resulting from any violation or practice with respect to which such order is issued includes the authority to require such depository institution or such party to—
(A) make restitution or provide reimbursement, indemnification, or guarantee against loss if—
(i) such depository institution or such party was unjustly enriched in connection with such violation or practice; or
(ii) the violation or practice involved a reckless disregard for the law or any applicable regulations or prior order of the appropriate Federal banking agency;