Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-01-05280/USCOURTS-caDC-01-05280-0/pdf.json

Parties Involved:
Federal Deposit Insurance Corporation
Appellee
Wells Fargo Bank, N.A.
Appellant

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 15, 2002 Decided November 15, 2002

No. 01-5280

Wells Fargo Bank, N.A.,

Appellant

v.

Federal Deposit Insurance Corporation,

Appellee

Appeal from the United States District Court

for the District of Columbia

(No. 00cv01251)

Mary E. Hennessy, pro hac vice, argued the cause for

appellant. With her on the briefs was Gloria B. Solomon.

Joel G. Chefitz entered an appearance.

Lawrence H. Richmond, Counsel, FDIC, argued the cause

for appellee. With him on the brief was Colleen J. Boles,

Senior Counsel. Ann S. DuRoss, Assistant General Counsel,

entered an appearance.

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Before: Edwards, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: In this case, we must decide whether

Federal Deposit Insurance Act requirements applicable to

banks that acquire savings associations continue to apply

when such banks are in turn acquired by other banks. The

Federal Deposit Insurance Corporation, which is charged

with enforcement of the statute, concluded that these "second

generation" transactions are subject to the Act's restrictions.

The district court agreed. Because we find the statute

ambiguous on this issue and the FDIC's interpretation consistent with congressional purpose, we affirm.

I.

Following widespread failures of savings and loan associations in the 1980s, Congress restructured the federal depository insurance system in the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989. Pub. L. No. 101-73,

103 Stat. 183 (codified as amended in scattered sections of 12

U.S.C.). Known as FIRREA, the Act abolished the insolvent

Federal Savings and Loan Insurance Corporation and shifted

its responsibilities to the Federal Deposit Insurance Corporation. The Act also created an independent Bank Insurance

Fund (known as BIF) to cover deposits of commercial banks

and a Savings Association Insurance Fund (known as SAIF)

to cover deposits of savings and loan associations. SAIF's

premiums were significantly higher than BIF's because SAIF

needed to build reserves and to cover additional thrift failures.

Because Congress worried that SAIF's capitalization could

be jeopardized if healthy savings associations, in order to take

advantage of BIF's lower premiums, converted to banks or

transferred their deposits to banks, FIRREA also amended

the Federal Deposit Insurance Act to impose entrance and

exit fees on so-called conversion transactions that effectively

transfer deposits between BIF members and SAIF members.

12 U.S.C. s 1815(d)(2)(B), (E), (F). FIRREA also imposed a

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five-year moratorium (later extended to 1996) on such transactions. Id. s 1815(d)(2)(A)(ii).

One of the few exceptions to the moratorium and fees is

contained in the so-called Oakar Amendment, which allows

certain mergers and deposit transfers as long as participants

obtain regulatory approval and the acquiring institutions continue paying proportional assessments to BIF and SAIF. Id.

s 1815(d)(3). If the acquiring bank is a BIF-insured institution (an "Oakar bank"), for instance, it pays BIF assessments

on its original deposits and SAIF assessments on the "adjusted attributable deposit amount" (AADA)--the proportion of

deposits obtained from savings associations, adjusted for subsequent growth. Id. s 1815(d)(3)(B)(i). The Oakar bank's

AADA premiums are deposited in SAIF, and SAIF bears a

proportional share of any costs incurred by the FDIC if the

bank later fails. Id. s 1815(d)(3)(D)(i), (G).

In 1990, the FDIC issued an advisory opinion--the Rankin

Letter--explaining how it would treat situations in which an

Oakar bank merges with or is acquired by a normal BIF

member. FDIC Advisory Op. No. 90-22 (June 15, 1990).

Although nothing in FIRREA explicitly addresses this question, the FDIC said that it would consider such "secondgeneration" or "downstream" purchases to be conversion

transactions. Accordingly, the acquiring BIF member would

be subject either to the moratorium and fee provisions or to

the Oakar Amendment's proportional assessments rule. The

FDIC later reaffirmed this position in a December 1996

rulemaking. 12 C.F.R. s 327.37; 61 Fed. Reg. 64,960,

64,962-64 (Dec. 10, 1996).

In April 1996, after the issuance of the Rankin Letter but

before the 1996 regulations, appellant Wells Fargo, a BIF

member, acquired and merged with First Interstate Bancorp

and seven of its subsidiaries, including three Oakar banks

that had acquired savings association deposits in prior transactions. Over the next several years, the FDIC assessed

SAIF premiums on a portion of Wells Fargo's new deposits.

Arguing that its purchase of the Oakar banks was not a

conversion transaction, Wells Fargo filed suit in the United

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States District Court for the District of Columbia seeking a

$23 million refund of SAIF premiums and other charges that

it had paid because a portion of its deposits were treated as

being insured by SAIF. The district court, applying Chevron's two-part analysis, Chevron U.S.A. Inc. v. Natural Res.

Def. Council, Inc., 467 U.S. 837, 842-43 (1984), found the

statute silent as to the treatment of transactions between

Oakar banks and normal BIF members and the FDIC's

interpretation both reasonable and consistent with congressional intent. Wells Fargo Bank, N.A., v. FDIC, No.

00-1251, slip op. at 7, 9-12 (D.D.C. June 15, 2001). The court

therefore granted the FDIC's motion to dismiss for failure to

state a claim upon which relief can be granted. Id. at 12.

Our review is de novo. Cummings v. Dep't of the Navy, 279

F.3d 1051, 1053 (D.C. Cir. 2002).

II.

We start our analysis, as always, by asking whether Congress has spoken to "the precise question at issue." Chevron,

467 U.S. at 842. If it has, both we and the agency must give

effect to Congress's unambiguously expressed intent. Id. at

842-43. Because the judiciary functions as the final authority

on issues of statutory construction, "[a]n agency is given no

deference at all on the question whether a statute is ambiguous." Cajun Elec. Power Coop., Inc. v. FERC, 924 F.2d 1132,

1136 (D.C. Cir. 1991); see also SBC Communications Inc. v.

FCC, 138 F.3d 410, 418 (D.C. Cir. 1998) (stating that a court

must determine whether a statute is ambiguous on its own,

without regard to an agency's reasoning). We consider the

provisions at issue in context, using traditional tools of statutory construction and legislative history. Nat'l Rifle Ass'n of

Am., Inc. v. Reno, 216 F.3d 122, 127 (D.C. Cir. 2000).

Under the Federal Deposit Insurance Act as amended by

FIRREA, mergers or consolidations between two financial

institutions are "conversion transactions" only if they involve

a "Bank Insurance Fund member" on one side and a "Savings

Association Insurance Fund member" on the other. 12

U.S.C. s 1815(d)(2)(B)(ii). The Act then defines these two

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terms: A "Bank Insurance Fund member" is "any depository

institution the deposits of which are insured by the [BIF],"

and a "Savings Association Insurance Fund member" is "any

depository institution the deposits of which are insured by the

[SAIF]." Id. s 1817(l)(4), (5). Wells Fargo, a BIF member,

argues that the statute unambiguously says that Oakar banks

(like the ones it acquired) are also BIF members and therefore that its acquisitions were not "conversion transactions."

Disagreeing, the FDIC insists that Oakar banks must be

treated as SAIF members for purposes of second generation

transactions because financial institutions would otherwise be

able to evade both proportional Oakar assessments and entrance and exit fees by transferring savings association deposits first to an Oakar bank and then to a normal BIF

member.

We disagree with Wells Fargo that the statute is unambiguous with respect to "the precise question at issue": whether

Oakar banks should be considered SAIF members for purposes of regulating downstream transactions. Not only has

Wells Fargo identified nothing in either the statute or its

legislative history suggesting that Congress even considered

this issue, but section 1817(l)'s definitions do not prohibit

institutions from being members of both funds simultaneously. According to Wells Fargo, section 1817(l) implicitly

forbids dual membership because it used mutually exclusive

terms to determine institutions' fund membership at the time

of enactment, id. s 1817(l)(3); see also id. s 1817(l)(1), (2)

(establishing mutually exclusive membership rules for newly

established financial institutions), but this argument ignores

the fact that the Oakar Amendment explicitly allows institutions to take on a hybrid status after engaging in a conversion

transaction with a member of the other fund. Id.

s 1815(d)(3).

Moreover, nothing in the Oakar Amendment unambiguously resolves the issue of fund membership. Wells Fargo

emphasizes that the Amendment states that an Oakar bank's

AADA "shall be treated as deposits which are insured by the

Savings Association Insurance Fund" for purposes of assessment, id. s 1815(d)(3)(B)(i) (emphasis added), not that its

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deposits actually are insured by SAIF. Yet the Act never

defines the difference between being "treated as" and actually

"insured by" SAIF, nor specifies whether such treatment

should continue if an Oakar bank's AADA is transferred to

another institution. Indeed, the statute appears to make no

meaningful distinction between Oakar banks' relationships

with BIF and SAIF. Such banks are "treated as" SAIF

members for purposes of assessment since they must pay

SAIF rates on their AADAs and since those premiums must

be deposited in SAIF. Id. s 1815(d)(3)(D)(i). The statute

also treats them as SAIF members for purposes of loss

allocation. Although Wells Fargo argues that another provision of the Federal Deposit Insurance Act indicates that BIF

should make all initial payments to depositors in the event

that an Oakar bank fails, id. s 1821(f)(1), SAIF must absorb

the losses attributable to the bank's AADA if the institution's

assets are insufficient to cover all FDIC payouts, id.

s 1815(d)(3)(G).

Wells Fargo points to section 1815(d)(3)(E)(ii), which states

that the Oakar Amendment "shall not be construed as authorizing transactions which result in the transfer of any insured

depository institution's Federal deposit insurance from 1 Federal deposit insurance fund to the other Federal deposit

insurance fund." Wells Fargo interprets this language to

mean that a BIF member that acquires a savings association

remains exclusively a BIF member, but we think it not so

clear. The new financial institution that results from such a

merger is in fact a hybrid, treated as a savings association

with respect to its AADA and as a bank with respect to its

original deposits. For core purposes of assessment and loss

allocation, the Oakar Amendment mandates that the hybrid

still be treated as a member of SAIF after the Oakar

transaction, a result that comports with section

1815(d)(3)(E)(ii)'s statement that the institution's deposit insurance does not transfer between funds. Indeed, the

Amendment specifically provides that Oakar banks may end

their obligations to SAIF by paying the entrance and exit

fees to transfer their AADAs to BIF after the moratorium's

expiration. Id. s 1815(d)(3)(H).

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Finally, FIRREA's legislative history is equally ambiguous

on the membership status of Oakar banks. Although Wells

Fargo emphasized at oral argument that the Senate's original

version of the bill would have defined SAIF members as

including "any other financial institution that is required to

pay assessments into the [SAIF]," S. 774, 101st Cong.

s 208(l)(4) (1989), that language could not have been intended

to refer to Oakar banks because it was drafted before the

Oakar Amendment was even proposed. The conference committee reports do not discuss why committee members did

not adopt the Senate's membership definition nor what they

thought about the fund membership of Oakar banks, H.R.

Rep. No. 101-222, at 394-96 (1989); H.R. Rep. No. 101-209, at

396-98 (1989), but Amendment sponsor Rep. Mary Rose

Oakar stated clearly that the hybrid institutions "will [still] be

subject to the moratorium restrictions, the exit and entrance

fee requirements and will not have left the SAIF system for

purposes of the thrift acquired." 135 Cong. Rec. 18,556

(1989).

On balance, then, we think the Oakar Amendment is ambiguous on two counts: as to whether a hybrid Oakar bank is a

"depository institution the deposits of which are insured by

the Savings Association Insurance Fund" to the extent of its

AADA, 12 U.S.C. s 1817(l)(5), and as to whether its adjusted

attributable deposit amount should still be "treated as" insured by SAIF for purposes of assessment after a downstream transaction with another BIF member, id.

s 1815(d)(3)(B)(i). Both of our sister circuits that have considered the issue agree that the statutory scheme is ambiguous. As the Eleventh Circuit explained

Under the statute, a BIF Oakar institution holds some

funds that are in every meaningful way and effect insured by the SAIF, and it holds other funds that are in

every meaningful way and effect insured by the BIF.

The statute defines an SAIF member institution as one

whose funds "are insured by the [SAIF]," id.

s 1817(l)(5), and it defines a BIF member institution as

an institution whose funds "are insured by the [BIF]," id.

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s 1817(l)(4). Under these provisions and definitions, an

Oakar institution can be a 'member' of both funds. Thus,

there is an ambiguity in the statute.

Bank of Am., N.A., v. FDIC, 244 F.3d 1309, 1317 (11th Cir.

2001); see also Branch Banking & Trust Co. v. FDIC, 172

F.3d 317, 326-27 (4th Cir. 1999) (finding a conflict between

the requirement that the AADA merely be treated as insured

by SAIF and the Oakar Amendment's prohibition on transfers between funds).

III.

We next consider the FDIC's interpretation of the statute.

Although both parties assume that Chevron's second step

governs this case, we doubt whether the FDIC is entitled to

Chevron deference because, although it had issued the Rankin

Letter at the time Wells Fargo acquired the three Oakar

banks, it had not yet exercised its formal rulemaking authority--the 1996 regulation. See United States v. Mead Corp.,

533 U.S. 218, 229-34 (2001); Am. Fed'n of Gov't Employees v.

Veneman, 284 F.3d 125, 129 (D.C. Cir. 2002) (agency action

not intended to have force of law is not entitled to Chevron

deference). At the very least, however, because the FDIC is

charged with administering this highly detailed regulatory

scheme, we may resort to its "body of experience and informed judgment" for guidance to the extent that its position

is persuasive. Skidmore v. Swift & Co., 323 U.S. 134, 140

(1944).

Congress restricted conversion transactions for an obvious

reason: It wanted to ensure that assessments on savings

association deposits would keep flowing into SAIF so that the

fund would be properly capitalized. See, e.g., H.R. Rep. No.

101-54, Pt. 1, at 411-12 (1989) ("The Committee believes that

this moratorium is necessary ... to provide for a stable and

increased premium income to reduce the amount of taxpayer

funds ultimately needed to resolve the crisis."). The Oakar

Amendment not only furthered this goal, but also encouraged

healthy banks to acquire ailing savings associations by ensuring that acquiring institutions unwilling to pay the steep

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entrance and exit fees to transfer deposits directly out of

SAIF could instead accept a hybrid status and ongoing SAIF

assessments. See 135 Cong. Rec. 18,556 (1989) (statement of

Rep. Oakar) (Oakar banks "will not have left the SAIF

system for purposes of the thrift acquired"); see also 12

U.S.C. s 1815(d)(3)(H) (requiring Oakar institutions to pay

entrance and exit fees after the expiration of the moratorium

to end their obligations to pay proportional assessments).

As the FDIC pointed out in both its 1996 rulemaking and

brief in this case, Wells Fargo's interpretation would frustrate Congress's stated purpose and would render the statutory scheme largely meaningless since institutions could

evade the entrance and exit fee payments and the continuing

obligation to pay proportional assessments by structuring

conversion transactions as two-step transfers--from a savings

association to an Oakar bank and then to a normal BIF

member. In contrast, the FDIC's interpretation "implements

Congressional intent because it prevents financial institutions

from manipulating the system at SAIF's expense. It is also

consistent with the Oakar Amendment's requirement that an

Oakar bank's deposits retain their original fund affiliation."

Appellee's Br. at 31. Thus, treating downstream mergers

between Oakar banks and normal BIF members as conversion transactions is a reasonable--if not the most reasonable--interpretation of the statute. See Bank of Am., N.A.,

244 F.3d at 1322; Branch Banking & Trust, 172 F.3d at 328-

29.

Wells Fargo makes three challenges to the reasonableness

of the FDIC's interpretation. It argues that the agency's

position is unwarranted because the facts alleged in the

bank's complaint show that this merger did not involve a badfaith attempt to evade SAIF assessments, amounts to a post

hoc rationalization adopted for purposes of litigation, and

conflicts with prior agency interpretations. None of these

arguments is persuasive.

Congress was concerned with the effect of conversion

transactions on SAIF's capitalization, not the parties' good or

bad faith. Also, since 1990, the FDIC has held firm to its

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interpretation that second-generation transactions should be

treated as conversion transactions. Industry members' questioning of this interpretation at the time that the FDIC

confirmed its earlier position in a formal rulemaking does not

negate the fact that the agency made a considered decision on

the issue. Otherwise, any rulemaking adopted in the face of

comments challenging an agency's statutory interpretation

would have to be discounted as a post hoc rationalization

adopted in anticipation of potential litigation by disgruntled

commenters.

In support of its claim that the FDIC's position in this case

conflicts with earlier statements, Wells Fargo points to a 1995

opinion letter in which the agency concluded that an Oakar

bank was not a formal member of SAIF for purposes of

certain secondary statutes that levy additional charges

against SAIF members. FDIC Gen. Counsel Op. No. 7, 60

Fed. Reg. 7055 (Feb. 6, 1995). But that opinion did not deal

with the issue this case raises--whether Oakar banks should

be treated as members of SAIF for purposes of downstream

transactions. Wells Fargo lists a parade of horribles that it

believes would occur if Oakar banks were deemed SAIF

members for all purposes, but that is the import of neither

the Rankin Letter nor the 1996 rulemaking. Instead, both

treat Oakar banks as SAIF members only with regard to

second-generation transactions. Given the unique hybrid nature of Oakar banks, we think it not at all unreasonable for

the FDIC to conclude that they should be treated as SAIF

members for purposes related to loss allocation and premium

assessments, but not for others.

Because the most reasonable interpretation of sections

1815(d)(3) and 1817(l) treats Oakar banks as SAIF members

during subsequent conversion transactions, we affirm.

So ordered.

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