UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Nos. 93-2944 & 94-20013

BOARD OF GOVERNORS OF THE FEDERAL 

RESERVE SYSTEM, 

Plaintiff-Appellee, 

versus 

DLG FINANCIAL CORP. and 

DANIEL S. DE LA GARZA

DefendantsAppellants.

Appeals from the United States District Court

For the Southern District of Texas

C\W

No. 94-10078

DLG FINANCIAL CORPORATION and 

DANIEL S. DE LA GARZA, 

PlaintiffsAppellants, 

versus

FEDERAL RESERVE SYSTEM OF THE UNITED 

STATES, BOARD OF GOVERNORS, FEDERAL 

RESERVE BANK OF DALLAS and THE FEDERAL 

DEPOSIT INSURANCE CORPORATION, 

DefendantsAppellees. 

Appeal from the United States District Court

for the Northern District of Texas

(August 15, 1994)
2

Before GOLDBERG, KING, and WIENER, Circuit Judges.

WIENER, Circuit Judge:

These consolidated appeals stem from two separate actions,

one filed in the federal district court for the Northern District

of Texas (hereafter the Dallas Court), and the other filed in the

federal district court for the Southern District of Texas

(hereafter the Houston Court). In the Dallas action, Appellants

DLG Financial Corporation ("DLG") and Daniel S. De La Garza ("De

La Garza") appeal the Dallas Court's decision to dismiss various

state and federal claims they brought against the Board of

Governors of the Federal Reserve System ("Board"), the Federal

Reserve Bank of Dallas ("FRBD"), and the Federal Deposit

Insurance Corporation ("FDIC"). As we conclude that these claims

are precluded by the Federal Deposit Insurance Act ("FDIA"), the

Federal Tort Claims Act ("FTCA"), and the Tucker Act, we affirm

the dismissal of these claims. 

In the Houston action, DLG and De La Garza appeal the

Houston Court's issuance of a restraining order and a preliminary

injunction, pursuant to FDIA § 1818(i)(4), that encumbered

certain of their assets. Finding the restraining order to be

unappealable, we dismiss the appeal of that order. With respect

to the appeal of the preliminary injunction, we conclude that DLG

and De La Garza were afforded due process and that the Board made

the requisite showing; we therefore affirm the Houston Court's

order granting injunctive relief.
3

I 

FACTS AND PROCEEDINGS

DLG is a company engaged in the business of buying discount

promissory notes and other assets of failed commercial entities and

reselling them at a profit. De La Garza is the president, CEO, and

sole shareholder of DLG. On October 30, 1990, DLG entered into a

letter agreement to purchase two promissory notes from NCNB Texas

National Bank, N.A., which was acting on behalf of the FDIC. These

notes were executed by International Bancorporation, Inc. ("IBI")

and were secured by a pledge of all outstanding common stock of

International Bank, N.A. The security agreement provided that if

the notes came into default the noteholder could exercise all of

the voting rights and corporate powers concerning the pledged stock

without having to foreclose on the notes. 

Between the execution of the letter agreement and the

acquisition of the promissory notes by DLG, the relationship

between the parties grew contentious. Ultimately, DLG and De La

Garza were forced to sue the FDIC to compel performance under the

letter agreement. On March 17, 1992, pursuant to a settlement

agreement, DLG acquired the promissory notes for $1,000,000. At

the time of acquisition, the notes were already in default. 

Shortly after DLG obtained the notes from the FDIC, another

fiscal agency of the federal government, the FRBDSQthe entity that

supervises bank holding companies in Texas on behalf of the

BoardSQwrote to DLG stating that its purchase of the promissory

notes and the concomitant acquisition of bank voting rights
 

112 U.S.C. §§ 1841-1850 (1988 & Supp. III 1991).

 

2Section 1842(a)(1) of the BHCA prohibits an entity from

becoming a bank holding company without obtaining prior approval

of the Board. In general, a bank holding company is any company

that has control over a bank. Id. § 1841(a)(1). One way that a

company can control a bank is to own, control, or have the power

to vote 25% or more of any class of voting security of a bank,

whether directly, indirectly, or acting through one or more

other persons. Id. § 1841(a)(2)(A).

 

3DLG and the FRBD later agreed that within 60 days DLG would

sell the notes, obtain Board approval, or file a new divestiture

plan.

4

appeared to violate the Bank Holding Company Act ("BHCA"),1 which,

inter alia, generally prohibits an entity from becoming a bank

holding company without obtaining prior approval from the Board.2

The letter from the FRBD instructed DLG to file immediately either

(1) an application for approval to acquire the notes or (2) a

divestiture plan.3

DLG and De La Garza, however, insist that DLG did not become

a bank holding company by purchasing the notes, and therefore prior

Board approval was not required. Accordingly, they responded to

the letter from the FRBD by turning to the courts.

A. The Dallas Action

On October 9, 1992, DLG and De La Garza filed suit in the

Dallas Court against the Board, the FRBD, and the FDIC. In this

action, DLG and De La Garza sought declaratory and injunctive

relief to (1) establish their rights with respect to the promissory

notes, (2) prevent interference with those rights, and (3) preclude

the Board from asserting jurisdiction over DLG as a bank holding

company under the BHCA. DLG and De La Garza also sought monetary
 

428 U.S.C. §§ 2671-2680 (1988 & Supp. III 1991).

 

528 U.S.C.A. § 1491(a)(1) (West 1994). The district court

denied a motion to dismiss without prejudice Appellants' statelaw tort and constitutional claims against the FRBD, declining to

decide whether the FTCA or the Tucker Act applied to that entity. 

Subsequently, appellants voluntarily dismissed these claims.

 

6Appellants voluntarily dismissed takings claims against the

other defendants.

5

damages and attorney's fees for breach of contract, tortious

interference with contract, tortious interference with prospective

contractual and business relations, fraud, conspiracy to commit

fraud, and violations of the Due Process Clause of the Fifth

Amendment. 

On March 30, 1993, the Dallas Court dismissed DLG's and De La

Garza's claims for declaratory and injunctive relief, reasoning

that such relief was explicitly precluded by 12 U.S.C.

§ 1818(i)(1). As for the monetary claims, the court dismissed

(1) DLG's and De La Garza's state-law tort claims against the Board

and the FDIC, holding that such claims must be brought against the

United States pursuant to the Federal Tort Claims Act ("FTCA")4;

(2) a constitutional takings claim against the Board, finding that

the Tucker Act granted the Court of Federal Claims exclusive

jurisdiction over such an action5; (3) a motion to dismiss a

takings claim against the FDIC6; and (4) a breach of contract claim

against the FDIC, but granted an opportunity to replead. DLG and

De La Garza amended their complaint, but, late in 1993, voluntarily

dismissed all remaining claims and filed this appeal.

In May 1993, IBI redeemed the promissory notes for $2,000,000.
 

7Of which amount, roughly $900,000 was used for the purchase

of the promissory notes that gave rise to this litigation. 

 

8Under the Federal Deposit Insurance Act ("FDIA"), 12

U.S.C.A. §§ 1811-1834b (West 1989 & Supp. 1994), the Board has

the exclusive authority to commence administrative proceedings

for civil penalties and other relief for violations of the BHCA. 

Id. §§ 1818(b)(3), 1818(i).

 

9See BHCA, 12 U.S.C. § 1847(b)(1) (providing for the

imposition of civil fines of up to $25,000 per day against any

6

De La Garza instructed IBI to wire the payment to a recently formed

entity headed by his wife, Southwest Underwood Company, which had

no previous connection with the promissory note transaction.

On September 22, 1993, a state grand jury sitting in Travis

County, Texas returned an indictment charging De La Garza and

others with misapplication of approximately $9,000,000 in insurance

company assets.7 This indictment and De La Garza's decision to

have the proceeds of the sale of the notes wired to Southwest

Underwood Company precipitated, in part, the Board's decision to

commence litigation in the Houston Court.

B. The Houston Action

In October 1993, pursuant to its authority under the Federal

Deposit Insurance Act ("FDIA"),8 the Board commenced an

administrative proceeding against DLG and De La Garza. In this

proceeding, the Board made the same allegation asserted earlier by

the FRBD))namely, that the acquisition of the promissory notes made

DLG a bank holding company, and therefore the failure to obtain

Board approval prior to the purchase of the notes violated the

BHCA. Based on this charge, the Board assessed civil penalties

totaling $1,000,000))$500,000 each against DLG and De La Garza9 but
company or person who participates in the violation of the BHCA).

 

10The FDIA empowers the Board to obtain such a restraining

order to assist it in its administrative actions. Specifically,

§ 1818(i)(4)(A) provides that a district court may, "in the aid

of . . . any administrative . . . action for . . . civil money

penalties . . . issue a restraining order that))(i) prohibits any

person subject to the proceeding from withdrawing, transferring,

removing, dissipating, or disposing of any funds, assets or other

property."

 

11DLG purchased the promissory notes before the effective

date of the 1993 amendments to the BHCA. These amendments

altered the burden of proof that the Board must meet prior to

attaching assets. Compare 12 U.S.C. § 1818(i)(4)(B) (Supp. III

1991) ("A permanent or temporary injunction or restraining order

shall be granted without bond upon a prima facie showing that

money damages, restitution, or civil money penalties, as sought

by such agency, is appropriate.") with 12 U.S.C.A.

§ 1818(i)(4)(B) (West Supp. 1994) ("Rule 65 of the Federal Rules

of Civil Procedure shall apply [to an application for a

7

provided that the fines were payable only after an opportunity for

an adversary administrative enforcement proceeding and the

exhaustion of appeals therefrom.

On November 1, 1993, the Board filed a motion in the Houston

Court, seeking a restraining order to freeze De La Garza's and

DLG's assets to prevent their dissipation.10 As noted, the Board

relied, in part, on De La Garza's alleged "diversion" of the

proceeds from the sale of the promissory notes to Southwest

Underwood Company, and on his recent indictment for misapplying

insurance company assets, as justification for seeking such an

order.

Based on the evidence presented by the Board, which included

a sworn declaration by an agency official, the court found that the

Board had made a prima facie showing that DLG and De La Garza had

violated the BHCA and that civil penalties were justified.11 The
restraining order] without regard to the requirement of such rule

that the applicant show that the injury, loss, or damage is

irreparable and immediate.").

8

court immediately issued an "Order to Show Cause and Temporary

Restraining Order," commanding DLG and De La Garza to appear in

court on November 3, 1993, and show cause why they should not be

enjoined from "withdrawing, transferring, removing, dissipating, or

disposing of" their assets ("November 1 Order"). Pending further

order of the court, the November 1 Order also prohibited DLG and De

La Garza, or any of their employees, from withdrawing,

transferring, removing, dissipating, or disposing of any of their

assets. DLG and De La Garza appeal this order.

Two days later, on November 3, 1993, a hearing was conducted

by the Houston Court during which it received evidence and heard

arguments from both sides. From the bench Chief Judge Black then

orally issued a preliminary injunction ("November 3 Injunction")

that substantially modified and limited the November 1 Order,

imposing a lien of $1,000,000 on but three among a number of

properties owned by DLG. A slightly modified version of this

preliminary injunction was issued in written form on December 23,

1993 ("December 23 Injunction"), replacing the November 3

Injunction entirely. De La Garza and DLG appeal from the December

23 Injunction. 

On March 17, 1994, the district court again modified its

injunction, but unlike the December 23 Injunction, this March 17

modification was just thatSQa modificationSQwhich did not supplant

the prior injunction. DLG and De La Garza have appealed the March
 

1212 U.S.C. § 1818(i)(1). (emphasis added). 

9

17 modification, but the appeal of this modification was not

consolidated with the instant appeals and thus is not before us.

II 

ANALYSIS

A. The Dallas Action

We address first whether the Dallas Court properly dismissed

claims by DLG and De La Garza for declaratory and injunctive relief

and monetary damages. We conclude that it did.

1. Declaratory and Injunctive Relief

DLG and De La Garza filed the Dallas action against the Board,

the FRBD, and the FDIC, seeking various declaratory and injunctive

relief. The Dallas Court dismissed these claims, reasoning that

such relief was precluded by § 1818(i)(1) of the FDIA. We agree.

DLG and De La Garza argue that the district court's decision

is flawed because, when they filed the Dallas action, there was no

ongoing administrative proceeding. We find this argument

unavailing. 

In essence DLG and De La Garza asked the district court to

enjoin the board from continuing its investigation into or bringing

an enforcement proceeding against them. Section 1818(i)(1),

however, provides that "no court shall have jurisdiction to affect

by injunction or otherwise the issuance or enforcement of any

notice, or order under [this section], or to review, modify,

suspend, terminate, or set aside any such notice or order."12

Accordingly, § 1818(i)(1) divested the district court of
 

13573 F.2d 889, 895 (5th Cir. 1978) (quoting Manges v. Camp,

474 F.2d 97, 99 (5th Cir. 1973)).

 

14Latching onto the last phrase in the quotation above,

Appellants argue that we should recognize an exception to the

explicit command of § 1818(i)(1) and permit an action to enjoin

the Board from acting beyond its statutory authority. In Board

of Governors of Federal Reserve System v. MCorp Financial, Inc.,

502 U.S. 32, (1991), however, the Supreme Court rejected this

very argument and held that a "beyond the Board's statutory

authority" exception to § 1818(i)(1) is not available.

 

15See 12 U.S.C. § 1819(a) (Supp. III 1991).

10

jurisdiction to enjoin the commencement of the Board's

administrative enforcement. The fact that no administrative action

was pending when DLG and De La Garza filed the Dallas action is

irrelevant to this determination. As this court stated in Groos

National Bank v. Comptroller of Currency,

13 "[s]ection 1818 as a

whole provides a detailed framework for regulatory enforcement and

for orderly review of the various stages of enforcement; and

§ 1818(i) in particular evinces a clear intention that this

regulatory process is not to be disturbed by untimely judicial

intervention, at least where there is no `clear departure from

statutory authority.'"14 

2. Claims for Monetary Damages

The Dallas Court dismissed state-law tort claims against the

Board and the FDIC. This judgment was proper, as such claims must

be brought against the United States pursuant to the FTCA. DLG's

and De La Garza's contention that their state-law tort claims

against the FDIC should not have been dismissed because § 1819(a)

of the FDIA authorizes the FDIC to "sue and be sued"15 is feckless.

We have noted that, notwithstanding the "sue and be sued" clause of
 

16See Gregory v. Mitchell, 634 F.2d 199, 204 (5th Cir.

1981).

 

1728 U.S.C.A. § 1491(a)(1) (West 1994).

 

1828 U.S.C. § 1346(a)(2) (1988) (granting district courts

concurrent jurisdiction for takings claims not exceeding

$10,000).

 

19See Preseault v. I.C.C., 494 U.S. 1 (1990); Graham v.

Henegar, 640 F.2d 732, 734 (5th Cir. Unit A 1981); see also Bell

Atl. Tel. Co. v. FCC, Nos. 92-1619, 92-1620, 93-1028, and 93-

1053, 1994 WL 247134, at *6 n.1 (D.C. Cir. June 10, 1994) ("The

Tucker Act, 28 U.S.C. § 1491(a)(1), vests exclusive jurisdiction

over takings claims that exceed $10,000 in controversy . . . in

the United States [Court of Federal Claims].")

11

§ 1819(a), the FTCA provides the exclusive avenue for claims

cognizable under that Act.16 

Also correct was the court's dismissal of the takings claim

against the Board. The Tucker Act17 and the Little Tucker Act18

operate to vest the Court of Federal Claims with exclusive

jurisdiction for all constitutional claims against the federal

government for money damages exceeding $10,000.19 Because DLG and

De La Garza sought $25,000,000 for the alleged violations of their

rights, the district court properly determined that this takings

claim must be brought before the Court of Federal Claims. Thus

concluding that the Dallas Court properly dismissed the foregoing

claims, we next address related proceedings conducted further

south, in the Houston federal courthouse. 

B. The Houston Action

We shall consider first whether the Houston Court's November

1 Order is appealable. Next, we shall turn to DLG's and De La

Garza's argument that § 1811(i)(4) violated due process. Finally,
 

20In re Lieb, 915 F.2d 180, 183 (5th Cir. 1990) ("This court

has long held that the denial of an application for a [TRO] is

not appealable."); see 11 CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL

PRACTICE AND PROCEDURE § 2962, at 616 (1973).

 

21Connell v. Dulien Steel Prods., Inc., 240 F.2d 414, 418

(5th Cir. 1957), cert. denied, 356 U.S. 968 (1958).

12

we shall consider their claim that they were not required to obtain

Board approval prior to acquiring the promissory notes.

1. The November 1 Order

On November 1, the district court issued an order commanding

DLG and De La Garza to appear two days later and show cause why

they should not be enjoined from "withdrawing, transferring,

removing, dissipating, or disposing of" their assets. The Board

urges that this order is not appealable, and we agree. We arrive

at our conclusion based on two distinct but related rationales.

First, we find the November 1 Order to be, in substance, an

unappealable temporary restraining order ("TRO"). In general, a

TRO is not appealable.20 This is so because, as Judge Tuttle

observed, TROs are "usually effective for only very brief periods

of time, far less than the time required for an appeal . . . and

are then generally supplanted by appealable temporary or permanent

injunctions."21 That is precisely what happened here. Less than

two days after its issuance, the November 1 Order evaporated when,

upon completion of the show cause hearing, Chief Judge Black orally

entered a preliminary injunction that supplanted the TRO. This

injunction, as Judge Tuttle might have forecast, subsequently was

appealed.

We find unpersuasive the arguments by DLG and De La Garza to
 

22WRIGHT & MILLER, supra, note 20, § 2962, at 618.

13

the contrary. They contend that because the November 1 Order had

no specific expiration date, it was in substance a preliminary

injunction and thus was appealable. Although a TRO with a lengthy

duration may be appealable, the two-day term of the November 1

Order clearly was insufficient for any such transmogrification.

Second, mootness interdicts the appeal of the November 1

Order; it became moot when it was superseded by the November 3

Injunction. Thus, since November 3, 1993, DLG and De La Garza have

been free of the restraints imposed on them by the November 1

Order. Moreover, because the preliminary injunction was appealed,

we need not consider the November 1 Order "to protect the rights of

the parties."22 The rights of the parties were guarded adequately

through appeal of the subsequently issued injunctions. 

2. Section 1818(i)(4) Comports with Due Process

DLG and De La Garza contend that the Houston Court's November

1 Order and the subsequent injunctions granted by that court were

improper, as the provision authorizing the court to encumber assets

violated the Due Process Clause of the Fifth Amendment. In

particular, they argue that the version of 12 U.S.C.

§ 1818(i)(4)(A) in effect before December 1993 was unconstitutional

in that it required a court to grant injunctive relief without a

predeprivation hearing. But, as the statute merely permitted the

court to act without a hearing but clearly did not require it to do

so, this argument is specious. Moreover, as explained below, a

predeprivation hearing was not constitutionally required in this
 

2312 U.S.C. § 1818(i)(4)(B)(i) (Supp. III 1991) (amended

1993).

 

24Hecht Co. v. Bowles, 321 U.S. 321, 329 (1944); Director,

OTS v. Lopez, 960 F.2d 958, 961 n.8 (1992). 

 

25Lopez, 960 F.2d at 961 n.8 (finding that § 1818(i)(4)(B)

did not strip district court of discretion to order prejudgment

attachment of assets upon a prima facie showing). 

14

case.

a. Section 1818 Permitted, But Did Not Require,

Injunctive Relief Without A Predeprivation Hearing

Section 1818(i)(4)(A) provides that a district court may, "in

the aid of . . . any administrative . . . action for . . . civil

money penalties . . . issue a restraining order that))(i) prohibits

any person subject to the proceeding from withdrawing,

transferring, removing, dissipating, or disposing of any funds,

assets or other property." Prior to December 1993, the section

also stated that such "[a] permanent or temporary injunction or

restraining order shall be granted . . . [only] upon a prima facie

showing that . . . civil money penalties . . . [are] appropriate."23

Although in general statutory schemes use "may" to identify

permissive acts and "shall" to identify mandatory acts, in

circumstances such as this where "shall" is used with reference to

a court's authority to render an equitable decision, the use of

"shall" does not eliminate all discretion absent "an unequivocal

statement of [congressional] purpose" to do so.24 As

§ 1818(i)(4)(B) lacks such a clear legislative command,25 "shall"

as used in this paragraph thus permitted))but did not require))an

injunction to be issued without a hearing. Moreover, based on the
 

26U.S. CONST. amend. V.

 

27See, e.g., United States v. James Daniel Good Real

Property, 114 S. Ct. 492, 498 (1993).

 

28Id. at 501 (quotations omitted).

 

29486 U.S. 230 (1988).

15

facts of this case, a predeprivation hearing was not required.

b. A Predeprivation Hearing Was

 Not Constitutionally Required 

It is undisputed that § 1818(i)(4) allowed a court to freeze

assets, thereby depriving a property interest and triggering the

Due Process Clause of the Fifth Amendment.26 The parties differ,

though, on what process was due.

In general, individuals must receive notice and an opportunity

to be heard before the government deprives them of a property

interest.27 But there are exceptions to the general rule, and the

Board maintains that this case provides an example of an

"extraordinary situation[] where some valid governmental interest

is at stake that justifies postponing the hearing until after the

[deprivation]."28 In light of Supreme Court authority identifying

when such situations exist, we agree.

i. Mallen factors

In FDIC v. Mallen,

29 the Supreme Court identified three factors

that typically are present in cases in which a postdeprivation

hearing is sufficient to satisfy due process: (1) the action is

necessary to further an important governmental interest; (2) there

is a need for prompt action; and (3) there is a substantial
 

30Id. at 240; see Fuentes v. Shevin, 407 U.S. 67, 91 (1972);

see also North Am. Cold Storage Co. v. Chicago, 211 U.S. 306

(1908) (permitting officials to order destruction of putrid

poultry before giving notice and an opportunity to be heard

because of public health exigency).

 

31946 F.2d 1435, 1440 (9th Cir. 1991), cert. denied, 112 S.

Ct. 1584 (1992).

 

32Mallen, 486 U.S. at 241. In Mallen, Justice Stevens noted

that such an interest "is certainly as significant as the State's

16

assurance that the deprivation is not baseless or unwarranted.30

Here, all three factors were present.

First, the government has an important interest in maintaining

public confidence in the integrity of financial institutions. In

fact, in Spiegel v. Ryan,

31 the Ninth Circuit held that such an

interest was sufficiently important to justify ordering a bank

official to pay restitution pending an administrative hearing to

determine whether a permanent cease and desist order should issue.

Moreover, in Mallen itself, the Court found the government's

interest in maintaining public confidence in banking institutions

to be of sufficient importance to forego a predeprivation hearing.

In that case, the Court upheld the constitutionality of § 1818(g)

of the FDIA, which permits the FDIC to suspend from office, without

a predeprivation hearing, an indicted bank official if his or her

continued service is deemed by the FDIC to pose a threat to the

interests of the bank's depositors or to public confidence in the

bank. The Court allowed such deprivation to stand despite the

absence of a prior hearing, given the importance of taking prompt

action to protect depositors and "to maintain public confidence in

our banking institutions."32 We conclude that the Board's interest
interest in preserving the integrity of the sport of horse

racing, an interest that we deemed sufficiently important in

Barry v. Barchi, [443 U.S. 55, 64-65 (1979),] to justify a brief

period of suspension prior to affording the suspended trainer a

hearing." Id.

 

33Freezing the assets of DLG and De La Garza directly

furthers the government's interest in collecting fines that it

may, in the future, be entitled to collect and indirectly

furthers the government's interest in maintaining the integrity

of financial institutions.

17

in freezing the assets of DLG and De La Garza was at least as

strong as it was in Spiegel and Mallen.

33

Second, prompt action was necessary. In general, prompt ex

parte action is necessary to prevent persons identified in Board

administrative actions from dissipating or concealing assets. In

the instant case, De La GarzaSQwho had been indicted by a grand

jury in Texas for misapplying the assets of an insurance

companySQdirected the proceeds from the sale of the promissory

notes to the account of a recently formed corporation that had no

known prior involvement with the note transaction and of which De

La Garza's wife was the president. Those facts provide substantial

evidence supporting the need for prompt action. 

Third, the deprivation was neither baseless nor unwarranted.

Section 1818(i)(4) was drawn to further its stated interest. To

obtain an injunction, the Board was required to make a prima facie

showing that civil money penalties were appropriate. The Board

here made out such a case, submitting to the court the verified

statement of Stephen Meyer, who satisfactorily explained the

Board's finding that civil money penalties were justified. The

Houston Court evaluated this declaration and found that the Board
 

34114 S. Ct. 492 (1993).

 

35424 U.S. 319 (1976).

 

36See James Daniel Good Real Property, 114 S. Ct. at 501;

see also Connecticut v. Doehr, 501 U.S. 1 (1991) (relying upon

the Mathews balancing test to determine the constitutionality of

a Connecticut statute that authorized the prejudgment attachment

of real estate without prior notice or hearing).

18

had established that civil penalties were warranted. Moreover,

both the November 3 and December 23 Injunctions were narrowly

tailored to encumber assets having no more aggregate value than was

necessary to satisfy the civil penalties in the event of

nonpayment. In sum, the three factors that the Mallen Court

identified as being required for a postdeprivation hearing to be

sufficient to satisfy due process were present here.

ii. Mathews Balancing

More recent Supreme Court cases support the conclusion that a

predeprivation hearing was not required here. In United States v.

James Daniel Good Real Property,

34 the Court employed the Mathews

v. Eldridge35 balancing test to determine whether the seizure of

real property without notice and without a hearing comported with

due process.36 The factors weighed in the familiar Mathews

balancing test are "the private interest affected by the official

action; the risk of an erroneous deprivation of that interest

through the procedures used, as well as the probable value of

additional safeguards; and the government's interest, including the

administrative burden that additional procedural requirements would
 

37James Daniel Good Real Property, 114 S. Ct. at 501 (citing

Mathews, 424 U.S. at 335).

 

38See Doehr, 501 U.S. at 11 (stating that "the property

interests that attachment affects are significant").

 

39See id. at 12 (finding the risk of an erroneous

deprivation to be "substantial" where prejudgment attachment

could be achieved by showing that there was probable cause to

sustain the validity of the plaintiff's claim).

 

40Id. at 16.

19

impose."37 Applying the Mathews test to the instant case

demonstrates that due process did not require a predeprivation

hearing. 

On one side of the scale, the freeze of Appellants' assets

unquestionably affected an important property interest.38 Also, the

risk of an erroneous deprivation was substantial. The danger of an

erroneous deprivation in this case))in which the availability of

prejudgment attachment is conditioned on the establishment of a

prima facie case))differed little from the risk of an erroneous

deprivation present in Doehr.

39 

On the other side of the scale, the government's interest and

the presence of exigent circumstances weigh heavily against the

need of a predeprivation hearing. In Doehr, the Court noted that

"there was no allegation that Doehr was about to transfer or

encumber his real estate or take any other action during the

pendency of the action that would render his real estate

unavailable to satisfy a judgment."40 Significantly, though, the

Court explained that "a properly supported claim [that a person was

about to transfer or encumber his assets] would be an exigent
 

41Id. (citing Fuentes v. Shevin, 407 U.S. 67, 90-92) (1972);

Sniadach v. Family Fin. Corp., 395 U.S. 337, 339 (1969)).

 

42See FDIC v. Mallen, 486 U.S. 230, 241 (1988).

20

circumstance permitting postponing any notice or hearing until

after the attachment is effected."41 In this case, the Board

adequately supported its claim that De La Garza was disposed to

dissipating his assets by showing that (1) he had been indicted for

misapplying assets of an insurance company, and (2) he had ordered

that the proceeds from the sale of the promissory notes be

delivered to a company controlled by his wife that had no previous

involvement in the note transaction. Thus, under the Mathews

balancing test, a postdeprivation hearing was sufficient to satisfy

due process in this case.

c. A Postdeprivation Hearing Was Held Promptly

Even when a predeprivation hearing is not required, a

"sufficiently prompt" postdeprivation hearing still must be held.42

Here, the Houston Court met this requirement. Within two days

after the issuance of its restraining order, the court conducted a

postdeprivation hearing in which the broad assets freeze was lifted

and replaced with a narrowly tailored freeze of barely sufficient

collateral real estate. 

During this November 3 postdeprivation hearing, DLG and De La

Garza were given an opportunity to present evidence to an Article

III judge. After receiving such evidence, the district court

orally imposed a preliminary injunction, encumbering only so much

of the real property of DLG and De La Garza as was necessary to
 

43A company becomes a bank holding company if, inter alia,

it has the power to vote 25% or more of any class of voting

security of a bank. 12 U.S.C. § 1841(a)(2)(A).

21

cover the amount of the civil fines that the Board was seeking to

collect. The scope of this injunction was further refined when it

was issued in writing on December 23, 1993. In our view, the

district court's prompt action and narrow tailoring of its

orders))which were based on a thorough consideration of the

evidence presented))eviscerate the arguments asserted by DLG and

De La Garza in support of their due process claim. 

3. The Board's Prima Facie Case

Finally, DLG and De La Garza insist that the Board did not

present sufficient evidence to establish a prima facie case, as

required to justify the November 1 Order and the subsequent

preliminary injunctions. We find, however, that the facts are

otherwise.

DLG and De La Garza first argue that DLG was not a bank

holding company because DLG neither owned nor had the ability to

control or vote the stock of the International Bank, N.A. This

assertion, however, is refuted by the express terms of the security

agreement containing the pledge of the bank stock as collateral for

the promissory notes. The agreement provided that, if the notes

came into default, the secured noteholder could exercise all voting

rights of the pledged stock. As DLG obtained the notes when they

were already in a condition of default, DLG immediately acquired

the power to vote all of the stock in the International Bank, N.A.,

ipso facto becoming a bank holding company pursuant to the BHCA.43
 

44BANK HOLDING COMPANY ACT AMENDMENTS OF 1970, H.R. CONF. REP. NO.

1747, 91st Cong., 2d Sess. 23 (1970), reprinted in 1970

U.S.C.C.A.N. 5561, 5574. 

 

45Id. § 1841(a)(5)(D) (emphasis added); 12 C.F.R. §

225.12(b).

22

Nevertheless, DLG and De La Garza contend that, even if DLG

were a bank holding company, it was not required to obtain Board

approval prior to the acquisition because DLG previously contracted

for control of the bank in good faith, an exception to the notice

requirement. This argument also lacks merit.

At the outset, we note the explicit admonishment from Congress

that "[t]he Board should interpret . . . exemptions [from the BHCA]

as narrowly as possible in order that all bank holding companies

which should be covered under the Act in order to protect the

public interest will, in fact, be covered."44 Section 1841(a)(5)(D)

exempts prior Board approval if a company becomes a bank holding

company "by virtue of [its] ownership or control of shares acquired

in securing or collecting a debt previously contracted in good

faith."45 But here, when DLG and De La Garza purchased the

promissory notes they were already in default. So DLG and De La

Garza obtained immediate power to vote the shares of a bank; thus

the debt they acquired was not one that they had "previously

contracted in good faith." 

Our reading of § 1841(a)(5)(D) is consistent with

interpretations by the FDIC and the Office of the Comptroller of

the Currency ("OCC") of an analogous provision. Section 1817(j) of
 

46Pub. L. No. 95-630, 92 Stat. 3683 (codified as amended in

scattered sections of 12 U.S.C.).

 

47Id. § 1817(j). As with the BHCA, "control" of an insured

depository institution means, inter alia the power, directly or

indirectly, to vote 25% or more of any class of voting

securities.

 

48See 12 C.F.R. § 5.50(f)(3).

 

49See FDIC Interp. Ltr. Rul. 84-13 (Aug. 3, 1984); OCC

Inter. Ltr. No. 451, Fed. Banking L. Rep. (CCH) ¶ 85,675 (Aug. 8,

1988).

 

50FDIC Interp. Ltr. Rul. 84-13, at 2.

 

51OCC Inter. Ltr. No. 451.

23

the Change in Bank Control Act of 1978 ("CBCA"),46 provides that no

person may acquire control of any insured bank unless the

appropriate federal banking agency has been given prior written

notice of the proposed transaction.47 Prior notice is not required,

however, if the shares are acquired "in satisfaction of a debt

previously contracted in good faith."48 

Both the FDIC and the OCC have expressly stated that this

exemption to the notice requirement is not applicable where a loan

collateralized by a controlling interest of the stock of an insured

bank is purchased and the loan already is in default.49 In such an

instance, the FDIC recognized that "the acquisition of the loan and

the acquisition of the shares is virtually inseparable due to the

default status of the loan at the time of its purchase."50 Thus,

"[i]n order for the `good faith' element of the [debt previously

contracted in good faith] exemption to be satisfied, a lender must

either make or acquire a loan secured by bank stock in advance of

any known default."51 As we find neither arbitrary nor capricious
 

52Nevertheless, we are troubled by the actions taken by

closely related government entities that resulted in these

lawsuits. Here, the FDIC sold the controlling vote in a bank (by

virtue of selling an already delinquent promissory note that was

secured by a pledge of bank stock already susceptible of being

voted by the pledgee), immediately after which the FRBD

interceded, alleging that the purchaser was a "bad guy" for

violating the BHCA requirement for prior approval

and))coincidentally, or perhaps not so coincidentally))claiming a

fine exactly equal to the profit made by the purchaser when he

divested himself of the note (and bank control), as demanded by

the FRBD. This kind of "Mutt and Jeff" activity by apparently

over-zealous regulators hardly makes one proud of his government,

even if such activity is technically lawful. 

24

this consistent interpretation, and we see no meaningful

distinction between the good faith exemptions of the CBCA and the

BHCA, we conclude that the good faith exemption was inapplicable

here, making prior Board approval a requirement. And, as DLG and

De La Garza failed to obtain the requisite approval, the Board did

establish a prima facie case that the parties were liable for civil

money penalties under the BHCA.52

III 

CONCLUSION

For the foregoing reasons, we conclude that the Dallas Court

properly dismissed claims by DLG and De La Garza for declaratory

and injunctive relief and monetary damages. We therefore affirm

the judgment of that district court.

We also conclude that the November 1 Order issued by the

Houston Court was not appealable. We therefore dismiss the appeal

of that Order.

And finally we conclude that the then-current version of

§ 1811(i)(4) of the BHCA did not violate due process, and that the
25

Houston Court was correct in holding that the Board established a

prima facie case that civil money penalties against De La Garza and

DLG were appropriate. Accordingly, all rulings in that case are,

in all respects, affirmed. 

94-10078 is AFFIRMED; 93-2944 is DISMISSED; 94-20013 is AFFIRMED.