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| Gross v. Bell Sav. Bank PaSA
Gross v. Bell Sav. Bank PaSA
filed: September 9, 1992; As Amended October 5, 1992.
JAY M. GROSS, AS TRUSTEE FOR BELL SAVINGS HOLDINGS, INC. MONEY PURCHASE PENSION PLAN AND BELL SAVINGS HOLDINGS, INC. PROFIT SHARING PLANv.BELL SAVINGS BANK PA SA, IN RECEIVERSHIP, RESOLUTION TRUST CORPORATION AS RECEIVER; BELL FEDERAL SAVINGS BANK, IN CONSERVATORSHIP, RESOLUTION TRUST CORPORATION AS CONSERVATOR RESOLUTION TRUST CORPORATION AS RECEIVER FOR BELL SAVINGS BANK PASA ("RTC-RECEIVER") AND RESOLUTION TRUST CORPORATION AS CONSERVATOR FOR BELL FEDERAL BANK ("RTC-CONSERVATOR"), APPELLANTS IN NO. 92-1196; RESOLUTION TRUST CORPORATION, AS RECEIVER FOR BELL SAVINGS BANK PASA; AND RESOLUTION TRUST CORPORATION, AS CONSERVATOR FOR BELL FEDERAL SAVINGS BANK, PETITIONERS IN NO. 92-1197 V. THE HONORABLE LOWELL A. REED, JR., UNITED STATES DISTRICT COURT JUDGE IN THE EASTERN DISTRICT OF PENNSYLVANIA; AND JAY GROSS, AS TRUSTEE FOR BELL SAVINGS HOLDINGS, INC. MONEY PURCHASE PENSION PLAN AND BELL SAVINGS HOLDINGS, INC. PROFIT SHARING PLAN
On Appeal From the United States District Court For the Eastern District of Pennsylvania. (D.C. Civil Action No. 92-0286)
In this expedited appeal we are faced with the crucial issue of a federal court's power to enjoin aspects of the Resolution Trust Corporation's (RTC) administration of the savings and loan crisis. Appellees Jay and Nathaniel Gross*fn1 sought an injunction requiring the appellant RTC to release nearly $500,000 of pension and profit-sharing assets in its control. The district court granted the requested relief. Because we find on these facts that an injunction would interfere with the powers granted the RTC under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), Pub. L. No. 101-73, 103 Stat. 183 (1989), we will reverse.
On March 15, 1991, the Director of the Office of Thrift Supervision (OTS) determined, pursuant to § 5(d)(2) of the Home Owners' Loan Act, 12 U.S.C.A. § 1464(d)(2) (Supp. 1992), and § 11(c)(6) of the Federal Deposit Insurance Act, 12 U.S.C.A. § 1821(c)(6) (1989), that Bell Savings had been managed under "unsafe and unsound practices," which were likely to lead to losses that would "deplete all or substantially all of its capital." See 12 U.S.C.A. § 1821(c)(5)(A) & (B) (1989 & Supp. 1992). On that date, OTS took control of Bell Savings, removed the Grosses from office, and appointed the RTC as the bank's conservator. As conservator, the RTC was charged with managing the ongoing affairs of the bank. Within days, Bell Savings' parent company, Bell Holdings, Inc., agreed with the RTC to discontinue the bank's pension and profit sharing plans, for which Nathaniel Gross was trustee. App. P, Grosses' Verified Complaint, P 8. The affected funds, which included the appellees' $500,000, were to be distributed once the decision to terminate the plans was approved by the IRS.
Four days into Bell Savings' conservatorship, the OTS decided that the bank could no longer be maintained as an ongoing concern. OTS placed the bank into receivership, and as receiver the RTC was charged with winding up the institution's affairs. Simultaneously, the OTS appointed RTC as conservator of the newly-chartered Bell Federal Savings Bank (Bell Federal). Bell Savings and Bell Federal entered into a Purchase and Assumption Agreement (the Purchase Agreement) which transferred certain assets and liabilities of the old bank to the new bank. The transferred obligations included, inter alia, demand deposits, App. O, Purch. Agreement § 2.1(a), and vested liabilities under Bell Savings' pension and profit sharing plans, App. O, Purch. Agreement § 2.1(g). Under § 9.3 of the Agreement, however, Bell Savings retained the right to order Bell Federal to withhold certain deposits from distribution that are necessary to offset depositor liabilities to the bank. App. O, Purch. Agreement § 9.3.*fn2
In April 1991, after they were notified of the RTC's intention to terminate Bell Savings' pension and profit-sharing plans, the Grosses attempted to withdraw their deposits in those plans from the bank. See App. Q (letter from Jay Gross to Bell Savings). The Grosses made further withdrawal attempts in September and November 1991, and in early January 1992. See App. P, Verified Complaint PP 11-12, 24. Relying on the withholding provision in § 9.3 of the Purchase Agreement, the RTC refused to distribute the funds, allegedly because the Grosses were under investigation for their role in the bank's failure.*fn3
On January 15, 1992, the Grosses filed a complaint in the Eastern District of Pennsylvania, on behalf of all participants in the pension and profit sharing plans, seeking a temporary restraining order directing "the Resolution Trust Company as receiver and/or conservator of Bell Savings Bank" to release the deposits. On the same day, the Grosses filed a motion for a preliminary injunction seeking the same relief.*fn4 The proceeding was subsequently narrowed to the amounts held in the Grosses' accounts, as the RTC informed the court that it would not object to the withdrawal and transfer of any other plan participant's account balance.*fn5
The Grosses alleged that by withholding the funds the RTC had breached its fiduciary duty under the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C.A. §§ 1001 et seq. (ERISA), and violated the due process clause of the Fifth Amendment. Without immediate relief, the complaint continued, Bell Federal might be placed in receivership and all uninsured deposits with the bank might be lost.*fn6 The RTC argued that it had the right to withhold the Grosses' account balances under both FIRREA and the Purchase Agreement because of the Grosses' liabilities to the bank. In support of its position in opposition to the preliminary injunction, the RTC submitted an affidavit of its investigator detailing the alleged fraud the bank suffered at the Grosses' hands.
We review the district court's issuance of the preliminary injunction for an abuse of discretion. As part of this inquiry, we review de novo issues of law, such as the court's ability to enter such a remedy. See Rosa v. RTC, 938 F.2d 383, 388 (3d Cir.), cert. denied, 116 L. Ed. 2d 608, 112 S. Ct. 582 (1991).
Initially, we must determine whether a federal court has the power to enjoin the RTC's behavior. We conclude that it does not, for the following reasons. Under FIRREA, Congress gave the RTC the "power to take all actions necessary to resolve the problems posed by a financial institution in default." H.R. Rep. No. 101-54(I), 101st Cong., 1st Sess. 415 (1989), reprinted in 1989 U.S. Code Cong. Admin. News 86, 211. To this end, courts are generally not permitted to enjoin any actions the RTC takes in its role as receiver or conservator. FIRREA's § 1821(j) states:
12 U.S.C.A. § 1821(j) (1989).*fn7
The RTC derives its powers directly from FIRREA, see generally 12 U.S.C.A. § 1441a(b)(2) (Supp. 1992) and 12 U.S.C.A. § 1821(d) (1989), and indirectly from the failed institutions over which it has control.*fn8 See 12 U.S.C.A. § 1821(d)(2)(A) (1989) (RTC inherits all "rights, titles, powers and privileges of the insured depository institution"). As a conservator or receiver, the RTC has the ability to
12 U.S.C.A. § 1821(d)(2)(B) (1989). As conservator, the RTC has the power to conduct the day-to-day business of the institution, including taking deposits; and the power to take necessary action to put the bank "in a sound and solvent condition." 12 U.S.C.A. § 1821(d)(2)(D) (1989). See H.R. Rep. No. 101-54(I), 101st Cong., 1st Sess. 330 (1989), reprinted in 1989 U.S. Code Cong. Admin. News 86, 126. Once it becomes apparent that operating the bank is no longer practicable, the bank may be placed in receivership and its affairs concluded. As receiver, therefore, the RTC has additional powers, including the ability to place the bank in liquidation and to take steps to realize on the bank's assets. 12 U.S.C.A. § 1821(d)(2)(E) (1989). In this role, the RTC may withhold insured deposits necessary to cover a depositor's liability to the bank, "pending the determination and payment of such liability." 12 U.S.C.A. § 1822(d) (1989).
The district court found that the RTC acted outside its powers by withholding more than the insured amount, $100,000, authorized under § 1822(d). See 12 U.S.C.A. § 1822(d) ("The Corporation may withhold payment of such portion of the insured deposit of any depositor" to cover payment of a liability owed the bank (emphasis added)). Thus, the court held, because the RTC was acting outside its powers, an injunction could not interfere with those powers in violation of § 1821(j) and such a remedy was therefore appropriate. We disagree with this interpretation of the RTC's powers under § 1821(j).
This court has held that the RTC's powers are broad. Rosa, 938 F.2d at 398. Of course, the RTC's power is not limitless. That is, federal courts have the ability to restrain the RTC where the Corporation is acting clearly outside its statutory powers. See Coit Indep. Joint Venture v. FSLIC, 489 U.S. 561, 572-73, 103 L. Ed. 2d 602, 109 S. Ct. 1361 (1989) (under FIRREA's precursor, FSLIC not given power to adjudicate state law claims; dismissal of federal court action reversed). Further, injunctive relief is appropriate where that remedy is imposed by statute, automatically and by operation of law, without any action by a court. See, e.g., In re Lane, 136 Bankr. 319, 320-21 (D. Mass. 1992) (RTC has no power to foreclose on an asset when a bankruptcy stay is in effect; TRO issued); In re Colonial Realty Co., Civ. Action No. 3:91-200X(JAC), *5 (D. Conn. Dec. 30, 1991) (automatic stay under the Bankruptcy Code overrides FIRREA's anti-injunction provision).
Nonetheless, where the RTC performs functions assigned it under the statute, injunctive relief will be denied even where the RTC acts in violation of other statutory schemes, see Rosa, 938 F.2d at 397 (ERISA violation does not pre-empt legitimate powers under FIRREA); Arkansas State Bank Comm'r v. RTC, 911 F.2d 161, 174 (8th Cir. 1990) (McFadden Act does not impinge on RTC's independent authority to promulgate rules regarding branch banks; injunction order reversed); or exercises judgment under one of its enumerated powers. See 281-300 Joint Venture v. Onion, 938 F.2d 35, 39 (5th Cir. 1991) (power to foreclose is legitimate, regardless of plaintiff's eventual success on merits of underlying claims; injunction denied), cert. denied, 117 L. Ed. 2d 105, 112 S. Ct. 933 (1992). In Rosa, we rejected the plaintiffs' argument that because the RTC was authorized to run the affairs of a troubled institution, it was only authorized to run them in a legal manner. Rosa, 938 F.2d at 397. We find here that the availability of injunctive relief does not hinge on our view of the proper exercise of otherwise-legitimate powers. Rather, as is implicit from the broad language of § 1821(j), Congress has crafted a damages remedy for those who allege harm from the RTC.
Several courts have reached a similar Conclusion, though many decisions interpreting FIRREA remain unpublished. Cf. RTC v. Clarke, Civ. Action No. 90-7758, transcript at 12 (E.D. Pa. April 16, 1992) ("the issue treated as one of power does not depend on the reasonableness or the legitimacy of what it is that RTC proposes to do or not to do"); Costa v. RTC, Civ. Action No. 91-10668-K, *4 (D. Mass. Mar. 14, 1991) (power to sell assets legitimate, even if RTC acted fraudulently; injunctive relief not available); Jenkins-Petre Partnership One v. RTC, Civ. Action No. 91-A-637, *9 (D. Colo. Aug. 13, 1991) (denying injunction where it would impinge on RTC's powers to preserve and conserve institution's assets). See also RTC v. Cedarminn Bldg. Ltd. Partnership, 956 F.2d 1446, 1451 (8th Cir. 1992) (finding "permissible" the RTC's interpretation of its powers under FIRREA).
The fact that the Corporation withheld more than the insured amount of the deposits does not affect our analysis under § 1821(j), though it may well provide the Grosses with valid grounds for a claim for damages, an issue we need not and do not reach. Moreover, the courts are available to supply a remedy if the RTC's allegations of fraud against the Grosses prove to be unfounded. Unlike an injunction request, federal courts do have a role adjudicating the legitimacy of a claim for damages against an insolvent institution, after the injured party exhausts the appropriate administrative proceedings. See Coit, 489 U.S. at 572. Again, however, this does not affect the limitations on injunctive relief contained in § 1821(j).
We find, under § 1821(j), that the district court does not have the ability to enjoin activity by the RTC where the Corporation is colorably acting within its enumerated powers. The order granting the Grosses' requested injunction will be reversed, and we will remand to the district court with instructions that the injunction be dissolved.*fn9