Opinion ID: 409289
Heading Depth: 2
Heading Rank: 2

Heading: Actual Closure

Text: 18 The district court also held that the closure requirement of section 1729(c) (2)(A)(ii) was met only when an association actually closed its doors to the public. A CIA-like operation where the FHLBB orchestrates a neat five-minute 'closure'  was not sufficient. Excerpt of Record C.T. 101 at 13. Fidelity urges us to adopt the district court's approach, arguing that a closing under section 1729(c)(2)(A)(ii) requires a significant disruption in the services of a state savings and loan association. The Bank Board and the FSLIC, on the other hand, assert that whenever the FSLIC is appointed as state receiver for the purpose of liquidation the closing requirement is satisfied. Neither the statute nor the legislative history offer definitive guidance. For the reasons that follow, we hold that when the Commissioner both appoints the FSLIC as state receiver and issues an order liquidating the state institution, the closing requirement of section 1729(c)(2)(A) is satisfied. 19 The enactment of section 1729(c)(2) by Congress was in response to the refusal of Illinois banking officials to cooperate with federal authorities after the collapse of the Marshall Savings and Loan Association in 1965. There state officials dealt with the association's financial difficulties by taking custody of the association and suspending all withdrawals for over three months. State custody was aimed at conserving shareholder assets rather than for the purpose of liquidation. FSLIC insurance payments could not be made until a receiver had been appointed for the purpose of liquidation, thus placing the association in default. 12 U.S.C. §§ 1724(d), 1728(b). Therefore, the FSLIC was powerless to provide insurance payments to depositors during the three-month period preceding the state's appointment of a receiver for liquidation, even though the depositors had been denied access to their savings. This inability to promptly reimburse depositors jeopardized public confidence in the savings and loan industry. S. Rep. No. 1263, 90th Cong., 2d Sess. 7, 8, 11, reprinted in 1968 U.S. Code Cong. & Ad. News 2530, 2536, 2537, 2540 (hereinafter S. Rep.). 20 Because the State of Illinois did not appoint the FSLIC receiver for liquidation, the FSLIC was unable to manage the association's assets in such a way as to recoup the federal insurance fund payout. The state-appointed receiver denied the FSLIC access to the association's financial records, allowed the association's assets to deteriorate, and failed to reimburse the FSLIC for any portion of the insurance payments made to its depositors. The FSLIC ultimately lost $83 million in insurance payments and $12 million more in foregone interest. S. Rep. at 2536-37. 21 Section 1729(c)(2) was designed, generally speaking, to deal with this type of situation, in which at the time the state official has custody of the assets a state of hostility exists between the official and the FSLIC. More specifically, it was designed to heighten public confidence in the savings and loan industry by ensuring prompt insurance payouts to savers and to safeguard the financial integrity of the FSLIC by providing it with a means to federalize a hostile state receivership. 14 Under section 1729(c)(2) federalization is possible even when the state receivership is not for the purpose of liquidation. S. Rep. at 2539-40. At the same time, Congress recognized a legitimate and competing state interest in regulating state-chartered associations. A balance was struck by dividing the responsibility for regulation of state savings and loan associations between the states and the federal government. See S. Rep. at 2538. The requirements of a closure under state law and a determination of depositor inability to withdraw funds were meant to safeguard the state receivership from premature federal intervention. 22 Although the primary purpose of section 1729(c)(2) is reasonably clear, its language plainly applies beyond the narrow Marshall Savings and Loan context. The Marshall episode represented a hostile situation. The present case presents a different situation. The State Commissioner has acted to further Bank Board and FSLIC objectives by appointing the FSLIC state receiver. Thus, the relationship between the State of California and the FSLIC may appropriately be described as nonhostile. The withdrawal by the Commissioner of her appointment of the FSLIC on July 27, 1982 does not alter this characterization. 15 23 In the nonhostile situation the state's interest is served by advancing the federal interest. No fundamental difference in objectives exists between the two. State officials have invited federal intervention by choosing to appoint the FSLIC state receiver and ordering the association's liquidation. No need to protect the state from unwanted federal meddling exists. Compliance with the preconditions of closure and withdrawal inability inescapably becomes substantially a ceremonial formality. 24 The district court would require an actual physical closure of the doors of the association for at least more than five minutes. Perhaps closure for one-half day would suffice. To require a closure of that duration under the circumstances of this case is to insist upon an empty ceremony. The formalities that attended the issuance by the Commissioner of her liquidation order and the appointment of the FSLIC as state receiver amply validated the utility of federal intervention. To require additional validation consisting of a ceremonial closure and denial of withdrawal by at least one depositor whose appearance is prearranged by the Commissioner and the Board is to require enactment of a farce. To the extent closure and denial of withdrawal are required not to be by prearrangement, the rule imposes upon the relevant financial community an unnecessary risk of depositor panic. 25 Section 1729(c)(2) should not be interpreted to require either the incurring of this risk or the performance of empty ceremonies. Therefore, we hold that the issuance of a liquidation order and the appointment of the FSLIC as state receiver of Fidelity by the Commissioner achieved a closure within the meaning of section 1729(c)(2)(A). The State of California, appearing as amicus curiae, acknowledges that had the Commissioner's liquidation order specifically included a provision closing Fidelity, any basis for insisting that the closure requirement was not met would be removed. However, inasmuch as the language of the Commissioner's order tracked the language of the California statute which, as already demonstrated, empowers closure, its omission from the order is not significant. 26 We recognize that we are interpreting section 1729(c)(2) teleologically, not literally. That is, our interpretation is guided by a desire to fit the section to nonhostile situations in which the Bank Board and the state authority concur in the need to accomplish quickly and smoothly the imposition of a federal receivership of a state savings and loan association. To frustrate this joint desire by insistence upon ceremonies that are meaningless, at best, and financially dangerous, at worst, strikes us as unwise. 27 We reach this conclusion although insistence upon these ceremonies would serve to enhance the analytic meshing of subsection 1729(c)(1) and (c)(2). Under our interpretation, appointment of the FSLIC as receiver by the appropriate state authority upon default of a state savings and loan association can be converted from a receivership under state law to one under federal law quite easily. The section 1729(c)(1) requirement of default can be counted upon to supply the section 1729(c)(2) elements of closure and inability to withdraw in most instances. It can be argued that only by insistence upon ceremonial closure and denial of withdrawal, at the very least, can the intent of Congress expressed in enacting section 1729(c)(2) be harmonized with, and made sufficiently independent of, section 1729(c)(1). An even broader argument would be that section 1729(c)(2) is only available in the hostile situation such as existed with respect to the Marshall Savings and Loan Association. We reject these arguments. To us promulgation of a liquidation order by proper state authority under state law that authorizes immediate closure joined with appointment of the FSLIC as state receiver permits federalization of the receivership by the Board, if it should choose to do so, provided the preconditions of section 1729(c)(2)(B) also exist. The language of the statute permits our interpretation and it does no disservice to the interests of depositors for whose protection the FSLIC exists. 28 Our interpretation also does no harm to the states. The appropriate state authority need not promulgate the liquidation order nor appoint the FSLIC as receiver. The fact that the Board may urge strongly that the state authority issue these orders alters nothing. It is within the state's power to refuse and to force into existence the literal fulfillment of the closure and inability to withdraw preconditions to federal intervention. That this might be a very imprudent thing for the state to do merely strengthens the case for the interpretation we give the statute. 29 Nor does our interpretation impose upon the shareholders of a state savings and loan association a deprivation of due process. The precondition set forth in section 1729(c)(2)(B), which requires that proper grounds for the intervention exist, assures stockholders that federal intervention was proper. Under the circumstances of the case and in light of the importance to society of preserving faith in our financial institutions, we hold, in a manner similar to our analysis of California law, that a post-intervention hearing with respect to the propriety of the grounds for federal intervention amply satisfies the shareholders' right to procedural due process. Fahey v. Mallonee, 332 U.S. 245, 253-54, 67 S.Ct. 1552, 1554-56, 91 L.Ed. 2030 (1947) (appointment of conservator for savings and loan by Bank Board under Home Owners' Loan Act); Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 299-300, 101 S.Ct. 2352, 2372, 69 L.Ed.2d 1 (1981) (citing Fahey ); Parratt v. Taylor, 451 U.S. 527, 538-39, 101 S.Ct. 1908, 1914-15, 68 L.Ed.2d 420 (1981) (same).