Opinion ID: 354160
Heading Depth: 1
Heading Rank: 3

Heading: appeal of first empire bank and societe generale

Text: 50 Appellants contend that the purchase and assumption agreement amounted to a preference of the creditors whose obligations were assumed, contrary to the provisions of the National Banking Act (NBA), 12 U.S.C. § 91, which provides in part: (A)ll payments of money    made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in a manner prescribed by this chapter, or with a view to the preference of one creditor to another    shall be utterly null and void   . 51 Appellants further contend that the purchase and assumption agreement amounted to a distribution to those whose claims were assumed by Crocker, and that such distribution was not ratable as required by the NBA, 12 U.S.C. § 194, which reads in part as follows: 52 From time to time, after full provision has been first made for refunding to the United States any deficiency in redeeming the notes of such association, the comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction   . (emphasis supplied). 53 Appellants contend that under the FDIA, §§ 91 and 194 of the NBA apply to the FDIC as Receiver. Section 1821(d) of the FDIA provides in part:Notwithstanding any other provision of law, it shall be the duty of the Corporation as such receiver    to wind up the affairs of such closed bank in conformity with the provisions of law relating to the liquidation of closed national banks, except as herein otherwise provided. (emphasis supplied). 54 The Receiver contends that § 91 does not apply to banks in receivership, but only to preclosure transactions. It contends that § 194 does not apply to it 3 and that § 1821(d) excuses it from the provisions of § 194 when it is engaged in assisting in the takeover of a closed bank. It points out that the language of § 1821(d) (on which appellants rely as applying the NBA to the Receiver) contains an exception: except as herein otherwise provided. As provision to the contrary, the Receiver relies on § 1823(e), which explicitly authorizes the Corporation to make loans implementing purchase and assumption agreements and which provides in part: 55 Whenever in the judgment of the Board of Directors such action will reduce the risk or avert a threatened loss to the Corporation and    will facilitate the sale of the assets of an open or closed insured bank to and assumption of its liabilities by another insured bank, the Corporation may, upon such terms and conditions as it may determine, make loans secured in whole or in part by assets of an open or closed insured bank, which loans may be in subordination to the rights of depositors and other creditors    Any insured national bank or District bank, or the Corporation as receiver thereof, is authorized to contract for such sales or loans and to pledge any assets of the bank to secure such loans. (emphasis supplied). 56 The FDIC contends that under this language, when engaged as the Corporation or as Receiver, in accomplishing a takeover by a purchase and assumption agreement, it is authorized to act upon such terms and conditions as it may determine without any restriction such as is imposed by § 91 or 194. It concedes that it must act reasonably. It contends that in rejecting the claims of banks that were so unwise as to extend credit to members of the Designated Group on standby letters of credit issued by USNB, and in refusing to subject its deposit insurance fund to payment of sums owed by members of that group, it was acting reasonably. 57 The district court agreed that the FDIC had acted reasonably and held that the purchase and assumption agreement did not violate § 91 and § 194 of the NBA. No relevant authority has been cited to us and we have found none. Since passage of the FDIA very few national banks have failed, due, without doubt, to the efficient operations of the Comptroller and the FDIC. Court-made law is, accordingly, sparse. However, we are unable to accept the contentions of the FDIC. 58 In our judgment § 1823(e) cannot be read to excuse the FDIC as the Receiver from complying with the provisions of the NBA. The clause emphasized, upon which the Receiver relies, refers to the FDIC in its corporate capacity. The terms and conditions it has reference to are those conditions of loans and sales that would, in the judgment of the board of directors, qualify the agreement as action that would reduce the risk (of loss) or avert a threatened loss to the Corporation. The FDIC points to the final sentence of the first paragraph of § 1823(e), set forth above, as indicating that the subsection has the Receiver in mind throughout and that the emphasized clause thus should apply to acts of the Receiver. We do not so read it. That sentence serves to enable closed or failing banks to contract with the Corporation and includes in its enablement the FDIC as Receiver of such banks. Thus the Receiver is taken note of only in so far as to recognize that it can contract with the Corporation. It is not, however, excused from behaving like a receiver when it does so act. 59 The FDIA did not create the concept of a purchase and assumption agreement. Before the FDIC was created, receivers of insolvent banks had entered into purchase and assumption agreements under the provisions of the NBA authorizing receivers to deal with receivership assets: 12 U.S.C. §§ 192,194. See, Gockstetter v. Williams, 9 F.2d 354, 355-56 (9th Cir. 1925); Ex parte Moore, 6 F.2d 905, 906-07 (E.D.S.C.1925); Hulse v. Argetsinger, 18 F.2d 944 (2d Cir. 1927). Congress in enacting the FDIA thus noted a pre-existing practice. We find nothing to suggest that in doing so Congress intended the FDIC to be free from the requirements of § 91 and § 194 by which prior receivers had been bound in the formulating and execution of agreements. 60 To accede to the FDIC's contentions would seriously undermine the policy firmly set forth in § 91 that some creditors are not to be preferred over others, and of § 194 that when distributions are made they shall be ratably made. Under its interpretation of the statutes, the FDIC could (subject only to its concession that it must act reasonably, but without any apparent applicable standard), pick and choose which creditors should be preferred, or permit the acquiring bank to pick and choose. 61 In this case the extraordinary extent of the lack of equal treatment is emphasized by the fact that the unassumed creditors, left with only a claim against the undesirable assets of USNB remaining in the receivership, do not even have that questionable source of recovery unimpaired. They are subordinated to the lien of the Corporation to secure its loan of money to the Receiver, all of which went to Crocker to make possible the advantage to the assumed creditors. This lien would without doubt consume in full the remaining assets, leaving the unassumed creditors without any recovery whatsoever. Thus, even as to the remaining assets the assumed creditors would seem, indirectly, to have got there first and to have cut the remaining creditors out. 62 In our judgment it could not have been the congressional intent, upon balance, to have the fiscal integrity of the deposit insurance fund (which can be adequately protected by other more equitable means) outweigh the policy of equitable and ratable payment of creditors in this manner and to permit the FDIC, whenever it felt its action to be reasonable and to serve to protect the deposit insurance fund against loss, to prefer some creditors over others paying some in full while others received little or nothing. 63 This is not to say that every purchase and assumption agreement must include every creditor in order to be valid. If the purchase leaves sufficient assets in the receivership to allow distribution to unassumed creditors equal to that undertaken by the acquiring bank as to the creditors it has accepted, distribution still could be ratable. See White v. Knox, 111 U.S. 784, 785, 4 S.Ct. 686, 28 L.Ed. 603 (1884). The FDIC may prefer to take this chance. It must, however, stand ready to render the distribution ratable to supplement the remaining assets should they fall short and to surrender its lien when necessary. 64 We conclude that the responsibility lies on the FDIC under § 194 to compensate appellants for its failure as Receiver to make distributions ratably. Had it insisted that these appellants be included in the purchase and assumption agreement as creditors with claims assumed by Crocker, as it should have done, it would then have had to satisfy Crocker by adding to the amount borrowed from the Corporation and paid to Crocker the full amount of the claims. That sum appellants are now entitled to receive from the FDIC.B. Interest 65 The question here is whether appellants should recover interest upon their claims. The FDIC contends that to allow recovery of interest would be to permit increase of the claims over their amounts at the time of receivership. It relies on White v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603 (1884). In that case a creditor recovered a judgment against a national bank after the bank was declared insolvent. The judgment included the amount of his claim with interest added to the date of judgment. The claimant sought a ratable distribution on the full amount of the judgment including interest, but the Comptroller refused to recognize interest added between the insolvency and the judgment and paid a ratable dividend only on the amount of the claim as of the date of insolvency. 111 U.S. at 785, 4 S.Ct. 686. The Supreme Court agreed with the Comptroller, holding that the claimant was only entitled to a ratable distribution based on the value of the claim on the date of insolvency, because the dividends to the other creditors had been calculated in that way, and all he was entitled to was a share in the proceeds of the assets equal to what had been distributed to others during the pendency of his litigation. 111 U.S. at 786, 4 S.Ct. at 686. 66 The purpose of the rule disallowing interest accruing after insolvency is to lend support to the concept of ratable distribution: that ratable distribution should be made to the creditors on the basis of what was due to them at the time of the insolvency. However, a difference must be recognized between the case where interest accruing after insolvency is added to become a part of the claim itself and the case where interest is awarded in addition to the amount of the claim for failure of the receiver to pay the claim when it became due or to include the claim in a distribution in which it was entitled ratably to share. 67 Noting this distinction, the Court in Armstrong v. American Exchange Nat'l Bank, 133 U.S. 433, 470, 10 S.Ct. 450, 33 L.Ed. 747 (1890), allowed interest on a claim from the date on which the distribution to the claimant should have been made. Similarly, in Ticonic Nat'l Bank v. Sprague, 303 U.S. 406, 58 S.Ct. 612, 82 L.Ed. 926 (1938), the Court held that: 68 It is true that in the liquidation of national banks, dividends from the general funds on unsecured claims are made pro rata upon the amount of each claim as of the date of the insolvency    It is in order to assure equality among creditors as of the date of insolvency that interest accruing thereafter is not considered. But interest is proper where the ideal of equality is served, and so a creditor whose claim has been erroneously disallowed is entitled on its allowance to interest on his dividends from the time a ratable amount was paid other creditors. 69 303 U.S. at 411, 58 S.Ct. at 614 (emphasis supplied). 70 To be accorded the required equal treatment among creditors, appellants were entitled to a ratable dividend of 100 percent of the value of each letter of credit on the date each letter matured. Because such a ratable distribution was not made, appellants are entitled to recover the interest accruing on each letter from the date of its maturity, the dates on which the distribution would have been made had all the claims been ratably treated. Ticonic Nat'l Bank v. Sprague, supra, 303 U.S. at 411, 58 S.Ct. 612.