Opinion ID: 746794
Heading Depth: 2
Heading Rank: 2

Heading: Subsections 1821(d)(18) and (19) Authorize Preliminary Relief Without Allegations of Fraudulent Conduct

Text: 24 The district court twice rejected the FDIC's attempts to enforce a TRO and preliminary injunction under the standards for injunctive relief promulgated in 12 U.S.C. §§ 1821(d)(18) and (19). Although the court noted that the FDIC has shown that it was likely to succeed on the merits of the case, it questioned the FDIC's use of subsections (18) and (19) as authorization for issuing the preliminary injunction. 25 The district court eventually concluded that the preliminary injunction provisions of the Taxpayer Recovery Act applied to authorize the FDIC's motion for an asset freeze. We agree with the court's interpretation of the statute. 12 U.S.C. § 1821(d)(18) provides that, at the request of the FDIC, any court of competent jurisdiction may: 26 issue an order in accordance with Rule 65 of the Federal Rules of Civil Procedure, including an order placing the assets of any person designated by the Corporation ... under the control of the court and appointing a trustee to hold such assets. 27 Subsection 1821(d)(19) modifies Rule 65's requirements for injunctive relief when the FDIC is the applicant: 28 Rule 65 ... shall apply with respect to any proceeding under paragraph (18) without regard to the requirement of such rule that the applicant show that the injury, loss, or damage is irreparable and immediate. 29 The Appellants contend that the district court erred in issuing the preliminary injunction freezing their assets because [s]ections 18 and 19 were not intended to give the FDIC the authority to initiate a total pre-judgment freeze on a defendant's assets absent either (1) fraudulent transfers or (2) a nexus between assets allegedly wrongfully obtained and the assets which the FDIC seeks to freeze. 30 Appellants argue that Congress enacted subsections (18) and (19) in conjunction with subsection (17) and intended for them to be used as a package. 12 U.S.C. § 1821(d)(17), entitled Fraudulent transfers, allows the FDIC to 31 avoid a transfer of any interest of an institution-affiliated party ... if such party or person voluntarily or involuntarily made such transfer or incurred such liability with the intent to hinder, delay, or defraud the insured depository institution. 32 The Appellants contend that the FDIC's invocation of subsections (18) and (19) without the use of section (17) or other allegations of fraud is impermissible. They argue that neither case law, statutory interpretation of the TRA, nor the legislative history of the statute supports the use of subsections (18) and (19) absent some showing of fraud. We reject this contention.
33 In granting the injunction, the district court concluded that: 34 a basis for the type of relief sought ... exists within the title ... so [subsections 1821(d)(18) and (19) ] can provide the type of relief sought by the FDIC separate and apart from any allegation of fraud or fraudulent activity or fraudulent conveyances which otherwise may give rise to claims or actions under 1821(d)(17). 35 Although the Ninth Circuit has not addressed the present question, other circuits have examined similar issues involving the use of 1821(d) both with and without allegations of fraud. 36 Here, the district court's decision expressly rejected the analysis in the Appellants' primary case, FDIC v. Floyd, 827 F.Supp. 409 (N.D.Tex.1993). In Floyd, the court required a showing of fraudulent conduct before the FDIC could use 1821(d)(18) and (19) to freeze an individual's assets to collect on a promissory note. Floyd, 827 F.Supp. at 412. In support of this decision, the court pointed to the grouping of subsections (18) and (19) with subsection (17), which allows the FDIC to avoid fraudulent transfers. The common-sense approach is to read the three subsections as a package. Id. at 413; see also FDIC v. Faulkner, 991 F.2d 262, 264-65, 268 (5th Cir.1993) (affirming asset freeze when fraud was alleged under 1821(d)(17)); RTC v. Cruce, 972 F.2d 1195, 1199-1200 (10th Cir.1992) (affirming asset freeze when fraud was evidenced); FDIC v. Cafritz, 762 F.Supp. 1503, 1508 (D.D.C.1991) (affirming asset freeze upon proof of previous fraudulent activity concerning a portion of the assets to be frozen). The court concluded that when an underlying lawsuit does not allege fraudulent activity ... a petition for preliminary injunction must show some potential injury evidenced by a clear nexus between past fraudulent conduct and the property for which restraint is sought under the facts of the underlying suit. Floyd, 827 F.Supp. at 414. 37 We reject Floyd's reasoning and hold that the FDIC can use subsections (18) and (19) in the absence of either subsection (17) or other allegations of fraud. We look to the plain language of the statute for guidance and, if necessary, augment our analysis with the legislative history. See Alarcon v. Keller Indus., Inc., 27 F.3d 386, 389 (9th Cir.1994) ([W]e look first to the plain language of the statute, construing the provisions of the entire law, including its objects and policy to ascertain the intent of Congress. Then, if the language is unclear we look to its legislative history.) (citations omitted). 38 Subsection (17) explicitly authorizes the avoidance of fraudulent transfers involving banking institutions. It is obvious that the thrust of this provision is to recover transactions which defraud the insured depository institution ... or any other appropriate Federal banking agency. 12 U.S.C. § 1821(d)(17). On the other hand, subsection (18) is a more general provision. It allows the FDIC to obtain injunctive relief on the assets of any person designated by the corporation. 12 U.S.C. § 1821(d)(18). Nothing in the statutory language limits the application of subsection (18) to persons involved in fraudulent activity. Consequently, we find the plain language of the statute persuasive. 39 In addition, we note that numerous subsections of 1821(d) are cross-referenced; in fact, subsections (18) and (19) refer to each other. However, subsection (17) is not cross-referenced to either (18) or (19) and as we noted, the text of subsection (18) does not limit its use to fraudulent transfers. Thus, we decline to hold that the proximity of the subsections and their related subject matter mandates that they be used in conjunction. 40 We do not dispute that subsections (17)-(19) are often used as a package; injunctive relief is clearly an effective weapon for avoiding the type of fraudulent transfers contemplated by subsection (17). As this case demonstrates, however, the FDIC must be able to employ injunctive relief to preserve assets in other banking-related situations as well. We might be persuaded by the Appellants' arguments if the FDIC sought an injunction for assets wholly unconnected to banking activity. But where the defendants, like the Garners in the underlying suit, are officers and directors of the failed bank, and the FDIC alleges that they damaged the bank through illegal activities involving bank assets, then the FDIC may use the TRA to freeze assets absent allegations of fraud. 41 Here, the FDIC is acting as receiver for the failed financial institution under the TRA. As part of that receivership, it has sued the Garners for the alleged insider dealing which the FDIC claims inured to the benefit of the Garners. The FDIC is seeking damages against the Garners for the harm they caused the Bank with their illegal dealing; it seeks the injunction under the powers granted to it by subsections (18) and (19) to secure the Garners' assets from dissipation in contemplation of satisfaction of a judgement against the Garners. If the FDIC were to prevail in the underlying suit, it would look to the assets subject to the preliminary injunction to satisfy any money judgment rendered against the Garners. 1 42 Congress enacted subsections 1821(d)(18) and (19) to enhance the ability of the Justice Department and Federal bank regulatory agencies to prevent dissipation of property and assets. 136 Cong. Rec. E3686 (daily ed. November 2, 1990) (remarks of Rep. Schumer). In this case, FDIC attempts to do no more than what was intended by the legislature. We do not believe that Congress intended to limit the FDIC in its use of injunctive relief to counter banking violations. In terms of the costs imposed upon the government and taxpayers by such illegal actions, little difference exists between cases involving fraud and those which incur damages due to banking violations. Handcuffing the FDIC where it chooses to prosecute negligent or imprudent banking practices but does not charge fraud would contradict the manifest aim of the Taxpayer Recovery Act. Thus, we hold that the FDIC can apply the Act's injunctive relief provisions in the absence of allegations of fraud. 43