Opinion ID: 765593
Heading Depth: 2
Heading Rank: 2

Heading: The Wall Litigation

Text: 12 When American Continental filed for bankruptcy, the Federal Home Loan Bank Board (the Board), pursuant to its statutory powers under 12 U.S.C. S 1464(d)(6)(A), appointed a conservator to operate Lincoln. Wall, 743 F.Supp. at 902903. The Board decided to appoint a conservator after it concluded in an ex parte proceeding that Lincoln was `in an unsafe and unsound condition to transact business,' and that there had been a `substantial dissipation of assets or earnings due to . . . violations of law, rules, or regulations, or to any unsafe or unsound . . . practices.'  Id. at 903 (quoting 12 U.S.C. S 1464(d)(6)(A)) (footnote omitted). The Board later replaced the conservator with a receiver. Id. 13 American Continental and Lincoln then challenged the Board's determinations. Id. The district court conducted a 29 day evidentiary hearing, in which oral testimony and docu- mentary evidence were received by the district court. Id. at 904 n.3. The district court reviewed the central issue of whether statutory grounds existed for the appointment of a conservator or receiver at the time the Bank Board acted under an arbitrary and capricious standard of review. Id. at 905. The district court issued a thorough opinion detailing the financial dealings of American Continental and Lincoln, see id. at 905-21, and concluded that the Board's decision was not arbitrary and capricious. Id. at 905. In a footnote the district court noted that [a]s the discussion below demonstrates, application of the de novo standard . . . would not lead this Court to vary its ultimate conclusions. Id. at 905 n.7. 14 Preclusive force attaches to determinations that were necessary to support the court's judgment in the first action. Segal v. American Tel. & Tel. Co., Inc., 606 F.2d 842, 845 n.2 (9th Cir. 1979). Litigants conversely are not precluded from relitigating an issue if its determination was merely incidental to the judgment in the prior action. Charles Alan Wright, Arthur R. Miller, Edward H. Cooper, Federal Practice and Procedure S 4421 (1981). The only determination necessary in Wall, as the district court stated, was whether the Board's decision was arbitrary and capricious. 15 Despite the limited nature of the inquiry in Wall, the RTC maintains that preclusive force attaches to the Wall factual findings as the court conducted a searching and careful inquiry and stated that it would have sustained the Board's action even under the de novo standard of review. However, Wall establishes only that the Board's decision was not arbitrary and capricious. The statement in footnote 7 was only an observation, which was not necessary to support the judgment, and cannot support the application of issue preclusion. See Segal, 606 F.2d at 845 n.2 (preclusive force attaches only to determinations that are necessary to support court's judgment in prior litigation).