Opinion ID: 701737
Heading Depth: 2
Heading Rank: 1

Heading: Applicability of the Cross-Guarantee Provision

Text: 7 Appellants primarily challenge the judgment below on the ground that the FDIC improperly applied the cross-guarantee provision to Meriden Trust. This provision provides in pertinent part as follows: 8 Any insured depository institution shall be liable for any loss incurred by the [FDIC], or any loss which the [FDIC] reasonably anticipates incurring, after August 9, 1989 in connection with-- 9 (i) the default of a commonly controlled insured depository institution; or 10 (ii) any assistance provided by the [FDIC] to any commonly controlled insured depository institution in danger of default. 11 12 U.S.C. Sec. 1815(e)(1)(A). The Act defines a commonly controlled insured depository institution as any institution controlled by the same holding company or one such institution controlled by another, see 12 U.S.C. Sec. 1815(e)(9), and appellants do not contest that Cenvest controlled both Meriden Trust and Central Bank during the relevant time period. Rather, appellants argue that Meriden Trust was not an insured depository institution within the meaning of the section, and thus was not subject to cross-guarantee liability. 12 While we review de novo the entry of summary judgment, see Heilweil v. Mt. Sinai Hospital, 32 F.3d 718, 721 (2d Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1095, 130 L.Ed.2d 1063 (1995), the district court here entered judgment by affirming an administrative assessment made by the Board of Directors of the FDIC. We thus review that decision under the Administrative Procedure Act's judicial review provisions, 5 U.S.C. Sec. 701 et seq. See 12 U.S.C. Sec. 1815(e)(3)(A) (Actions of the [FDIC] shall be reviewable pursuant to chapter 7 of Title 5.). These provisions require us first to determine whether the statute at issue expresses clearly the intent of Congress. Where Congress has spoken directly to a question, the court, as well as the agency, must give effect to th[at] unambiguously expressed intent. Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984); see also INS v. Cardoza-Fonseca, 480 U.S. 421, 447-48, 107 S.Ct. 1207, 1221, 94 L.Ed.2d 434 (1987) (The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.) (quotation omitted). Where congressional intent is difficult to discern from the words of the statute, however, or where the statute does not address the issue directly, our review is limited to whether the agency's answer is based on a permissible construction of the statute. Chevron, 467 U.S. at 843, 104 S.Ct. at 2782. Thus we will only reverse the FDIC's interpretation of the Federal Deposit Insurance Act if it appears from the statute or its legislative history that the [FDIC's] interpretation is contrary to Congress's intent. Osorio v. INS, 18 F.3d 1017, 1022 (2d Cir.1994) (quotation omitted). 13 The cross-guarantee provision applies to any insured depository institution, which the Federal Deposit Insurance Act defines as any [State] bank or savings association the deposits of which are insured by the [FDIC]. 12 U.S.C. Sec. 1813(c)(2). Because Meriden Trust clearly was not a savings association we must look to the Act's definition of State bank, which includes any bank [or] trust company ... which ... (A) is engaged in the business of receiving deposits, other than trust funds. 12 U.S.C. Sec. 1813(a)(2)(A). It is undisputed that Meriden Trust held two $100,000 deposits, and that it maintained its deposit insurance with the FDIC, prior to and following the collapse of Central Bank. Meriden Trust fit the Act's definition of a State bank, and thus was an insured depository institution during the period in question. Accordingly, it fell under the unambiguous terms of the cross-guarantee provision. 14 Appellants argue that Meriden Trust nonetheless did not constitute a bank under the above definition because it no longer received public deposits. In effect, appellants argue that a financial institution's status under the Federal Deposit Insurance Act must be determined by its activities, and thus Meriden Trust's status as an insured depository institution ceased in November 1988 after the transfer of its commercial banking operations to Central Bank. This argument assumes that the Act recognizes some form of financial institution that receives no public deposits but continues to be insured, thereby retaining the ability to receive deposits from the public at any time without further FDIC approval. The Act, however, recognizes only two types of institutions: either one that is an insured depository institution or one that is noninsured. See 12 U.S.C. Secs. 1813(h); 1828(i)(3). 15 Appellants' position further depends on the premise that an insured financial institution, and not the FDIC, determines when that institution ceases its insured status. This ignores section 1818 of the Federal Deposit Insurance Act, which requires an insured institution seeking to terminate its insured status to send the FDIC a notice of intent at least 90 days prior to the expected termination date. See 12 U.S.C. Sec. 1818(a). Further, section 1828(i)(3) of the Act states that [w]ithout the prior written consent of the [FDIC], no insured depository institution shall convert into a noninsured bank or institution. Thus to terminate its deposit insurance Meriden Trust was required both to provide at least 90 days written notice to the FDIC and to receive the FDIC's consent. 12 U.S.C. Secs. 1818(a), 1828(i)(3). Because Meriden Trust neither sent notice of voluntary termination to the FDIC nor received the FDIC's consent prior to the collapse of Central Bank, Meriden Trust remained on insured status as of that date. 16 In short, Meriden Trust sought both to maintain its insured status, thereby protecting its two deposits and its future ability to re-enter the commercial banking market, and to avoid any liability for a commonly owned bank. To interpret the cross-guarantee provision as Meriden Trust urges would allow institutions to change their status on their own volition, thereby permitting a bank (or its holding company) to transfer its liabilities to an affiliated bank and then (if things go sour) to avoid the cross-guarantee provision of responsibility for the loss. The FDIC could not hope to regulate a set of institutions which could change their status from insured to noninsured at will, and Congress sought to prevent precisely this result when it added that provision through section 206 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183, Sec. 206(a)(7) (1989). See, e.g., H. Conf. Rep. No. 101-222, 101st Cong., 1st Sess. 395 (1989), reprinted in 1989 U.S.Code Cong. & Admin.News 432, 434 (1989) (noting that Congress intended to establish liability to the FDIC for the loss or anticipated loss to the FDIC that arises from the default of a commonly controlled insured depository institution). Meriden Trust did not rid itself of its deposits or attempt to lose its insured status until after the failure of Central Bank, when it was undeniably subject to cross-guarantee liability. Permitting Meriden Trust to avoid liability by allowing it to determine its own status would eviscerate the congressional purpose underlying the cross-guarantee provision. Accordingly, we find that the FDIC properly assessed against Meriden Trust the losses it incurred from the failure of Central Bank.