Opinion ID: 550162
Heading Depth: 2
Heading Rank: 2

Heading: Reliance On The First Federal Decision

Text: 40 Appellants contend, however, that the Bank Board's denial of their merger application was arbitrary and capricious because the Bank Board failed to follow the precedent it allegedly set in the First Federal case. 41 Appellants maintain that the First Federal decision established a rule, directly applicable to the instant case, that an institution that entered into a memorandum of understanding or letter of intent to merge with an FDIC institution on or before the March 31, 1987 grandfather date could thereafter change partners and not lose its grandfather rights. Citing the proposition that agencies are under an obligation to follow their own regulations, procedures, and precedents, or provide a rational explanation for their departure, National Conservative Political Action Comm. v. FEC, 626 F.2d 953, 959 (D.C.Cir.1980), appellants maintain that the Bank Board's decision in the instant case was arbitrary and capricious for failing to apply this rule to a factually indistinguishable case. Appellants argue that this First Federal rule represents a reasonable reading of CEBA's grandfather clause iii and that therefore, the district court and this court must defer to the First Federal Rule and find that the Board's departure from this rule was arbitrary. Finally, appellants assert that, although the Board is allowed to change the rule, it must only do so prospectively. 3 42 Appellants' contentions fail for one main reason. We do not interpret the First Federal decision as establishing the broad binding rule that appellants attribute to it. The Bank Board's resolution granting First Federal's application to merge with an FDIC institution stated only that First Federal is not subject to the one-year moratorium on departures from the FSLIC insurance system imposed by the [CEBA]. It did not contain the reasoning used to reach that decision. However, as revealed by the Federal Reserve Board in its separate approval of the merger, see Fed.Res.Bull., June 1988 at 388, and by the Bank Board's General Counsel in its legal memoranda for the instant case, the Bank Board based its decision in First Federal on a specific statement of Congressional intent regarding First Federal by Senator Proxmire during a colloquy with Senators Rudman, Humphrey, and Garn in August, 1987, immediately prior to the Senate vote on the conference version of CEBA. Senator Humphrey of New Hampshire described in an inquiry the circumstances of a specific transaction that involved First Federal: 43 Mr. HUMPHREY. If a savings and loan institution signed a letter of intent with a bank providing for the merger of the two institutions on March 19, 1987, then filed an application with the [FDIC] for insurance of accounts in connection with the proposed merger transaction on April 23, 1987, would this institution qualify for the exemption under section 21(f)(4)(F)(iii), notwithstanding the fact that the proposed merger subsequently fell through in June of 1987, if this institution pursues FDIC insurance by modifying its FDIC application? 44 Mr. PROXMIRE. Yes, it would qualify since the letter of intent was entered into on March 19, 1987, before the March 31 grandfather date, and as part of the process initiated by that letter the institution will change its insurance status to FDIC-insured. Thus grandfather status attaches despite the fact that the original merger transaction was not consummated as announced in June 1987, since the April 23 application to change insurance stems from the March 19 date. But this only applies since the April 23 application to the FDIC, under which the conversion will occur, was filed before the date of enactment of this bill. Thus, if conversion does not proceed under the April 23 application--as may be modified with the approval of the FDIC--the institution will lose its grandfather rights. 45 133 Cong.Rec. S11,213-14 (daily ed. August 4, 1987) (emphasis added). 46 Senator Proxmire's statement, on which the Bank Board based its approval of First Federal's merger application, certainly does not announce a general rule that all institutions may change partners and still retain grandfather rights. It seems to assume that grandfather status would be lost unless the FDIC application was filed before the bill's enactment date and before the decision to change partners, and the FDIC allowed the application to be modified. Therefore, the only arguable rule or precedent to be derived from the First Federal decision, is that the Bank Board will look to specific statements by individual members of Congress if applicable to a particular institution's application, or that grandfather rights will be extended to an institution that fits the precise facts of the First Federal case. Neither of these precedents applies to GW-California. GW-California points to nothing in the legislative history that relates to it on the issue of grandfather status, and would not qualify for the Proxmire exemption because GW-California did not apply for FDIC insurance either prior to the enactment date or prior to the change in merger partners. 47 Appellants are certainly correct in pointing out that Senator Proxmire's analysis that First Federal would be exempt because of the status of its FDIC application makes no sense in relation to the statutory language. 4 Counsel for the Bank Board admitted at oral argument before the district court that it tried to adopt Senator Proxmire's analysis in the First Federal case but that looking at it now ... I don't understand the analysis that he proposed. The counsel also confessed that in First Federal (and in Shelton ) the Bank Board accepted the statements of senators and the conferees as being the proper interpretation of the statute and didn't conduct ... an adequate analysis of the statute itself. 48 While the Bank Board may have wrongly decided First Federal based on a flawed interpretation of the statute by Senator Proxmire, and while it shirked its duty in not fully analyzing the statute in that case, it seems clear that it did not announce or even imply the general rule that appellants attribute to the First Federal case and on which appellants contend they have a right to rely. Therefore, appellants' contention that the Bank Board's decision is arbitrary and capricious because it failed to follow its own binding rule is meritless. The Bank Board rejected appellants' merger application pursuant to the only relevant rule in this case: CEBA's statutory language itself. 5 49 Even if, for the sake of argument, we were to accept appellants' contentions that the Bank Board, in the First Federal case, effectively held that institutions could switch partners and still be exempt from the CEBA moratorium, and that the Bank Board changed its rule in considering appellants application, we would still reject appellants' claims that we should defer to the First Federal Rule, and that this new rule should only be applied prospectively. 50 Although the interpretation put on the statute by the agency charged with administering it is entitled to deference, Federal Election Comm. v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 31, 102 S.Ct. 38, 41, 70 L.Ed.2d 23 (1981), courts must reject administrative constructions of the statute ... that frustrate the policy that Congress sought to implement. Id. at 32, 102 S.Ct. at 41. We believe that the purported First Federal rule would frustrate Congress' policy in CEBA to keep thrifts temporarily within the FSLIC system. An agency need not adhere to a precedent that is inconsistent with the statute; indeed, the agency has a duty to reverse itself when it finds that its previous interpretation of the statute was unreasonable or unlawful. A person is never entitled to avoid the effects of retroactivity by relying on a precedent that, because based on an impermissible construction of the statute, could not withstand judicial review. 51 Appellants contend that the First Federal rule does represent a reasonable interpretation of the grandfather provision because Congress, in enacting the moratorium, eliminated a FSLIC-insured institution's unfettered right to leave the FSLIC fund, and thus intended that the grandfather clause be given a liberal interpretation so as to permit institutions a meaningful opportunity to take advantage of what was to become, in effect, their last chance to leave the FSLIC system. Appellants argue that by allowing such a preliminary document as a memorandum of understanding to exempt an institution from the moratorium, Congress meant to provide a high degree of flexibility to those institutions seeking to exempt themselves. 52 These contentions are undermined by several factors. First, as explained above, the statutory language and legislative history appear to mandate the interpretation applied by the Bank Board in this case, that institutions may not switch merger partners. 53 Second, Congress chose a cutoff date for the grandfather provisions that was not made public until after it had passed. On March 31, 1987, the House Subcommittee on Financial Institutions, Supervision, Regulation and Insurance issued a subcommittee print of the bill which for the first time contained the grandfather provisions and a March 30, 1987 cutoff date. Therefore, Congress did not intend to give institutions a meaningful opportunity to exit the fund. 6 54 Rather, Congress, intended to allow institutions to follow through with transactions already in the works. For example, prior to the passage of the moratorium renewal, Senator Garn stated: Last year we halted the exodus from FSLIC, but recognized that it would be unfair to apply the restriction to particular institutions that had already spent considerable time and money on transactions involving insurance conversions. 134 Cong.Rec. S17,024 (daily ed. October 20, 1988) (statement of Sen. Garn). 55 Third, the Bank Board's decision in First Federal is not based on the meaningful opportunity rationale appellants now urge. Rather, the exclusive basis for its decision seems to be a piece of legislative history that anyone but the most naive could recognize as a product manufactured by a senator as part of an effort to give advantage to a constituent. 56 Finally, we find persuasive the Bank Board's argument that GW-California's technical compliance interpretation, that the memorandum of understanding need not relate to the same transaction through which an institution leaves the FSLIC fund, would produce results inconsistent with the Congressional scheme. In its brief, the Bank Board states: Under that interpretation, any savings association that was lucky enough to have maintained in its files a memorandum of understanding which was executed at any time prior to the CEBA [grandfather] date--even 20 years earlier with an institution that no longer exists--could then rely upon that document, which was in arguable 'technical compliance' with the words of the exemption provision, to permit exit from the FSLIC fund. Therefore, we would not defer to such an interpretation. 57 The final issue to consider is whether, assuming arguendo that First Federal had indeed established a rule pertinent to the case at hand, the proposed new rule should only be applied prospectively. While we agree that retroactive application generally is not favored, we find little difficulty in allowing it in this case. Our court has adopted a five-part analysis to address this question. See Montgomery Ward & Co. v. FTC, 691 F.2d 1322, 1333 (9th Cir.1982); see also Oil, Chemical and Atomic Workers Int'l Union, Local I-547 v. NLRB, 842 F.2d 1141, 1145 (9th Cir.1988). 7 58 In considering the relevant factors, two elements weigh decisively in favor of the Bank Board. To begin with, the First Federal decision, an informal adjudication without clearly articulated reasoning, does not constitute a well-established practice on which GW-California could justifiably rely. See NLRB v. Majestic Weaving Co., 355 F.2d 854, 860 (2d Cir.1966) (stating that prospective application is ordinarily required where an agency alters an established rule ... which has been generally recognized and relied on throughout the industry that it regulates). 59 Appellants contend that the Fifth Circuit in McDonald v. Watt, 653 F.2d 1035, 1045 (5th Cir.1981), denied retroactive application of a new interpretation of a rule where the former interpretation had only been applied on two occasions. However, our reading of that case reveals that the former interpretation was followed for over four years by the Bureau of Land Management. See McDonald, 653 F.2d at 1044-45. 60 The second major element in our eyes is the strong interest in applying a rule that corresponds to the plain language of the statute, as was discussed more fully above.